REI Ink - Oct/Nov 2019

34

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WHAT'S INSIDE PERSPECTIVE

S I N G L E - FA M I LY

R I S K M A N AG E M E N T

04

10

14

THE

4 THINGS TO CONSIDER

DEMYSTIFYING

HANDSHAKE

WHEN INVESTING IN

PROPERTY ANALYSIS

SINGLE-FAMLY HOMES

R I S K M A N AG E M E N T

R I S K M A N AG E M E N T

P R O P E R T Y M A N AG E M E N T

A LT E R N AT I V E I N V E S T I N G

18

22

30

34

CYBERATTACKS:

VETTING

THE HIDDEN

REHABBING

THE QUIET

YOUR GENERAL

WEAPON: PROPERTY

THE BORROWER

ROI KILLER

CONTRACTORS

MANAGERS

IN A WHOLE DIFFERENT WAY

PROFILE

38 BREW JOHN SO N & BRETT C RO SBY

REGIONAL SPOTLIGHT

LENDING

46

54

ATLANTA,

THE HARD-MONEY

GEORGIA

MINDSET THAT IS WEAKENING YOUR PORTFOLIO

L E G I S L AT I O N

T E C H N O L O GY

FROM THERE TO HERE

60

62

68

NORTHEASTERN STATES

COMMERCIAL REAL

WAREHOUSING

SEE RECENT CHANGES IN

ESTATE IS THE NEW

LIEN STATUS PRIORITY

LIQUID ASSET

SOME RESPECT

AND LEGISLATION

F I N A N C I A L I N VR EE S IT IIN NG K 1

REI INK

PUBLISHER’S LETTER

SOMETHING GOOD HAPPENS EVERY DAY As we near the end of the

monthly publication. The

not deviating from core

INK, I have some exciting

ing too fast to only publish

magazine was founded,

first year of publishing REI

real estate industry is mov-

news to share.

RO BE RT RA KOWS KI Publisher & CEO

specifically: (1) provide

great customer service, (2)

When I began laying the

major announcement in

for the magazine last year,

time the next issue comes

competitor, (3) don’t nickel

from some wonderful and

great, but nothing beats

away from gurus (but not

the real estate and publish-

the smell of fresh ink and

(5) provide great content for There are other significant

never speak negatively of a

groundwork and foundation

August is old news by the

with the support and input

out in October. Digital is

and dime clients, (4) stay

highly respected people in

the feel of a print magazine,

reputable educators) and

ing industries, I envisioned

a beautiful magazine on a

the experienced investor.

a bi-monthly publication.

coffee table.

But in just one short

I also want to welcome

and exciting growth strat-

way. We’ve already made

INK team. She’s joined us as

save those for another time!

and design of the magazine

of you may know Suzanne

A special thanks to all the

tion channels. Now, we

industry. She is the impetus

age, adding to our staff

strategies. Her drive, ethics,

year, we’ve come a long

Suzanne Andresen to the REI

egies in the works, but I’ll

changes to the production

Chief Revenue Officer. Many

They will be exciting.

and enhanced our distribu-

from her previous work in the

are expanding our cover-

behind many of our growth

and increasing our

dedication and leadership will

publishing frequency.

Beginning in January 2020, REI INK will become a

ROBERT RAKOWSKI Publisher & CEO

MONICA MANSFIELD

take REI INK to the next level.

We’ve accomplished so

much in the first year by

WRITERS Scott Carson, Carole Vansickle Ellis,

Scott Fahl, Zach Fuller, Kendall Krawchuk,

women who appeared in the August/September issue.

The issue was a huge success thanks to those wonderful

and highly respected leaders.

I’m sure our readers were

inspired by their great stories.

Happy reading.

visit REI-INK.com/subscribe or email robert@rei-ink.com. Annual subscriptions are $29.95; single-issue copies are $6.95.

Managing Editor

Aaron Lohmann, Greg Rand, Steve Salimbas,

SUZANNE ANDRESEN

Stebenne, Michael Tedesco, Emily Yin

those of Choice Publishing LLC or the

Copyright ©2019 by Choice Publishing LLC,

publisher. The articles are intended

part of this magazine may be reproduced

not intended to provide specific

Chief Revenue Officer

EDITORIAL BOARD

Bill Deegan | Heartland Income Properties Michelle Esparza | OS National Robert Greenberg | Patch of Land Dev Horn | We Buy Houses Erica LaCentra | RCN Capital Glendon Nelson | Mahoney Group Jennifer Stoops | Park Avenue Properties Mike Tedesco | Appraisal Nation

2 O C T O B E R 2 0 19

on a bi-monthly basis. A

principles upon which the

Charles Sells, Shaun Shenouda, Ralph

ISSN 2641-9602. All rights reserved. No in any form or by any electronic or

mechanical means without permission in writing from the publisher.

The views and opinions expressed in this magazine are not necessarily

for general information only and are recommendations or advice. Be sure to consult your attorney, accountant and other relevant business professionals

REI INK is a bimonthly publication of Choice

when considering a new strategy or

single copies, please call (816) 623-0762,

content of any paid advertising.

Publishing LLC. To subscribe or to order

idea. We are not responsible for the

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REI INK

PERSPECTIVE

THE HANDSHAKE In a relationship business, you must genuinely build the relationship to get the business.

BY MI KE T E D E SC O

W

hen I was 12, my

help me tremendously as

I built my sales model on

brother John got me

a young loan officer, and

a different philosophy

an after-school job selling

I quickly became a top

newspaper subscriptions.

producer. I continued to

Armed with nothing but

develop this craft even as I

our wits (and free umbrellas if you signed up), we hustled door to door and quickly became the

O N O N E CO R E P R I N C I PA L : T H I S I S A R E L AT I O N S H I P BUSINESS AND TO GET T H E B U S I N E S S , YOU M U S T B U I L D T H E R E L AT I O N S H I P.

T H E VA L U E OF PERSONAL C O N N E C T IO N S

the very first interaction:

from three men with two lenders into 120 employees with more than 1,300 lenders across America trusting us for their valuation needs. My entire growth strategy is focused on one core principal: This is a relationship business and to get the business, you must build the relationship. Getting from first

newspaper’s top salesmen.

In those four years, many a door was slammed in

4 O C T O B E R 2 0 19

relationship business, we must actually meet our

I built Appraisal Nation

S T R AT E G Y I S F O C U S E D

if we are going to have a

began my own company.

Over the last 13 years,

M Y E N T I R E G R OW T H

than most. I believe that

encounter to client is a long process, but the first encounter is always the

my face, but I learned how

most important.

to approach strangers. I

In the modern age of tech-

became quite good at it.

nology, true personal con-

These skills would later

nection is becoming rare.

prospects and build from the handshake.

For the last decade, I have reinvested a large percentage of our profits into face-to-face interactions by sponsoring and exhibiting at more than 50 lending conferences a year. In that time, I have personally attended more than 400 conferences and shook thousands of hands.

You may think meeting someone would be easy: Shake a hand, say hello and ask for their business.

But, the process is a lot more complicated than it appears. The wrong first impression could mean never having the opportunity to earn someone’s business.

There is a lot that goes into

with shined shoes and a

number of people who

mentally ready as well. You

meeting a new prospect.

coordinating belt. I went

come up to me smelling

would be surprised by the

Preparation is key. Before

to Credit Union confer-

like last night’s outing

number of people I’ve met

you shake a hand, you

ence in Honolulu a couple

is astonishing. A fresh

who have no place being

need to be prepared both

of years ago. I’d never

physically and mentally.

done this conference

H AWA I I A N SHIRT OR TIE?

Being prepared physically sounds straightforward enough. You simply look and act professional.

You should always know your venue, know the crowd that attends and know the location.

If I’m attending a retail banking conference in the Northeast, I wear a three-piece suit, sharp tie, cufflinks, stay collars, the works. If I’m at a

before and was a little concerned, so I called the event director who advised that most people would be in Hawaiian shirts and flip flops because they incorporate a vacation into the show.

I followed his advice and

(brushed teeth, clean nails, etc.) and properly pressed clothes will make you look and feel like you belong.

Always carry mints or gum.

You will be doing a lot of talking, and your breath will get stale. Remember, never turn down a mint.

There is usually a reason it

fit right in. The vendors in

is being offered.

suits looked out of place.

When possible, get a good

When you’re unsure, sim-

night’s sleep. An average

ply ask the event orga-

conference day for me can

nizers about the general

be 16 hours or more.

attire. And when you are unsure, always err on the side of caution. You can

broker show in Orlando,

always take the tie off.

maybe my attire will be matching polo and slacks

haircut, good grooming

K N OW YO U R C O M PA N Y A N D PRODUCTS

where they are, whether in their position or at the conference. They are not equipped to answer questions, and they make their company look like a latenight basement startup that hired them from an online questionnaire.

Know your company and products intimately and have value to offer. If you do not have all three of these, do not attempt to sell your product. Once you have mastered your company and believe in it, you should be confident enough to go to a confer-

Being physically ready

ence. Confidence is key. If

Another big part is groom-

is only one part of being

you don’t believe in your

ing. Unfortunately, the

prepared. You have to be

product, or do not want F I N A N C I A L I N VR EE S IT IIN NG K 5

REI INK

PERSPECTIVE

to be at the conference,

top 10 lenders I want to do

Research your target’s

or don’t like talking to

business with. These may

alma mater, find sports

strangers, it will show.

not be the largest, but

teams he or she likes,

they are the 10 that I know

know the city he or she

that we will align well with.

lives in, and be familiar

when you are traveling.

I usually get three or four

with work history and

What you do is a direct

responses. Two will imme-

reflection of your com-

diately say they’re “not

pany. This includes your

interested.” That’s not a

appearance and behavior

problem. I will follow up

at airports, dinners and

with them at the show

even clubs. Make a fool

because what they just did

of yourself drinking too

was start a dialogue, and

much and people will

I like dialogue! Another

think your company is not

might say, “Please speak to

responsible. If you look

so and so,” and I will. Then

disheveled, unprofes-

another will say, “I only have

sional or ill-informed, a

a few minutes at this specific

prospect will think your

time.” Set the meeting. That

company is as well. Care

person has just become

missed opportunity.

about yourself and your

my target. Granted, I will

You are prepped and have

company so you and the

visit nearly every exhibitor’s

a meeting set up. Now

company are seen as a

booth, spend some time at

choose a quiet but inviting

positive example.

our own and shake perhaps

location. Hotel coffee shops

hundreds of hands through-

can be great or even a quiet

out the conference, but this

hallway nook at the venue

The next lesson is to

one person is my mission.

may work. If you are meet-

always have a target.

I want to get his company

ing at your target’s trade

Before I ever go to a

added to my pipeline.

show booth, make sure to

conference, I look over

Take the time to do some

stand to a side so that oth-

the attendee list and send

homework on your top

our present clients short

prospects. This is where

emails asking to meet up

you use the internet to

from interruptions.

for a 15-minute check in.

your advantage. Look

Finally, always, always, be

I then send emails to the

for connection points.

on time. When I was in the

Remember, you are the face of your company

F I N DI N G YO U R TA R G E T

6 O C T O B E R 2 0 19

children’s activities— whatever it takes. You are now an online stalker. If the information is public, you should view it.

LinkedIn, Facebook and Google are great for this.

Try to know the answers to questions before you ask them. A solid 15 minutes of research could make the difference between making a connection or a

ers can continue to operate, while keeping your target

Air Force, we were taught

A lways look the person

15 minutes early is on time

in the eye and con-

and five minutes early is

tinue to focus on them

late. I may run behind on

throughout the conver-

a lot of things but never

sation. Do not stare at

when meeting a prospect

them the entire time,

for the first time.

Now, my favorite part.

We look great, we’re prepared, we’ve arrived 15 minutes early and we can see the target is at their booth. Silence your phone—at this moment there is no one more important than your

but remember they are what matters most at that moment.

When you are introducing yourself is precisely when your hand should reach out for that handshake. Shake firmly twice, not like a fish and not like you just finished a work-

target. If your target is

out on Venice Beach.

in a conversation, wait.

I f your target reaches in

Remember you have 15 minutes. Once the person, leaves approach with confidence. After all, why shouldn’t you? You look great, you know exactly what you’re talking about, you know tidbits about your prospect and you have something of value to offer.

Here are some tips for the conversation:

for a card, that would be a good time to exchange it. If not, wait until the end of your conversation to present it.

W hen presenting your business card, do so with pride. Present it upright with your name and company facing your target as you deliver it.

W hen receiving a business card, always take a

H ave a genuine smile

moment to look at it in

on your face when you

front of the person giv-

approach. Be happy to

ing it to you. Read the

see them.

person’s name and title

F I N A N C I A L I N VR EE S IT IIN NG K 7

REI INK

PERSPECTIVE

before putting the card

more difficult, but here

E xplain the value you

Appraisal Nation’s position

in your pocket. I some-

is where your research

provide and how you

and value and that we can

times do this out loud

will help.

would like the opportu-

help. Always follow up.

(softly on purpose) and nod my head affirmatively while reading it A t the introduction, repeat the target’s name. Then remember to drop it into your conversation at least two or three more times.

Every time you say your prospect’s name, make eye contact.

F ind a way to connect to establish rapport. Ask questions that bring you back to what you know outside the industry and find commonality. Try to

D on’t cross your arms, and avoid your pockets.

nity to prove yourself.

B e honest and always

Everything you just did will be wasted if you don’t

It is OK to mimic your

deliver on what you say.

follow up diligently.

target, except for cross-

N ow, follow up with

All of this said, it is espe-

ing arms. I find the most inviting pose to be hand over hand at my naval.

T ie in a quick story of family and ask about your target’s family.

Remember what your target tells you—if all goes well, you will need that information for the rest of your career.

B e concise about why you wanted to meet.

another connection point and thank your target for their time.

S et a follow-up meeting or phone call and put it on your calendar right there.

I f you haven’t given your target a card yet, now is the time to do so while saying that you look forward to following up.

My goal here is not to

cially important to be genuine. When I started Appraisal Nation, I tried for years to separate my work life from my home life. I discovered it was exhausting and really held me back from being successful. I am a family man, a sports fan and a traveling explorer who loves doing new things. I found we all have a lot more in common than we realize and that every morning

find two things where

L isten. Ask open-ended

walk away with business.

you have common

questions about your

Relationships take time. My

ground. For some peo-

target’s needs and

objective is to leave here

same way. So just be you.

ple, this may be a little

don’t interrupt.

with my target knowing

See you on the road.

we all put our pants on the

Mike Tedesco, founder and CEO of Appraisal Nation, sought to change the way appraisal management companies do business. Raised in Pittsburgh, Pennsylvania—the hub of vendor management—Tedesco started his career as a loan officer when he was 19. By the time he was in his 20s, Tedesco realized the needs of lenders across the country and wanted to focus on small to mid-size lenders that were most

often neglected by other AMCs. That led to the start of Appraisal Nation 12 years later. Appraisal Nation has now evolved to one of the country’s leading valuation providers.

8 O C T O B E R 2 0 19

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REI INK

S I N G L E - FA M I LY

4 THINGS TO CONSIDER WHEN INVESTING IN SINGLE-FAMILY HOMES Trends, opportunities and investment strategies for this growing asset class

BY KE NDALL K RAWC H U K

M

any real estate inves-

and rentals will likely be

this, we expect to see

tors swear by mul-

cautiously optimistic.

increased activity in more

tifamily investments, but

Demand remains strong.

affordable markets.

investing in single-family

A recent survey by Trulia

homes can also be a great

reveals an increase in the

way to increase cash flow and your bottom line.

For many, the singlefamily asset class is also a way to diversify their real estate portfolios.

If you’re thinking about investing in single-family homes or single-family

planning to buy a home, with 40% intending to buy in the next two years.

However, the issue of affordability continues to trouble potential homebuyers. More than half are concerned about

THERE’S A G R OW I N G D E M A N D FOR SINGLEFA M I LY R E N TA L S

With affordability still a concern, more and more consumers are deciding to rent. This is particularly true among millennials, whose con-

saving enough for a down

fidence in being able to

payment, a rate that is

save for a down payment

even higher among mil-

is at its lowest level since

lennials, now the largest

2011. Yet as millennials

demographic cohort of

start to have families of

homebuyers. Investors

their own, their needs are

will also need to navigate

outgrowing traditional

rising median and mean

apartments or even 1-

prices, despite the slight

and 2-bedroom rentals.

The landscape for invest-

uptick in inventory at the

Many single-family rentals

ing in single-family homes

end of 2018. Because of

are being outfitted with

rentals, here are several trends, opportunities and strategies to consider.

DEMAND REMAINS STRONG, BUT A F F O R DA B I L I T Y I S STILL A CONCERN

10 O C T O B E R 2 0 19

number of Americans

T H E S UCC E S S O F M A N Y I N V E S T O R S W I L L L A R G E LY

updates attractive to younger families, such as energy-efficient amenities, open floor plans and green spaces.

This demographic shift may be one factor driving the increased demand for single-family rentals and subsequent spike in rent prices in 2019. We anticipate that the remainder of 2019 will offer even

OFF-MARKET PROPERTIES AND OV E R L O O K E D M A R K E T S M AY P R OV I D E N E W OPPORTUNITIES FOR INVESTORS

Competition is growing

DEPEND ON THEIR ABILIT Y T O M OV E Q U I C K LY A N D F I N D C R E AT I V E S O LU T I O N S TO MARKET SHIFTS IN 201 9 A N D B E YO N D.

on the buy side of singlefamily home real estate investing, with institutional investors selling off considerable portions of their portfolios. And platforms like Opendoor,

more single-family inves-

Knock and Offerpad are

tor opportunities to buy,

attracting busy homeown-

landscape. One nota-

Single-family home inves-

ble shift in 2018 is many

tors should also consider

buyers who are investing in single-family homes are increasingly willing to acquire fixer-uppers from channels like the MLS. So,

overlooked markets The largest and most overcrowded—San Jose, San Francisco and Seattle— saw the greatest decline

rent, refinance or sell to

ers looking to sell quickly.

turnkey owners seeking

Investors should seek

make sense to develop a

creative solutions in

robust system for sourcing

yet many experts still con-

a crowded buying

off-market properties.

sider them overpriced.

these single-family rental properties.

for some investors, it may

in prices at 2018 year-end,

F I N A N C I A L I N VR EE S IT IIN NG K 11

REI INK

S I N G L E - FA M I LY

IS HOMEOWNERSHIP PART OF THE AMERICAN DREAM? % A NSWERING YES

80%

75%

70%

65% 2009

2010

18-34 YEAR OLDS

2011

2012

2013

2014

2015

2016

2017

ALL AGES

history, and yet the year

Source: Trulia

longer or anticipate selling

MANY PEOPLE INVESTING IN SINGLEFA M I LY H O M E S USE FINANCING TO RESPOND MORE Q U IC K LY T O M A R K E T CHANGES

ended with a slight cool

at lower prices.

down in activity and rise

Finding the right balance

Many predicted 2018 to

pare for longer timelines to

be the most competi-

sell and budget for either

tive homebuying year in

holding the property

in inventory, particularly in the largest markets.

Through the remainder of 2019, investors should pre-

2018

between the two will

best prepare them for

movements in the market.

Similarly, single-family

home investors should

also consider financing

partners who are set up to

close on properties quickly and to deftly respond to changes in the industry.

The success of many investors will largely depend on their ability to move quickly and find creative solutions to market shifts in 2019 and beyond.

Kendall Krawchuk is the vice president of marketing at Fund That Flip, an online platform for investing in short-term residential real estate debt.

Krawchuk has extensive experience in product and solution marketing with a focus on the fintech

and real estate industries. Previously, she led the global marketing strategy for an integrated suite of real estate investment management software.

In a former life, Kendall was a Slavic linguist and now draws on her background in literature and languages to create compelling marketing programs.

1 2 O C T O B E R 2 0 19

F I N A N C I A L I N VR EE S IT IIN NG K 13

REI INK

R I S K M A N AG E M E N T

DEMYSTIFYING PROPERTY ANALYSIS Understanding property analysis can be the difference between a big profit and losing everything.

BY S COT T FAH L

P

roperty analysis has long been a subjec-

tive practice, with as many different opinions on best practices as there are properties.

Getting it right can mean the difference between a big profit and losing everything.

Why is it so difficult to get an accurate property value? Surely with all the billions that have been thrown at the problem, there must be someone with a solution. Right?

For decades, companies and individuals have been working to create the Holy Grail for accurately appraising properties using Automated Valuation Models (AVMs).

1 4 O C T O B E R 2 0 19

AU T O M AT E D VA L UAT IO N M O D E L S

pulled permits for all the

The AVM model uses

Property B’s owner isn’t a

mathematical modeling

combined with databases to attempt to predict a

property’s value at a cer-

tain point in time. In a nut-

shell, the model is trying to pull accurate comps. The

work he’s done and that carpenter, pulled zero permits and may or may not have redone the electrical.

The AVM models are getting better because they have much more access

more precise the comps,

today to data. But, unless

can predict the property’s

to willingly provide data

sounds good on paper. But

regular basis, AVM models

when you realize finding

of error and in some cases

the more accurately they

you can get homeowners

value. The AVM model

about their property on a

it falls apart rather quickly

will always have a margin

accurate comps is much

a large margin of error.

the price per square foot,

INVESTOR SUCCESS MODEL

to subject property.

Now, move the conversation

more complicated than

selling price and proximity To lay it out for you,

mathematical models

to investment properties and everything changes.

can’t tell you that Property

Owner-occupants are look-

by one owner who is a

graphics, noise, schools,

A was well taken care of

ing for things like demo-

carpenter by trade and

traffic, walk-score, number

FIX-AND -FLIP STATS A RV: 60% | C H ICAG O M E TRO | S I N G LE - FA M I LY

AVER AGE PROFIT ($)

800K 700K 600K 500K 400K 300K 200K APR 2019 ACTIVE

MAY 2019

JUN 2019

UNDER-CONTRACT

AUG 2019

SOLD

of restaurants, grocery

changing the conversation

stores, dog parks, bus

from demographics and

routes, biking trails, crime,

JUL 2019

AVMs to focusing on what

The reason this works

so well is the investors

are creating comparable consistency.

For investors, it’s simple:

success with.

Example: Investors A, B, and

They are looking for one

Looking at where investors

thing—profits!

You can make an argument that investors should also be looking at the list of what owneroccupants want since

are buying, what they are paying, what they are doing to properties (construction levels) and what they are

investment tech companies argue that you are overcomplicating things.

They claim they can cut out 95% of the confusion most investors face when

added similar upgrades with similar finishes and

If you find a similar home

A key piece to understand

But today’s real estate

around the same price,

gives you just about all the

who will be purchasing properties. Good point.

area, around the same time,

selling or renting them for

it’s the owner-occupants or renting the investment

C all bought in the same

sold near the same prices.

information you need. is this: When investors set the tone for an area (investment strategy, purchase price, rental rates, remodel

in the same area, in a simi-

lar condition and a similar price point to A, B and C, how long should it take

you to decipher that it’s a good investment?

levels, selling price, etc.),

The answer? Minutes!

it gives you a near-exact

With this model, you know

game plan for what works and what doesn’t, virtually eliminating the need

analyzing a property’s

for inaccurate AVMs and

investment potential by

demographics analysis.

OCT 2019 Source: Privy

other investors are having

etc., etc., etc.

SEP 2019

the best investment strategy for the area, what to pay,

This level of comparable consistency removes the variables and equations that cause inaccuracies.

If all comps are created equal, then AVM models would be extremely accurate. The problem for owner-occupant AVMs is when you add years of wear and tear, upgrades, additions, lifestyles, pets, etc., it becomes very difficult to determine how closely owner-occupant comps are to one another. Without going inside each property, you’re left to make assumptions that dramatically increase your investment risk—and at some point, that is going to bite you.

what level of construction is

When using consistent

can sell the property for.

make confident, low-risk,

appropriate and what you

comparables, you can

F I N A N C I A L I N VR EE S IT IIN NG K 15

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R I S K M A N AG E M E N T

data-driven, educated

the rise. Or, the fix-and-flip

tools that solve wide-

properties that match

decisions in minutes.

market is up 10% in Dallas/

spread industry problems.

these parameters.

TR ACKING CONSISTENT C O M PA R A B L E S

This model of using consistent comparables is achieved by using sophisticated and proprietary algorithms and substantial data sets. The results go way beyond valuing a single property and can go as far as assessing the investment potential of an entire nation—in seconds!

Tracking investment activity on a national level can currently be done. But it’s mostly left to the behemoth data aggregators and delivered in the form of monthly, quarterly or yearly reports to the public or more detailed reports

Fort Worth. Or, rental rates are increasing in Denver.

These tools are not simply regurgitating their find-

This sort of data has its

ings but have opened the

usefulness. But it’s not

door to allow users to cre-

much help to those in the

ate their own findings by

trenches practicing invest-

entering their individual

ment real estate every day (investors, realtors, appraisers, hard money lenders, etc.). It’s simply too vague.

Today new technologies are filling in the gap by providing real time investment market analysis for the entire nation as well as down to the street level with the click of a button.

It starts with bigger, better, more accurate data sources and is taken to next-level usefulness by cutting-edge technology

to institutions. These

companies

reports will tell you things

who specialize in creating

like foreclosures are on

user-friendly software

needs and parameters.

An example of this could be: 1) S how me every prop-

5) N ow show me every property I can buy today that is in the same area and matches what the other investors are having success with.

6) N ow show me the

same parameters for

the Eastern Seaboard.

I think you see where this

erty in Chicago that

is going. It’s powerful!

was flipped in the last

These companies are on

six months and was originally purchased for 60% of the afterrepair-value (ARV).

2) S how me the before and after photos of those properties.

3) S how me the timelines

of how long these proj-

ects are taking.

4) S ave and send me

updates of any new

a collision course with the ways real estate investing

has been done for decades.

They are already eliminating dozens of hurdles the investment community

deals with every day, and

more and more use cases

are popping up all the time.

Once the industry embraces the power and ease of

using these tools, there

will be no turning back.

Scott Fahl founded Privy in 2009 to simplify residential investment real estate. With extensive experience in

the real estate investment vertical, Scott saw an opportunity to introduce software solutions to reduce the inefficiencies rampant in the industry. For more than a decade, the company has helped the real estate investment community use technology to better find, analyze and track investment markets, trends and opportunities.

Fahl has led the company through significant growth and market expansion, positioning the company as a leader

in the real estate investment technology space. Under Fahl’s leadership, the company will continue to build on its success, with the goal of being an integral part of the everyday lives of the real estate investment community.

16 O C T O B E R 2 0 19

HEARTLAND INCOME

Creating Value In America’s Heartland

P R O P E R T I E S

$25,000,000 Capital Raise Accredited Investors Only

2,500 Units - $10,000 Per Unit

$25,000 Minimum Investment (2.5 Units) IRA Qualified

Projected Annual Return 8% to 14% Paid Quarterly

Strict Underwriting Criteria:

Single-tenant, triple net lease model Existing cash-flowing properties Strong regional and national tenants Corporate tenant guarantee Rent escalators

Below replacement cost No construction or distressed property 8% average portfolio cap rate Tenant profitability Conservative leverage employed

DES MOINES, IA

OMAHA, NE

TWIN CITIES, MN

KANSAS CITY, MO

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DALLAS, TX

SIOUX FALLS, SD

For More Information and to Receive a Copy of Our Private Placement Memorandum Please Contact:

BILL DEEGAN, CEO

602-601-5293 bill.deegan@heartlandincome.com

This presentation is not an offer to buy or sell a security. Such offer can only be made to qualified persons who have received a copy of Heartland Income Properties, LLC Private Placement Memorandum. Statements in this presentation related to our future business and financial performance and future events or developments involving Heartland Income Properties, LLC (HIP or the “Company”) and its affiliates and subsidiaries may constitute forward-looking statements. These statements may be identified by words such as “expect” “look forward to” “anticipate” “intend” “plan” “believe” “seek” “estimate” “will” “project” or words of similar meaning. We may also make forward-looking statements in other reports, in presentations, in websites, in material delivered to shareholders and in press releases. In addition. our representatives may from time to time make oral forward-looking statements. Such statements are based on current expectations and certain assumptions of HIP management, of which many are beyond HIP control. These are subject to a number of risks, uncertainties and factors, including but not limited to those described in disclosures, in the Annual Report, economic downturns, changes in state and federal legislation and regulations, adverse outcomes of any legal, regulatory or other proceeding, settlement, investigation or claim applicable to us and/or the properties, or adverse changes in the markets or industry laws, policies and regulations. Should one or more of these risks or uncertainties materialize or should underlying expectations not occur or assumptions prove incorrect, actual results, performance or achievements of HIP may (negatively or positively) vary materially from those described explicitly implicitly in L theIrelevant statement.

F I NorA NCIA N VR Eforward-looking E S IT IIN NG K 17 HIP neither intends, nor assumes any obligation, to update or revise these forward-looking statements due to developments that differ from those anticipated.

REI INK

R I S K M A N AG E M E N T

CYBERATTACKS: THE QUIET ROI KILLER Tips for minimizing risk in today’s digitally reliant world

BY Z ACH F ULLE R

M

arket shifts, tenant

from mortgage companies

You deal with sizable

issues, lawsuits and

to venture capital groups

assets, are involved in

maintenance expenses are risks we think about and plan for regularly in our investment endeavors.

Proper planning and safeguards help you keep the returns you’ve built, both in your business and investment portfolio. However, there is a “ROI killer” that happens quicker, hits harder and is more elusive than perhaps any of the others—a cyberattack.

We hear about cyberattacks on Fortune 500 companies almost daily, leading many people to believe that big brands are the primary targets. But, most people do not realize that for every breach mentioned on the news, there

service providers.

S M A L L TA R G E T S , B I G PAYO F F S

The real estate industry is made up primarily of

complex transactions and rely on some level of trust in other parties to run your business. Most of all, technology is a required part of your daily operations.

smaller organizations

Cyberattacks are finan-

without significant IT

cially motivated and often

budgets and rarely with

successful in extracting

an in-house cybersecurity team. As a result, these companies are easy targets for cybercriminals.

significant amounts of money from the victim.

For the individual investor, an attack may be

Whether you have a per-

escrow funds unknowingly

sonal portfolio of prop-

transferred to an account

erties, are a regionally rec-

controlled by a criminal

ognized title company, or

rather than the escrow

are a nationwide lender,

account. For the title com-

you are the perfect target for financially motivated cybercrime organizations around the world.

pany or lender, attacks can range from theft of large amounts of personal and financial records, to stop-

You may ask, “Why would

ping business operations

go unannounced around

they want to come after

in their tracks until a large

the U.S. Victims range

me?” The answer is simple:

fee is paid to the attacker.

are thousands more that

1 8 O C T O B E R 2 0 19

and, yes, even technology

R E D U C E YO U R R I S K

D eliver staff awareness

phone and make a call

U se a virtual private

Knowing that most cyber-

training quarterly.

to verify. Just because

network (VPN) service

KnowBe4 is a great

an email appears to

motivated and looking for

platform for this.

come from someone

public Wi-Fi.

the quickest income, you

C onduct annual risk

you know, it doesn’t

Use hard passwords with

can follow simple prac-

assessments and

tices to make yourself and

penetration tests on

U se two-factor authen-

your company a harder

critical systems.

tication. Use an authen-

target than others.

E nsure you have a

When the cybercriminal’s

complete set of IT and

criminals are financially

potential gain is less than the resources required to achieve it, they move on to easier targets. Here are a few ways to reduce risk: FOR COMPANIES (title, lenders, PE firms, retirement plan custodians, etc.)

security documentation. These include

words (password manag-

ticator application (e.g.,

ers are great for this).

Google Authenticator)

I mplement lock screens

when possible, instead of a pass code being

on all devices and remote wipe capability on mobile devices.

an Incident Response

Set up critical accounts

Back up your files regu-

Plan, password policy, acceptable use policy, bring your own device (BYOD) policy, etc.

C arry cyber insurance.

Although a reactive

cybersecurity framework

ance is inexpensive and

B uild a culture of

acters and no common

documents such as

measure, cyber insur-

or CIS Controls.

a minimum of 12 char-

sent via text message.

A lign to a standardized such as NIST SP 800-151

mean it is legitimate.

when working from any

likely to be used.

FOR INDIVIDUALS H ave situational aware-

with a separate and private email address rather than your daily business or personal account.

Keep all software and firmware updated on your

larly, encrypt the backups (there are many tools available for this online), and then “unplug” until next backup.

Ensure your vendors

computer and network.

(title companies, etc.) are

E nsure your home and

rity practices to reduce

office router default usernames and passwords are changed,

security, starting with

ness. If a request doesn’t

both for Wi-Fi and

leadership support.

feel right, pick up the

router administration.

following accepted secuthe chance of your own

information being com-

promised in their breach (security questionnaires are available online).

F I N A N C I A L I N VR EE S IT IIN NG K 19

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DA R K C L O U D S

be compromised if users

steal cryptocurrency

Situations like these

There is a dangerous

don’t configure their

accounts and compromise

show how critical proac-

myth that has caused

accounts properly.

the security of the inves-

tive cybersecurity is for

many cyberattacks among

For example, recently

smaller organizations. This is the myth that cloud-

an investment group

tors by accessing their sensitive data.

organizations of all sizes in today’s technology-

experienced significant

Trust is vital in the invest-

reliant environment.

losses after an executive’s

ment business. One can

primary email account

only imagine what a

Whether you take pro-

was hacked. This account

company’s investors

was used for everyday

must feel when the

communication, so it

company seems to have

was publicly known. It

disappeared digitally.

was also used to register

Suddenly, investors

the company’s domain

can’t reach their point of

name, for cryptocurrency

contact and the company

lutely makes sense for

accounts and to access

website is down. To make

most small-midsize

the cloud-based storage

it worse, the investors get

businesses. It provides

containing information

notified that their personal

tremendous capabili-

about all the company’s

information and even bank

ties while reducing the

high-net worth investors.

account numbers are now

required investment in IT

The attackers were able to

in the hands of criminals.

infrastructure. However,

hijack the domain name,

Sometimes this notifica-

even the services with

taking company commu-

tion comes from the

able.” It’s about making

the most sophisticated

nications offline (email

criminals themselves as

yourself a hard target so

security measures can

accounts and website),

a form of extortion.

cyber criminals move on.

based services will keep you secure. From Google G-Suite and Office 365, to Salesforce and Dropbox, we all use cloud-based services to support at least portions of our business operations.

Using the “cloud” abso-

active measures yourself or hire professionals to protect your company, cybersecurity is a requirement of doing business.

There are already enough variables and risks in the real estate environment.

We’re fortunate that cyber risk is one risk that can be significantly reduced with some time and attention.

Remember, it’s not about being perfect or “unhack-

Zach Fuller is an entrepreneur who has built businesses in multiple industries. He served as a Green Beret in the U.S. Army, conducting highly sensitive combat operations in Afghanistan. Zach was awarded a Bronze Star and other decorations for his actions overseas.

Fuller later built an investor relations team for Caliber Companies. Holding the role of executive vice

president, he raised more than $140,000,000 in private capital to real estate investments, making Caliber an Inc. 500 Company.

Fuller is a Certified Ethical Hacker and founding partner of Silent Sector, where he is focused on bringing enterprise-level cybersecurity expertise to midmarket companies.

2 0 O C T O B E R 2 0 19

Discover the Success Secrets of Women in Real Estate Meet five innovative women who took control of their financial future by investing in real estate with a self-directed retirement account.

Download Self-Directed Women Guide for FREE at

info.trustetc.com/ETCwomen F I N A N C I A L I N VR EE S IT IIN NG K 21

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Š 2019 Equity TrustŽ. All Rights Reserved.

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VETTING YOUR GENERAL CONTRACTORS Doing a comprehensive background check on the general contractor can help you avoid risks that could sink your deal.

BY STE V E SALI M BAS

B

eing able to properly

report) on the general con-

the initial draw and only

evaluate and quantify

tractor. This critical report

partially completed the

can reveal significant

expected repairs or,

red flags on the general

worse, disappeared with

contractor performing the

the cash, never to be

rehab (or on the investor, if

heard from again. These

the investor is performing

risks could have poten-

the rehab). Running the

tially been identified had

report can help avoid risks

an employment screen

that can sink a deal before

background check been

it even starts.

conducted. Prior instances

risk means the difference between an investment property turning a profit or a loss.

Capital lenders evaluate the asset’s metrics, such as LTV, current value, estimated rehab costs and after repair value. Flippers use a similar financial model. Occasionally, the

inal history and credit of

lender will factor in the

the investors’ preferred

investor’s credit score.

And investors looking to rent for cash flow will obtain a credit report on potential tenants.

W H Y A B AC KG R O U N D C H E C K I S I M P O R TA N T

There is one critical report, however, that is rarely performed: a comprehen-

2 2 O C T O B E R 2 0 19

Understanding the crim-

general contractor goes far beyond the required proof of insurance. Before the

of fraud could have been identified as well as other red flag behaviors that will never appear in a credit report.

initial draw check is issued,

S TA N DA R DI Z I N G D U E DI L I G E N C E

make sure you are per-

Requiring the investor to

forming the necessary due diligence to ensure your investment is secure as you enter into the project.

We have all heard of

conduct a simple background check on a general contractor is not good enough. Criminal records change over short periods

sive background check

instances where the

of time, so it is important

(in addition to the credit

general contractor took

to have a comprehensive

employment background check and credit check performed on the general contractor for every project.

Additionally, lenders should standardize the general contractor background check and credit report requirements. Lenders can do so by requiring a specific service to be used. Not all background check and credit check services are equal, so lenders need to ensure continuity in the lending due diligence process and evaluation of the general contractor.

W H AT A B AC KG R O U N D C H E C K S H O U L D C OV E R

A comprehensive background check will at

I dentity verification N ational sex

C R E DI T C H E C K V S . B AC KG R O U N D CHECK

offender lists

When you are hundreds,

N ational most

if not thousands, of miles

wanted lists

away from the asset,

F ederal watch lists S tate and county lists

you want to make certain the best possible general contractor hiring decision

Fair Credit Reporting

is being made. This

Act (FCRA) lists

decision is as important

To be truly comprehensive, the background check

as the LTV for the investment to be successful.

should check against the

Credit reports will only

following as well:

show if the rehab vendor

D eceased persons lists Fraud watch lists

has been paying his or her financial obligations.

But fraudulent actions

Police reports and criminal filings may exist, however. These will warn you of such behavior and help you steer clear of these general contractors.

A comprehensive criminal background check in addition to a credit report will provide much-needed insight to make better decisions to mitigate risk of financial loss to the lenders and investors.

Lastly, speed is of the essence. Select a background check and credit reporting vendor that can

S ocial Security Number

with other flip-related

(SSN) matching

properties are rarely

complete both reports

reported to credit report-

instantly. Once you have

ing agencies because

both reports, lenders and

of the cost involved. So,

investors will be able to

criminal activity and fraud

make the best possible

C urrent/previous address verifications P rior employment

least benchmark against

A credit check should also

will never be reflected in

risk assessment for rehab

the following:

be performed.

a credit report.

fund disbursement.

Steven Salimbas is a founder of Agios World Wide Inc. The company’s AllyCheck (www.allycheck.com) SaaS technology provides background and credit screen technology solutions for compliance and oversight.

F I N A N C I A L I N VR EE S IT IIN NG K 23

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T R STA

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Tough Questions to Ask Yourself Before You Invest

BY TA M I B O N N E LL

Knowing what you want and why you want it is half the battle, both in life and in real estate investing. Before you open your check book, search online or call a real estate agent, ask yourself the tough questions about what you want to accomplish, why you want to accomplish it and why you believe investing in real estate is the way to help you achieve it.

THE WHY Do you want to build a portfolio so you

properties can contribute to the cost of

can sell the properties and use the mon-

their post-secondary education?

ey to fund your retirement?

Do you want to put your skills as a

Do you want to buy a property every

handyman (or woman) to work to fix

time you have a child so that 18 years

and flip?

down the road the monthly cash flow or

Once you know your why, you’re

income generated from the sale of the

halfway there.

T H E W H AT After working through this exercise

He found a winterized home that he was

forward to the present day and Ed owns

15 years ago, Ed created a plan to fund

able to comfortably afford on a 15-year

the property mortgage-free. However, by

his retirement. He spent weekends

mortgage to coincide with the target date

renting it out over the years, he was also

driving through lake country to choose

of his retirement. He utilized the home

able to pay for maintenance and updates

the location where he wanted to invest

himself for vacations but also rented it

to the property and invest the extra

and eventually live.

out to generate additional income. Fast

money to provide cashflow in retirement.

2 6 O C T O B E R 2 0 19

T H E H OW Once you’ve established why you

I’ve known people who have made

works. I’ve known doctors and dentists

want to invest in the first place and

terrible mistakes thinking they wanted

who wanted to fix-and-flip but in reality,

confirmed that real estate is your

to fix-and-flip, but when they looked at

they work too many hours to take on a

vehicle of choice, next determine how

how much available time they had, it

project like that. They ended up losing

much time and effort you want to

was a nightmare.

money because they paid professionals

personally expend.

Reality television paints a rose-colored

to finish their projects. Also, they weren’t

Would-be investors can have unreal-

picture of fix-and-flip real estate. They’re

educated enough to know how much

istic expectations, and so they

made for entertainment and have to be

they should be paying to update the

choose labor-intensive projects

interesting for people to watch, so the

properties. They ended up with Corian

when they were better suited for

producers ensure the finished product

countertops in rentals that didn’t warrant

more passive investments.

looks magical, but that’s not how real life

upgrading to that extent.

With the why, what and time decisions

One such trend we’re seeing is a twist

shipping containers. These homes handle

made, next you should educate yourself.

on subleasing. People who don’t want

climate challenges well and can be inex-

Establish an informal group of peo-

to go through the trouble of renting out

pensive to build compared with tradi-

a property, but want to make sure that

tional construction. They are well-suited

the mortgage is covered, might lease it

for island living and hillsides, too. Many

to a family member, who then turns the

boomers and millennials are looking for

property into a short-term executive

efficient, compact, environmentally-

or vacation rental. This arrangement

friendly, alternative homes to rent.

E D U C AT E YO U R S E L F

ple whose opinions you trust and who have had some success in real estate investing. Some of these people may be in your immediate sphere and others might be experts you listen to on podcasts and follow on Twitter. A Google search for “American real estate investing podcasts 2019” returned more than 170 million results, so you should narrow your search by state, city, specialty, etc. to find the best fit for you. Look for

isn’t necessarily something the investor wants to manage or maintain, and the lessee can make money above and beyond what he or she is paying in rent.

Of course, everyone is fully disclosed, and this happens in communities where

Approaching real estate investing by first establishing your why, how and time commitment. Then learn all you can. Doing so will help you enter the market with your eyes open and help you achieve not only better financial

people who have “been there, done that”

it is permitted by law.

and are creative, with a finger on the

Experts and investors are also buzzing

returns because your investments will

pulse of investing trends.

about the trend toward homes built from

be based on what makes sense for you.

returns but also better emotional

Tami Bonnell Tami Bonnell, a 30-year real estate industry veteran, is the CEO of EXIT Realty Corp. International. She has been recognized as one of the 200 most powerful and influential people in residential real estate and among the top 10 women leaders.

F I N A N C I A L I N VR EE S IT IIN NG K 27

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Spending time with family and loved ones, enjoying those incredible vacation spots always imagined...it doesn’t have to be just a dream waiting to come true. At EXIT Realty, our agents are waking up to the lifestyle they’ve always dreamed of and turning it into a reality.

Because of the EXIT Formula’s single-level residual concept of sponsoring, a new income stream has been added to the real estate industry that never existed before. Our agents don’t work around the clock or live just paycheck-to-paycheck. In addition to taking listings and making sales, EXIT agents have a third dimension known as ‘sponsoring.’ This element creates an opportunity for you to turn your dreams into reality.

To date, EXIT Realty Corp. International has paid out more than a third of a billion dollars in single-level residuals since the year 2000. You owe it to yourself to find out how you can get a piece of the action. Achieve the lifestyle you’ve always imagined. JOIN US NOW!

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Call Tami Bonnell, CEO - 877.253.3948 2 8 Franchise O C T O B E R 2 0& 19Agent Opportunities: For Call Craig Witt, U.S. President - 231.218.0533

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P R O P E R T Y M A N AG E M E N T

THE HIDDEN WEAPON: PROPERTY MANAGERS Property managers can be difference makers for profitable portfolios.

BY S H AUN SH E N O U DA AN D E M I LY YIN

O

wning rental prop-

specialized skills, strategic

Working with a property

erties can be an

vendor partnerships and

manager who enhances

outstanding investment.

operational capacity.

a tenant’s renting experi-

But managing and grow-

Property managers can

ence can ultimately result

ing a portfolio is also full

identify trends across your

of inherent challenges and

portfolio that you might

risks. Managing tenants,

not see. Trends they may identify in preventive maintenance, tenant screening and so on can help you

WO R K I N G W I T H A P R O P E R T Y M A N AG E R W H O E N H A N C E S A TENA N T’S REN TING E X P E R I E N C E C A N U LT I M AT E LY R E S U LT I N L O N G E R L E A S E S , F E W E R VAC A N C I E S A N D YO U R ABILITY TO MAXIMIZE RENTS.

to proactively make your portfolio more profitable and create a better experi-

tenance, vacancy cycles, and even legal and code-related responsibilities can be complicated and challenging—often requiring a range of 3 0 O C T O B E R 2 0 19

vacancies and your ability to maximize rents. A property manager will be available to your tenants 24/7 to handle emergency maintenance repairs, rent collection and move-ins/ move-outs. They can also

ence for your tenants.

ensure that any damage

ENHANCED TENANT EXPERIENCE

a small problem doesn’t

Tenants are often a real estate investor’s primary revenue source. They can

rehab and general main-

in longer leases, fewer

also be the cause of some of your biggest business risks, which is why creat-

is handled quickly, so that become a big disaster.

B E T T E R O P E R AT IO N A L P R AC T IC E S

Property managers should have the resources to facilitate online payments,

ing and managing a tenant

present key performance

experience is one of the

indicators and other

most important functions

data, eliminate extended

of a property manage-

vacancy and provide

ment company.

access to qualified and

competitively priced main-

the wrong tenant in your

tenance/repair services.

investment property can

Property managers’ knowledge of local, state and federal landlord-tenant laws will ensure that all practices are in compliance. They should also have adequate processes in place to ensure proper record retention.

In addition, property managers are experienced in recovering NSF checks (checks returned for “not sufficient funds”), collecting debts and evictions.

Outsourcing these activities removes the burden from your operation and helps to insulate you, the investor, from having to carry out potentially difficult tasks.

Property managers can also streamline tenant screenings and enhance due diligence, including checking credit reports, past evictions and criminal history.

All of these help to ensure that only desirable tenants rent your properties.

T H E R IG H T T E N A N T S

significantly affect both short- and long-term profitability. Tenant screening goes beyond the basic credit check. Be sure you have a thorough understanding of the property management company’s tenant selection criteria.

In a market with greater than 95% occupancy, it is an opportune time to charge your property manager with finding the optimal tenant.

Finding the right tenants and keeping them happy increases the likelihood of

THE TENANT IS KEY

W

hen considering a property management firm, it’s important to weigh all the costs

and make sure you’re getting real value for your

dollar. That means evaluating the total return on

investment. Property management firms should be able to clearly demonstrate how their services can

lease renewal. A prop-

lead to increased revenue and less hassle for you.

erty manager should also

How do they do it? By focusing on the tenant

look to increase profits by increasing rent at renewal.

They will be able to gauge what a reasonable—but also profitable—increase

experience. Your tenant is your customer. A happy customer stays and continues paying rent. Prop-

erty management companies focus on two simple

things—fewer vacancies and longer leases. Fewer tenant turns equate to increased revenue consis-

should be, while also

tency and higher yields.

staying compliant with

Your property manager is a direct representative

landlord/tenant laws.

of your business, so it is critical that they establish

THE UPSIDE OF UPKEEP

tenant at move-in—and even before. Knowing the

Most property management firms have stand-

Unfortunately, not all

ing relationships with a

tenants are equal. Putting

range of contractors from

good rapport and set a positive tone for a new

tenant demographic and tailoring the experience by providing welcome packages, maintenance portals, virtual showings and so on all help to

increase tenant satisfaction scores, which should

be a key metric in evaluating property managers.

R E I I N K 31

REI INK

P R O P E R T Y M A N AG E M E N T

plumbers and roofers to

38%, thus cutting down on

insurance policy. Such a

management firm can also

HVAC technicians and

unexpected expenses.

policy will help preserve

allow investors to expand

excavators. Those rela-

Regular inspections will

the stability of your pri-

their holdings beyond a

tionships can mean less costly and faster repairs.

Speed is a critical factor for many reasons, most notably tenant convenience and alternative living expenses.

Routine maintenance, upkeep and upgrades increase the value of your property. According to data surveyed by PropertyMeld from 5,800 units across three

ensure the property is kept in good condition and that the fire alarms are fully functional, while also verifying that all individuals living in the property have been screened and are listed on the lease. At time of move-out, the property

mary property and casualty coverage. According to a recent study by SES Risk Solutions, over 55% of all fire losses were tenant-induced—losses that would have been largely recoverable via subrogation, if a renters/ tenant liability coverage

manager should conduct a

were in place.

thorough inspection of the

Most importantly, a

property and provide a report of all required and

tight geographical area.

F I N DI N G T H E R IG H T P R O P E R T Y M A N AG E R

Property management companies often focus on specific property types (single-family dwellings, multifamily dwellings, condominium units, etc.), so it is critical that your property manager has the specialized experience to

property manager takes

handle your unique needs.

the burden of the day-

Property managers should

markets examined over

recommended repairs.

18 months, preventative

Property managers can

the investor, allowing

maintenance and overall

also help enforce that your

the investor to focus

upkeep can also reduce

tenants maintain an active

on growing the portfo-

in the market and industry

tenant service requests by

renters/tenant liability

lio. A trusted property

(i.e., marketing approach,

3 2 O C T O B E R 2 0 19

to-day operations off

be an expert in their respective field and be quick to adapt to changes

tenant communications,

guarantees on repairs and

P roperty Management

etc.). Select a property

maintenance.

Companies Near Me

manager that wants to establish trust and offers consultative services, such as through a dynamic Not to Exceed (NTE) amount for repairs and maintenance.

Additionally, look for property managers that have policies and guarantees that protect you if they

Several industry events provide great access to property managers, including IMN’s Property Manager Forum. Online searches are also another great place to start. Here are key search terms to use: < Your City> Property

are unable to place a new

Managers

tenant within a reasonable

< Your City> Property

time. Marketplaces (such as Roofstock), and property managers will sometimes waive fees, cover rent and offer one-year

Management R ental Property Management R ental Management

Ask for recommendations from your local chamber of commerce or property manager associations such as the National Association of Residential Property Managers (NARPM), read blogs and network with fellow investors. It’s also a good idea to talk to your insurance carrier or other risk management specialists to find out if you’re fully covered and to ensure your prospective property management company carries the right insurance.

Shaun Shenouda, chief operating officer and programs executive at SES Risk Solutions, has more than

15 years of experience offering master-policy property and casualty insurance, service and technology to financial institutions and real estate investors. Before joining SES, Shenouda was senior vice president of integrated solutions and analytics at Bank of America, where he was focused on business transformation,

customer experience optimization and M&A integration initiatives. He has a degree in management information systems and received his MBA from Pepperdine’s Graziadio School of Business and Management.

Emily Yin is an operations analyst with SES Risk Solutions, supporting their real estate investor program.

In addition to managing the claims process and providing analysis on losses, Yin’s role focuses on change

management and process improvement. Before joining SES, she was a research assistant at the University of California, Riverside and was responsible for data collection and analysis.

For three decades, the real estate investment experts at SES Risk Solutions have delivered modern, flexible insurance solutions that provide comprehensive coverage for residential portfolios. www.ses-ins.com

F I N A N C I A L I N VR EE S IT IIN NG K 33

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A LT E R N AT I V E I N V E S T I N G

REHABBING THE BORROWER IN A WHOLE DIFFERENT WAY Some note investors in search of higher returns would rather “rehab the borrower” instead of rehabbing properties.

BY S COT T CARS O N

W

ith real estate

estate, driving up demand

performing assets has its own appeal to investors.

markets across the

and prices in a shrinking

U.S. rebounding to where

foreclosure market, and

they were before the

you have investors looking

2008 downturn, or even

to different avenues to

exceeding those levels,

find profitable deals that

many real estate investors

make sense.

and property owners have been able to cash in on those increasing values and the inventory of fore-

become extremely popular in the past decade has investors playing their own role in today’s version of the Big Short. The premise is that banks and mortgage companies orig-

Many of these investors

inate loans and for some

have turned their inter-

reason (job loss, divorce,

est to becoming a “lien

health or market values

lord.” They’ve dived into

tanking), the borrowers

But many fix-and-flippers,

the niche of buying notes

are unable to pay their

landlords and other real

(first and second lien

mortgage on time and fall

estate investors are feel-

mortgages) and becoming

behind. Often, they owe

ing the pinch with today’s

the bank on residential

more on their mortgage

market. The number of

and commercial proper-

than what their home or

available properties that

ties. Investors have been

property is worth. And as

fit their investment mod-

playing the “paper game”

they fall further behind

els have dried up or disap-

for centuries—the niche

each month, the banks

peared in markets. Add in

of note buying falls across

may often be willing to

the increased number of

all debt categories—but

offload these nonperform-

new “weekend warriors”

the arena of purchasing

ing notes (NPNs) at a dis-

who want to jump into real

debt on distressed or

count to investors willing

closures and distressed properties over the past 10 years.

3 4 O C T O B E R 2 0 19

THE CASE FOR BECOMING A “LIEN LORD”

The niche that has

to take over the bank’s

waiting for properties to

signs, mailing postcards

be sold on the secondary

position. Discounts on the

hit the foreclosure auction

and letters, or door knock-

market to note investors at

debt can vary, depending

or multiple listing services

ing individual borrowers

50-60% of the value of the

on how far behind the bor-

before they buy.

who have hit the foreclo-

home, or at 40-50% of the

rower is, how far underwa-

Since there is no mort-

sure block.

unpaid principle balance.

ter they are, foreclosure time frames in the state, and terms and condition of the mortgage.

gage MLS database, note investors are finding their deals by contact-

GETTING A RETURN

So how are note investors

Let’s say that investor buys the debt for $50,000 and now becomes the bank.

ing the banks’ internal

making their money?

Ten years ago, many banks

departments that handle

Let’s say a borrower

still owes more than

were selling their debt to

their note and mortgage

$100,000, the investor

investors and firms for pen-

sales. The special asset

purchases a home worth

nies on the dollar of what

or secondary marketing

was owed as market values

departments of banks

crashed. Although markets

will often have defaulted

have rebounded and pric-

mortgages on their books

ing has increased on debt

that they want to sell off

purchases, there are still

monthly, quarterly or once

plenty of debt buyers out

a year, depending on the

there cashing in.

situation and the banks’

What attracts most of

financial position.

$100,000 and gets a mortgage for the same amount. The borrower (or market) hits a financial hurdle and the borrower falls behind a year on payments while the market takes a hit. Let’s say that the home is now only

Although the borrower

now has some room to negotiate with the borrower in a variety of ways.

The margin between what the investor paid for the note and what the property is worth or what is still owed by the borrower is where note investors make

worth $80,000, and the

their money.

them are the variety of

This access to multiple

borrower owes $100,000

The first strategy is to try

exit strategies and the

deals on a regular basis

plus the year of back

to get the borrower to get

fact that many are finding

makes it attractive for

payments that haven’t

back on track and reinstate

deals months ahead of

note investors who are

been made. This nonper-

the loan. Often, note inves-

other investors who are

tired of posting bandit

forming mortgage might

tors will allow the borrower F I N A N C I A L I N VR EE S IT IIN NG K 35

REI INK

A LT E R N AT I V E I N V E S T I N G

to start paying the original

the owners to sell the

they can get the borrower

curve involved with note

payment and reallocate

property on a short sale

to start making payments

investing versus fix and

the back payments to the

or offer up a deed in lieu

again and on time for six

flipping. Debt investors

face amount of the loan. If

of foreclosure or pay the

to 12 months, the loan

will often have licensed

the borrower is unable to

borrower a sum to sign

now can be classified as

loan servicing compa-

do that, the note investor

the property back to the

a performing note and be

nies who are licensed in

may allow the borrower to

new bank. The latter is

sold again on the second-

do TPP (Trial Payment Plan)

called cash for keys. If the

ary market (above what

the different states and

for six to 12 months with

borrower won’t play ball

the investor paid origi-

reduced payments.

with the bank, then the

nally for the note) to debt

A loan modification is

investor will often pursue

investors looking for these

foreclosure to take the

types of performing notes.

With a loan modification,

property back.

If they bought the note at

the investor can reduce

What they do with the

50% of market value and

the principle, interest

property at that point

then sold the note after

the investor.

rate, length or terms

(sell it at the foreclosure

12 months of payments,

of the mortgage to make

auction, sell it on the

they might receive offers

There are also different

it more affordable for

MLS, keep it as rental, or

at 80-90% of value with-

the borrower.

offer up the property with

out having the legal and

Some investors will allow

owner financing) is up to

repair costs to foreclose

their specific investment

and rehab the property to

someone take over or

and market specifics.

sell it on the open market.

assume the loan. If the

Many note investors

There are a lot of moving

teachers and online vid-

borrower doesn’t want to

would rather “rehab the

parts to note investing,

eos of investors who are

stay in the property, often

borrower” instead of

and it’s not for everyone.

focused on this niche of

the new bank will allow

rehabbing properties. If

There is a steep learning

distressed investing.

often a strategy as well.

the borrower to have

comply with fair debt collection practices. These servicers (along with attorneys in each state) are handling most of the borrower outreach and negotiations on behalf of

risks and due diligence procedures that note investors face versus pure property investors. But if you are willing to learn, there are conferences,

Scott Carson is the CEO of WeCloseNotes.com, an Austin, Texas-based real estate firm, and the host of the popular Note Closers Show Podcast. He has been an active real estate investor and entrepreneur

since 2002, focused on the niche of distressed mortgage and note industry since 2008. He has helped to create and educate thousands of other successful note investors who have closed on thousands of deals for their own portfolios through his different educational programs.

3 6 O C T O B E R 2 0 19

The Future of Real Estate Investing

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Info@GetPrivyNow.com F I N A N C I A L I N VR EE S IT IIN NG K 37

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PROFILE

MAKING A MARKET THAT WORKS FOR EVERYONE

BY CA R O L E VA N S IC K L E E L L I S

PeerStreet’s “two-sided marketplace” wins across the board.

3 8 O C T O B E R 2 0 19

W

hen PeerStreet

“While a one-sided mar-

co-founders Brew

ketplace builds one busi-

PEERSTREET IS THE INDUSTRY’S FIRST TWO-

Johnson and Brett Crosby

ness, a two-sided market-

started PeerStreet in

place scales thousands

SIDED MARKETPLACE FOR

2013, the industry lacked

of businesses,” COO

the vocabulary to even

Crosby said. “This creates

INVESTING IN REAL ESTATE

describe the innovative

a social-impact element in

online marketplace they

two-sided marketplaces

had created. Although

that is one of PeerStreet’s

“two-sided market-

defining advantages.”

places” did already exist (think: Amazon, Uber and Airbnb), the real estate industry had a notable lack of them.

platform one of the most attractive in an increasingly crowded field thanks

was to change this and, in

market access the entire

the process, create a com-

company—now more

pletely unprecedented

than 200 strong—holds

environment where real

in such high regard.

estate entrepreneurs,

“It’s a $3.5-$4 trillion

conduct successful transactions in exponentially growing volumes.

LENDERS ON THE OTHER .

served to make the fintech

to the transparency and

private lenders could

ON THE ONE SIDE AND

That advantage has

The new company’s aim

accredited investors and

DEBT WITH INVESTORS

equity value market,” said Johnson, PeerStreet’s CEO. “There are about $150 billion in transactions and acquisitions that take

PeerStreet believes it

“We had to level the

holds the answer to resolv-

playing field between

ing that fragmentation and creating a positive, productive environment as part of the solution.

HYPERF R AG M E N TAT IO N LEADS TO A G R OW T H E X P L O S I O N

Solving the inherent problems associated with fragmentation was a top priority in 2013 when

Wall Street and Main Street,” said Jason Harris, PeerStreet’s director of strategic sales.

The fragmentation in the real estate lending market means that the local borrowers in the space frequently cannot access adequate capital. The local lenders in these instances have never had access

PeerStreet is the industry’s

place [in the broader real

first two-sided market-

estate market] from inves-

started the PeerStreet

place for investing in real

tors buying investment

project. By 2015, when

estate debt with investors

properties every year.

the company opened

on the one side and lend-

Only about 30% of the

its doors to the general

platform, provides new

ers on the other, Johnson

acquisitions have financ-

public, they believed they

levels of liquidity, stability,

and Crosby explained.

ing attached to them.”

were well on their way.

technological capabilities

Johnson and Crosby first

to this kind of secondary market. Access to such a market, via the PeerStreet

F I N A N C I A L I N VR EE S IT IIN NG K 39

REI INK

PROFILE

PEERSTREET SERVES TO

and subsequent expansion

Part of that potential

BRIDGE THE GAP BETWEEN

is certainly due to its trans-

exists in its most basic

LENDERS AND CAPITAL MARKETS BY OFFERING A

parent, outwardly focused company culture. The entire team receives train-

SECONDARY MARKET

ing on and participates

BEYOND THE TR ADITIONAL

on major performance

in ongoing discussions

SECURITIZATION MARKET.

metrics and corporate

BREW JOHNSON, PEERSTREET CEO

pany is also dedicated to

transparency. The comemployee growth, offering regular opportunities for leadership, growth and

and affordability in the

decisions and diversify

new challenges.

mortgage market for pri-

their portfolios with

vate money lenders.

unprecedented levels of

“This is a company that

It was clear early on that the key to providing this kind of access is PeerStreet’s innovative two-sided marketplace. The platform exemplifies the fintechenabled marketplace model, offering a combination of financial services, software engineering and market opportunity.

“PeerStreet serves to bridge the gap between lenders and capital markets by offering a secondary market beyond the traditional securitization

data and transparency into their investment options. Private lenders can access myriad diverse capital sources and technology to make lending more efficient. Of course, key to all this are the real estate entrepreneurs who are borrowing capital, then going out and purchasing and enhancing more investment properties.”

is built on the fundamental values of openness, transparency and unlocking value for our customers rather than trying to extract value from them,” said Crosby. “Part of that process involves cultivating a work environment that encourages a hardworking, talented team to continue to transform the way the lending industry does business.”

Harris added, “If we

S C A L I N G U P AC R O S S THE SPECTRUM

continue to execute that

In an industry where

to create and expand on

vision, we will continue

form in smaller-scale investors, who often struggle to find their footing in today’s highly competitive real estate markets. On the other side of the equation, many new investors are nervous about making large capital investments at the outset. PeerStreet offers initial investments as low as $1,000 and automated reinvesting for $100. “That ability to invest in a fractional piece of an individual loan is crucial,” said Johnson. “It gives every investor a shot at diversification.”

This scalability and accessibility generally did not exist before PeerStreet’s dual marketplace platform.

A combination of legal innovation and technological development made the entire multilayered process possible.

“We’re investing tens of millions of dollars into technology to create value for investors so they can

investment capital can

a unique, self-sustaining

“Accredited investors

be difficult to access and

market with limitless

save money and time,”

can make more informed

retain, PeerStreet’s success

potential.”

said Crosby.

market,” said Johnson.

4 0 O C T O B E R 2 0 19

P E E R S TR E E T M I LE S TO N E S :

T H E T E C H N O L O GY O F U N D E RW R I T I N G

PeerStreet’s underwriting

A TIMELINE OF ACCELER ATED GROW TH

engine is another example of the massive returns the company reaps from its investments in technological advancement.

The platform’s automated underwriting engine works in tandem with traditional analyst review to create a fine-tuned

2013 Brew Johnson and Brett Crosby found PeerStreet.

2015 In October, the company opens its doors to the general public.

loan review system with predictability and peace of mind a top priority.

“Between the loan origi-

2016 In November, PeerStreet secures $15 million in a Series A funding round led by Andreessen Horowitz venture capital firm.

nator’s credit evaluation, the underwriting engine’s investment criteria overlay and traditional analyst review, there are multiple layers of diligence

2017 In April, PeerStreet is recognized as one of the top companies and products in the financial services and technology industry when it wins the CB Insights Fintech Breakthrough Award.

that underlie every loan,” Johnson said.

That scrutiny of each potential investment from

2018 In April, PeerStreet secures an additional $30 million in Series B venture capital funding.

multiple angles could keep both the platform and the PeerStreet product in demand regardless of where the economy falls in its cycle. When real estate markets are heated, PeerStreet can enable active,

2019 PeerStreet achieves two financial milestones: $2 billion transacted through the platform and more than $1 billion in assets under management.

PeerStreet receives multiple Comparably “Culture Awards” naming the company one of the “Best Places to Work in Los Angeles” and “Best Outlook for 2019” and American Banker’s “2019 Best Places to Work in Financial Technology” award.

REI INK 41

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PROFILE

experienced, high-volume

financing becomes harder

diversion from the tradi-

importantly, it is transpar-

investors to either lever-

to come by, investors

tionally static loan pools in

ent,” he said.

focused on acquisition can

the securitization market.

age some of their returns into private loans or, through its loan-purchasing system, access return on capital more quickly and cycle that capital back into the system.

At the same time, the ease of access to the platform and relatively low barrier to entry may keep newer and lower-volume investors in the equation and participating in both housing growth and economic

use the platform to fund their deals, while those who prefer to step back from acquisitions can put their money into the diligenced lending packages.

“The net effect is that the end investors can create pools of assets very, very dynamically.

One investment at a time or one kind of loan at a time,” said Johnson.

This, combined with the ability to invest in multiple loans on a fractional basis, allows investors to potentially compound their interest and balances different financial cycles and risk factors.

Johnson believes this to be a fundamentally different investment vehicle that is better for the investor. “Here, you have more control, you

All that technology is accompanied by an additional advantage: PeerStreet’s technological resources and acumen come with one of the nation’s premier cloudbased infrastructures. That means private lenders using the platform also have access to unusual benefits that they might have searched for elsewhere or develop on their own.

expansion. When markets

New loans flow into the

get more direct access to

“As we integrate and

cool and conventional

platform daily, which is a

the actual asset and, most

provide more software

4 2 O C T O B E R 2 0 19

tools, we create consis-

benefits that would come

He noted that the prod-

for investors, more data

tency and standardization

with working with a larger

uct fits PeerStreet’s goal

and, ultimately, more

of data, documentation,

institution, such as doc-

of building up the real

capital,” Johnson said.

legal legwork, etc., which

ument standardization,

estate community—as

actually is something that

capital market expertise

the loans become more

“This expansion benefits

drives more capital to our

and access to capital.

efficient and are made

lenders,” Johnson said.

They do so without losing

in greater numbers, they

the advantages they value

can positively affect more

of being smaller, more

participants on both sides

localized businesses,”

of the equation (including

Johnson said.

the many tenants who now

As the platform and

can access those residen-

C R E AT I N G C O M P E T I T IO N W H I L E R E WA R DI N G E F F IC I E N CY

PeerStreet’s ability to centralize both lending products and associated services in one comprehensive, expanding cloud results in the creation of a market that is both twosided (and, therefore, in a state of near-constant expansion) and extremely efficient. This enables

the market continue to expand, PeerStreet is working to meet the investor needs that are growing in volume and complexity daily. For example, prior to 2019, the company solely offered shorter-term bridge loans.

tial rentals) than a single private money lender would ever be able to influence alone.

CONTINUING TO BUILD WITH COMMUNITY IN MIND

The PeerStreet platform

both sides of the marketplace because it can help to diversify both property types and loan products, which can be good for our investors’ portfolios,” Crosby added.

That combination fits PeerStreet’s mission to democratize access to capital.

“The borrowers can now go and buy the properties, fix them up, and either sell them or rent them to provide homes for first-time buyers and

Recently, it expanded loan

continues to receive

offerings to include a new

recognition for being

product, the “Residential

among the most ground-

attempt creative financ-

for Rent” loan, to address

breaking systems of

ing or cash financing for

borrower demand for res-

its kind in the industry.

all their deals in order to

idential rental financing.

However, the company

retain flexibility and agility

The RFR loan is a 30-year

does not plan to rest on

in their market to use the

loan product with a com-

its laurels in 2020.

PeerStreet platform in

petitive interest rate.

“We are going to con-

“It is better for everyone

tinue to expand our loan

“Smaller private lenders

involved, especially the

product offerings and, as

and real estate entre-

borrower, who can now

we do so, we expect the

community is what we

preneurs who normally

acquire new property with-

network effects within the

love most about real

might not borrow capital

out using as much equity

marketplace to bring in

estate, lending and the

are able to leverage the

capital,” said Johnson.

more lenders, more loans

PeerStreet platform.”

lenders and borrowers who might traditionally

their current businesses.

tenants seeking housing,” Johnson said. “As long as we continue to support both sides of our unique two-sided marketplace, we are confident we will be a crucial part of creating housing for people in areas where it was not available before— and that connection to

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REGIONAL SPOTLIGHT

4 6 O C T O B E R 2 0 19

GEORGIA ON MY MIND TH E RE A L E S TATE I N V E S TOR ’S ONGOI NG LOV E A FFA I R WITH ATL A NTA H OUS I N G

BY CA R O L E VA N S IC K L E E L L I S

I

t had been more than three years since Atlanta, Georgia, had posted a double-digit temperature, but it did so this

past June when the heat index hit 100. It’s also been about three years since the city’s housing market posted double-digit gains in value, but that doesn’t really worry local investors, local businesses or even local developers. Across nearly all real estate sectors, investors still believe in Atlanta.

“Unlike some other hot-but-higher-priced housing markets, there is not much evidence yet that the Atlanta housing market has overheated,” said Daren Blomquist, vice president of market economics at Auction.com. “There is evidence of a recent slowdown in the number of sales, and the rate of home price appreciation is calming down a bit, but Atlanta is performing F I N A N C I A L I N VR EE S IT IIN NG K 47

REI INK

REGIONAL SPOTLIGHT

better than the nation on

Raghavaraju, CEO and

in recent months, home

both of these metrics.”

founder of 33 Holdings, a

prices have continued to

private equity real estate

rise. In July, the Atlanta

firm based in Atlanta

Realtors Association

and serving investors in

(ARA) reported home

North American and Asia,

sales prices were up 7.3%

agreed. “We currently see

over the same time a year

a great deal of opportu-

prior at a median value of

nity in value-add invest-

$295,000. July sales also

ments in single-family,

held steady in volume

office, retail and mixed-

with July 2018, although a

use asset classes,” he said,

month prior, in June, sales

However, Blomquist and other local investors, such as Robert “RJ” Palano and Sanjay Raghavaraju, warn that a rising volume of available inventory could compel investors to accept shrinking profit margins in 2020 and beyond.

“but we are currently cautious at this point in time

AT L A N TA A P P E A R S L I K E LY T O BE A MONG THE FINAL M A JOR M E T R O P O L I TA N A R E A S S TA N D I N G AS THE SCALE BEGINS TO TIP FROM A SELLER’S MARKET TO A BUYER’S MARKET IN PRIMARY M A R K E T S A R O U N D T H E CO U N T R Y.

as e-commerce pushes these assets through a dramatic change. We want to see how we can be at the forefront of the changes as they happen.”

33 Holdings’ portfolio includes residential and commercial assets and development projects.

Palano serves as acquisitions director for real estate investing company Buy Cash Flow Properties.

He has been acquiring properties in Atlanta for

4 8 O C T O B E R 2 0 19

Atlanta appears likely to be among the final major metropolitan areas standing as the scale begins to tip from a seller’s market to a buyer’s market in primary markets around

volume was down nearly 13% year-over-year.

The volume volatility is a result of a “mismatch between potential buyers and sellers,” ARA analysts said. They noted the prices of most homes in the area listed for sale in June were “substantially higher” than what most would-be buyers can afford. The total housing inventory in the city is just over three months’ worth, however, indicating demand is still high and the inventory is on the tight side of healthy.

decades. He describes

the country. Although

the market as “frothy,”

Atlanta, like most other

although he emphasized

24-hour cities, has seen a

“there are always ways to

certain degree of stag-

Fortunately for Atlanta-

find opportunities.”

nation in sales volume

area real estate investors,

RESIDENTI AL AFFORDABILIT Y IS REL ATIVE

the affordability factor in

Compared to other gate-

sectors strong, despite the

Atlanta is largely relative.

way cities like Chicago,

rising market heat.

Illinois, and Washington,

“As long as we stay within

While a median home price near $300,000 is certainly nothing to sneeze at, the cost of living in San Francisco, California, for example, is 96% higher. Brooklyn, New York, boasts a cost of living 82% higher. And, notably, those values come before considerations such as room to build (which concerns developers) the cost of acquiring land and materials for building new housing, or the cost of renovation.

D.C., Atlanta’s metro rents are comparable but still favorable. Average Chicago rent in April 2019 was $1,511 each month, while D.C. posted $1,773.

Atlanta rents were firmly below $1,300, at $1,272. As a result, many businesses are choosing to expand into the southeast with new regional hubs, or they are transplanting existing operations to Atlanta from other, more expensive

our operating parameters, our ‘box,’ so to speak, we are still acquiring properties, adding value, creating income-producing assets, then refinancing or reselling when the opportunity presents,” Raghavaraju said. “I doubt there is going to be a heavy slowdown in the Atlanta real estate market at this point because of how many of the fundamentals in the [national

areas. This keeps demand

market] were corrected

for real estate across

after the last crash.”

Georgia’s business-

friendly tax environment

and willingness to aggressively court major corporations for headquarters

and satellite offices in the state is aided by Atlanta’s relatively affordable

housing when compared

to other markets of similar sizes and resources. This not only brings in new

commercial development

and new tenants for exist-

ing commercial buildings, it also creates an ongoing demand for new residential developments as the population continues to

grow and employees fol-

low employers to the area.

F I N A N C I A L I N VR EE S IT IIN NG K 49

REI INK

REGIONAL SPOTLIGHT

ATLANTA’S “NODES” OF INTELLECTUAL CAPITAL

In January 2019, the state of Georgia lowered the corporate tax rate from 6% to 5.75%. It also added its own incentives to existing Opportunity

O

Zone program incentives, ne of the things that makes Atlanta particularly attractive to busi-

nesses looking to expand their corporate footprint in the southeast

offering new and existing businesses creating jobs

is, naturally, the proximity of the world’s busiest passenger airport to the

in qualified opportunity

its status as the busiest airport by passenger traffic for more than 20 years,

to qualify for tax credits of

city center. Hartsfield-Jackson Atlanta International Airport has maintained and it employs more than 55,000 residents with a payroll of $2.4 billion.

zones (QOZs) the chance up to $3,500 per job. The

In fact, some local analysts credit a Delta hiring spree with the salvage

city recently inked a deal

scandal that resulted in a now-rectified loss of accreditation in that coun-

a $250,000 Economic

professional residents into an area that otherwise would not likely have

to the company to support

of one nearby county’s housing market in the wake of a public education

with Starbucks to provide

ty’s schools. That series of hiring waves brought a number of new, skilled

Opportunity Fund grant

attracted those individuals as homeowners or renters. However, the

airport is one of more than half a dozen of what Yardi Matrix refers to as “Intellectual Capital Nodes” in Atlanta.

Other notable “nodes” include: T H E ATL A NTA M E TRO A R E A , which saw 38% multifamily rent growth

last year, 11% supply growth and just 0.6% occupancy change. This area boasts more than 209 million square feet of office space.

V I N I N G S , which posted 34% rent growth in the last year, 13% supply

growth and an 0.3% occupancy change.

M I DTOW N , which boasted 35% rent growth, 38% supply growth and a 1% occupancy change.

S A N DY S PR I N G S , which had a 22% rise in rents last year, an 8% sup-

ply growth and -0.6% occupancy change.

A LP H A R E T TA , which posted 37% rent growth, 12% supply growth and nearly -2% occupancy change.

B U C KH E A D, home of the new Salesforce Tower, which also experienced

subzero occupancy changes but 25% rent growth and 39% supply growth.

Source: Yardi Matrix

5 0 O C T O B E R 2 0 19

the creation of a new satellite office in the area.

“The entire state has a long history of policies focusing on bringing in companies to insulate and build up the economy, and Atlanta reaps the vast majority of the benefits of those policies,” said Harding Easley, an account executive with Yardi Matrix.

Easley noted that in 2019 alone, Atlanta was the recipient of 850 new jobs from Norfolk Southern (and associated new office space development), 1,000 potential “career

opportunities” sourced from the BlackRock’s newest “innovation hub” (iHub) and 600 new jobs from Salesforce, which is already invested in the city and will take over the remainder of its existing building, renaming it

W H E N IT COMES TO T H E TYPES OF DEALS ON THE MINDS OF GEORGIA INVESTORS, THE BEST A N S W E R I S S I M P LY, “A L L O F T H E M . ”

mainly to each other at this point, but there are plenty of individual deals out there where the owners are selling because of a death, a divorce, the traditional reasons. . . .

“We still buy at auctions, but where there used to

Salesforce Tower Atlanta.

be 1,000 houses, now

Additionally, Pullman Yard Development predicts

partnerships between

“Atlanta has big pockets of

there might be 50.”

its 27-acre, $100 million

local universities, the city

growth all over the metro

mixed-use “creative city”

government and private

area and the suburbs

Blomquist provided

project will be complete in 2020. It is dedicated to serving Atlanta’s already $9 billion film industry.

Many of these incoming corporations will require a substantial population of highly educated employees in order to support the demands of the new headquarters, hubs and satellite offices.

“Can Atlanta’s professional population meet that demand?” Easley asked. “I would say probably so. Nearly half (49%) of the city’s population has a bachelor’s degree or

developers.”

around the city. In those

CHASING DOWN DE ALS ALL OVER THE CIT Y

open when it comes to

When it comes to the types of deals on the minds of Georgia investors, the best answer is simply, “all of them.”

Long a subject of urban design ridicule for its notorious urban sprawl and nightmarish rush-hour congestion, Atlanta and its surrounding suburbs are having the last laugh as other cities find themselves with limited space for expansion, skyrock-

places, everything is wide investment potential,” Raghavaraju said. “If you know the right assets (for you) to bank on, then you can find them in Atlanta and really go for it.”

“I’m still a firm believer in single-family houses, and there are still plenty of opportunities in Atlanta in that sector,” Palano said. “They are the most liquid of all real estate investments for U.S. and international investors.

There may not be as much

hard data to back that up as well, describing a “red-hot demand for distressed properties” that caused average sales prices at auction to hit all-time highs of more than $150,000 in June of this year.

“The city is living up to its ‘Hotlanta’ moniker when it comes to the housing market,” Blomquist concluded. “Real estate investors love Atlanta.”

As long as investors, businesses and the incoming population continue to feel that way, any

inventory as we used to

housing downtrend

traffic as bad or worse

see, partly because the

in Atlanta could trail a

the massive incentives in

than that for which the

hedge funds active in the

national slowdown by

the form of public-private

city is known.

area are actually selling

months or even years.

higher, and that number seems likely to rise given

eting housing costs and

F I N A N C I A L I N VR EE S IT IIN NG K 51

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LENDING

THE HARD-MONEY MINDSET THAT IS WEAKENING YOUR PORTFOLIO With hard money so cheap, more investors should be using it.

BY CH A RLE S SE LLS

T

he real estate indus-

misconceptions about

my own capital?” But, why

try stigmatizes hard

private money are creating

wouldn’t you do that?

money and private money lenders. Unfortunately, that is preventing thousands of investors from generating the wealth and returns they are fully capable of creating. Although private money was once (justifiably) considered expensive and sometimes predatory, those days are long gone. Before you lose one more cent, isn’t it time to change your mindset?

What if you were told that it is you preventing yourself from really experiencing growth in your real estate portfolio and business?

the success that today’s real estate market holds.

GET TING BEYOND THE MISCONCEPTIONS

Here are three mindsets about hard money that are just plain wrong in today’s lending environment. If you believe any of these, take a minute to adjust your thinking and get ready for some serious growth in your portfolio.

USING HARD MONEY MEANS GIVING UP RETURNS.

Consider this example: Investor Bob took $500,000 and invested it into five different opportunities at $100,000 each.

Each deal was worth far more than $100,000, but Bob was able to spread his money out and dramatically multiply his returns by using leverage to make up the difference on each deal. Investor Bailey, on the other hand, took $500,000 and invested it in just one deal equivalent to any one of the five Bob invested in. Both investors made money, but Bob’s

So many investors think

buying power and returns

annoyed and shocked.

about hard money this

were nearly five times

However, the odds are

way: “Why give up 8-10

greater—even after he

good that some long-held

points (or more) if I have

paid back the loans.

You would probably be

5 4 O C T O B E R 2 0 19

barriers between you and

familiar refrain, “Invest PRIVATE LENDERS WANT ME TO FAIL .

Probably one of the biggest hurdles you will face in terms of accessing hard money is experience. If you don’t have it, you may have trouble getting a loan. But that is precisely because your private lender does not want you to fail. Furthermore, if it appears likely you will fail, a private lender probably will not want to be part of that process.

When you work with legitimate private lenders, they will likely know even more about your investment area than you do.

They will request appraisals (which they will expect you to provide

today, using other people’s money, in your spare time,” then run!

With an experienced, reputable hard-money lender, your loan rate will often depend on your ability to prove you have experience in successful investing and liquidating.

of equity remain in the deal after financing, and they will require you to prove real estate is not just some new hobby you picked up last week. In fact, if your private money

IN 1 YEAR AND 5 DAYS

In most cases, three Total suc- Property Investment:

$2,444,267.45

cessful deals will getTotal youCash Investment:

$649,525.55

Earnest Money: in the door with a pretty Cash Down: good rate.

Hard Money Loan Payments: Furnishings and Staging:

Does this mean less expe-

rienced investors are out Sale’s Price: of luck? Not necessarily, Cash To Seller: but usually you will need COC Net Return: to partner up with a more

$15,000 $452,028.63 $134,496.92 (Interest Only) $48,000.00

TOTA L P RO P E RT Y I N V E S TM E NT $3,550,000 $1,292,369.06 TOTA L CAS H $642,843.35 I N V E S TM E NT

$2 , 4 4 4 , 267. 4 5

$ 6 49, 52 5 . 5 5

This illustration shows the power of leveraging through private lenders. As an “all cash” deal, experienced party or work E ar n e s t M on ey $15 ,0 0 0 investment still returns a remarkable profit of 26.6%.

Using private lenders, however, your ca with a third-party servicer C a s h D ow n and you can turn$more 4 52 deals, ,028 .using 6 3 less personal capital. on cash profit is significantly higher who has already estab-

lished relationships with hard-money lenders.

at your expense). They will demand that plenty

98.97% Profit%in PROFIT 1 Year and 5 Days 98.97

MY MARKET’S HARD-

H ard M on ey L o an Pay m e nt s

$1 3 4 , 496 .92 (inte re s t on ly)

F ur n i s h in g s an d S t ag in g

$ 48 ,0 0 0.0 0

S A LE S PR IC E

$ 3 , 5 5 0,0 0 0

CAS H TO S E LLE R

$1 , 292 , 369.06

C O C N E T R E TU R N

$ 6 42 , 8 43 . 3 5

MONEY LENDERS ARE TOO PICK Y. I’VE TRIED TO FINANCE DOZENS OF WHOLESALE DEALS AND THEY WON’T BITE.

One thing that will stop

taking out a loan using

trying to finance whole-

This illustration shows the power of leveraging through private lenders. As an “all cash” deal, this investment still returns a remarkable profit of 26.6%. Using private lenders, however, your cash on cash profit is significantly higher and you can turn more deals, using less personal capital.

verbiage resembling this

sale deals. If you have

Source: PIP Group

lender pitches you on

investors in their tracks is

REI INK 55

REI INK

LENDING

been finding yourself

Good news: A private

operate in really big hot

against a brick wall as

lender is not going to

you attempt to finance

want any part of that

markets because there

one wholesale deal after

“ghost inventory.” Private-

another that you found

money lenders seldom

in your meetup, then the

loan on wholesale deals,

problem is likely that you

but that does not mean

are trying to convince your lender to fund a deal that isn’t worth doing. The heart of your problem is

those lenders are unreasonable. They could be saving your skin.

tory: wholesalers.

WHERE VI ABLE DE ALS ARE LOCATED AND HOW TO ACQUIRE THEM

Now, novice investors, pay

Inventory is a hot topic

likely your source of inven-

close attention: There is a type of investor called a wholesaler, but you will probably never meet a truly legitimate one. In the past two years, the concept has invaded our industry that absolutely anyone can be a wholesaler and make a fortune at double-closings.

Most wholesalers have no legal right to offer, list, sell or negotiate on behalf of the legal owner of the deals they are trying to do. What that means is the contracts on these

these days because it is very tight in many markets.

so many times that often neither the wholesaler

market and they feel that increases their odds of being successful. The idea is not without merit; you’ve probably heard the saying, “A rising tide lifts all boats.” We have different rules in real estate.

For nearly all investors, the best option if you want to be in the business of flipping is to get out of your own backyard.

How can you achieve

Choose your market

consistently high margins

based on metrics rather

on investments? Stay off the beaten path. Keeping clear of the latest, greatest investing fad will give you the best odds of finding good deals and gaining high returns.

Here are three “Inventory Truths” to follow to ensure that you’re spending your

than on geography. As you consider a market, make sure you know:

take to establish a good network.

T he duration of time you can reasonably expect

Knowing these things gives you a degree of control

THAN THE ALTERNATIVE .

over your investment capital that you will not have in a market where you’re a

nor the seller has any idea

You will hear a lot of

small player with no influ-

which way is up anymore.

investors say they like to

ence over market trends.

5 6 O C T O B E R 2 0 19

Many investors have never seriously considered using private money because they get their deals at auction. They believe you cannot buy auction properties using private money. That is false. Depending on your state, you might even be able to use private money at the county auction! Find out the truth for yourself before writing off this incredible resource.

Don’t believe me? Here are two examples.

My wife and I bid at auction

tory in that market.

SMALL FUND IS BET TER

MANY DOORS FOR YOU.

H ow long it will

markets that will work for

BEING THE BIG FISH IN A

WISDOM” WILL OPEN

EX AMPLE 1:

to dominate the inven-

you and your investors.

“CONVENTIONAL

Your realistic margins.

time looking for leads in

deals are so convoluted and have been assigned

is more success in the

FAC T- CHECKING

and won a beach house on Hubzu.com last August.

We were literally bingewatching something on Netflix one night and placing online bids! Our highest bid won around 10:30 p.m. on a Sunday night.

We put $15,000 down in earnest money (on a credit card), reached out to a private lender to obtain financing, put a $400,000 deposit down and funded

that deal in less than two

at the county auction for

short-term rental, making

on wholesalers and start

weeks at 8%. The private

$403,000. The as-is value

it a very valuable property.

lender funded us $1.95 mil-

of that home is about

Our lender realized this,

using private money in

lion (including repairs).

On Aug. 26, 2019, we sold that investment for $3.55 million, giving us a net

$575,000, meaning there

and that is why we were

is already plenty of equity

able to finance the deal.

in it from the start. We

It is important to real-

knew we would be able to get the deal funded. The

ize that when you buy at

your real estate business. They are one of the biggest reasons you had those misconceptions about private money and

auction, you commit to the

have been leaving money

day of the auction, we only

purchase before you have

on the table for years.

had to provide them with

the financing. You must be

huge windfall.

about $20,000 in cashier’s

very sure of your numbers

Don’t fear private money.

check. We then had 30

and that the appraisal will

EX AMPLE 2:

days to fund the balance,

profit of $672,177.09. We used private money on that deal and generated a

In my home state of South Carolina, you do have to bring cashier’s checks to

which was ample time to get a private lender involved to fund the deal.

come in right; otherwise, you may be on the hook for a deal you cannot finance.

In this circumstance, you would need cash reserves

the county REO auctions.

Now that the deal is

Investors often believe

funded, we have two

this means using private

options: flip the property

money is not an option

for about $795,000 (based

here. However, if you are

on its after-repair value) or

the winning bidder, you

rehab it ourselves and hold

ON WHOLESALERS.

only need to provide them

it as a short-term vaca-

with a 5% deposit. That

tion rental. In our market,

That’s right: I am giving

meant that last month, my

it would likely generate

wife and I bought a home

about $80,000 a year as a

to handle the rest of the acquisition yourself.

You would be surprised at how easy it is to qualify and how competitive the rates are. Private money is a powerful tool to leverage more deals and bigger long-term profits. If you have been considering private lenders, dip your toes into the shallow end of

YOU DON’T NEED TO RELY

the pool and give it a try.

These lenders don’t bite, and you will be shocked

you all this information

at how well they work to

to drive home the fact

help you be successful and

that you can stop relying

more profitable.

Charles Sells is the founder and CEO of The PIP Group. Sells has been investing in distressed real estate for himself and on behalf of more than 700 investors worldwide for more than 20 years.

F I N A N C I A L I N VR EE S IT IIN NG K 57

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833-411-0595 • info@5archfunding.com • 5arch.com/REI2019 5 Arch Funding Corp./NMLS ID # 1039184. 19800 MacArthur Blvd., Ste. 1150, Irvine, CA 92612; Arizona Mortgage Broker License # 0933148; Oregon Mortgage Lending License Number ML-5475; CA Bur of Real Estate – Real Estate Broker Corporation License #01928500; California loans made or arranged pursuant to a California Finance Lenders Law License, # 603K373; Louisiana Loan Broker Notification 43472334F. 5 Arch Funding Corp. makes first lien mortgage loans. In certain states, 5 Arch Funding Corp. only lends to entities. In Nevada, loans are available through 5 Arch Funding Corp.’s business partners; 5 Arch Funding Corp. does not make or arrange loans in Nevada. BorrowBetter 5 8of 5 Arch OC T OCorp.

B E1 3.961% R 20 is the service mark Funding APR19 is based on a $500,000 loan at an interest rate of 3.74% with a term of 5 years and an origination fee of 1%. Interest-only payments for 59 months and final payment of all principal, remaining interest and fees. 2 8.910% APR is based on a $500,000 loan with a term of one year at an interest rate of 6.99% and an origination fee of 2%. Interest-only payments for 11 months, with final payment of all principal, remaining interest and fees. 6.99% rate is based on a loan secured by real property in California; higher rates apply to loans secured by real property in states other than California. 3 8.847% APR is based on a loan of $500,000 with a term of one year at an interest rate of 6.75% and an origination fee of 2%. Interest-only payments for 11 months with final payment of all principal, remaining interest and fees. 4 11.150% APR is based on a $500,000 loan with a term of one year at an interest rate of 9.25% and an origination fee of 2%. Interest-only payments for 11 months, with final payment of all principal, remaining interest and fees. Terms may vary based on your particular situation.

A BUSINESS PUBLICATION FOR REAL ESTATE INVESTORS

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inves tment s, ranging from single-family residences, to multi-family dwellings to commercial proper ties.

F I N A N C I A L I N VR EE S IT IIN NG K 59

REI INK

L E G I S L AT I O N

NORTHEASTERN STATES SEE RECENT CHANGES IN LIEN STATUS PRIORITY AND LEGISL ATION Regulators, lenders and servicers must keep a keen eye on developments.

BY R A L P H ST E B E N N E

R

ecent legislative

enactments and judi-

cial rulings have lenders

and their servicers paying close attention to unpaid homeowner and condominium assessments.

New Jersey and New York have introduced newly

crafted legislation that will require increasing surveillance and expenses in the servicing of loans from

these Eastern Seaboard states. The District of

Columbia has issued a

recent judicial ruling that

may allow an association’s

lien to have priority over a

6 0 O C T O B E R 2 0 19

chapter to their Vacant

Condominiums and co-ops

Property Registration Act.

can be extremely difficult

This additional legislation demands extreme diligence in the servicing of at-risk borrowers.

Bill A1800 puts added stress on servicers and their vendors to determine if a property is vacant in a timeframe that many servicers will find impossible to meet. The bill also carries extreme liabilities if followed to the letter of the law. To wit, a sevenday contact period to determine vacancy sets in

to contact and gaining entrance can be impossible.

These issues alone are alarming, but what looks to be a last-second addition to the bill, Section K, states that the servicer “… pay homeowners’ association or cooperative fees as needed to maintain the property.”

Servicers and lenders may be required to pay all fees as they come due before foreclosure in order to “maintain” the asset.

This is a vague require-

mortgagee’s first lien.

motion a call for a series

WHAT’S HAPPENING IN NEW YORK?

including rekeying, winter-

New York passed Bill

up doors and windows,

put even more liability on

A1800, an additional

where applicable.

the lender and servicer, as

of drastic responses, izing, and boarding

ment and will likely need to be further legislated.

Codification of this law will

it is evident what direction

all foreclosure and lien

these laws are taking.

notification documents to

AND IN NEW JERSEY . . .

that are now incurred in

New Jersey has broadened the super priority umbrella to include all associations and has extended the lien timeline to five years with proper filing of paperwork. New Jersey had instituted a six-month lookback for condominium associations, which has now been extended to include all associations. Bill A5002/

accurately total liabilities

association foreclosures in the state of New Jersey.

DC DEVELOPMENTS

The District of Columbia’s Court of Appeals issued

opinion No. 16-CV-977 in

September 2018. Here they

reviewed the decision on LIU vs U.S. Bank Nat’l Ass’n, 179 A.3d 871, which concerned a foreclosure sale initiated

by the association for unpaid

S3414 also includes a

dues and other fees.

renewable priority lien

The association’s Notice of

that can be carried back for five years.

This bill overrides existing association governing documents. Servicers and their default servic-

Foreclosure Sale adver-

tised the sale of the unit

subject to the first deed of trust. The sale took place in January 2013, with the

successful bidder buying

ing teams will have to

the unit for $11,000.

pay close attention to

In January 2015, Capital

One filed to foreclose the

District of Columbia.

unit, to which the buyer

Several states have given

counterclaimed to quiet title. The initial trial court required the buyer to abide by the foreclosure sale agreement: that the purchase was subject to the original mortgage.

The Court of Appeals reviewed the case and vacated the decision,

lien priority to associa-

tions’ claims, allowing the foreclosure of the first

lien, and the District of

Columbia may be the next

to join that group. It will be imperative for servicers to

begin reviewing their portfolios and their District of Columbia loans for accu-

forcing the buyer to abide

racy and completeness.

by the initial agreement.

This case, as well as

The case was remanded to be reheard by the lower court, with the future decision reviewable by the Court of Appeals. It is the Court of Appeals’ opinion that the association’s enforcement of its super priority lien by foreclosure resulted in the “extinguishment” of the first mortgage, an outcome we had not seen in the

developments in other legislative and judicial

proceedings, needs to

be carefully monitored.

Servicing and foreclo-

sure strategies need to

be altered to meet these new developments. It is evident that there is a

push to add more states to the super lien group

and to expand the powers of associations.

Ralph Stebenne has held multiple positions at Precedent Management, including marketing director

and business development. Precedent Management represents mortgage lenders and servicers in asset management in multiple areas (homeowner association, taxes, utilities and code compliance) to ensure their first priority lien is preserved.

Stebenne has more than 20 years of real estate experience, specializing in distressed assets,

foreclosure and workouts. He has been known to have an obsessive need to carefully track and review all news-related distressed assets.

Precedent Management can be contacted by phone at (786) 452-1807 or by email at info@precedentmgmt.com

F I N A N C I A L I N VR EE S IT IIN NG K 61

REI INK

T E C H N O L O GY

COMMERCIAL REAL ESTATE IS THE NEW LIQUID ASSET The blockchain and “tokenization” of CRE are taking off, bringing new liquidity to a traditionally illiquid asset class.

BY A A RO N LO H M AN N

A

s every seasoned

support securities regula-

CRE investor or

tory compliance.

lender knows, getting into a CRE investment requires significant due diligence and paperwork. Exiting an investment can be difficult if a recession strikes or if a property is outdated, poorly located, oddly configured or has other issues that limit cashflow and marketability. In fact, the illiquidity of investment real estate is why some investors stick to stocks

Blockchain technology has been available for nearly a decade, but it is only now beginning to emerge as a major CRE industry disruptor. It originated as a means of backing cryptocurrencies by providing an indisputable record of ownership, which happens to be a very valuable capa-

and bonds.

bility for CRE financing too.

With the potential to

As the name suggests, a

digitize and accelerate the CRE investment process, blockchain technology is poised to transform CRE finance. The blockchain not only stores transaction data in an immutable

6 2 O C T O B E R 2 0 19

BLOCKCHA IN COMES OF AGE

“blockchain” is a database of digital blocks of transaction data, each block timestamped and connected to the previous block via secure programming. Each data block is highly secure

secure digital environ-

and impossible to alter or

ment, but it can also

erase, making blockchain

an efficient way to store

been advanced by soft-

platforms can be used

certificate represents the

transaction documents

ware developers around

shares of stock that belong

such as property deeds,

the world. One important

to create security tokens

mortgages and share-

advance was the develop-

holder agreements.

ment of the digital security

Think of blockchain as

token, in which the token is

a digital ledger. But instead of the digital ledger belonging to a single server and a single owner, it is replicated and stored on multiple servers all networked together.

When a new data block is added to the chain, all the server nodes automatically update themselves to maintain identical copies

programmed to represent a share of a debt or equity instrument. In recent years, software developers using the Ethereum blockchain platform created standards for a new kind of token that can be used to execute investment transactions in compliance with securities regulations—a major advantage

of the ledger.

for the CRE industry.

For example, if you used

While many advocates

the blockchain and cryptocurrency to sell a CRE investment to a different owner, all the transaction data would be recorded in the blockchain ledger.

So, there’s no human argument about who owns what share of a property or who has the final version of paperwork. All the transaction information is securely recorded and can’t be altered.

of the blockchain have recognized its potential for different kinds of financing and investment, securities requirements have been an obstacle in the past. Today, technological advances make it possible to use a blockchain-powered platform to buy shares in CRE debt and equity instruments and trade them just as you trade stocks and bonds—and completely in compliance

that represent ownership in some kind of asset or interest. In the case of CRE investment, a security token could represent a 100% or fractional ownership interest in a CRE debt or equity investment instrument and would replace paper documentation of the ownership interest. And a token can

to the owner of the certificate. That is, your legal rights and responsibilities are embedded in the token in the form of data. Then, all information about the transaction is recorded on the blockchain. Since the blockchain is an immutable public ledger, no one can ever argue with you about your equity stake in the

have a built-in smart con-

senior housing project.

tract that will accurately

And your digital tokens are

execute the terms of the ownership stake.

TOKENIZ ATION IN ACTION

Imagine a partnership wants to raise $7 million in equity to build a senior housing community. It lists the project—and its associated market volume, current price, project location, market cap and more—on a digital platform backed by a blockchain. As an investor, you use U.S. dollars to buy digital tokens representing shares of equity in the

HOW IS THIS POSSIBLE?

with securities regulations.

senior housing project.

From its earliest days,

Specifically, Ethereum or

The token assigns owner-

blockchain technology has

possibly other blockchain

ship to you, just as a paper

programmed to include “smart” contract functionality that automatically distributes funds from the partnership building the senior housing community to you, a token holder, as the project advances.

Over time, you may decide you’d like to exit the senior housing investment. The beauty of security tokens is that, being digital, they can be easily bought, sold and exchanged—just like stocks. No more waiting around for the lawyers, appraisers, notaries, lenders and everyone else to do their part. Tokens with built-in smart contract capabilities will take care F I N A N C I A L I N VR EE S IT IIN NG K 63

REI INK

T E C H N O L O GY

of all that and generate

you need another investor

automate the critical tasks

cial property. Investors will

real-time auditable records

or the project sponsor to

and record the results in

be able to use the platform

buy out your shares by

the secure digital ledger.

to quickly trade tokens

The role of banks also will

directly with each other,

that reinforce trust.

IN CONTR AST…

Tokenization creates something that has never existed before: a secondary market for CRE investments.

Traditionally, an investor receives a partnership or membership interest in the entity that owns or is developing a commercial property. Assuming the property produces rental income, you receive monthly or quarterly distributions. If

negotiating terms and entering into a contract.

You may need permission from the managing partner of the ownership entity, and you need to submit paperwork to a transfer agent. It’s a lengthy process that can take weeks or months, involving endless emails, conference calls, documentation and constant confirmations.

you have an equity interest,

STRE AMLINING ACROSS THE MIDDLE

you receive—ideally—a

While CRE will always have

return on your investment when the asset is sold or

actual humans performing

change on both the front and back ends of CRE investments. On the front end, a token-based trading platform would be a boon to banks and other institu-

assured that their tokens will accurately allocate and distribute rental income and dividends on equity, direct payments to lenders, and execute any number of

tional lenders and investors

other financial tasks.

in search of CRE invest-

Meanwhile, the company

ments worthy of a loan or equity placement. Financial professionals can simply look at the array of tokens on a blockchain trading platform and purchase those that meet their lending or investment goals.

operating the trading platform can assume responsibility for certifying investors, vetting projects and ensuring that project information is available to prospective investors.

While the technology working behind the scenes

some transactional roles,

Soon, a CRE investor will

investors trading tokens

be able to use a block-

on a blockchain-based

chain-based trading

trading platform will have

platform to access a range

sponsors, lenders and

fewer reasons to call a law-

of CRE debt and equity

investors alike is poised to

ment is extremely illiquid.

yer or a broker. Instead,

opportunities involving

become much more enjoy-

If you want to exit the deal,

the trading platform will

nearly any type of commer-

able—and empowering.

refinanced with a permanent mortgage.

Either way, in traditional CRE investing, the invest-

is complex, the front-end experience for project

Aaron Lohmann is the co-founder and current CEO of Earn.re, an online exchange platform that enables financing of commercial real estate via the blockchain. He has over 15 years of experience in executive management and has led the successful development of numerous companies and organizations.

6 4 O C T O B E R 2 0 19

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REI INK

FROM THERE TO HERE

WAREHOUSING SOME RESPECT Greg Rand watched his mother work hard to build her real estate business, even though realtors often didn’t get much appreciation. He was determined to change that image.

BY GR EG RAN D

M

y earliest business

rowdy band of women who

photo books …. I gradu-

memories are related

sported gold jackets and

ated to taking pictures and

took on the town.

having them developed at

to real estate because my mom, Marsha Rand, launched her real estate career when I was in elementary school. She went from a rookie agent to a top producer, to a branch

ENTREPRENEURI AL FOUNDATION

I learned three key things about the business from watching this all unfold.

First, entrepreneurship in real estate works. Second, family is the most import-

IT DIDN ’ T M A KE SENSE TO ME TH AT A PROFESSION IN WHICH SOMETHING

ant thing, unless an agent is having a problem, and then solving their problem is the most import-

a 24-hour photo.

I observed that something important was taking place in that office. People would come out of conference rooms elated. “They just bought their first house,” someone would tell me. Or they would come out looking horrified. “They just bought their first house!” The range of emotions told me

SO IMPORTANT WAS

ant thing. And third, the

BEING H ANDLED WAS

real estate agents enough.

going down.

Every time a real estate

It didn’t make sense to me

ALSO M A DE FUN OF.

public didn’t appreciate

agent was depicted on TV or in movies, they were

manager and finally the owner of her own firm.

Century 21 Rand was a startup that had culture as its foundational value proposition. It was quintessential Century 21—a 6 8 O C T O B E R 2 0 19

lampooned. That was my mom! I still remember how it bothered me as a kid.

I worked in my mom’s

something weighty was

that a profession in which something so important was being handled was also made fun of.

THE DAWN OF DATA

company in many mission-

One day when I was

critical capacities: licking

answering the phone

envelopes, answering the

on the weekend, I had

phone, sticking photos into

a revelation. I had been

trained not to give out the

data. They wanted it. We

due to lack of distribution.

price of the house until

were hoarding it. And the

If we had held out a couple

I got the caller’s phone

internet was going to blow

of years, RealtyVision

number. Hmm. The caller

us to smithereens. The

would have been a website

wanted information, and

customer wanted informa-

and I would have retired by

we weren’t providing it.

tion, and we were inten-

30. But we didn’t hold out.

I filed that impression

tionally getting in the way.

We ran out of money and

away for a few years until I

At the time, I was 24 and

got jobs.

learned about the coming

making six figures as a

HFS, Inc., the company

“information superhigh-

mortgage sales guy. I quit

now known as Realogy,

way.” I read a speech from

that job to start a company

had hired Bob Pittman as

NAR president Bill Chee

based on “public access

the new CEO of Century

in which he characterized

to MLS.” Mike Toner, a col-

21. Bob was one of the

the situation as a bunch

lege buddy and I launched

founders of MTV, so he was

of hungry lions coming

RealtyVision, one of the

a whiz kid CEO. I pitched

over the hill while a few

first two companies in the

RealtyVision to Bob’s team,

chihuahuas fought over a

country to display interior

and they said “no.” Instead,

piece of meat. Those little

tours of houses on com-

they offered me a job to

dogs were about to be

puter. This was pre-inter-

do half-day technology

devoured. The chihuahuas

net. The computers were

seminars for their agents.

were realtors, the lions

encased in kiosks in public

This was 1996. I did 70

were the consumer public

places. Our business

cities in 18 months. We

and the meat was housing

model was fatally flawed

showed audiences ranging F I N A N C I A L I N VR EE S IT IIN NG K 69

REI INK

FROM THERE TO HERE

from 20 to 400 real estate

has thrived for so long.

switched from Century 21

agents that technology

The customer wanted

Rand to Prudential Rand.

access, and we gave it to

Flying the flag of a finan-

them. You can make fun of

cial services powerhouse

realtors all you want, but

was perfect for where we

they stared down those

wanted to take the com-

lions and made friends.

pany. We grew from $7

If they had held out and

million in revenue to over

was not their enemy.

I have some priceless memories of the first time my audience saw things like email attachments.

fought the release of MLS data, there is no doubt they would have gone extinct.

ALL IN THE FAMILY

That was a wild ride that allowed me to make a minor impact on a large part of the country. Then my mom pitched my brother Matt and me to join her in the family business. My dad wanted to retire, and she wanted to begin a transition.

I jumped at the chance to

As the Technology Evangelist, I got to work on the IT team that deployed the first Century21.com, which was also one of the

7 0 O C T O B E R 2 0 19

We layered in mortgage, insurance and title businesses. We did our best to present a “business suit” version of real estate sales.

We were a top-quality firm, but we were still essentially doing it the same way as everyone else.

In 2008, we switched to Better Homes and Gardens and took on a much softer brand, which has worked like a charm.

have a deeper impact, if

L AUNCHING A DRE AM

on a smaller geographic

I left shortly after. Not

scale. It was an honor to be asked. I had spent almost a decade in the real estate tech space.

Now it was my time to work on the other side

first real estate websites

of my theory—that real

with MLS data. Public

estate is too expensive to

access to the MLS was a

$50 million within 10 years.

take lightly. Real estate is

huge success, and I believe

a financial service.

it’s the reason the industry

This was late 1997. We

because of the brand change, but because it was time to launch the business of my dreams.

There was a housing crisis underway that proved that no one—not the bankers, not the government, not the realtors and not the consumer—really knows enough about real estate

as a financial asset. As

and mom would surely

the next seven years being

company in SFR. He

dependable as it had

beg me not to go. I had

a service provider helping

had the infrastructure I

always been, you could

a whole hour set aside in

professional investors buy

needed, and I had the

and sell rental property at

tech sizzle he needed. We

high volume.

both had the same dream.

It was an exciting busi-

Renters Warehouse

ness, but an institutional

bought OwnAmerica in

screw it up if you tried hard enough.

I believed down to my toes that the housing crisis was going to give way to a massive investment boom and then a recovery. It sounds obvious now, but back then it wasn’t. I even got invited to appear on cable news 70 times based on my willingness to be a punching bag for people who wanted to trash the housing market. I wrote “Crash Boom!,” a book about how to play to the

my calendar to talk them off the ledge. The meeting lasted five minutes. I guess I had become hard to work with? More likely, they are the kind of family that understands following a dream and wanted that for me.

OwnAmerica started as a training and technology toolset for real estate agents who wanted to participate in the investor gold rush. Adam Stern, my co-founder, had sold 4,000 packages and built

marketplace platform wasn’t the real mission for OwnAmerica. I wanted to build a national brand for single-family rental investors—a wealth management company that uses rental houses as the vehicle for financial planning.

In 2018, the consolidation of large SFR funds began to turn into consolidation

January 2019. We are rapidly building the first vertically integrated real estate investment firm: a real estate investor portal floating on top of a real estate investment brokerage, bolted to a property management company.

Our goal is to help the millions of SFR investors out there who are doing it the

of SFR service providers.

hard way, and to help the

Kevin Ortner, the CEO of

millions more who believe

Renters Warehouse, was

in real estate investing but

an industry buddy who

are intimidated by it. They

investors that came into

had a very compelling

all deserve a company that

tears. My brothers (Joe

the space around 2012.

puzzle piece—the largest

places them at the center

Rand had joined by then)

We landed a few and spent

property management

of the universe.

coming recovery like a pro.

It was time to launch OwnAmerica. I remember that day. I expected

a national network of certified investment agents.

Then we started going after the institutional

Greg Rand is the chief strategy officer at Renters Warehouse. Renters Warehouse acquired OwnAmerica in 2019, the technology and brokerage company Greg founded in 2010 to serve the residential investor market nationwide. Prior to that, Greg was managing partner of Rand Realty, one of the 50 real estate

brokerages in the country and the technology evangelist for Realogy Corp. Greg is the author of Crash

Boom!, host of the Power Play radio show on the Wall Street Radio Network and a regular contributor on the Fox Business Network.

F I N A N C I A L I N VR EE S IT IIN NG K 71

REI INK

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THE

U N I T E D S TAT E S

THE LONG-TERM RENTAL LOAN PROGRAM A       --. S  , RCN C       30-  .

ACCESS TO LONG-TERM FINANCING WITH REMARKABLY STRONG LEVERAGE AND FIXED INTEREST RATES. U  ,  RCN C  ’                  .

ADMIT ONE

RCN CAPITAL, LLC IS LICENSED AS A CALIFORNIA FINANCE LENDER UNDER DEPARTMENT OF BUSINESS OVERSIGHT LICENSE NUMBER 60DBO-46258. ARIZONA MORTGAGE BANKER LICENSE BK-0932325. OREGON MORTGAGE LENDING LICENSE: ML-5571; NMLS COMPANY ID: 1045656.

1072014

1072014

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