Think Realty-Sept./Oct. 2016 by Think Realty Magazine

INVESTOR REVIEW

HOT SPOTS FOR REAL ESTATE INVESTING

SEPT/OCT 2016

Dominion’s Dynamic Duo PAIR’S VARIED SKILL SETS ARE KEY TO COMPANY’S GROWTH PAGE 18

TRENDS

CHINESE INVESTORS LIKE STABILITY OF U.S. MARKET

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TABLE OF CONTENTS

INSIDE THIS ISSUE

THE BIG PICTURE 16 Lawn Care ‘Headache’ Relief Ken Davis and TaskEasy empower investors to focus on other outside maintenance necessities. by James Hart

24 I ndicators You Should Monitor Investors need to be educated on how to watch and evaluate trends and conditions. by Abhi Golhar

26 D eep Discounting Slowdown in commercial sector is part of the natural market evolution. by Dawn Erling

28 5 Fix-and-Flip Tips To succeed, you need to recognize limitations, do your homework and have a detailed plan. by Bill Green

UP CLOSE & PERSONAL

ON THE COVER

86 A New Avenue PeerStreet’s leaders have it on a one-way course: forward.

DYNAMIC DUO

by Susan Thomas Springer

90 G lobal Connections Street-Smart panel tells how to evaluate foreign investing partners. 92 G et in the Game Are you watching rather than participating in real estate investing? by Kevin Guz

94 Building a Power Team The proper foundation for your investing business starts with the right team. by John and Corinne Tesh

4 | think realty magazine september :: october 2016

THE BIG PICTURE

COMPANY PROFILE

CHINESE LIKE STABILITY OF THE U.S. MARKET

TRADING PLACES

Chinese enamored of U.S. real estate.

RealtyShares connects investors, deal sponsors

NUTS & BOLTS 38 D igging into the Details Five things you need to know before investing in your first piece of land. by Dr. Slim Feriani

40 I nvestors, Take Note You can make a living brokering notes. But you can get wealthy by owning the. by Tracy Z. Rewey

48 C asting for Leads Try probates as another option for finding the elusive investment property. by Leon McKenzie

100 D efeating Defaults Owner-financing specialist Mitch Stephen has some advice for others contemplating the strategy. by Mitch Stephen

BY THE NUMBERS F R E D L E W I S (center) and J AC K B E V I E R (left) bring unique skill sets and a ‘tripod approach’ to The Dominion Group.

114 Labor Shortage Ahead Slowing of jobs growth will impact housing, other aspects of the economy. by Chris Porter

116 F ocus on Foreclosures Midyear market report shows foreclosure filings down from a year ago.

by Robert Springer :: photos by Greg Dohler

by RealtyTrac

104

118 W here the Action Is Job growth in retail sector is good news for residential rental properties. by Ingo Winzer

SEVEN THINGS

NUTS & BOLTS

GO AHEAD, GET CRAZY!

TWARTING BREAK-INS

Out of the ordinary marketing techniques

Protecting properties during renovation.

INSIDE

51 Investor Review T hink Realty’s list of top real estate markets, plus industry perspective.

t h i n k r e a lt y . c o m / m a g

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PUBLISHER

R. Michael Wrenn PRESIDENT, AFFINITY ENTERPRISE GROUP

Eddie Wilson | EWilson@AffinityEG.com EDITOR-IN-CHIEF

Linda Wienandt LWienandt@ThinkRealty.com VICE PRESIDENT OF MEDIA SALES

Robert Rakowski RRakowski@AffinityMediaServices.com 913-599-2020 SENIOR STAFF WRITER

James Hart DESIGN CONSULTANTS

Rivet | www.WeAreRivet.com GRAPHIC DESIGNER

Emily Bowers PRODUCTION & TRAFFIC MANAGER

Carolyn Addington CONTRIBUTING WRITERS

MEMBER BENEFITS. CHECK.

WHAT'S NEW AT THINKREALTY.COM Think Realty launched in early 2016 to provide real estate investors with resources for success. We are committed to delivering high-impact, valuable tools to support smart investors, and continuously adding content and benefits for our Think Realty Members. If you haven’t stopped in lately, you should take a look.

Rick Abell, Teresa Bitler, Lee Blackburn, Scott Carson, Clint Coons, Eric Dean, Carole J. Ellis, Dawn Erling, Lawrence Fassler, Slim Feriani, Carter Froelich, Judy Goldberg, Abhi Golhar, Bill Green, Kevin Guz, Will Hardy, Tim Herriage, Steven Hickox, Will Holly, Michael Jordan, Carly Lambert, Leon McKenzie, Steve Olson, RJ Palano, Chris Porter, Tracey J. Rewey, Marco Santarelli, Robert Springer, Susan Thomas Springer, Mitch Stephen, John and Corinne Tesh, Brandon Thompson, and Ingo Winzer COVER PHOTOGRAPHY

Greg Dohler FOR ARTICLE REPRINTS :: Contact Jeremy Ellis at Reprint Pros, 949-702-5390. www.reprintpros.com. SUBSCRIPTIONS :: The annual subscription for Think Realty

Magazine is $28.95 for six issues in the U.S. Order online at www. ThinkRealty.com or call 816-398-4130. Provide your full name, address and telephone number. DISCLAIMER :: Think Realty Magazine, its owners, contractors, distributors and their respective representatives do not provide tax, accounting, investment or legal advice and make no guarantee as

New member benefits include exclusive access to: • Live industry webinars and a library of past event sessions • Property management checklists • National and regional lists of Wholesalers, Lenders and REI Groups

to the effectiveness or success of any investment or tax strategies discussed herein. Please consult your own independent adviser as to any questions you have or decision you are contemplating. ABOUT THIS MAGAZINE :: Think Realty Magazine is a publication of Affinity Real Estate Media LLC. Reproduction or use of any editorial or graphic, without permission, is prohibited. We are not responsible for the content of any paid advertisements. For reprint rights; to obtain a detailed statement of our privacy policy; and for all single-copy

• Educational video library

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F RO M T H E E D I TO R - I N - C H I E F

Unselfishly Sharing Information, Insights Will Lift This Industry hile measuring success in business,

utors like Carter Froelich, CPA, who pro-

by definition, involves competitors

vides valuable information about “under-

and competition, a camaraderie and sharing

standing the numbers” and applying them,

of resources can and should co-exist if the

which is so basic to succeeding in any

industry niche itself is to develop and prosper. That’s what Think Realty is all about, as Affinity Enterprise Group President Eddie Wilson described in a recent post on our website, www.

business. He and Ingo Winzer, president of Local Market Monitor, have been regulars in this magazine from its very earliest days. Other ongoing contributors I want to spotlight and

ThinkRealty.com, in which he called for more true

thank include Kevin Guz, John and Corinne Tesh and

thought leaders in the real estate investing industry.

Kelly and Chris Edwards. Kevin addresses a part of our

This magazine, as part of Think Realty and AEG,

audience—the beginning, part-time or “weekend inves-

our parent company, always has espoused that prin-

tors”—whose success is critical to helping the industry

ciple. Our mission since the very beginning has been

grow and thrive. John and Corinne are husband-and-

to advocate high standards, ethical business practices

wife investors who are unselfish in sharing “how-to”

and collaboration so the industry can develop and

details of their projects. And brothers Kelly and Chris

mature into a respected niche. To that end, we offer

Edwards, too, have written about their rehabbing efforts

a forum for both investors and vendors who are pas-

and as their business has grown and branched into oth-

sionate about and committed to those ideals.

er areas, they have expanded their message. And then

Abhi Golhar is one, and Eddie highlighted him in

there are more-recent regulars, like Lawrence Fassler,

particular in his website post. “Ahbi is a true thought

Engelo Rumora, Dawn Erling and Mitch Stephen, who

leader,” Eddie wrote. “He gives information based on

give insights into varied areas and investing strategies

his investing success without a monetization hook. …

beyond the mainstream.

His information is invaluable to an investor. And he has never clouded his message by trying to push an agenda.” Abhi is one of this magazine’s regular contributors

As the magazine has evolved, the list has grown, so there are many, many more names than we have room to list here. We appreciate them all and

for those reasons. He also regularly writes blogs for

welcome any others who also want to share their

our website and speaks at our educational events.

expertise—not sell it—so that more individuals can

And he is not the only one. We have longtime contrib-

participate and succeed in real estate investing. •

LINDA WIENANDT, EDITOR-IN-CHIEF

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NEWS BRIEFS

NATIONAL UPDATES

NATIONAL TENANT NETWORK OPENS MEMPHIS OFFICE

National Tenant Network recently opened a Memphis office, from which all of the company’s Tennessee operations will be overseen. Asia and Marc Mason will manage the new office. NTN is a national tenant screening company with more than 35 years of experience in tenant selection that serves real estate investors and property managers from 20 regional offices. For information about its services or NTN’s suite of secure products, go to www.ntnonline.com or call 800-2280989. NTN Tennessee may be contacted at NTNTennessee@ ntnonline.com or by calling 1-888-767-7386. • SOURCE :: National Tenant Network

PEOPLE IN THE NEWS

Longtime commercial real estate industry executive

ERIC PAULSEN has joined Ten-X as senior vice president of

business development. In his new role, Paulsen will oversee Ten-X Commercial’s Private Client Group, a growing division within Ten-X, which is focused on the community of private investors buying and selling commercial properties on the company’s innovative online transaction platform. Paulsen has nearly three decades of experience in commercial real estate, including more than 11 years as an executive at CBRE Group, 12 years as vice president of national acquisitions at LNR Property and a three-plus year stint at Ten-X (then Auction.com), where he played a critical role in growing the company’s commercial business before departing in 2014. He most recently served as senior vice president at Prism Realty Corporation in southern California. Paulsen has been directly involved in the buying, selling or asset managing of over $10 billion in commercial real estate in all product types across the United States. SAGI COHEN recently took over as chief executive of the Peak Corporate Network, which oversees a group of companies providing a comprehensive set of real estate services nationwide. As CEO, Cohen manages the organization’s support, sales and marketing units as well as the operations of all the entities

8 | think realty magazine september :: october 2016

represented by the brand. Cohen has more than 20 years of experience in marketing and management, including 10 years as CEO for $1.3 billion, NASDAQ-listed company Caesarstone USA. Previously, he held key leadership roles at Paz Oil Co. Ltd. and Strauss Marketing Ltd. Cohen received his B.A. in management and political science from Tel Aviv University and studied executive retail and marketing studies at Oxford University. Cohen has been recognized as Outstanding CEO by Dun & Bradstreet, Best Marketing Executive by the Israel Advertising Association and won a prestigious Effie Award for Most Effective Advertising Campaign in 2005, in recognition of his work promoting Paz’s Yellow convenience stores. CARTER MURDOCH, Ph.D., has been appointed to the newly created role of senior vice president of operations by the Realogy Franchise Group (RFG), a global leader in real estate franchising. Murdoch will oversee RFG’s Centers of Excellence, which provide expertise, support and solutions for Realogy-affiliated brokers across all of its brands in the specific areas of business development, data, learning and technology deployment. Murdoch most recently held the role of senior vice president, strategic growth and industry relations at Century 21 Real Estate LLC, which is part of the Realogy Franchise Group. He also has more than 20 years of operational management experience in the mortgage and banking industries.

First Capital Real Estate Investments, LLC has hired

ROBERT BURKE as executive vice president of sales and

Miguel Aguilar as regional vice president of sales for the Midwest region. Burke will be responsible for overseeing sales nationwide for the firm, which is the sponsor of commercial real estate investment programs including the public nontraded REIT, First Capital Real Estate Trust Incorporated. He has more than 13 years of experience within the financial services industry across product development, product management, wholesale distribution, investment banking and financial planning. CHARLIE YOUNG takes over as president and CEO of Coldwell Banker Real Estate LLC on Sept. 1, 2016, as Budge Huskey retires after 18 years with the Coldwell Banker system in both franchising and brokerage executive roles. Huskey led the Coldwell Banker brand for the past six

years, first as president and chief operating officer in June 2010 before becoming president and CEO in January 2013. Young returns to the Coldwell Banker brand after serving as president and CEO of ERA Franchise Systems LLC since 2009. Prior to that, Young spent five years in senior executive leadership roles with Coldwell Banker Real Estate. Both franchise brands are subsidiaries of Realogy Holdings Corp. SUSAN YANNACCONE succeeds Charlie Young as president and CEO of ERA Franchise Systems LLC. Yannaccone moves up from ERA’s chief operating officer, bringing two decades of experience in real estate franchising and sales. Prior to joining ERA, Yannaccone served in a number of senior executive leadership roles at competing national and international real estate franchise brands with responsibilities ranging from network servicing to operations. She began her career in commercial real estate sales before moving into residential real estate. Recently, Yannaccone earned recognition as a 2016 Woman Worth Watching by the Profiles in Diversity Journal, and in 2015 was named as a Woman of Influence by Housing Wire. She is a graduate of Clemson University, with a bachelor’s degree in financial management. •

MOBILE APP BILLED AS ‘DISRUPTOR’ TO COMMERCIAL REAL ESTATE INDUSTRY

Eastern Union Funding, a leading U.S. commercial mortgage company, has introduced a free mobile app designed to be a welcome disruptor to a side of the real estate industry that has lagged in embracing technology. The free app—available in the Apple App Store and via Google Play for Android—gives industry professionals access to proprietary data; sophisticated, real-time transaction tools; and a curated newsfeed. The information will include “the same calculators, vendor contracts and detailed data that our brokers have at their fingertips when advising clients,” according to Ira Zlotowitz, president and co-founder of Eastern Union Funding. “Other information, such as interest rates from particular banks, is typically only available by calling brokers or lenders themselves.” For more information, visit www.easternuc.com. • SOURCE :: Eastern Union Funding

WHAT REAL ESTATE INVESTORS HAVE KNOWN ALL ALONG

Results of a recent national survey by Bankrate validate what real estate investors have always known: that real estate is a great wealth-building tool, preferred over stocks and bonds, CDs, gold and other precious metals. In late July, when Bankrate’s Financial Security Index asked, “Which would be the best way to invest money you wouldn’t need for more than 10 years,” 25 percent of respondents chose real estate, followed by cash investments (23 percent), gold or precious metals (16 percent), the stock market (16 percent), bonds (5 percent), none of these (6 percent) and no answer (9 percent). As real estate investment firm Holdfolio’s co-founder Sterling White told Bankrate.com: “Houses are tangible. You can physically see and feel the product. So you know where your money is going: It’s going into that house. With stocks, you have no clue where your money is going.” The caveat is that an investment property cannot be turned around overnight if the owner needs cash. Plus, Avani Ramnani, CFP and director of financial planning and wealth management at Francis Financial, told Bankrate.com, “When you need the money, you don’t know what the real estate market is going to do.” So due diligence should always be a part of any investor’s strategy. Other findings by the Bankrate Financial Security Index— which gauges respondents’ feelings about debt, savings, net worth, job security and their overall financial situation—include: • An improving sense of financial well-being • A slight decline in feelings of job security • Some indication of investors’ uncertainty about the future • SOURCE :: Bankrate.com

BLACKSTONE TO TAKE INVITATION HOMES PUBLIC, REPORTS SAY

Media reports indicate that investment firm Blackstone Group LP may go public with its Invitation Homes unit in the first half of 2017, although Blackstone isn’t saying. Bloomberg cited “two people familiar with the matter” in its report. Speculation is that Invitation Homes, the country’s largest single-family rental landlord, would go public as a real estate investment trust. Invitation Homes was born out of

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NEWS BRIEFS

NATIONAL UPDATES

UPCOMING EVENTS SEPTEMBER 7-8 6th Specialty Finance Summit Sponsored by iGlobal Forum New York, New York www.cvent.com/events/6th-specialty-finance-summit/event-summary-b738171632294e2bbd12210a547b41aa.aspx SEPTEMBER 11-14 2016 Five Star Conference and Expo Dallas, Texas www.thefivestar.com/fsc/ SEPTEMBER 14-15 15th Global Real Estate Private Equity Summit (West) Sponsored by iGlobal Forum Los Angeles, California www.cvent.com/events/15th-real-estate-private-equity-summit/event-summary-836f45d2149b4144a58ddde36565a30f.aspx SEPTEMBER 19 Cap Intro: L/S Equity – Event Driven Alternative Investing Sponsored by Catalyst Financial Partners New York, New York www.catalystforum.com/events/lsequity-event-driven-investing/ OCTOBER 15 Think Realty Expo Sponsored by Think Realty Atlanta, Georgia www.thinkrealty.com/events/atlanta/ OCTOBER 24-27 ULI 2016 Fall Meeting Sponsored by Urban Land Institute Dallas, Texas www.uli.org/events/fall-meeting/

the housing crisis in 2009 in response to the massive demand for rentals that occurred after homeowners lost their homes and could not obtain credit for a replacement purchase. • SOURCE :: The MReport

FANNIE MAE OUTLOOK HOLDS STEADY FOR ECONOMIC GROWTH

Fannie Mae’s economic growth outlook for the second half of the year remains unchanged from the prior forecast at about 2 percent, according to its Economic & Strategic Research Group’s July 2016 Economic and Housing Outlook. Consumer spending is expected to drive growth for the rest of 2016, Fannie Mae says, as businesses face headwinds from shrinking profits, weak productivity and rising labor costs in the face of uncertainty stemming from Brexit and the U.S. presidential election. Highlights of the report include: • Government spending and residential investment should be positive contributors to economic growth in 2016. • Nonresidential and inventory investment and net exports are expected to drag on growth. • Moderate housing expansion is expected for the remainder of 2016. • Housing inventory is expected to remain tight, boosting home prices and constraining affordability. • No interest rate hike by the Fed is foreseen until mid-2017. • Brexit is seen as having only slight impact on the U.S. economy. • SOURCE :: Fannie Mae

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REBOUNDING NEIGHBORHOODS WORTH A LOOK BY INVESTORS

Many down-and-out neighborhood housing markets across the country are on the rebound, thanks to a confluence of market forces working in their favor. And that could lead to some great deals for real estate investors. RealtyTrac (now an ATTOM Data Solutions company) analyzed housing market and neighborhood quality data in 3,561 U.S. ZIP codes with a combined population of 124 million to select the 35 best “bad” neighborhoods in which to buy a home. Leading the list were East St. Louis, Missouri; Baltimore, Maryland; Charlotte, North Carolina; Jacksonville, Florida; and Plainfield, New York. An interactive visual chart of the 35 best “bad” neighborhoods can be accessed at http://www. realtytrac.com/news/real-estate-investing/ best-bad-neighborhoods-to-buy-a-home/. “The underperforming school scores and inflated rates of underwater homes in these markets demonstrates they are lagging the housing recovery seen across much of the rest of the nation,” said Daren Blomquist, senior vice president, ATTOM Data Solutions. “But it is clearly evident from this data that many individuals and institutions are betting on these hyperlocal housing markets to still bounce back. Home-flipping returns are substantially above the national average, indicating strong buyer demand for fixed-up homes; construction loans are increasing, indicating increased development often at a large scale; and the share of Millennial population is increasing, indicating that the pool of new renters and homebuyers is growing.” • SOURCE :: RealtyTrac.com

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THE BIG PICTURE

TRENDS & ISSUES

Staying Power CHINESE INVESTORS ARE CONTINUING TO PUT THEIR DOLLARS IN A MORE-STABLE U.S. REAL ESTATE MARKET. by Robert Springer

hinese investors, like those from other foreign countries, found deals aplenty in U.S. real estate at the height of the recent financial crisis here. Now that the U.S. economy has regained strength, the pickings aren’t as easy, but the Chinese remain as enamored of U.S. real estate as ever, even overtaking perennial leader Canada in 2015 as the largest foreign buyer of single-family homes in the United States. This development was made even more startling by how swiftly it occurred: Chinese investment in U.S. real estate was “negligible” prior to 2010, according to a recent report by the Asia Society and Rosen Consulting Group. “Breaking Ground: Chinese Investment in U.S. Real Estate” states that “between 2010 and 2015, Chinese buyers spent at least $93 billion on homes, including condominiums, for occupancy and investment.” Spending increased 12 | think realty magazine september :: october 2016

at a 20 percent annual rate and helped some markets that were severely impacted by the real estate downturn. The report adds that Chinese buyers also pay significantly more for U.S. housing than do other international buyers because they tend to buy in expensive markets like New York City and California. (Texas and Florida are also popular with Chinese investors.) The trend was foreseen by members of the Association of Foreign Investors in Real Estate (AFIRE) in the organization’s 23rd Annual Survey, released early last year. Two-thirds of respondents said they expected China to become the largest source of capital into the United States in 2016 and beyond, and 72 percent predicted Chinese investment will be a long-term, permanent inflow. AFIRE’s 24th Annual Survey, out this past January, says foreign investor confidence in the U.S. real estate market

remains strong, and that for the Chinese and others, this is the safest destination for their investment dollars. Wen Hsu, a broker with City Connections Realty in New York City who helps Chinese clients buy condos in Manhattan, agrees with the timing of the Chinese investment push. “Chinese buyers have really taken off around the 2011-12 timeframe, and because I speak and read Chinese, that has been a main focus for my client base,” she says. Why have the Chinese become so interested in U.S. residential real estate? It turns out that Chinese investors view the United States—especially its major markets—as some of the best places in the world to park their yuan. WHY AMERICA, AND WHY NOW?

Experts point to several reasons for

the sudden influx of Chinese capital into the U.S. real estate market: • The United States is viewed as more socially and politically stable than China. • The Chinese government does not allow direct ownership of real estate by its citizens. Instead, buyers get a long-term lease on the property from the government. Well-heeled Chinese buyers are increasingly showing an appetite for direct ownership of real estate. • The erratic performance of the Chinese stock market and the yuan’s fluctuations have led Chinese investors to seek the stability of more developed markets, including the United States. • “China has more billionaires than any other country in the world, and nearly as many millionaires as the U.S.” says Charles Pittar, CEO of Juwai.com, a company that helps

Chinese buyers invest in U.S. real estate. “The average budget that our buyers tell us they have for property in the U.S. is about $2.6 million.” Juwai’s survey of its users who made inquiries on properties showed the following motivations for purchasing property in the United States: Immigration is a main driver of Chinese real estate investment, according to Hsu. “We’ve been seeing a big wave of people doing the EB-5 Program, immigrating to the U.S., and the main reason that they are doing that is because the U.S. has better education and a better living environment,” Hsu says. The EB-5 program allows a quota of foreign investors to immigrate to the United States if they purchase real estate. Hsu says the Chinese have really taken advantage of the program and use it to get green cards and buy second homes to stay part of the year in the States. Many initially use the homes to be close to their children who are attending college in the United States, and then either live

+ AFFINITY INVESTMENTS ALLOWS CHINESE TO BUY AMERICAN

mong the companies catering to Chinese investors interested in the U.S. market is Affinity Investments, a global investment solutions firm with Asian headquarters in the Shanghai World Financial Center and additional offices in the United States. A part of Affinity Enterprise Group, parent company of Think Realty, the firm provides top-of-the-line investment opportunities to Chinese investors by simplifying acquisitions while maximizing returns. Affinity’s leadership team originates from a culture of innovation and service that goes back more than a century. Affinity Investments has access to over 25,000 U.S. real estate investors. This combination allows Affinity to bring a full range of investment opportunities, specifically real estate projects in all asset classes, to Chinese investors. For more information, contact Kirk Miles, president, at 913-302-5938, or kirk.miles@affinitycr.com.

18%

36%

34%

INVESTMENT

IMMIGRATION

LIFESTYLE

OTHER

EDUCATION

SOURCE: Juwai Survey

in them or let their kids use them. Chinese are not very fond of renting, according to Hsu, as it doesn’t provide a return, and they view it as “basically money down the drain,” she says. Real estate is viewed as an investment and as a place to live, Hsu says. Chinese prefer new developments or condos over other property types, adds Hsu.

BUYING AMERICAN

Pittar says that “all levels” of well-off Chinese are purchasing U.S. investment properties, from upper middle class families to wealthy families purchasing $100 million luxury estates. Property developers and large corporations are buying homes as well. Although the ultra-wealthy are key to the “billionaire towers” being built in Manhattan, there are many more buyers able to spend only up to about $1.5 million, according to Pittar. Despite the fact that Chinese prefer “name brand” real estate in places like Manhattan, “The New York borough of Queens is actually the most popular destination for Chinese buyers in the Big Apple,” Pittar says. Pittar says that 69 percent of Chinese investors buy in cash, as using financing would lead to concerns “about having to pay a U.S. dollar mortgage that would get much more expensive if the yuan were to fall in value.” t h i n k r e a lt y . c o m / m a g

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crisis, it went up slightly above 2 percent, but generally, it has been very, very low compared to other places,” she says, making it easy to rent out a condo.

COUNTRY PROVIDING THE MOST STABLE SECURE REAL ESTATE INVESTMENTS 2013

2014

2015

70%

GOVERNMENTS MAKING BUYING MORE DIFFICULT

60%

PERCENT OF MEMBERS’ VOTES

50%

40%

30%

20%

10%

NE TH ER LA ND S

AU ST RA LI A

CA NA DA

GE RM AN Y

US A

SOURCE: Juwai Survey

+ RESOURCES ASIA SOCIETY www.asiasociety.org | 212-288-6400 CITY CONNECTIONS REALTY www.lp-nyc.com | 917-902-6489 JUWAI www.juwai.com | 646-281-7322 ROSEN CONSULTING GROUP www.rosenconsulting.com 510-549-4510

14 | think realty magazine september :: october 2016

American developers have noted the trend and are actively marketing to Chinese investors. In 2015, Extell Development exclusively marketed The One Manhattan Square condo tower to Asian buyers. The 800-unit building has condos priced from $1 million to $3 million. U.S. buyers were told to wait until this year for their chance to buy. Chinese investors love New York, especially Manhattan. Not only is it “the” name brand in American real estate, properties hold their value on Manhattan. Even though it’s a very expensive address, Hsu says Chinese investors find value on the island. “The vacancy rate in Manhattan has been below 2 percent for the past 10 years. During the financial

Hsu says that the Chinese and American governments are now making it more difficult for Chinese clients to buy U.S. real estate, putting a crimp on Chinese purchases. Chinese investors have traditionally been able to transfer $50,000 per year out of China to buy real estate. To buy a million-dollar property, 20 people would transfer their $50,000 allotments into one account. After years of lax enforcement, both governments are strictly enforcing the policy. “Since that started last year, it’s definitely a little bit more challenging for a Chinese buyer whose money is not already out of China to buy in the U.S. There’s a way it can be done, but it’s generally a lot harder compared to before,” says Hsu. That said, Hsu thinks that “the U.S. is still a very good investment. The law mainly targets the politicians and money laundering, so since the majority of people are not politicians, my feeling is that it will work out. It’s just a matter of time. The need is there, so I still believe that this market is still very strong.” •

Robert Springer is a regular freelance contributor to Think Realty Magazine. Contact him at rtspringer@gmail.com.

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THE BIG PICTURE

COMPANY PROFILE

The Tech Startup Curing the Lawn Care Headache KEN DAVIS AND TASKEASY EMPOWER INVESTORS TO FOCUS ON OTHER TASKS. by James Hart

en Davis had a problem. About eight years ago, the Utah man started building a portfolio of rental properties—more than a hobby, but not quite large enough to justify hiring his own team. So, for a long time, Davis was on the hook for lining up vendors to mow his lawns and remove snow. And that was a giant pain in the neck. “One of the big struggles I had over and over again was getting services dispositioned,” he said. For example, one of Davis’ properties was more than 4.5 hours away from his home. Whenever a tenant moved out, Davis had to take a road trip to line up a vendor to handle mowing during the vacancy. “It would be really hard to go meet a contractor to get a bid,” Davis said. Another time, he paid several months’ worth of invoices to a vendor for mowing—only to receive a warning letter from the homeowners association. Turns out, the vendor hadn’t done the work after all. A lot of investors have faced similar problems. But Davis’ background is a little different. Before he became a real estate investor, he was the founder of Oakley Networks, a cybersecurity firm purchased by defense contractor Raytheon in 2007. Davis realized there might be a big business opportunity for a company that could help property investors quickly and efficiently schedule reliable maintenance. That led to the creation of TaskEasy, a Salt Lake City-based startup that allows customers to hire vendors online as easily as they would send a package through FedEx. Davis and his team have vetted a network of 5,000 snow-removal and lawn service providers, each of whom is insured. TaskEasy also has a system for verifying that work is actually done. If there’s a problem, the company offers a 100 percent money-back guarantee, and their customers aren’t billed until they’re satisfied and the service is approved. In the past three years, TaskEasy’s partners have mowed more than 500,000 lawns, and it now facilitates more than $10 million 16 | think realty magazine september :: october 2016

in mowing. Investors have put more than $24 million into the company, which employs about 150 people. There are a handful of companies that offer similar services, but they tend to be regional operations, or they mostly employ their own mowers. None of them has a reach like TaskEasy, which serves more than 4,800 communities. “We’re doing it at a scale that nobody else comes close,” Davis said. HOW TASKEASY WORKS

Over the last several years, entrepreneurs have created a string of online services for real estate investors. If you have an Internet connection, you can advertise properties for sale, run background checks on prospective tenants and apply for financing for your deals. But there wasn’t anything exactly like TaskEasy available for investors, Davis said. TaskEasy’s specialty is individual, relatively small properties. That includes single-family residences, but also gas stations and some other commercial real estate. These are situations where it doesn’t make sense for the property’s owner to have a full-time maintenance team. If a customer needs service in a community where TaskEasy doesn’t have a vendor, the company makes a good-faith effort to find and recruit one to their network. If a customer needs service in a community where TaskEasy doesn’t have a contractor, the company makes a good-faith effort to find one. TaskEasy only handles exterior maintenance, and only lawn care and snow removal, though power washing, gutter cleaning, tree trimming and other services could be next. Interior maintenance and improvements aren’t part of the company’s business model. There are too many variables involved in, say, a bathroom remodel to come up with standardized pricing. “But there are some services, like lawn mowing and snow clearing, that are really well understood,” Davis said. “They’re

easily measured, especially with modern technology.” When vendors visit a property, they launch a smartphone app on their phones, showing they’re on the clock and physically at the property. Vendors also use the app to take before and after pictures. They have to do this, Davis said, or they don’t get paid. “Then all that information is packaged up neatly and delivered to the customer via email and a dashboard,” Davis said. The investor gets a couple days to vet the work and approve payment. TaskEasy then disburses funds to the vendor almost immediately. TaskEasy takes a percentage of the payment, but the service also offers a great deal of value to vendors. They don’t have to spend as much as time drumming up business or managing their paperwork. “We do about half the contractors’ job, and we charge a small fee for that,” Davis said. Davis and his team spend a lot of their time thinking of ways to make life easier for their vendors. A big part of TaskEasy’s success depends on them, after all. Service providers who do a great job are rewarded with more business. TaskEasy also offers an equipment-financing plan for contractors who handle more than 10 or more properties. “I’m doing this now because I really, really believe in the services economy, and I believe there’s a way to make it work for people who are willing to work hard,” Davis said.

ments all the time,” he said. Clients can use TaskEasy to schedule one-time or recurring visits. The company also has divided the country into a series of climate zones, and it’ll make recommendations for service based on seasonal and weather conditions. Orlando properties, for example, need lawn care practically all year long, but in Chicago, nobody’s going to touch a lawnmower in January. In cities with harsh winters, TaskEasy also can remind customers to have their sprinkler systems blown out so they won’t freeze and burst during colder months. “By managing that prescriptively,” Davis said, “we’ve saved the customers a lot of money, time and hassle.” The bulk of TaskEasy’s systems are already in place, but there are still curveballs the team has to handle—like explaining to a customer why it costs $300, not $35, to mow a 4-foot-tall jungle of a lawn. In some cases, the company has eaten the cost of a job that was more expensive than originally budgeted. The goal is to always do right by customers, and that’s paying off. About 30 percent of TaskEasy’s new business is from referrals. And that’s paying off. About 30 percent of TaskEasy’s new business is from referrals. Davis still uses TaskEasy to handle exterior maintenance at the 89 properties he owns. In fact, they were the first in the system and served as the startup’s “guinea pigs.” That bought TaskEasy a huge amount of credibility with customers. “It was the only way we could get started,” he said. Plus, he was thrilled to have an easier way to find vendors. “Frankly, I needed it for my own sanity.” •

SAVING CUSTOMERS MONEY AND HEADACHES

Davis is a data guy by training, and TaskEasy reflects that. “We look at the data and try to make incremental improve-

James Hart is senior staff writer for Think Realty Magazine. Contact him at jhart@ithinkbigger.com.

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FEATURED STORY

Master Investor

TRIPLE PLAY With their unique skill sets, Dominion Group’s Fred Lewis and Jack BeVier find ‘tripod model’ makes sense.

BY ROBERT SPRINGER PHOTOS BY GREG DOHLER

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I’VE MADE EVERY MISTAKE I CAN MAKE, PROBABLY SIX TIMES, AND WE’VE LEARNED FROM ALL OF THAT” FRED LEWIS (LEFT), FOUNDER AND MANAGING PARTNER OF THE DOMINION GROUP t h i n k r e a lt y . c o m / m a g

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FEATURED STORY

Master Investor

“It’s investors to investors,” says Fred Lewis, left, with Jack BeVier.

LOAN OPTIONS FOR INVESTORS who rehab and flip houses are pretty straightforward. Private lenders, banks and crowdfunding sites can all be good options, depending on the borrower’s credit and funding needs. But what if there were a funding source that also had a fix-and-flip division in addition to being one of the nation’s top five largest private lenders? There is. Fred Lewis and Jack BeVier of The Dominion Group love to talk plumbing and design almost as much as they like to lend money. Their success and unique skill sets make them Think Realty Magazine’s Master Investors for September/October 2016. “We’re investment experts in a single-family real estate space, so we kind of view ourselves as real estate experts lending money to investors who seek to be experts themselves. It’s investors 20 | think realty magazine september :: october 2016

to investors,” says Lewis, Dominion’s founder and managing partner. Rehabbing and selling homes and private lending are two legs of Dominion’s tripod. The third leg is property management. The firm owns 560 rentals in the Baltimore area, and its management company manages more than 700 houses. “We have a very experienced management arm that’s focused on kind of an owner mentality first,” Lewis says. “The fact that we have the three arms of the business really makes us very well rounded as a company. It really adds to our knowledge base when we’re working with a borrower who’s struggling with management issues or struggling with real estate issues. And on the real estate side, our lending company provides us insights. It’s a very synergistic group of entities; our tripod approach has really been the right way to go.”

The company initially focused on its backyard: Baltimore and the surrounding counties in Maryland and Washington, D.C. In 2011, the company started lending on the East Coast and is now a national lender. ENTREPRENEURSHIP SHOWED EARLY

Pennsylvania native Lewis showed his entrepreneurial chops as a young man by starting a T-shirt company while only a freshman at George Washington University. He steadily built the business through his college years and eventually got into licensed apparel. The money from the T-shirt business helped pay for his schooling. “We got licenses from whatever was the popular culture at the time, and at one point, we were the largest grossing T-shirt company in the country.

We did about $40 million in T-shirt sales in 1998,” Lewis says. Itching to do “something different,” Lewis sold his interest in his T-shirt business in 2000 and started Dominion Financial Services in 2001 and Dominion Properties soon afterward. Ivy Leaguer BeVier, on the other hand, took the more traditional route and studied real estate at the University of Pennsylvania. He interned at Dominion while attending Penn. After working in commercial real estate for a couple of years after college, he talked to Lewis about rejoining Dominion to handle acquisitions, coming back aboard in 20007. “I went the more traditional school path and didn’t start my own business, but when I interned at Dominion, I really liked that environment and liked kind of the rope that Fred gave me even as an intern,” says BeVier, now a partner at Dominion. “I was actually really involved in moving the business forward and making decisions, and so I really kind of fell in love with that environment and en-

joyed it a lot more than a big-business hierarchical structure.” A PRODUCT-DRIVEN APPROACH

Starting a private lending company after running a successful T-shirt business might not seem like a natural next move, but it made perfect sense to Lewis, who calls himself a “product-driven guy.” Whether the product is T-shirts or rehabbed houses, Lewis enjoys the challenge of creating something that customers will choose over the competition. “What I really enjoy about real estate is it speaks to our creativity as to how we like to renovate houses, making sure we pick the right paint colors and the right design and the right layout,” he says. The explosion of fix-and-flip television shows has created a class of real estate investors “starving for learning those skills,” Lewis says. “They want to know how to do that. It’s something that Jack and I have kind of a deep understanding

at this point, so we enjoy it.” BeVier is more of a “deal junkie,” as he likes buying houses and helping other investors buy property as well, “because you can’t buy every single house. It’s a way to be involved in other real estate transactions and work toward other real estate investors’ success, and I enjoy the personality type of the borrowers that we work with and the business model that they’re doing, so what’s not to like?” he says. COMBINING SUCCESSFUL TRAITS TO HELP INVESTORS

Dominion has about 30 houses that it’s buying, renovating and then selling, and this “translates very well in conversations to other investors” who are looking to do the same thing, Lewis says. Both he and BeVier have expertise in different aspects of Dominion’s business, allowing the duo to become more than the sum of their parts. BeVier’s primary responsibility at Dominion is underwriting real estate for its property division to purchase. He

Bevier, left, and Lewis love to talk design.

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FEATURED STORY

PERSONNEL FILE NAMES: Fred Lewis and Jack BeVier COMPANY: The Dominion Group WEB: dominionprivatelending.com PHONE: 410-727-4305 HOMETOWN: LEWIS Philadelphia, Pennsylvania BEVIER

Annapolis, Maryland

EDUCATION: LEWIS The George Washington University BEVIER

University of Pennsylvania

FIRST REAL ESTATE DEAL: LEWIS “Lending funds to investors purchasing and selling houses in Baltimore.” BEVIER “A rowhouse rental property that I got at the Baltimore City courthouse steps.”

TECHNOLOGY YOU CAN’T LIVE WITHOUT: BEVIER “We’ve customized Podio to be our operational software. Love that product.” BEST ADVICE EVER RECEIVED: LEWIS “Always strive to create value and a win-win environment.” WHAT MAKES YOU GET UP IN THE MORNING: LEWIS “The desire to be the best at our core businesses and to continue to build on the strong foundation established over the years.” BEVIER “I’m a deal junkie. I can’t wait to buy the next house or make the next loan.”

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spends his mornings purchasing houses and then dons his underwriting hat in the afternoon, underwriting loans for the lending side of the business. His experience in evaluating single-family real estate provides a unique perspective when he underwrites loans. “I’m able to kind of bring some skills to the table in speaking with our borrowers that I’m really speaking their language, and I really enjoy that because that’s a core part of our business. When I see one of our borrowers getting a great deal on a house, we get really excited about that,” says BeVier. “We like talking to these guys. We enjoy speaking to flippers because we are flippers.” Lewis’ forte is real estate construction and his knowledge of the real estate business in general, which he says helps investors who are “trying to buy a property with the goal of holding it for rental and then building a rental portfolio.” He says Dominion “knows every single nuance of turning an old scratch-and-dent property or beat-up property into a quality rental.” The knowledge is hard won, as Lewis says he has personally been involved with a “couple of thousand” renovations since 2001. “I’ve made every mistake I can make, probably six times, and we’re learned from all of that,” he says. This level of experience allows him to field questions and put out fires in all areas of the business, from the lending side to the fix-and-flip division. SCHOOL OF HARD KNOCKS

Even Master Investors get knocked sideways sometimes; the real estate downturn of the late 2000s made sure that BeVier and Lewis weren’t exceptions to the rule.

Lewis says that “nothing really went wrong” from the company’s founding until 2007. Up markets have a way of doing that, he says. Then the real estate downturn hit, and despite their best efforts, the calm seas suddenly became very choppy. “As much as we tried to put in place to protect us from the downside, we learned from the down market what happens when you do make errors in judgment and what happens when you extend to the wrong people,” Lewis says. “I would say the down market taught us a hell of a lot, and the stabilizing of the market really taught us a whole lot, too.” Since his arrival at Dominion coincided with the start of the downturn, BeVier experienced an “extremely steep learning curve. I never thought I’d see a lot of the stuff that happened to us directly during that period of time, but we were able to make it through that, which provided the environment for a lot of opportunities for the growth of that lending business,” he says. As bad and as nerve-wracking as it was watching competitors go out of business, Dominion’s leaders learned valuable lessons from the down times. For one, they realized they needed to be much more selective about recipients to whom they loaned money. The difficult times taught them the most enduring lessons. “We learned a ton from that environment, and that really shaped our approach to underwriting,” BeVier says. The downturn made such a profound impression on Lewis and BeVier that they changed their lending style. “One of the main ways that our style of lending has changed over the years is through the focus on the borrower,” Lewis says. “One of the main lessons that we learned as a result of 2007 and 2008 was that ‘skin in the game’ matters, and the financial strength of the borrower matters as much as the quality of the deal.”

BeVier, left, and Lewis check on one of their Baltimore properties.

PRIVATE LENDING IS NOT FOR THE FAINT OF HEART

Pressed for advice for those considering entering the private lending space, Lewis and BeVier have two words of advice: Don’t bother. Private lending may seem like a simple business from the outside, yet Lewis says it’s anything but. “It is more akin to brain surgery than it is to general practice. There’s so much nuance in understanding how to underwrite the borrower’s exit strategy, the real estate itself, the age of the real estate, how it really sits and does it really fit into what the strategy is for the borrower,” he says. The private lending space has changed in the past 18 to 24 months, according to BeVier, as larger regional

and national private lenders enter the space. He says that the new players offer “a bit more professional platforms and certainly lower costs of capital” than previous lenders. Hedge funds are starting to enter the market as well. Any additional new entrants to the market will “have a hard time as a new lender in this environment competing with those entities, including us, from a cost capital point of view,” BeVier says. “It’s not your 15 percent interest in five points business anymore, which is what a lot of people get excited about. I think if you do that, you’re really doing a sub-private investor lending, and you might find yourself more likely in a workout scenario than in getting repaid.”

Having a uniquely multifaceted private lending business has served Lewis and BeVier well, especially during the downturn, and allowed them to take it nationwide after many of their competitors had exited the business. “At the end of the day, what makes us different and makes us leaders in business—and we really enjoy being leaders—is that we don’t have any interest in not providing value,” Lewis says. “It’s all about providing value to our clients, and I think that’s how we approach everything.” • Robert Springer is a regular freelance contributor to Think Realty Magazine. Contact him at rtspringer@gmail.com.

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THE BIG PICTURE

STRATEGIES: FLIPPING

Watch List HERE ARE FIVE OF THE MOST IMPORTANT ECONOMIC INDICATORS THAT SUCCESSFUL REAL ESTATE INVESTORS MONITOR. by Abhi Golhar

he global real estate market is built on a web of complexity that determines prices and hierarchical relationships of supply and demand. The activity of low-volume transactions, even at the local small-town level, helps determine the conditions and trends that affect the activity of larger investors making multibillion-dollar plays and vice versa. The ups and downs of other investment vehicles like equity and debt markets—as well as the conditions that underlie those changes—have a significant and often unforeseeable effect on real estate prices, both in the long and short term. One of the most important things new investors can do is educate themselves on the indicators that show which direction the markets have been headed and their implications. It’s important to keep in mind that none of these indicators can accurately predict the future, but by keeping an eye on them, the new investor can make better choices, get a better idea of proper valuations and perhaps notice trends that will provide an advantage over competitors. 1 S &P

500

A leading indicator of economic trends, the S&P 500 tracks the prices of the 500 largest companies in the United States. Rising stock prices typically indicate a strong economy, suggesting a future demand for real estate (and so, rising real estate prices). Gains in the stock market boost confidence, at which point investors begin looking to diversify into real estate and other illiquid investment vehicles. 24 | think realty magazine september :: october 2016

A dip in the S&P 500 indicates the opposite. A stock market crash could herald falling real estate prices and a future lack of demand. A dip might indicate it’s time to start pulling back and divesting riskier holdings until everything looks like it’s bottomed out. At that point, it’s time to go shopping. To someone who has maintained enough liquid cash, the bottom of the market is like a bargain-bin sale. 2

GDP GROWTH RATE

Typically, gross domestic product is used to measure the strength of the domestic economy, i.e., how much are we producing? Anyone who has taken a basic macroeconomics course probably remembers the formula, GDP = C + I + G + NX, in which “C” stands for “consumer spending,” “I” for “investment,” “G” for “government spending,” and “NX” for “net-exports.” GDP is a coincident indicator, meaning that it reflects the immediate state of production in the economy. Historically, the base GDP growth rate for a developed economy like the United States is around 2.5 percent per year. A higher rate probably means an inflationary period is on the horizon. High inflation rates usually mean higher real estate prices, but a decline in purchasing power for consumers. A GDP growth rate slowdown could indicate an economic recession and falling land prices, during which it may be hard to divest yourself of current holdings, or charge enough rent from tenants to keep up with mortgage rates. In the best of all possible worlds, you

would buy at the beginning of a GDP growth cycle and get out before a recession. 3

HOUSING PRICES INDEX

The Housing Prices Index, just as the name implies, provides the investor with a survey of the overall condition of the housing market. It’s a lagging indicator, meaning that it detects changes in the economy that have already happened. It’s important to remember the age-old axiom: “Buy low, sell high.” A decline in the index can be an indicator of a great opportunity for new real estate investors to get in on the ground floor. Once again, though, the trick is to divest oneself of one’s holdings before another decline, after riding the housing market to the top. At the same time, if you find yourself with an abundance of positions after a decline or crash, it might be a good time to hold, so long as you have enough income to keep making mortgage payments. A crash in the Housing Prices Index might be a great time to refinance. 4 NEW RESIDENTIAL CONSTRUCTION REPORT

A leading indicator that covers new building permits, housing starts and housing completions, the New Residential Construction Report indicates the amount of construction of new homes in the coming years. A month-to-month increase indicates an economic expansion (usually good for future real estate prices), while a decline signals a contraction (bad for future real estate prices). That being said, remember: Real

estate is a game of supply and demand. An extremely high New Residential Construction Report could indicate an oversupply of housing in the future, leading to a decline in prices. Never use an indicator by itself to make investment decisions, but try to take a broad approach.

THE FEDERAL FUNDS TARGET RATE 5

Used by the Federal Open Market Committee to boost or reduce monetary

supply in order to combat rapidly rising inflation and deflation, the Federal Funds Rate is probably the most closely monitored economic indicator, as the direction it moves affects so many factors that determine real estate prices. Typically, to rein in monetary supply during periods of high inflation, the FOMC will increase the target rate. This most directly affects bond markets, as it indicates that future Treasury debt will compensate creditors higher rates for new issues. For existing bond

holders, it indicates an imminent decline in bond prices, as their outstanding bonds have relatively lower values now that the Treasury is issuing higher-valued, near-risk-free debt. At the same time, a rise in interest rates heralds a decline in stock prices. Higher interest rates make the cost of borrowing money more expensive, indicating a slowdown in a company’s abilities to use leverage to grow. For the real estate market, a rise in interest rates makes it more difficult to purchase property, as banks will start raising mortgage rates. This usually indicates a decline in housing prices. On the other hand, it could be boon for commercial real estate owners, as they can use it as an opportunity to renegotiate and raise rents. It’s always important to maintain a diversified approach. Never put all your eggs in one basket. Examine each potential investment closely, and use these indicators as guidelines for understanding general trends in the economic factors that have an effect on real estate prices, rather than strict indicators of how a real estate portfolio will perform over any given period. Remember to buy low, sell high, maintain a significant cash position and always leave yourself enough wiggle room to get out of an investment if it goes south. It’s also a good idea to take a wider approach to diversification. Alongside your real estate portfolio, perhaps consider a portfolio of stocks and mutual funds, or a portfolio of lower-risk fixed-income investments like municipal bonds. •

Abhi Golhar is the host of “Real Estate Deal Talk” and Managing Partner of Summit & Crowne. Abhi uses a “valueadded” approach to invest in real estate renovation, new construction and development opportunities in the Southeast United States. He actively educates and works with investors to deploy market-driven strategies that yield success. He holds a B.S. in electrical engineering from the University of Michigan. You can find him on Twitter, Snapchat and Instagram - @AbhiGolhar.

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THE BIG PICTURE STRATEGIES: MOBILE HOMES

Deep Discounting JUST BECAUSE MOBILE HOMES ARE OFFERED AT BARGAIN PRICES, DON’T ASSUME THE WORST. THERE ARE REASONS A SELLER NEEDS A QUICK OUT. by Dawn Erling

on’t you love getting a good deal? When shopping for real estate, nobody wants to pay full price. As buyers looking for a bargain, we start with distressed properties, hoping to flip the property for a good profit spread. Seeing a substantial profit made over the original cost of the property gives you a feeling of satisfaction on such a smart decision. Now add to that feeling of success the knowledge that you are helping out a seller who would lose everything if you didn’t act quickly. You’re also providing a future buyer a newly improved home, even though that person doesn’t make a substantial income. Let’s talk about my area of specialty in real estate: mobile homes. When I first started investing in mobile homes on leased land more than 10 years ago, I learned that many owners of mobile homes (or manufactured homes) who are leasing land in a mobile home community or private land are motivated to sell for a variety of different reasons. Take a look at the following reasons why they would be motivated to sell cheaply and for a substantial discount:

They cannot afford to pay their lot rent and are facing eviction.

Let me explain this one a bit more. Let’s say the sellers own their mobile home free and clear. However, their mobile home is located in a mobile home park. They are obligated to pay lot rent each month to keep their mobile home

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in that park. If they don’t pay rent, the park reserves the right to evict them for nonpayment per the landlord tenant laws for mobile home parks in that area. Considering that it can cost anywhere from $2,500 to $10,000 to move a mobile home, they are stuck. If they can’t pay their lot rent, how are they going to pay to move their mobile home? They only have a certain period of time to remove their home. Otherwise, it becomes the park’s property. The park would then get the mobile home to do whatever it wants, with no payment or funds offered to the sellers in exchange for it. So the sellers will need to sell quickly before they lose everything.

Not everyone can qualify or get a loan for a mobile home. Financing options for new prospective buyers is limited, and many mobile homes cannot be financed, so that adds to the degree of difficulty for a distressed seller. A buyer would need to pay cash. If you have cash, can close quickly and are willing to do the much-needed repairs they couldn’t afford, you get an even better deal on a future mobile home purchase.

The seller does not have a free and clear title.

I cannot tell you how many times I have bought a mobile home when the title was in the possession of one of the following: bail bonds company, title

loan company, “buy here pay here” lot and even a pawn broker. In those cases, the seller has used the title as collateral for a loan and has not paid it off. If he or she loses the property to eviction or the entity in control of the title wants its money now, the seller will be anxious to cash out with some money rather than lose it to one of these sources. There are more traditional cases, too, where the seller has a loan on the property and is about to lose it for nonpayment of the mortgage, so he or she will try to sell before the foreclosure process is complete. I have even bought a few mobile homes as short sales from local credit unions. Make sure you protect yourself and know the whole history of the property before you buy a mobile home in this situation.

The sellers have a pending contract on a site-built home, but they need money out of their

mobile home before they can close on a new home.

The purchase contract on the sitebuilt home will only allow them so much leeway before they will have to cancel that contract and possibly lose earnest money. Even if they have saved up money for their new home, they probably don’t want to keep their mobile home for long, because they are still responsible for lot rent and fees until they sell it or else they will lose it to the park. Most people want to get rid of those extra costs as soon as possible.

The seller is having difficulty with park managers or park regulations regarding who can purchase the mobile home.

There are a lot of parks that want to rent just land and not own mobile homes, so they have no problem with an investor getting a good deal, fixing up the home and getting them a better tenant in the

park. You might even find a property manager who does not want to deal with an eviction or re-market the property and who will pass leads to you for free! But some parks do want the homes, so you won’t be able to easily buy mobile homes in those parks. Don’t be upset if you are denied. In that case, you wouldn’t want to purchase a mobile home in their park anyway. Why? If it is in their park, they get dictate who goes in it. If you don’t play by their rules, you will pay. No really, you will pay! Here is a situation I ran across a few years ago that illustrates this in greater detail. I was looking at a portfolio of mobile home notes and mobile homes. I went to check out the portfolio with the current owner. We came across a lone mobile home in a midsize park located in Boise, Idaho. The park was well maintained and had an assortment of mobile homes in it. The home in this man’s portfolio obviously had been rehabbed and current-

ly was for sale for a reasonable price. I asked him how long it had been for sale. He said almost a year. Something was wrong here. I noticed the other mobile homes for sale in the community were listed by the park. I did some more digging and eventually found out that the park did not approve of his buying in their community, so they found reasons to reject every applicant he sent over. If he didn’t maintain the lot rent, he would lose his investment in the rehabbed mobile home, but as he kept paying lot rent, his margin shrunk each month. So make sure the park you are buying in is willing to to let investors buy mobile homes in their park and that you read over their rules and regulations very carefully. These represent only a sampling of the many reasons a mobile home seller would be willing to sell his or her mobile home with substantial discounts. Just because mobile homes are cheap, don’t assume they will be in a horrible neighborhood or need so many repairs that it will not be worth your time. Many of the mobile homes I have bought over the years have been virtually move-in-ready, but I got them for a great price because I had cash and I could close quickly. The homes I did make repairs on and modernized looked great when finished, and I showed them with pride to potential buyers who were excited to move into a home of their own. I smiled all the way to the bank, with more money to invest in the next mobile home. •

Dawn Erling has been in the real estate industry for 20-plus years, investing in mobile homes for more than 10 years. She is a nationwide professional speaker and trainer and co-founder of SellThisMobileHome. com, which offers a variety of training programs and tools for anyone interested in investing in mobile homes on leased land, purchased land or entire mobile home parks. For more details, go to www.sellthismobilehome.com/premium.

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THE BIG PICTURE

STRATEGIES: FIX & FLIP

5 Fix-and-Flip Tips KNOW YOUR LIMITATIONS, DO YOUR HOMEWORK AND, BY ALL MEANS, HAVE A DETAILED PLAN TO SUCCEED WITH YOUR PROJECTS. by Bill Green

hether this is your first flip or 20th, there are strategies you can use to help make your business even more successful. Fixing-and-flipping homes can be profitable for real estate investors in a number of different cycles. An important thing to keep in mind when starting out is to always be honest with yourself and understand your limitations as an investor. Fooling yourself into believing this business is easy will only leave you vulnerable to things that could negatively affect your fix-and-flip project. As a real estate investor who has many years of firsthand experience in this business, I offer other investors these five techniques that I have found to be effective in making my own fixand-flip projects succeed. NO. 1

BUDGETING IS ESSENTIAL

It should come as no surprise that having a budget and keeping to it are absolutely necessary when executing your fix-and-flip. Making a clear rehab budget before you even begin the project will let both you and your contractor know exactly how much you want to spend. If you go over budget, you risk not being able to sell the property for enough money to earn back the costs you put into it, thereby losing profits. My rule of thumb is simple: I don’t go forward with a project if the rehab will cost me more than 35 percent of the property’s value. I standardize the materials I use for each rehab such as countertops, flooring, cabinets and 28 | think realty magazine september :: october 2016

appliances. This will not only give me an itemized list of my expenses without leaving it to my contractor’s discretion, but will also save me time—and time is essential for any fix-and-flip. NO. 2

TIMING IS EVERYTHING

The faster you can complete a flip, the better. Get in, rehab it and sell it quickly so you can move on to your next project. Speed and efficiency will only help you with your overall profits. If I buy a property at $200,000 and put in $40,000 for renovations, and I sell the property within six months for $300,000, then I would be making a 50 percent return on my investment, whereas if it takes me a year, I would only see a 25 percent return. The longer you are involved with a property, the more money you risk losing. You’re also leaving yourself open to uncontrollable circumstances arising, such as renovation issues and depreciation in the home’s value. Permits can also hinder your timeline, so knowing your municipality’s rules and regulations regarding renovations will propel the process faster. CHOOSE THE RIGHT SEASON FOR INVESTING NO. 3

Spring into summer is the best time of year to sell a property, so strategically plan your purchase so your sale date falls within that time frame. People don’t typically like moving during the winter months, especially in northern states where they must contend with freezing temperatures and snow.

Start your renovations in the fall with the outside of the home, first by painting the exterior or fixing the roof. When cold weather sets in, complete interior work such as installing carpeting, countertops and appliances, or painting rooms. By the time spring arrives, the flowers and landscaping you planted will be in full bloom, increasing the home’s curb appeal for selling. NO. 4

FIND THE RIGHT CONTRACTOR

You’ll need to find someone you can trust to complete your flip in a timely manner. I have found that for every thousand dollars I spend, the contractor should complete a thousand dollars’ worth of work each day, so if you have invested $30,000, then the project can be done within 30 days. Working closely with your contractor will only ensure the rehab stays within both your time frame and budget. Vet the pool of potential contractors by checking with the Better Business Bureau for customer complaints, getting referrals or recommendations and reviewing other work the contractor has done. NO. 5

LOCATION IS KEY

Location can make all the difference for a successful fix-and-flip, so be aware of things in close proximity to your investment that could potentially drive away a buyer, such as a congested main street or noisy railroad tracks. Purchasing a home in a subdivision is a much better investment than something in a rural area because subdivisions have

more clearly delineated property lines, and it will be much easier for you to determine comps. Plus, families tend to prefer homes in subdivisions with good school districts, so you’ll only be expanding the pool of possible buyers interested in your property. The location of your home will also help you evaluate its value and determine how much you will spend on renovations. You want to make sure you aren’t overdoing it with upgrades on a home that doesn’t warrant them based on the area where it is located.

THE ART OF SELLING

Going forward with your future fixand-flip deals, you should already know before you even buy the investment property what you are going to sell it for. Use those comps wisely, because your buyer, the appraiser and even the buyer’s lender will as well. Get the real estate agents who will be selling the home ready to start marketing the property as renovations wind down. My final words of advice are: “The best deal I did is the one I didn’t do.” Be smart with your money and know when to walk away from something that would not have been profitable for you. Don’t force it. Know when to hold and know when to fold, or more appropriately, know when to fix-and-flip so your investments don’t flop. • Bill Green is founder and CEO of LendingOne and the Crestar Group of Companies, which includes private equity, specialty finance and real estate businesses. Prior to forming Crestar in 2003, Green had been with Interline Brands since founding the company in 1977. For the next 25 years, he led Interline, as its CEO, through organic growth and acquisitions, from a small retail outlet to the nation’s largest industrial distribution company in the United States, which is now owned by Home Depot. Green also has served on 12 corporate boards, including The Foundation Board of Trustees of The Children’s Hospital of Philadelphia. He can be reached at bgreen@lendingone.com or 888-781-4850..

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THE BIG PICTURE

STRATEGIES: FINDING LEADS

What’s Your Edge? SUCCESS IN REAL ESTATE INVESTING REQUIRES KNOWLEDGE, COMMITMENT—AND A LEAD GENERATION SYSTEM. by RJ Palano

here is no other business like the real estate business. Everything that is acquired can be negotiated, and the most important negotiations are terms and price. Terms are far more important than price, because you can obtain terms at low or no interest and then the rent from the house could pay it off. Obtaining inexpensive seller financing is a strategy I’ve used for over 30 years. I’ve created tremendous buying opportunities that have generated significant equity over the years in several cities and states throughout the United States. These opportunities are available in real estate markets nationwide. If you’re buying to flip, price is more important because you need to sell for more than the purchase price plus the cost of any rehab you might do. If you’re buying to hold for the long-term production of income, and to eventually become financially free, then terms are more important. It’s easy to buy houses at retail value and obtain institutional financing, but why would you? You see, most small investors have limited choices of what they can acquire, and it might be because they have a limited skill set. When you think about all the skills required to be a super-successful house buying maverick, it’s no wonder why more people can’t get through the barrier of entry to create a “buy-sell machine.” Most people know about rental houses and the overwhelming benefits they have over every other kind of investment. But most people don’t have the time, desire or drive to really get out there and make it big! SUCCESS REQUIRES A CERTAIN MIND-SET

And there’s a reason for that: It takes a certain mind-set and a lot of effort to be successful. Such focus can be hard to come by in this day and age, when there is so much economic uncertainty, political turmoil and senseless violence happening all around us. But we have an incredible ability to freely create business in America—the same entrepreneurial spirit that colonized this country. All you need to do is simply work your business, continue to learn and grow and focus on your strengths to be 30 | think realty magazine september :: october 2016

prosperous and take care of your family. This is key to the successful operation of what I call a “buy-sell machine.” You have to want to succeed and prosper more than anything. Desire and perseverance are character traits you must have. Your knowledge of local real estate markets is easily obtained and enhanced through various websites and experience. It’s also important for you to hone the ability to make fast decisions to buy, sell, hire, fire, rent and evict. An understanding of finance and how to create financial friends and a network of association is paramount to your success. Knowledge of construction, rehabs, subcontractors and human relation skills gives you an edge in this game. BUT, BUT, BUT…

All of these are great qualities to have, but if you don’t have a lead generation system that provides house-buying opportunities, you’re dead in the water. You can’t take action if you have nothing upon which to take action. Think about this: Most of the hedge funds that were acquiring properties at courthouses all over the country are virtually gone. Oh, there are a few left that were late to the party, and now they are bidding each other up past retail values. You know why? Because 95 percent of the funds only had one of two ways to acquire houses: through mortgage foreclosure or via the Multiple Listing Service (MLS). But now the mortgage foreclosure crisis is no longer a crisis, and we are back down to prerecession levels for opportunities at the courthouse and elsewhere in real estate. The MLS is overwhelmed by every well-intended investor and homebuyer out there. When nearly everybody is fishing in the same pond, it’s not easy to catch a fish. Same thing holds true if you desire to buy houses. The more competition, the less opportunity and quite possibly the more risk because you’ll be paying more to win. So what can you do? What I have tried to do my entire life is to separate myself from the pack. I don’t want to do whatever everyone else is doing or I would be just like them. And I’ve never worked for

anyone else in my adult life because I want to be rewarded in direct proportion to my knowledge and my ability to take action. I don’t even like the word “job”! WHAT YOU NEED IS A LEAD GENERATION SYSTEM

So what we’ve done in our real estate enterprise is create a lead generation system that provides leads and off-market opportunities with little to no competition. In the last two weeks, I invested $25,000 into our lead generation system, and we’ve acquired seven houses with profit potential of over $200,000! For me, it was easy, because I know how to talk to people. Come to think of it, it was easy for my personal assistant and daughter because I taught them what to say, too. Pretty good return on investment, eh? (No, I’m not Canadian, just a buysell machine who loves what he does.) How about you? Are you good at buying houses? Do you have the money and ability to buy five to 20 houses a month? Do you acquire houses to flip, wholesale, retail or sell to investors and then manage properties, like we do? If you can’t find the opportunities, I’m not surprised. You have to be more and more resourceful these days to get what you want. And for me, that is personal freedom that comes by having financial freedom. If you are serious about buying houses, then you need to know how to find them. Here’s one of the opportunities I locked up this week. I acquired a house built in 2014 on Lake Martin in Alabama. It was on the market last year for $425,000, and there are two houses on the street for sale for $450,000 and $499,000. The owners of this house are behind on payments and owe $193,000. They did have an all-cash offer for $325,000 last October and turned it down. I’m taking over their $193,000 mortgage and giving them $20,000 at closing on top of the mortgage plus 50 percent of the net profit when I sell. So let’s see: It needs $5,000 in repairs. I’m paying $213,000. Even if I sell it for the $325,000 they had offered, there is a minimum of $90,000 in profit, which could give me a $45,000 profit on a $25,000 initial investment. That, my friends is creative. It works. And I did a similar arrangement on another house just like this with a similar margin profit this week.

the issues of a particular house and the owner. Providing acceptable solutions to a distressed owner is not only fun, it’s profitable. Our experience of acquiring houses in 12 states and more than 50 cities has given us a comfort level of how to approach sellers and create workable solutions. You must be able to solve the seller’s needs before you can think about your own. If you can’t solve theirs, they will never sell you the house, so it always starts with them. This dialogue between buyer and seller begins on the phone, and as a buyer, you must find a way to get them to trust you—a little. This initial phone call and rapport building are critical for your success to create workable solutions that solve the seller’s needs and put money in your pocket. The only way to have massive success in this business is by having a plethora of house-buying opportunities. I’m not talking about using a Realtor, but rather by going directly to the sellers to get really good discounts. A Realtor could never convey your thoughts as clearly as you could. When we get in front of home sellers, we lead the discussion with questions and basically control the direction of the conversation. Over 15 years ago, I was buying houses in a city of 275,000 people. I was working with a Realtor, Kim, and our deal was that she would let me negotiate directly with the owners. As a result, I acquired 43 houses that year from her efforts and another 60-plus through my own. So, if you have a smart Realtor and you’re good at negotiating, then this could work for you. Just keep in mind, you only want to negotiate with decision-makers. The more people you can get in front of, the more practice you will get, and your skill set could improve quickly. The key: You must have the opportunities in order to practice your negotiation skills. This is where the money is really at, in the single-family house business. If you’re not getting the leads, then you’re not getting the houses, and you’re definitely not getting the money. So my advice is to identify a lead-generation system that works. One of the newest that has come to market is a franchise called Fast Home Solutions, which is definitely worth checking out. But whether it’s this system or another, you owe it to yourself—and your future profitability—to explore the possibilities and the opportunities they hold. •

RJ Palano is the acquisition director of BuyCashFlowProperties.com, a Tampa, Florida-based company that primarily provides turnkey houses for investors in the metropolitan Atlanta and Tampa Bay areas. His property management experience spans more than 35

IT’S ALL ABOUT PROVIDING SOLUTIONS

It’s easy to make profitable transactions when you understand

years, and he has been involved in more than 3,000 real estate transactions in 12 states and more than 50 cities. Contact him at 813-495-3006 or rjp@ buycashflowproperties.com.

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NUTS & BOLTS

STRATEGIES: REITs

A Class of Its Own TO MANY OBSERVERS, IT’S ABOUT TIME REAL-ESTATE INVESTMENT TRUSTS GOT THEIR OWN SECTOR CLASSIFICATION. by Lawrence Fassler

nvestment yields across many asset classes have lately been disappointing, but a recent report seemed to show that real estate investment vehicles outperformed most other asset classes over the last 15 years. REITS OUTPERFORMING OTHER LIQUID ASSETS?

A recent Wall Street Journal article remarked on the planned move by Standard & Poor’s to create a new real estate sector in its classification systems and pointed to a report out of J.P. Morgan Asset Management asserting that, since 2000, REITs have returned an average of 12 percent annually. The next major category, high-yield bonds, was reported to have been

further behind at a 7.9 percent annual return rate, and largecap stocks rang in at just 4.1 percent. The Journal faulted the nearly 40 percent of large-cap core mutual funds that had avoided REITs because of their different analytical character. It cited recent Goldman Sachs research that indicated that real estate has recently outperformed both its former “financials” sector and the S&P 500 as a whole. REAL ESTATE COMING INTO ITS OWN AS AN ASSET CLASS?

Giving real-estate investment trusts their own sector classification will put the grouping alongside technology, health care, utilities and the like. REITs will no longer be a part of the financial sector, where they have held an awkward place alongside banks and insurers since those sectors were created in 1999. REAL OVERSIGHT Real estate has beaten the market recently, but many fund managers have missed out by favoring other shares In a way, it’s a wonder that the Index Performance Index Performance recategorization didn’t occur Fund Underweights Financials Real Estate S&P 500 Financials before. The famous (and success50% 2% ful) Yale Endowment model has long stressed the importance of alternative assets like real estate. 40% 0% “Investments in real estate provide meaningful diversification to the 30% -2% Endowment,” it said in its 2015 annual report. “A steady flow of 20% -4% income with equity upside creates a natural hedge against unantici10% -6% pated inflation without sacrificing expected return. … While real 0% -8% estate markets sometimes produce dramatically cyclical returns, pricing inefficiencies in the asset -10% -10% class and opportunities to add 2014 2015 2016 2014 2015 2016 value allow superior managers to * Goldman Sachs indexes of stocks heavily owned and less owned by mutual funds. generate excess returns over long SOURCES: FactSet; Goldman Sachs Global Investment Research time horizons.”

32 | think realty magazine september :: october 2016

A GOOD ALTERNATIVE IN A LOW-YIELD ENVIRONMENT?

Many commentators have argued that we are returning to historical patterns that had been in place for years prior to the more recent experience of relatively high interest rates and the resultant higher yields on bonds and other investment types. “We’re returning to normal, and it’s just taken time for people to realize that,” said Bryan Taylor, chief economist of Global Financial Data, which scours old records to calculate historical financial data. “I think interest rates are going to stay low for several decades.” Investment returns come from two sources: income and capital gains. The income portion is much lower than it used to be. The yield on long-dated Treasury bonds 25 years ago was more than 8 percent, but now the yield on the 10-year Treasury bond is just 2.3 percent. Yields on corporate bonds, which pay a spread over government debt, have fallen in tandem. Corporate profits have also been affected. “Fourth-quarter profits at S&P 500 companies fell by 3.6 percent year on year. Even without financial and energy stocks, profits would be up by just 0.1 percent. In the absence of higher profits, stock markets need higher valuations if they are to generate positive returns. But Wall Street started 2015 on a cyclically adjusted price-earnings ratio of 26.8, compared with the historical average of 16.6.” According to Professor Robert Shiller of Yale University, it should end the year at nearly the same figure. Low (and sometimes negative) yields on cash and government bonds mean that the stock market can seem like the only plausible source of decent returns. But many wonder whether the bull run in equities, which began in 2009, can be maintained in the face of a sluggish economic recovery and faltering corporate profits. The Economist reported that “McKinsey reckons that, in a slow-growth environment, real annual returns from equities over the next 20 years may be 4-5 percent, well below the average of the past 30 years; real bond returns may be just 0-1 percent. Even a rebound in American growth to 2.8 percent a year might generate real equity returns of only 5.5-6.5 percent, below the average of the past three decades.”

THIRTY GLORIOUS YEARS Total real returns, average annual % increase* 1915-2014 1965-2014 1985-2014

UNITED STATES 0

Equities

Bonds

EUROPE

Equities

Bonds *Measured against a three-year average of returns in start and end years. SOURCES: McKinsey Global Institute; Economist.com

Meanwhile, “commercial real estate fundamentals—such as demand, occupancy and rents—remain strong, which has kept property values up in the private market,” said Steven Marks, a managing director at Fitch Ratings who specializes in U.S. REITs. Indeed, “the long-term returns from property look very respectable; in the 10 years to last September, American commercial property delivered a total annualized return of 7.9 percent, according to IPD, a property-information group.” DIRECT PARTICIPATION VEHICLES VS. REITS

Although the Journal article focused on REITs because those are the publicly traded vehicles that most mutual funds t h i n k r e a lt y . c o m / m a g

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utilize, REITs aren’t always the investment vehicle of choice. Recent surveys estimate that institutional investors continue to place between 80 percent and 95 percent of their real estate allocations into private real estate investments, rather than publicly traded REITs. In part, this may be because the tradability and leverage associated with REITs means they are subject to factors such as market sentiment. They are effectively part of the quoted equities universe, and so can be correlated with it—thus effectively negating one of real estate’s primary features as an asset class that is not directly correlated with the stock and bond markets. Some of the appeal, too, of direct participation vehicles lies in the inability of REITs to fully take advantage of the various tax benefits available through LLC structures. In addition to often being property-specific (as opposed to REITs and their “pools” of properties), pass-through investment vehicles such as LLCs not only avoid double taxation but also allow investors to obtain the full benefit of tax losses or incentives relating to depreciation, interest and other deductions that act to shelter or defer much of the income that is distributed from the investment property. With real estate, the magnitude of the depreciation and interest expense deductions make this advantage potentially significant. Crowdfunding sites like RealtyShares allow smaller investors to follow the lead of institutions in potentially allocating most of their real estate investments into private pass-through entity syndicates.

significant risk factors: All of the investments offered by RealtyShares are private offerings, exempt from registration with the SEC. The required disclosures associated with the offerings are therefore less detailed than an investor would typically expect from a registered offering, and ongoing disclosure requirements are negligible. The offerings are also illiquid, with no preset liquidity terms. An investor should have no expectation of liquidity before the final liquidation of the real estate project. Because these offerings are only available to accredited investors, the liquidity in any circumstance will be more limited than for registered, publicly traded securities. Lastly, all investment involves risk of loss, and past performance is not indicative of future results. Neither RealtyShares, Inc. nor North Capital Private Securities Corporation, as institutions, advise on any personal income tax requirements or issues. Use of any information from this article is for general information only and does not represent personal tax advice, either express or implied. Readers are encouraged to seek professional tax advice for personal income tax questions and assistance. •

Lawrence Fassler, an attorney and real estate investor, is Corporate Counsel of RealtyShares, a leading real estate investment marketplace that places equity investments through North Capital Private Securities Corporation; a registered Securities broker-

RISK FACTORS FOR PRIVATE DIRECT PARTICIPATION VEHICLES

The direct participation vehicles discussed above still carry 34 | think realty magazine september :: october 2016

dealer, and member of FINRA/SIPC. RealtyShares as an institution does not advise on any legal issues, and this article is for general information only and does not represent professional legal advice. Contact the author at lawrence@realtyshares.com.

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Think Realty Expo

ATLANTA

October 15, 2016 - The Westin Buckhead Networking

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Get in on the action at Think Realty Expo in Atlanta! Whether you’re just getting started and want to find out more about the amazing opportunities in real estate investing, or you’re a seasoned pro ready to up your game, find the resources you need to succeed at Think Realty Expo.

Featuring: Deal Street Where Lenders, Wholesalers & Investors Connect! Bring your deals to sell, find great buys, and network with the area’s top investors, lenders. and rehabbers. Your next big deal could be just around the corner!

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Unexpected maintenance calls taking you away from family fun? We take care of rental homes so you don’t miss out on the things—and people—important to you. From interruptions in your daily work to missed vacations or time away from family and friends, you may be making unnecessary sacrifices—and adding stress and hassles to your life. Real Property Management is the nation’s local property manager. For over 25 years, we’ve helped rental property owners large and small. From evictions and troublesome tenants to marketing and understanding legal issues, we know what works, what rents, and how to get more from your property—so you can enjoy your family fun.

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THE BIG PICTURE

STRATEGIES: LAND

Digging into the Details HERE ARE FIVE THINGS YOU NEED TO KNOW BEFORE INVESTING IN YOUR FIRST PIECE OF LAND. by Dr. Slim Feriani

uccessful land investing, like any type of investing, requires a lot of due diligence. Investing in land often requires travel, too, since there are several things a buyer cannot know about a piece of land before seeing it in person. Google Maps is a great resource, but it is not a substitute for visiting in person. While there’s a significant amount of information available about property investing, there are fewer resources for learning about investing in land. Here are five things anyone interested in engaging in this potentially lucrative investment option should know before investing in their first piece of land.

IT COULD TAKE YEARS TO MAKE A PROFIT ON VACANT LAND 1

The land with the best future value is often far away from the city. Since there likely won’t be any utilities or sewers nearby, the owner will need to wait for development to reach the area. It is vital to do due diligence on remote land to determine the potential return on investment. The owner will have to pay taxes every year and may be required to perform basic maintenance on the property. Before buying, it is important to weigh these expenses versus the potential profit years down the road. The payoff could be quite substantial, but it could also be negligible or nonexistent if the buyer doesn’t take the necessary steps to determine the land’s potential value. 2 LAND PURCHASES ARE TYPICALLY MADE WITH CASH

Banks typically won’t lend money to people who simply want to buy land to hold as an investment. Because it could take 20 years or longer for a plot of land to appreciate in value, lenders are usually unwilling to assume the risk. Investors paying out of their own pocket for land must take precau38 | think realty magazine september :: october 2016

tions, such as visiting the property in person and performing a title search to ensure there are no potential issues. Those who want to tap into mortgage financing might be able to get a construction loan and eventually a mortgage if they put a home on the land. Of course, this might only be an option if there is already sewer and utility service in the vicinity. 3 CHANGE THE ZONING TO MAKE AN INVESTMENT OPPORTUNITY MORE APPEALING.

To sell a large piece of property zoned for agricultural use, for example, the owner will need to work with the local government to change the zoning classification to either residential or commercial in order to make a profit. This is not always a simple process, as cities and towns typically have a plan for how the land in their jurisdiction should be used. Changing the zoning for one piece of land could cause problems for surrounding home and business owners. Potential buyers should contact the zoning office before they make an offer. Find out if a change in zoning is possible. Although some developers will do this, not completing this up front will reduce the value of the property and make it a less lucrative investment for a developer.

FIND OUT WHY THE LAND IS VACANT.

While it might not be a swamp, there could be other issues that make the property less than desirable. Perhaps there was contamination with the land, or the sellers were unable to get a zoning change to make the land appealing to a developer. Prior to making an offer, potential buyers should pay for an environmental report to find out if the soil is contaminated. Knowing why the last owner didn’t hold onto the land is essential to determining potential return on investment. Even worse, if there is a problem with contamination, the new owner could be responsible for the cleanup if it’s discovered later. 5 THE USE OF NEIGHBORING LAND CAN HAVE A HUGE IMPACT ON THE VALUE OF A PROPERTY.

Even if it takes a while, developers will typically be interested in well-located, desirable land. However, if the land is located next to a prison or a power plant, for example, very few investors would be interested in purchasing it. Residential development is the most profitable way to add value to a large piece of land. In addition, if there was formerly a gas station, auto repair shop or factory located near the land, the surrounding property might be contaminated. When the land is undesirable

because of the surrounding property, it will be difficult to sell to a real estate development company. Knowing the status of the land for sale as well as the surrounding land can help an investor make a sound buying decision. Investing in land with the intention to flip it quickly often leads to disappointment. By conducting comprehensive due diligence, it is possible to find valuable properties offered at attractive prices. Because it can take years for the surrounding area to develop enough for the land to have much value, it’s important for any prospective investor to be prepared to pay the taxes on the property until a developer shows interest in the land. During that time, working with the government to change the zoning classification or correcting any topography issues can also help increase the value of the land. • Dr. Slim Feriani is Executive Vice President/Finance and Investments and Chief Financial Officer at ROI Land Investments Ltd. (OTCQB ticker: ROII). Dr. Feriani completed an MBA and Ph.D. in finance and investments at George Washington University, where he taught finance and international finance for seven years and currently serves on the advisory board of the business school. He has 20 years’ experience in global markets across all asset classes, and he is a specialist in global investing and emerging markets

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THE BIG PICTURE

STRATEGIES: NOTES

Investors, Take Note! OWNERSHIP IS THE KEY TO MAKING MONEY WITH NOTES. by Tracy Z. Rewey

ou can make a living brokering notes, but you get wealthy owning notes!” This statement from a pioneer real estate note investor provided one of those “lightbulb” moments for me. Determined to start owning notes, I left a 10-year “job” in the corporate note-buying world to start my own note business in 1997. Note ownership and long-term interest income are truly attainable with little to no investment of your own cash funds. But how does a note broker or real estate investor start making the move to note owner? Here are five strategies that can help you make money and become your own investor.

while you learn. We all have marketing costs, business overhead and personal expenses, so brokering notes to “earn a living” or a cash fee at closing makes good sense. It also provides the marketing machine to generate leads that can be matched with an institutional investor, a partial investor with tail-end opportunities or your own portfolio. Even when buying a majority of notes for long-term holding, it still proves useful to broker a portion. Not all notes will fit your parameters, and it helps to stay apprised of current market conditions to keep pricing competitive and personal portfolios liquid.

1 BROKER NOTES TO GAIN KNOWLEDGE, PAY OVERHEAD AND GENERATE LEADS

Brokering notes will supply insights and knowledge, enabling you to earn

40 | think realty magazine september :: october 2016

CREATE YOUR OWN NOTES

When selling real estate, mobile homes or other property, consider creating your own notes. Converting all or a portion of profits from the sale of

property to long-term financing provides an opportunity to receive ongoing payments at an interest rate and terms that meet your needs. This was a strategy we used on a fourunit investment property that we sold for $129,800 with 10 percent down; a new 80 percent loan-to-value, first-position bank loan; and a $12,980 owner-carried second—the old 80/10/10. The down payment and buyer’s first loan enabled us to pay off our purchase mortgage at closing and walk with a chunk of cash for our next investment. The second note helped maximize the sale price and allowed a portion of profits to keep earning interest backed by a piece of real estate we knew well. 3 UTILIZE RETIREMENT ACCOUNT FUNDS

Did you know it is possible to use your IRA, Roth, SIMPLE, SEP and

401(k) retirement accounts to buy notes and real estate? Many investors who are tired of dismal returns in the stock market are turning to notes and real estate through self-directed retirement account administrators. This provides access to capital and takes advantage of earning money tax-deferred or, in the case of a Roth, tax-free! This concept allows us to aggressively pursue small-balance notes for double- to triple-digit yields backed by real estate. You will find that due to their balance minimums, larger institutional investors often overlook notes under $30,000. 4 PARTICIPATE IN FUTURE PAYMENTS OR TAIL-ENDS

The “buy full, sell short” strategy is one of the best ways to initiate note ownership. This technique is based on your purchase of the full payment stream from the note holder or seller with the resale of a shorter payment stream or partial to an investor. This enables you to earn a fee on the initial sale of the partial to the investor and keep a portion of the future payment stream as a personal wealth-building vehicle. These payments that remain after a partial investment has paid off are also known as the tail end or back end of a note. Let’s look at a real-life example. We were approached to purchase a mortgage note secured by two lots that each had an attached mobile home. The property had

sold for $70,000 with $8,000 down, and the seller had received four payments on his owner-financed note.

The full cash flow purchased from the seller: • Full Balance: $61,927.97 • Note Rate: 12 percent • Payment: $637.74 • Payments Bought: 356 • Pay Price: $41,489.26

The partial cash flow sold to an outside investor: • Partial Balance: $47,937.79 • Yield: 13.17 percent • Payment: $637.74 • Payments Sold: 140 • Pay Price: $45,500

The outside investor’s pay price was used to fund the seller through a double closing at the title company. The broker fee earned at closing was $4,010.74 ($45,500 less $41,489.26) less costs. In addition to earning a fee at closing, we retained the right to future payments. Only 140 payments of the 356 remaining payments were sold to the investor to meet his yield and investment-to-value (ITV) requirements. We retained the right to 216 payments of $637.74 each, commencing in 140 months as specified in the partial agreement. How much of our own capital is at risk? None.

CHALLENGE YOURSELF TO MAKE NOTE OWNERSHIP PART

What is the return? Good enough. (Hint: To calculate yield, put at least $1 in your financial calculator as the investment or PV amount). 5

LEVERAGING

Leveraging is a familiar concept to real estate investors, allowing properties to be purchased and financed with a minimal investment. Using a similar concept, there are financial institutions that will lend money secured by an assignment of the note and mortgage (or deed of trust) through a line of credit or the hypothecation of an individual note. Money is earned from the spread, which is essentially the difference between the interest rate charged by the bank on the advance and the presumably higher rate of return earned on the note purchased at a discount. While the line of credit has been our primary leveraging tool, other private investors have also used their home equity line of credit or even credit cards. Leveraging comes with greater liability and is better suited for an experienced note investor with strong underwriting and collection skills. Challenge yourself to make note ownership part of your wealth-building plan. You won’t be sorry when those monthly payments and unexpected payoffs start arriving in your mailbox. •

A well-known cash flow expert, Tracy Z. Rewey has handled millions of dollars in note investments. She shares her 20 years

OF YOUR WEALTH-BUILDING PLAN. YOU WON’T BE SORRY WHEN THOSE MONTHLY PAYMENTS AND UNEXPECTED PAYOFFS START ARRIVING IN YOUR MAILBOX.

of insider secrets teaching others to buy and broker notes in “Finding Cash Flow Notes – Your Complete Moneymaking System to Buying, Referring, Creating, and Holding Real Estate Notes.” Rewey combines her knowledge of cash flow notes with the power of marketing online to help grow your business. She can be reached at Tracy@NoteInvestor.com or 1-888-999-7905 or www.exposureone.com.

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FAST HOME SOLUTIONS

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Looking for an Advantage? FAST HOME SOLUTIONS FRANCHISE OPPORTUNITY COULD BE THE ANSWER IN YOUR QUEST FOR MORE LEADS AND MORE PROFIT. by Carly Lambert

o you ever wonder why some elite athletes use performance enhancing drugs? Or why someone would alter a football’s air pressure to make it easier to grip and throw? Cork a baseball bat so the ball ﬂies farther? Tweak a race car design so that it’s just slightly different than what’s allowed—but it goes faster? They’re all looking for an edge. An advantage. Something that sets them apart. No matter how good they are, these athletes are still looking for that edge that will allow them to be the BEST. Not “among the best.” THE BEST. Real estate is no different. Don’t get me wrong, I’m not advocating for anything illegal to give you an unfair advantage. What I am talking about is using a system that puts you ahead of the game and ahead of the competition. Let’s be honest. The single-family housing business is competitive. Very competitive. In fact, as more and more people enter the single-family house business nationwide, there are fewer and fewer visible opportunities. On top of the opportunity shortage, competition is driving house prices higher and higher, leaving less proﬁt on the table for “would-be” investors, hedge funds and turnkey operators. In order to compete in this fast-paced, competitive environment, you have to have an advantage. What if I told you there are abundant house-buying opportunities available to you that aren’t available to the public? What if I could give you the advantage you are looking for? OUR ‘MAP’ WILL SHOW YOU WHERE TO DIG

You may not believe me, but I’m here to tell you that there are always opportunities in the real estate business. The key is that you have to know where to dig for them, like a miner knows where to uncover the choicest diamonds. However, you’ll never find any good opportunities looking in the wrong place any more than the miner would find his diamonds in an empty field. So don’t look where everyone else is looking! Just like a miner who knows where to dig, you need a system that shows you where to look for your real estate leads. Let’s assume that you have uncovered all your gleaming, sparkling real estate leads. Not only do you have more and better leads than your competition, but you have an abundance of 42 | think realty magazine september :: october 2016

them. In fact, you may have too many. Now what? Ask yourself a question: Why is it some people are super-successful in business and others only marginally successful? Is it effort? Is it knowledge? Is it energy, or access to money? How about determination, persistence, perseverance or passion? It’s really a combination of all of these qualities and probably most important, it is a person’s willingness to take massive action. Massive action on a massive number of leads in turn will lead to massive results. WITH ABUNDANT LEADS, YOU CAN GO FOR THE VERY BEST

The idea of having more opportunities than you could ever handle encourages you to select the most proﬁtable opportunities. Imaging harvesting only the diamonds greater than 5 carats and leaving the little chips for the other miners. If you have the right system in place, you’ll have the pick of the litter when it comes to the deals you choose to negotiate. Moreover, your negotiating skills would go up considerably if you negotiated ﬁve to 10 opportunities a day. I’m pretty sure your value in the market place would go up considerably if—and that’s a big IF—you knew how to negotiate. After all, opportunities never materialize into closings unless you come to terms with a seller. That means you must have a solution for the seller to resolve the issues surrounding his or her house. Negotiation is the highest-paid work in the world. That’s worth repeating again: Negotiation is the highest-paid work in the world! Period. IT’S A SELLER’S MARKET NOW

Since the Great Depression, we’ve seen Wall Street jump into the single-family house business. It was smart of these investors to recognize the opportunity, but the model they initially used is now ﬂawed and not sustainable. As you probably know, Wall

Street doesn’t change its style very quickly. Primarily, the hedge funds literally tripped over each other at mortgage foreclosure auctions all over the country. This was their primary way of obtaining a massive number of properties at discount. Unfortunately, there are about 70 percent fewer foreclosures in the country now, and bidders are paying above retail in many cases. And, they typically don’t get inside the house before they buy, so they have more risk exposure. The secondary way these funds were buying was to make blanket offers on houses using the Multiple Listing Service (MLS). Every time a house came on the market, most of the funds had Realtors making offers on everything. Well, guess what? The best opportunities are no longer at auction, nor on the MLS. Sure, you might ﬁnd a deal here and there, and for some of you that’s all you want.

DON’T BE SATISFIED WITH JUST A DEAL HERE AND THERE

And if that is all you want, stop reading. If not, I’m going to suggest to you that to be extremely successful in the real estate single-family house game, you have to be extremely different. In order to be extremely different, you need to create a buy/sell machine. What is a buy/sell machine? Just ask RJ Palano from www. BuyCashFlowProperties.com. He wrote the book, “The Buy/Sell Machine,” which will be available next year. A buy/sell machine creates a funnel of leads—i.e., a list of people who want to sell their houses. Within this funnel of opportunities, you, as the buyer, decide which houses to: • Wholesale as-is • Rehab and retail to a homeowner t h i n k r e a lt y . c o m / m a g

| 43

PAID ADVERTISEMENT

• Sell to an investor and retain property management • Keep for long-term hold, personally or use retirement accounts A buy/sell machine is for top performers who want a large piece of the pie in their area. It takes a lot of energy, personal resources and funding behind you to create this type of operation. It’s only possible to create this kind of activity if you have opportunities in the form of house-buying leads. You have got to have qualified leads to acquire properties at discount for your buy/sell machine. There are many real estate gurus out there who claim they have the secret sauce, and in most cases they want you to buy their educational products and services. We’ve seen much of this over the years, and most of these gurus make their money in the classroom, not in the suburban and urban jungles where buy/ sell machines are created. Often, they teach old techniques that work in certain markets and under specific economic conditions, such as REOs or short sales, which hardly exist anymore. Those opportunities have dried up as values have risen and the MLS has investors and would-be homebuyers fighting for scraps. If you do what everybody else does, you will get what everybody else gets. Is that what you want? A FAST HOME SOLUTIONS FRANCHISE IS THE ANSWER

How would you like off-market leads to buy houses delivered directly to your email or phone? Yes, it’s possible, by becoming a Fast Home Solutions Franchisee is right now! Here’s who this franchise opportunity is for: • Buyers who want to be the top performer in their market • Aggressive, hard-hitting hustlers who realize that second place is the ﬁrst place loser (as the great Ricky Bobby said, “If you ain’t ﬁrst, you’re last”) • Hedge funds that have a knowledgeable buyer in their marketplace who can negotiate directly with homeowners • Property managers who want to buy, rehab and sell to their clients while retaining management This is where the rubber meets the road. It doesn’t take much knowledge to buy at auctions because you just have to negoti44 | think realty magazine september :: october 2016

ate, not bid. Just ask RJ. I know he bought a house on a lake in Alabama recently that required only $40,000 down, and he took over a mortgage and expects to make more than $100,000 on this one transaction—with only $40,000 out of pocket! By the way, RJ was the beta tester for our service. Negotiating with homeowners and absentee sellers is far different than raising your hand to bid at auction or telling your Realtor what to offer. This is a skill set that is crucial for anyone who wants to operate a buy/sell machine. WE’LL SHOW YOU HOW TO NEGOTIATE

Most property managers and buyers for hedge funds have not honed these skills. You could have all the leads in the world, but they are useless if you can’t close the sale with the seller. We’ll show you how to negotiate.  When you cut to the chase and really simplify this business, nothing is more important than the leads, the ability to negotiate them and properly memorialize the terms in an agreement. We can make this so simple for you that anyone can do it. And isn’t simple what everyone wants? If you’re a property manager and you’re not selling houses to your investors, you’re missing out on a lot of money. Anthony Salmeri, owner of National ERA Servicing, LLC, has created a property management company that was a startup ﬁve years ago. Today, he has more than 750 houses under management. How did he do it? He bought the houses at discount, rehabbed them and sold them to investors. Simple. LET’S SEE IF WE CAN MAKE A MATCH

If this sounds like something that would be good for your enterprise, join me at this landing page and let’s determine if we could be a good ﬁt for each other. Go to www.InvestorDealFlow. com and I look forward to very brieﬂy introducing myself and part of our team. Look, not everyone can be the big dog in your area. We created a product that will work for everyone, even those who are content to buy only one or two houses a month. Click here: www.InvestorDealFlow.com. Dominate your market! •

Whether you are a seasoned real estate investor or just starting out, Think Realty is your central source for all the industry insight and tools you need to succeed. We stay ahead of the curve so you can stay competitive.

In addition to event access, buying power, legal support, networking and industry content, log in to check out new benefits exclusively for Think Realty Members: • REI Educational Videos • Property Checklists for Rehabbing & Management • Access to Wholesaler & Lender Databases • Access to REI Groups Across the Nation

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NUTS & BOLTS

PROBATES

Casting for Leads TRY PROBATE LEADS AS ANOTHER OPTION FOR FINDING THE ELUSIVE INVESTMENT PROPERTY. by Leon McKenzie

xperts in the real estate industry always have a focus on bringing in leads for their real estate business. Without a steady stream of properties to look at, it can be nearly impossible to meet your investment goals. That said, there is an ongoing challenge in finding investment properties in the real estate market due to ongoing tightening on the supply side. FACTORS THAT HAVE CAUSED A LEAD SHORTAGE

Since the recession of 2008, homeowners have not been as eager to put an existing home on the market. Challenges with the home being “underwater”—or worth less than the original value it was mortgaged for— have made it difficult for people to sell their homes, as their mortgage balance can be higher than the selling price for their home. These same homeowners can’t sell their homes because they cannot afford to bring money to the closing table, so they are staying put. This means there are fewer homes coming onto the residential market throughout the nation, stalling supply. Homeowners can’t afford to sell their homes, so they aren’t upgrading or downsizing. Getting an individual mortgage is also a challenge at this juncture of the 48 | think realty magazine september :: october 2016

market. Banks and lending institutions are hesitant to lend to those who don’t have stellar credit. While a decade ago it was easy to get money to purchase a home or put on an addition, leery banking businesses simply don’t want to take the risk and have to add more properties to their foreclosure rolls. This, too, is adding to the restriction in leads.

In addition to properties being underwater, another issue with real estate leads at this time is the slow growth in construction. Construction projects slowed to a near standstill after 2008 due to the mortgage crisis. Now, banks are making it almost as hard for companies to get loans as they have for individual buyers. This means there are fewer new construction projects happening, adding to the squeeze in the real estate lead market. When a home does come on the market, due to the shortage in properties available, the prices have been driven higher than might occur in a normal market. Fewer homes with more people bidding on them will naturally cause an increase in price. In fact, many real estate agents are reporting that their listings are selling within days for more than the stated listing price. CREATIVITY NEEDED IN LEAD STRATEGIES

All of these factors point to the fact that creativity and flexibility are needed in the real estate investing market right now. While you could simply focus on the traditional market, you will find there are fewer homes to choose from, and you may have to pay a premium to purchase them for your portfolio. For that reason, many real estate investors have been shying away from traditional lead sources and are looking for alternatives. One alternative is the foreclosure market with the properties being held by a bank. These properties are sold “as is” and frequently have damage that is a direct result of homes being abandoned by their owners. There is also the issue of having to evict squatters who have taken up residence in a property that you would like to purchase. Because banks are actively trying to recoup their losses, they are less likely than at any time in history to give you a quick answer on your bid, work with you on the pricing or commit to a quick closing. In fact, many banks are now expecting market prices for homes that are in dismal condition. PROBATES ARE A MEANINGFUL OPTION

While no real estate investor should eliminate a lead source from his or her business—as each of them can yield a gem, whether the traditional, new construction or foreclosure market—there is definitely room for another option. Seasoned real estate investors are now adding probate leads to their options when looking for leads. While many people aren’t familiar with probate leads, they have been on the market for decades. Probate leads are generated when probates are filed in a local courthouse, and they can be a great way to add to your options for your buying area. Probates can include a wide variety of investments. Having access to these leads is a great way to diversify your lead strategy and give yourself some additional options when looking for properties to add to your portfolio.

What probate leads offer is a way to diversify your lead strategy and include more than just one type of real estate listing. This option can give you ways to find lower-priced properties that may have more flexibility in their terms. WHAT ARE PROBATE LEADS?

Probates leads include information on property that is part of a legal filing after the death of a loved one. These cases include many types of property that may have been owned by someone who has passed on: homes, vacation homes, cars, RVs, businesses, commercial property, rental property, artwork and other personal property. These cases are listed in each county after the death of a loved one where a probate needs to be filed and are controlled by the local court. Generally, this property has to be sold in order to pay for medical, tax, legal and funeral expenses. The court will assign an executor to handle the sale of the property so that these obligations can be met and the heirs can receive any remaining funds. PROBATE LEADS ARE THE CADILLAC OF LEADS

As part of an overall investment strategy, probate leads are valuable because they come with very motivated sellers. Executors need to deal with the property that is in the probate filing in order to meet the court requirements. Many times, they need cash in order to pay bills that have been left after the passing of their loved one. Executors also realize that the property they are selling may need updates. This creates a situation where the executor may be willing to sell the property for a discount. Finding property at a discounted rate in today’s market is a real challenge, and that is what makes probate leads such an important part of an overall lead strategy. These properties may be available for 30 percent to 50 percent off the market price and are generally available for a quick closing. HOW LONG ARE THEY VIABLE?

New users of probate leads may think the leads would have a short time on the market. That is not the case, in fact. > Continued on :: PG 120

Leon McKenzie is chief operating officer of U.S. Probate Leads, which he co-founded 12 years ago. The company has grown to become a leading provider of probate leads for virtually every county in the United States, using a national network of researchers who collect data directly from individual probate courts each month. Contact him at info@usprobateleads.com or 877-470-9751.

t h i n k r e a lt y . c o m / m a g

| 49

Direct Your Future™

Real Estate Investor Market

ReseaRch RepoRt

Discover 2015 Trends in Real Estate IRA Investments at TheEntrustGroup.com/real-estate-report Another employment both growing. with population and of Baby Boomers is the growing number demographic to watch many of these locations. choosing to retire in demonstrated trend, Entrust clients Following the national transactions market, with 3% more Western the in e confidenc chose to out of five IRA investors in 2015 over 2014. Four in 2015. in the West or South purchase real estate

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FREE DownloAD

1.800.392.9653 | TEG@TheEntrustGroup.com | www.TheEntrustGroup.com Entrust does not promote any investments. Rather, Entrust provides the administration, information, and tools to help make self-direction straight-forward and compliant. We help you get started quickly and stay with you every step of the way. 50 | think realty magazine september :: october 2016

Think Realty Magazineâ&#x20AC;&#x2122;s Mid-Year Report:

Sizzling-Hot Spots for Investing Industry Perspectives

SEPT/OCT 2016 $5.95 U.S. :: $6.95 CAN

CONTENTS 4 INVESTING HOT SPOTS Think Realty Magazine premieres a new type of hot list of areas representing substantial opportunity to investors.

8 NOTEWORTHY MARKETS 10 greener pastures for investors of nonperforming notes. By SCOTT CARSON / WECLOSENOTES.COM, LLC

12 TEXAS-SIZED DEMAND

Dallas-Fort Worth metro area is a hotbed of economic, housing and investing activity. By TIM HERRIAGE / 2020 REI COMPANIES

14 OCEANFRONT PARADISE

San Diego’s location, climate and investment opportunities are drawing more Boomers and others. By JUDY GOLDBERG / WINDERMERE HOMES & ESTATES

16 IRA INVESTING HOT SPOTS

Market research report shows the where and why of real estate investing with IRAs. By THE ENTRUST GROUP

20 GOING UP In the Tampa area, rising rents and home prices mean investors must be resourceful. By RJ PALANO / BUYCASHFLOWPROPERTIES.COM

22 RED-HOT, BUT IS IT SUSTAINABLE? Nashville is an excellent investment option – plus, it’s gaining favor as a foody destination. By LEE BLACKBURN / OMNI REALTORS AND PROPERTY MANAGEMENT

24 BUBBLING WITH PROFIT POTENTIAL Along with fountains and barbecue, Kansas City is becoming known as home to some good investment deals. ByMARCO SANTARELLI / NORADA REAL ESTATE INVESTMENTS

PUBLISHER R. Michael Wrenn PRESIDENT, AFFINITY ENTERPRISE GROUP Eddie Wilson | EWilson@AffinityEG.com EDITOR-IN-CHIEF Linda Wienandt LWienandt@ThinkRealty.com VICE PRESIDENT OF MEDIA SALES Robert Rakowski RRakowski@AffinityMediaServices.com 913-599-2020 DESIGN CONSULTANTS Rivet | WeAreRivet.com GRAPHIC DESIGNER Emily Bowers PRODUCTION & TRAFFIC MANAGER Carolyn Addington CONTRIBUTING WRITERS Lee Blackburn, Scott Carson, Carole J. Ellis, The Entrust Group, Judy Goldberg, Will Hardy, Tim Herriage, Michael Jordan, Lenny Layland, RJ Palano, Marco Santarelli, and Brandon Thompson

FOR ARTICLE REPRINTS :: Contact Jeremy Ellis at Reprint Pros, 949-702-5390. www.reprintpros.com. SUBSCRIPTIONS :: The annual subscription for Think Realty

Magazine is $28.95 for six issues in the U.S. Order online at www.ThinkRealty.com or call 816-398-4130. Provide your full name, address and telephone number. DISCLAIMER :: Think Realty Magazine, its owners, contractors, distributors and their respective representatives do not provide tax, accounting, investment or legal advice and make no guarantee as to the effectiveness or success of any investment or tax strategies discussed herein. Please consult your own independent adviser as to any questions

26 CHANGING MARKET

In Atlanta, it’s the perfect time to buy rentals for a strong ROI. By BRANDON THOMPSON AND WILL HARDY / INVESTOR NETWORK

28 RISING FROM THE ASHES Recovery is well underway in Detroit, with steadily growing, attractive real estate investment opportunities. By MICHAEL JORDAN / STRATEGY PROPERTIES

30 SLOW AND STEADY GROWTH

With the housing recovery complete, Orlando is poised for continued growth in values. By LENNY LAYLAND / INVESTORLANDO REALTY

2 | INVESTOR REVIEW

you have or decision you are contemplating. ABOUT THIS MAGAZINE :: Think Realty Magazine is a publication of Affinity Real Estate Media LLC. Reproduction or use of any editorial or graphic, without permission, is prohibited. We are not responsible for the content of any paid advertisements. For reprint rights; to obtain a detailed statement of our privacy policy; and for all single-copy requests, address changes and other subscription inquiries:

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FEATURE

Investing Hot Spots Think Realty’s List of Top 10 Real Estate Markets and Industry Perspectives factors in local economic trends, employment shifts, investor activity, buying and selling demographics and relevant legislation and policy on state and national levels. by CAROLE J. ELLIS

he national housing market continues to heat up, with U.S. home sales hitting a nine-year high in May and home prices soaring 4.7 percent yearover-year in the same month. Add to that $636.7 billion in much-needed new construction (again, on a national level) up 5 percent in May over April, and it’s easy to see why the “talking heads” on television are eagerly boasting that good times are here for housing again. In reality, however, as every savvy investor knows, housing is not national. It’s regional at best, and generally a local issue that is highly influenced by the individual investor’s abilities and chosen investing strategy. When you pick apart the U.S. “hot housing market,” you find a lot of troubling minutiae in the details. For example, that $636.7 billion statistic flooding the airwaves these days actually is highly misleading because it includes all construction, including public works and power plants. In fact, the only major housing contributor to that number was multifamily housing, not new-home construction in the single-family-residence sector. Think Realty’s “Top 10 Real Estate Markets and Industry Perspectives” is a new type of hot list, factoring in the unseen trends, the unnoticed demographic shifts and the important fine print that most media outlets either fail to consider or deliberately overlook. This list factors in local economic trends, employment shifts, investor activity, buying and selling demographics and relevant legislation and policy

4 | INVESTOR REVIEW

on state and national levels. These 10 markets represent substantial opportunity to the investors who choose to become involved in them in an effective way at this point in time according to our analytics.

Atlanta, Georgia

Atlanta, Georgia, lagged behind the national housing recovery and, as a pleasant result, continues to experience traditional appreciation for buy-andholds in excess of national averages. (The Atlanta Board of Realtors pegged metro-area appreciation at 6.7 percent in May.) Although local inventory is tightening, particularly when it comes to single-family “starter homes,” Atlanta still offers multiple entry points for investors, whether they wish to fix-and-flip, purchase turnkey rentals or invest in larger projects. With a growing jobs market based solidly on in-demand sectors like IT, entertainment and manufacturing, the city— which RealtyTrac recently named the most affordable in the country—is highly attractive to Millennial workers wishing to purchase their own homes while still living in an attractive, affordable metro area.

Austin, Texas

Despite recently being named the “most overvalued housing market in the nation” (along with San Antonio) by Forbes magazine, Austin, Texas, has an amazing ability to take this type of licking and keep right on booming. Austin not only experienced a relatively

light impact from the Great Recession, thanks to a massive influx of IT-related jobs that shows no sign of slowing, but the population of IT workers in the area is sustaining the city’s growth despite potential “soft spots” in many Texas markets thanks to relatively low oil prices. IT jobs are a great sign of stability in any local economy because they pay well, are reliable and tend to create large numbers of other jobs as a result. In Austin, more than six out of every 10 new jobs are in the information technology sector. By comparison, the national average is just under three out of every 10. Current median home prices in the area have gone up 21 percent since 2012, but they are still extremely affordable relative to many IT-heavy California cities, causing a number of tech employees to seriously consider moving “back East”—at least a little way—in order to find more affordable, more acceptable housing and commuting situations. With a market that meets the traditional standards for “overvalued,” an investor should always have multiple “fast-action” exit options available or a strategy for holding that involves cash-flow, regardless of appreciation. At this time, Austin still is attractive for these investors.

Dallas, Texas

Dallas, Texas, is another Lone Star market that is making some people nervous. Concerns about Dallas are creating openings in the real estate

investing sector that previously had been closed simply due to too much activity and competition. Over the last 12 months, prices in the area have risen 9.3 percent, well ahead of national gains, and Dallas is presently second only to Denver, Colorado, in home appreciation. Although falling oil prices are a significant factor in Dallas housing trends, diverse employment opportunities and pro-business tax and legislative policies make it likely that opportunities for investors to get involved in this market, particularly if they wish to own rentals or multifamily properties, will remain available for the rest of the year. Thanks to Dallas’ high profile on the investing scene, individual investors may find it difficult to “break in” to the market at first. Working with a seasoned or connected local presence may be a good way to effectively vet deals and keep close tabs on market and economic shifts.

Denver, Colorado

At present, Denver, Colorado, boasts the best appreciation in the country (10.6 percent in the last 12 months) but appreciation alone is probably the worst thing upon which to base your real estate investing strategy. Denver is undeniably a “hot” market, however, thanks in large part to its attraction to multiple age groups and demographics who are interested in buying at retail value in hopes of prices continuing to rise, highly ranked public schools, competitive safety statistics and an enviable public transit system. Also, we’d be remiss to leave out the “pot market” in the area, but many analysts and local investors warn that marijuana alone will not sustain Denver’s growth as more and more areas of the country become in-

creasingly accepting of its medical and recreational uses. Real estate investing in Denver is great if you’re already in, but this is another major metro area that could be difficult to break into. However, the commercial sector in Denver is attracting a great deal of international activity presently and is less competitive than the residential side, making it a potentially intriguing play for investors interested in multifamily, retail or office space.

Detroit, Michigan

At the nadir of the housing crash, most analysts were more worried about whether there would be a Detroit housing market to rank by mid-2016 than they were about putting it on a hot market list of any type. However, with home prices up 127 percent from their lowest point during the crash and still 38 percent below peak values, Detroit’s housing market has room to grow and is making more than one hot list these days. If you like paying cash or getting creative with financing, Detroit is a good place to consider, as one in every two transactions is still all-cash in the area. The downtown area of the city is flourishing, thanks in large part to extremely thoughtful, strategic cultivation on the part of large employers in the area like Quicken Loans, which was recently named the “Best Place to Work in IT” for 2016 by industry leaders. Investors hoping to get in on the action in Detroit need to be very careful to be aware of inventory “clogging,” since much of the distressed inventory is so blighted that it cannot be saved and may not be the deal that it appears to be on paper or online. Bringing this issue to bear on your strategy, however, and keeping your research and due diligence current should help keep your investments in the clear.

Kansas City, Missouri

Experts predicted a hot year for housing in Kansas City, Missouri, at the end of last year, and so far, they haven’t been proven wrong. Home prices are up more than 5 percent year-over-year (as of the end of Q2 2016) after a healthy 5.6 appreciation rate for all of 2015. Demand for housing is still heavy, with 38 percent fewer homes on the market at this time than there were last year. However, housing remains relatively affordable with median home prices in the area hovering just over $130,000 and the metro area making “best” lists in terms of livability all over thanks to low unemployment, high affordability, a list of established employers that are constantly growing and an entrepreneurial/start-up-friendly business community is difficult to rival. With rental rates and home values both experiencing overall positive trends since 2012, investors will have their choice of real estate investing strategies in the area. However, take note: building permits are up 29 percent in the region over last year, according to the Home Builders Association of Greater Kansas, so there are developers clearly looking to fill (and possibly flood) the inventory void. While not all permits ever get used, the pace at which the city is issuing those permits is much faster than preceding years, and more permits have already been issued in 2016 than were issued for the duration of 2009, 2010 or 2011. However, with a market ideally suited to creative financing and more conventional cash-flowing rental options, Kansas City definitely makes the grade as a current hot market.

Nashville, Tennessee

Although Nashville renters are reSEPTEMBER/OCTOBER 2016 | 5

FEATURE

“

THESE 10 MARKETS REPRESENT SUBSTANTIAL OPPORTUNITY TO THE INVESTORS WHO CHOOSE TO BECOME INVOLVED IN THEM IN AN EFFECTIVE WAY AT THIS POINT IN TIME ACCORDING TO OUR ANALYTICS.

portedly struggling to “make the leap” to homeownership these days, the city is hot for investors in turnkey rental properties and multifamily housing. Strong year-over-year employment and income growth (3.7 percent and 1.8 percent, respectively) make it unlikely that residents will be heading out anytime soon, so both housing and rental markets are looking good in this metro area. For those who can afford to buy, the market is great, as they’ll break even compared to local renters’ costs in about a year and five months. Many buyers clearly see the value of owning, with home sales volumes in the area rising 3.9 percent over the last 12 months and home values rising 10.2 percent. Investors planning to sell to owner-occupants must remember, though, that at present nearly half of all Nashville residents are already paying a third or more of their income on rental housing. That will make it difficult to save for a down payment but certainly makes owning rental properties a viable, attractive option since that population is likely to stay in place and continue paying competitive rents.

Orlando, Florida

Orlando, Florida, is definitely hot for investors, even if the average homeowner isn’t too happy there these days. The metro area posted the fourth-highest percentage of distressed home sales in the country during the first part of 2016 (nearly one in every five transactions was distressed) but home values are rising in the area while affordability is actually falling. On the surface, this is great news for investors

6 | INVESTOR REVIEW

who often have more funding flexibility than banks and who can purchase turnkey rental properties to generate cash flow. But due to Orlando’s heavy reliance on tourism, at some point the affordability issue is likely to catch up with the market because wages will not keep up with home prices. When that happens, an investor positioned in turnkey rentals will be well-prepared to cater to a population opting or finding itself compelled to rent instead of buy. At present, however, wholesaling, flipping and rentals are all well-positioned in the area as long as an investor does due diligence thoroughly prior to deciding on a strategy for an individual property.

San Diego, California

San Diego, California, makes just about everyone’s “hot housing” list, and that often means that an area will not be a particularly friendly one for real estate investors. However, in San Diego, the market appears to be a bit different than in many West Coast markets, thanks to rising sales volumes as well as rising home prices. According to CoreLogic, the median price of a San Diego County home was $490,000 in May 2016, up 6.8 percent in the last 12 months, and home sales volume was up 5.6 percent from two months prior. This could indicate that although affordability is still a very serious issue in San Diego, the market could

be doing what economists hope other West Coast markets will do in the next 12 to 24 months: level off instead of dive downward when they become too off-balance. Although investor share of purchases in San Diego is at a six-year low, this market could soon be in transition, opening it up to more investors who are prepared and watching for signs that it is time for a reentry.

Tampa, Florida

Tampa, Florida, has a huge distressed inventory (the third-highest in the country) and, like our other Florida cities, represents great potential for real estate investors hoping to get in early on something that others have missed. Tampa often gets left off these “Big 10” lists due to a slightly smaller population than many other major metros. But with 11.4 percent appreciation, huge attraction for Baby Boomer buyers who actually have the wherewithal to purchase at retail and at competitive prices, falling number of days on market and an inventory that has just started to trend downward in a meaningful pattern, Tampa represents a truly hot opportunity for real estate investors looking to get into a market, control some distressed inventory and make their mark on local housing. • Carole J. Ellis is the host of Real Estate Investing Today, a daily nine-minute investing podcast, and the editor of the Bryan Ellis Investing Letter. www.investing.bryanellis.com

PERSPECTIVE: NOTE INVESTING

Noteworthy Markets 10 greener pastures for investors of nonperforming notes by SCOTT CARSON

any real estate investors are looking to expand into new markets as backyard deals become scarcer and thinner based on demand for product, reduced HUD foreclosures and property values recovering from the mortgage meltdown. While new investors struggle to find local deals, seasoned and savvy investors are moving into new states to help quench their thirst for higher returns by leveraging their investment dollar. Those investors exploring new markets are also looking to get out of “brick and mortar” and into the paper game. The ability to find deals six to 12 months ahead of REO investors (depending on the foreclosure time frames of states)—along with better pricing of deals—is driving note

8 | INVESTOR REVIEW

investors into new markets. While fast foreclosure states like Texas, Arizona and Georgia will always draw premium pricing, they may not be the best markets for an investor’s bottom line. When you add in the multiple exit strategies associated with nonperforming notes and the extra money available in specific states due to the Hardest Hit Funds, nontraditional markets are popping up as popular pastures in which to invest. These 10 markets offer note investors the biggest bang for their buck based on several factors: • Amount of available distressed assets to source. • Availability of Hardest Hit Funds provided to the state from the Department of the Treasury for the Home Affordable

Modification Program (HAMP). • The state’s average rent vs. market value ratio (annual median rent average vs. average home value) or ARM Ratio as a basis for potential loan modification rates as associated with comparable three-bedroom home market rents. #10 NEW JERSEY

The Garden State has long been avoided by note investors due to the lengthy foreclosure timetable. While it still leads the nation in foreclosures at one out of every 559 homes, the expedited foreclosure time frame for noncontested foreclosures has led to a surge of fix-and-flip investors targeting vacant or zombie foreclosures for REO flips. Jersey ranks seventh in HHF allocation

at $415 million, but lowest out of these 10 states on an ARM ratio at 5.8 percent ($1,363 average monthly rent/$281,000 average home value). With these types of numbers, focus on vacant primary or secondary homes where the borrowers won’t contest the foreclosure. The one market to avoid currently would be Atlantic City, as unemployment is rising and property values are falling due to trouble with the major employers (casinos) in the area. #9 NEVADA

Nevada has long been a target of California investors and homeowners looking for more affordable homes and rental properties. One out of 859 homes is still facing foreclosure even with the Silver State being a faster, nonjudicial foreclosure state and having over $202 million in HHF. While values have increased to an average of $257,000, rents have not rebounded as fast, resulting in just a 6.2 percent ARM ratio ($1,336 average monthly rent). This is why you see note investors choosing to foreclose as the

primary exit strategy for nonperforming notes in Nevada. #8 FLORIDA

The Sunshine State (or “God’s Waiting Room”) was once considered one of the worst markets to invest in as the 12-monthplus foreclosure time frame scared off many investors looking for faster results. The housing market has rebounded strongly with average values returning close to where they were in 2007, at over $203,000. Florida still ranks high on the current foreclosure list with one out of 738 homes facing foreclosure. The recent changes to how Florida distributes HHFs has investors looking to tap into the $1.1 billion in funds made available to modify homes. The reduced value over the past few years has led both domestic and international investors to put their money in Florida with the Miami and Tampa markets leading the way. While the ARM ratio has dropped to 6.3 percent as values increased faster than rents ($1,063), short-term, student and vacation rentals are attracting investors to find magical returns

in the home state of the Magic Kingdom through appreciation, modifications and the expedited foreclosure time frames for noncontested foreclosures. #7 NORTH CAROLINA

One of the more popular nonjudicial foreclosure states over the past years, North Carolina currently ranks sixth in funds allocated through the HHF program with over $700 million (and $223 million in the final round) given to the state to incentivize modifications. When you combine the faster foreclosure time frame with increasing values (average of $187,700), along with a rental rate of $1,063, you can understand why note investors are capitalizing on the 6.8 percent ARM ratio for modifications and fast foreclosures for REO flips. #6 SOUTH CAROLINA

North Carolina’s neighbor to the south has not been as popular a market for investors based on the 12-month judicial foreclosure time line. Nonperforming-note investors continue to see the Palmetto State as a popular destination in which to invest, as home values continue to improve (up to an average of $173,000) along with average rents ($1,047) and markets like Columbia, Clemson University and coastal regions gaining more traction. Investors who buy in Florida are also adding South Carolina to their wish list. With an ARM ratio of 7.25 percent, $317 million in HHF and one out of every 938 homes still facing foreclosure, “Carolina” is attracting more investors from across the country who are looking for deals. #5 INDIANA

One of the biggest states to rebound and attract investors from outside its borders over the past few years is Indiana. Many investors are targeting markets besides Indianapolis as a way to leverage their dollar by tapping into South Bend, Fort Wayne and other cities where values and job growth have both increased. With an average value of $170,000 and rent rates at $1,007, the ARM ratio of 7.12 percent gets an extra bump with the large amount of “zombie foreclosures” (10 percent of all homes). Nonperforming-note investors are convertSEPTEMBER/OCTOBER 2016 | 9

PERSPECTIVE: NOTE INVESTING

ing these distressed assets into rentals, land contracts or providing owner financing to new home buyers who are recovering from the downturn. The Hoosier State continues to surprise investors with results throughout the state (and you don’t have to be from Hickory to have a winning investment). #4 TENNESSEE

Memphis has long been an attractive market for landlords looking to improve their rental portfolios (85 percent rental market). But as the Tennessee markets have recovered (average home values of $162,000) and rents have increased to an average of $1,039, the Volunteer State is attracting more than just hopeful musicians. With over $302 million in HHF, an ARM ratio of 7.7 percent and a fast nonjudicial foreclosure time frame, Tennessee has note investors singing to a tune of high returns and avoiding the real estate blues. #3 ILLINOIS

Illinois has had its fair share of problems for note investors, but the market has changed for the better. While problems with Cook County continue to plague note investors in the Windy City, the state’s expedited foreclosure time frame for noncontested foreclosures is helping note investors capitalize on the recently awarded $269 million in HHF and the appreciating home values in the $127,000 range. While one out of 878 homes is still in foreclosure, many note investors are buying outside of Chicago and using the average rent rate of $1,188 to increase their returns above the ARM ratio of 11.2 percent. Now if only the Cubs could win the World Series, all would be well in the Prairie State.

$1,146 to keep distressed owners in their homes and working to walk borrowers through the process of the HHF ($761 million given to Michigan including $262 Million just recently awarded) to score winning results. With an ARM ratio of 11.06 percent, you don’t have to be a Lions fan to score a touchdown—okay, so maybe just a Wolverine’s fan! Just avoid drinking the water in Flint! #1 OHIO

#2 MICHIGAN

The state once known as the ground zero of the foreclosure meltdown, this nonjudicial foreclosure state has risen from the ashes. With the help of state legislatures attracting new business, General Motors rebounding and an average appreciation in the Motor City of 24 percent over the past couple of years, it’s no wonder why many foreign investors are capitalizing on cheap real estate (average value of $124,000) and tapping into the above average rent rates of 10 | INVESTOR REVIEW

The Buckeye State has definitely had an upswing in the past few years. Columbus, Akron, Dayton and Cincinnati are all showing appreciation and improvements in the housing markets. Add Cleveland into the mix (who knows what will be the effect of LeBron James bringing a title home) and many note investors are picking up multiple assets (average home values of $115,500). With one out of every 977 homeowners across the state still in trouble, there is plenty of opportunity for investors to leverage an

ARM ratio of 11.1 percent to keep borrowers in their homes. The judicial foreclosure time frame can drag things out, but with the recent addition of $192 million in HHF, many investors are turning their attention to Ohio to drive up their returns. Cheap real estate, higher rental rates, government funds and appreciating values have created a perfect storm for note investors looking to invest outside their home state. • Scott Carson is founder and CEO of Inverse Investments, a Texas-based real estate investment company that focuses on buying pools of distressed assets on residential and commercial properties directly from banks and hedge funds. Carson also is a featured speaker and educator at dozens of investment clubs and real estate workshops across the country. www.WeCloseNotes.com | 512-238-3018

JULY/AUGUST 2016 | 11

HOT MARKETS: DALLAS/FORT WORTH

Texas-Sized Demand

Dallas-Fort Worth metro area is a hotbed of economic, housing and investing activity. by TIM HERRIAGE

nother sign—if you need it—that the Dallas-Fort Worth metro area is a prime target for real estate investors is this: DFW has only around two months of resale housing inventory available for sale. This is truly a seller’s (and smart investor’s) market. DFW housing is being squeezed by three unrelenting demographic-based trends: heavy in-migration (80,000 new people in 2015 alone) based on well-paying job openings, resulting in rising housing demand and appreciating home values (12 percent in Dallas County over past year). This has led to an average supply of resale homes stuck at around a 2 months’ supply at the current 12 | INVESTOR REVIEW

sales rate. The National Association of Realtors says a six-month supply is a good balance between buyers and sellers.

Why Dallas/Fort Worth?

Dallas/Fort Worth is one of the biggest job creation and population growth markets in the U.S., with lots of new high-quality jobs, relatively low housing prices (historically speaking,) favorable tax rates, (no state income tax) and an abundance of land for development—ideal for wise housing investments. Here are three reasons why the DFW region continues to be a top target market for real estate investing:

NO. 1 More Big Employers Say Yes to Texas

While the energy business has slowed, contrary to assumptions about Texas, this is not what drives DFW (less than 1% jobs are energy-based.) New, well-paying technical jobs are emerging in healthcare, transportation and energy sectors as well as from the area’s existing base of computer, aviation and telecommunications firms. The area hosts 21 national corporate headquarters for Fortune 500 companies. Big employers are getting bigger. Toyota’s 100acre campus for its new U.S. headquarters and new regional operations for Liberty

Mutual and FedEx will bring thousands of new employees to suburban Dallas. A massive State Farm Insurance campus for 8,000 workers in Richardson is filling up and a new $350 million corporate campus for American Airlines is planned near the Dallas Fort Worth International Airport.

Big & Growing Demand for Rental Housing NO. 2

The nation’s ninth largest city in terms of general population, Dallas has been growing at twice the national rate for years. Builders are having a tough time keeping up. Between 2000 and 2011, it is estimated, 12,608 people moved from Dallas-Fort Worth to San Francisco – but 17,118 abandoned San Francisco to move to the DFW metro area. With 7.1 million people today, DFW is expected to reach 10.5 million residents and 6.6 million jobs by 2040. Housing demand follows, led by rental demand.

Affordable Properties Can Still Be Had—But Hurry! NO. 3

Moderately priced investment properties, all but impossible to find in places like California, are still available in DFW. For example, San Francisco is No. 1 on the Realtor.com hot market list but the average home there cost $1,408,330 in mid-April. By contrast, in Q1 2016 the typical home in Dallas-Fort Worth was priced at $210,000 (and appreciating faster than historic norms), while you can bet the average San Francisco rent is higher than the average DFW mortgage payment. If you are a mid-level tech professional with a family to house, feed and educate, your income goes further living in DFW than SFO and the Bay Area. The upshot: good rental returns and continued gains in equity are still ahead. Like your income, your real estate investment simply goes further

in the DFW area, and odds are this will remain the case going forward. • Tim Herriage is CEO and co-founder of 2020 REI Companies, through which he looks to serve single-family-home investors in new ways that include acquisition, brokerage, consulting, disposition, equity and financing. He is often consulted as a leader and innovator in the real estate investor space. Herriage formerly was managing director of B2R Finance, an early innovator in rental portfolio financing; is founder of The REI Expo; and has Franchisee and Development Agent experience with HomeVestors of America. He has completed well over $1 billion in real estate investment transactions, including the acquisition of more than 1,200 houses. He can be contacted at tim@2020rei.com or 469-723-2213. SEPTEMBER/OCTOBER 2016 | 13

HOT MARKETS: SAN DIEGO

Oceanfront Paradise San Diego’s location, climate and investment opportunities are drawing more Boomers and others. by JUDY GOLDBERG

an Diego is a coastal town with more than 140 sunny days, low humidity and very few mosquitos. Ocean-access properties always seem to weather the storms and are the first to come out of a recession. The rent prices have increased 13.6 percent between the 3rd quarter of 2014 and the 3rd quarter of 2015, according to Rent Range real estate data. The vacancy rate availability is 3.62, according to the Department of Numbers. The property value has increased 5.6 percent in the last year, and in some parts of the county has gone up as high as 11 percent, according to the HomeDex report published by the National Association of Realtors. San Diego now has over 15 ZIP codes where prices have returned to or surpassed the high point of 2006. Not only do we have a beautiful location, living closer to the water has been a pipe dream for many homeowners, and the prices reflect that. A consideration when purchasing a San Diego property for your portfolio is holding it, reaping a high percentage rate as well as an impressive increase in your property value. As the Baby Boomers are retiring, San Diego is one of the destinations that many have put on their bucket list. Although not affordable to all, it does present opportunity to purchase a property a little further from the water, fix it up and put on the market to be rented. More and more Boomers are looking to be near their families and are skilled to do the repair work themselves. Frequently the two-bedroom houses are being converted to three-bedroom homes, which obviously increases property value and rental price. Short-term vacation rentals are rapidly growing. The rent may yield $5000 per month for 14 | INVESTOR REVIEW

a short-term rental during the summer season and longer rental at an average of $2200 per month. Also posting relatively robust gains was the construction industry, with 1,700 jobs, driven largely by a seasonal trend when warmer weather sets in. Specialty trade contractors accounted for 65 percent of the growth. Even with the impressive gains posted by construction and leisure, the yearover-year job growth of 2.7 percent was widespread across multiple sectors, according to economist Lynn Reaser in a recent report. “Compared with a year ago, San Diego’s job count is up by nearly 37,000,” said Reaser, chief economist of the Fermanian Business and Economic Institute at Point Loma Nazarene University. “Nearly all sectors and industries have added to their payrolls. Some of the largest gains have been in construction, engineering, health care, public education and temporary help.” •

Judy Goldberg is a Realtor, Certified Negotiation Expert and Relocation Specialist with Windermere Homes & Estates in Carlsbad, California. She has been in the real estate business since 2008. Prior to real estate she was an advertising and marketing executive for AT&T for 23 years. A native New Yorker, she has resided in Southern California for over 40 years. She is an international traveler and has visited Cuba, purchased property in Panama and climbed Machu Picchu. She can e contacted at JudyGoldberg@Windermere. com or 760-274-5910. www.JudyGoldberg.com

SEPTEMBER/OCTOBER 2016 | 15

PERSPECTIVE: IRA INVESTING

IRA Investing Hot Spots Market research report shows the where and shy of real estate investing with IRAs. by THE ENTRUST GROUP

he convergence of two important trends—the improving U.S. real estate market and growing interest in self-directed retirement savings plans—presents an opportunity for people saving for their post-working years. Self-directed IRAs give you the freedom to invest in a wider range of assets, including real estate. The following data from clients of The Entrust Group, along with insights from respected organizations like the National Association of Realtors and Zillow, can help put the opportunity in perspective.

Where Entrust Clients Bought Real Estate

A look at where Entrust clients bought investment property in 2015 shows California and Texas still in the lead, with numbers little-changed from 2014. Both Arizona and Colorado saw 2 percent growth in purchases, while transactions

16 | INVESTOR REVIEW

fell slightly in Florida (-2 percent) and Missouri (-3 percent percent). The top 12 states where Entrust clients bought real estate include: California (32.0 percent), Texas (9.0 percent), Arizona (7.5 percent), Colorado (7.0 percent), Florida (6.0 percent), Missouri (4.0 percent), Illinois (3.0 percent), Michigan (3.0 percent), North Carolina (3.0 percent), Georgia (2.5 percent), Nevada (2.5 percent) and Oregon (2.5 percent).

Real Estate Transactions by Region

The Western and Southern markets made up almost two-thirds of real estate investments nationally. The California, Florida, and Texas markets in particular experienced continued growth. The lower cost of living and attractive property prices in so-called “secondary markets” like Austin, Texas; Portland,

Oregon; Nashville, Tennessee; and Charlotte, North Carolina, make these high-potential markets. Florida markets are improving as well, with population and employment both growing. Another demographic to watch is the growing number of Baby Boomers choosing to retire in many of these locations. Following the national trend, Entrust clients demonstrated confidence in the Western market, with 3 percent more transactions in 2015 over 2014. Four out of five IRA investors chose to purchase real estate in the West or South in 2015. One of the advantages of buying real estate as an investment, unlike buying a primary residence, is that you can buy anywhere. That might be where you want to live once you’ve retired or where you believe you can get the best return on your investment. Nonetheless, many people still prefer to invest close to home, especially if they

intend to generate income through renting the property. It is usually much easier to manage a property close to home than one far away. Property managers can take on a lot of the day-to-day responsibility, but there is a certain security in knowing that you’re nearby in an emergency. That was the case for Entrust clients in Arizona, Florida and Texas, who chose in-state properties almost all the time. Colorado clients were more adventurous, choosing to invest out-of-state 28 percent of the time. Californians continued to set the pace for investments out of state; more than one-third of their purchases were out of state,Regional most often in Arizona (9 percent), Texas (7 percent) and Nevada (5 percent).

time of contribution. That is a 2 percent increase over 2014. Other IRA types are holding steady as real estate investment vehicles: 15 percent for Roth IRAs, 12 percent in SEP IRAs and a slight dip to just 1 percent for Simple IRAs. There may be a good reason to consider The average purchase prices in Enusing a Roth IRA. Real estate is typically trust’s top five markets were: California held as a medium- to long-term investment, – $204,000; Texas – $161,000; Arizona for a median of five years, according to the – $130,000; Colorado – $151,000; and National Association of Realtors. During Florida – $123,000. that time, if your Roth IRA has satisfied Types of Property Bought by the qualified distribution criteria, the Roth IRA Investors IRA gets a tax-free revenue stream from Single-family houses are Entrust clithe rental income. Likewise, any underlyents’ first choice of investment property, ing appreciation in the market value of the representing 44 percent of all purchases. with population property is tax-free. and employment both growing. Another The Western and Southern markets made up almost two-thirds Multifamily residences come in next, at 28 to watch and is theWho growing number of Baby Boo realInvestors estate investments The California, Florida, and com- demographic WhatofIRA Paid fornationally.percent. Who is Buying Vacant land (12 percent), choosing to retire in many of these locations. Texas markets in particular experienced continued growth. Properties is Selling? mercial real estate (3 percent) and various As you might expect, given the nationWhile it may be hard to differentiate other properties (12 percent) round out Following the national trend, Entrust clients demonstrated The lower costestate of living andtheattractive property prices in sowide uptick in the real market, investor buyers from homeowners in the their investment preferences. “secondary like Austin, Texas, Portland, Oregon, averagecalled purchase price paidmarkets” for properties overall data, it is useful to know just who in 2015—$177,777—was higherand thanCharlotte, the Which Type ofmake IRA these is buying and selling. For example, the Nashville, Tennessee, North Carolina 2014 average price of $146,490. Investors Used relatively of younger purchase real small estatepercentage in the West or South in 2015. high-potential markets. Florida markets are improving as well, But the definition of “local” means a fair More than seven out of 10 Entrust real Baby Boomers in the market points to the degree of variation from one real estate estate investors use traditional IRAs— opportunities for those buyers to leverage market to the next. those that give a tax deduction at the their existing retirement savings and In 2015 prices: • Increased $11,000 in California • Dropped an average of $19,000 in Texas • Increased a whopping 78 percent in Florida

Entrust Real Estate Transactions by Region WA MT AK

ND MS

55 ID

NV CA

15%

NM TX

25 AR

PA NJ MD DC DE

West

VT NH MA RI CT

5% NY

SC GA

Midwe

South

SEPTEMBER/OCTOBER 2016 | 17

Northe

Nonetheless, many people still prefer to invest close to home, especially if they intend to generate income through renting the property. It is usually much easier to manage a property PERSPECTIVE: INVESTING close to home than IRA one far away. Property managers can take

out-of-state 28% of the time. Californians continued to set the pace for investments out of state; more than one-third of their purchases were out of state, most often in Arizona (9%), Texas (7%), and Nevada (5%).

Percentage of Purchases In-State 2014

CA 60%

2015

64%

CO 74%

2015

72%

diversify their portfolio. Here are the characteristics of the typical buyer: • 44 years old • $86,100 median household income • 83 percent bought a detached, single-family house • 32 percent were first-time buyers • 67 percent were married Here are the characteristics of the typical seller: • 54 years old • $104,000 median household income • Sold for a median $40,000 over the original purchase price • 89 percent worked with a real estate agent

Why Investors Are Buying

Nearly half (42 percent) of real estate investors bought property for the purpose of generating a rental income stream. The opportunity for value appreciation (14 percent) and finding a deal that was too good to pass up (16 percent) were the next most common reasons. These

18 | INVESTOR REVIEW

2015

86%

94%

2014

AZ 96%

2014

2015

100%

2014

94%

reasons mesh perfectly with the purpose of—and the laws governing—holding real estate in an IRA: as an investment and/or to generate income.

The Rental Market Boom

According to Zillow, there are 43 million renter households in the United States. In 2015, they paid $535 billion in rent. That’s a nearly 4 percent increase over rents paid in 2014. That increase has two causes: higher rents being charged and nearly 2 million more people looking to rent. Real estate investors are well aware of the surging rental market and are capitalizing on it. In 2015, real estate investments for rental purposes increased by 5 percent. Savvy investors are aware of this trend. It’s part of the reason real estate transactions are the No. 1 asset of choice among Entrust clients.

Three Reasons to Invest in Real Estate with an IRA

• Invest in what you know. You can

2015

100%

leverage your familiarity with real estate by investing in real property. • Diversify your portfolio to protect against market volatility and inflation. • Generate revenue and watch the value of your investments grow on a tax-deferred or tax-free basis. Retirement saving and real estate purchases have something important in common: both involve decisions that blend personal and business considerations. For many people, owning real estate in a self-directed IRA is one more step toward a comfortable retirement. •

Entrust strives to provide personal, professional services and education that empower clients to control their investment choices. You can rely on The Entrust Group for up-to-date education about self-directed alternative investments with IRAs. Entrust’s reports, webinars and live events can help you keep up with the increasing demand to diversify your portfolio. For more information, call 800-3929653 or email teg@theentrustgroup.com. www.theentrustgroup.com

Direct Your Future™

Real Estate Investor Market

ReseaRch RepoRt

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1.800.392.9653 | TEG@TheEntrustGroup.com | www.TheEntrustGroup.com Entrust does not promote any investments. Rather, Entrust provides the administration, information, and tools to help make self-direction straight-forward and JULY/AUGUST 2016 | 19 compliant. We help you get started quickly and stay with you every step of the way.

HOT MARKETS: TAMPA

Going Up In the Tampa area, rising rents and home prices mean investors must be resourceful. by RJ PALANO

he single-family house business in the Tampa area has investors scrambling for scraps for house purchasing opportunities. The multiple listing service (MLS) and mortgage foreclosures are where most investors begin their search. Multiple bids on various oppor-

20 | INVESTOR REVIEW

tunities put sellers in the position to sound the bell for highest and best offers. The hedge funds are the culprit that has driven most investors to the sidelines, and the hedge funds are still buying. The best demonstration I can give you for this is the house rental dilemma.

Most rental houses on the market are being offered by hedge funds. Recently, one of my business associates decided he wanted to live in my community. He was beat out time and time again to rent a nice house in a nice area. He found one in my area for $3,500 per month with one-year rent to be paid in advance. The Realtor handling the property management advised us at 5 p.m. that day that he had another party willing to pay an even higher amount and a full year in advance. It was a good thing we developed rapport with the property manager as he allowed my friend the opportunity to match that amount, and he did. Can you even imagine that? He

paid $43,000 upfront to rent a house for one year and that was the only way he could get it. The rental market is hot! The rents are up, and so are the house prices. The only way to acquire properties in this market is to be resourceful by generating leads to ﬁnd motivated sellers, where others aren’t looking. On average, houses are spending 5.3 percent fewer days on the market than this time last year and house prices are up an average of 11.8 percent. Generically speaking, Florida as a whole is fairly expensive state in which to do business. Just like Texas, Washington, Nevada and Delaware, there are

no state income taxes in Florida. Thus, the state needs to generate revenue from other sources that impact real estate investments. Property taxes and recording fees are much higher here than in a lot of other states. For example, to record a deed on the purchase of a $100,000 house, it would cost approximately $2,000 just to pay the transfer tax. To compare, in Georgia, it’s less than $150! Additionally, Tampa is on the water, which has a much higher property insurance cost, which continues to increase every year. We like this market for ﬂipping and retailing to prospective homeowners, but it’s not my favorite market to buy

and hold properties for long-term cash ﬂow and appreciation. •

RJ Palano is the acquisition director of BuyCashFlowProperties.com, a Tampa, Fla.-based company that primarily provides turnkey houses for investors in the metropolitan Atlanta and Tampa Bay areas. His property management experience spans 35-plus years, and he has been involved in more than 3,000 real estate transactions in 12 states and more than 50 cities. Contact him at RJP@BuyCashFlowProperties.com or 813-495-3006.

SEPTEMBER/OCTOBER 2016 | 21

HOT MARKETS: NASHVILLE

Red-Hot, But is it Sustainable? Nashville boasts exploding population growth, excellent employment opportunities, a robust music and entertainment scene and a growing reputation as a foody destination. by LEE BLACKBURN

e have all seen market cycles—the peaks, the dips, the flat lines. So what makes a real estate market stand out? Time. How long does it dip? How long does it climb? Does it follow other market trends? Why or why not? The answers to all of these are questions speak directly to why the Greater Nashville, Tennessee, area is THE standout spot for real estate investors. During the downturn around 2008, Nashville did experience stagnation and even some delinquency. But we got nowhere close to other areas like Phoenix and Las Vegas. While extreme price deflation may be good for investors from the perspective of the “screaming deal,” who is to say that appreciation will rebound to actually qualify that as a screaming deal? If it does, how long will it take? After all, values are relative to time. So while values may be way lower than they were two years ago, it may take five years to get back to the higher level of the past. That does not necessarily equate to wealth. My point here is that stability in a market ALSO makes for good investments, and that’s what Nashville offers over a time continuum. Now, all that said, Nashville’s cur22 | INVESTOR REVIEW

rent market is red-hot, and prices are appreciating like never before. But, is it sustainable? My answer is yes, to some extent. I believe we will continue to see significant growth, but will have to cool off at some point so we don’t get bubbly. That’s where builders enter the equation, and we are finally seeing more entry-level housing coming to market (and a significant inventory underway as well). This will serve to level the playing field, increase supply overall and give Millennials purchasing opportunities. All of these equate to a healthy, rounded and sustainable real estate market. So what makes Nashville such a demand market? Well, I have already pointed to low supply and high demand creating the perfect scenario for price appreciation. In fact, we are up over 7 percent in sales volume over last year with median price up over 8 percent (and 2015 was no joke in both categories in and of itself). Price appreciation in 2015 was almost 14 percent over 2014! Nashville made PricewaterhouseCoopers list of Top 10 cities to Watch in 2016 based on lower cost of doing business and livability. Business Insider has Nashville in the top 13 (not ranked)

booming growth cities in the nation, pointing to our massive healthcare and automotive industries. MoveOn touted Nashville’s employment growth since 2010 as a whopping 21 percent with population growth at 10 percent. They also assimilated other journal reports for Nashville including: No. 5 on Forbes’ list of booming cities, No. 3 on Travel + Leisure’s list of Best American Cities as well as America’s Friendliest City for 2016. With exploding population growth, excellent employment opportunities, a robust music and entertainment scene, along with a growing reputation as a foody destination, it’s not surprising that our real estate market is following the trends in regards to growth, quality and sustainability. • Lee Blackburn, ABR, ePRO, is owner and principal broker at Omni Realtors and Property Management, LLC, in Hendersonville, Tennessee, as well as 2016 NARPM Nashville President. Contact him at lee@myomnirealty.com or 615-715-6315. www.myomnirealty.com

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HOT MARKETS: KANSAS CITY

Bubbling With Profit Potential Along with fountains and barbecue, Kansas City is becoming known as home to some good investment deals. by MARCO SANTARELLI

here are many reasons to invest in Kansas City, Missouri—one of our clients’ favorite markets. Well-known for its contributions to the musical styles of blues and jazz, the city is also noted for its Kansas Citystyle barbecue. And with over 200 fountains, it has been dubbed the “City of Fountains.” It has been said that Kansas City has the second most number in the world, right behind Rome. The city also has more boulevards than any other city except Paris, which is why 24 | INVESTOR REVIEW

some people call it “Paris of the Plains.” The most common weather is clear with almost completely blue skies. The majority of the rain falls in April and June, but even in these wettest months, rain is light compared to other cities in the region. Winters vary from mild to cold, with very pleasant spring and autumn weather and hot and humid summers. Kansas City is an affordable market, with consistent growth in jobs and population. The Kansas City metropolitan area

(MSA) is a 14-county area that straddles the border between the states of Missouri and Kansas. With a population over 470,000 (city) and 2,200,000 (MSA), it ranks as the second largest metropolitan area with its core in Missouri. The suburbs are largely south of the central city, though the area north of the Missouri River (known locally as the Northland) is beginning to experience growth similar to the south. The metro’s population added just over 16,000 new residents between

2014 and 2015, according to the latest Census estimates. This is a 0.8 percent growth rate, which ranks in 32nd of the 53 metro areas with at least 1 million people. Natural population growth (births minus deaths) made up the bulk of the change, but the region also saw net growth due to migration, both from within the U.S. and internationally. Economic growth has been led by healthcare, finance, insurance, automotive, manufacturing and IT. Kansas City is also a major distribution center because of its central location within the country. It is the top city for rail freight volume and the second largest rail center, behind only Chicago. The Kansas City metro added a solid 22,577 jobs in the year ending September 2015. Nearly 40 percent of the metro’s new jobs last year were created in Jack-

son County, where our company focuses its efforts and our clients mainly invest. Knowing what industries will generate the greatest number of new jobs over the next 10 years is helpful for an investor to know. Health care leads the way with 25,000 net new jobs, followed by professional and technical services with about 11,000. These two industries are expected to generate 56 percent of all new jobs in the region. But there will still be job opportunities across a much wider spectrum of industries. With a median home price around $132,000 and a rent-to-value ratio of about 1 percent on turnkey (and rentready) properties, Kansas City boasts favorable returns and cash-flow. Appreciation rates over the last five years have ranged from 3.2 percent to 8.1 percent, keeping it on pace with in-

flation. Property prices are expected to continue an upward trend at a modest pace for the foreseeable future. Rents are also expected to keep pace with price growth, thereby maintaining a favorable 1 percent rent-to-value ratio. •

Marco Santarelli is an investor, author and the founder of Norada Real Estate Investments, a nationwide provider of turnkey cash-flow rental properties. Since 2004, Norada has helped more than 1,000 real estate investors create wealth and cash-flow through real estate. Santarelli also hosts the “Passive Real Estate Investing” podcast. You can contact him at marco@noradarealestate.com or 800-611-3060. www.noradarealestate.com SEPTEMBER/OCTOBER 2016 | 25

HOT MARKETS: ATLANTA

26 | INVESTOR REVIEW

Changing Market In Atlanta, it’s the perfect time to buy rentals for a strong ROI. by BRANDON THOMPSON AND WILL HARDY

nside Metro Atlanta and its surrounding suburbs, flipping has dominated over the last several years. However, for the last several months, Atlanta has been experiencing a shortage of inventory because of escalated market appreciation. There have been shrinking numbers in foreclosures with an abundance of homebuyers willing to pay a premium yet once again. This makes it difficult to accumulate properties to remodel and resell while still making a profit. But circumstances in 2016 have allowed us at Investor Network to get creative! For the first time since the Recession of 2008, we have seen a slight housing bubble in our city. With interest rates remaining at an all-time low, a lot of false equity is being created within our local market. Therefore, we are experiencing a lack of good inventory to flip. However, we are starting to see some pre-foreclosures, short sales and cheap distressed properties again. As times change, so do local markets. Here in Atlanta, it’s the perfect time to buy rentals for a strong ROI. Our forecasts are telling us that a slight downturn is coming and some smart purchases can be made right now. Because of this, we can purchase properties between $40,000 and $75,000 for the first time in seven years. After acquisition, we at Investor Network will rehab the properties with rental grade rehab, tenant the property for a strong cap rate of 15 percent to 20 percent and, in turn, offer a 9 percent APR paid into 12 monthly installments to our investor. We will cash flow the property for up to five years while waiting on the next “upswing” in the Atlanta market, and then will sell it for the maximum appreciated value along with splitting the profits with the investor 50/50.

With interest rates so low and with the local banks paying next to nothing, 9 percent is an incredible rate of return that is safe and secure for the investor. While securing the investor’s position with a promissory note and a 50 percent profit participation clause as well as his or her foreclosure rights in a security deed, our investors feel safe. Atlanta is changing. There will always be a local flip market here, but true wealth will be made in buy-and-hold in this next season. We’re not saying we’re experts in every market; just ours. As times get better, low interest rates for a duration of time can create certain housing concerns. While we do believe the national market as well as our local market have healed themselves, there has been too much appreciation way too fast. In the Atlanta market, it couldn’t be a better time to build your own rental inventory while making a strong return and being completely hands-off. You know that you’ll be safe investing in a diversified market in Atlanta while trusting local experts who not only care about you as an investor, but better yet, cares more about your money. Investor Network has held two things of great importance: We want to make real estate easy for our investors, and we don’t make money until you make money. • Brandon Thompson and Will Hardy are co-founders of Investor Network, which has bought, sold and transacted more 1,000 real estate deals since the company was begun in 2007. They can be reached at will@investornetworkstore.com, brandon@investornetworkstore.com or 404-937-4011. www.investornetworkstore.com SEPTEMBER/OCTOBER 2016 | 27

HOT MARKETS: DETROIT

Rising from the Ashes Recovery is well underway in Detroit, where the real estate market provides steadily growing, attractive investment opportunities. by MICHAEL JORDAN

’m thinking of a city with the busiest international border crossing in North America. Where downtown apartment vacancy rates are below 5 percent and continuously dropping. A city neighbored by suburbs with some of the safest rated living standards in the United States, where entry home prices are in the ballpark of $50,000. Have you figured it out yet? Over 100 Fortune 500 companies have offices with close proximity to the city square. What if I told you that this Metropolis was home to the world headquarters of major national companies— Ford Motor, General Motors, Quicken Loans? Welcome to Detroit! News stories from the past few years showcased Detroit with headlines ranging from a broken municipality struggling through bankruptcy court, to record-setting growths in residential occupancy rates. In reality, the past five years in Detroit have presented skyrocketing home values, a redevelopment of the urban landscape and billions of dollars pumped into the residential and commercial real estate market. What has significantly caught the attention of many individuals in the world is the success that investment groups and real estate companies have had in the Detroit turnkey rental home market. When it comes to investing in American real estate, the Detroit market provides steadily growing, attractive investment opportunities. With names like Dan Gilbert and Mike Illitch pouring billions of dollars into Detroit’s high-rise business and residential districts, thousands of new residents have relocated to the city for employment.

28 | INVESTOR REVIEW

With employment comes residence, and that’s where small-time investors are profiting. New residents are looking for safe, reliable homes close to the city. Detroit is located in Wayne County, which has been recognized by RealtyTrac as one of the highest grossing rental markets for landlords in the U.S. What really sets Wayne County apart is the initial investment required to get a rental property performing. Using median home prices as a major contributor, RealtyTrac compares Detroit with other major rental markets in the nation. Although the numbers may be skewed due to extreme highs and lows, the overall picture is still the same—Detroit tops the list. Apartment vacancy rates in Downtown Detroit are currently under 5 percent and falling with every new report. Residential areas are also seeing occupancy growth, as investment companies are renovating dilapidated clusters of once-abandoned homes into family-friendly communities. Many more things help to keep the Detroit rental market strong: government subsidies for tenants, ample job opportunities due to the automotive industry’s rebound, and arguably one of the biggest factors—the people of Detroit are known as a resilient crowd. The city is on a comeback from the largest municipal bankruptcy filing in the United States, and everyone in the region is benefiting. Job stability is strong, helping more residents secure income. Great news for landlords, as individuals on the come-up are finding low rental rates much more attractive than high-interest mortgage payments.

The Detroit real estate market is diverse, so it is imperative that proper research and planning is completed before beginning a venture into the market. There are many great neighborhoods with bright futures, and the daily blight removal by city services is helping to increase home values on a consistent basis. The flag of Detroit, designed in 1907,

displays the motto “Resurget Cineribus,” which translates to “It will rise from the ashes.” True to its history, Detroit is a city that rebuilds—and comes back stronger than ever. •

and president of Strategy Properties,

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ical, high quality homes. Now Strategy

on new-home construction in Wayne

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rental homes in the state of Michigan and

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mortgage note purchasing and the sale

can be reached at Mike@StrategyIG.com or

from www.StrategyProperties.com.

of homes that his company renovated. In

734-224-5454.

Michael Jordan is the founder

the process, Jordan began to buy packages

www.StrategyProperties.com SEPTEMBER/OCTOBER 2016 | 29

HOT MARKETS: ORLANDO

Slow and Steady Growth With housing recovery complete, Orlando is poised for continued growth in values. by LENNY LAYLAND

entrally located in the Sunshine State, Orlando has always been a popular destinationâ&#x20AC;&#x201D;not just for tourists, but for relocating families and investors, as well. The weather and job growth witnessed decades of slow, steady growth in population and real estate

30 | INVESTOR REVIEW

values. This healthy growth turned into rampant speculation during the housing boom. Of course, the bubble burst and Orlando participated in a big way. A glut of foreclosures created an overcorrection in prices. Institutional investors discovered this market and took advantage of

what they considered a new asset class. With foreclosure inventory back to normal levels, the recovery is complete, and Orlando is poised for another era of continued growth in values. This is in part due to the strong diversified economy. With this comes more population and job growth. Combin-

ing these basics with attractive cap rates and appreciation potential makes Orlando one of the hottest markets in the country and an attractive place to invest. An objective look at the numbers shows a limited supply and plenty of demand for homes. Logic says this should lead to higher prices. Orlando’s inventory has now seen 12 consecutive months of year-over-year declines with the month of June recording an 11.85 percent drop, the steepest to date. This has already produced a 15 percent increase in the median price over the past year ($180,000 to $207,000). The Orlando median home price has now experienced

year-over-year increases for the past 59 consecutive months. As of June, the median price is 79.22 percent higher than it was in July 2011. The outlook for continued strength is highlighted by the fact that normal homes sales are increasing while foreclosure and distressed sales are down dramatically. Inventory is down to just a three-month supply, and average days on market is down to 62. This is more evidence of a seller’s market and upward price pressure. Another way to look at this market is the fact that it remains cheaper to own a starter home than to rent. Increasing prices could change this eventually, but this doesn’t

appear to be an immediate concern since there is a huge demand for rental homes. Rents are increasing as much or more than prices, thanks to extremely low vacancy and turnover rates. This continues to attract investors (30 percent of sales are still all-cash) and drive demand because the attractive cap rates are still above mortgage rates and the risk-adjusted returns of other investment vehicles. The market forces of supply and demand will continue to drive prices in favor of Orlando real estate investors. Perhaps the better question is, “Is the market too hot and could we again face speculation or another miniature bubble?” While I believe steady growth is more likely, this is also a possibility. Either way, it appears there is still time for the short-term investor to capitalize on the market. For the longterm investor, it shouldn’t matter. The future is bright for Central Florida, and Orlando will continue to shine in the Sunshine State. at $415 million, but lowest out of these 10 states on an ARM ratio at 5.8 percent ($1,363 average monthly rent/$281,000 average home value). With these types of numbers, focus on vacant primary or secondary homes where the borrowers won’t contest the foreclosure. The one market to avoid currently would be Atlantic City, as unemployment is rising and property values are falling due to trouble with the major employers (casinos) in the area. • Lenny Layland has over 25 years of experience as broker, investor, property manager and investment provider. He has completed thousands of residential and commercial transactions and flipped hundreds of homes. Layland has expertise in all aspects of real estate investment, foreclosures, management, marketing, 1031 exchange and syndication. He founded his first brokerage in 1994 and later sold it to start InvestOrlando Realty in 2007. He now operates this “boutique” investor-focused brokerage to provide acquisition and management services to individuals, small groups and large investment funds. He can be contacted at 407-9372200 or lenny@investorlandorealty.com. www.investorlandorealty.com SEPTEMBER/OCTOBER 2016 | 31

82 | think realty magazine september :: october 2016

NARPM 2016 Annual Convention and Trade Show ®

October 19 - 21, 2016

The Grand Wailea – A Waldorf Astoria Resort Maui, Hawaii Education classes begin October 17. Pre-Convention activities begin October 18.

NARPM® provides resources for residential property management professionals who desire to learn, grow, and build relationships. We are an association designed for real estate professionals who know first-hand the unique challenges of managing single-family and small residential properties. NARPM® offers an effective, professional learning environment for owners of property management companies and their employees.

Join with our 2016 industry partners – Buildium, Rently, RentPath, and RentManager – for this educational Convention event. You do not have to be a NARPM® Member to attend, but you must register. We also welcome you to become a NARPM® Member. Registration and membership is available at: http://www.narpmconvention.com/ email conventioninfo@narpm.org or call 800-782-3452. t h i n k r e a lt y . c o m / m a g

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UP CLOSE & PERSONAL

BUSINESS FOCUS

Trading Places TECH STARTUP REALTYSHARES CAN SEE A WORLD WHERE INVESTING IN REAL ESTATE IS AS EASY AS BUYING STOCK. by James Hart

t’s relatively easy for the average American to buy into the stock market. According to a Gallup survey from last year, about 55 percent of U.S. adults own stocks. Investment in real estate is another story entirely. Becoming a real estate investor demands a level of time and expertise that can make it difficult for many people to get into this asset class. But what if it weren’t? That’s the motivating idea behind RealtyShares, a San Francisco-based startup whose online platform allows “crowds” of accredited investors to put money into curated commercial and residential properties from across the country. The minimum investment is as low as $5,000. Founded in 2013 by CEO Nav Athwal, the company has attracted more than $31.9 million in investment from major venture capital firms like Menlo Ventures and Union Square Ventures, including a $20 million raise earlier this year. The V.C.s believe there’s a huge opportunity in using technology to open the world of real estate investment to more people. RealtyShares’ platform also simplifies matters for the professionals seeking funding for these deals. Once due diligence is completed, projects are typically funded within days. So far, the startup has facilitated more than $150 million in investment for 330 projects, and more are being completed all the time. That’s why RealtyShares has been building its team of data scientists. It recently hired Simon Morris, a former executive with BitTorrent, the popular peer-to-peer file-sharing service. Morris will serve as 84 | think realty magazine september :: october 2016

the company’s chief product officer. Along with chief technology officer Gene Linetsky and their team, Morris is reworking the foundation of RealtyShares’ online platform, so it’ll be capable of exponentially greater growth in the coming months. “I was really impressed by the quality of people,” Morris said of his decision to join RealtyShares. “No investors will ever invest their money into a team that isn’t quality. … On top of that, it’s essentially the size of the opportunity. The size of the opportunity is absolutely massive.” LEVERAGING TECHNOLOGY

If you simplify things, RealtyShares just wants to connect real estate investors and deal sponsors. But that process has several moving parts. “It’s not that it’s complicated, it’s just that there’s a lot of stuff that’s there,” Morris said. “It’s harder to conceive of the business as just A, B and C. It’s A through Z.” After all, RealtyShares facilitates almost every part of the investment process. Compare it to the stock market, Linetsky said. If you were taking a company public, several different players would get involved: investment banks, underwriters, analysts, exchanges and so on. “In our case, we’re doing all those things,” Linetsky said. Arguably, selling stock is even more complicated than investing in real estate—but it’s still relatively simple to go online and buy a piece of Apple. All because systems have been built to enable

those transactions. And that’s what RealtyShares—and other enterprises like it—is doing for real estate. “As long as the deal is relatively discreet and definable,” Morris said, “then you can build technology around it to facilitate it.” RealtyShares isn’t trying to make a profit for itself alone. It’s creating a system that allows investors and deal sponsors to flourish as well. Some of America’s best tech-driven companies—eBay, Facebook, Google—have built ecosystems where users can make money by selling their own goods and services, Linetsky said. “If you look at the last 20 years, the

highly successful companies are those that have taken an existing asset class and made it much more available at a higher velocity,” Linetsky said. AIMING FOR TRANSFORMATIONAL RESULTS

Real estate as an industry isn’t exactly known for being an “early adopter” of new technology. Part of the problem is regulation. “High-stakes, complex industries with broad exposure to the general

public tend to be highly regulated,” Linetsky said. He compared it to the medical profession. “We want our real estate agents to know what they’re doing,” he said. But he noted that transportation and hospitality are regulated, too, but that hasn’t stopped companies like Uber or Airbnb from succeeding. “It took about 100 years for equity trading to become mainstream,” Linetsky said, but he thinks RealtyShares’ model will win over the typical U.S. investor much faster—possibly in the space of three to five years.

Morris is equally bullish. He’s worked with other startups whose entire reason for being was their technology solution. But with RealtyShares, there’s a real business, and a real market need. He thinks the company’s platform—and its ability to ease investment transactions—could have a transformational impact. “There’s really no good reason,” Morris said, “why capital has such limited access to real estate investment.” •

James Hart is senior staff writer for Think Realty Magazine. Contact him at jhart@ithinkbigger.com.

t h i n k r e a lt y . c o m / m a g

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UP CLOSE & PERSONAL

ONE-TO-ONE

A New Avenue for Real Estate Loan Investing BREW JOHNSON AND BRETT CROSBY HAVE PEERSTREET ON A ONE-WAY COURSE: FORWARD. by Susan Thomas Springer

n only its first few years, PeerStreet has demonstrated that its combination of real estate expertise, big data and tech leadership can create an innovative opportunity for investors. This online real estate marketplace, based in Manhattan Beach, California, has funded more than $75 million in loan volume and exceeded $25 million returned to investors. CEO Brew Johnson and COO Brett Crosby founded PeerStreet in 2013 to give investors easy access to high-yielding loans collateralized with real estate. Think Realty Magazine recently named the company “Innovator of the Year/Lending” for 2016. Here Johnson and Crosby share the unique approach they and their multidisciplinary team have taken to build their innovative company. As told to Susan Thomas Springer, edited for brevity. THINK REALTY MAGAZINE

How are you delivering on your pledge to provide “an innovative way for investors to access real estate loans”? BREW JOHNSON

The asset class we’re dealing in is private money, nonbank real estate loans. Really, nobody’s been able to access them 86 | think realty magazine september :: october 2016

directly before. For us, it’s really important to open up things and not have it be dominated by institutions. Someday, we’d like any investor to be able to access them, but regulatory-wise and legally, we’re only allowed credit investors to invest, so we’re limited for individuals. Who are your customers? BREW JOHNSON

It ranges. We have everything from hedge fund managers to very successful real estate investors, private equity investors and tech people. It’s a fairly broad investor base, but generally professionals.

BRETT CROSBY

One of the things we’ve done that’s new and innovative is allowed people to diversify—across loans, lenders and geographies—in ways that no one’s been able to do before. How do you minimize risk and maximize return? BREW JOHNSON

Debt is the safest part of real estate, and we think for an online platform it’s by far the best place for the vast majority of investors to be. We want to focus on the best risk-adjusted returns for investors.

BRETT CROSBY

We try to cast as wide a funnel as possible and then curate from there what we think are the highest quality deals and then bring only those to market. Also, we’ve established a relatively conservative credit box, meaning we’re very selective about the deals that come through. We’ve intentionally tried to minimize exposure to riskier deals. And, as anyone who’s trying to be responsible with introducing a new asset class should do, we’ve modeled out risk and looked at worst-case scenarios until we feel very comfortable about how those models turn out in regard to the principle of being safe. How will your team handle a down market? BREW JOHNSON

We have a lot of people involved with this business who have gone through cycles, and at least on the last cycle, were early to identify problems

in the market. We have other investors who were also on the right side of the previous cycles, including Michael Burry, who is the main focus of the book, “The Big Short,” who’s played by Christian Bale in the recent movie. We’ve structured this business intentionally from a more conservative place, meaning that we have more conservative underwriting guidelines than generally exist out there in this asset class. Your team members have impressive backgrounds—MIT computer science, NYU law, MBAs, and Wall Street. How has this diverse experience enabled you to create a successful company? BREW JOHNSON

We’ve been able to attract an incredible amount of talent in technology, real estate, finance and law, which is exciting because they’re very smart, capable people who are trying to build something that is, collectively,

ABOUT PEERSTREET Founded by real estate attorney Brew Johnson and former Google executive Brett Crosby, PeerStreet has created an intuitive, secure interface that allows investors a way to easily access high-yield real estate loans that were historically very difficult to obtain. PHONE: 844-722-8898 WEB: www.PeerStreet.com

BREW JOHNSON CEO & Co-Founder

BRETT CROSBY COO & Co-Founder

bigger than the individuals. I was a real estate attorney back in the previous cycle and understood the issues with the mortgage industry in the securitization market that led to the downfall. Then I got in the tech world and built a tech platform to Expedia. Brett’s background is as founder of Google Analytics, the largest Web analytics platform on earth. We know building a successful technology platform is all about creating value for others. BRETT CROSBY

It’s humbling to be around these people who have decided to join us in this crazy journey. And it makes coming to work just that much better because they are self-starters, they’re motivated, they’re athletes and they’re professionals—it’s truly inspiring. How would you explain the advantage of your technology platform to a non-techie? BREW JOHNSON

We provide tools to lenders who are making loans to borrowers, which make them more efficient and better underwriters and better lenders. Then we internally use tools to analyze loans in a unique way, so you have a combination of a local lender making loans in its geography. PeerStreet provides data analytics—I mean extreme data. There’s a huge amount of data science behind the scenes that goes into analyzing markets where properties are located, what the trend is in those markets, and then what the worstcase scenario is if we repeat it in a financial crisis. From the investors’ side of the platform, the real efficiency of the technology is being able to log into a platform as if you’re trading stocks, like t h i n k r e a lt y . c o m / m a g

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on E*Trade or your Charles Schwab account, and look at these high-quality loan investments. So whether somebody invests in one loan or 100 loans, it’s as easy as buying stock. Investors can invest in this brand new way where they can diversify across loans very easily and reinvest interest payments into new loans. BRETT CROSBY

Our goal is to make all of the technology disappear into the background and make the experience as easy as possible. You can even turn on automated investing, which is the “set it and forget it” model, where they can fund their account and then designate the parameters of the deals they’re looking for. We have a robust underwriting engine, which has a huge amount of data science, so we can see into each of the submarkets down to the ZIP code level and sometimes even more granular

88 | think realty magazine september :: october 2016

than that. It allows us to stress-test the loans and look at forecasts. Also, we’re starting to push out a lot of our technology that we’ve built onto our lending partners—and that has proven to be very powerful for them, so they can outperform in their local markets. What are smart investors doing to have the capital they need to invest in this space? BREW JOHNSON

A lot of the equity investors are trying to find new access to capital because with volatility in the market and the traditional banking channels, a lot of people are anticipating that access to capital could be more difficult in the coming years. Local private lenders provide a really good service by lending in markets the banks don’t lend in, and also lending a lot more efficiently than banks, like closing loans much quicker. So we think

with us providing capital to these local lenders to be able to make more loans to real estate investors, it provides a lot of value in that market. As long as markets stay relatively healthy, we want to be able to find capital for lenders to make loans in their communities. We don’t actually make loans directly, but we’ll connect borrowers to one of our local lenders, who can make the loan, and then investors can invest their loans through PeerStreet. Last words? BREW JOHNSON

BRETT CROSBY

We appreciate being chosen for the award—we’re extremely excited about it! •

Susan Thomas Springer is a regular freelance contributor to Think Realty Magazine. Contact her at susan@susantspringer.com.

2016

Hosted By

D E V I V R U S I E T A T S E L A E R

A Powerhouse Lineup of Industry Experts Converge for The Biggest Night in Real Estate on October 21

On October 21, 2016, join The Norris Group and our panel of industry experts at the Nixon Library in Yorba Linda, California for another award-winning evening. Get the inside scoop on top real estate trends from the leaders shaping our industry. Dress up, enjoy a spectacular meal in the Presidential East Room, network with successful real estate professionals from all over California, and help raise funds for kids with life threatening medical conditions.

THE PANEL

Bruce Norris President The Norris Group

THE CHARITY

Nick Bailey Vice President Zillow

John Burns CEO

John Burns Real Estate Consulting

Doug Duncan Chief Economist Fannie Mae

Sean O’Toole President PropertyRadar.com

THE SPONSORS

Ticket/sponsor funds directly beneﬁt Make-AWish and St. Jude Children’s Research Hospital. We’ve raised over $600,000 since 2008.

Gary Acosta CEO

National Association of Hispanic Real Estate Professionals

Apartment Owners Association of California, Inc.

MVT PRODUCTIONS

Auction.com Coachella Valley Real Estate Investors Association Coldwell Banker Town and Country Elite Auctions First Lending Solutions imortgage First Lending Solutions For Investors By Investors (FIBI)

In A Day Development Inland Valley Association of Realtors Jennifer Buys Houses Keller Williams Corona Keystone CPA Las Brisas Escrow Leivas Tax Wealth Management New Western North San Diego Real Estate Investors

Northern California Real Estate Investors Association Orange County Building Industry Association Orange County Investment Club Pasadena FIBI Pilot Limousine Real Wealth Network Realty 411 Magazine

See www.ISurvivedRealEstate.com

Realty Executives Rick and LeAnne Rossiter SONOCA Corporation Spinnaker Loans uDirect IRA Services Westin South Coast Plaza Wilson Investment Properties

UP CLOSE & PERSONAL

STREET SMART

Global Connections

The most important factor we look for in working with foreign investors is simply

WHAT DO YOU LOOK FOR IN DEVELOPING THE RIGHT OVERSEAS INVESTING PARTNERS?

the desire to work with us and learn the

MARCO SANTARELLI

Our overseas investing partners use us for three services: to buy turnkey or wholesale, or for private money.

WILL HOLLY

Turnkey is when the property is already renovated and rented with property management in place. Wholesale is when we find a great deal and just put a fee on top of what we paid for a property and sell it to the investing partner, while that person or entity pays for any renovations. Once the property is complete, we resell it for the client or find a tenant.

We guide our overseas investors in navigating each step of the process. With that being said, we HOLLY NANCE GROUP look for overseas investors who want a long-term relationship and have the same core values that we have, including trust, capital preservation, respect, faith, commitment and openness. PRESIDENT & FOUNDER

Logistically, we try to simplify the entity structure for our overseas partners the best way we can. Some overseas investors have attended so many seminars and boot camps that they overcomplicate their entity structure. We have attorneys and accountants in place that already have a cookie-cutter package ready for our overseas partners. We also value oversee partners with good communication skills. Our properties often sell within 48 hours, so any overseas partner who can’t communicate in a timely fashion will never get to participate in any of our deals. Lastly, we love to have fun! So our best partners are the ones who don’t only call us about business, but who also pop up at our office if they are visiting New York City so we can meet face to face. •

process. It’s not rocket science.

FOUNDER & PRESIDENT

There is a step-

NORADA REAL ESTATE INVESTMENTS

and we’ve laid

by-step process, it out as a “road map.” Sticking

to the formula we know works all the time assures a hassle-free experience and a stable income property for our client. Most foreign investors don’t realize there are mortgage loan programs available for them today. It is now possible to purchase properties with as little as 25 percent down with rates in the 7 percent to 8 percent range. And these are 30year fixed-rate loans. When you run those numbers, it is possible to achieve a double-digit cash-oncash return and total ROI. Of course, the key here is the properties must be in the right markets and in the right neighborhoods. Another helpful factor is patience. It is important to have the right expectations since transactions often take longer than everyone thinks. Knowing that from the beginning helps us navigate through those bumps in the road (appraisals, inspections, underwriting, management) on the way to a successful closing. • WEB :: www.noradarealestate.com

WEB :: www.hollynancegroup.com PHONE :: 609-256-6155

90 | think realty magazine september :: october 2016

PHONE :: 800-611-3060

STEVE OLSON INVESTMENT CONSULTANT FOURPLEX INVESTMENT GROUP

By now, most

Developing

In my 15-plus

overseas inves-

worthwhile

years working in

tors realize that

relationships

the real estate

the United States

overseas can be

investment market,

has one of the

a daunting task.

I have had my fair

best tools in his-

In most countries,

tory available to

there are tremen-

investors: the 30-

dous cultural dif-

year mortgage.

ferences, and it is

Educating overseas investment partners is a regular part of our day at the

Fourplex Investment Group (FIG).

NEW RJ PALANO NEW DIRECTOR OF ACQUISITIONS NEW BUYCASHFLOW PROPERTIES.COM

share of overseas investment partners. More than anything, technol-

nearly impossible

MICHAEL JORDAN

to sell directly to

PRESIDENT

these prospective

STRATEGY PROPERTIES

buyers. Addi-

ogy has greatly enhanced the ability to communicate, execute due diligence and process

tionally, many people in other countries are unfamiliar with our contracts and how to take title. More

deals swiftly. As an investment company that advises and helps guide others to financial

Many investors come to us under the im-

importantly, it is not so easy getting their

pression that they can get the same Fannie

funds wired to the United States. This is not

Mae financing terms they hear about on

isolated to Asian countries. It applies across

podcasts, online, etc. While this is not the

the board to Europe, South America, South

case, it doesn’t mean they can’t get accept-

Africa and even Canada.

able financing terms.

Thus, you should look first for promoters

I always give a sort of indirect interview to

Many times we’ve been able to get overseas

in those countries who are selling U.S.

potential clients during my first interac-

investors to partner with U.S citizens in or-

real estate. The promoters will do all the

tion with them to gauge their understand-

der to unlock those great Fannie Mae inter-

hand-holding for sales: setting up U.S. LLCs,

ing of the market, trustworthiness and,

est rates. Other times, we can set investors

opening bank accounts, wiring the funds and

most importantly, their ability to execute

up with U.S.-based private lenders that are

overseeing the closing for their clients.

the deal. Just because an investor claims

willing to loan at higher rates, but still lock

Every promoter is different, with a specific

in a 30-year fixed rate for the investor, with

amount of money in mind for which to be

no balloon payment.

compensated for the successful marketing

Overseas investors need to clearly understand how they are impacted by property management laws, foreign ownership of a U.S. company, depreciation and currency. It’s a process to learn these things. Here at FIG, an overseas partner who works with us to understand them and put them into practice is a valuable partner! •

success in the U.S. real estate market, we deal with foreign investors daily. The importance of recognizing and respecting the culture of an investment partner from a foreign country is crucial.

to have the mental capacity or monetary resources to move forward on a deal doesn’t necessarily make it so.

of real estate in the United States. We look

The greatest benefit of overseas invest-

for promoters who have experience, tell the

ment partners is the access to their

truth to their clients and are reasonable with their fees. In our experience working with overseas promoters, we have found that the ones with a reasonable markup are still with us today. The key for foreign marketers to stay relevant is to adapt to our changing market. •

network of professionals and potential for long-term relationships, which are paramount to success in this field. In my opinion, working with overseas investors can help build long-term wealth, and business relationships built on trust will be the strongest. •

WEB :: www.fig.us

WEB :: www.buycashflowproperties.com

WEB :: www.strategyproperties.com

PHONE :: 801-362-3392

PHONE :: 813-495-3006

PHONE :: 734-224-5454

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UP CLOSE & PERSONAL

WEEKEND INVESTOR

Get in the Game ARE YOU SITTING ON THE SIDELINES, WATCHING INSTEAD OF PARTICIPATING IN REAL ESTATE INVESTING? HERE’S HOW TO GET UP AND MOVING. by Kevin Guz

re you one of those would-be investors sitting on the sidelines because you think you may not necessarily be qualified enough, you may not necessarily know enough and you may not necessarily be strong enough financially to invest in real estate right now? I was there once. Let me tell you how I got myself off the sidelines and into the game—and how you can do that, too. Here I am now, more than 10 years later, a full-time investor who started out investing part time while I still had a different, full-time career. I’ll admit, I never really thought I would be where I am today. I had all the same apprehensions and worries as those who are on the sidelines 92 | think realty magazine september :: october 2016

today. I saw all the same obstacles. I had all the same hesitancies about starting out in real estate investing and being unsure whether to start part time or to dive all-in and invest full time. I’m sure the worries I had are similar to what many of today’s “bench sitters” may be thinking: “There are so many unknowns when it comes to real estate investing! How am I ever going to learn? How am I ever going to get enough confidence or competency to be a successful real estate investor and protect myself from catastrophe? And what if I can’t find the motivation to get started or the momentum to sustain my efforts?” Without momentum, real estate

investing seemed like a huge mountain to climb, and I questioned whether I had the energy to do that. What I have found, through my experience, is that all of these obstacles that I thought were holding me back were actually all the opportunities that would ultimately push me forward as a real estate investor. THE RESOURCES ARE WAITING FOR YOU

For instance, you may think you don’t have the time, the money or the knowledge to move forward with part-time real estate investing. But I will tell you that those resources

are not as limited as you think. I encourage you to embrace the mind-set that you need to go forward and spend what you have of each of these resources—time, money and knowledge—because you will be shocked how easy it is to acquire more. In my case, I was hesitant about the time I had available to become a part-time or weekend real estate investor. It wasn’t until I bought my first rental property that I realized I actually did have the time. In fact, that time had always been there. My experience of buying that first property—on my lunch hour—didn’t detract from my career or my work, and I was able then to rehab that property during the evenings and on the weekends in order to get it ready to rent. So I found the time that I needed. And as I moved on to my second and third properties, I was more confident that I knew what I was doing—and I was getting better at it. As I became more proficient, productive and knowledgeable, time became less of an issue. It is a well-known fact that as you get better at doing something, typically it will take less time to accomplish that task. I found that to be very true in my real estate investing. It was the same with my concern about money. The typical hesitation is, “I don’t have the money to become a real estate investor.” But you may be surprised to find that once you make that first investment and you begin to understand the financials and begin to build relationships with lenders—whether they are private lenders, institutional lenders or family, friends or whatever—then it becomes easier to acquire even more money. And as you are able to invest further, you begin to prove yourself as you gain experience and even profit from your investments, and you will start to accumulate incremental capital dollars that you can use to move forward. LEARN AS YOU GO

Now, let’s discuss your fear that you aren’t knowledgeable enough. Obviously, once you get started, and the more you do, you learn a tremendous amount. I will repeat again what another real estate investor once said: Go as far as you can

go, and when you get there, you will be able to see farther. I cannot stress enough how much that summarizes my experience as a real estate investor. Yes, real estate can be very complex. It can be very daunting due to all the intricacies, the legalities, the financial aspects, etc. But I cannot overemphasize how, as I just started with what I knew and progressed forward in my investing and acquired more properties—whether they were rental properties, wholesale properties or fix-and-flip properties—I was learning as I went. My knowledge continued to accumulate. You will never know everything. So you just need to get started with what you do know, and learn as you go. In my experience, action created attraction. Meaning, as I took action and became a part-time and weekend real estate investor, that action started to attract all sorts of new resources, information, solutions and partners and providers. Before I got started, I didn’t even know I had access to those resources. Once I started and got involved, I began to find places to buy houses that I never knew were resources. I began to find solutions to problems that I never thought I would be able to figure out. I found business partners, and I found different vendor service providers. Once I got started, bought that first property and submerged myself into real estate investing, it all started to come together. HOW I FOUND MY PROPERTY MAINTENANCE PROVIDER

Let me share how I found my maintenance provider, over 10 years ago. Property maintenance is probably one of the greatest nightmares, hesitancies or obstacles for new investors. “Gosh, once I get that rental property, what am I going to do when they call on a Sunday evening and the water heater has burst? Or there is a plumbing leak, or an electrical problem, or there is no air conditioning and it’s a 95-degree summer day here in Dallas?” I found my maintenance provider when I purchased my second rental property. He lived two doors down from

that property. He just happened to have his truck parked in front of his house one evening when I was at my new rental property. We met on the sidewalk. I asked him about what he did, and I told him what I was doing. Lo and behold, here we are—more than 10 years later— and that same individual is overseeing my entire portfolio of rental properties as my key maintenance provider. I would have never met him if I hadn’t taken action, started investing and put myself in that position. He has literally solved one of the greatest obstacles that I thought I had as a real estate investor, and that was the proper, timely and affordable maintenance of my rental portfolio. FOCUS ON MAKING MONEY TWICE

Finally, let’s talk about the lack of momentum and how to get over that hump and take that first step. What I recommend to you as a new, upcoming or wantto-be part-time investor is to focus on the concept of making money twice. What I mean by that is, get that first investment under your belt. Whether it is a rental, wholesale property or a complete rehab or fix-and-flip—do that first investment. It may go great, and that is going to propel you to want to do it again. That would be wonderful, and I hope that is how it goes for you. But be prepared that it may not go great. The key, though, is that even a less-than-spectacular experience has got to propel you to go do it again with a second investment property. In either scenario, take the lessons, the relationships you have built, the knowledge you have accumulated and, hopefully the profits you have acquired, and go forward > Continued on :: PG 120

Kevin Guz is a Dallas, Texas-based residential real estate investor with more than 10 years of investing experience. He owns a HomeVestors (or “We Buy Ugly Houses”) franchise as well as the Clear Key companies. He also is a licensed real estate agent in the state of Texas. You can listen to his podcasts at www.blogtalkradio.com/kevinguz.

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UP CLOSE & PERSONAL

TEAM BUILDING

Power Up THE FOUNDATION OF YOUR REAL ESTATE INVESTING BUSINESS IS A WELL-CHOSEN POWER TEAM. by John and Corinne Tesh

o you want to be a real estate investor? Where and how do I start? When we started our business in 2012, we attended a three-day boot camp that got us hooked and started us on our real estate journey. The most important thing in the beginning is building a foundation for your business and that starts with building your “power team.” We attended the local Real Estate Investor Association meeting (REIA) and found a lot of resources. Everyone from attorneys, bookkeepers, moneylenders and contractors attend, and there is always a speaker covering a helpful topic. It was a great place to learn about investing and, more importantly, to be around like-minded people. Our power team started with a financial planner who helped get our entities started. To do business in North Carolina, you must have a company name, an LLC or corporation, an EIN number and a bank account. When all of that is in place, seek out a CPA firm that understands real estate transactions, including wholesaling and flipping. 94 | think realty magazine september :: october 2016

Next you’ll need a bookkeeper that is separate from your CPA firm. We find using two separate companies helps with checks and balances, and there are two sets of eyes looking for mistakes. The bookkeeper does the data entry, and reconciles our bank statements and credit cards. The CPA does tax planning throughout the year, so there are no surprises come April 15. After attending several REIA meetings, we became more comfortable and were able to zero in on a few more power team members. We sought out brokers and real estate attorneys to get educated on how best to work with them. We found there are numerous ways to sell a property. There are full-service agents who do all the work for you and charge a 5 percent to 6 percent fee. There also are limited-listing agents who list it on the MLS, but it’s really a “for sale by owner.” Limited-listing agents typically charge a nominal flat fee, so you’re saving 3 percent. With attorneys, there are also numerous ways to close on a property, and you have

to find the right one that fits your needs. Be patient and ask plenty of questions. There is usually a place in the REIA meeting where they ask for “needs and wants.” That’s a great place to stand, introduce yourself to the group and ask for help locating the final people on your power team. Reputable contractors, private moneylenders, coaches and mentors will probably be sitting in the room, eager to help. Look for mentors at your local REIA, Real Estate MeetUp Groups and Deal Maker Sessions in your area. Attend as many meetings as possible and bring plenty of business cards. •

John and Corinne Tesh are real estate investors and owners of Citygate Homes LLC, a HomeVestors franchise in Greensboro, N.C. John’s background as a professional photographer and Corinne’s expertise in interior design play a big part in the success of their business, which includes rehabs, buy-and-holds and wholesale properties. Contact them at john@citygatehomes.com or corinne@citygatehomes.com or 336-854-8000.

The Institute for Real Estate Rights recently won a case in Ohio, ruling mandatory inspections are unconstitutional. Your case could be next. Submit a concern today.

SupportRERights.org

t h i n k r e a lt y . c o m / m a g

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SEVEN THINGS BUY & HOLD

Get Crazy TRY SOME OUT-OF-THE-ORDINARY MARKETING TECHNIQUES TO GET YOUR PROPERTY MOVING. by Teresa Bitler

IN A SEA OF MLS LISTINGS, creative

marketing can help your property stand out. While these seven strategies may not be for everyone or for every property, under the right circumstances, one of them may help you get a competitive edge. 96 | think realty magazine september :: october 2016

THROW A PARTY Open houses attract buyers on a limited basis because most buyers can easily find homes in their area through the MLS and Internet and gain access through their real estate agent. Instead

of an open house, create a real buzz by throwing a party. The more over-the-top, the greater the buzz. Place signs and fliers in the community, hire a DJ and raffle off prizes. You may not attract someone to the party who eventually will buy your property, but those who do come may say something to someone who is looking in the area. Parties generally only make sense with large, upscale homes that are conducive to entertaining. Brian Jones, a digital real estate marketing professional and a title insurance adviser for Liberty Title, points to a million-dollar lake house in Pinckney, Mich., as

INVITE THE NEIGHBORS Tracey Hampson, an agent with Century 21 Troop Real Estate in Santa Clarita, Calif., puts a twist on the party idea and targets the neighbors, inviting them personally to a wine and cheese party by knocking on their doors and handing them an invitation. Because the neighbors have to bring the invitation to get in to the “very exclusive” party, they feel special. The approach usually doubles the turnout she could have expected without an invite, she says. Better yet, on her last listing, she ended up selling the home to a friend of one of the neighbors who attended the exclusive private party. You don’t have to go to that effort to have a similar effect if your property isn’t the wine-and-cheese, open-house type. Instead, go door-to-door letting the neighbors know about the home you have for sale and asking them to pass the information to any family members, friends or co-workers who might be interested in moving into the area.

HOST AN EVENT

an example. The owner spent nearly $10,000 on an open bar, pig roast and other entertainment, but the investment paid off big time. More than 150 people attended, and a bidding war ensued, with the owner eventually accepting an offer for $150,000 above the asking price. You could scale things back if you have a smaller, less expensive house. Instead of going all out for a community party, invite a targeted group (such as other investors) for a wine and cheese party or host an art show for students from the local high school—anything to get people in the community talking about your property.

People are always looking for space to hold events, such as weddings or parties and even to sell their items at pop-up shops. If you have the right venue, it’s another way to draw attention to your property. Post an ad, along with photographs, on websites like The Storefront (www.thestorefront.com) and Event Up (www.eventup.com) and make sure fliers are available or that you’re available to talk about the property. Bonus: You’ll be able to generate a little revenue from the event as well. Listed properties usually charge several hundreds to several thousands of dollars per event, depending on the venue. If your property isn’t venue material, you can tweak the idea. Host a neighborhood garage sale (another great way to get the neighbors involved) or a charitable event at the property. For the charitable event, coordinate with the charity to hold an event at your property, such as the ever-popular wine-and-cheese party or an art auction. Ask the charity’s staff to help promote the event to their donor

list, and offer a portion of the home’s profit to the charity when it sells.

USE A DRONE “If a picture is worth a thousand words, then a five-minute video would be worth 7,000 words and definitely generate more interest,” says Ed Brancheau, an SEO expert with Goozleology. That is especially the case, he adds, if that video includes footage shot by a drone. While photographs taken by a drone showing a bird’s-eye view of a property are becoming more common, a video showing exterior and interior drone footage still stands out. Brancheau says properties using drone video get more views, which means more interest and possibly more money. Chris Bonnet, CEO of Drone Dispatch, says drone video isn’t necessarily for every property—it usually works best for properties that have great yards and spectacular interior features—but it can be an effective tool when spliced with conventional video and accompanied by voice-over or text overlays. For most videos, the drone starts outside and flies through the front door, through the living space, out the back door and over the backyard. Sometimes, Bonnet will incorporate drone flyovers of pool tables or elevated shots of the staircase. The footage is then edited to include conventional video. Although anyone can learn to fly a drone, it takes considerable talent to make an effective video. “The magic is in the video editing,” Bonnet says. Prices start at $600 for Drone Dispatch’s services.

OFFER SOMETHING EXTRA Whether you offer a club membership or an actual item like a pool table, sometimes a perk can attract the extra attention needed to make your house stand out. Andrew Reeves says that when he put his home on the market, he asked local gyms to let their clients know that he would pay for a year’s gym membership for the person who bought his house. The strategy worked. Someone who t h i n k r e a lt y . c o m / m a g

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learned about his home through one of the gyms purchased it, and he did buy the new homeowner a one-year gym membership. He feels the offer was a key factor in the sale. Gene Caballero had a similar experience. “When I was selling my house in the suburbs and moving into the city, I really didn’t need my car,” he says. “I parked it in the front with a big sign, ‘Car Comes with the House!’” The house sold in three days, and Caballero handed over the keys to his 2-year-old Nissan Maxima along with the keys to his house. Get creative. Besides gym memberships and cars, you could offer such things as monthly spa treatments, season tickets for the local sports team, a oneyear membership to the local country club or even a vacation.

CREATE A WEBSITE Give your home more than just an MLS listing—set up a website for it. The website is a canvas that showcases more than photographs and features. You can use it to tell a story that hooks buyers, says Spencer Callaghan with Thornley

98 | think realty magazine september :: october 2016

Fallis Communications. For example, you could write a blog detailing the significant days spent in the house, such as the day you moved in or the day you planted the rose bushes in the backyard. “Make it funny, sweet, maybe even tug at the heartstrings a bit, but weave in details about the house itself,” he says. Amplify your efforts by using social media. Post on Facebook, Twitter and YouTube. Include your dedicated website on all fliers and marketing materials so buyers can learn more about your property and, hopefully, become emotionally attached to it through your stories.

WEAR A PANDA SUIT OK, maybe it doesn’t have to be a panda suit, but gimmicks can work. Just ask Texas real estate agent Jessica Arnett, who donned a panda suit after reading about an English agent who did the same thing. According to Realtor.com, the tactic generated 12 showings in two days (compared to two showings in the previous three weeks) for the four-bedroom,

+ RESOURCES GREAT SANTA CLARITA HOMES www.GreatSantaClaritaHomes.com DRONE DISPATCH www.dispatchadrone.com

$199,900 listing. You don’t have to wear a costume, though, for a creative marketing campaign. (In fact, if too many people adopt the tactic, it will lose its impact.) You could place cutouts of celebrities in your home photos or maybe place an item in one of the photographs and make a pictorial search for that item in the postings. The idea is to get creative. The more creative you are, potentially, the more interest your ad will generate. • Teresa Bitler is a regular freelance contributor to Think Realty Magazine. Contact her at teresa@teresabitler.com

NUTS & BOLTS

ACCOUNTING

Estimating Operating Expenses AN UNDERSTANDING OF EXPENSES AND CATEGORIZATION WILL HELP REAL ESTATE INVESTORS ANALYZE POTENTIAL OPPORTUNITIES. by Carter Froelich, CPA

n previous articles, we have covered the need to understand terms, concepts and fundamentals of cash-flow analysis, as well as how to estimate effective gross income, operating expenses and net operating income. This third installment in our series focuses your attention on operating expenses, which are those paid by a real estate investor to keep the property generating revenues on a monthly basis. Operating expenses do not include mortgage payments, depreciation or capital improvements. The table below illustrates some of the typical operating expense categories for a standard residential rental property. These account categories were taken from the default operating expense settings from The Property Ledger™, the cloud-based real estate investment software developed exclusively to assist the average real estate investor in analyzing real estate investment opportunities. The most common operating expenses as they relate to residential real estate include: PROPERTY TAXES Represents the property taxes that you as a property owner will pay on an annual basis related to state, county and municipal government, as well as for school district operations. You may obtain a property’s current property tax bill by going online to the respective county’s treasurer or county assessor’s website and searching for the property’s tax bill by parcel number, owner or address. Remember, when you purchase a property at a price higher than that paid by the previous owner, your property tax payment will increase from what is shown on the current tax bill. Make sure you take this into account when estimating your prospective investment’s property tax payment or you may underestimate this expense. In

my mind, it is always better to be conservative and select a higher number when estimating operating expenses. PROPERTY INSURANCE

Property insurance is necessary to protect both you and your lender from loss in case of fire, flood, earthquake or any other catastrophe that may damage or destroy your investment property. It also includes liability insurance to protect you in the case that a tenant or tenant’s guest is injured while on your property. As is the case with property taxes, if you are paying more for a property than the original owner did, your insurance premiums will likely be higher than those of the current owner. Call your property insurance specialist and provide the details related to your purchase, along with the coverage you desire for the property. The specialist will then be able to give you an exact quote related to this expense category. REPAIRS AND MAINTENANCE

Repairs represent the items that need to be fixed over the course of a tenant’s use and include such things as leaky sinks, heating and cooling repairs, minor plumbing repairs and electrical or appliance repairs. They basically represent those costs necessary to keep everything running for the tenant’s use of the facility. They do not include replacement of an air-conditioning unit, remodeling of a bathroom, replacement of windows or other additions that increase the useful life of the property. MANAGEMENT FEES

Management fees represent the fees paid to an outside party to manage and lease your property. Typically, these rates range from 6 percent to 30 percent of the effective gross income generated by the property and are dependent upon the type and location of the property. Even if you manage the property yourself, you should factor in a management fee, as your time is valuable and you should recognize the cost of your time. I can assure you that when the time comes to sell your property, should you present your property’s profit and loss (“P&L”) statement to a prospective buyer and a management fee is not shown on your P&L, that the buyer will add one to his or her analysis, thus increasing the operating costs of the property and thus reducing the price the buyer will pay for the property. UTILITIES Utilities relate to electricity, natural gas, heating oil, water, sewer and potentially trash pickup. Depending upon the type of property you are analyzing, the tenant may pay a majority of these costs. I know that for all my single-family residential units, the > Continued on :: PG 120

Carter Froelich, CPA, is the founder of the Web-based real estate investment software The Property Ledger™. To get a free, 30-day trial of The Property Ledger™, visit the website at www.thepropertyledger.com.

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NUTS & BOLTS

OWNER FINANCING

Defeating Defaults ADVICE TO OWNER-FINANCIERS: LISTEN WELL, PAY ATTENTION TO THE FINER DETAILS, DO YOUR HOMEWORK AND DEMAND SUBSTANTIAL DOWN PAYMENTS. by Mitch Stephen

s a specialist in owner financing of residential properties and a teacher to students across the nation, I am often asked about the default rate. Nationally, in 2010, the default rate for subprime loans was about 10 percent, but those likely included options, adjustable-rate mortgages and other variable interest loans. I can’t speak for all owner-financed homes, but I can tell you about my personal experience in San Antonio, Texas. • When I get 5 percent down, my default rate is around 15 percent. • When I get 10 percent down, my default rate is around 8 percent. • When I get 15 percent down, my default rate is around 3 percent. • When I get 20 percent down, my default rate is practically 0 percent. But it may not have everything to do with just the down payment. WE DO OUR HOMEWORK IN EVALUATING POTENTIAL CLIENTS

We also do our homework at my office. We look at every potential buyer’s history—credit, criminal and rental. I have turned down some pretty good down payments in my career because we didn’t like what we saw. We shy away from buyers who are in the middle of financial 100 | think realty magazine september :: october 2016

troubles. To loan money to someone smack-dab in the midst of monetary strife doesn’t make much sense; you just become another one of their late payments. Yes, we make subprime loans, but that doesn’t mean we have to bludgeon ourselves. We don’t stop at the first sign of bad credit scores, either. Let’s face it, as owner financiers, our niche is to find good people who have had bad things happen and then recovered. We try to find out why and when the late payments and defaults occurred. Credit scoring companies are not so forgiving. It’s possible that the potential buyer’s personal problems happened years ago, but for the last few years, things have smoothed out for them. They’ve recovered. This is when we start asking, “What happened between X-date and Y-date that caused your financial debacle?” It could be health reasons, the death of a breadwinner spouse, divorce, layoff or injury due to an accident. There are very viable reasons for a momentary breakdown in pay history, and it could happen to any of us. We listen closely. Excuses? Or logical reason? LISTEN CAREFULLY FOR THE FULL STORY

The next question is, “What changed?” We can see from the credit report that on around Y-date this person starting getting back on track. How or why was this person able to recover? I once interviewed a potential buyer whose finances seemed to have collapsed five years ago, but was a perfect payer for the last three years. When asked, “Why the collapse?” she explained her

husband had died in a car wreck. He made good money, and she was a stay-at-home mom with three kids and no income. When asked, “What changed?” she replied, “I married a man who makes twice as much as my late husband did.” Made sense to me. I sold her the house despite her 480 credit score. I’ve had drug dealers want to give me plenty of down payment—$30,000 to $40,000 or more. No dice! I don’t deal with thieves or drug dealers, period! When we search criminal history, we’re looking for violent offenders or repeat offenders who never seem to learn their lessons. The last thing we want to do is to owner-finance a home to a someone who shot his last landlord because he was persistent about collecting payment. You can learn a lot about a person by watching how he or she deals with you. When a potential buyer says one thing and then doesn’t follow through, that person is giving you clues as to how the relationship is going to go. Did the person also mention having $10,000 down payment available, but then showed up with only $7,000? Did he or she say the money would be delivered on Thursday, but didn’t call and didn’t show up until Monday? Were there weak excuses for this person not keeping his or her word? You may want to pay closer attention; this is how this person is going to pay you—late and with lame excuses. You can also learn a lot about a person by just listening well. I like to ask enough non-business-related questions to get prospects talking. It’s amazing what they’ll tell you. I had one lady tell me she and her mate planned to pay the house off early once they both settled their lawsuits. Apparently, both of them had “slip-and-fall” cases pending. One fell in Walmart, and the other at a major grocery store outlet. Well, well, well ... absolutely not! Another man told me he didn’t want his live-in girlfriend on the documents because he was going to dump her. Unfortunately for him, she was the only one making the money, and she was the one responsible for the down payment. I sold the house to her! She’s still living there and making her payments. We never saw him again.

WHAT ELSE TO LOOK FOR

I pay particular attention to the kids of my potential buyers. If their kids are running around, out of control and smearing all manner of things on my office walls, I know my house will be a disaster in 30 days or less. We look for adults who take control of their household. I look at the cars my potential buyers are driving. You can learn a lot from looking inside a prospect’s ride. Is the car a mess with the dashboard loaded with trash and unopened mail? That’s how that person’s life runs. Is the car make and model way over the person’s pay grade? That could indicate living above his or her means. A personal conversation with the prospect’s current landlord is a must. But beware, some landlords will tell you what you want to hear just so they can get rid of their “pain in the butt” tenant. It’s happened to me before. If you think you need to go the extra mile, find an excuse to drop in on your buyer. See if you can get invited inside the prospect’s residence to talk about something. While inside, take note. Do you see pride or anarchy? When you see how people live, you can see more of who they really are. You’ll also see exactly what your property (your collateral) is going to look like within weeks after they move in. There is more to finding the right buyer than you might think. I’ve learned to trust my gut. If I have a bad feeling, I work harder to find evidence to substantiate or repudiate my instincts. You can go a long way to lessen your default rate by listening well, paying attention to some finer details, doing your homework and demanding substantial down payments. •

Mitch Stephen is an investor, author, educator, inventor and songwriter in San Antonio, Texas. He began investing in his 20s and has been a full-time investor for the past 20 years. Mitch teaches “The Art of Owner Financing” and how to become financially independent by creating cash flow from real estate. He is author of the book series “My Life and 1,000 Houses.” Contact him at 210-669-4020 or Mitch@Homes2Go. NET. Learn more about his programs and investing at www.Homes2Go.net, www.Cash4Houses.net and 1000Houses.com.

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NUTS & BOLTS

LENDING

Know Before You Go A BORROWER CAN BE AT AN EXTREME DISADVANTAGE UNLESS CERTAIN LOAN COMMITMENT ISSUES ARE ADDRESSED UP FRONT. by Eric Dean

hile issues such as interest rates, principal loan amounts, underwriting requirements, etc., generally are included in a loan commitment, many issues are often not addressed until after the prospective borrower has signed the loan commitment, paid the nonrefundable loan commitment fee and funded, in advance, a deposit for expenses related to the underwriting of the prospective loan. Because of the sunken investment and passage of time related to the loan commitment and underwriting process, the prospective borrower is often at an extreme disadvantage in regard to critical items that are not addressed until drafts of the loan documents are provided. In most instances, this occurs after the loan commitment is signed and required deposits have been advanced. In the initial stages of a commercial loan transaction, there may be multiple concerns not discussed or negotiated until

after the proposed borrower has paid the commitment fee and valuable time has passed. Addressing those issues before considering financing options obviously will be more advantageous for a commercial real estate venture. Issues that may not be addressed in a draft loan commitment, but which regularly arise, include the following: 1 N OTICE

AND CURE PERIODS

Will the lender be required to give notice? Will the prospective borrower have a cure period before a default can be declared? When will a default rate of interest or late charge be imposed? 2 W HAT

HAPPENS WHEN A DEFAULT IS CURED

If a default occurs, but is later cured, will such things as the interest rate, impound requirements, financial reporting requirements and reserve requirements revert to the lender’s pre-default requirements, or will they remain in a “post-default” status? 3 R ESTRICTIONS

LEASES

Often, loan documents include provisions requiring a borrower to comply with term, rent, tenant qualifications, etc., when entering into a lease or when using specific forms for leasing commercial property units. A violation of these provisions can result in the lender declaring a default even if there are substantial economic advantages to a lease transaction outside the specified terms and conditions. Depending on the restrictions imposed, they may create serious economic consequences for a borrower, especially if economic or area concerns arise after the loan is in place. 102 | think realty magazine september :: october 2016

4 C HANGE

IN MANGEMENT OR MARJORITY OWNERSHIP

Loan documents always include some restrictions as to a change in management and, more often than not, a change in management is prohibited under any circumstance. Similarly, loan documents may prohibit or limit a change in majority ownership of the borrower entity. Since a significant number of circumstances may arise after the loan is made, mandating a change in management or majority ownership and defining these terms in advance of signing a loan commitment should be considered. 5 A SSUMPTIONS

OF THE LOAN

Circumstances may arise after the loan is made that require a borrower to consider conveying a business or portions of the loan collateral to a third party. If such circumstances arise, the borrower’s ability to enter into such a transaction with the loan remaining in place may be a critical factor. 6 F ORM

OF GUARANTY

If a guaranty of the loan is required, instead of an unconditional guaranty, the potential borrower may attempt to negotiate a guaranty limited in time or amount or that is based solely on “bad boy” events as opposed to a full and absolute guaranty. 7 C OLLATERAL

RELEASE

If there are multiple items of collateral, the prospective borrower may wish to request that the lender define the terms and conditions under which one or more of these collateral items can be released. 8 R ESERVES

AND IMPOUNDS

The loan documents may include broad powers and wide discretion on the part of the lender to impose reserves or impound requirements during the term of the loan to address a wide variety of potential concerns. Defining these potential reserves and impound requirements and the conditions under which they may be imposed should be considered before the loan commitment is entered. 9 I NSURANCE

PROCEEDS

Loan documents can significantly vary in how casualty losses will be addressed and whether insurance proceeds will be available to make repairs or held until the repairs and concluded or applied to reduce the loan balance. Since these provisions can dramatically vary between lenders, a prospective borrower may wish to inquire about casualty losses and insurance proceeds before signing the loan commitment.

I NSPECTION, APPRAISAL AND FINANCIAL REPORT REQUIREMENTS

The frequency and terms under which the lender can inspect the property, require an appraisal of the property or audit the borrower’s books and records (including, perhaps, reviewed or audited reports) should be addressed prior to signing the loan commitment. Since these requirements can result in significant losses of time and expense, concerns as to who pays the costs associated with these inspections, appraisals and audits and what controls the form and frequency of such requirements should be discussed with the lender before a loan commitment is signed by the prospective borrower. 11

R EAL PROPERTY TAX DISPUTES OR INSTALLMENT PAYMENT PLANS

Disputes often arise between a property owner and taxing authority that may take an extended period of time to resolve. Property owners may reach a tax installment payment plan with taxing authorities. Since these concerns often arise during the term of a loan, a prospective borrower may inquire about the lender’s requirements. While these types of issues are typically addressed in loan documents, they are often not addressed in loan commitments. It is my suggestion that the real estate investor or property owner make a checklist of items, such as the issues listed above, before proceeding with a prospective loan transaction. It is important to pay close attention to these issues, and raise them with the lender before expending a substantial amount of money or allowing a significant amount of time to pass after the loan commitment is signed. Thereafter, the prospective borrower’s available options are extremely narrow. •

Eric Dean is an honors graduate of UCLA School of Law. He has been representing clients, writing articles and participating in educational events on behalf of the commercial real estate, hospitality and financial services industries for over 30 years. He serves as an outside adviser and general counsel for many of his clients. Daniel Newman was instrumental in raising the concerns addressed in this article and assisting the author. Disclaimer: This article is solely intended to provide an opinion about concerns that a reader may have. It is not intended to give legal advice, and is broad and general in nature. Therefore, it should not be relied upon. A reader who has particular concerns related to the topics addressed herein should consult his or her own advisers and not act based on the content of this article.

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NUTS & BOLTS

RISK MITIGATION

Thwarting Break-Ins 8 GREAT WAYS TO PROTECT YOUR VACANT AND RENOVATION PROPERTIES by Rick Abell

hen we look at claims information we see that many of the properties subject to break-ins, thefts and vandalism are usually vacant or going through renovations to prepare them for sale or the next tenant. I’m sure it’s truly disappointing to arrive to show a house that was finished only two days before and see it broken into and missing key components like stoves, ovens, air conditioning, furnace, water heater and maybe even copper plumbing and electrical wiring. All your hard work and investment is gone, and now you have to deal with police reports and put in more work and money to get it ready for sale or rent again, pushing back the start to getting a return on your investment. Who breaks in and does this kind of stuff? • Neighborhood kids looking to make your vacant house their “club house.” • Professional thieves looking to take your possessions and turn them into their gain. • Contractors or their sub-contractors returning to the property they have worked on, knowing what’s inside the house. HOW DO YOU PROTECT YOUR VALUABLE INVESTMENT? NO. 1 YOUR FIRST LINE OF DEFENSE IS DETERRENCE

If you own a home that has been vacant for awhile, chances are there may be other vacant homes in the same neighborhood. You want to make sure your house is not the easiest target. Make thieves and vandals believe the house is being lived in or at least being watched. Don’t make their “job” easy for them. NO. 2

LOCKS

Make sure the property is properly secured. Doors and windows should be locked with sturdy hardware. If you are purchasing a property or retaking possession from a tenant, change the locks or get them re-keyed. Who knows how many copies of keys could be floating around? Securing basement windows is critical, as this often provides an easy access point to the house and to expensive housing components like water heaters, furnace, pipes and wiring. 104 | think realty magazine september :: october 2016

NO. 3

NEIGHBORS

Getting to know the neighbors can be a big benefit. Discuss what your plans are with the house and let them know that you want to make sure they have good neighbors moving in as renters or buyers. Good relationships with your neighbors allow you to have “eyes and ears” around your investment property. They should feel free to call you if they see anything suspicious. NO. 4

INSPECTIONS

Drive by regularly to make sure the house is still secure. It may provide a good opportunity to wave at the neighbors or get out and talk to them to build that relationship. If you notice the house has been broken into, call the police and don’t enter the house until an officer arrives. The intruder may still be inside! NO.5

YARD MAINTENANCE

This basically refers to the outside appearance of the house. Keep the lawn cut and clean. Trim back trees and shrubs that may block views of the house and provide thieves places to hide. As part of maintaining the outside appearance, make sure you keep the mailbox emptied on a regular basis. Newspapers stacking up on the lawn and mail flowing out of the mailbox are indicators to a thief that nobody is home. Even though you have stopped bills from going to the house or the past residents have redirected their mail, remember you may still get “junk” mail that will fill up a mailbox fast. NO. 6

LIGHTING

A well-lit exterior will discourage thieves from approaching your house at night. Lights should be placed at a height where it’s not easy to disable them. Consider using motion detector lights that instantly light up an area, startling a would-be thief. Lighting the inside of the house is critical, too. Using lights on timers in various rooms and radios that come on and go off in the evening may make your vacant home look and sound occupied, dissuading potential thieves and vandals. There’s actually a product out now that looks like a light bulb you would put in standard lamps. It records your usage and replicates your patterns at night, gradually turning out lights down stairs and ending with turning out an upstairs light like you would when

you go to bed. These lights can also be set up to turn on if the doorbell were to ring, imitating a household being startled awake by a late-night visitor. NO. 7

BOARD-UP

When appropriate and required, you should make certain to board-up your property. There are several board-up solutions. The easiest fix might be to send over a handyman with plywood and long screws, but there are also cage systems, steel “shields” held in place by special hardware and even a heavy duty Plexiglas-type product that allows light in the house. It doesn’t make the house appear boarded-up, but is strong enough to keep thieves and vandals out. Make sure you use the best method that is also compliant with local codes. Remember, insurance policies will often require, as a security measure, that vacant houses are boarded-up. NO. 8

ALARM SYSTEMS

Posting a sign on the front window or in the yard indicating an alarm is monitoring the house is a great deterrent. Actually including an alarm is better, and I would urge you to get one that works best for you. Some alarm systems and components can be purchased for a few hundred dollars, and there are a ton of choices. ALPS found one alarm system in particular that is worth your consideration. It’s called TattleTale, and here are just a few of the system’s benefits:

Wi-Fi connection. You aren’t paying for internet access to your vacant home are you? With this alarm, you don’t have to.

NO CONTRACTS If you desire to purchase monitoring there are a couple of options, but you pay on a month-to-month basis, so there are no multi-year commitments.

BATTERY BACK-UP The on-board battery gives you 20 hours of protection even when the power goes out, is disrupted or the lines are cut.

SCALABILITY You can use the base system on a stand-alone basis or add as many as 95 wireless sensors.

EASY SET-UP It takes about 30 seconds to set-up out of the box. There is also a high-performance model that is more suitable for larger construction sites and commercial applications. I use many of the above suggestions at my own home, and yes, I even purchased a TattleTale alarm. I was impressed with the easy set-up, how quickly I received mine (two days) and the fact that the company made a follow-up phone call a few days later to see if I had any questions or concerns. That’s pretty strong customer support for a product that seemed so easy to use! •

PORTABILITY You can move it from house to house as your investment property is sold, vacated or undergoing renovations between renters or buyers. If you buy one for your personal use you can take it with you in the event you move and some people even use it at hotels when they travel.

CELLULAR TECHNOLOGY The other systems we investigated require a live phone line or

Rick Abell has been involved in the insurance sector for over 20 years. As the President of Affinity Loss Prevention Services (ALPS) he helps investors, property managers and tenants prevent avoidable losses. Rick also provides risk management and data analysis for many entities within the Affinity Enterprise Group umbrella. When Rick is not in the office, you may find him enjoying a game of golf or taking in some good professional baseball or football. www.affinitylps.com

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NUTS & BOLTS

1031 EXCHANGE

What If? PUT PENCIL TO PAPER AND RUN THE NUMBERS TO SEE WHETHER A 1031 EXCHANGE IS WARRANTED. by Steven Hickox

031 exchange, named after Section 1031 of the Internal Revenue Code, allows a real estate investor to defer (postpone) tax liability when selling one property and buying another. This raises an important question: How much income tax will I owe if I sell this property but do not acquire a replacement property? Many investors underestimate their tax liability when selling real estate, usually because they donâ&#x20AC;&#x2122;t consider all of their sepa106 | think realty magazine september :: october 2016

rate tax liabilities. These include: 1 F EDERAL CAPITAL GAINS TAX This is usually assessed at long-term rates for capital assets held longer than one year. 2

STATE AND LOCAL INCOME TAX

These range from high-tax jurisdictions, like New York City, to states with no income taxes, like Wyoming. 3 R ECAPTURED DEPRECIATION At the federal level, this is taxed at a higher percentage rate than long-term capital gains (until upper brackets are reached). Recaptured depreciation is also taxed at the state level, but normally at state tax rates and not at a higher rate. (It is important to note that taking depreciation on improved real property is mandatory. Therefore, even if you have not taken the depreciation to which you are entitled during each tax year when sale occurs, the IRS will presume that you have taken it and impose the recaptured depreciation tax!)

/ 27.5 = $7,363 per year X 15 years of ownership = $110,445. (The useful life of 27.5 years is set by the IRS and applies only to residential investment property. The IRS applies a longer useful life to other commercial improvements of 39 years, straight line.) In this example, the entire $110,445 will be recaptured and taxed without a 1031 exchange. With a 1031 exchange, properly executed, income tax liability—state and federal—would be deferred.

LONG TERM CAPITAL GAINS The sale price is $475,000, but brokerage fees and closing costs are 7 percent, so the net sale price is: $475,000 x 0.93= $441,750. Capital gains are imposed on the net sale price, minus the cost of the property: $441,750-$225,000 = $216,750.

COMBINING THE TWO FOR THE TAX ESTIMATE

4 M EDICARE

TAX UNDER OBAMACARE

This is an additional 3.8 percent on net investment income, but only after you reach adjusted gross income (AGI) levels of $250,000 for married couples filing jointly (lower levels for single filers and unmarried). A single gain on a real estate transaction could push your AGI above the $250,000 mark and into the level where the Medicare tax becomes applicable. Here is a ”back of the napkin” example for estimating income tax liability. Penny Richman purchased a $225,000 fourplex as an investment property in 1990. She now has it under contract to sell for $475,000. Let’s estimate her tax liability:

RECAPTURED DEPRECIATION If the fourplex is in an urban setting, we assume the nondepreciable land had a value of 10 percent of the purchase price or, in this example, $22,500. That leaves a depreciable basis on the building of $202,500. Using a “straight-line” depreciation schedule of 27.5 years, we calculate the following accumulated depreciation: $202,500

$110,445 X 30% = $33,133 This is the tax on recaptured depreciation, assuming a 25 percent federal tax rate and a 5 percent state tax rate. $216,750 x 20% = $43,350 This is the tax on long-term capital gains, assuming a 15 percent federal tax rate and a 5 percent state tax rate.

TOTAL TAX DUE = $33,133 + $43,350 = $76,483 That’s ugly. Remember, this is only an estimate. The result can be skewed by other variables, including: other investment income, higher tax brackets, lower tax brackets, differences in state taxes, accelerated depreciation and offsetting capital losses. Deciding whether to perform a 1031 exchange is part of larger tax picture. However, for many investors, using a 1031 exchange to defer taxes is an obvious and correct choice. For most, leverage (borrowed money) is an effective part of the plan, and deferred taxes are like an interest-free loan from the government. I’ve created a tax calculator to help investors out. You can access it at www.1031x.com/1031x-tax-calculator. •

Steven Hickox has been a licensed attorney in Colorado since 1981. He is the co-owner, founder and president of 1031x.com. In business since 1994, 1031x.com has handled more than $1 billion in 1031 Exchanges. Contact him at Steve1031x@gmail.com or 888-899-1031.

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NUTS & BOLTS PROPERTY MAINTENANCE

The Sweet Smell of Success THOUSANDS OF INVESTORS STRUGGLE WITH STINKY HOUSES. ODORXIT’S DEB MEYER FOUND A SOLUTION—AND TURNED IT INTO A THRIVING BUSINESS. by James Hart

he calls to OdorXit’s 1-877 help line come practically all day, every day. On the phone are real estate investors desperate to banish the stench of skunk spray, cigarette smoke and dead animals from their rental properties. OdorXit’s president, Deb Meyer, has heard practically every horror story out there— and has helped thousands of people solve them. Her Hamilton, Ohio-based company makes and sells four varieties of OdorXit, a powerful odor eliminator. It removes tough organic smells permanently, especially animal urine and feces, and many inorganic ones, too, Meyer says. OdorXit’s products work in a variety of situations. Meyer’s clientele includes everyone from pet owners to bars to nursing homes. But real estate investors were among OdorXit’s first buyers and are still some of its best customers. “They’re buying houses at a discount, and (those houses) are often at a discount because they smell bad,” Meyer said. She has a lot of sympathy for investors—in fact, she happens to be one herself. Over the years, she’s had to grapple with her share of smelly houses. That’s what led her to start OdorXit. RENTAL PROPERTY? OR LITTER BOX?

Meyer can still remember the property in question. “The 108 | think realty magazine september :: october 2016

seller had locked a cat with a bag of dog food in the house,” she recalled. The cat was left by itself for months. At first, the poor creature “tried to use the litter box, and then he used the whole house as a litterbox.” While they were cleaning the property, Meyer and her husband came across a cleaning agent that worked wonders. It was so effective, they decided to buy that business, rebrand it as OdorXit and begin marketing it to investors like themselves. They started manufacturing the neutralizer, at first in their home and later in their own facility. Today OdorXit employs a team of five people. The products, once available mostly at

trade shows, can be purchased at Ace and Do it Best hardware stores across the country, as well as online. One of the more popular products is OdorXit’s Concentrate option. It’s useful for clearing up medium to large messes—walls, floors, refrigerators, etc. Unlike primer-based products like Kilz, which cover up the cause of a smell, OdorXit removes that source. If an investor decides to go the primer route, they have to coat every single surface or the odor will seep out. Or if there’s a scratch or tear, the smell will still escape. Fighting odors often involves a little detective work, Meyer said. It’s not enough to detect an odor is present—you have to find where it’s originating. Treating a spot on the carpet won’t make a difference if the smell has actually gotten into the floor or joists. Luckily, Meyer’s professional background has benefited her here. She used to be a technical researcher for Procter & Gamble on its line of diaper products. ‘YOU’VE GOTTA GO WITH IT’

In addition to the help line, OdorXit provides an in-depth “Odor Wizard” on its website (www.odorxit.com/?wizard&src=OXEmail) that covers dozens of stenches. If a customer can identify the type of smell and where it’s coming from, the Odor Wizard will explain what caused it and list possible solutions. While OdorXit is Meyer’s main focus these days, she still owns 10 rental properties and stays active in her local REIA. The ultimate goal: To make OdorXit a multimillion-dollar business. Considering just how many potential uses the products have—from clearing away smoke smells in office buildings to defunkifying apartment complexes—that may be completely doable. If you’re a real estate investor, maybe your daily headaches could provide the inspiration for a new product or service, just like it did for Meyer. Her advice: Go for it. As a group, real estate investors tend to have an instinctive talent for entrepreneurship. They’re used to solving problems, and solving those problems quickly, unlike a large company that might mull over a new product for years before putting it out in the marketplace. The investor’s natural hustle can be a huge advantage. After all, if you’re facing a problem as an investor, there’s a good chance that someone else does, too. If you find a solution, you could help them—and create a major new opportunity for yourself, too. “If that’s your passion,” Meyer said, “you’ve gotta go with it.” •

Increase Your Profits with DAWGS! Time is money - DAWGS Steel Security gives you safe and secure managed access to your properties. Why DAWGS saves you time and money: • No Break-ins– Resulting in faster turnaround times, plus ontime, on-budget projects. • No Lock Boxes or Key Management – No need to keep track of keys and lock boxes with contractors and tradesman. DAWGS doors with a built-in 4 digit code solves this problem. • No Stolen Tools and Materials – With DAWGS, contractors can leave tools and materials in the property overnight and start working first thing in the morning. This reduces the time and the cost of the rehab. • No Safety Concerns – Real estate agents sell properties faster when they feel safe showing properties and are guaranteed reliable access with DAWGS doors. Contractors also feel a lot safer working in a secure property.

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Learn more about DAWGS James Hart is senior staff writer for Think Realty Magazine. Contact him at jhart@ithinkbigger.com.

www.dawgsinc.com | 877-88-DAWGS (32947) sales@dawgsinc.com t h i n k r e a lt y . c o m / m a g

| 10 9

NUTS & BOLTS

TAX ISSUES

Understanding Insurance Designations MAKE SURE YOU PROPERLY UPDATE YOUR CASUALTY AND LIABILITY INSURANCE POLICY WHEN CREATING AN ENTITY TO HOLD TITLE TO YOUR REAL ESTATE. by Clint Coons

ou have created an entity to hold title to your real estate, but did you change your insurance policy to reflect the change in ownership? Unfortunately, some real estate investors who create LLCs, land trusts or other entities to hold title to their real estate forget or improperly update their casualty and liability insurance. Insurance coverage is a fickle business where seemingly minor incongruities can mean the difference between full coverage, partial coverage or no coverage. When using business entities, listing the entity as the “named insured” is always the best course of action. As the named insured, your entity is protected from liability and casualty claims associated with the real estate. However, it is not always practical to list your entity as the named insured, especially in the following situations: • Your carrier will charge a higher fee. • Your carrier will issue only one policy per entity, and it only covers one property. • Your property is subject to an existing mortgage, and you do not want to alert your lender to the property transfer for concern it may accelerate your mortgage. 110 | think realty magazine september :: october 2016

If you fall into one of these situations, then choosing the proper designation for your entity is crucial. When contacting your insurance carrier, be familiar with the following terms: NAME INSURED

The “named insured” is the owner of the insurance policy and the only party with the authority to make changes to the policy, file claims, seek modifications, etc. The named insured must always have an insurable interest in the property. An insurable interest exists when a person or entity will obtain some financial benefit from the preservation of the subject matter, or will sustain pecuniary loss from its destruction or impairment when the risk insured against occurs. ADDITIONAL NAME INSURED

An “additional named insured” is similar to the owner of the policy and has all the protections afforded to the named insured. LOSS PAYEE

A “loss payee” (which automatically includes any mortgagee) is the party who has a secured interest in the property. In the event of a claim or loss, the loss payee will be a party to

any payments being released to the named insured. ADDITIONAL INSURED

An “additional insured” is the insurance term least understood and most misapplied by real estate investors. Additional insureds under an insurance policy receive liability coverage, but not casualty coverage. This approach works well in the majority of situations because the entity is afforded liability protection from claims brought by injured parties. However, there is no coverage whatsoever for physical losses resulting from such things as vandalism, flooding, theft, fire, etc. This may not be an issue for most investors who name their entity as an additional insured because the investor is the named insured for purposes of casualty loss. However, do

not assume this will protect you in all circumstances, for an insurance company could always argue that you, personally, lacked an insurable interest in the property. ADDITIONAL INTEREST

An “additional interest” offers no coverage and should be avoided. An additional interest is entitled to notification whenever a policy cancels or has a major change made to it—i.e., you find out about changes and nothing else. With all of the different designations, what is the preferred method for insuring your real estate investments? The accompanying chart provides a guideline that I use. Ultimately, insuring your property through an entity comes down to having a discussion with your insurer and/

NON-OWNER OCCUPIED

OWNER

COVERAGE

POLICY DESIGNATION

POLICY TYPE

LLC, LP, Corp.

Dwelling and premises liability for entity

Name insured

Commercial

Premises liability for manager of entity

Additional insured

Dwelling and premises liability for trust

Name insured

Premises liability for trustee

Additional insured

Premises liability for beneficiary

Additional insured

Land Trust with

Dwelling and premises liability for trust

Name insured

LLC as beneficiary

Premises liability for trustee

Additional insured

Premises liability for manager of entity

Additional insured

Premises liability for beneficiary

Additional insured

Land Trust

or multiple carriers. Insurance is not a “one size fits all” approach because each state has different requirements for the types of policies a carrier can write. For example, I recently read one lawyer’s blog wherein he stated real estate investors should name their LLC as an additional insured under their residential policy. This may not work in most instances because a policy insuring an LLC is typically written as a commercial policy. You may find your carrier refuses to cover your LLC even though the carrier named it as an additional insured. Hence, that is a reason I prefer to use land trusts to hold the title. Further, land trusts can be the named insured without obtaining a commercial policy, and the change of policy over to a

Residential/Rental

land trust as the named insured does not invite lender scrutiny of legal ownership. •

Clint Coons is a founding partner of Anderson Law Group and current manager of Anderson’s Tacoma, Washington, office. He works primarily with medical professionals and real estate investors in his practice. A noted author and presenter on asset protection and tax reductions, Coons has gained national recognition as an expert in his field. He is noted for his unique ability to take a complicated law or structure and explain it in crystal-clear terms. This, combined with his dynamic speaking and on-camera personality, has made him a favorite at asset protection and tax-related programs across the country. For more information, call 800-706-4741 or visit www.andersonadvisors.com.

t h i n k r e a lt y . c o m / m a g

| 111

NUTS & BOLTS

TECH TOOL REVIEW

Creative Disruption INNOVATION IS INCREASINGLY TAKING HOLD IN THE REAL ESTATE SECTOR—FINALLY. HERE ARE JUST FIVE OF MANY STARTUPS WORTHY OF AN INVESTOR’S CONSIDERATION. by Robert Springer

nnovation has been slow to arrive in the real estate sector, despite the fact that it’s a staggeringly large industry and would seem to be ripe for internet-fueled disruption. While real estate tech companies like Zillow get the lion’s share of digital ink, startups are creating innovation in almost every area of real estate. Here are five real estate tech startups that could change the way you invest in real estate: PLACESTER Setting up a website should be a pretty straightforward process for a real estate agent. Yet a look at some agents’ lackluster sites (poor design, lack of contact informa-

112 | think realty magazine september :: october 2016

tion, etc.) shows that it’s a low-priority item for these busy entrepreneurs. Perhaps it shouldn’t be. Placester, a Boston-based startup, says agents who use its sites and marketing solutions sold an average of 31 percent more homes than did agents who don’t use their solutions. And while it’s smart to take internally produced data with many grains of salt, the company has attracted significant venture funding and at least one major client. Keller Williams says it will use Placester’s tools to provide agents and local offices with responsive, SEO-optimized websites. Website visitors will be able to search for listings and obtain detailed information about a property.

WHILE REAL ESTATE TECH COMPANIES LIKE ZILLOW GET THE LION’S SHARE OF DIGITAL INK, STARTUPS ARE CREATING INNOVATION IN ALMOST EVERY AREA OF REAL ESTATE.

HOME UNION

Many people want to invest in real estate but don’t have the time or inclination to find properties to buy and rent out, let alone manage them. Real estate tech companies like HomeUnion are serving this market by providing a seamless experience that is proving popular with investors and venture capitalists. HomeUnion promises residential real estate investors a hands-off method for investing. The company does the heavy lifting by identifying prime residential investment opportunities in select U.S. markets (30 currently), helping buyers finance and purchase the property, finding tenants and handling property management duties. HomeUnion also helps clients sell when it’s time to move on. The investment properties are located in areas that will produce positive cash flow. The properties are mostly in middle-class areas, as HomeUnion doesn’t believe that more affluent areas produce adequate cash flow, according to its website. NESTIO

According to the National Multifamily Housing Council, apartment owners and residents contribute about $3.5 billion a day ($1.3 trillion per year) to the U.S. economy. Even with all that cash sloshing around, many landlords still track rents and unit availability by hand or via an Excel spreadsheet. Thanks to real estate tech, there are now more (modern) options. Nestio is a cloud-based, real-time platform that says it streamlines the leasing process by allowing landlords to manage “the life cycle of leads and listings in one place,” according to the company’s website. The company says that its clients have reduced vacancy rates by as much as 75 percent. The company automates a previously manual process by enabling listings to be easily shared with third-party websites and brokers. Listings are updated automatically. Nestio also provides marketing analytics so clients can track their ROI.

bringing the crowdfunding model to commercial real estate. The 3-year-old startup has more than $800 million invested in its debt and equity transactions. With the U.S. commercial real estate market worth more than $15 trillion, it’s no wonder that it’s being aggressively eyed by real estate tech startups. RealtyMogul cofounders Jilliene Helman and Justin Hughes are allowing investors online access to pre-vetted investments that were previously difficult to find, while also making it easier for real estate sponsors and borrowers to find accredited investors. It seems like it was only a matter of time before crowdfunding found the commercial real estate market. While there are others offering similar services, RealtyMogul. com has topped $200 million in debt and equity in funded real estate crowdfunding. The platform is now the first site to surpass the $200 million mark for U.S.-based real estate finance. RENTLYTICS

Startups are often born out of someone’s frustration with an existing system or technology. Such was the case with Rentlytics, a San Francisco-based startup, that Justin Alanis founded because he “saw inherent limitations in the way that property performance data was being analyzed, and began to conceptualize a better solution that would inform the decisions that he, and many other real estate professionals, make on a daily basis,” according to Rentlytics’ site. Rentlytics’ tools give real estate investors an in-depth look at how their multifamily portfolio is performing. The software uses an investor’s data to answer questions like: - Where are my greatest opportunities to increase rents? - Where is my most concerning delinquency? The company says that its software is analyzing more than $100 billion in multifamily real estate. Of course, not all of these startups will become successes, so real estate investors should examine them closely before engaging with them. That said, it’s encouraging (and potentially lucrative) for investors that an old industry is learning new tricks. •

REALTYMOGUL

The commercial real estate space hasn’t seen as much “disruption” from real estate tech as the residential market has. That’s changing – fast. Much like Patch of Land did for residential real estate investing, RealtyMogul is

Robert Springer is a regular freelance contributor to Think Realty Magazine. He often writes about technology issues. Contact him at rtspringer@gmail.com.

t h i n k r e a lt y . c o m / m a g

| 113

BY THE NUMBERS

JOHN BURNS CONSULTING

Labor Shortage Ahead PREDICTIONS ABOUT THE U.S. LABOR FORCE ARE IMPORTANT FOR INVESTORS TO NOTE, AS THESE TRENDS IMPACT HOUSING PREFERENCES, MIGRATION AND MANY OTHER ASPECTS OF THE ECONOMY. by Chris Porter

114 | think realty magazine september :: october 2016

2025

2023

2021

2019

2017

2015

2013

2011

2009

2007

2005

2003

2001

1999

1997

1995

1993

1991

1989

1987

1985

1983

1981

UNEMPLOYMENT RATE

surge in retirees (people turning 65) will slow the pool than 65-year-olds leaving it. growth of workers in the United States. In 2000, 2 milWe also looked at older workers and the recent increase in lion people turned 65; 3.5 million did in 2016; and 4 million their propensity to work. Even with a surge in people working will in 2021. Even with a higher-than-usual rate of retirpast 65, labor pool growth will be slow. ee-aged people working, U.S. economic growth will almost We believe actual employment growth will be much lower certainly remain slow. because we made some very aggressive assumptions to calcuWe calculated that employment can only grow a maximum late this paltry level of economic growth, including: of 1.5 percent to 1.7 percent for the next three years (2.3 to 2.5 million jobs per UNEMPLOYMENT RATE year). After that, it Forecast period represents aggressive assumptions to get to even low levels of job growth. Such sustained low unemployment is unlikely. will grow 0.9 percent to 1.0 percent per year (1.5 to 1.6 mil10% lion jobs) through 2025, even using ag9% gressive assumptions. We believe actual 8% employment growth will be much slower. We looked at the 7% traditional working-age population 6% of 20â&#x20AC;&#x201C;64 (the labor pool). From the time the first Baby Boomer 5% turned 20 in the mid-1960s until they 4% turned 65 in 2011, this labor pool grew at a rate of 1 percent to 2 3% percent per year. The reason? A much larger number of 20-yearYEAR olds were consistently SOURCES: Bureau of Labor Statistics; John Burns Real Estate Consulting LLC (forecasts) entering the labor

LABOR FORCE PARTICIPATION 20-64 YEAR-OLDS Forecast period represents aggressive assumptions to get to even low levels of job growth. A sharp rebound of this magnitude is unlikely. 81%

PERCENT OF 20-64 YEAR-OLDS

80%

79%

78%

77%

76%

75%

2025

2023

2021

2019

2017

2015

2013

2011

2009

2007

2005

2003

2001

1999

1997

1995

1993

1991

1989

1987

1985

1983

1981

74%

YEAR SOURCES: Bureau of Labor Statistics; John Burns Real Estate Consulting LLC (forecasts)

• Very low unemployment. The overall unemployment rate falls to 4 percent in 2018 and to 3.7 percent for those aged 20–64 and stays there through 2025.

percent today to 22 percent for 70- to 74-year-olds.

Only once in the last 30 years has unemployment averaged 4 percent for an entire year: the year 2000. • A huge return in the desire to work. The percent of the 20- to 64-year-old population wanting to work returns to 79 percent in 2025—3 percent higher than today and the highest since the year 2000. The maximum was 80 percent in 1997.

As we addressed previously, the tightening of the labor supply will likely mean incomes will grow again, as employers have to compete for talent. New productivity tools will enable companies to do more with fewer people, but we believe wage pressure will exist nonetheless. The expected surge in retirement will impact so many aspects of our economy that we have devoted an entire chapter to this topic in our upcoming book “Big Shifts Ahead: Demographic Clarity for Businesses.” •

This would mark a significant reversal in trend for a rate that has generally declined for 18 years. • Older people working longer. Retiree participation continues to accelerate from today’s all-time high of 32 percent to 37 percent in 2025 for 65- to 69-year-olds and from 19

Chris Porter is Chief Demographer for John Burns Real Estate Consulting Services. He can be contacted at 949-870-1218 or by email at cporter@ realestateconsulting.com. John Burns Real Estate Consulting, founded in 2001, provides independent research and consulting services related to the U.S. housing industry. Its team of research analysts and consultants collects data in offices across the country.

t h i n k r e a lt y . c o m / m a g

| 115

BY THE NUMBERS

REALTYTRAC

Focus on Foreclosures MIDYEAR MARKET REPORT SHOWS FORECLOSURE FILINGS DOWN 11 PERCENT FROM A YEAR AGO. by RealtyTrac

ealtyTrac’s Midyear 2016 U.S. Foreclosure Market Report shows a total of 533,813 U.S. properties with foreclosure filings—default notices, scheduled auctions or bank repossessions—in the first six months of 2016, down 20 percent from the previous six months and down 11 percent from the first six months of 2015. The report by the national housing data provider also showed that, counter to the national trend, 19 states posted year-over-year increases in foreclosure activity in the first half of 2016. Those states included Massachusetts (up 46 percent), Connecticut (up 40 percent), Virginia (up 18 percent), Alabama (up 11 percent) and New York (up 10 percent). Among the nation’s 20 most-populated metro areas, five posted year-over-year increases in foreclosure activity: Boston (up 38 percent); Philadelphia (up 7 percent); New York (up 4 percent); Washington, D.C. (up 3 percent) and Baltimore (up 1 percent). “Although there are some local outliers, the downward foreclosure trend continued in the first half of 2016 in most markets nationwide,” said Daren Blomquist, senior vice president at RealtyTrac. “While U.S. foreclosure activity is still above its pre-recession levels, many of the states hit hardest by the housing crisis have now dropped below pre-recession foreclosure activity levels. With some exceptions, states with foreclosure activity continuing to run above prerecession levels tend to be those with protracted foreclosure timelines still working through legacy distress from the last housing bust.” NATIONWIDE FORECLOSURE ACTIVITY

There were 280,989 U.S. properties with foreclosure filings in Q2 2016, down 3 percent from the previous quarter and down 18 percent from a year ago, to the lowest level since Q4 2006. Nationwide foreclosure activity in Q2 2016 was still 21 percent above the prerecession average of 232,082 properties with foreclosure filings per quarter in 2005, 2006 and 2007. But Q2 2016 foreclosure activity was below prerecession averages in 15 states, including Arizona (13 percent below prerecession averages), California (25 percent below), Colorado (72 percent below), Georgia (33 percent below), Michigan (46 percent be-

116 | think realty magazine september :: october 2016

low), Nevada (18 percent below), Ohio (9 percent below) and Texas (46 percent below). States where Q2 2016 foreclosure activity was still above prerecession averages included Florida (26 percent above prerecession levels), New Jersey (215 percent above), Illinois (36 percent above), New York (127 percent above), Indiana (2 percent above), South Carolina (376 percent above), Massachusetts (127 percent above) and Washington (29 percent above). There were 94,469 U.S. properties with a foreclosure filing in June, down 6 percent from the previous month and down 19 percent from a year ago to the lowest level since July 2006—a nearly 10-year low. STATES WITH TOP FORECLOSURE RATES

Nationwide, 0.40 percent of all housing units (one in 249) had a foreclosure filing in the first six months of 2016. States with the highest foreclosure rates were New Jersey (0.98 percent of housing units with a foreclosure filing), Maryland (0.90 percent), Delaware (0.78 percent), Florida (0.70 percent) and Nevada (0.68 percent). Other states with foreclosure rates among the 10 highest in the first six months of 2016 were Illinois (0.61 percent), Ohio (0.54 percent), South Carolina (0.54 percent), Connecticut (0.48 percent) and Indiana (0.47 percent). TOP METRO FORECLOSURE RATES

Among metropolitan statistical areas with at least 200,000 people, those with the highest foreclosure rates in the first half of 2016 were Atlantic City, New Jersey (1.85 percent of housing units with a foreclosure filing); Trenton, New Jersey (1.31 percent); Baltimore (0.96 percent); Lakeland-Winter Haven, Florida (0.91 percent); and Rockford, Illinois (0.91 percent). Other metro areas with foreclosure rates among the 10 highest in the first six months of 2016 were Philadelphia (0.86 percent); Tampa-St. Petersburg, Florida (0.85 percent); Jacksonville, Florida (0.80 percent); Columbia, South Carolina (0.78 percent); and Chicago (0.76 percent).

FORECLOSURE STARTS

INVESTOR PURCHASES AT AUCTION

A total of 253,408 U.S. properties started the foreclosure process in the first half of 2016, down 17 percent from a year ago, the lowest level for any half-year period since RealtyTrac began tracking foreclosure starts in 2006. Counter to the national trend, 13 states and the District of Columbia posted a year-over-year increase in foreclosure starts. Those included Connecticut (up 91 percent), Massachusetts (up 35 percent), Arizona (up 12 percent), Ohio (up 10 percent) and Virginia (up 6 percent).

A total of 227,473 foreclosure auctions (which in some states is also the foreclosure start) were scheduled in the first half of 2016, down 23 percent from a year ago. Based on separate sales deed data also collected by RealtyTrac, 27 percent of all properties sold at foreclosure auction were purchased by third-party investors, the highest share for the first six months of any year since 2000—the earliest national data available.

FORECLOSURE COMPLETIONS (REO)

Lenders foreclosed (REO) on 197,425 U.S. properties in the first half of 2016, down 6 percent from a year ago, but still 48 percent above the prerecession average of 133,391 per half-year. Counter to the national trend, 26 states and the District of Columbia posted a year-over-year increase in REO activity in the first half of 2016. Those included Alabama (up 73 percent), New York (up 65 percent), New Jersey (up 56 percent), Massachusetts (up 43 percent) and Virginia (up 37 percent).

> Continued on :: PG 121

RealtyTrac collects and licenses multisourced public record real estate data—including tax, deed, mortgage, foreclosure and proprietary neighborhood and parcel-level risk—for more than 150 million U.S. properties, providing access to that data for businesses, consumers, policy makers and the media in a variety of venues all designed to increase real estate transparency: RealtyTrac.com is a property search and research portal for foreclosures and other off-market properties; Homefacts.com is a neighborhood research portal providing hyperlocal risks and amenities; HomeDisclosure.com produces detailed property pre-diligence reports; and RealtyTrac Data Solutions delivers real estate data and analysis to businesses through bulk file licenses, APIs, trend reports and customized marketing lists. RealtyTrac data is cited by thousands of media outlets each month, including frequent mentions on CBS Evening News, The Today Show, CNBC, CNN, FOX News, PBS NewsHour and in The New York Times, Wall Street Journal, Washington Post, and USA TODAY.

t h i n k r e a lt y . c o m / m a g

| 117

BY THE NUMBERS

LOCAL MARKET MONITOR

Where the Action Is JOB GROWTH IN RETAIL SECTOR IS GOOD NEWS FOR RESIDENTIAL RENTAL PROPERTIES. by Ingo Winzer

ne of the most sensitive and meaningful barometers of the local economy is the retail sector. Store owners are a cheap bunch who won’t add staff unless they really, really have to. So when they do, as they have in our Top 10 markets, it means not only that the local economy is doing well right now but also that it’s likely to have legs. This is good news for real estate, especially for residential rental properties. The suburbs still get a lot of retail business, but in many

markets, the action is moving to downtown areas where young adults prefer to live and congregate. Our Top 10 markets have solid economic fundamentals—good population growth, moderate rents, rising home prices and above-average economic growth—so you can’t really go wrong. But the strong growth of retail suggests an opportunity to invest in downtown apartments or town houses that may become scarce in the next few years.

A bonus from the growth in retail jobs is that the holders of those jobs— and the ones who will be added in coming years —are renters. •

Ingo Winzer is president of Local Market Monitor, which analyzes conditions in 300 U.S. markets, using such economic data as home values and growth in employment and population. Winzer, who has analyzed real estate markets for more than 20 years, was a founder and executive vice president of First Research, an industry research company that was acquired by Dun & Bradstreet in March 2007. He is a graduate of MIT and holds an MBA in finance from Boston University. Winzer resides in Cambridge, Mass. www.localmarketmonitor.com

2014 POPULATION

AVG. HOME PRICE (000)

MONTHLY RENT

3-YEAR POPULATION GROWTH (%)

LATEST JOB GROWTH (%)

JOB GROWTH IMPROVEMENT (1 YR %)

LATEST HOME PRICE INCREASE (%)

686,908

$221.75

$946

4.3

2.9

6.8

1,242,974

$238.80

$1,066

7.1

3.6

6.5

965,974

$196.10

$1,035

2.9

3.4

6.0

5,614,323

$199.59

$1,132

4.7

3.1

5.2

727,689

$287.22

$1,105

6.8

2.3

4.2

Las Vegas-Paradise, NV

2,069,681

$185.61

$1,084

5.8

2.3

3.8

Phoenix-Mesa-Scottdale, AZ

4,489,109

$224.18

$1,067

5.7

3.4

3.6

San Antonio, TX

2,328,652

$200.52

$1,003

6.5

2.8

3.6

634,638

$147.75

$939

5.6

2.8

2.6

1,027,703

$154.35

$891

2.6

2.5

LOCAL MARKET MONITOR

Colorado Springs, CO Raleigh-Cary, NC Fresno, CA Atlanta-Sandy Springs-Marietta, GA Charleston-North Charleston, SC

Lakeland, FL Grand Rapids-Wyoming, MI

Source :: Local Market Monitor

118 | think realty magazine september :: october 2016

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| 119

> Continued from :: PG 49

Casting for Leads Generally, it takes some time for executors to get all of the paperwork filed and to go through their loved one’s things before they are ready to sell. There is also the process of grieving, which can cause executors to hold onto a property for a time before they are willing to sell it. With these parameters in mind, real estate investors who are looking at probate leads will find that executors who are selling property may not be ready to sell for 12 months after the filing. In many cases, the leads are still viable 18 months after the passing of a loved one. This allows for plenty of time for real estate investors to make contact with the executor.

PROBATE LEADS INCLUDE MORE THAN RESIDENTIAL REAL ESTATE

For real estate investors who are looking to diversify their property portfolio, probate leads can be an excellent source of alternative investments. While many people start looking at probate leads for discounts on residential real estate, what they may miss is that probates can include a wide variety of other types of investments. These can include businesses that are up and running, artwork, jewelry, personal property, furniture, antiques, cars, vintage cars, boats, RVs, commercial property, vacation homes and rental properties. It is important to ask each executor what types

of property he or she has for sale in the portfolio rather than just assuming that it is just residential property. GET ACCESS TO PROBATE LEADS TODAY

Using probate leads is a great way to find more leads in your area as a real estate investor. With long-term viability and executors who are motivated to sell, you will see that probates are a way to quickly find discounted properties. If you are looking for diversity in your lead package, then you can get access to probate leads easily and quickly by vising U.S. Probate Leads. We offer county-by-county listings of the probate leads listed in your area delivered directly to your inbox. Each county in the United States is covered by our trained team of lead specialists. Our team makes sure that you have the leads that you need in order to make your business grow. Want more information? You can visit us at www.usprobateleads.com today and get more information on our lead services or sign up. In addition to our lead service, we also offer seminars, webinars, eBooks, software and individualized mentoring for dedicated investors. • > Continued from :: PG 93

Get in the Game to that second investment prop-

120 | think realty magazine september :: october 2016

erty and make money twice. I assure you, once you move on to that second investment property—whether you have done well with that first one and you do even better with the second, or you did poorly on that first one and do better on the second—once you make money twice, you will get that momentum you are looking for. That first property may be very daunting, and you step back and quit after just one because it went so well. You will find yourself celebrating that success for a long time. You may never move on to the second one. Or the first one may go so badly that you never let go of that defeat, and you never move on to the second one. But you have to move onto the second one. You will be shocked at the momentum you will have, the knowledge you will acquire, the experience and the confidence you will have that are going to propel you to take even the third step, the fourth step, the fifth step forward to build your real estate investing business. It took me nine months to buy my second rental property. I paid the exact same amount to buy that one as I did my first rental property, except the second was a three-bedroom versus a two-bedroom. So I was able to find out how to get an even better deal the second time, which propelled me even further. Here I am, more than 10 years later, still buying properties to this day.

So instead of coming up with reasons why you can’t start, start to think of reasons why you can’t not start. Don’t delay. Think of all the benefits, cash flow, tax advantages, equity buildups, profit and appreciation. All of that is out there for you to capture today. And every day that you delay, you forego the benefits of real estate investing. Start with what you have. You will be amazed at the resources you will acquire and what you will be able to do after you start. • > Continued from :: PG 99

Estimating Operating Expenses tenants pay all of the aforementioned utility costs. In order to get a good indication of what the tenants typically pay in relation to a potential acquisition, look at their individual leases. Typically, the tenant’s responsibilities related to utilities will be spelled out in the lease. Additionally, in most states you can call the respective utility company, and it will provide the year’s actual utility billings for the property in question. You also will want to look at the seller’s tax returns for the property in question and compare the tax return to what the seller and the real estate broker may be representing in terms of operating costs. If the costs are much higher on the tax return than the selling pro forma, you will want to investigate the difference. When in doubt, use the seller’s tax return figures, as these typically will be more reflective of actual

operating costs. • > Continued from :: PG 117

Focus on Foreclosures The investor share of purchases at foreclosure auction reached 20 percent or higher in only two previous years: 2005 (20 percent) and 2015 (22 percent). The investor share of purchases at foreclosure auction dropped to a 17-year low of 11 percent in 2008. LONGEST FORECLOSURE TIMELINES

Foreclosures completed in the second quarter of 2016 took an average of 629 days from the

first public notice of foreclosure to complete the foreclosure process, up from 625 days the previous quarter and unchanged from a year ago. States with the longest foreclosure timelines were New Jersey (1,249 days), Hawaii (1,236 days), New York (1,058 days), Utah (1,025 days) and Florida (1,012 days). States with the shortest foreclosure timelines were Virginia (195 days), Minnesota (219 days), Mississippi (237 days), Tennessee (238 days) and Wyoming (242 days). REPORT METHODOLOGY

The RealtyTrac U.S. Foreclosure Market Report

provides a count of the total number of properties with at least one foreclosure filing entered into the RealtyTrac database during the month— broken out by type of filing. Some foreclosure filings entered into the database during the month may have been recorded in previous months. Data is collected from more than 2,200 counties nationwide, and those counties account for more than 90 percent of the U.S. population. RealtyTrac’s report incorporates documents

filed in all three phases of foreclosure: Default—Notice of Default (NOD) and Lis Pendens (LIS); Auction—Notice of Trustee’s Sale and Notice of Foreclosure Sale (NTS and NFS); and Real Estate Owned, or REO properties (that have been foreclosed on and repurchased by a bank). The report does not count a property again if it receives the same type of foreclosure filing multiple times within the estimated foreclosure timeframe for the state where the property is located. •

ADVERTISER INDEX Affinity Loss Prevention Services All Star Group American Association of Private Lenders Buy Cash Flow Properties

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Gorilla Capital

Inverse Investments

Investor Network

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LendingHome 123 NARPM 83 Norada Real Estate Investments The Norris Group

2 89

OdorXit 35 RentFax 119 RE Rights

Platinum Investment Property Group

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REIGuard 46 Strategy Properties Think Realty In 1976, Habitat for Humanity was founded on one principle: that everyone, everywhere deserves a simple, decent place to live. Since then, through the generosity of our supporters and the hard work of our homeowners, Habitat for Humanity has been able to provide more than 1.75 million people around the world with safe, decent, affordable shelter. Become a part of this life-changing ministry and help us eliminate poverty housing from the world.

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FINAL THOUGHTS

STATE OF THE INDUSTRY

The Land of Opportunity Foreign investment in the United States holds benefits for all involved.

o matter what your political or social view of the United States of America, you must acknowledge that it is by far one of the most attractive countries in which to invest today. Although many investors struggle with the uncertainty of tomorrow, we have a much more stable environment than most. Great Britain leaving the European Union, China and its fluctuating stock market and Greece with its economy going through a total collapse could be just the beginning of the world’s economic woes. Along with being the President of Affinity Enterprise Group, I also operate a large international nonprofit that has locations in more than a dozen countries. I am exposed nearly every month to wealthy foreign investors who are frantically trying to get their investment dollars out of their home country and into the U.S. economy. This, as well as many other factors, has led me to start a company in Shanghai with a good friend, Dennis Guttig, who with his wife Shania (a Chinese-born citizen) has enabled us to expand beyond U.S. borders. Affinity Investments now has a physical office in China that exists to help Chinese investors find the right investment opportunity. Our outreach has connected us with a number of Chinese attending our international conference in San Francisco who have shown interest in moving their investment

dollars outside of their own country. Over the past few years, we have seen many foreigners investing for the purpose of finding visa opportunities, such as the EB-5. That motivation now seems to have died down somewhat, but the wealthy elite continue to invest, whether there is an immigration benefit or not. According to the American Enterprise Institute, Chinese investment dollars in the United States are nearly double the amount in any other market. And that total is increasing each year. According to the Bureau of Economics, foreign investment is up from $1.3 trillion in 2006 to a projected $4 trillion in 2016. We could spend time considering the economic pitfalls of taking too much foreign money into our economy, but isn’t that what has made America what she is today? This country is a melting pot of cultures that have found our shores for the opportunity it possesses. Previous generations thought enough of this country to move, invest and build on the opportunity. Who could blame them? And who can blame those following in their footsteps today? The United States is still one of the best countries in the world, with opportunities waiting for anyone smart enough and bold enough to seize them. The benefit is not only theirs, but that of our country and economy as well. •

EDDIE WILSON, PRESIDENT

122 | think realty magazine september :: october 2016

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