Candy & Gary Parr are members of the Great Lakes REIA (GLREIA) in Cleveland, Ohio. Their primary focus is in the Cleveland/Akron area, where they have been lifetime residents. They have three grown children and will soon be grandparents.
Their entire family is involved in the family real estate business.
Their oldest, Ashley, went to Ursuline College and Cleveland State where her focus was Art & Business. Ashley is co-founder of a real estate brokerage in Florida (House Match). She specializes in inside sales and new agent training. She is also experienced in interior design and helps with designing & decorating the investment properties.
Their middle son, Josh, went to the University of Akron and received his Bachelor’s and MBA degrees. While in school he purchased his first fore-
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Revisiting the Fundamentals
By Jeffery S. Watson
Iwas privileged to sit in a room at a REIA meeting with three legends in the residential real estate investing space. Each of these men has educated thousands of individuals on smart, savvy, safe, and effective ways to be residential real estate investors. Their presence made an important point: In an economy and real estate market that is going through a significant transformation, it’s important to go back to the fundamentals. Here are some basic things that are important for any real estate investor to remember.
1. You become like those with whom you frequently associate.
Look at the people with whom you most frequently interact.
Are they going where you’re going?
Are they further ahead, or are they holding you back?
To answer those questions, you must be clear in your own mind (and hopefully, you’ve put it in writing) as to where you are going.
What are your goals?
What principles are shaping your career and business endeavors?
If you aren’t clear on the answers to these questions, this is where you need to begin. This is where you escape the shiny-object phenomenon for clear, identifiable goals regarding what you want to do. Instead of saying, “I want
to be a real estate investor,” be specific and say, “I want to be a real estate investor who uses the BRRR method with a reasonable LTV,” or “I want to be a buyand-hold investor,” or “I want to be a fixand-flip investor taking ugly houses and making them assets in my community.”
Once you have figured out the answers
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Inherited Real Estate
By David Gorenberg, JD, CES
We often get questions about what happens when Grandpa dies and his heirs inherit his investment real estate, including whether the heirs should sell the real estate as part of a 1031 exchange and whether there are other tax implications. This article will address many of these questions.
Suppose Grandpa has investment real estate that he purchased for $200,000, with an adjusted basis of $100,000, and a current fair market value of $500,000. Certainly, Grandpa could sell this property as part of a 1031 exchange and continue to defer the capital gains taxes on his investment. If he were to sell it outright, without the benefit of a 1031 exchange, he would incur a depreciation recapture tax of 25%
on the $100,000 of depreciation that he has taken, and a capital gains tax hit of 20% on the $300,000 of gain, costing him $85,000 in federal taxes. Depending on where Grandpa lives, there could also be state taxes to consider (as high as 13.3% in California). But if Grandpa were to die today, with the $500,000 fair market value, his heirs would inherit the property with a “step-up in basis.”
The step-up in basis is a provision in the current federal tax law that allows heirs to inherit the property at the fair market value as of the date of death. In this case, the current basis of $100,000 is adjusted –or “stepped-up” – from the previous valuation to the $500,000 valuation as of Grandpa’s death. Thus, Grandpa has avoided the capital gains and depreciation recapture taxes.
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How to Profit from Legislative Challenges in Real Estate Investing
Learn How to Adapt and Thrive in Any Market Condition by Being Creative and Resourceful
By Rebecca McLean Executive Director, National REIA
Every month we provide a legislative report on our REIA NOW webinars, send a legislative update email newsletter, provide updates and industry information on our news site, www. RealEstateInvestingToday.com, and provide articles in all of our publications. We do this to not only keep you informed, but rally you to be a voice for our industry where we need it, and keep you from stepping into legal or legislative challenges as you run your business, but there’s more to it than that.
Let me explain.
I have a friend who is a fascinating entrepreneur. He has made money in some of the most unusual ways and markets that you can imagine. Over a shared bottle of bourbon, I was moaning a bit about some regulatory changes we are seeing in the real estate investing industry. He, too, was dismayed by my description of the waves of legislation and regulatory initiatives sweeping the country. But then, he took a sip and said, “I guess the real question is, ‘How can we make money from it?’ ” What a great question! Although I initially laughed, that question made me even more focused on providing great support and resources for our REIA groups, because that my friend, is what we are all about! We were birthed out of this kind of thought process.
Real estate investors thrive in difficult situations because we are creative. We take risks and we also take responsibility. We do things that others stuck in corporate nightmares can’t or won’t. We look for the opportunity in every situation. Give us lemons and we will make lemonade. I love to say give me some sour grapes and I can still make some good wine! It can get discouraging, but we need to always step back when we start to get stuck and look for the opportunities. They are always there; we just have to look for them.
The Legislative Challenges in Real Estate Investing
Real estate investing is a dynamic and ever-changing field that requires constant adaptation and innovation. There are many factors that can affect the profitability and feasibility of real estate deals, such as market conditions, supply and demand, financing options, taxes, regulations, and more. Some of these factors are beyond our control, but others can be influenced by the actions of lawmakers and policymakers at the local, state, and federal levels.
Legislative challenges in real estate investing can take many forms, such as zoning laws, building codes, environmental regulations, rent control, eviction moratoriums, foreclosure moratoriums, property taxes, capital gains taxes, and more. These challenges can have a significant impact on the cash flow, equity, risk, and exit strategy of real estate investments. They can also create barriers to entry, limit the supply of available properties, increase the costs of doing business, and reduce the incentives for investing.
However, legislative challenges in real estate investing are not necessarily bad news. They can also create opportunities for savvy and creative investors who can find ways to overcome them, leverage them, or even benefit from them. For example, some investors may be able to take advantage of tax credits, incentives, or exemptions that are available for certain types of properties, such as historic buildings, energy-efficient homes, or affordable housing. Others may be able to find niche markets, such as mobile homes, storage units, or shortterm rentals, that are less regulated or more in demand.
Still others may be able to use creative financing strategies, such as seller financing, lease options, or subject-to deals, that can bypass some of the conventional lending requirements or restrictions.
The Benefits of Networking with Other Investors
One of the best ways to overcome the legislative challenges in real estate investing and to find more opportunities for profit is to network with other investors. Networking with other investors can provide many benefits, such as:
Learning from the experiences, insights, and tips of other investors who have faced similar challenges or found creative solutions.
Finding potential partners, mentors, or coaches who can help you grow your business, expand your portfolio, or overcome your obstacles.
Accessing more resources, contacts, referrals, or leads that can help you find more deals, funding, contractors, tenants, buyers, or sellers.
Staying updated on the latest trends, news, laws, or regulations that affect the real estate market and the investing industry.
Getting support, encouragement, feedback, or accountability from other investors who share your goals, values, or vision.
Networking with other investors can be done in various ways, such as attending a REIA’s monthly meetings, participating in the seminars, workshops, webinars, or podcasts they offer. You can also participate in the National REIA and local REIA online forums, monthly Zoom meetings, and more.
The Advantages of Joining a Local Real Estate Investing Association
A local real estate investing association, or REIA, is a group of investors who meet regularly to share information, education, resources, and opportunities related to real estate investing. Joining a local REIA can offer many advantages for investors of all levels, such as:
Getting access to exclusive deals, discounts, or offers from vendors, sponsors, or affiliates who cater to the needs of real estate investors.
Getting access to quality education, training, or coaching from experts, speakers, or mentors who can teach you the best practices, strategies, or techniques for real estate investing – especially those in your local
Getting access to a network of like-minded, motivated, and successful investors who can help you achieve your goals, overcome your challenges, or solve your problems.
Getting access to a community of supportive, friendly, and fun people who can make your investing journey more enjoyable, rewarding, or fulfilling.
Joining a local REIA can also help you become more creative and resourceful in your investing endeavors, as you can learn from the experiences, insights, and tips of other investors who have faced similar legislative challenges or found creative solutions. You can also find potential partners, mentors, or coaches who can help you grow your business, expand your portfolio, or overcome your obstacles. You can access more resources, contacts, referrals, or leads that can help you find more deals, funding, contractors, tenants, buyers, or sellers. You can also stay updated on the latest trends, news, laws, or regulations that affect the real estate market and the investing industry. You can get support, encouragement, feedback, or accountability from other investors who share your goals, values, or vision.
Conclusion
Legislative challenges in real estate investing are inevitable and unavoidable, but they are not insurmountable or detrimental. They can also create opportunities for savvy and creative investors who can find ways to overcome them, leverage them, or even benefit from them. One of the best ways to become more creative and resourceful in your investing endeavors is to network with other investors, especially by joining a local real estate investing association. By doing so, you can access many benefits, such as education, resources, opportunities, and support, that can help you adapt and thrive in any market condition. Remember, the real question is not how the legislative challenges affect you, but how you can profit from them.
To find a National REIA-affiliated real estate investor association near you, please visit nationalreia.org/finda-reia.
Rebecca McLean is the Executive Director of National Real Estate Investors Association.
NREIA Legislative Update
Squatter’s Rights
With the viral video of an illegal or otherwise undocumented alien airing a TikTok this past spring, the pushback has been strong. In some states, legislation was augmented either addressing adverse possessions or specifically targeted as “anti-squatter.” With U.S. Sen. John Fetterman (D-PA), a former mayor himself, weighing in about squatters not having “rights” to housing, a careful but bipartisan legislative push grew. While some of the changes were in the police and judicial realms, even those were definitively anti-squatter. While there isn’t a single, clear definition of “anti-squatting laws” across the United States, there is a growing trend of states passing legislation that makes it easier for property owners to evict squatters.
Two key areas of concern are being addressed:
• Expedited Eviction Processes: Some states are passing laws that streamline the eviction process for squatters. This might involve reducing the time needed for court proceedings or allowing law enforcement to remove squatters without a court order under certain circumstances.
• Criminalization of Squatting: A few states are making squatting a crime, which could lead to arrest and prosecution.
It’s important to note that most states have existing laws on adverse possession. These laws allow squatters to gain ownership of a property under specific conditions like occupying it for an extended period of time (usually several years) and meeting certain requirements. Tightening those regulations also helps. Redefining service and requiring proof of written leases between the authentic property owner and the tenant has also been a growing concern. This latter issue has been a growing problem due to fraud over the past 15 years. Itinerant criminal bands move through areas with the trick of “leasing” one rental unit to up to a dozen people, taking their deposits and first month’s rent checks before absconding with the money. The ersatz renters show up ready to move in, only to realize they have been duped and the owner is often left stuck with a short-term mess.
While Tennessee recently joined the ranks of Florida, Louisiana, Georgia, Alabama, West Virginia, and most recently Tennessee, there are several other states working on their own legislation. We have been following this issue closely online at RealEstateInvestingToday. com.
Here are summaries of the approved bills from these states and/or their last actions:
Florida: This bill enhances the protections for property owners against unauthorized occupants of residential properties. It enables property owners or their
authorized agents to request immediate removal of unauthorized occupants from a residential dwelling under specified conditions. This includes unauthorized occupants who have unlawfully entered and continue to reside on the property. The sheriff is authorized to serve these notices, and can charge a reasonable hourly rate for their services.
The bill also criminalizes intentional damage to a residential dwelling by trespassers who cause damages exceeding $1,000. Furthermore, the act provides criminal penalties for those who knowingly and willfully present a false document, such as a lease agreement or deed, purporting to convey real property rights.
The bill even prohibits listing or advertising for sale, or renting or leasing, residential real property when the person doing so knows they have no lawful ownership or leasehold interest in the property. Any acts in violation of these provisions result in respective penalties. The intended effect of this bill is to secure the rights of property owners and deter unlawful property occupation or presentation of false property rights. The bill will take effect on July 1, 2024.
Louisiana: This bill amends the Louisiana law on simple burglary. It expands the definition of simple burglary to include the unauthorized entry of any dwelling or structure with the intent to temporarily or permanently deprive the owner, lessee, or tenant of the full use of the property or to assert any right of ownership or use over the property. Additionally, it imposes liability for any damage that results from this type of unauthorized entry. The bill also provides a new title for this legislation, “The Louisiana Squatter Prevention Act.” The new law will take effect on Aug. 1, 2024.
Georgia: This bill, known as the Georgia Squatter Reform Act, amends various sections of the Official Code of Georgia to address unlawful squatting violations. The act defines unlawful squatting as when an individual resides on another’s land or premises without their knowledge or permission. Violators will receive a citation, giving them three business days to present proof (such as a lease or rental agreement) confirming their authorization to be on the premises. If they cannot provide such proof, they are subject to arrest and could face misdemeanor charges. The bill also extends the jurisdiction of magistrates to include these violations and modifies procedures against intruders. The reform provides a streamlined process for ejecting squatters, including a submission of property affidavit, setting a time frame for eviction, and provisions for the use of monetary relief. The bill appeals all conflicting laws and was signed into law at the end of April.
Alabama: This bill, introduced in the Alabama state legislature, outlines comprehensive measures meant to protect the ownership rights of property owners and
combat the issue of squatting, or unauthorized entry and remaining in a dwelling. The bill elaborates on the existing definition of burglary and perjury by including conditions explicitly related to squatting. It also introduces a new criminal act termed fraudulent sale or lease of residential real property. Furthermore, this bill allows property owners or their agents to request the removal of unauthorized individuals from the property by submitting a sworn affidavit to a law enforcement agency. The process followed by law enforcement agencies to verify ownership and serve eviction notices is detailed, as are the legal repercussions for providing false information in the affidavit. Additionally, the bill defines the term “squatter” and stipulates that their occupancy does not warrant an eviction process. The law took effect June 1, 2024.
West Virginia: This bill amends the Code of West Virginia to address the issue of squatting. Squatting is defined as the unlawful occupation of a property without the consent of the owner or tenant. The bill clarifies that squatters are not considered tenants and thus do not enjoy any legal protections or rights that tenants typically have. The legislation makes squatting synonymous with trespassing, a criminal act. The bill further stipulates that courts in the state should not require property owners to use eviction or similar procedures to remove squatters. Instead, the appropriate response to squatting, according to this bill, is arrest for trespass. The bill was still pending at the time of this publication.
Tennessee: This bill removes ambiguous language and clarifies that a transfer of a possibility of reverter or right of entry by a holder other than the original grantor is invalid unless the validity of the future interest was determined by a final judgment in a judicial proceeding or by a settlement among interested parties prior to July 1, 2015. The bill also adds a new section to Tennessee Code Annotated, Title 29, Chapter 18, which provides a limited alternative remedy for property owners to quickly remove unauthorized persons from residential real property under certain conditions, such as the property not being open to the public and the unauthorized person not being a current or former tenant or an immediate family member of the property owner. The law will take effect July 1, 2024.
Around the U.S.: Presently, at least five other states are considering anti-squatter-specific language, including Ohio, New Jersey, New York, Pennsylvania, and South Carolina. These bills are all new but are similarly focused to an Oklahoma bill addressing this issue raised over the past several years, and introduced by Rep. Ross Ford.
The wave of anti-squatter efforts is also catalyzing
Published quarterly for chapters, associated real estate investor associations, their members and guests.
Editor
Brad Beckett brad@nationalreia.org
For inquiries regarding Membership, Legislative, REIA organization information or to become a industry partner, call National REIA toll free at 888-762-7342
Fax: 859-422-4916
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RE Journal is published by Rental Housing Journal, LLC, publishers of Rental Housing Journal www.rentalhousingjournal.com
One Connection Away
By M. Jane Garvey
How many times have you thought to yourself, “That guy is so lucky. He doesn’t seem to know anything, but things keep falling in place for him.” At the same time there may be people in your life who have everything going for them, but don’t seem very successful. Why is this?
Publisher John Triplett
john@rentalhousingjournal.com
Editor Linda Wienandt
linda@rentalhousingjournal.com
Associate Editor
Diane Porter
Advertising Manager Terry Hokenson terry@rentalhousingjournal.com
Occasionally we attribute success to the amount of focused action people take. Goals, a plan to achieve them and action directed at the process — this is certainly one way to improve your odds of success. It is rare that people succeed without trying. It is also hard to define success if you don’t decide in advance what that means for you. But focused action doesn’t seem to explain the luck.
More likely it can be explained by the concept, “It is not what you know, but who you know.” If you are “connected,” you may have the guidance needed to avoid the false starts, the wrong turns, and the dumb mistakes that others make. This hardly seems fair. The playing field isn’t level. Massive action by a connected person can be much more fruitful than massive action by someone going it alone.
Legislative Update
anti-eviction advocates to claim that the squatter crisis is a myth, citing a lack of data, claiming this is an anti-renter issue and that renters need better eviction protection. However, even a cursory reading of the bills reflects a clear delineation by legislators between the protected lease-relationship of a renter and housing provider and contrasts that very clearly with the illegal, unwanted and unwarranted occupation of property. It even clarifies the distinction between
The good news is that you, too, can be connected. It is not just for those who inherit great wealth, are married to a tradesperson, have a relative who is the building inspector, grew up in a family of landlords, etc. The best connections you can have are people with knowledge or experience, people who have been down the road you are traveling. You can develop the connections you need. Keep in mind that your need for connection may change during different phases of your investing journey.
Real estate investors associations (commonly known as REIAs) provide fertile ground for planting seeds and harvesting connections. Within an association you will find others who are doing what you want to do. It is likely that they have identified the tools and resources you will need. Some of them have other connections you will need. You may have connections they need.
Make friends. Speak up about how things are going on your journey. Let people know what you are missing and what connections you need. Be open and genuine in your approach. We all like to help people when and where we can, but we can’t help if we don’t know you have a problem. It is very important to try to
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a trespasser (squatter) and a holdover tenant who has stayed beyond their lessor rights, thereby deserving of the legal due process referred to as eviction.
As the rules for adverse possession and methodologies to cure range greatly by state, make sure that you are working with a knowledgeable real estate attorney familiar with the process; a mistake could end up being a very expensive problem!
help others when you can as well. Connections are at least a two-way street. Interestingly enough, people who are handed connections as a birthright may have a hard time developing the skills needed to make new connections. They may seem privileged, and life may initially seem easy, but some of these people really struggle as their needs change. You are in charge of your own journey. It will be different. You will define your success or failure. The knowledge and resources you need will be different as well. Even with this in mind, learning from others’ successes and mistakes can accelerate your progress. Take advantage of the resources, education, and networking that your real estate investors association provides. You are only one connection away, and chances are high that connection is right in front of you.
Jane Garvey is President of the Chicago Creative Investors Association.
Stay Up-to-Date:
Stay up-to-date with current industry news and updates by visiting RealEstateInvestingToday.com. Likewise, visit NationalREIA.org/advocacy to stay on top of current legislation and governmental actions.
Five 1031 Exchange Rules to Know
By John Bowens, CISP
The 1031 exchange is a powerful real estate investing tool that can help you defer capital gains taxes while expanding your investment portfolio. Named after Section 1031 of the U.S. tax code, this strategy allows investors to sell a property and reinvest the proceeds into a property of equal or greater value.
Here’s a detailed look at the five essential rules you need to know to navigate a 1031 exchange successfully.
What is a 1031 Exchange?
A 1031 exchange, as defined by the U.S. tax code, permits an individual to sell a property and potentially defer their capital gains by reinvesting in a property or properties of equal or greater value. This is a tax deferral strategy specifically designed for real estate investors, providing a way to grow investments without immediately incurring capital gains taxes.
Rule 1: Understand the Net Selling Price
The net selling price is a crucial concept in a 1031 exchange. It represents the selling price of your relinquished property minus any title fees and Realtor commissions.
For instance, if you sell a property for $200,000 and incur $10,000 in title fees and commissions, your net selling price is $190,000. This net amount must be reinvested into the replacement property or properties to defer the capital gains taxes.
Rule 2: Qualified Properties
Not all properties qualify for a 1031 exchange. The properties involved must be held for investment or used in a trade or business. This means you cannot use the proceeds from the sale of an investment property to purchase a primary residence or transfer the gains into a self-directed IRA.
Working with a qualified intermediary (QI) is essential to ensure compliance with these specific requirements.
Rule 3: The Role of a Qualified Intermediary
A qualified intermediary is a third party that facilitates the 1031 exchange. According to regulations, you must use a QI to conduct the exchange. The QI performs three main functions:
• Prepares the exchange agreement
• Escrows the proceeds from the sale of the relinquished property
• Coordinates the exchange with all closing agents It’s critical that the proceeds from the sale go directly to the QI. If you take receipt of the funds, you’ll be disqualified from completing the exchange.
Rule 4: The 45-Day Identification Period
Once you close on the sale of your relinquished property, you have 45 days to identify your target replacement properties. You can identify up to three properties regardless of their total value. If you wish to identify more than three properties, there are specific restrictions and guidelines that you must follow. This 45-day period is strict, so it’s wise to have potential replacement properties in mind before selling your current property.
Rule 5: The 180-Day Closing Period
In addition to the 45-day identification period, you must close on one or more of your identified replacement properties within 180 calendar days of the sale of your relinquished property. This means you need to be disciplined and have a clear strategy to ensure you meet both the 45-day and 180-day deadlines.
Most investors start searching for replacement properties even before listing their current property for sale to streamline this process.
Additional Consideration: Reverse 1031 Exchange
A reverse 1031 exchange allows you to purchase the replacement property before selling the relinquished property. This can be advantageous if you find a desirable replacement property but need more time to sell your current one.
However, this strategy involves more complexity and potentially higher costs, so it’s important to work closely with a qualified intermediary and possibly other financial advisors to ensure it aligns with your investment goals.
For more detailed information and personalized help, consider reaching out to a qualified intermediary like Equity 1031 Exchange, part of the Equity family of companies. Learn more at www.getequity1031.com.
Special Self-Directed IRA Offer for National REIA Members Only
In addition, Equity Trust Company is a national sponsor of the National Real Estate Investor Association (NREIA) and is offering NREIA members and its affiliated chapter members a special introductory self-directed account offer.
NREIA members can open an Equity Trust account for a discounted rate of $99 and receive bonuses worth $720 or more:
• National REIA GOLD Level membership (includes priority processing and an experienced client service team dedicated to members) for one year
• Digital download of #1 ranked book on Amazon: “Self-Directed IRAs: Building
Retirement Wealth Through Alternative Investing”
• More exclusive wealth-building education Visit www.trustetc.com/nationalreia or call 844-732-9404 to learn more.
John Bowens, CISP, is Director, Head of Education and Investor Success at Equity Trust Company. Visit www.TrustETC.com for more information.
The role of Equity 1031 Exchange, LLC (formerly Midland 1031, LLC) as qualified intermediary is limited to acting as qualified intermediary within the meaning of Regulations section 1.1031(k)-1(g)(4) for Federal and state income tax purposes. In this regard, Equity 1031 Exchange is not providing other legal, investment, or due diligence services. The taxpayer/exchanger must direct all investment transactions and choose the investment(s) for the exchange. Nothing contained herein shall be construed as investment, legal, tax or financial advice or as a guarantee, endorsement, or certification of any investments, legal effect or tax consequences of the transfer, conveyance and exchange of the relinquished property and/or the replacement property.
Maximize Profits by Scaling Your Business
Discover How to Diersify and Minimize Risks
By Gita Faust
Rental property owners or investors are constantly assessing financial plans for methods to generate additional profit. One of the ways to do this is by scaling your rental property business.
Benefits to scaling your rental property business include:
• Maximizing profits
• Minimizing risks
Scaling the rental property business might help diversify your portfolio, spread risk across various locations, provide opportunities for passive income generation, and position the rental property business for long-term wealth creation.
I will share several methods that I have used to diversify and scale my profile to generate successful investments.
Invest in Passion, Earn in Confidence
As the saying goes, “When you are more interested in your work, you’re more likely to put in more effort, be more creative, stay motivated and engaged.”
Like any other business venture, the rental property business has the best and desired outcome only when done with dedication and hard work. No matter where your interests lie, a deeper understanding of market trends will allow you to make educated decisions and informed choices.
It is essential to predetermine your goals and stick with them, as the rental property business is primed for market fluctuations and setbacks. It also requires a long-term commitment that comes with ups and downs.
S.M.A.R.T Goals
SMART goals are an acronym for specific, measurable, achievable/attainable, relevant, and time-bound goals. Defining and setting these goals precisely is extremely important, as they define both short-term and long-term achievements.
They also enable you to be explicit about your objec-
tives and expectations for the property. These objectives include reaching a particular income threshold, net worth, number of properties owned, and financial independence.
SMART goals allow us to break down the long-term goals into short, achievable goals that help monitor the progress of the rental property business.
Stress Less, Save More
Rental property businesses require a budget to function effectively and efficiently. Creating a budget and a forecast plan allows you to scale your business to be sustainable and achieve profitable growth.
Here are a few steps to relieve your stress:
First, you should evaluate your current financial situation by calculating account income, expenses, assets, and liabilities and understanding the net cash flow from existing properties.
Second, you should calculate the operating costs and expected investments. Investment numbers should include fees and expenses such as down payments, closing costs, acquiring new properties, financing costs, renovation expenses, maintenance and repairs, property taxes, insurance and utilities, and much more.
Lastly, a contingency fund is necessary in emergencies, such as unexpected expenses or market downturns. A great rule is to save 10% of your rental income for emergencies. The amount should encompass a reserve fund covering tenant costs, such as marketing and property expenses.
Dominate the Management Headache
One critical method of scaling the rental property is determining the type of property you want to invest in. Reviewing reports will help you to decide if you should cut down expenditures and optimize property management processes. Regular and thorough inspections and maintenance can prevent costly repairs and maintain property value.
This also helps prevent tenants or residents from causing issues due to minor challenges or setbacks. One of the primary elements of scaling is outsourcing pro-
Inherited Real Estate ... continued from Page 1
If Grandpa has a will, the property will pass to his heirs according to his plans as articulated in the will. If Grandpa does not have a will, or if his will is determined to be invalid, his estate will have to go through the process of probate. A court will appoint an administrator of Grandpa’s estate. The administrator will locate Grandpa’s heirs, inventory his estate, and then distribute the various assets according to state law.
What about the effects on Grandpa’s heirs?
This is where estate and inheritance taxes come into play. At the federal level, there is an estate tax on assets over $13.61 million. Thus, if Grandpa’s total estate is valued at or below that threshold, there is no federal estate tax owed.
Twelve states plus the District of Columbia impose estate taxes, and another six states impose inheritance taxes. (Estate taxes are paid by the estate, on the value of the estate. The heirs pay inheritance taxes, on the value of what they receive.)
As with the federal estate taxes, state-level estate taxes would be imposed on Grandpa’s estate above certain thresholds. For example, Oregon begins to impose its estate tax at $1 million, and Connecticut starts at $12.92 million. As for the states with inheritance taxes, all six exempt spouses from having to pay inheritance taxes, and some fully or partially exempt children or parents. However, in Pennsylvania, for example, Grandpa’s children or grandchildren would be required to pay 4.5% inheritance tax on the value of what they receive. If Grandpa has a will and leaves his investment real estate to his Pennsylvania grandchild, that grandchild
would be inheriting $500,000 of investment real estate, and their Pennsylvania inheritance tax burden would be $22,500. The grandchild could sell the real estate and use the cash proceeds to pay this inheritance tax obligation. If the grandchild were to sell the property to pay the inheritance tax obligations, there likely is no current capital gains implication since the sale will occur shortly after the inheritance.
But the grandchild could also pay that tax obligation with personal funds, and then maintain the property as an ongoing investment. If they choose this option, and later sell the property for $750,000, their capital gain is $250,000 ($750,000 - $500,000 = $250,000).
The practical effect is that the capital gain between Grandpa’s adjusted basis and the grandchild’s inheritance of that property has been eliminated. Without that step-up in basis, the grandchild would have had a significantly higher taxable gain after the sale ($750,000 - $100,000 = $650,000).
At this point, the grandchild could sell this property as part of a properly structured 1031 exchange, perhaps to relocate the property to a more convenient location, reinvest in a different asset class, or even consider a Delaware Statutory Trust if they do not wish to be an active landlord.
In this example, Grandpa included his investment real estate in his overall estate planning strategy, passing an appreciated asset to a grandchild. Investors are encouraged to discuss their specific tax and estate planning needs with their financial planner, attorney, and accountant.
fessionals whenever and wherever needed.
Technology and software also play a massive role in automating processes, such as tenant screening, lease management, rent collection, maintenance requests, accounting, bookkeeping, etc. Let us help you save both time and money.
Build Your Tribe
Whether you are a beginner or an experienced investor/landlord, networking and building trustworthy connections are extremely important and relevant. It can help put you on the map and scale up rental investments through financial investors.
Mentors play a crucial role by offering financial advice and guidance. You can find a coach and a mentor by participating in real estate associations (REIAs), communities, and investor masterminds or by playing the trump card, “Ask a Friend.”
The quality of relationships is more important than the quantity of those relationships. For example, I attended meetings to learn from investors’ experiences and build up on that, gaining valuable insider tips from previously successfully scaled business models.
Gita Faust is the founder & CEO of HammerZen, which helps businesses save time & money by keeping track of The Home Depot purchases and efficiently importing receipts and statements into QuickBooks. National REIA members receive discounts on QuickBooks services and software. Learn more by visiting www.hammerzen.com/nreia.
The material in this article is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.
David Gorenberg is a third-generation real estate investor, an attorney and Certified Exchange Specialist®, and serves as Director of Education for Accruit. Members of National REIA can take advantage of special pricing from Accruit. Learn more by contacting David directly at 215.770.6354, or by visiting www.accruit.com.
Member Spotlight - Gary and Candy Parr
closure property that he used as a house-hack by renting out to a friend. He rehabbed the property while living there and eventually sold it. He decided to keep pursing fix-and-flips with his brother, Jacob, and their cousin, Cory. He now focuses on working with the family by doing marketing, systems, working with lenders, and assisting with rehab projects – and he is excited to be a first-time parent himself.
Their youngest son, Jacob, received his Associate’s degree from Kent State but realized he was destined to work for himself in real estate. He followed in his father’s path and loves working hands-on with the remodels and has his own remodeling business. Jacob also assists in the management of the family’s investment projects. He has turned his focus to working with the whole family, as well as doing separate deals with Josh.
They all enjoy sharing/networking with other investors new and experienced. Candy will be the voice for the interview questions.
Please tell us a little about who you are and what you did before getting into real estate investing:
Our passion for real estate comes with a background of having a remodeling company. In our previous careers, I was in the medical field in various roles, and Gary was a contractor for over 35 years.
Where is your current market and what is your focus or area of expertise?
We primarily work in our own backyard here in Northeast Ohio. We try to invest in properties within 30-40 minutes of where we live, which includes Cuyahoga, Summit, Portage and Geauga counties. We primarily do fix-and-flips, mid-term rentals (own and master lease), and wholesale occasionally. We primarily focus on Northeast Ohio markets but do occasionally work in the Sarasota/Northport ,Florida area.
How did you get started?
We got started in real estate 20 years ago with friends on a fix-and-flip. Life came along and we took a break for a few years. We decided to get back in the market a few years after the housing downturn of 2008. We started buying again in 2010.
Our entire family — including our three children, Ashley, Joshua and Jacob — was involved in the fixand-flips. They attended the GLREIA with us as a family. The president even created a “family membership.” They were very young (the youngest was 12) when they
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started attending meetings. Now they are 26, 30 and 36.
Describe a typical work week for you as a real estate investor:
I work on the office tasks, including managing dayto-day for mid-term rental scheduling and managing maintenance/cleaning of mid-term rentals. Also, doing networking and learning and coaching of like-minded investors. Gary manages contractors (full time), Joshua and Jacob handle marketing and are also involved in meeting contractors and reviewing scope of work. Ashley works in real estate full time in Lakewood Ranch, Florida, and travels from Cleveland to Lakewood Ranch. Her passion is interior decorating and she handles the design and decor for mid-term rentals. We are all on the lookout for properties daily and do network-
ing for potential properties.
How long have you been investing in real estate?
We have been investing for over 20 years.
Tell us about your first deal:
We started investing with friends on our first fixand- flip and it went well. It was a great experience at learning the complete process for everyone involved.
How do you fund your investments?
We work with private lenders, and use some of our own funds primarily through our family self-directed
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The Parr family from left: Josh, Gary, Ashley, Candy and Jacob.
Photos from a finished recent rehab.
Member Spotlight - Gary and Candy Parr
IRAs with Equity Trust Company (ETC). But we have also utilized hard money as well.
Do you have a real estate license?
Our daughter Ashley has her real estate license in Florida but the rest of us do not.
What projects are you currently working on?
We currently have a rehab in the Kent, Ohio area that will be a mid-term rental when complete. It is on a scenic two-acre lot. We may look to add a second house or ADU to the property after completing the main house. We also just bought a one-acre lot in Northfield, Ohio at a great price that we may either resell or build on.
How much time do you put into your real estate education?
Daily education is key. Our No. 1 commitment is to attend GLREIA meetings. We listen to podcasts of all kinds, audio books, attend masterminds and most of all network with our fellow REIA members. The National REIA is also a valuable resource, especially by keeping up on legislation and fighting for our members. Has coaching or mentoring played a part in your success?
The GLREIA has been our lifeline to real estate. The leaders at the GLREIA and National REIA organizations have been responsible for our success as a family. We consider Gary Pallini, Zach Weaver and John Bowen our mentors as well as each and every member of the organization. They are amazing role models and deeply care for their members as well as helping them succeed in their real estate business. John Bowen with ETC educated our family on tax shelters in our real estate investing business and is so incredibly valuable. We have found our entire team through the local REIA (self-directed IRAs, attorney, contractors, agent, title company, etc.). These members are like family to us and are there for you during failures as well as your successes.
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What are your current and future goals?
Educate young people on saving for their future (primarily Roth IRAs). To continue to provide nice, furnished housing for people in need — mostly medical. Continue to grow our family real estate IRA. Donate to great charities such as St. Jude. Our future goal in real estate is to continue to purchase about 10 properties a year to either fix-and-flip, hold for mid-term rentals or to sell turnkey as mid-term rentals. We would like to explore building as another avenue and we are also open to doing more master leasing.
What has been your top struggle in this business?
Recently, inventory. We are focusing more on marketing.
What do you like most about what you do?
The freedom.
Do you have a tip or advice that you would pass along to other investors?
There is always room to learn. You should listen to both new and seasoned investors. Always keep an open mind and LISTEN. We learn every day from other investors.
How important is joining a local REIA to a new investor?
Your local REIA is extremely valuable. Our family would not be where we are without it. Avoiding mistakes, keeping up-to-date on new laws and legislation and, perhaps most valuable, is networking with fellow investors. The REIA also helps us keep on track for our goals, and we never miss meetings at all costs. The minimal investment is life-changing!
What is your favorite self-help or business book?
We actually have several:
Leading an Inspired Life (by Jim Rohn)
Atomic Habits (by James Clear)
Who Not How (by Dan Sullivan and Benjamin Hardy)
The 12-Week Year (by Brian Moran and Michael Pennington)
The Millionaire Fast-Lane (by MJ Demarco)
The One Thing (by Gary Keller)
Rich Dad, Poor Dad (by Robert Kiyosaki)
Do you have any interesting hobbies or something unique that you like to do?
I have a small online business selling farmhouse/ holiday/antiques. Gary enjoys woodworking. We built a home in the Cuyahoga Valley National Park a few years ago so we can enjoy hiking/biking/kayaking and Mother Nature at its best.
Does your business have a website? TurnkeyToBe.com
These are photos of an extensive rehab (before/after) that they now use as a midterm rental with 2 units. The garage was converted into an efficiency apartment. This was the worst home in the best neighborhood and is now one of their top mid-term rentals.
Revisiting the Fundamentals
to these questions, look at the people with whom you most closely associate in non-family environments. Do those people hold you accountable?
Do they inspire and motivate you?
Are they a sounding board and a resource for helping you solve problems?
If you can answer “yes” to most, if not all, of those questions, then you are around the right people.
If you can’t answer “yes,” then you need to find a new group of people with whom you can associate. For example, if you are a buy-and-hold investor, you may not be getting the right information if you are hanging out with wholesalers all the time, or vice versa.
2. Real estate can go down in value, and rents can drop.
If you doubt me, look at the pricing of commercial office space and the cost to rent that space or one similar. Prices are down, and it’s because of the
second fundamental rule, which is…
3. Interest rates can go up, and the Fed is not your friend.
From 2011 through early 2023, we were in an environment where interest rates were kept low for far too long. Low interest rates are like pouring an accelerant on a bonfire.
Interest rates are the fulcrum on which the tool of leverage pivots. They can be up or down, and you must be risk-aware to determine what will happen if the leverage swings the other way.
4. Not all real estate transaction techniques are transferable.
Just because you can assign a wholesale deal and make a fee, it doesn’t mean that you should be assigning any type of deal to make a fee, like subject-to transactions, for example. I’m not sure
where this concept originally came from and how it took root, but it has led to a watering-down of skills that is leaving thousands of homeowners in significant financial peril. When properly done, subject-to transactions can be very beneficial for everyone involved.
Because of my experience, I can tell you that one of the most dangerous trends I see is thinking that we can take the tool of “assignment” from the realm of wholesaling (by the way, several states are cracking down on this, as they should) and use it in other areas.
If you know someone who systematically assigns subject-to deals, please share this with them. They are leaving a lot of money on the table because they don’t know any better, and they are creating a transactional, moral, and ethical nightmare going forward.
Subject-to deals should be done with the understanding that they are longterm relationships. These deals are not suitable for assignment. Period. End of story.
5. Clarity, integrity, accuracy, and persistence are necessary characteristics in every type of business transaction.
The No. 1 problem I see in transactions that cross my desk from investors who want me to fix them is a lack of clarity and unclear communication as to a meeting of the minds between the parties. Something was assumed, misunderstood, or misinterpreted. Instead of taking an extra 20 minutes at the right time to talk something through, assumptions were made which caused problems that will take multiple hours to figure out later.
Even worse than the issue with clarity in a deal is the lack of integrity. I’ve seen some business and real estate deals where one or more parties to the transaction clearly lacked the requisite integrity to be someone with whom I would want to be associated in business. It doesn’t matter how good the deal or the paperwork or the financing is. If the deal has someone involved who lacks integrity, it’s a bad deal.
Accuracy is one of the many characteristics for which I am grateful for my assistant. She strives for accuracy in all that we do, whether it’s the grammar and punctuation in what I write, or the accounting for my various businesses. Records and bookkeeping must be kept up-to-date. This is a fundamental aspect of a successful, sustainable business. If you are “too busy” to make sure your records are handled properly, then you are probably someone who is “too busy” for me to do business with you. If you lack accuracy regarding your finances, you probably don’t even know if you are truly making money or losing money.
Every real estate investor will face challenges. There will be days when you want to quit because it seems like everything is going wrong. Those are the times when you must have persistence You must dig deep, remember your goals and objectives, and think about what you want to accomplish. You must refuse to quit. Everything you want as an investor is on the other side of hard work and persistence.
I hope focusing on some fundamentals has been a good reminder for you to be careful in your business dealings, particularly as we navigate this challenging time in the real estate market.
Jeffery S. Watson is an attorney who has had an active trial and hearing practice for more than 25 years. As a contingent fee trial lawyer, he has a unique perspective on investing and wealth protection. He has tried more than 20 civil jury trials and has handled thousands of contested hearings. Jeff has changed the law in Ohio four times via litigation. Read more of his viewpoints at WatsonInvested.com.
Recapturing Debt with Infinite Banking for Real Estate Investors
By Jason K. Powers
According to the latest Quarterly Report on Household Debt and Credit from the Federal Reserve Bank of New York’s Center for Microeconomic Data, the average household in the United States is carrying a debt of $147,489, which is a staggering amount. For context, the median debt in 2000 was only $51,000.
In American culture, we’re taught to finance our cars and homes. Then, we’re told to get a few credit cards because you need good credit. It’s okay to buy what you can’t afford if you pay it off as soon as you can. And so, the cycle continues. In the end, we stand alone at the kitchen table, looking over the pile of debts to pay, scratching our heads, and wondering how we got into this position.
“We can’t solve problems by using the same kind of thinking we used when we created them.”
— Albert Einstein
There is an abundance of strategies out there for people to get their debt paid down or under control. Grandma’s envelope system for household budgeting, for example, might be a great starter strategy for those who can’t seem to control their spending habits.
Debt stacking is a great approach to getting your debt knocked down, but it requires some discipline. With this approach, you make a list of all of your debts, in order of highest to lowest interest rate. Then, you begin paying them down in that order, with minimum payments, and putting the extra money you were (theoretically) spending on extra payments, toward the first debt. Once that debt is paid off, you take that payment amount and add it to the second payment amount. Once the second balance is paid off, you take that amount and add it to the third, and so on. Over time, you’ve stacked your payments on other balances and accelerated getting them paid down.
For real estate investors, debt can be both a tool and a burden. Managing mortgages, financing property improvements, and leveraging credit to expand your portfolio are all part of the game. However, the interest paid to outside banks can significantly cut into your profits. This is where the Infinite Banking Concept (IBC) comes in, offering a unique strategy to recapture debt and improve your financial standing.
How to Best Implement the Concept
The Infinite Banking Concept is best implemented through a properly structured dividend-paying whole life insurance policy. Unlike traditional whole life policies, these are tailored to maximize cash value growth and provide liquidity for your investment needs.
Once you understand the mechanics of utilizing a whole life policy to recapture your debts and pay them down, you begin to see tremendous cash value growth through the life of the policy and tremendous freedom in your own personal finances.
Let’s take a detour. A properly structured dividend-paying whole life insurance policy is far different than your average whole life policy off the street. In this context we are not talking about universal life, variable
universal life, an annuity, or term life. It is also not an investment product.
What it is, is a way for you to build up cash value inside of a policy and have the ability to use it along the way. You have the added benefit of uninterrupted compound growth of your money inside the policy. You have the legacy benefit (death benefit). You have the ability to be your own banker instead of financing everything you do with a traditional bank.
Now, back to recapturing debt inside of a policy. If a bank were willing to gradually consolidate your outside debts, let you decide the terms of the loan repayment, guarantee you growth of the cash value that you have accumulated (even with an outstanding debt balance), offer to pay a guaranteed sum of money to a beneficiary once you pass away (loans outstanding or not), would you be inclined to use that bank? I should hope so!
This is exactly what a privatized family banking system can accomplish through IBC. For real estate investors, this means more control over your cash flow, lower interest payments, and the ability to leverage your policy’s cash value for future investments. You can keep growing your real estate portfolio while maintaining financial stability.
Benefits Beyond Real Estate Investing
Infinite Banking offers a wide range of additional benefits that extend beyond the realm of real estate investing. One of the primary advantages is the tax-deferred growth of the cash value within the policy. This allows your money to compound over time without the immediate burden of taxes, which can significantly enhance your long-term financial growth.
Furthermore, the liquidity of a whole life policy is a standout feature. Unlike traditional retirement accounts or investment vehicles, you can access the cash value in your policy at any time and for any reason.
This flexibility is invaluable for real estate investors who may need to seize unexpected opportunities or cover unforeseen expenses without disrupting their investment strategy.
The protection against market volatility is another key benefit. The cash value growth in a whole life policy is not directly tied to the stock market, providing a more stable and predictable growth path. This stability can offer peace of mind and financial security, especially during times of economic uncertainty.
Beyond real estate, Infinite Banking can be a powerful tool for business financing. Entrepreneurs can use their policies to fund business ventures, whether it’s for expansion, purchasing equipment, or other business needs. This approach allows for greater control over the terms of repayment and can reduce reliance on traditional lenders. Parents can also utilize their policies to save for their children’s education. The cash value can be tapped to pay for tuition and other educational expenses, providing a flexible alternative to traditional college savings plans. This ensures that funds are available when needed without the penalties or restrictions
often associated with other savings vehicles. Additionally, the cash value in a whole life policy can serve as an emergency fund. In times of financial hardship, you can borrow against your policy to cover expenses, providing a safety net and peace of mind. This capability ensures that you are prepared for unexpected life events without compromising your long-term financial goals. Infinite Banking offers a powerful and flexible financial tool for real estate investors and beyond. By becoming your own banker, you can take control of your finances, and build a more secure financial future. Whether you’re looking to expand your real estate portfolio, finance a business, or simply ensure financial stability for your family, the Infinite Banking Concept provides a versatile solution.
Jason K Powers is a multi-business owner, real estate investor and an Authorized IBC Practitioner. In an exclusive partnership with the National Real Estate Investors Association, Jason is the go-to expert for all aspects of Infinite Banking and life insurance. Connect with Jason today to explore how the Infinite Banking Concept can empower you to reach your financial goals.
Visit www.1024wealth.com/NREIA for more information.
By Denny Dobbins
IProperty Protection Starts with the Crime-Free Addendum
t’s 1:00 a.m., the phone rings, you recognize the number as your old neighbor Rob, who now lives next door to your tenants since you turned your former home into a rental property. He tells you that SWAT just kicked in the front door of your property and is dragging the tenant and about 20 other people out onto the front lawn in handcuffs. You ask out loud to no one in particular, “Could I have prevented this?” Although tenants can and will do just about anything in your property, utilizing a Crime-Free Addendum in every lease can help deter this type of damaging behavior right from the start.
Why is it so vitally important for owners, landlords and property managers to use this well-established crime-free management tool to keep criminal activity away from your properties?
First, I will discuss what those tools are and then why they are so vitally important.
I. The Crime-Free Tool
Owners, landlords and property managers need to use the basic crime-free language in your rental criteria, in your lease and as a separate addendum. Overkill? Hardly! This language immeasurably aids you in being highly successful in easily avoiding a plethora of costly pitfalls. It is an essential and critical safeguard to deter criminal activity, thereby saving you money, time, and significant headaches. The great thing is it is so simple to implement.
The following basic crime-free language should be presented to your prospective tenant as part of the rental criteria, prior to entering into a lease and at the earliest possible convenience in the relationship:
“Tenant shall ensure that tenant, tenant’s occupants, tenant’s guests, and tenant’s invitees shall not engage
in, perpetrate, permit, encourage, intend to facilitate, or actually facilitate, any criminal activity of any kind, on, near or off of the premises. If tenant fails to ensure that no criminal activity occurs, whether or not tenant knew of such criminal activity, any such criminal activity is a material violation of the lease subjecting the tenant and occupants to immediate termination and eviction. If there is a separate crime-free addendum, the full language of the crime-free addendum to the lease shall be controlling.”
2. Why is it so important for you to use the crime-free language?
• When you introduce the crime-free language to the prospective tenant early in the relationship, the prospect quickly learns that crime will not work at the property.
• It helps ensure immediate, appropriate, and comprehensive communication about expectations. The tenant understands early on that management is keenly aware of the issue and takes a proactive, educated approach to what they are doing.
• Prospective tenants who are planning on being involved in criminal activity in your unit, or think crime may be an issue for them, will simply find another place to live, thereby saving you time, money, and heartache.
• It is a proven and established deterrent to criminal activity that has effectively been working for 32 years.
• If you ever have to go before a court because of criminal activity, the language of the crimefree language is fatally damning to the tenant. It is clear and unambiguous that if the tenant, tenant’s occupant, guest, or invitee is involved in criminal activity in, on, near or off of the prem-
ises, the entire household can be evicted by a preponderance of evidence. It provides zero wiggle room for a Ttenant when it comes to criminal activity and provides a quicker remedy in many jurisdictions.
• You may also qualify for insurance discounts when you show you implement crime-free principles in your leasing. You need to ask your insurance company what discounts are available to you when you implement the use of the crimefree language.
Working in concert with Officer Tim Zehring of the Mesa (Arizona) Police Department, I wrote the original private sector crime-free language in 1992. It has been used ever since with incredible results nationwide and internationally by owners, landlords and property managers.
Please check with your attorney in your local jurisdiction to determine whether you are legally permitted to use the crime-free language prior to a tenant qualifying for the lease based on other non-crime related criteria. Using best practices like this, maybe next time the phone rings with a call from your old neighbor they’ll be telling you about your amazing new tenant.
Denny Dobbins is legal counsel for Rent Perfect and a private investigator. Subscribe to the weekly Rent Perfect Podcast (available on YouTube, Spotify, and Apple Podcasts) to stay up-to-date on the latest industry news and for expert tips on how to manage your properties.
Members of National REIA can take advantage of special pricing from Rent Perfect; the solution for rental property owners and managers for screening & managing tenants. Learn more by visiting www.rentperfect. com or calling 1-877-922-2547.
