The Definitive Source for Real Estate Investor Information
The SJREI Association is the bay area’s most dynamic source for investor education and networking. Through our free publication, SJREI Journal, and monthly meetings, we provide the tools necessary to enable individuals to make wise, profitable investment decisions. Make a commitment to your future and attend our next meeting. Visit SJREI.net for dates and locations. SJREI Association is a member of the National REIA
Estate Planning Michael Gray, CPA..............3
Economic Outlook with Howard Blum
Kansas City Investing
Geraldine Barry - SJREI President, sat down with local economist Howard Blum who shared his thoughts on the economy and real estate market.
How many real estate cycles have you been through, and what are your thoughts as an economist on this one? This is deeper than most of us expected, will it take longer to turn around?
When will things turn around? It should begin before the end of 2010, but I am fearful that the damage has been so extensive that it could conceivable take five years or more before the entirety of the housing market continuum fully stabilizes. Month-To-Month Annualized Pace of Sales (Times 1,000) For New Homes Nationwide
©2010 The Financial News & Information Service
1,200 1,000 800 600
May’s Pace 300,000
Down from revised 446,000 in April
I have been through several down cycles for the hous200 ing sector since I first became an economist some 40+ years ago and this is by far the worst one I have seen. Indeed I suggest this is by far the worst housing market depression in the post World War II era.
M a M y-0 ay 0 -2 M 00 ay 1 -2 M 00 ay 2 M 200 ay 3 -2 M 00 ay 4 M 200 ay 5 -2 M 00 ay 6 -2 M 00 ay 7 M 200 ay 8 -2 M 00 ay 9 -2 01 0
Mark Edmondon..................4 REO List Scams Lori Greymont.....................6 Is Buy & Hold Dead? David Beck, CFP..................8 Reasons to Buy Now Stuart Baeriswyl, Broker...10 Seeking the Future Mike Ryan, Broker.............12 Investing IRA Funds Jeffrey Hare, Attorney........14 Behind on Your Mortgage? Geraldine Barry..................16 Successful Dealmaking Richard Kelly.....................18 NewTax Laws Richard Smith, ACC’T......21
This housing market depression is longer and deeper than the federal government thought it would be, so their actions and stimuli were based on recent housing market slumps and grossly inadequate to deal with the enigmatic situation we find ourselves in after more than three years.
(Continued on pg. 22)
“Build Your Team”
Greg Jamison did just that with the San Jose Sharks!
JREI is fortunate to be hosting Greg Jamison motivational speaker, and entrepreneur, as our key note speaker at our annual holiday dinner. Mark your calendars: this event will take place on December 3rd at 6:30 and will include dinner, Greg as the key note speaker, and 2011 Real Estate Forecast with a portion of the proceeds benefiting First Harvest Food Bank. Greg is a nationally recognized speaker and it is a coup
for us to have secured him to speak at our event! We have enclosed Greg’s biography to illustrate how much he has done for San Jose and the local community from a business and charitable perspective.
Greg Jamison serves as President and CEO of Silicon Valley Sports & Entertainment (SVS&E) and the San Jose Sharks. (Continued on pg. 13)
Notes from Geraldine’s Desk
elcome to the latest edition of the SJREI Journal! We have compiled an information packed issue with lots of insights for our investor community. Be sure to check out our calendar of events for details on what we have planned in the next few months. I am constantly looking for solid speakers for our meetings, and worthwhile work-shops and we have several upcoming events worthy of your consideration.
Keys to successful Investing:
GERALDINE BARRY Experienced Investor & President SJREI Association The SJREI Association provides the education and networking necessary to enable individuals to make wise, profitable investment decisions. Whether you have yet to purchase your first investment property, or are working on your hundredth deal, you’ve found the bay area’s most dynamic investors association. Three Chapter Meetings monthly to choose from: »» East Bay »» South Bay »» Mid-Peninsula Published by: SJREI Assoc. (408) 264-3198 www.SJREI.net Editor: Geraldine Barry Publisher: Meghan Koslowski Graphics: Chris Dao
Real Estate Investing is a business and it’s important to evaluate our portfolios annually to determine what we need to eliminate in terms of non-performers – if you think about it, that is what the large corporations do. Houses that year after year are dragging down overall returns need to be reassessed, sold, or possibly lease optioned. Tax season is a good time to consider this evaluation process. This will keep you on top of your investments, and provide you with the information that you need to be successful long term. • Don’t buy an alligator - something that you have to feed that is financially draining on your resources. In this economy one needs to be careful not to inadvertently take on a liability, a performing asset is the goal especially one that will look even better on your balance sheet when the market starts to appreciate again. • Be an investor, not a speculator: Savvy investors know why they are buying and their end goal. Here are a couple of questions to ask yourself when buying real estate: What are the economic drivers in the area you are purchasing in? Who are your potential tenants? • Don’t assume appreciation will happen: We, at the SJREI, do not anticipate appreciation in many areas over the next 3-5 years. We are assuming a lot of debt as a nation, and employment figures do not look good – these factors will impact a housing recovery. I don’t see that changing dramatically anytime soon. • Does the property cash-flow? Do you have the resources to support this property and pay the expenses if
you have a vacancy? Only feed a negative if all or most of the payment is going toward principal reduction. • Have multiple exit strategies: Can you rent the property if you rehab it and you cannot sell profitably? This is not a market to flip in, unless you are buying a house on fire sale. It is very painful to coordinate a rehab, pour time, effort, and energy into it and ultimately break even or lose money on the sale. • Surround yourself with experienced investors who can assist with the evaluation process, and have a strong record of performance. Real Estate can be fun and profitable if done strategically and can be an albatross around your neck if you find yourself on the wrong side of that equation.
Mark your Calendars!
SJREI is sponsoring a FREE forum to share options and resources available to people who are behind on their mortgage payments. See page 17 for more information and be sure to register at www.SJREI.net! We have heard from Economist Howard Blum featured on the fron cover. Come see him in person at the SJREI Mid-Peninsula chapter on September 21st. Congratulations to our friends at the Norris Group! Hermes Creative Awards recognizes The Norris Group for its innovative charity event, “I Survived Real Estate 2009.” This black-tie dinner at the Nixon Library brought together real estate leaders to discuss industry trends and regulations while raising money for breast cancer research. In total, these events over the last two years have raised more than $105,000 for Susan G. Komen for the Cure. See page 20 for details on the September 17th Gala, and consider joining us – the SJREI is a Platinum Sponsor of this event. To your Success….
SJREI President Connecting People, Educating Investors
Copyright © 2010 by SJREI Association LLC, All rights reserved, no part of this publication shall be reproduced or transmitted electronically without express permission.
Disclaimer: SJREI Association, it’s founders, members, or presenters, assume no liability or responsibility for the outcome of any real estate transaction, decision, or other action that any member, guest, or visitor, may enter into 2 SJREI Journal www.SJREI.net as the result of attending any meeting of SJREI, listening to any guest speaker, or talking to any SJREI member, guest, or visitor. Members and attendees are urged to perform their own due diligence.
the nto er,
Estate Planning Alert by Michael Gray
Estate Planning For Real Estate in Uncertain Times
he federal estate tax has been repealed for one year for 2010. Representatives in Congress say they still want to reinstate it retroactively to January 1, 2010, possibly giving the executor or trustee the choice of accepting repeal with carryover basis or to be subject to the restored tax for decedents who died before enactment. Finding the required documents to determine carryover basis would be a nightmare for executors and trustees and the professionals who assist them with their reporting requirements.
Michael Gray Certified Public Accountant
Michael Gray, Certified Public Accountant (CPA) is the author of the Real Estate Tax Handbook, 2008 Edition. He also writes a monthly newsletter devoted to real estate tax issues, Michael Gray,CPA’sRealEstateTaxLetter, and is the host of a weekly public access cable television series, Financial Insider Weekly. His CPA practice focuses on real estate tax planning, income tax reporting, estate tax planning and administration of estates and trusts.
To add insult to injury, after 2010 the federal estate tax is restored to its pre-2001 glory, with a $1 million exemption equivalent (it was $3.5 million for 2009) and 55% maximum tax rate (45% for 2009). As you might imagine, this situation is a fiasco for the estate planning and administration industry. What should individuals who are real estate investors do now? Count on there being some form of estate tax after 2010. Here are some estate planning actions you can take now, then amend your plan after the new rules are hammered out by Congress. If you don’t have a trust yet, you should have one. Since statutory probate fees are based on the gross value of assets without reduction for liabilities, the fees can be high for real estate. A trust generally takes less time to administer than a probate estate. In addition, a trust gives your family privacy. Without a trust, a decedent’s assets are a matter of public record. If you have a solid marriage and aren’t concerned about preserving your share of assets to ultimately go to your children, you can have a flexible estate plan. The plan allows
the surviving spouse to elect to take the decedent spouse’s assets outright or to have the assets placed in an irrevocable “bypass” trust for which the survivor receives the income during his or her lifetime with the remainder going to the decedent spouse’s children. This is called a “disclaimer trust” arrangement. Alternatively, spell out your actual wishes under the guidance of your estate planning attorney without reference to the Internal Revenue Code. If you are making bequests to minor children or grandchildren, you should provide for trusts under which their assets are held and managed until they are old enough to manage the assets themselves. 2010 may be a great time to set up a family limited partnership or LLC. Future appreciation and income can be shifted to other family members, out of the donor’s estate. By making gifts of minority interests of entities during your lifetime, you can qualify for significant valuation reductions (discounts) that wouldn’t apply if you held all of the property at the time of your death. Whatever estate planning moves you intend to make during 2010, be sure to get the best professional help possible, including an estate planning attorney, tax advisor, valuation specialist and other professionals as needed.
Michael Gray, CPA is the author of the Real Estate Tax Handbook, 2008 Edition. You can subscribe to his FREE email newsletter, Michael Gray, CPA’s Real Estate Tax Letter, at www.realestateinvestingtax.com. His CPA firm is located in San Jose. To schedule a consultation, call 408-918-3162 on Monday, Wednesday or Friday.
Kansas City by Mark Edmondson
One of the Best Kept Secrets in the Country
rookings Institution puts KC among 20 Strongest U.S. Metros. In a study of quarterly indicators of economic recession and recovery in the nation’s 100 largest metro areas, the Kansas City region is cited as one of the 20 strongest metros during the recession. March 2010
Mark Edmondson Peak Management Mark Edmondson - has extensive experience in Real Estate Investing with over 15 years in the industry. He has completed projects in over 13 states as well as Mexico. He spent many years in the Real Estate Finance business as an asset and financing consultant for investors needing short term funding. Mark has underwritten over 500 loans for investors in the Kansas City area on single and multi family homes.
KANSAS CITY is one of the best kept secrets in the country. Kansas City is the most Geo-Central major market in the nation which has attracted some of the largest distributorships in the nation creating thousands of job opportunities. It consists of over 2.2 million people within 18 counties and more than 50 communities. The economy is steady and unemployment is low. Other strengths of the market are:
The first company, Peak Asset Management was established in May of 2007 as a “supportive” company to a Mortgage Bank. Peak Asset Management was organized to facilitate the profitable disposition of non-performing loans and REO assets. Building upon years of experience in the industry, the Management Team quickly positioned Peak Asset Management as a local leader in this services sector.
• Higher than national average occupancy rates on rental single family homes. • Great rental market - 40% of the city is rental. Of those, 75% are owned by out of state investors. • Investor friendly - Low cost of taxes and insurance and landlord friendly laws. • Diverse work force. Unemployment well below the national average. • Population growth above the national average. • Cost of living far below the national average.
From the success of Peak Asset Management came the creation of Peak Holdings. Using similar knowledge, experience, and depth of creation the Management Team of Peak Asset Management turned its’ focus to the service desires of the real estate investment community. Peak Holdings became a repository for value opportunities in the real estate market. With transactional levels exceeding $1,000,000, in 2009 alone Peak Holdings has become a conduit of turn-key real estate investments.
ECONOMIC DRIVERS FOR KANSAS CITY When you think of the best place to live and work, the best place to start or relocate a business, think Kansas City. Some of the nation’s most recognized brands make their home in KC – Sprint-Nextel, Garmin, Hallmark Cards, H&R Block, Lee Jeans, YRC Worldwide, Aquila, Embarq and Black & Veatch just to name a few. The diversity in Kansas City’s economy means that our economy doesn’t hinge on one or two industries. Our employers and workforce are well insulated from dramatic peaks and valleys experienced by other markets. Business is very good right now in KC and the demand for rental single family homes is at record highs.
The transactional velocity of Peak Holdings, along with the request of multiple clients to provide a capital exclusive investment option gave life to the third company, Peak Capital Management. Peak Capital Management offers an array of services from consulting to capital investment opportunities. While originally rooted in the non-owner occupied 1-4 family real estate market, Peak Capital Management has become a trusted source in providing investment opportunities in student housing, assisted living communities, land development, and TIF & Bonding consultation.
YOUR PEAK TEAM Over the past 3 years “Peak” has grown into a famwww.peakkc.com ily of inter-related companies centric to the real estate investment community. These three companies; 913.956.7325 Peak Asset Management, Peak Holdings, and Peak firstname.lastname@example.org Capital Management create a unified and cooperative effort to achieve any array of investment goals 4 SJREI Journal www.SJREI.net and objectives.
All of our properties we have are owned by Peak. We finish them to first class condition, meticulously select quality tenants and have the property cash flowing before you close. Your investment here is minimal with most properties less than $50,000.00 and the return on your investment is some of the highest in the nation. Peak specializes providing our clients with market value opportunities.
Ask A Real Estate Expert by Jeb Henley Where is Real Estate Heading? Two directions at once is the simple answer. San Diego and Phoenix became so under priced that they are bouncing back, however markets are stalling or receding. Sales numbers are falling across America. The American dream of home ownership may be changing. Why are sales declining? The key is a shrinking credit market. FNMA/FRMC and FHA are terrified of defaults. Loan underwriting has gotten more difficult in 2010 and investors are almost excluded as borrowers. What will this do to prices? Prices will continue to drop unless the inventory can be absorbed. This is simple supply and demand. Investors will only buy all cash at a significant discount. What Market Segment is the strongest? Surprisingly multi-family is now the one area of hope. With falling home prices and difficult lending, more people are going to elect to rent. Job growth will be scattered across America, causing people to move to the jobs and rent. I am seeing strong price pressure on 4 Plexâ€™s in Phoenix. The bottom of the market has been reached and prices are rising. You can achieve both income and rising equity. Prices are $85,000 to $120,000 depending on the area. For more Information call Jeb Henley, Sr. Investment Broker of Equity Transitions Inc. at 1-831-419-4200. We can set up visits to Phoenix and we will be hosting a webinar at the end of July.
The REO Business by Lori Greymont
Bulk REO List Scams
ulk REO purchases offer a lucrative opportunity for building your real estate portfolio, but as with any potentially high return investment, there are charlatans ready to take your money and leave you poised for financial disaster. The internet is full of web sites purporting to sell bulk REO lists (also called bulk REO tapes); however, some of these lists are fraudulent, and others contain truly unsellable properties—burned out shells, vacant lots, and uninhabitable mobile homes. Charlatans make a living sounding convincing, so how do you weed out the racketeers from the reputable?
1. Get references.
LORI GREYMONT Founder and COO
Summit Solutions Team Corp
Lori has over 20 years of real estate and entrepreneurial experience. She is involved in Summit’s financial management, project planning, sales support, operations,marketing,training, and strategic planning.
Speak with three to five individuals who have purchased lists from the broker you are investigating. What made them happy with their experience and what left them dissatisfied? Even disreputable brokers can arrange for two or three glowing references…but five, now that is difficult. Be certain to ask the references how they are related to the broker. If they are family, have a financial stake in the broker’s company, or receive a referral fee, beware.
2. What services does the broker offer to clients? All brokers make some kind of commission, but those that add commission without adding value are to be avoided.
3. Deal with top tier brokers.
Top tier brokers are one to two steps away from the deeds to the properties and that much closer to delivering lists with fresh properties. REO properties don’t just grow stale, they rot. The longer a house sits on a list, the longer it is vacant and attracting undesirable attention: code violations, vandalism, and physical damage from lack of maintenance. If you are offered a list of 300 or more properties, most likely those properties have accumulated over a period of time from a variety of sources AND they are old. This doesn’t mean it’s all bad, just know what you are buying! Another way to ascertain the quality of a broker, is to spot check one of the lists. How many entities have owned a particular property since foreclosure? If there is more than two, the property has been bounced from asset manager to asset manager.
4. Use escrow.
Only deal with brokers who are willing to place your money in escrow to be disbursed upon delivery of deeds or affidavit of sale. Why wouldn’t any reputable company use an escrow account? Why would you settle for less? Much money can be made, or lost, in the bulk REO business. Do your due diligence, work with recommended, reputable companies, and seek experienced mentors. With sensible precautions, you too can experience success in this fast paced business.
Foreclosure Problem Becomes Your Opportunity
Lori has significant hands-on experience in fix-and-flip stratver wonder what happens to all the foreclosed properties that the banks can’t sell? Houses are egies, land banking, land to versitting on the market empty for 180 days to two years, until they become part of a bulk REO package. A bulk REO package consists of 10-15 homes (nationwide) sold together for less than a tical development, rezoning, single house sells for in California. This situation creates an opportunity for an individual to own multi-family re-performance and single family sales and a portfolio of properties that will produce cash flow for years to come. marketing through traditional There are two ways to participate in this business. Hands-on investors who want to capture the greatest upand creative methods. side can create a new business buying and selling these REOs. Cash flow is long-term and lucrative. It re-
quires a creative thinking and training. Best yet, it does not require a real estate license. Passive investors with IRA money can reap the rewards of the bulk REO business by buying seasoned notes. Self-directed IRAs allow investment in real estate, including bulk REO notes. All payments on the note return directly to Toll Free: 888-256-8339 the IRA tax free. The typical yield is around 15% to 20%. If you are interested in purchasing notes, a good email@example.com way to find sellers is to network at SJREI and to contact a bulk REO reseller such as Summit Solutions www.SummitSolutionsTeam.com Team, Corp.
6 SJREI Journal www.SJREI.net
You’ve heard the buzz about
BULK REOs — the once-in-a-lifetime opportunity to purchase distressed properties at bargain basement prices. When you’re ready to get started, call Summit Solutions Team. We wholesale bulk REO properties to real estate investors. We have the experience, the system, and the sources you won’t find elsewhere.
Cherry - Pickers Welcome No Lot - No Burn-out Guarantee Speedy Processing Help When You Need It We stand behind our lists and by your side.
Open the Door to a Once-in-a Lifetime Opportunity
Going Beyond Real Estate your number #1 source for all your real estate needs
Every Sunday at 10am on 860am KTRB For more information on the show call 408-892-3376 email: firstname.lastname@example.org http://goingbeyondrealestate.com/
Investment Strategies by David Beck Is ‘Buy & Hold’ Dead?
ne of my roles as a Financial Planner is to help you understand how real estate investments fit into a diversified portfolio. If you have investments other than real estate - for example, stocks and mutual funds in a 401k, IRA, or a brokerage account - the last few years have been a wild ride. You have probably read that the S&P 500 has not produced a positive return over the last 10 years. Does this mean ‘Buy and Hold’ is dead?
David Beck, CFP® Bay Area Planners David Beck is an independent, fee-only financial planner. He specializes in helping clients understand their financial situation and how real estate fits into an investment portfolio.
A better way to put the question is: “Does Modern Portfolio Theory still hold?” MPT (Modern Portfolio Theory) is the underlying theory behind investing in a diversified portfolio. MPT differs in two significant ways from ‘Buy and Hold the S&P 500’:
a) Diversification – The S&P 500 is not diversified. They are all large US stocks! Portfolios only become diverse if they include other asset classes like small and international stocks, emerging markets, bonds, commodities, REITs, and physical assets like rental real estate and gold. Properly diverse portfolios have lower risk and volatility for a given rate of return. However, in volatile markets, correlations between asset classes increase (meaning they all go down together). So in addition, we need…
b) Rebalancing – Asset categories that have done
Mention this article for 15% discount
well are partially sold in order to buy the other asset categories that are down. This has the effect of selling high and buying low – a good thing, but which most people don’t do. The different asset types need to be rebalanced on a regular basis. By spreading the investments over many asset classes and rebalancing on an annual basis, properly constructed portfolios have made positive returns over
the past ten years. The main alternative to diversification and rebalancing (MPT) is concentration in a few favorite stocks combined with market timing. Enron, GM, AIG, and Lehman demonstrate the risk of concentration, while market timing involves ‘manager risk’ and the associated problem of ‘manager selection’. For most people, chasing mutual fund manager performance is a recipe for below average returns. And if you are an average stock market investor, buying high/selling low and self-churning your portfolio, your results will under perform the market by an average of seven percent a year. Is there a middle ground? For me, this is ‘Tactical Asset Allocation’. Keep the diversification and the rebalancing of MPT, but adjust the composition of the different asset types according to the state of the international economy. For example, in the Bond categories, moving between short and long bonds; or in International Equities, between developed and emerging markets. Exchange traded funds (ETFs) are my investment vehicles of choice due to their liquidity and low costs. The allocation among the different asset types needs to match your personal risk tolerance to avoid panic moves. Perhaps my most important investment-related mission is to keep clients from self-destructing – a service that, for many investors, is immensely more valuable than any portfolio management activity. Call me if this all seems too complicated.
408-725-7135 David@RetirementPlannersOnline.com www.RetirementPlannersOnline.com
Bay Area Planners provides:
Comprehensive financial planning and investment advice for the real estate investor. Real estate investors want a financial planner knowledgeable about real estate and in tune with their goals. Financial Planner David Beck provides options and solutions that honor your interests. He will guide you to achieve your financial goals. David advises clients on financial independence, investments, tax reduction strategies, retirement distribution strategies, and estate and wealth preservation. Specific to real estate, David assists with cash flow evaluation, real estate acquisition and disposition, tax reduction and deferral, and estate planning for investment real estate owners. Using professional financial planning software, he will show you if a proposed real estate investment increases or decreases your future net worth and makes good sense. 8 SJREI Journal www.SJREI.net
We sponsor group investments into commercial real estate in the Bay Area
Attorney Anthony F. Earle is licensed to practice law in all California state trial and appelate courts, the United States Supreme Court, the United States Court of Appeals for the Fourth and Ninth Circuits, federal trial courts in the Northern District of California, and the United States Tax Court. He has served as a Judge Pro Tempore for the Santa Clara Superior Court, and is also a licensed Real Estate Broker. Serving all San Francisco Bay Area Counties
Broker’s Corner by: Stuart Baeriswyl
The Entry Level Investor:
Top Four Reasons to Consider Buying Now
hat are you waiting for? If you haven’t yet pulled the trigger on investing in real estate, you may never find a better time to enter the market. Prices are low, properties are available, interest rates are very low, and with the internet, so much information and data for analyzing deals is immediately available. Best yet, this is the California market we are talking about.
STUART BAERISWYL Broker/Principal Pebble Beach REI As an investor himself, Stuart Baeriswyl makes good use of his understanding of the various markets here in Norhern California to help other investors locate and purchase solid cash flowing rental properties Stuart has been providing his professional services for many types of buyers and sellers, translating his unique real estate investing skill-sets into helping regular home buyers and sellers complete their personal residential property transactions.
Low Prices. Whether you are buying an
investment property or a home to live in, prices for all types of residential and commercial property are now at 2001 levels for Northern California. Specifically, investment grade residential income property has stayed down in many California Counties and many units are available for half of what they sold for 4 years ago. What this means for the real estate investor is that there is a large pool of right-priced units that can work as rental income property in many of the nicer areas of California, areas that were once too expensive to make it work.
Available Inventory. At start of 2009
there was a significant decrease of investment grade inventory and the problem persists. However, decrease does not mean zero. Between people who just want to move, investors who want to sell, spec properties sitting vacant, and foreclosures, there are still real estate deals to be made. One has to be patient and persistent in locating and winning a purchase. It takes a little more effort now, but at these prices, it’s worth it.
3. Low Interest. Whether you are trying to flip rehabs for a quick profit or interested in buying to hold for income and appreciation – the cost of (408) 373.6766 money is very low. To get the best rate, plan on put(DRE # 01807909) Stuart@PebbleBeachREI.com ting down 20% or 25% in cash. It’s worth it to get a nice residential property to rent. The rental cash www.PebbleBeachREI.com flow will cover your loan payments as your renters build your equity. This conservative approach is a 10 SJREI Journal www.SJREI.net sound way for new investors to get started.
30-year Fixed National Mortgage Rate Trends and Averages provided by Informa Research Services, Inc. | updated Monday, July 12, 2010
Resources at Your Fingertips. Often times new real estate investors are younger and very comfortable around a computer. It may surprise you that as little as 6 or 7 years ago, the internet usefulness for real estate data was quite limited. Now, however, the new investor has a tremendous amount of power at his or her disposal. Not only is the volume of data amazing, but it is now presented in easy to understand and helpful ways. Be careful though 1) don’t get so overloaded with data that you fail to act, 2) don’t trust everything you come across. Vet your information with other, trusted investors and professionals. Best of the Web Realestate.yahoo.com Foreclosureradar.com Finestexpert.com Realtor.com
It really does come back to the basics. Do your research, pencil the numbers, and take the plunge. Many new investors want property within driving distance of their homes, but the cost of California real estate has been prohibitive. Not anymore. If you can’t find something now in your budget and with the right upside, you never will. So get going!
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Financing Insights by Michael Ryan
Financing – Seeking the Future
In short, it is what pays the mortgage. Even here, the lender only wants so much of your monthly income going to pay the mortgage, property taxes and insurance. Here again, qualifying ratios are now stricter.
As a part of the recovery cycle, the first thing
Property valuations now incorporate additional inhouse review, to double check appraisal values and help eliminate collusion between interested parties – lenders, realtors, sellers, banks, or anyone who gets paid. There are also increased reviews of propertyinspection reports to identify potential issues of habitability and property conditions.
s we enter a third year of housing-centered financial recession, certain signs give hope to a period of stabilization. For real estate – as opposed to stocks with “V” shaped recoveries – this often means a protracted period of stabilization before the next period of growth. Perhaps this helps explain why real estate is often preferred over stocks. is appointing blame. This time the blame seems to have fallen on bad appraisers, liar loans, and deceptive lenders. With this comes the public cry for better disclosures, fueled by elected politicians.
Michael Ryan Mortgage Broker
Michael Ryan & Associates
Michael Ryan - GRI, CCRM, CAM and founder of Michael Ryan & Associates. Our corporate motto is to put YOU, our clients, first and exceed your mortgage expectations. With 19 years of industry experience, we have proven our business model to be successful. Call me if I can be of assistance.
As we look to the future, it is time to ask: What mortgage options are yet available?
To begin answering this, a quick review will be helpful. A mortgage loan is built upon 4 interrelated pillars – credit, cash, income, and property valuation. They represent the “What Is” of a mortgage and are critical to receiving loan approval. With this in mind, let’s review these four terms – the “What Is” of a loan application.
The credit report scores your credit history. Why is this important? Because loan pricing and interest rate are dependent upon this score. A higher score means a better loan – better pricing and better rates. It also means for those with credit score of 500 or less, loans are not available. This is the new risked-based pricing based on one’s ability or proven willingness to pay.
(408) 986-1798 email@example.com www.Michael-Ryan.com
Risk-pricing also requires a minimal down-payment. It also wants documented sources of liquid or available cash, with an established history of savings. This shows a borrower having the financial ability to handle unexpected events, after the purchase of a home.
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In conclusion, this period of stabilization in real estate, affords excellent opportunities for those prepared and aware of what’s required – credit, cash and savings, income, and property – along with the discipline to handle the unexpected. It also confirms the need for a thorough examination of the property, if you want the very best. For those not as strong financially, there are alternatives. Yet while the market is stabilizing, it seems best to establish a plan today, to become your strongest tomorrow. Either way, if you want to best engage the current market, let’s start making preparation for the coming recovery today. History proves fortunes are made by those willing to position themselves during times of economic slowdown. Let’s talk. We serve our customers one-on-one. This ensures the best loan for each unique circumstance. Our goal is to make the loan process understandable and worry-free, with no surprises. Customers appreciate our high level of service and the extra efforts to earn their trust. Our purpose is to exceed client expectations, whether residential, commercial or investment property, call us for a consultation for all of your financial/mortgage needs. As an investor myself I am well versed in real estate investment strategies, and maximizing your portfolio to grow your assets effectively.
(Continued from front page) n these roles, Jamison, 60, oversees all aspects of the day-to-day business operations and handles all major company decisions for SVS&E. This division of the company, created in the summer of 2000, oversees all business operation aspects of the San Jose Sharks, HP Pavilion at San Jose and select HP Pavilion events. During his tenure, Jamison has overseen the transformation of the Sharks into one of the NHL's most respected and successful franchises. In his 12 seasons as president, the team has advanced to the Stanley Cup Playoffs ten times, including the capturing the Presidents’ Trophy in 2009 and the franchise’s first berth in the Western Conference Finals in 2004. In March 2001, Jamison presided over the renaming of San Jose Arena to HP Pavilion. This important agreement ensuring that the team would remain in San Jose through 2015, provides the necessary resources to continually upgrade and maintain the facility and created the HP Pavilion Community Fund, which provides a minimum of $500,000 annually to community endeavors throughout the Bay Area. In 2007, Jamison announced a $17.5 million upgrade to facility’s scoreboard, fascia signage and sound system, allowing HP Pavilion to remain as the premier entertainment venue in Northern California. Since Jamison’s arrival, the Sharks have also implemented numerous creative programs to benefit the Bay Area community. First and foremost was the creation of The Sharks Foundation — established to meet the educational, social and cultural needs of the local community by offering unique resources and financial support to those in need. Last year, The Sharks Foundation donated nearly than $240,000 to 10 beneficiaries and more than $3.9 million since its inception in 1995. Other community-related programs, such as the innovative “Reading Is Cool” program, clearly place the Sharks at the forefront of community relations and strengthen the team’s policy of being a “good neighbor” to Bay Area residents. Jamison is an active participant in the endeavors of several local community organizations, including serving as past president of the Board of Trustees of Ballet San Jose and past chairman of the San Jose Convention & Visitors Bureau board. He’s a member of several other boards — including Bay Area Council, William Jessup University, The First Tee and is the chairman of the San Jose Sports Authority board.
Professional Asset Management & Sales Our company Professional Asset management and Sales was created to serve investors with the highest level of professionalism and competence. With this in mind, our goal is to assist each investor in achieving maximum results. Our sales team has over 40 years’ collective experience in the real estate industry. We understand that property management is a key element of the successful equation. Our managers are Licensed Real Estate Agents who have knowledge of both rental and sales markets. With P.A.M. you will never have to worry about your investment, whether you live in town or across the country!
Professional Sales • • • • • • • •
Advertising and Marketing Knowledge of Market Area Property Selection Competitive Market Analysis Negotiations Closing Coordination Regular Communication Due diligence
• • • • • • •
Licensed Leasing Agents Marketing/Advertising Competitive Management Fees Comprehensive Market Study Individual Property Accounting Maintenance/ Make Ready Delinquent /Eviction Procedures
Pam Blanco Owner/Realtor ®
2000 E. Lamar Blvd., Suite 600, Arlington, TX 76006 817-907-7347 Cell 817-549-0013 Fax firstname.lastname@example.org Jamison arrived in San Jose after a notable stint as Vice President of Business Operations with the Indiana Pacers of the National Basketball Association from 1987-93. Under Jamison’s leadership, the Pacers were annually considered among the NBA’s top clubs in sponsorships, ticket sales, team merchandise and broadcast production. Make sure to mark your calendars for Friday, December 3rd, to hear Greg Jamison speak right here in San Jose, and to show your support for this great charitable event! Please check www.SJREI.net for more details and to register! SJREI Journal www.SJREI.net 13
IRA Investing by Jeffrey Hare
USING A “CHECKBOOK LLC” TO INVEST IRA FUNDS
hat is a “checkbook LLC” and why would you want one? Smart investors know that success requires non-traditional approaches in today’s market. Real estate values have plummeted, conventional financing has disappeared, and traditional investments – stocks, bonds, mutual funds – do not offer investors an opportunity to recoup their losses. However, some investors are discovering that they can use their retirement plans – 401k, IRA and Roth accounts – to take advantage of great real estate investment opportunities. A “self-directed” individual retirement account – or “SDIRA” -- allows the investor a unique opportunity to take control of their investments. A “checkbook” LLC takes the level of control one step further.
Jeffrey Hare Attorney
Jeffrey B. Hare, Attorney at Law, providesoutcome-orientedlegal services to his clients. Specializing in real estate and land use law, Mr. Hare combines legal expertisewithpracticalexperience as a real estate investor and entrepreneur to help his clients developaclearandcomprehensive strategy designed for a successful outcome.
Tel: (408) 279-3555 Email: Jeff@Jeffreyhare.com Web: www.jeffreyhare.com 14 SJREI Journal www.SJREI.net
Investing your IRA in real estate is not a new concept – Congress authorized individuals to invest their retirement plan funds when it passed the Employee Retirement Income Security Act (“ERISA”) in 1974. But many investors are discovering that current market conditions demand a greater degree of flexibility and speed than most IRA Custodians can provide. For example, if you plan to purchase foreclosure property at a Trustee’s sale, you need to have certified funds available when you arrive at the courthouse steps. Similarly, if you are buying and selling REOs, or rehabbing and flipping distressed properties, you will need to quickly process multiple payments as you clear liens, purchase supplies, pay contractors, etc. Even the best SDIRA Custodians require time to process funding requests and often charge transaction fees. A “checkbook” LLC allows you to process these payments yourself – saving both time and fees. Here’s how it works: First, you need to open a self-directed individual retirement account with a reputable and qualified Custodian. It is important that you confirm that your Custodian will allow you to set up a checkbook LLC with your IRA funds. You
should allow 3 – 4 weeks if you need to move your retirement account funds to the new Custodian, so plan accordingly. Second, you need to set up your LLC, or “Limited Liability Company.” A LLC is a legal entity that can be specifically set up to use your IRA funds to purchase real estate assets. You need to consult with an Attorney or CPA familiar with the special rules and regulations governing SDIRAs, to make certain your LLC is properly set up to maintain the special tax benefits for your retirement plan funds. Your IRA Custodian will need to review your LLC documents to ensure that the LLC complies with specific requirements before they will authorize the transfer of funds. Setting up an LLC can be accomplished in about 2 – 3 weeks, usually while you are setting up your SDIRA. Take time to learn more about what types of investments you can and cannot do with a checkbook LLC. This not for everyone – there are some risks involved. There could be serious tax consequences if you fail to follow the rules. Work with a reputable IRA Custodian, and consult with an experienced legal and tax professional. It’s your money!
On August 17, join Lamarr Baxter, Business Development Representative for Entrust Administration, Inc., and Jeffrey B. Hare, Attorney at Law, as they present an educational seminar discussing important aspects of investing in real estate using a self-directed retirement account. Topics will include the advantages and disadvantages of using a self-directed IRA; private note loans; unique opportunities of using an IRAowned “Checkbook Control” LLC; how to avoid prohibited transactions; and a discussion of some fundamentals about due diligence in real estate investing.
C d s i
New Law May Impact You... Be Aware!
HR-4173 We believe in seller financing. HR 4173 restricts the number of properties a seller may finance to only one property every 3 years, so if a seller has a primary residence, some investment homes and a vacation home, they can only offer one with financing. In these economic times where they may lose their job and banks make it exceedingly difficult to get financing, this will cause undo harm to families. What to do? There is time to amend this legislation. There are two proposed modifications to the bill that can make a difference, but only if your congressional representatives vote for them. Please contact your representatives today and request that they eliminate Sec. 1073 and Sec.1074 from HR 4173. This bill is up for vote. Time is of the essence. Please act today.
For more information, download the HR 4173 fact sheet prepared by the National Association to Protect Private Property Rights
Congratulations to Sean at . on his recent launch of the I phone Application! Congratulations to our friends at Forecloser Radar on their recent launch of the I Phone Application, bringing up to date information literally available at your fingertips. Now ForeclosureRadar customers can find nearby foreclosures, search for foreclosures, view daily auction schedules and update saved properties from anywhere and at anytime using their iPhone, iPad or iPod.
Come See Economist Howard Blum in person at our Mid-Peninsula Chapter Meeting Tuesday, September 21st For more information and to register for this event visit www.SJREI.net SJREI Journal
Information is Power by Geraldine Barry
Options if you are behind on your mortgage payments… Geraldine Barry is founder and president of SJREI, the premier educational and networking association for real estate investors in Silicon Valley. Under Geraldine’s leadership SJREI has grown from a half-dozen investors to a vibrant three chapter organization with over 400 investors attending monthly meetings. Her engaging personality and business sense have earned her the respect of real estate pro’s such as Bruce Norris, John Schaub, and Robert Campbell all of whom have been guests of SJREI. In addition to leading SJREI, Geraldine is an active real estate investor, editor of the quarterly SJREI Journal, guest host of the radio program, “Going Beyond Real Estate,” and a frequent guest on the nationally broadcasted NTDTV. email@example.com
Loan Modification Agreement is a mutual agreement to change some aspect of a contract or mortgage including loan terms or loan balance permanently. It allows the loan to be reinstated, and results in a payment the mortgagor can afford. This can only be accomplished through the bank who issued the loan. The truth is that many modifications actually never come to fruition – the process can be frustrating and difficult to navigate – it is best to approach it anticipating that this process will be time consuming and cumbersome to complete. Paperwork can be submitted and subsequently misplaced, or there is no record of it on file once the homeowner calls the bank to follow-up. Some homeowners have gotten conditional modifications making temporary modification, and ultimately still lose their homes. A loan modification is ideally suitable for someone who makes $100,000, but their income has dropped to $80,000 for example, and they want to stay in their home, but need a lower payment. If you are pursuing a loan modification be aware that on October 11, 2009, Governor Schwarzenegger signed Senate Bill 94 (Calderon), and the legislation took effect immediately upon his signature. Thus, according to California law it is illegal for any person, including real estate licensees and attorneys, from demanding or collecting an advance fee from a consumer for loan modification on 1 – 4 unit residential dwellings. Additionally, I outlined below the five tips to avoid being scammed when behind on your payments as this is an ongoing problem that we are seeing with vulnerable home owners – these were issued by the California Department of Real Estate www.dre.ca.gov
5 Tips to Avoid Being Scammed When Behind on Your Payments 1. DON’T pay up-front fees. Foreclosure consultants are prohibited by law from collecting money before services are performed
2. DON’T ignore letters from your lender or loan servicer. 16 SJREI Journal www.SJREI.net
Responding to those letters is your best bet for saving your house.
3. DON'T transfer title or sell your house to a "foreclosure rescuer." Beware! This is a scam to convince homeowners they can
stay in the home as renters and buy their home back later. It might also be part of a fraudulent bankruptcy filing. Either way, a scammer can then evict the victim and take the home.
4. DON'T pay your mortgage payments to anyone other than your lender or loan servicer. Mortgage consultants often keep the
money for themselves.
5. NEVER sign any documents without reading them first.
Many homeowners think that they are signing documents for a loan modification or for a new loan to pay off the mortgage they are behind on. Later, they discover that they actually transferred ownership of their home to someone who is now trying to evict them. There are government organizations that can be helpful if you find yourself needing additional information - the U.S. Department of Housing and Urban Development www.HUD.gov, and another organization The Home Ownership Preservation Foundation www.995Hope. org (they can be reached by phone at 888.995.HOPE ) this organization can provide answers and counseling to help homeowners avoid foreclosure. They are an independent non-profit that provide counselors from HUD-approved agencies dedicated to helping homeowners. This assistance is provided free of charge. There is so much misinformation floating around with regard to this topic, that SJREI is sponsoring a free forum to address the issues – this will include a panel of experts including an attorney, and accountant to address the tax implications involved with short sales and foreclosure, a bank to update us on the foreclosure situation, and finally recommended resources for homeowners . It will be held on August 10th from 6:30-9pm at the Biltmore Hotel in Santa Clara. See page 17 for more details!
WHAT ARE YOUR
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6:30 - 9:00 pm Biltmore Hotel in Santa Clara 2151 Laurelwood Rd, Santa Clara, CA 95054
SJREI and La Oferta are sponsoring a FREE forum to share options and resources available to people who are behind on their mortgage payments. This will include a panel of experts featuring Attorney Tony Ventura, Accountant Mike Gray to address the tax implications involved with short sales and foreclosure, a representative from HUD, and Economist Howard Blum. Register Online to Secure your Spot! www.sjrei.net
Successful Dealmaking by Richard Kelly The Importance of Good Will in Dealmaking
all it revenge of the nice guys. If you want to be successful in real estate investment, be sure people like you. I don’t mean that you have to be treacly sweet, but you must invest in relationships and understand that if you can’t gain people’s trust and affection, it’ll cost money.
Richard Kelly Investor
Richard Kelly is an investor who’s grown his real estate business right here in the Bay Area – within 30-minutes of his home. His focus is keeping his business simple, highly profitable, and rewarding. He started only 5 years ago with no money for investment, he can teach how you can get in the game and stay in it for the long haul.
I used to sell advertising for a small firm in San Francisco and my boss used to say, “people buy from people they like.” At the time, I thought that might have been true in the “old days,” I figured people just cared about bottom line – who can give them the best deal. I was wrong. People really do buy from people they like, and they sell to people they like. And if they like you, other profitable possibilities become available, too. Let me give some examples: Recently, I was in escrow to buy a property at $162,500. I was happy with the price, but after my inspections, I decided to ask the seller for a price reduction to defray some of the fix-up costs. We started the conversation with my kidding him about how difficult it had been to contact his tenants (one of whom was his daughter). I was looking for a $5,000 discount and when we were done he said: “Why don’t we just settle on an even $150,000, (a discount of $12,500 – two and a half times more than I’d been looking for!).” And that’s not the first time that’s happened in a negotiation. In January, I was able to negotiate a price of $57,000 for a nice a single family home in the East Bay. I later negotiated another $15,000 discount based on the inspection report. Even better, despite telling me he wasn’t interested in owner-financing the sale, about a week before signing, he said to me: “You know that owner-finance thing you want to do? If you still want to, I’m fine that.” I was astounded (though I tried not to show it). I’d completely given up on the idea. But after a month of building rapport and showing that I do what I say
18 SJREI Journal www.SJREI.net
I’ll do, and he’d grown to trust me. A few years ago, when I was trying to sell a property, a guy called me who was pushy and very slick. From the moment he started talking, I could feel my defenses go up. He wanted me to commit to something in that first phone call, and all I wanted to do was get off the line. But he taught me an important lesson. Now, when I talk to sellers, I ask a lot of questions, and I never push people to make up their minds. My belief is: the harder I push, the harder they’ll push back. The great thing is this translates to across my entire business. My contractors like to work for me because I pay them on time and we’ve developed a level of trust so that when we have disagreements, we tend to work them out quickly. I have a great relationship with my house inspector, lawyer, insurance agent and escrow officer. On purpose. When they call me I get back to them promptly; when they bill me, I pay them on time. I absolutely need these people to be successful, so I see it as my job to maintain excellent relationships. Once again, that doesn’t mean being a pushover, but it does require respect. It really pays to do the right thing.
Keys For Success 1) Be Friendly, personable and observant 2) Talk like they do (if they are informal, be informal) 3) Do what you say you’re going to do 4) Tell the truth - be honest with everyone 5) Be polite and mannerly 6) Be clear 7) Don’t give ultimatums – ask for what you want 8) Be appreciative
flush-mount wedding album $850 (value)
With any wedding photography package. Present this coupon and get a FREE magazine-style flush-mount deluxe wedding photo album ($850 value) 11x14 or 12x12. Offers cannot be combined.
Web: www.momentsofmemories.com Phone: 408.888.4557 SJREI Journal
A Powerhouse Lineup of Top Industry Experts Presents the Insider’s Edge on The State of REO 2010
The Norris Group’s award-winning event returns September 17, 2010 to the Nixon Library in Yorba Linda, California. We’re assembling an incredible line up of accomplished industry specialists to discuss the state of the REO market, on-going industry regulations, and the opportunities emerging for real estate professionals. New guidelines affect every sector of our industry. In a climate ripe for both miscalculation and profitable advances, how are our colleagues and partners navigating an industry in continued transition? Our Who’s Who Round Table Includes:
Bruce Norris President The Norris Group
Joseph Magdziarz Vice President Appraisal Institute
Tommy Williams 2008 President National Auctioneers Association
Christopher Thornberg Principal Beacon Economics
Sean O’Toole President Foreclosure Radar
Sarah Letts Director, Credit Loss Mgmt Fannie Mae
????? Mortgage Bankers Association
Peter Wayman Sr. REO Director Freddie Mac
Last year, I Survived Real Estate 2009 focused on the dramatic shifts in regulation facing our industry. This year, our panel separates fact from fiction as we delve into the health and sustainability of the current real estate market and the opportunities that lie ahead for hungry real estate professionals. To find out how you can participate as an individual or potential sponsor, see the back of this flyer or visit ISurvived2010. com for more information. Seating to this formal dinner event is limited, so go to the website or call our office today. Thanks you to all our Platinum and Gold Sponsors and friends for making this unique event a possibility.
www.ISurvived2010.com or 951-780-5856
20 SJREI Journal www.SJREI.net
TAX PLANNING by Richard Smith
Are You Prepared for the New Tax Laws? Hundreds of changes to federal taxes take place starting January 1—that’s only five months from now, four months if you don’t want to be worrying about tax hikes during the holidays. What should you do? Start paying attention now, not a year from now when it’s too late to effect any changes on your tax burden. Below is a brief summary of some of the federal tax changes.
RICHARD SMITH Enrolled Agent Richard Smith & Associates
Personal income tax rates will rise. Effective January 1, 2011. All personal income tax rates will increase. In 2001 and 2003, Congress enacted several tax cuts for investors, small business owners, and families. These will expire on January 1, 2011. The top income tax rate will rise from 35 to 39.6% (this is also the rate at which twothirds of small business profits are taxed). The lowest rate will rise from 10 to 15%. All the rates in between will also rise. Itemized deductions and personal exemptions will again phase out, which has the same effect as higher marginal tax rates.
Richard Smith, who is an Enrolled Agent and licensed by the IRS, and his team have prepared taxes for individuals and corporations for more than 30 years. Richard is an active real estate investor who has more than 100 houses in his portfolio plus a large multi-family building.
10050 N. Wolfe Rd. SW2-140 Cupertino, CA 95014 (408) 446-5551 firstname.lastname@example.org www.richardsmithtax.com
the tax code cause twice the work for less tax relief. Higher taxes on marriage and family. The “marriage penalty” will return. The child tax credit will be cut in half from $1000 to $500 per child. The standard deduction will no longer be doubled for married couples relative to the single level. The dependent care and adoption tax credits will be cut. Higher tax rates on savers and investors. The capital gains tax will rise from 15% this year to 20% in 2011. If you’re considering selling an investment property, you’ll pay $50 more per $1,000 of gain in 2011, than you will in the 2010 tax year. The dividends tax will rise from 15% this year to 39.6% in 2011. Tax benefits for education and teaching reduced. The deduction for tuition and fees will not be available. Tax credits for education will be limited. Teachers will no longer be able to deduct classroom expenses. Coverdell Education Savings Accounts will be cut. Employer-Provided educational assistance curtailed. The student loan interest deduction will be disallowed for hundreds of families. The return of the Death Tax. This year, there is no estate tax. For beneficiaries of an individual who dies on or after January 1, there is a 55% top tax rate on estates over a million dollars. The estate of a person leaving behind two homes and a retirement account could easily exceed this threshold, leaving their beneficiaries with a large tax liability. Estate planning has never been more important.
The Alternative Minimum Tax (AMT) affects more people. When Americans prepare to file their tax returns in January of 2011, they’ll be in for a nasty surprise – the Alternative Minimum Tax (AMT). The original idea behind this tax was to prevent people with very high incomes from using special tax benefits to pay little or no tax. Now, however, the AMT could impact over 28 million families, up from 4 million last year. These taxpayers will have to compute taxes owed under the regular income tax and the AMT systems, and are liable for whichever system generates the higher result. This duality in
Health care deductions disallowed. There are over 20 new or higher taxes in the new Obama Health Care Plan that will go in effect starting in 2011. The new law will disallow the use of Health Savings Accounts (HSA), Flexible Spending Accounts (FSA), or pre-tax dollars to purchase non-prescription, over-the-counter medicines. With all the changes to the tax code starting in a few short months, it is imperative that taxpayers seek competent guidance now for structuring their income and investments for 2011. Putting your tax reduction strategy in place this year could save you hundreds of dollars next year. Taxes are a manageable expense!
Is there anything in the Obama economic stimulus package that worked? There is a little known program that was in the $787 billion economic stimulus package that cost only $5 billion and produced unimaginably great results. It is called the Temporary Assistance for Needy Families Emergency Fund. This package put 200,000 people back to work. In Los Angeles it put 10,000 people back to work. That was a lot of bang for the buck. From my vantage point the stimulus largely bailed out Corporate American and tossed a few bones to the working class.
Do you think that banks are prolonging the inevitable when we try to keep people in houses that they cannot afford? No, banks are not doing a better job. When I see 1 out of 7 mortgages of $1 million or more in default I know there are lots more troubles ahead. Banks are not mind readers. They have no way of anticipating defaults due to people losing their job. Yes, we have prolonged the inevitable for inexplicable reasons. Team Bush was focused entirely on the health of the banks without consideration of consumers. Team Obama acted like they wanted to be the “kinder and gentler” administration and not impose stringent conditions on funds advanced to banks, brokerages and AIG. This has backfired terribly and consequently we are still in the doldrums without a clear picture of when things will improve. Would it be better for all concerned if we just let that houses that are in trouble flow through the system efficiently and then clean things up? Had we taken this route initially the housing sector would be fine by now. If we go that route now I fear we will only prolong the housing crisis for another 24 to 36 months. Can we withstand another three years of depressed home prices and sales? I think not.
What are the important economic indicators that you look at to determine where the economy is headed? First and foremost I look at the jobs being created and the layoffs that are happening. The net job creation by the private sector in June of this year (the most recent data) was 83,000 (with 225,000 census workers being laid off). That was not enough to employ all the new graduates entering the workforce this month or last. If the economy had a net job creation of 100,000 jobs per month it would take us 12 years to get back to an unemployment rate of 6.0%. To my eyes the fact that the default rate is lower than the unemployment rate is nothing short of a minor miracle. After jobs the next thing I look at is how households are spending their money and the savings rate. It is key to understanding the dynamics of our economy by looking at how consumers deal with their disposable incomes. Lastly, I look at the inflation rates through various measures other than the largely flawed consumer price index. I look to the Fed’s 22 SJREI Journal www.SJREI.net
favorite measure of inflation: The Personal Consumption Expenditure index, which is embedded within the quarterly gross domestic product report and monthly revisions. Notices of Defaults seem to be way down; do you see NOD’s remaining low for the foreseeable future? Sooner or later they were going to run out of people that were defaulting on their loans. More than the NOD’s I am concerned about the foreclosed inventory that is not hitting the market yet. Yes, NOD’s are likely to keep away from the peaks of last year.
What should investors look at prior to purchasing in this market? This is the $64,000 question. The three most important factors for real estate are location, location, location. If you live in Cleveland, Detroit, Las Vegas or Phoenix you may not have seen the bottom. If you live in Silicone Valley, Mill Valley or San Francisco you are seeing measureable appreciation rates in many of your neighborhoods. So how does one make a determination of when the market has hit bottom? This goes to the same answer as where to invest. Do you homework! Is a region, market or submarket you are looking at experiencing net job gains or losses? Are there any major infrastructure plans on the table like a new freeway or freeway bypass approved or being considered? Are any major employers relocating to or from the area? Are you seeing major sales or leasing concessions being made in an effort to fill vacant units? Are there any new subdivisions going in nearby? To go back to the question as stated, appreciation is happening in many major markets around the country. However, there is no guarantee that it will continue or accelerate.
What business newspapers/journals do you rely on for good solid information sources? Wall Street Journal, New York Times, Washington Post - mostly for their entertainment value. The main street media is making themselves largely irrelevant because they have writers that have little understanding of economics. I prefer looking at hard data and massaging the numbers to extract what I find meaningful, relevant and important. So, the best resource for fully digested and analyzed data and commentary on what its relevance is to housing, the economy and interest rates you’ll just have to subscribe to my publication Economic Insights 2010.
11-Years of Previously Owned Home Sales (times 1,000)
6,500 5,500 4,500 3,500 2,500
May’s Pace = 5.66 million units Down 2.2% from 5.79MM in April ©2010 The Financial News & Information Service
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(Continued from front page)
Mark your Calendar for SJREI Events! Community Outreach Event Educating People on Loan Modifications August 10, 2010 Tuesday 6:30 - 9:30 PM
SJREI and La Oferta, are sponsoring a FREE forum to share options and resources available to people who are behind on their mortgage payments. This will include a panel of experts featuring Attorney Tony Ventura, Accountant Mike Gray to address the tax implications involved with short sales and foreclosure, a representative from HUD, and Economist Howard Blum.
Register Online at www.sjrei.net to Secure your Spot!
Educating People on Loan Modifications September 11, 2010 - Saturday 8:00 AM - 1:00 PM
The SJREI Association has put together a great team of instructors to educate you. The information available to you at this workshop can literally save you tens of thousands of dollars by keeping you away from the wrong properties, and helping you to evaluate and invest wisely. This is your opportunity to learn from some very experienced investors who have wide ranging specific skill sets. Come spend the day with us and get ready to take flight!
Richard Kelly Seminar
Make Big Money Close to Home - In Good Markets or Bad! October 9, 2010 Sat 8:30 AM - 4:30 PM Biltmore Hotel, 2151 Laurelwood Road, Santa Clara, CA • • • •
How to find high-profit deals within 30- minutes of your home How to find and buy from prospects with lots of equity How to make an offer that will make you big money Negotiation techniques that will supercharge your deal
Bruce Norris & John Schaub
Together in Silicon Valley - Two Day Workshop Friday & Saturday, November 5th & 6th
We are very excited to be hosting two of our favorite real estate pro’s, Bruce Norris and John Schaub, first time seen together EVER, right here in Silicon Valley. Bruce has built a business model around flipping and has become one of the premier market timing experts in CA with an excellent track record to prove it. John Schaub, has a simple yet effective strategy to build wealth one house at a time, and wrote a best- selling book entitled just that. Mark your calendars and plan on spending two days with us at the event of the year in Silicon Valley! SJREI Journal
The New Normal by Tony Alvarez You Can Still Get Rich in Real Estate, if You’re Paying Attention!
F Tony Alvarez Investor
Tony Alvarez is a successful real estate investor in Southern California who went from bankruptcy to making millions by working with real estate agents that specialize in selling lender owned (REO) foreclosure properties. Tony also teaches classes on how to get the edge making millions in this crazy unpredictable real estate market. .
or the past three years we all have been hearing this “new normal” term thrown around like a Frisbee. What exactly does this mean to you and me as investors? Well, for one, if you miss the value of clearly understanding that EVERYTHING in the real estate business has literally changed almost over night, then you’re setting yourself up to miss taking advantage of this “New World” opportunity. Everything seems to be running along as usual, doesn’t it? Nothing could be further from the truth. No matter what anyone tells you, highly successful real estate investors know that there has always been and will always be only two tracks running simultaneously in business – the inside and the outside track. If you’re not on one, you’re without question riding on the other. The following is one distinction at the core of how I made so much money so quickly in the last down turn: You must become a “financial information interpreter.” Not only must you be aware of the actual changes in regulations and policies as they affect the real estate industry, but you must also develop your ability to interpret what those new changes mean and how will they impact your daily business. The more you do this, the better you will become at identifying what the next change will be and soon realize not all changes are detrimental or permanent. In fact, most restrictive policies and guidelines which appear to be new today are actually old reactionary, politically-tainted ideas that have been taken out of the closet, dusted off, slightly rehabbed and presented to us as something brand new and in our best interest. (Kind of like how we sell a rehabbed, fixer upper.) Since the institution The Housing & Economic
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Recovery Act of 2008 (HERA), pressure has been placed on Fannie Mae, Freddie Mac and other lenders to fall in line and comply with federal law. And now the federal government (through Fannie Mae and Freddie Mac) has begun to enforce laws that require contractors doing business with them to reflect the ethnic make up of the areas they serve when deciding who will receive contracts for providing REO broker and short sale processing services. This will impact how they deliver their REO inventory to the marketplace. Consequently, the number of agents being approved to provide these services in my area has effectively increased the number of new REO agents by more than thirty percent. This is a tremendous opportunity for new real estate investors interested in buying REOs that presently do not have relationships with top REO brokers in the areas where they invest. Being a “financial information interpreter”, I recognize this change as the very first step signaling the coming of the inevitable increase in listings of REOs and short sales which we, as investors, have been (impatiently) waiting for in the past three years. I suggest you check out your own area and position yourself accordingly. Get out there and meet these new agents who have already started to receive an increase in their short sale and REO listings. That’s what we’ve done and it’s already working.
Be A Part of Something Amazing! Become a Member Today (408) 264-3198 or www.SJREI.net
hether you have yet to purchase your first investment property, or are working on your hundredth deal, you’ve found the bay area’s source for sound, principled advice and networking. As investors ourselves, we understand the challenges that investors face, and customize our programs to address real-life situations and scenarios.
Hear the best speakers, get the best advice Our educational meetings are delivered by recognized experts in their field. They keep you up to date on issues such as market timing, new legislation, and techniques that may affect or enhance your real estate investing. Network with investors, buyers, sellers, and the people who support them All successful people rely on a network. Bringing like-
Three Chapters • South Bay • East Bay • Mid-Peninsula
Membership entitles you to free admission to your local chapter’s monthly educational and networking programs and much, much more.
Benefits Annual Membership Dues Additional Member* Guest passes (use at any chapter meeting) Free registration & attendance at local chapter meeting Network with other investors at each event Free registration & attendance at all chapter meetings: Mid-Peninsula, San Jose, East Bay Invitation to annual Leadership roundtable VIP seating at registered events Personalized name badge with expedited event check-in On-line community: member profile, read and post messages on message boards Hundreds in discounts for goods and services through National REIA affiliation Discounts on workshops and special events Invitation to Quarterly Insider Luncheon Audio library of past events New member orientation
minded people together to share information, assistance, and resources is a core goal of our chapter meetings Stay motivated, avoid pitfalls Who but another investor understands the doubts, challenges, and successes of real estate investing? SJREI Association fosters a positive climate of mutual support and sound advice. Your questions are respected, your participation is valued.
The Bay Area’s Most Dynamic Investors Association
Executive Premium Membership Membership $500 $350 1
$225 $200 1
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26 SJREI Journal www.SJREI.net
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Get on the fast track to competent investing with JumpStart Program
Investing in real estate is an exciting and rewarding business that can even be fun. Yet there are several keys to making your investing activities a success. Understanding these basics are the key to building a solid foundation for your investing career. It is the goal of the SJREI Association to help you succeed.
The knowledge you will gain by attending this program will set the stage for a successful investing career. You will learn how to make wise choices, and discover where to get the help and information that you may need along the way, minimizing your exposure to unnecessary pitfalls and costly mistakes. By attending this workshop you will be provided with the important tools you will need to start investing your way to achieve financial freedom. The SJREI Association has put together a great team of instructors to educate you. The information available at this workshop can literally save you tens of thousands of dollars by keeping you away from the wrong properties, and helping you evaluate and invest wisely. This is your opportunity to learn from some very experienced investors who have wide ranging specific skill sets. Come spend the day with us, and get ready to take flight.
SJREI Education Center Instructors
Class offered quarterly, Instructors subject to change- Next class: Sat, September 11th 8AM - 1PM Call (408) 264-3198 or Visit www.SJREI.net to Register
Rehab and Property Management for Investors Nancy Chillag - Attorney/Investor Chillag & Associates is an innovative law firm specializing in real estate & construction. As a buy, fix and hold investor Nancy has great information and experience to share with investors.
Financial Planning – Know Your Net Worth & Where You Want To Be David Beck - Financial Planner Understanding your own balance sheet is the foundational piece in taking control of your finances. David will set the stage for this.
Due Diligence for Investors Jeffrey Hare - Attorney/Broker/Investor
Understanding Cash Flow and Property Analysis Richard Smith - Accountant/Investor
Jeffrey specializes in real estate law & real estate property transactions. He picks up the pieces when investors don’t do their due diligence, and will share his expertise with this very important component of investing.
Accountant for 30 plus years, serious investor will share tips and worksheets to complete a cashflow analysis…the numbers tell the story.
Locating Deals & Market Analysis Stuart Baeriswyl - Broker/Investor
Find the Model that Works for You Jeb Hendley
Stuart buys for his own portfolio and assists with finding properties that will perform over the long-term. A seasoned pro, Stuart will share his insights with investors on how to do to find deals that make sense.
Different Investment Models to explore from a Broker with thirty years experience
Financing for Investors Michael Ryan - Mortgage Broker
Orientation, Goal Setting and Business Planning Geraldine Barry - President of SJREI Association, Investor, Entrepreneur
An 19 year veteran of the lending industry. As an investor himself Michael understands investor needs and his knowledge and expertise will easily guide you through the extensive maze of loan options for home or business.
Strategy is the name of the game; come join us to customize one to fit your need & goals.
SJREI Celebrates 2010 Real Estate Expo Success! SJREI would like to thank the participants of 2010 SF Bay Real Estate Expo for making it a great success!
*Special thanks to our distinguished speakers:
Thank You! Event Hosted By:
Attorney Jeffrey Hare
Accountant Richard Smith
Attorney Anthony Earle
Media Partners: Bruce Norris THe Norris Group
Sean Oâ€™Toole ForeclosureRadar
*Special thanks to our sponsors:
In times like these, investors need a trused ally that understands their industry and can offer distinctive insights. Visit SJREI.net to hear more about the participants of the Expo! 28 SJREI Journal www.SJREI.net