RE Journal - Fall 2022

Spotlight

The Blame Game is a No-Win for Landlords

By Scot Aubrey

Ryan Basye

Ryan

Basye was born and raised in Omaha, Nebraska.

After stints in Minnesota and Colorado he moved back to his hometown during the 2005 real estate downturn. He now lives with his wonderful wife, Ali, and their three girls. He convinced her to “flip” their first house together which was a huge success. Ryan works full-time at Nebraska Realty and owns several other real estate inspired businesses. In addition, Ryan owns and runs a real estate non-profit called On Deck Housing. Ryan is a member of Omaha REIA, in Omaha, Nebraska.

Please tell us a little about who you are and what you did before getting into real estate investing:

I have always been one of those

If

you have spent more than 30 seconds in the last year watching cable news, you are more than familiar with something called “the blame game.”

Regardless of political party affiliation, age, race, gender, sexual orientation or any of a host of other categories, it appears that our society has become a place of great divide. As a landlord you are not immune to this growing epidemic of blame and, in fact, you’re likely to take more than your fair share of blame when it comes to tenants and their problems.

After all, those same media outlets have spent years painting the picture of the “big, bad landlord,” creating an evil, money-focused image that even the happiest of tenants sometime buy into believing. The reality is, you are going to get blamed, but are you liable?

Let’s create a blame framework for this by using a scenario where a tenant or guest of a tenant is injured by a weapon that the landlord allowed on the property. To create some protection for

you as a landlord we must first turn to the general principle of negligence law and liability. It is helpful to understand the basic law and how to apply it in a real landlord/tenant situation. Every landlord must have a handle on these basic principles so we will discuss the law and then get back to the questions. Whatever the cause of the injury/ damages to the tenant, occupant, guest,

or invitee, the landlord does have some basic duties to the tenant in every residential lease, single family or multifamily of every kind and variety.

Here is the basic legal test for this scenario:

1. Duty

Generally, the duty of the landlord

The Great Retirement-Plan Savings Crisis

What Real Estate Investors Can Do About It

By John Bowens

Is America facing a retirementplan savings crisis? Data suggest a majority of America is not adequately prepared for retirement, forcing Americans to work longer, downsize their standard of living, make difficult sacrifices, or rely on their children or other family members. Gone are the days of corporate-sponsored pension plans with the passing of the Employee Retirement Income Securities Act (ERISA) in 1974, shifting the burden from corporations to individual workers

to save for retirement.

What will future generations have to look forward to? What about Social Security? Although these issues might not be widely discussed today, a crisis is quickly surfacing, and the generations beyond the baby boomers could be facing even greater challenges.

The Sobering State of Retirement Readiness

According to a U.S. Government

Change, Learning, and Leadership: The Big Three of the New Economy

By Rebecca McLean Executive Director, National REIA

Kaboom!

That’s the sound of a changing economy and a reality check. Forget everything you’ve learned about real estate in the past. This new economy has shaken our industry to the core.

Change is the new normal.

For those of us over 40, this can be a bit disconcerting. For much of our lives we saw progress at a relatively steady rate. New technology, new inventions, even new regulation happened at a steady, predictable pace. Then, seemingly out of nowhere, the pace changed. It got faster, and then a little faster and then… it just seems to continue speeding up. The new generation lives in a world where they’ve always realized that change happens almost daily. This was already true before March of 2020. Now, everything has changed.

Today’s new technology will be old news tomorrow. This means that staying connected is more important than ever.

In a time of change, change becomes your job. Robert Reich says in his report, Your Job is Change:

“Change today happens suddenly, unexpectedly, unpredictably.

“… Change is sudden, nonlinear, and constant. Its amplitude and direction can’t be forecast. Killer apps can come from anywhere; new competitors are lurking everywhere. Markets emerge, flourish, inspire imitators, breed competitors, and disappear seemingly overnight. Brands, which once took years to establish and which, once established, seemed unassailable, now burst on the scene like a new strain of virus, finding competitive spaces and market niches that were previously invisible. Internet buzz can make a product overnight — or break it. There is more choice than ever, more challenge than ever — and more change than ever. As a result, products and markets are continuously morphing, so organizations that want to prosper over the long term need to practice the art of continuous change.

“…Companies that can’t change in this new environment can’t play in this new economy. Companies that can’t change the way that they think about change won’t be able to change the way that they compete.”

Change, learning, and leadership are the big three of the new economy.

Let’s start with change. What happens when change itself changes? It’s no longer enough to see yourself as a change agent; the new pace of change and the new style of it make “change insurgents” of us all.

On a good note, raising the bar is easy when everyone

National REIA’s

is doing it. That’s why being part of a REIA that is thriving is so important. National REIA pushes its associations to stay informed and active so that they can support you as an investor and keep you up to date and ahead of the curve.

Learning follows change for the simple reason that, when it comes to change, learning is the only strategy that works. For businesses as well as for people, the capacity to learn equals the capacity to change. Only investors who don’t mind being crushed by competitors, regulation and inefficiencies want to remain isolated and uninformed.

That being said, it can seem very difficult to avoid being overwhelmed. There can be just too much info. If you surf the web for an answer to a topic you can get hundreds of answers, many of them totally inaccurate. That’s why trust will be the ultimate value-add in the age of information overload. REIAs gain your trust by giving you information from those who are doing the business daily. You can talk with those who are active now. Communities change, the economy changes, and a strategy that was brilliant six months ago could be a disaster now. Being connected to a group you can trust is invaluable.

And, finally, there is leadership.

Those who are a “lone wolf” will ultimately be overcome by teams of unlimited individuals. The reason is simple: One person simply cannot know everything and be experienced in everything. Being

part of a community or on a team has tremendous advantage. Each person has different strengths and different experiences, and those can be leveraged for the good of all.

In the end, the good news is that collaboration makes change a breeze. REIAs exist for networking, collaboration and to keep investors protected and informed. We promote best practices that keep you current and knowledgeable. With support from the group, you no longer have to fear change. Embrace it!

Lead the field.

The great news is that all this transformation in our market places means that every new investor has a chance to compete and win. Old, established entities and brands don’t really have an advantage. If you are doing a great job and providing great service to clients in the marketplace you can win as big as anyone else.

Visit a REIA today and see how we can provide tools, support and confidence to win big in today’s economy of change. Find one near you by visiting www. NationalREIA.org.

Rebecca McLean is the Executive Director of National Real Estate Investors Association

Innovate and Illuminate! National REIA’s Innovation Awards recognize those organizations and people who bring new ideas to life. Whether that idea is big or small, these ideas change the way we experience the REIA world. The award is for a single idea – including program, education, event, etc., whose innovative approach has caused market disruption or an exciting increase in member value. This year’s winners were announced at National REIA’s 2022 MidYear Leadership Conference in Milwaukee, WI.

NREIA Legislative Update

Inflation Reduction Act:

Energy Efficiency Rebates

There are substantial new regulations and incentives on the way from HUD for new construction of apartment buildings. The Inflation Reduction Act (IRA) measure has also incentivized states to pass the latest ASHRAE (American Society of Heating, Refrigerating and Air-Conditioning Engineers) energy efficiency regulations – which could affect renovators as well, so keep an eye on your state!

Our friends at the National Apartment Association have shared these two items that could affect smaller -plexes and independent business owners:

1. HOMES Rebates

The IRA includes $4.3 billion for states to create programs to offer Home Owner Managing Energy Savings (HOMES) Rebates. A portion of these funds will be available for owners of multifamily properties to retrofit their units or buildings. A property may be eligible for $2,000 per unit if the project achieves at least 20 percent modeled energy savings up to $200,000 and $4,000 per unit if the project achieves at least 35 percent modeled energy savings up to $400,000. For low- and moderate-income buildings, these figures jump to $4,000 and $8,000 per unit, respectively. States may instead use measured energy savings and a payment rate per kilowatt hour saved or equivalent measurement to offer $2,000 per unit for a 20 percent reduction in energy use or 50 percent of the project costs. This payment standard increases for low- and moderate-income buildings to $4,000 per unit or 80 percent of the project cost and would apply to any multifamily property or portfolio of properties which achieve at least 15 percent in energy savings.

The IRA also includes $4.275 billion for states to implement a high-efficiency electric home-rebate program that can be used by single-family and multifamily property owners to upgrade inefficient and non-electric water heaters, HVAC systems, appliances and clothes dryers, as well as for insulation, air sealing and installing electric-load or service-center panels. More guidance will be necessary from individual states and the secretary of energy on applicable uses for these funds and how to access them.

2. Extension of Excess Business Loss Limitation

The act would extend for two years, through 2028, a provision limiting excess business losses that was otherwise set to expire at the end of 2026. Under current law, a non-corporate taxpayer is considered to have an

excess business loss if their total business deductions exceed business income plus $270,000 for single filers and $540,000 for joint filers (adjusted annually for inflation). Excess business losses exceeding the limit and subject to disallowance in the current tax year are treated as a net operating loss carryforward in the succeeding year.

Expansion of Right-to-Counsel Efforts / Eviction-Delay Issues vs. EvictionPrevention Issues

Over the past two-plus years, we have warned of the growing Full Attorney Employment Act known as Right to Counsel. The breadth of its conversation and expansion is in no small part due to the federal, state and locally subsidized group of attorneys at Legal Aid. By far the largest linked law firm in the United States, these attorneys claim to represent the poor, at least according to their mission. However, looking at the numbers reveals a more telling, sad truth. HUD recently broadcast and ballyhooed the $8 million dollar pilot program for Right to Counsel in Chicago, where 3,000 tenants were helped by reducing evictions by 61 percent. No report was made of the delays, or if anyone was actually evicted the next month. That’s a price tag of more than $2,600 in legal fees per resident!

Most residents have an eviction issue because of one of three things: Automotive trouble, job loss, or medical issue. The costs for these range on average from $500$700, according to agencies providing these funds. This one-time (annual) cash assistance actually eliminates the need for the eviction, stabilizes the family finances and makes the housing provider whole – at less than a third of the cost of the Chicago Pilot Program. Which begs the question: Who does Right to Counsel really help?

Rent Control in the Sunshine State

Three Florida municipalities are among the most recent purple areas (blue cities in red states) to work on developing and implementing rent-control programs. Freakonomics ran the quote, “What do economists think of rent control? Assar Lindbeck famously said that, ‘short of bombing, I know of no way to destroy a city that was more effective than rent control’.” Which to most normal human beings would be sufficient

to give severe pause and reflection. But Tampa, St. Petersburg and Orange County are trying their best to avoid taking responsibility for failing to plan for housing over the past decades, and take the easy way.

For those paying attention to the bigger “reset” in process, one may note that in areas where rent control was first established, like New York, the proceeding couple of decades saw many small owners lose their properties, with the residents taking them over as cooperatives. To date, as Bloomberg and other news outlets have reported, there may be relief in the immediate short term, but the disincentive to develop exacerbates the problem, and doesn’t provide benefit to those who most need it. Presently, there are 31 states that have banned rent control efforts by state or municipalities – these state legislatures are instead focused on actual solutions.

Hey Buddy, Need a Pill?

Opiate-related deaths have been on a dramatic increase over the past few years. Deaths in 2021 doubled the 2020 rate, and fentanyl-related deaths are up more than 400 percent. While it may be important, why is this fact here? For a couple of reasons: One, more than 50 percent of drug users get their drug from a family or friend who has surplus. If you or someone you know has had surgery and has surplus pills, encourage them to utilize the DEA takeback day coming up on October 29. Turn the medicine in before it takes someone down, and encourage your residents to do the same. Please consider partnering with local participating police departments that will have drop off locations. Second, as a property owner myself, I’ve seen the signs of a user. It’s bad for business and bad for your neighbors. Its also really hard on that family. Rehab may have to be repeated, but as a crying father once told me, “At least when my son was in jail, I knew he was alive.” While we may not be able to stop China and Mexico fentanyl imports, we can speak out and address local concerns in our little part of the world.

Seller Financing & H.R. 5013

Missed opportunities: How can a nation calculate the vast number of loans not taken, the number of mortgages not taken or the number of families missing

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

Hours of operation: 9:00am to 6:00pm Eastern time zone

Find us online at: info@nationalreia.org www.NationalREIA.org

RE Journal is published by Rental Housing Journal, LLC, publishers of Rental Housing Journal www.rentalhousingjournal.com

By Jane Garvey

It All Comes Back to Communication

Thisis not the first time we have discussed the importance of communication. It is fundamental in every aspect of our lives. It is something we all need to continue to improve, no matter our skill level. Yes, it is hard to listen to the whole story without interrupting, especially when you are pressed for time. Yes, it is hard to listen when you think you have heard it all before. It can also be difficult to tell people what you need, especially when you feel embarrassed or insecure. These are the times when communication can be critical.

Active listening can help build trust. Without it, we fail to ask questions and listen to answers, and we may miss opportunities to solve problems. The details that you hear might allow you to learn how to better help someone in a way that is better for everyone involved. When you fail to listen before acting, you often take the wrong action.

There was a big “if” in all of this. How can you get them to communicate the realities of their situation? I have several suggestions on this front. Regular communication with your residents is important in building and maintaining trust.

Getting in front of a situation is also important. Let’s say you have a resident who works for XYZ Corporation, and you just heard the news that XYZ Corporation is having a big round of layoffs. You should reach out to your resident and ask if they are involved. Let them know that you are there to help find solutions if they run into problems. Reach out occasionally to make sure that they are OK and see what their plans are. Insisting that someone continue to rent your unit when they no longer have a job is just asking for trouble. Allowing them to get out of the lease to take a job elsewhere, or to move into more affordable housing, helps them, and it helps you.

problems.

Occasionally, someone refers a person to me who is having problems with their housing provider. These are usually residents looking for how to deal with a situation where the housing provider has put up a wall and won’t listen. Please try to do the right thing before going into defensive mode. If they genuinely have a problem and you don’t have a solution, find some outside resources to help. You will get better results if you communicate with them and work together to find a solution. If you are non-responsive, they will find usually find someone else to listen to their tale of woe. When that someone is their fellow resident, a government official, a reporter, an attorney, or someone who advises contacting any of the above, things can get ugly quickly. This harms housing providers as an industry in the way of tenant-protection acts, tenant unions, attorneys, and laws that specialize in attacking housing providers.

Publisher John Triplett john@rentalhousingjournal.com

Editor Linda Wienandt linda@rentalhousingjournal.com

Associate Editor

Diane Porter

Advertising Manager

Terry Hokenson terry@rentalhousingjournal.com

The articles in RE Journal written by all authors are presented to you for educational purposes only. The authors and the National Real Estate Investors Association strongly recommend seeking the advice of your own attorney, CPA or other applicable professional before undertaking any of the advice or concepts discussed herein. The statements and representations made in advertising and news articles contained in this publication are those of the advertiser and authors and as such do not necessarily reflect the views or opinions of National REIA or Rental Housing Journal, LLC. The inclusion of advertising in this publications does not, in any way, comport an endorsement of or support for the products or services offered. To request a reprint or reprint rights contact Rental Housing Journal, LLC, 4500 S. Lakeshore Drive, Suite 300, Tempe, AZ 85282. (480) 454-2728 - (480) 720-4385.

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This subject comes up for me in a different light today. We need to pay attention to our communication as housing providers. Communication may help you to defuse a situation that could end badly. When you shut off communication, it rarely ends well.

If you are in the business long enough with enough rental units, you will run into situations where one of your residents encounters a problem in their life and makes the decision to postpone paying rent. Unfortunately, many residents decide that not communicating, making excuses, or telling you what they think you want to hear rather than the truth is the best course of action. It is up to you to change the course of this communication failure.

Let’s assume that you have done a great job of screening before allowing someone to move into your rentals. If so, living up to their obligations is important to them. If you can get them to communicate with you about the reality of their situation, you will be better able to assess whether your resident can be returned to good standing with a payment plan, help from a charity, assistance in finding a new job, etc. You can probably also offer suggestions that will help them make better decisions to get past the temporary problem, or even to move on to a living situation more in line with their changed circumstances.

When many companies started to ask their employees to work from home, I reached out to my residents and asked them to let me know if they had any problems for which I could help them find solutions. I received thank-you notes from several of them that read, “I am fine for now but appreciate you asking.” This plants a seed that the relationship we have as housing provider and resident can be improved if we work together to solve problems. Communication is a key to this.

Laying the foundation from the beginning is important. Many housing providers and residents view their relationship as adversarial. When you bring a new resident into your units, you may have to overcome the expectation that your relationship will be the same. They may be used to getting an irritated response when they reach out with something that needs repair. Because of this, some residents live with the problem rather than letting you know about it. These are your opportunities to distinguish yourself and provide great service. If they let you know of a problem they are having, thank them and take care of it promptly. Go the extra mile and ask them periodically if there is anything that isn’t working properly in their unit. This approach will offer you more opportunities to communicate and build trust as well as to fix minor problems before they become major

Things go wrong in any relationship. Sometimes it is clearly someone’s fault. Please try to make sure that that someone isn’t you. If we can go back to the basics and learn to treat people as we would want to be treated if we were in their shoes, we will all be better off.

Jane Garvey is president of the Chicago Creative Investors Association.

Accountability Office (GAO) study in 2015, half of households age 55+ have little to no retirement savings, and 41 percent of those have no savings at all. The average retirement savings balance for individuals ages 55-64 is $104,000, and for those ages 65-74 it’s $148,000.

Only 12 percent of retirement accounts received contributions, with an average contribution of $3,913 in 2017, according to the most recent data from the Employee Benefit Research Institute (EBRI). Roth IRAs were more likely to receive contributions than traditional IRAs.

As of 2022, the annual IRA contribution limit is $6,000 for individuals under the age of 50 and $7,000 for those 50 and older. (Note: You can only contribute $6,000/$7,000 combined between all IRAs you own.)

In other words, Americans are only contributing half of what they could be contributing to an IRA. Traditional and Roth IRAs carry this same contribution limit.

The Gap Between the Boomer and Millennial Generations

The millennial generation, defined as those born between 1981 and 1996, could be facing greater challenges than the baby boomer generation. The wealth gap between these generations is of great concern, which can have consequences not only for millennials but also their Generation X and boomer parents and grandparents.

The boomer generation holds just over 50 percent of all U.S. household wealth, according to The Federal Reserve’s 2022 Distribution of Household Wealth Table. It seems logical that this generation would hold a larger proportion of household wealth, given they have been working longer; however, according to an article written by Trust and Will, historical data suggests the wealth gap between boomers and millennials shouldn’t be as large as it is.

One could argue the migration of the pension system to the voluntary 401(k)/defined contribution system played a role. We also need to consider that much of the millennial generation was either graduating college or high school during the Great Recession, which started in December 2007. The millennial generation has just 6.6 percent of all household wealth, while Generation X holds nearly 30 percent.

with your experience and reduce your dependence on stock market performance.

You are not at the mercy of only investing your IRA in the public markets such as stocks, bonds, mutual funds, or ETFs. With a self-directed alternative-asset custodian, you take control of your retirement savings and invest in such assets as real estate, rental properties, private equity, private direct investments, gold and silver, cryptocurrency, and a wide array of other nonstock-market-based investments.

Investors self-directing their retirement accounts often are confident they can generate a higher rate of return and that their account balance is more stable than keeping their savings invested in assets subject to the volatility of the stock market.

Consider the “rule of 72,” which tells you how many years it could take to double your money. You simply divide 72 by your annual rate of return, and this indicates roughly how many years it will take to double your funds.

An example: An Equity Trust client recently made a 32 percent annualized return through the purchase, rental, and sale of a property in their IRA. If the investor continues to perform at 32 percent per year, they will double their money (72/32) every 2.25 years.

On the other hand, the S&P 500 (stock market index) produced an annual return of 6.44 percent from 2000 to 2022. Applying this return to the rule of 72, an investor’s portfolio may double every 11 years.

To conclude, if you are an active real-estate, privateequity, or other alternative-asset investor, or you are learning and developing proficiency in alternativeasset investing, you might consider leveraging these alternative investment strategies in a self-directed IRA. “Self-directed” is merely an industry term; the IRA is the same account you’d open at a firm such as Schwab or Fidelity, but to invest in alternatives, they must be opened at a custodian equipped to hold alternative assets.

Transitioning to self-directed investing is not as daunting as you might think. Assuming it’s done properly, transferring or rolling over funds from one retirement plan to a self-directed IRA should not trigger any adverse tax consequences or penalties.

The Great Retirement Plan Transition: From Pensions to the 401(k)

The ERISA passage in 1974 paved the way for our current retirement system and marked the start of IRAs.

The legislation included efforts around maintaining the solvency of corporate-sponsored pension plans, along with encouraging Americans to save on their own through IRA and 401(k)-type plans.

The passage also spurred the great corporate migration toward the 401(k), which requires an employee to opt in and defer money from their own paycheck, rather than use a company-sponsored pension plan system.

With the burden now on the taxpayers and not corporations, Americans were left to rely on Social Security and self-led financial planning to secure a stable retirement. In 1975, there were 103,346 companyoffered defined benefit plans. In 2019, that number was down to 46,870.

How Reliable is Social Security?

According to the U.S. Social Security Administration (SSA) 2022 report: “The Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivor benefits, will be able to pay scheduled benefits on a timely basis until 2034, one year later than reported last year.

At that time, the fund’s reserves will become depleted and continuing tax income will be sufficient to pay 77 percent of scheduled benefits.”

The boomer generation might very well be benefiting and will continue to benefit, but what about future generations?

Fast forward to 2022. One could argue this gap could become even greater with the public markets down 1520 percent year-to-date, inflation reported at 9 percent plus, and reports of negative GDP. For those boomers who run out of retirement funds, the financial burden may transfer to the Gen X or millennial children or grandchildren who care for them.

How Can Americans Take Action?

There are steps you can take to prevent your own personal crisis in retirement.

1) Increase your annual retirement savings plan contributions.

Maximize your contributions to qualified retirement plans, such as 401(k)s, 403(b)s, 457s, TSPs, or other employer-sponsored plans. If you’re self-employed, you can consider a solo 401(k) or SEP IRA. With proper planning and sufficient earned income, you can potentially contribute upwards of $61,000 to a solo 401(k) per year when you’re under the age of 50; when you’re age 50 and older, it increases to $67,500.

Retirement plans have unique tax advantages, allowing you to leverage compounding interest in the absence of taxation. Traditional IRAs and 401(k)s grow tax-deferred, whereas Roth IRAs grow tax-free with after-tax contributions.

Here’s a hypothetical example showing the power of the accounts’ long-term tax savings:

An investor starts with $1 today and contributes $6,000 per year over 30 years. With a rate of return of 7 percent and a marginal tax rate of 25 percent, the account would grow to $210,001 in a taxable (non-IRA) environment. In a traditional IRA, the total after the same period would be $570,839; and in a Roth IRA, it would be $829,432.

2) Select investments for your portfolio that align

Learn more about self-directed investing and see if it could be the catalyst you need to ensure a secure financial future.

Special Self-Directed IRA Offer for National REIA Members Only

Equity Trust Company, a leading self-directed account custodian, is a national sponsor for 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

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Visit www.trustetc.com/nationalreia or call 844-7329404 to learn more.

John Bowens is National Educator and Manager, Retail Sales, at Equity Trust Company. Visit www. TrustETC.com for more information.

Equity Trust Company is a directed custodian and does not provide tax, legal or investment advice. Any information communicated by Equity Trust is for educational purposes only, and should not be construed as tax, legal or investment advice. Whenever making an investment decision, please consult with your tax attorney or financial professional.

By Tony Youngs

Ifyou have everything you need to run your business, there’s probably no need for a partnership. A good partnership is created by finding someone that has a gift, talent, or resource that you don’t have.

An example: Maybe you are good at finding and acquiring great deals, but you need a money partner. Or you are good at repairs, but not good at managing tenants.

There’s a little more to consider when seeking a partner. I have had many partners in my real estate business and I have much experience to share that may be helpful in your future endeavors.

When you find someone that seems to be a good fit, check court records for any civil suits, and find out if they have any liens or judgments against them – you don’t want anything to attach to your property deals. Also, do a Google search to see if any bad publicity exists. You can’t believe everything on the Internet, but your customers and associates may see that content and pre-judge your business.

I like to spend time with a potential partner by going to dinner, meeting at coffee shops or even taking in a baseball game to get to know their character. Do they have good values or do they have a screw-people attitude? Do they have a good work ethic or do they brag about being lazy? I always ask if they play golf because you really find out a person’s true character on the golf course. I saw an interview with President George W.

Partnerships

Bush where he said if you play golf with someone, you will find out if they are honest people. The two absolute best partnerships I’ve ever had are the folks with whom I play golf.

I remember my very first real estate deal, a single family home that was in pre-foreclosure. The owner wanted to sell at a great price. I had plenty of energy and ambition but did not have the money to buy it.

I went to my father, who was a wealthy investor, and asked if he would partner with me. He was reluctant at first but agreed to fund the deal for a share of the profit.

I was so grateful and I had the attitude that I wanted it to be successful for him more than myself. I wanted to make it work and show him I was a good partner and he could rely on me. Afterward we did many deals together and they were all successful. I have had many other partners because I was always good at finding deals. That attracted many other potential partners. People would approach me wanting to get involved, so I never had to seek out future partners.

I have owned rental houses with partners that always worked out well. I was always good at managing the properties and doing any needed repairs, while the partner was excellent at keeping the records, doing the taxes, and dealing with tenants. I have had partners that were good at maintaining HVAC and electrical systems on rental housing, which goes a long way in making successful ventures.

On the other hand, there can be partnerships that work very well for a while but then come to an end.

That is why you need a written agreement, a document to cover the “what-ifs.” Spell out exactly what happens if your partner suddenly dies or gets very sick, or what happens if greed takes over and the partner wants out and takes everything you built together. What happens if your partner gets a divorce and their spouse wants it all? These are things that can happen and you should cover them in a written agreement.

I personally have had similar things happen in my partnerships, but I have always believed in “you reap what you sow.” I have always tried to be a good partner and have my partner’s best interest in mind. In return, I have attracted partners who seem to be the same. They go the extra mile to be a good partner and we have enjoyed very successful partnerships. They have an “I’ve-got-your-back” kind of relationship, which is golden.

Tony Youngs has been an investor, trainer and a national speaker for more than 32 years. He is the author of The Hidden Market System and is best known in the industry for his “Hands on In the Field” trainings that take place around the country. Learn more about him by visiting www.tonyyoungs.com.

out on the opportunity of becoming homeowners? The post-housing recession legislation was supposed to stop “too-big-to-fail,” and it hasn’t. The irony is that seller financing wasn’t at the heart of the Great Recession. In fact, the Consumer Financial Protection Bureau (CFPB) noted that private investors are NOT a financial risk to the country and finance markets. Seller financing limitations were the result of an unintended consequence that needs to be resolved.

National REIA continues to work to develop cosponsors with leadership like the sponsor of HR 5013, Rep. Vicente Gonzalez (D-TX) and many others to address this particular error. The current bill is titled, “The Affordable Homeownership Access Act.” The title references the fact that many banks cannot afford to provide sub-$100,000 mortgages, which limits affordable homeownership options for many individuals, especially those who are self-employed or traditionally unbanked.

Exploring and opening capital to the affordable housing market is essential – so much so that a 40page research project was commissioned. The Housing Finance Policy Center’s April 2018 research report, funded by the Urban Land Institute and Federal

Reserve Bank of Chicago, noted that, “for homes sold for $70,000 or less, one in four sales was financed with a mortgage.” The majority were cash sales by investors, often becoming rental property. While National REIA is fully supportive of investors buying property, potential homeowners being institutionally blocked from housing, especially first-time home-ownership, creates a problem in the market and blocks access to capital for individuals unnecessarily.

The $70,000 threshold may seem like a non-issue in this period of rapidly inflating housing prices, however, there are still substantial numbers of low-cost housing areas around the country affected by the mortgage limits, and additionally, inflation will raise the amount seen as “too low” to deserve a mortgage. While housing prices may not currently reflect Zimbabwe or Weimer Republic escalation, as costs increase, the cost to underwrite a mortgage increases as well. From energy costs to staffing, the cost of underwriting is not deflating, and thus the threshold for affordability will rise in conjunction with, or even faster than, reported inflation rates.

Finally, from an experienced investor perspective, it is important to find communities with stabilizing

housing and homeownership; this is a key factor, especially in many urban pioneer neighborhoods. Buying (and selling) real estate in these communities is often closely connected to the increasing percentage of homeownership. This increasing homeownership is itself a key reason many CDBG funds are spent by municipalities to develop that initial momentum in a neighborhood long suffering from blight. Imagine the changes that could be made with the free market capital of homeownership unleashed in these areas!

To help, please reach out through National REIA’s Action Center to encourage your congressperson to become a co-sponsor. Visit www.NationalREIA.org and click on the Advocacy tab.

Additional updates & resources can also be found at our partner’s site, www.SellerFinanceCoalition.org.

5

Roles Your Company Should Outsource

By Gita Faust

Whenyou run a real estate business, your goal should be—loosely—to maximize the productivity and efficiency of your company while minimizing the overall costs. A standard method for doing precisely this is outsourcing talent to fill particular roles that you do not necessarily need to complete in-house.

You might wonder, “Why wouldn’t I just hire a fulltime [insert specialty here] professional?” Well, chances are you do not need somebody to work full-time on the jobs you would outsource, so you would save money by paying them for only what you need. On top of that, these people are experts in their field, so you know their work will likely be top-tier and better than your team may have conjured up. (When you work with experienced real estate professionals, they will often have testimonials and references to share so you can see if they are the right fit for your company).

When You Should Outsource

There is no right or wrong answer to the question; it depends solely on your real estate business. At what stage of growth is your business? What talent do you already have on your team? How many employees do you have? How much revenue are you bringing in? Do you have tasks that nobody on your team has experience with? The list of questions goes on and on.

Your business can handle its normal day-to-day operations; however, when a project arises that you cannot complete due to your lack of proficiency in the subject, a lack of time on your part, or some other reason, that is when you might want to hire. For example, suppose you know that your company needs to employ a marketing campaign on social media. However, you do not have the time to do so yourself, and most of your employees are older and have little experience with social media (not to mention their hands are just as full as yours!). In a situation like this, it is wise to hire a marketing professional to organize a social media campaign; they have the experience, they have the time, and you only have to pay them for the work they do rather than as a full-time employee.

What You Should Outsource

When it comes to which roles you should outsource, it just depends on what you need; however, for most real estate professionals, there are five roles, in particular, that would be smart to outsource if you do not already have them filled on your team:

1. MARKETING

I used the previously mentioned example of hiring a marketing professional since it is the first role on this list. While you may not need to outsource all your marketing services, digital marketing is a popular service fulfilled by marketing professionals. With the rapidly growing popularity of social media, it would never hurt to hire someone who is an expert in the area. You can implement and streamline simple integrations with your CRM or sales processes to ensure you are on top of those leads. In most cases, you may not need to bring a complete digital marketing team—or even an entire general marketing team—in-house, so it makes much more sense to outsource the role.

2. HUMAN RESOURCES (AND PAYROLL!)

When you think of human resources, you often assume that somebody works in-house (I know that’s what I usually think!) However, it is becoming increasingly common to outsource your company’s human resources staff. Why? Wouldn’t you want HR to know your company and adapt to your needs? Well, HR companies do precisely that. They can meet your company’s needs (including payroll), all while minimizing risk and remaining less costly than an inhouse HR staff.

3. BOOKKEEPING AND CONTROLLERSHIP

As you know, real estate bookkeepers are hard to find, especially one that is an investor, graduate, and knows the industry and software inside out. They record transactions in detail and reconcile them for accurate

reporting. You need a person who will ask questions, find errors in your closing doc, and cross their T’s and dots their I’s. This specific role is outsourced by small to mid-size businesses to reduce overhead. It saves you the expense of hiring your bookkeeper and allows your finance team to focus on tasks more geared toward your company’s performance and growth. To make the process even more streamlined, you can use software such as QuickBooks and HammerZen, which automatically uploads purchases into QuickBooks. Implementing automation into your business will save you time and money. Compare your cost with hiring an employee (with all perks), getting their work checked monthly, vs. outsourcing a bookkeeper and controller.

4. CPA AND TAX PLANNING

Tax time is the time of year that everybody dreads. It’s similar to the holidays in that you must make many preparations, but tax time comes without any festivities or holiday spirit. On top of that, tax planning requires expert knowledge, so it is best to leave it to somebody with that expertise, such as a CPA or a tax strategist (or somebody who is both!) Like bookkeeping, tax services are unlikely to be necessary full-time, so outsourcing will save you much money! Create your team by outsourcing your accounting task, and connect them with your CPA for an easy transition in filing your tax return. You will receive monthly reports that will help you keep an eye on each property budget vs. actual expense. With a snap of a finger, this process prepares you for a tax strategy session any day of the year. On top of that, outsourcing CPA and tax services removes the stress from your finance team (or you, if you are your accounting team) and allow you to be more productive.

5. CFO AND FINANCIAL STRATEGY

You might think I am crazy for suggesting you outsource your CFO, especially since I referenced your finance team a few times prior. But hear me out; when you outsource to a CFO, you hire somebody who can provide high-level strategies and advice to you and your management team—and it costs less than onboarding an in-house CFO! An outsourced fractional CFO or financial strategist does everything an in-house CFO does: develop actionable plans to help your company grow, identify methods to improve your margins and prepare for the future, and raise capital. These people already have experience in the field, but the price is low, so that outsourcing CFO services could be a highly strategic move on your part!

Should You Outsource Forever?

You read about which positions you should outsource, why it is better for your company to outsource, and yadda-yadda—but is outsourcing sustainable for the foreseeable future, or is it just temporary?

That depends on you and your real estate company. Each of these services is different, so there is no singular correct answer, but you can boil it down to this: if outsourcing suddenly outweighs the costs of hiring in-house, you should probably switch to an in-house employee. It could happen for several reasons; your business grows, and more transactions occur daily. You are closing more deals, working with contractors, you need to market your business more and more, or your number of in-house employees has grown to the point where you need to hire somebody to focus solely on them, and the list goes on. Again, it depends on you; you are the one who needs to compare the pros and cons of outsourced versus in-house employees and decide what is best for your business.

Where to Start

Now that you have decided to outsource some of these services, you might be wondering where you can find people to hire. Well, you can ask around; any mentors, associates, or other NREIA members have likely outsourced some of their services. You can look on the internet; searching for “marketing services near me” takes about five seconds, and you will be surprised with the results. You could narrow it down, too, to something like “real estate accounting services”— something specific to your company. Finally, you might already know somebody you could hire; if you have any questions, we are already here to answer them, as our goal is to help your business thrive.

Overall, there are so many places you can find professionals to bring onto your team; throw a stick in any direction, and you will probably hit somebody you could hire! (Just kidding, don’t throw sticks at anyone, please.)

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.

Property Management is a Liability-Rich Endeavor

By Victoria Cowart

Propertymanagement is a liabilityrich endeavor. In fact, the National Apartment Association’s Education Institute (NAAEI) offers a Certified Apartment Manager (CAM) course, and there is an entire module on “Risk Management.” It is in fact, a five-hour module. As with all NAAEI programs, the CAM program is worth your consideration.

The module covers risk management, risk assessments, and minimizing risks — financial, physical, liability, environmental, employee and more. The most difficult part of risk management, in my personal (non-attorney) opinion as a long-term operator, is seeking out and discovering risk — uncovering risks that may be present that we are

unaware of that may pose an unusual and unreasonable risk to those who visit or live in our communities.

With customers, clients, team members, suppliers, and more all vying for our time each day, how do we go out and find risks that we do not know about? And how do we then resolve them, and thereby prevent liabilities from rearing their heads — and potentially injuring our valued customers and visitors who we care for each day?

A recent ruling in North Carolina touches on this concern. It was called a “vicious dog bite” in the article, and it was the subject of a recent ruling by the North Carolina Supreme Court — wherein a child was clearly harmed. Despite the heartache, the ruling was unanimous. In essence, the “landlord can’t be held liable for a child’s injuries

caused by a dog owned by tenants because he wasn’t told the animal posed a danger to visitors.” Again, the ruling was unanimous.

In today’s world unanimity is a rare thing. Wouldn’t you agree? Of course, if you read this case, you too will be in on the unanimity with those who consider situations like this just awful!

On the legal side, while I am not an attorney and this article is not to be considered legal advice, it is reasonably clear this ruling hinged on the landlord’s knowledge. According to the author, at one point the dog’s owner shared that she had informed the landlord about a “first bite,” and then later testified that she had not. Also of note, the animal services in this county were involved in that firstbite incident and ruled it a “minor bite.”

Reading this article and tracking the

events as they unfolded, you learn the dog owner knew; the county’s animal services knew; and yet, the landlord truly did not know about a bite incident with this dog and yet was sued.

Further reading reveals the plaintiff asserted, and deposed a property management professional to this end, who shared the viewpoint that we landlords should have taken the “beware of dog” signs the owners posted in the yard and the chain for the dog to be an indicator, a “flashing red light” if you will, that we immediately had a “duty to examine potential problems.”

Thankfully, the courts disagreed with this theory. Those of us in this industry would likely go so far as to say that posting those signs and utilizing a chain are generally good liability-protection measures, and possibly only an indicator of a dog with great escape skills!

So, what does this all say or mean? In short, liability situations or policies can be discontinued, retained, transferred, or controlled. Those are our options when dealing with risk. These owners took liability-control actions and deployed liability-control techniques — the signage and the chain — yet those actions were used against the landlord. As most of us know, it comes down to what we knew or should have known in such situations. We hear that again and again in liability cases, and in life in general.

This then reinforces that we should ask the right questions when addressing liabilities, document those answers, and then periodically ask those questions and document those answers again. Do what a “reasonable” person would, because that is the standard — one standard — the courts will hold us to. And then, be sure to act on what you learn. Knowledge without action may be the end of your defense and cost you sleepless nights of regret.

If you’d like all the questions asked, and all the answers documented, and all of this to work seamlessly for you and with your teams, contact us at PetScreening.com. Our services are free to you, digital and easy, and we ask great questions — 23 in fact, in addition to obtaining other data points, regarding pets/animals in your communities. We “paws” to gather all of our pet parents’ answers to our questions, and we’re saving those records for our customers and asking them annually as well.

As this case revealed, this is a system you need in order to prevent or control such unfortunate situations — and to defend against them if they occur. Don’t lose sleep over this, snuggle with your pets, and then sleep soundly as our clients!

Victoria Cowart, CPM, NAAEI Faculty, and the Director Education & Outreach for PetScreening. For more information, please visit PetScreening.com.

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people who just can’t sit still. In high school, I played two varsity sports and worked multiple jobs. My favorite parttime job was working at Rosenblatt Stadium for the Omaha Royals and the College World Series. This is where I met Warren Buffett for the first time. Mr. Buffett purchased the AAA team to keep it in Omaha. That experience helped me realize that any level of success was achievable.

After college in Minnesota, I soon worked for a Midwest bank. That bank was expanding to Colorado so I jumped at the opportunity to trade winters for 300 days of sunshine. I worked my way up to Regional Manager & VP of Lending for the bank during my 7 years there. My background in financing has helped my understand the numbers to get the most out of each project. It was also during this time that I was working on renovating homes with my best friend at nights. A chance encounter led us to network with other real estate investors and mortgage brokers.

Where is your current market and what is your focus or area of expertise?

The metro Omaha area is my prime focus. I am licensed in Nebraska and Iowa. The majority of my work is based on real estate that makes people money. That can include for my own portfolio, clients or even the non-profit. My favorite part of the day is exploring a new property and analyzing the best way to operate that real estate for maximum value.

Basye

In my personal experience, I have “flipped” over 70 properties. On the majority of those, I was on site every day and involved in the renovations. This gives real-life expertise for those clients looking to get into real estate investing.

How did you get started?

Like a lot of real estate investors, I was inspired after reading Rich Dad, Poor

Dad early in the millennium. My best friend, Duke, and I worked on renovating our own properties. Since we both had full-time jobs, we would go change after work and meet at the project. The hours made for long days, but the experience and profits made it well worth it for us. Since my friend was 6-foot-5, he could hold up drywall on the ceiling as I went around and screwed it to the studs.

Describe a typical work week for you as a real estate investor:

My work week is always about finding and analyzing deals. My goal is to look at every deal as something I would buy for myself, that way my clients get an honest assessment of the property.

I enjoy getting into the properties and seeing, for myself, how to make them work better. Not every deal looks great on Day 1, so you have to have a plan for years 1, 2, 5 and beyond.

There are too many times I hear a potential investor say the Cap Rate is too low to buy it when I know that I can make it very profitable in 30-60 days.

How long have you been investing in real estate?

I bought my first investment property in 2003 and I have never looked back.

Tell us about your first deal:

The first deal was a live-in renovation project. I found a brick ranch in the suburbs of Denver with an unfinished basement. While living in the property, I added 2 bedrooms, 1 bath and a family room in the basement.

In addition, there were plenty of other updates that included fixtures, landscaping, flooring, lots of paint and new appliances. Since I had a full-time job and needed a place to stay, I was in no rush. After 2 years, I put the home on the market and made a tax-free profit!

How do you fund your investments?

In the beginning, funding was easy with the NINA (no income no asset) style loans that were offered by mortgage brokers in the early 2000’s.

Today, I use a combination of line of a credit and cash on hand to make it work. Since I don’t partner up on any deals, it’s up to me as to what will be invested in each opportunity.

Do you have a real estate license?

Yes. I am licensed in Nebraska & Iowa.

What projects are you currently working on?

Lately, I have been looking at commercial use projects. There are properties that have commercial and residential usage. Those places have great appeal in a high inflation market to rent to entrepreneurs. The tenant saves money on live/work space while I get a stable resident who is more likely to stay with their established business.

The other project I’m working on is making transitional housing.

How much time do you put into your real estate education?

As soon as you think you know it all, something new will come along. I make the time to keep up with continuing education for my licenses. There are always new and exciting things to learn in this business. Who would have thought that you could buy a house with crypto-currency just a few years ago?

The more I know in this industry, the more I can help my clients and colleagues. If this is your profession, you should try to become an expert at all aspects of what you do.

Has coaching or mentoring played a part in your success?

I’m fortunate to have been linked

Ryan Basye with his wife and children

Ryan (left) being interviewed by Omaha REIA’s Owen Dashner on their REIA Radio podcast about how he is converting empty office buildings into transitional housing. The podcast was posted on www.realestateinvestingtoday.com on 4/12/22.

Ryan is attempting to get a license plate with his last name, “BASYE” from all 50 states to honor his father’s service to the country as well as the family name. So far he is just over two-thirds of the way to getting all 50 states.

to some of the most successful real estate people in the Omaha area. One of my best friend’s dad was a landlord of over 100 properties and would talk openly about the process of real estate. My neighbor growing up was one of the first female brokers in Nebraska and sold thousands of properties. Both provided insight that would prove to be invaluable.

I feel networking with like-minded real estate investors has played a role in my success.

What are your current and future goals?

My current goal is to get my portfolio performing well and get it up to around $1 million gross income per year. That will create a residual income for my retirement and family time. In the future, I hope to teach my kids the value of real estate investing and how connecting with people can make the world even better.

What has been your top struggle in this business?

Time. As I stated earlier, I don’t work with any partners. That forces me to make decisions on which projects to take on based on my time, my family and my financial position at the time. I try to balance work and home life so I don’t get burned out.

What do you like most about what you do?

I truly enjoy getting up every day for real estate, I never know what kind of property I may be walking

that day. I’ve been in the business long enough to not be surprised, but each day brings something I didn’t expect.

Since I am a very visual person, I like being able to see a property for what it could be and explaining that vision to a contractor or client.

Do you have a tip or advice that you would pass along to other investors?

For new investors, you have to get in by doing it. The first property can be the hardest to buy because you don’t want to make a mistake. If you never get started you are never to going to be successful. Even the best of us make mistakes, we just learn from them to make it work out better the next time.

How important is joining a local REIA to a new investor?

Very. Networking can be your biggest asset in this business. There are always folks out there who have already solved the problem you are dealing with today. The connections we make at REIA meetings can lead to new contractors, property management, deals and even long-lasting partnerships. Whether you are new or experienced we can all use some advice.

What is your favorite selfhelp or business book?

Read what inspires you!

Personally, I operate on a mix of Dave Ramsey and ‘Rich Dad, Poor Dad’.

Do you have any interesting hobbies or something unique that you like to do?

Today, my hobbies are baseball and whatever my kids are doing.

Does your business have a website? www.getagoodhome.com

Social media accounts?

https://www.facebook.com/RyanBasyeRealtor https://www.linkedin.com/in/ryanbasye

This is one of the properties belonging to Ryan’s non-profit; “On Deck Housing.” It is a very unassuming commercial property, yet it houses about a dozen young women in need.

is to provide a reasonably safe place to live for the tenant, occupants, guests, and invitees (and there may be more than just this duty, depending on the lease and the applicable laws). The basic legal theory about a landlord’s duty from settled case law is, “if the landlord knew or should have known about a danger or peril in, or on, the property, the landlord must ensure reasonable and timely remedies to prevent damages (injuries) to whom the landlord owes the duty of reasonable safety.” Did the landlord have a duty to allow the tenant to have a weapon inside of the private, inside quarters of the home that the tenant controls in order to protect the tenant’s family/household? That is a big question. Arguably, if the tenant had nothing in their background that would put a landlord on notice that the tenant had a propensity for violence, and the tenant is “an ordinary, law-abiding citizen” why would anyone not allow that person to have adequate home protection? So, is there such a duty? The question does not seem to be resolved by any court. However, some states prohibit a landlord from such a prohibition. Do you want to fight this case in court?

Then:

2. Causation

“But for” the landlord’s actions or inactions, would a particular event or damage have occurred? “But for” the landlord allowing the tenant to have a weapon for protection, would the injury/damage likely not have not occurred? Here the answer is probably, yes.

Then:

3. Foreseeability

Even if there is a duty and there is causation, there is one more test to be applied before we can determine if the landlord actually has any liability for the damages/ injuries. Was it foreseeable by a reasonable person that

if the landlord allowed the tenant to have a weapon to protect their private home that this very injury/damage would take place? Here the answer is again probably, yes.

I suggest running any scenario where you as a landlord feel you may be vulnerable through the three prongs of the legal test as described above. In fact, I invite you to do that right now with the above scenario, only reversed, where the landlord prohibited their tenant from having a weapon on the property and the tenant or their guest was injured because they did not have a weapon for self-defense. Is it your duty to restrict a weapon being on the property for personal protection? Can prohibiting a weapon create an adverse situation? Can you foresee a situation where someone is injured or worse because they were not able to use a weapon for defense?

What is the course for best practices to avoid blame and liability? Examine your property, your practices, and your policies through the lens of an attorney and make the proper adjustments to boost the protection of

both your tenant and your property. After all, the best way to avoid any blame at all is to anticipate potential problems, remedy them, and document what you have done.

Scot Aubrey is vice president for Rent Perfect, a private investigator, and manages short-term rentals. 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.

Chris Kohler, President

Clay Powell Set to

in January

By Brad Beckett

is not often that a leader stays the course with an association, through good times and bad, for nearly a quarter of a century. Earlier this year Clay Powell, director of the Rental Property Owners Association of Kent County (RPOA), announced that he would be retiring in January 2023 after almost 25 years of service.

Since becoming the association’s first director in 1998, Clay’s leadership helped the RPOA double the size of its membership and shore up finances, which enabled them to become one of the largest and most successful real estate investor associations in the nation.

The RPOA has won multiple awards from National REIA for its government affairs efforts, public relations, education, publications, website, and podcast, as well as once being awarded an outstanding REIA of the year. Clay also served on NREIA’s board of directors for several years.

In addition, Clay was very active in government affairs. He also served as the executive director of the Rental Property Owners Association of Michigan (RPOA-M), which focuses exclusively on lobbying the state legislature. Many of Michigan’s laws regarding rental property were improved and many bills that would have been detrimental to the rental housing industry were killed during Clay’s tenure – which also ends in January.

I had the opportunity to talk with Clay at National REIA’s Mid-Year Leadership conference in Milwaukee this summer. He said by then he’ll be a “young 62,” and is very much looking forward to retirement. “We are ready to do all the things we love to do more often and without work being in the way of when and where,”

he said. As for his service to the RPOA, Clay told the board that “It has been an honor and a joy to work for the RPOA.”

Indeed…If you get a moment, visit RPOAonline.org and drop him a congratulatory note.

Brad Beckett is the Director of Education & Outreach for National REIA.

Clay enthusiastically said this represents what he will be doing more of in retirement!

Questions on Trusts and Trustees

By Jeffery S. Watson

Manyreal estate investors consistently use what I call a “grantor revocable title holding trust,” a more accurate term than “land trust,” to take and hold title to real estate they buy for investment purposes. Such trusts can be used to take and hold title whether the property is being held as a long-term rental or being bought to fix and resell as a quick flip.

While there is a lot of confusion and hype about trusts, here are some common questions I get when it comes to using them.

The most important component of a trust arrangement is the capacity and integrity of your trustee. He or she not only must be a person of impeccable character, but they must have enough business acumen and diligence to be able to perform the role of a trustee.

One thing that is frequently omitted when real estate investors talk about using trusts is that the trustee of a trust has a fiduciary duty to the beneficiaries of the trust.

A good definition of “fiduciary duty” is taken from Black’s Law Dictionary: “A duty to act for someone else's benefit, while subordinating one's personal interests to that of the other person.”

I summarize it like this: When you only have time to do one of two things, you do that for which you have the fiduciary duty.

For example, if the banks close in five minutes, and you need to make deposits at two different banks, you go make the deposit for which you have the fiduciary duty rather than the deposit for yourself. It’s important to select a trustee who understands their fiduciary duty.

Something that was pointed out to me by my friend Quincy Long of Quest Trust Company is the importance of selecting the correct trustee to serve as a fiduciary when using an IRA-owned trust. The tax code is very clear in 26 U.S.C. 4975 that the trustee will become a fiduciary to the IRA that owns or is the beneficiary of the trust. This means that they, and often individuals associated with or related to them, become disqualified persons as to that IRA for future transactions. While great care should be taken in the selection of a trustee in any situation, it’s even more important in the selection of a trustee for an IRA-owned trust. This requires a lot of forward thinking and what-if questions.

with resources and assets from the trust. Then, in the typical situation where the trustee of a grantor revocable title holding trust is holding title to a cashflow-producing piece of real estate, that piece of property should be insured with a property and casualty insurance policy. The person or entity serving as trustee needs to be a named insured on that policy.

Do grantor revocable title holding trusts provide asset protection?

No. A grantor revocable trust is a contract, and a contract has no statutory or common-law basis for providing asset protection. This type of trust, however, does a very good job in providing anonymity and privacy. Other kinds of trusts, such as domestic asset protection trusts and some non-grantor irrevocable trusts (both of which are beyond the scope of this article) do provide some asset protection.

When I refer to a trust as a “grantor revocable title holding trust,” that means the grantor or settlor who forms the trust or enters into the agreement with the trustee has the ability to amend, change or revoke that trust. The notion that having the homeowner from whom you are buying the property subject to an existing mortgage first create the trust and then assign the beneficial interest to you, the investor, is bad on both counts. First, you are engaged in the unauthorized practice of law by preparing a legal document for another person, and second, you are creating a trust that, if valid, could be revoked at any time by the grantor/settlor over whom you have no control or sway.

There is a correct way to use a trust in a subject-to deal. You can set up the trust that your buy-and-hold entity owns, and that trust can be the subject-to buyer.

Yes, a trustee should be paid a reasonable fee for their fiduciary duty and their time spent carrying out that duty. That fee is based on the totality of the circumstances involved, such as the amount of assets being administered, the complexity of what they are doing, the amount of time involved, and the knowledge, skill and experience required to do a good job.

For example, if someone as a trustee is holding title to a piece of property, and they are not being asked to do anything other than that, not much work is required, and the trustee fee should be nominal. If, however, the trustee is involved in activities on a weekly basis, that fee can be significant.

How is the trustee protected?

The trustee is protected in two ways. First, the trust agreement should agree to indemnify and defend the trustee

No! Any person who espouses this myth has clearly failed to read the GarnSt. Germain Act in its entirety to see the limited basis on which putting a property into an estate planning trust does not trigger the due-on-sale clause in a deed of trust or mortgage. Those who believe this are usually encouraging others to engage in the unauthorized practice of law and/or are creating trusts that have a potential massive defect.

I hope this article is making you say, “Oh, wow!” and not, “Yeah, but…,” and that it gives you some additional food for thought when determining whether you want to use a grantor revocable title holding trust to hold your property, or if you want to use an IRA-owned trust as part of your overall self-directed IRA investing plan.

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. Watson has changed the law in Ohio four times via litigation. Read more of his viewpoints at WatsonInvested.com.

How do I choose who should be the trustee?

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By Daniel Hart

Stop Asking for a Mentor

forward is up to us, but if we want to find success, it is essential that we do so.

no one is an expert in all areas, so keep that thought in the back of your mind.

Mentors

are a critical part of any business, and even throughout life in general. Other people hold invaluable wisdom that helps us grow, not just in business, but as human beings. One of the first questions I see new real estate investors ask, often before they’ve even read a single book about investing, is “Where can I find a mentor?” or “Will you be my mentor?” Mentors are a critical part of real estate investing, or any business for that matter, but please, I beg you, stop asking for them.

As an experienced investor, it’s not just frustrating to be asked these questions (often from people who have put little effort into educating themselves), but it’s also a pursuit that is not in the best interest of the questioner, for a number of reasons.

For starters, when you are new to the business, and anonymously messaging an experienced investor, or posting in a public forum, most of the responses are going to be from people (often less experienced than you may think they are) who are looking to take advantage of you. That doesn’t mean they are running a scam, but they may intend to sell you a program, take part of your deals, or find some other benefit to themselves that supersedes their goodwill. The simple fact is that you do not need to pay a mentor. That’s not to say that there aren’t good educators for hire, as there certainly are, but you certainly can find the people you need without swiping a credit card.

More importantly, truly experienced investors don’t want to hand-hold new investors through the business, not just because they can tell the individual hasn’t put in any effort on their part, or because they don’t want to give back and help others, but because real estate investing isn’t a business you can thrive in with your hand held. Similar to the way a plant thrives with less frequent watering, by struggling for growth, and becoming stronger than the daily watered plant, so does a person. We must put forth effort in order to grow. If we are simply fed the information on how to do business, we will ultimately hit roadblocks we cannot pass, but if we try, struggle, and fail, we grow stronger, and we learn how to overcome the constant barrage of roadblocks that are inevitable in business (and life). Whether we pick ourselves up and keep moving

A quality mentor is willing to give back without expectation of gain. They can help a new investor find direction, both in their business, and in their life. However, they typically want to see that the person seeking assistance is actually putting in effort, rather than simply asking for a free ride to investment riches. Real estate investors who have substantial experience are approached ad nauseam with requests for mentorship or guidance, and they simply can’t help everyone, especially those who aren’t yet helping themselves.

Those who demonstrate that they are reading as much real estate material as they can find, networking in REIA meetings and other industry associations, and “hitting the streets” doing whatever they can to move forward, are much more likely to attract the attention of the well-intentioned experienced investor. To find that person will take some effort on your part, but if you are putting in the effort, they will undoubtedly come into your life.

Finding that mentor, whom we can turn to in times of confusion, for direction or even specific instructions on a topic, is certainly important, but we should not rely on one sole mentor. In time, we should have numerous mentors, and know whom to turn to in each situation. Just as every person has strengths and weaknesses, so does each mentor. Some people will be experts in one area but uneducated in others, and they may have personalities (egos) that require careful navigation. If we are observant, we can learn their positive and negative personality traits at the same time we learn about the business, and we can understand the consequences of their behavior, both good and bad. Just because someone has extensive experience doesn’t make them an expert in all areas. It’s our job to recognize where each person fits into our life, and to know whom to turn to based on the type of direction we need.

Some people will be experts with rental property, but may have no knowledge of creative financing. Others may be good at renovating properties, but may not know how to market to find the deals. Perhaps another is a great negotiator, but cannot manage finances. Almost

Remember that other people’s time is valuable. It is literally their most valuable resource. So, respect its value, and think carefully about the questions you ask. If the information you seek is readily available with an internet search, a mentor may become frustrated that you took their time rather than your own. The time they spend with you may be time that would otherwise earn them $500 an hour, so treat it as such. As a new investor, or even a seasoned investor, you should be constantly educating yourself, whether it be by book, seminar, or simply learning from your mistakes. You will need to become accustomed to educating yourself.

Don’t think of mentors as hand-holders. You can’t expect mentors to answer every possible question you have. Think of them as people you can turn to when you don’t know where to go, you’re lost, or you’ve hit a roadblock. Some mentors may have time to meet you for coffee and discuss situations in great detail, and others may only be able to give a quick response via email, so tailor your questions appropriately. If you know that a particular mentor stays very busy, you may need to think about your question more carefully in order to really drill down to the root of the issue and save time.

Mentors come and go, leaving behind wisdom in both business and in life. You don’t need to advertise that you are in need. If you’re truly putting in the effort, it will be recognized, and the mentors you seek will gradually appear.

Daniel Hart, owner of Hart Homes and author of The Real Estate Roadmap (available on Amazon), has been investing in New Jersey and North Carolina real estate since 2004, and has purchased more than 100 properties, almost all using creative financing strategies to create passive income. He is a former board member of the Metrolina REIA in Charlotte, N.C.