Maby and Mike Johnston have lived in South Florida most of their lives and currently reside in Boca Raton. They have raised two daughters and are now blessed with three beautiful grandsons.
Being empty-nesters allows them to travel and invest all over Florida. Mike and Maby have extensive backgrounds in both residential and commercial real estate.
Maby has managed over 100 large commercial properties throughout South Florida and Michael was a wholesale lender with the largest privately held mortgage company in the U.S.
In the last five years they have bought and sold several properties themselves as well as helped over 250 people buy, sell and invest as well in South Florida.
They are active members and mentors of BPM REIA in South Florida.
Continued on Page 10
By Scot Aubrey
HBrain Games for Housing Providers
ave you ever looked at your life as a housing provider, considered your property portfolio, and questioned why things just aren’t working out in your favor? If you’ve been doing this for any period of time, the answer is a resounding yes. If you haven’t, well at least you have that to look forward to. Here’s the great thing, you can blame it on your brain, specifically what scientists call cognitive dissonance.
Similar to the person who wants to be fit and healthy but refuses to eat less, eat well or exercise, landlords who are struggling in the current market have to be willing to make some changes in order to find their success.
Here are a few things to consider if you feel stuck in your current situation as a housing provider:
Reassess Your Goals
When you buy a property, you better have some goals or reasons behind the purchase, otherwise what’s the point. Are you buying to create an additional revenue stream? Or to create a long-term
appreciating asset? Do you just want someone to cover the mortgage or do you want to have positive cashflow every month? Are you hoping to house a longterm tenant who treats your property like their own, or are you happy having a short-term rental with a new occupant every few days or weeks? Goals change
over time and due to other circumstances in your life.
No matter where you are in your ownership journey, I suggest sitting down annually and creating or modifying your goal list so it aligns with your cur-
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Your Biggest Reward
By M. Jane Garvey
Arational investment of our time, money, and resources requires that in part we ask, “what’s in it for me?” Some of the rewards are the ability to improve our community and help others. It is also critical that some of our rewards be financial as well. If they aren’t, we will quickly find ourselves in unsound investments.
In real estate the naïve, uneducated investor may quickly be driven out of the business by making “rookie” mistakes. I have met many beginning housing providers who think “how hard can this be?” or, “I can do better than that slumlord who is renting out the campus dump I lived in.” or, “I found a place that I can get 10% off and it only needs a little work.” And on, and on. Everyone thinks they know better and can do better than the people who make a living doing this.
We need to be able to make money. In a free market, we can make money by doing the right things, keeping the
Continiued on Page12
Embracing Mistakes: A Path to Growth and Innovation in Real Estate Investing
By Rebecca McLean, Executive Director, National REIA
For those of you who know me well, you know I love tennis. I played high school and college tennis and still love to watch all the majors and anything else I can find.
Recently, I was glued to the U.S. Open while catching up on work and preparing for this article. During one segment, they flashed back to the 2010 second round of the U.S. Open at Arthur Ashe Stadium in New York City, where tennis professional Andy Roddick made a mistake, seemingly finding a new way to lose. Andy’s mistake occurred in the third set; he foot-faulted. Without going into too much detail, it suffices to say a foot-fault is an error during a tennis serve that a professional should not let happen. You would call this a mental mistake in today’s sports era. This made me think of investing and the mental mistakes we can make that negatively impact our business.
Andy did not lose because he had a foot fault. Reports suggest he lost because of his reaction afterward; he had a belligerent response that was mocking and sarcastic. His reaction lingered and colored his mood for the remainder of the match. Even though he rebounded a bit in the fourth set, by then, it was too late, and he had lost the match.
I have seen similar scenarios with real estate investors. A mistake creates a sullen reaction that they don’t recover from, impacting their work and perhaps their teammates. To me, this is a classic case of productivity drain. A contractor makes a mistake, and instead of trying something creative to fix the problem, we blow up and lose more time and money in the process. A resident accidentally floods the bathroom and instead of seeing it as a way for insurance to pay for the much-needed upgrade we have a meltdown and waste the upgrade opportunity and make an enemy of the otherwise great resident because of our poor attitude and customer service. We’ve all had times when we didn’t bring our best self to a challenge.
So, the question today is, how do you create a mental state — and a work atmosphere — where you can make mistakes freely, take accountability when they are discovered, fix them fast, and then explore what happened to determine how to prevent it from happening again? Maybe even create a strategy of asking “Is there any possible good that could come from this?” and get creative to find positive solutions to a frustrating problem.
I heard a story from a real estate investor, preCOVID, that illustrates using mistakes to your advan-
tage. She had asked her Realtor to list her newly renovated property for a certain price via text. However, she accidentally mistyped the number and it went onto the market above what she had intended. Instead of panicking and blaming the Realtor who should have known better, together they staged it better than normal, provided a “catalog” of appliances to be picked out later from the holiday sale at Home Depot, and let the listing stand. When they dropped the price by only a bit, the listings skyrocketed, and they sold it for over $15,000 more than they would have originally listed it! A little creativity can go a long way in recovering from a mistake!
For real estate investors, the stakes can be high, and mistakes can be costly. However, embracing mistakes as learning opportunities can lead to significant growth and innovation. Here are some specific strategies for real estate investors:
Uncover Teaching Opportunities
Mistakes in property management, tenant relations, or investment decisions can highlight gaps in your knowledge or skills. Use these moments to educate yourself and your team, ensuring everyone is better prepared for future challenges.
Uncover Trends
Mistakes can reveal underlying trends in the market or shifts in tenant needs. For example, if multiple properties are experiencing high vacancy rates, it might indicate a need to adjust your marketing strategy or improve property amenities.
Opportunity
Every mistake is an opportunity to make a remarkable recovery. If a renovation project goes over budget, use it as a chance to negotiate better terms with contractors or find cost-saving measures for future projects.
No Hiding
Create a culture where mistakes are openly discussed and addressed between you, contractors or subcontractors, vendors, property management teams, and any other teammates. Encourage your team to report issues immediately, so they can be resolved quickly and efficiently. This transparency can prevent small problems from becoming major setbacks.
Encourage Teamwork
Real estate investing often involves multiple stakeholders, from property managers to contractors to financial or legal advisors and more. Foster a collaborative environment where team members work together to solve problems and improve processes. This teamwork can lead to more innovative solutions and a stronger, more resilient investment strategy.
Creating a culture where mistakes are seen as learning opportunities rather than failures can significantly enhance productivity and innovation. By fostering an environment of psychological safety, where everyone feels safe to speak up, take risks, and make mistakes, we can build a more resilient and dynamic organization. Even if you are team of one, give yourself some grace. The mind can play tricks and keep you from being your most logical self when making decisions if it becomes too concerned about past mistakes.
In the world of real estate investing, where market conditions can change rapidly, and unexpected challenges are the norm, the ability to learn from mistakes and adapt quickly is invaluable. Embrace mistakes, learn from them, and use them as steppingstones to greater success.
But the smartest strategy of all is to learn from the mistakes of others. You can do that easily by being a part of a real estate investors association affiliated with National REIA. Not only will you hear success stories and stories of warning at the local level, but you will also get a national perspective in the National REIA Real Estate Journal, on the REIA Now monthly webinars, and more.
Give yourself and others some grace when a mistake does occur, but join a REIA group now, or become more active and network so you can prevent some of the possible mistakes before they even occur.
Rebecca McLean is the Executive Director of National Real Estate Investors Association.
NREIA Legislative Update
The Chevron Deference
The Administrative Procedure Act (APA) is the key basis of U.S. administrative law. Enacted in 1947, it established a framework for how federal agencies can create and enforce regulations. The APA outlines procedures for rulemaking, adjudication, and public participation in agency processes. Its primary goals are transparency, fairness, and accountability in government decision-making.
By mandating public notice and comment periods for proposed regulations, the APA increased citizen involvement in the rulemaking process. It also established standards for judicial review of agency actions, ensuring that agencies act lawfully and reasonably. While the APA has undergone some modifications over time, its core principles remain essential to the balance of power between the government and the public.
The doctrine of Chevron deference, a cornerstone of administrative law in the United States, derives its name from the landmark Supreme Court case, Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. (467 U.S. 837 (1984)). This case marked a significant shift in the judiciary’s approach to reviewing agency interpretations of statutes.
Prior to Chevron, courts employed a more deferential standard known as Skidmore deference, which granted agencies some weight in their interpretations but ultimately left the final decision to the courts. This approach often led to inconsistent and unpredictable outcomes. Recognizing the need for a clearer framework, the Supreme Court established the Chevron twostep test in the 1984 case.
The first step of the Chevron test involves determining whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; the court and agency must give effect to the unambiguously expressed intent of Congress. However, if the statute is silent or ambiguous with respect to the specific issue, the court proceeds to the second step.
Under the second step, the court must defer to the agency’s interpretation of the statute so long as it is reasonable. This step acknowledges the agency’s expertise and its role in implementing and enforcing the law. The court’s role is limited to ensuring that the agency’s interpretation is permissible under the statute, not whether it is the best interpretation.
Chevron deference has had a profound impact on the relationship between the judiciary and adminis-
trative agencies. By granting agencies greater authority to interpret ambiguous statutes, the doctrine was supposed to have led to a more efficient and streamlined administrative process. However, it has also generated criticism, with some arguing that it gives agencies too much power and undermines the role of the courts –with the proof revealing itself in the 90% administrative court agreements with their own agency and the unprecedented growth in the bureaucracy.
In the recent landmark case Loper Bright Enterprises v. Raimondo, SCOTUS revisited the Chevron Deference doctrine. With an opinion drafted by Chief Justice John Roberts, in a 6-3 ruling the court clarified that agencies must act within the scope of their statutory authority, as strictly defined to promulgate regulations. This decision will not immediately dismantle the administrative state, but it could hinder its growth by requiring agencies to justify their actions more rigorously. Additionally, the courts stated that regulations promulgated over the past 40 years need to be challenged independently – in other words, this ruling was not to be used to undo all regulations, lawyers will need to be paid for each regulation challenged! (Cheap shot at lawyers was pro bono!)
The Consumer Financial Protection Bureau (CFPB)
Despite being declared unconstitutional by SCOTUS, the CFPB continues to operate. In June, the agency proposed a rule to ban delinquent medical bills from credit reports. The future of the CFPB remains uncertain, but its continued existence challenges the Court’s ruling.
Property Rights and Development
In another significant case, SCOTUS ruled that development fees imposed by local governments must be strictly related to a specific, detrimental public impact. Generic impact fees that deprive property owners of development opportunities can be considered unconstitutional “takings” under the Fifth Amendment. This decision strengthens property rights and limits the ability of local governments to impose excessive development fees.
These recent SCOTUS rulings have significant implications for the balance of power between the executive branch and the legislature, as well as for property rights and economic development.
With several more cases inbound to SCOTUS — one
of them being related to the Commerce Clause — the pendulum of federalism may be swinging back toward state and citizen rights. As yet SCOTUS has not yet taken action on the pending petitions challenging New York City’s rent control laws. Given the court’s summer recess, this is not unexpected.
Earlier this year, Justice Clarence Thomas expressed interest in the constitutionality of rent control schemes like New York City’s, but he ultimately agreed with the court’s decision to deny certiorari in the 74 Pinehurst LLC v. New York and 335-7 LLC v. City of New York cases. Justice Thomas stated that the petitioners’ claims were too general and hinted that the court was looking for an impact scenario or an “as applied” challenge to the law.
As SCOTUS returns to session in the fall, industry eyes will be on these petitions for any potential developments. If the court decides to grant certiorari in either case, it could have significant implications for rent control laws nationwide.
To date there have been significant developments in rent control policies across the United States.
Increased Local Initiatives
Many cities and states have been actively considering or implementing rent control measures to address rising housing costs and tenant displacement. This trend has been particularly prominent in areas with high housing demand and limited supply.
State-Level Preemptions
While some states have enacted rent control laws, others have pre-empted local governments from implementing such measures. This has created a patchwork of regulations across the country. Georgia and Ohio are two that have taken this market protecting action for the long-term economic health of the state and the housing stock – residents and housing providers!
Federal Government Involvement
The federal government has continued to promote a number of questionable housing affordability solutions, including initiatives that could indirectly impact rent control policies. For example, the Biden administration has proposed policies to increase housing supply through zoning modifications, ADUs, and provide
Continued on Page 5
By Tony Youngs
AGenerational Perspectives
s with most parents, we always want our children to do well and be successful. I myself only have one child, a 24-year-old daughter. As she was growing up and going through school, I always wanted her to get into real estate investing. Why? Because it builds wealth and provides income even while you are sleeping. For me, a baby boomer, it has been the greatest life I have ever known. Pure joy.
I always took my daughter to see my rental properties and told her that I own them but my renters are buying them for me. I told her that they pay me rent to live there and explained to her about positive cash flow and how it works. I would also take her to rehab projects and walk her through them and then explain why we do it. I really thought I was rubbing off on her and making a good impression.
She made good grades all through school and was eager to go to college. I asked her what she was going to study and she said psychology. When I asked her why, she said, “That’s what I’m interested in.” She told me that real estate is fine, but “I want to do my own thing.” I respected her decision because when I was her age, I felt the same way. I wanted to do what I wanted to do, no matter what my parents wanted.
My daughter went on to college and she did well. However, a funny thing happened during her last year at college: She all of a sudden became interested in real estate investing. She started to ask me if I knew anything about wholesaling. I said yes, and I asked her where she had heard the term. She said a few of her buddies were telling her that they wanted to get into wholesale real estate. You see, when we parents say it, the younger generation doesn’t want to listen, but when their peers say it, it becomes a truth for them. I told her I would be glad to help.
She graduated from college with a degree in psychology and immediately got a job in Colorado Springs, Colorado, and put real estate on the side. She explained that millennials have dreams to travel and see the world. Some had no desire to get a home and start a family or settle in one place. They seem to just want instant gratification.
Her job ended up being a one-year stepping stone, but she loved Colorado and wanted to stay there but, decided to come back to Georgia. My daughter discovered that living on your own is great but it takes money to make it. On her own she invested in the stock market and she said she lost money. It turns out she was day-trading. However, she remembered that real estate can produce large amounts of money and is a safer investment.
I began taking her with me when I went out to find deals, explaining that it is very competitive and that’s why I go door-knocking and driving for dollars. The very first door we knocked on together, the owner talked and talked. My daughter jumped right in and the homeowner really enjoyed talking to her. He told her everything about how he wanted to sell but didn’t know what he was going to do with all his stuff. He said his house needs a lot of work and that he wanted to move out of state and had a place in mind. I said we would make an offer within 24 hours. My daughter and I went back to the office to write the offer. It ended up solving all the problems for the seller.
My daughter has seen the light and is very valuable to the business because millennials and the younger crowd do everything on their phones. She understands the benefit of driving the neighborhoods to beat the competition, and while we sit in front of a house, she tells me the owner’s name, the after-repair value, any liens against it, and the approximate loan balance — all from her phone before we even knock on the door.
In summary, if you want to get your sons or daughters involved in real estate, I recommend you show them copies of checks. Why? Because that is their main motivation. Remember, they like instant gratification and want to work smarter, not harder. If they have jobs,
show them how to invest their earnings in real estate. I would like to get my daughter a rental house or two — even if she must get a property manager. Owning real estate has a proven track record.
I recently wholesaled a property to a 20-year-old who has 16 flips being rehabbed at the same time. He is the project manager and finds the deals. He is kicking it and has a money-backer with very deep pockets. I was so impressed that I have made arrangements for my daughter to meet him and learn from his successes. We all wish we had started at a young age like that.
Tony Youngs is an active real estate investor and Hands On Trainer, a national speaker and the author of The “Hidden Market” system of acquiring off market properties. He can be reached at his website at www.tonyyoungs.com.
Brain Games for Real Estate Investors ... continued from Page 1
rent needs. I am doing that right now and have decided to unload a short-term rental that was great for a number of years but has been struggling for the last year. I’ve enjoyed a healthy appreciation for this property and have decided it’s time to sell and hold until I can find a new property that aligns with my goals.
Reassess the Market
If you’re like me, you’re tired of hearing the word “rates” in every conversation. For housing providers, rates are important, but not the only thing we should consider when determining the direction we will take with our investments.
What are other providers getting for rent near your property? Have rents become stagnant, or worse, dropped in the last year? If you are looking to sell your property, how saturated is the marketplace with homes like yours? How long are they on the market and how much are they going for when they do sell? Is their growth like retail and restaurants near your property that add to its value? Are new businesses, schools or parks coming to the area that will create a greater need for rental housing?
There are no simple decisions based on just the questions I’ve suggested here. Taking a look at the larger market around you can help you make the next step a successful one.
Reassess Your Timelines
As we age it is critical to always consider our personal timelines and time commitments it takes to be a housing provider. As a younger investor, maybe the appeal of having short-term occupants and the increased fees they paid was exactly what you were looking for. You didn’t even mind cleaning and prepping the property for the next guest, after all, it was just keeping more money in your pocket.
But now you may lack the energy and motivation to process the “hands-on” management style and are looking for the stability of having a good tenant that pays on time and maintains the property. Maybe you want to spend more time with your family or traveling and the prospect of managing tenants doesn’t fit into your timeline. Or maybe you are ready to exit the market altogether and your time as a housing provider has run its course.
Engage your brain by revisiting these three critical parts of your process and be confident in making the best decision for you and your property. Forget what the so-called experts and talking heads say, this is your journey and only you can know what best works for you.
Scot Aubrey is vice president of Rent Perfect, a private investigator, fellow landlord and cohost of the Rent Perfect Podcast. 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.
Published quarterly for chapters, associated real estate investor associations, their members and guests.
Editor
Brad Beckett brad@nationalreia.org
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RE Journal is published by Rental Housing Journal, LLC, publishers of Rental Housing Journal www.rentalhousingjournal.com
The Reason We Invest
By Jeffery S. Watson
One of the questions I ask real estate investors when I’m doing consultations or taking them on as new clients is, “What is your goal?”
I’m not looking to discuss particular types of transactions, but rather what they are looking to accomplish with their investments from an economic standpoint. Obviously, the answers vary due to each individual’s specific situation, but they should have some consistent themes as to why investing is being done:
• For the purpose of generating consistent, recurring cash flow.
• For the purpose of gaining wealth through appreciation of assets which can be achieved through multiple methods, not just the passage of time and inflation.
• For both cash flow and appreciation.
• Because the investor has the opportunity to take a cash-flowing or appreciating asset and use it to benefit the local community.
The ideal investment does all of these things, and it does it in a way that improves the local community by providing safe, affordable housing; improving the street appearance and quality of residential real estate, thereby lifting the value of the properties in the area because the ugliest house in the neighborhood is no longer the ugliest house; provides consistent, predictable cash flow when managed appropriately; and over the passage of time, because of amortization, inflation, improvements, etc., the property appreciates significantly in value. These should be the goals and reasons behind why we invest in real estate.
among men for the purpose of securing the rights of life, liberty, and the pursuit of happiness. When 56 men of means and substance signed off on these powerful words, it represented a different standard of living and thinking about life. At that time, America was 13 colonies to which all of the English common law rules applied. Right and privilege were a matter of birth in England, but in America, anyone could own real estate and determine their own destiny, and they could do with their land as they saw fit. That concept was foreign to those in Europe.
Almost 250 years later, some of these things have changed, but not for everyone. Many Americans have lost some of the individual liberty they used to have over their own property, while many in Europe still don’t have the same ability to own real estate as we have in the United States. Yes, those in Europe can own real estate, but it’s often more difficult and complicated to achieve.
ant to being a good investor, but doing everything the way you do simply because of the taxes is not necessarily prudent. It has to make tax sense, cash-flow sense, and business sense.
I encourage you to take a few minutes to write down the reasons I’ve laid out here as to why we invest. This will help you process them. Then evaluate each one on a scale of 1 to 10 as to how much it matters to you. How important is cash flow? How important is having current large chunks of money? How important is gaining long-term wealth through appreciation? How important is it to be tax savvy? And how important is it to benefit your community?
Once you have assigned a number to each, list them in their order of priority for you, and insert your own reasons for investing into the list. You will now have a checklist to apply to the various deals that come before you to help you determine if a deal is consistent with your overall investing strategy and theme.
Publisher John Triplett john@rentalhousingjournal.com
Editor Linda Wienandt linda@rentalhousingjournal.com
Associate Editor Diane Porter
Advertising Manager Terry Hokenson terry@rentalhousingjournal.com
There is, yet, a deeper, fundamental reason why we invest, and that is because deep within our souls, somewhere in the American DNA, is the unquenchable thirst (described in the Declaration of Independence as the “pursuit of happiness”) to achieve something and leave for our family and the world something better than what we were given. We are looking to build upon that with which we have been blessed to bless those who come behind us.
I want to remind you of something the Declaration of Independence says. It states that governments were instituted
Legislative Update
increased rental assistance to an ever-growing population in need.
Specific examples of recent developments include:
• Prince George County, MD: in August signed into law a bill limiting rent increases to the lower of CPI-U + 3% or 6%. Limited exemptions for post-2000 construction “substantial” renovations.
• Montgomery County, MD: Signed a bill similar to Prince George County going into effect in October of this year.
• St. Paul, Minnesota: In 2023, St. Paul passed one of the strictest rent control measures in the country, capping annual rent in-
This takes us back to my initial question of why we choose to invest. Some may choose to invest in real estate simply because they believe they can make large amounts of money quickly, which is possible, but it isn’t as easy as those get-rich-quick, overnight-success gurus make it seem.
You also have to understand that those activities are subject to a greater level of taxation. Taking advantage of certain rewards in the Tax Code influences why and how we invest, but investing solely for the Tax Code is allowing the tail to wag the dog. Being tax-aware is import-
... continued from Page 3
creases at 3%.
• California: California has a complex rent control landscape, with some cities and counties having implemented rent stabilization or control measures.
• Federal Initiatives: The Biden administration has proposed policies to increase housing supply and provide rental assistance, which could indirectly impact rent control efforts.
With the election year moving to its summit, the tone and frequency of more extreme policies will increase. The nominal support of rent control proposed by the current administration and confirmed by the Democratic candidate for
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 over 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.
president has significantly raised the stakes for housing investments going forward and will likely be repeated by local and state candidates as well. Please be aware of the legislative environment in your locality before investing!
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.
$96K Profit from One Investment: The Power of Smart Research in Real Estate
By John Bowens, CISP
Real estate investment strategies can vary widely, and some approaches can lead to unexpected and noteworthy outcomes. One such example is Brad, a real estate investor from Indianapolis, who turned a modest $823 investment into over $97,000 in just a few years — all tax-free in his Roth IRA.
The Beginning: A Small Investment With Big Potential
Brad’s journey began with thorough research and strategic planning. He was particularly interested in investing in tax liens, recognizing that they could be a powerful way to grow his Roth IRA with a relatively small initial outlay. After conducting due diligence on various markets around Indianapolis, he identified a promising opportunity: a half-acre parcel located near a major hospital.
The area was clearly in the path of progress, with new office complexes being developed to support the hospital system. Brad saw that the parcel, adjacent to a medical office building, had significant potential. He hypothesized that the land would eventually be needed for additional parking by the medical office developer—a bet that would soon pay off handsomely.
The Purchase: Securing the Tax Lien
Brad attended a tax lien auction, where he successfully bid $823 on the tax lien for the parcel. This amount was transferred directly from his Roth IRA to the county to secure the lien. At this point, the tax lien certificate was held by Equity Trust Company as custodian for Brad’s Roth IRA.
Securing the tax lien was only the first step. Over the next two to three years, Brad had to go through a legal process known as “quieting the title,” which would allow his Roth IRA to gain full ownership of the property. This process incurred additional costs, including legal fees, bringing the total investment to around $3,000.
The Payoff: Turning a Lien Into a Lucrative Sale
Once the title was secured, Brad’s Roth IRA officially owned the half-acre parcel. Understanding the value of
his asset, Brad engaged in multiple negotiations with the medical office developer, who initially offered a lower price for the land. However, Brad’s patience and confidence in his investment paid off when the developer, needing the land for additional parking, offered $97,500 for the property.
The entire $97,500 was deposited back into Brad’s Roth IRA, completely tax-free. After deducting the $3,000 all-in investment, Brad’s net profit was over $94,000. This was not only a significant return on investment but also a powerful demonstration of how smart research and strategic planning can turn a small amount of capital into a substantial profit.
Lessons Learned: The Power of Patience and Research
Brad’s story illustrates several key lessons for real estate investors, especially those using self-directed IRAs:
• Thorough research is crucial: Brad’s success was largely due to his diligent research. He identified a property in a high-growth area and correctly predicted its future value to developers.
• Patience pays off: Rather than accepting the first offer, Brad held out for a better deal. His patience allowed him to maximize his profit.
• Leverage the power of tax-advantaged accounts: By using a Roth IRA, Brad was able to grow his investment tax-free, significantly increasing his net profit.
• Small investments can lead to big returns: Brad’s initial investment was modest, but with the right strategy, it grew exponentially. This is a reminder that you don’t need a large amount of capital to make a significant impact on your financial future.
Expanding Your Horizons: Beyond Tax Liens
While Brad’s story focuses on tax lien investing, it’s worth noting that there are many ways to grow a Roth IRA. From private money lending to outright property purchases, the options are vast. Brad’s experience is just one example of how a small amount of money, when wisely invested, can lead to substantial wealth accumulation.
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 844-7329404 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.
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.
Using a 1031 Exchange for Transferrable Development Rights
By David Gorenberg, JD, CES
What are Transferrable Development Rights?
Development rights are defined as the unused rights to develop a property within the limits set by state or local laws. With states and municipalities increasingly imposing restrictions on new construction, the value of development rights has skyrocketed. Since 1916, more than 140 state and local governments have introduced regulations allowing unused development rights to be transferred to different parcels.
Property owners can consult with a local land use professional to determine whether they can benefit from such a program. These rights can then be used to construct improvements, such as buildings with more floor space or height, or to build at higher density than would otherwise be allowed. Consequently, an owner with unused development rights can achieve significant financial gain by selling these Transferable Development Rights (TDRs) to another parcel owner looking to further develop their property.
The use of TDRs is a planning and preservation tool that is often used to protect agricultural, historic, or environmental resources while accommodating the needs of development. TDRs are the creation of state and local laws around the country that permit the owners of “preservation area” land to carve out the development rights of their property and sell them for use in a “receiving area,” usually nearby. Generally, developers purchase “development credits” and apply them to areas designated for growth at higher densities than would otherwise have been permitted. Once the property owner has sold their development rights, their land will be permanently restricted from further development.
The Internal Revenue Service addressed the issue of development rights in 2008 with the release of PLR 200805012. Simply stated, the question asked in that private letter ruling was whether development rights are like-kind for the purposes of IRC Section 1031 to a fee interest in replacement property. The IRS noted that state law defined an “interest in real property” to include:
“title in fee, a leasehold interest, a beneficial interest, an encumbrance, development rights, air space and air rights, or any other interest with the right to use or occupancy of real property or the right to receive rents, profits, or other income derived from real property.”
The IRS also noted the Treas. Reg. §1.1031(a)-1(b) provides that “like-kind” refers to the nature or character of the property and not to its grade or quality. Thus, real property in one asset class may be exchanged for real property in another asset class under §1031. The IRS concluded that the development rights to be acquired in this 1031 exchange were like-kind to the fee interest being relinquished in the exchange.
The IRS addressed a similar issue a year later with the release of PLR 200901020. The specific question to be resolved in this PLR was whether residential density development rights are like-kind to other interests in real estate. As with the earlier PLR, the IRS pointed out that development rights constitute interests in real estate under state law. The exchanger was to dispose of development rights within a 1031 exchange and then acquire a fee interest in real estate, an additional leasehold interest in real estate with 30 years or more remaining, and certain land use rights. After a detailed historical analysis of development rights and easements in 1031 exchanges, the IRS concluded that the development rights to be transferred by the exchanger are of like-kind to the fee interest in real estate, a leasehold interest in real estate with 30 years or more remaining,
and the land use rights.
In December 2020, the IRS issued the long anticipated Final Regulations for real property transactions under Section 1031. The regulations provided many examples of what constitutes real property as well as a framework for analyzing items that were not listed. Relevant to this discussion, Treas. Reg. §1.1031(a)-3(a)(5)(i) specifically identified “land development rights” as real property for the purposes of 1031 exchanges. Additionally, property that is real property under state or local law will also be treated as real property for purposes of Section 1031 under Treas. Reg. §1.1031(a)-3(a)(6).
Based on this guidance from the IRS, exchangers may sell or purchase Transferable Development Rights within a properly structured 1031 exchange.
To further understand Transferable Development Rights and the utilization of 1031 exchanges involving TDRs, let’s walk through a hypothetical scenario involving two property owners and how they both can utilize TDRs.
Utilization of 1031 Exchange with Transferrable Development Rights
What does the owner of a three-story brownstone in New York have in common with the owner of a 100acre farm in New Jersey? They each own something that they’re unaware of: Transferable Development Rights. Our New York City brownstone is owned by a widow who lives comfortably, though with little money left over each month. She has considered selling her home and moving but is reluctant to do so given the sentimental value of the home and high interest rates. She recently consulted with one of her trusted advisors who suggested that she consider TDRs. Her home is approximately 3,000 square feet on a lot that would allow for a home of up to 6,000 square feet. Because her home is in a “special purpose district,” she could sell those unused 3,000 square feet to a developer of a “designated receiving zone” and still retain full ownership of her home and land. While the values of TDRs vary widely across the state, for purposes of this illustration we will assume an incredibly modest $200 per square foot (NYC TDRs ranged from $51 to $223 per square foot in 2013.) Thus, multiplying $200 by 3,000 square feet, our homeowner will receive $600,000 for her TDRs.
The owner of Cherry Hill Farm is a third-generation farmer, raising a variety of crops on the last remaining active farm in the town that was once three-quarters farmland. Development has steadily encroached upon the family farm. Residential subdivisions border the farm on three sides, and a county road runs through the middle. Developers have long targeted this property for the potential to build 75 or more homes. At the same time, the family farm, and its farmers market business face increasing pressure from supermarkets and warehouse clubs that sell corn, tomatoes, strawberries, and other competing products for lower prices. As with New York, prices of TDRs in New Jersey vary widely, so we will assume $10,000 per housing credit. (Nearby TDRs ranged from $10,000 to $50,000+ in recent years.) Thus, multiplying $10,000 by 75 housing units, our farming family will receive $750,000 for their TDRs. As in New York, the farming family will retain full ownership of the farm, with a deed restriction prohibiting future non-agricultural development.
For both transactions, the result is exposure to significant capital gains on the value of the TDRs. The top tax bracket in New York is 10.9%, and in New Jersey it is 10.75%.
The Benefits to Our Property Owners
Our New York widow generated approximately $600,000 from the sale of TDRs associated with her
brownstone. Absent a 1031 exchange, she faced a potential tax bill of over $208,000 ($65,400 to the state, $120,000 in federal capital gains, and $22,800 in NIIT). Our New Jersey farmer garnered $750,000 from the sale of TDRs associated with their farm. Without the benefit of an Internal Revenue Code Section 1031 — which states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment" — they faced a potential tax bill of nearly $260,000 ($80,625 to the state, $150,000 in federal capital gains, and $28,500 in NIIT). However, because we now know that they can utilize the benefits of a 1031 exchange, they can defer associated taxes by deploying those funds toward the purchase of qualifying real estate, including management-free options like Delaware Statutory Trusts.
The Benefits of TDRs to Developers
Developers who acquire TDRs from other properties benefit by being able to add height or density to their projects. In the case of our New York City brownstone, for example, the developer may have been able to build a 9,000-square-foot duplex instead of a 6,000-squarefoot single-family home. This effectively allows him 50% more density on the lot than he may have had without the TDRs. For the developer who acquired the TDRs from our farm family, perhaps he can now build 150 homes in his new subdivision rather than 75, because he bought that additional density from the farm family.
The Benefits to the Community at Large
The TDR system is considered to be a mechanism for controlling urban sprawl by concentrating or encouraging development in a specific direction. The use of TDRs is generally viewed more favorably than imposing harsh zoning restrictions on one area, which could cause landowners in that area to claim that there was an unconstitutional “taking” of their property rights. Instead, TDRs offer those property owners a financial incentive to participate in the conservation of their properties for environment, agricultural, or heritage purposes.
As always, exchangers are reminded to consult with their tax and legal advisors, as state and local laws differ around the country. Further, under the terms of every Private Letter Ruling, exchangers are advised that each PLR applies only to that exchanger on that set of facts. Thus, this blog is not a substitute for the advice of competent tax and legal advisors.
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 - Maby and Mike Johnston
Please tell us a little about who you are and what you did before getting into real estate investing:
I worked for years in corporate America as well as a wholesale lender before the 2008 crash. Maby worked in the medical field, then transitioned to managing several commercial crews to maintain properties in pristine condition and complying with safety standards.
Where is your current market and what is your focus or area of expertise?
Mainly South Florida — Ft. Pierce to Miami and Ft. Myers area. We are experts in analyzing buyand-hold long-term properties as well as helping others wholesale, fix-and-flip. We have recently begun a new segment of our business where we are buying and selling land nationwide
How did you get started? And what was your first deal?
We started with a boot camp at our local REIA and then went on to join the mentor program. After telling our families what we were doing, we found out one of our family members was in the pre-foreclosure stage. They became our first clients and we were able to help them avoid the foreclosure and walk away with money in their pocket.
Describe a typical work week for you as a real estate investor:
Research…lots of research, but then you have to tackle the action. This involves getting on the phone and getting out of your comfort zone even if it includes going out to knock on someone’s door. The key to this business, just like any other, is in the follow-up.
How long have you been investing in real estate?
Over 10 years.
How do you fund your investments?
Fix-and-flips are usually hard money. Long-term buy-and-hold are conventional banks.
Do you have a real estate license?
Yes. Both of us do.
What projects are you currently working on?
We own several rental properties. We are working on a probate property where the attorneys have dragged out the process over 5 years and the daughter that inherited the property has had to pay several code violations as well as repairs due to the long probate process. We hope to help her get out of this situation in the next month.
How much time do you put into your real estate education?
Many, many hours… We believe the best investment is in yourself and education is the best way to invest in yourself. Once you learn something once, you can use that over and over and the return on investment is unlimited.
Has coaching or mentoring played a part in your success?
Yes, a very large part.
What are your current and future goals?
We plan to continue doing wholesale and fixand-flips in order to fund long-term properties we want to add to our portfolio. Our main goal is to create passive income and get out of the rat race. We will also continue to mentor our community to
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This owner was in need of help, and solving people’s problems is what we pride ourselves on. From hoarder house to Airbnb-ready in just a few months.
Member Spotlight - Maby and Mike Johnston
help them reach their goals.
What has been your top struggle in this business?
Staying focused and disciplined to stay the course. It’s a business of self-discipline and follow-up but also making sure the people you deal with know you truly care for their best outcome.
What do you like most about what you do?
Helping others resolve their challenges and or achieve their goals.
Do you have a tip or advice that you would pass along to other investors?
Continue to educate yourself and follow up. If one person can be successful in this business, so can you.
How important is joining a local REIA to a new investor?
You can’t put a price on it. The knowledge of others that have gone before you is the true value. Just make
sure to always pay it forward
What is your favorite self-help or business book?
Rhinoceros Success, by Scott Alexander. It is a book I read when I was 17 and it changed the way I looked at life. It is short and simple but will change your mindset which is more important than any detailed road map could provide.
Do you have any interesting hobbies or something unique that you like to do?
We love to travel and experience new countries and cultures. When we’re home in South Florida, we enjoy boating, the beach and spending time with our grandsons and family.
Does your business have a website?
These are sites we have for land: www.tropicallandpartners.com www.tropicallandbuyers.com
Social media accounts?
Instagram: johnstonhometeam
Facebook: MichaelJohnstonBocaRaton
Mike, Maby, daughters Evelyn and Kyla, Maby’s sister Jezzelyn, and three grandsons: Evin, Kevin and Owen.
customers happy, and providing more for less. Rising costs make it difficult to compete if we don’t raise our rents. Others in our market will also face the same increasing costs, so they will also raise their rents. (No, we are not colluding to raise rents.)
Real estate investing is a very visible business. When you buy a property, the purchase price becomes public record (in most jurisdictions). The amount you borrow is public, the amount you pay in property taxes is public, and the estimated value is readily available.
When you rent the property, it becomes quickly apparent to neighbors and the community if you made a poor choice of residents. If you are rehabbing the property, much of your activity can be researched through permits pulled. If you don’t maintain the yard while rehabbing the property, you become a nuisance to the neighborhood. If you improve your property, people see it, and usually appreciate it – unless they are
annoyed by gentrification and worried that prices will go up because something has been improved.
The media is full of programs on getting rich in real estate. Some of these programs make everything look like all sunshine and rainbows. Rehabs all are done perfectly with many costs being left out, if they ever do the accounting. In reality, “Reality TV” is often far from reality. In recent times, some reality shows have moved into a mode of fixing the mistakes made by the novices who go in over their heads. This acknowledges that people can get in trouble if they don’t know what they are doing.
We can do better. We must do better.
We have a huge image problem. The common belief about us is that we are in a drop-dead-easy business that has many of us exploiting people as we buy, rent, and sell property. When we provide financing, we are defrauding people. When we rent property out, any repair that isn’t instantaneously addressed
(whether anyone alerted us to it or not) has everyone related to our resident assuming we are a slumlord. When we buy property in a distressed situation, we are taking advantage of people, even if we go out of our way to provide a solution that leaves them far better off.
Real estate investors and housing providers are frequently portrayed as unethical, ruthless and greedy. There are endless claims to this effect by tenant’s rights organizations, media, and legislators. It hurts all of us to be continuously fighting this image. We end up with onerous legislation. We have reporters biasing their stories to paint a horrible picture of housing providers. (I have a friend who spoke to a reporter. In the resulting article, they superimposed his picture in front of a dilapidated property that he did not own – portraying him as a slumlord). We need to respond to these biased stories with letters to the editor, comments on social media, reporting by industry-knowledgeable reporters, and even by refusing to be interviewed by the
press that is biased (always research the reporter before talking to them).
Many housing providers do not raise rent to market on residents who are renewing. If you are one of the people who does this, you may want to price your renewal agreement at market rent and then offer the resident the discount you are giving them. If you do this, there will not be an assumption that you do not know what the rent should be, but instead, your concession will be known. This simple change may make your longer-term residents realize that they have saved significantly by staying put. Make sure that you also continue to make any repairs and improvements that are needed so that the condition of the property does not deteriorate.
When you are speaking to your friends or strangers, never assume that the landlord they are complaining about is automatically in the wrong, or right. You can provide perspective.
I had a friend ask me what her son could do about a roach problem in an apartment he had just moved into. She didn’t think it was fair that her son would have to deal with this. The conversation was quickly moving to – call the authorities, get an attorney, and worse. I suggested that she let me investigate solutions. I did some homework and sent her an email with suggestions. In that email, I reminded her that the apartment may have been cleaned and treated before her son moved in. But, if there were any issues in a neighboring apartment, any crumb in her son’s apartment would attract the roaches. Any solution was going to require cooperation between the housing provider and the residents. No solution would work unless a level of cleanliness was met that was probably more than her son was used to. It might be good for him. Boric acid and traps were also suggested. She thanked me for the solutions-oriented email. Lawsuits, legislation, and code-enforcement are not going to provide relief.
When talking to your friends, try to provide a balanced view of the business. Some people never talk about the downside, others only talk about the downside. We all face both. Overall, there can be many benefits to investing in real estate. They vary by the legislative climate, the economy, the local market, your strategy, and many other factors.
We all face risk as well. In addition to the financial rewards, our biggest reward often comes from doing our best to help others and the community by providing quality housing for buyers and residents. That is what we need to focus on as we talk to others about what we do. When people ask what you do, tell them “I improve neighborhoods and provide quality housing for qualified residents.”
Jane Garvey is President of the Chicago Creative Investors Association.
The Infinite Banking Concept A Game-Changer for Real Estate Investors Through Private Money
Lending
By Jason K Powers
The Infinite Banking Concept (IBC), pioneered by Nelson Nash, offers a powerful strategy for real estate investors, particularly when combined with private money lending. By leveraging whole life insurance policies, investors can create a private banking system that enhances liquidity, investment flexibility, and long-term wealth accumulation. This article delves into how real estate investors can utilize IBC and private money lending to optimize their investment strategies and achieve financial independence.
IBC revolves around the strategic use of participating whole life insurance policies. These policies offer several benefits, including guaranteed cash value growth, tax-deferred growth, and the ability to borrow against the policy’s cash value. Unlike traditional bank loans, policy loans from a whole life insurance policy come with no credit checks, flexible repayment terms, and uninterrupted compound growth of the policy’s cash value.
Private money lending involves lending capital to real estate investors, typically secured by real estate assets. This form of lending offers higher returns compared to traditional savings or investment vehicles and provides real estate investors with quick and flexible financing options. When combined with IBC, private money lending becomes an even more potent tool for wealth creation and financial control.
Leveraging IBC for Private Money Lending
The foundation of IBC is the accumulation of cash value within a whole life insurance policy. Real estate investors can systematically fund their policies, allowing the cash value to grow over time. This cash value acts as a reservoir of funds that can be accessed for investment opportunities.
When a real estate opportunity arises, investors can take a policy loan against their whole life insurance policy’s cash value. This loan can be used to fund private money lending deals. The beauty of this approach is that the loan does not disrupt the growth of the policy’s cash value, which continues to compound uninterrupted.
One of the significant advantages of using policy loans is the flexibility in repayment. Unlike traditional loans, which require strict monthly payments, policy loans can be repaid on the investor’s terms. This flexibility is particularly beneficial for real estate investors whose income might fluctuate based on investment cycles. Policy loans are also not considered taxable income, providing additional tax efficiency for real estate investors.
Practical Application: A Detailed Case Study
Consider a real estate investor, Alex, who has been funding his whole life insurance policy which now has a cash value of $200,000. He identifies a lucrative pri-
vate money lending opportunity requiring $100,000, offering a loan at 10% plus 2 points. Let’s compare how Alex can approach this investment using cash versus using IBC.
Option
1: Using Cash
Alex uses $100,000 of his liquid cash savings to fund the private money loan.
He lends the $100,000 to another real estate investor, securing the loan with a property.
The private money loan rate is 10% plus 2 points, resulting in $10,000 interest and a $2,000 fee income.
Over the next year, Alex earns $12,000 ($10,000 interest + $2,000 fee) from the private money loan, resulting in a 12% return on his investment.
However, by using his cash savings, Alex loses the opportunity to earn any interest or growth on that $100,000 during the loan period. Additionally, if any unexpected expenses arise, his cash reserves are now $100,000 lower.
Option 2: Using IBC
Alex instead takes a $100,000 policy loan against his whole life insurance policy’s cash value. The loan process is quick and does not require a credit check.
The policy loan interest rate is 4%, so Alex incurs a $4,000 interest cost over the year.
Alex lends the $100,000 to another real estate investor, securing the loan with a property.
The private money loan rate is 10% plus 2 points, resulting in $10,000 interest and a $2,000 fee income.
Over the next year, Alex earns $12,000 ($10,000 interest + $2,000 fee) from the private money loan.
In this scenario, the $200,000 in Alex’s whole life policy continues to grow, earning dividends and interest, typically around 3-6%. Assuming a 4% growth rate, the policy’s cash value grows by $8,000 over the same period, not factoring in the guaranteed growth component of the policy as well, which we will leave out for this.
Comparing the Two Approaches
Cash Approach:
• Interest and Fee Earned: $12,000
• Opportunity Cost: Loss of potential growth on $100,000
• Total Growth: $12,000
IBC Approach:
• Interest and Fee Earned: $12,000
• Policy Growth: $8,000 (4% of $200,000)
• Loan Interest Cost: $4,000 (4% of $100,000)
• Net Growth: $16,000 ($12,000 interest and fee earned + $8,000 policy growth - $4,000 loan interest)
In the IBC approach, Alex benefits from an additional $4,000 in net growth compared to using cash directly. Moreover, he retains the liquidity and flexibility provided by the whole life policy, which continues to grow and compound over time.
The Infinite Banking Concept, when integrated with private money lending, provides real estate investors with unparalleled financial flexibility and control. By leveraging the cash value of whole life insurance policies, investors can seize lucrative opportunities without disrupting their long-term wealth accumulation. This strategy not only enhances liquidity but also offers tax advantages and repayment flexibility, making it a compelling approach for savvy real estate investors.
As with any financial strategy, it’s crucial to work with knowledgeable agents to tailor the IBC approach to individual goals and circumstances. That’s where we come in. With careful planning and execution, real estate investors can harness the power of IBC and private money lending to build a robust and resilient investment portfolio.
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 Investor 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.
Please visit www.1024wealth.com/NREIA for more information.
