RE Journal Spring 2023

Kevin Tacher

Kevin Tacher – also known as the “Title King” – is the founder and CEO of Independence Title Inc. Kevin is a 4-time best-selling author and national real estate speaker. Featured on Fox News and NBC, as well for his personal appearances, Kevin has shared the stage with some of the country’s best real estate and motivational speakers. Kevin and his team have worked with the FBI, Florida’s attorney general, and several local, state, and federal agencies to uncover real-estate fraud across the state of Florida.

He values community relationships and is involved with several non-profit organizations across the country. Among his various philanthropic contributions, Kevin has donated towards reducing the struggles of individuals and families in poverty, helping abused

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We’re Facing a Year of Unknowns After a Couple Years of Predictability

By Chris Kuehl, Ph.D.

Iimagine I have offered the same definition of an economist about a thousand times by now: “Somebody who explains tomorrow why the predictions they made yesterday didn’t come true today.” It is just that this is so very accurate.

The problem is that the data shifts nearly constantly. At its heart, economics is a social science (despite our attempts to use numbers as if it was a “real” science). We study human behavior, and there is no creature on earth less predictable and volatile than a human being. You remember your beloved Econ 101 class where the professor valiantly tried to assert that people “maximize expected

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Real Estate Investing to Revitalize Communities and Provide Employment

By John Bowens

To Jan of Missouri and her family, it’s not enough to secure their financial future through real-estate investing in their retirement accounts (though that is important to them, too). By going the extra mile with their investment-home renovations, they’ve also had a big hand in helping the community improve and thrive.

Jan, known for her quick and easy real estate sales, received a call from an elderly couple about five years ago. They wanted to move from their house to a senior community, but owed

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National REIA… a ‘Trusted Authority’ in Real Estate Investing

By Rebecca McLean, Executive Director, National REIA

It’s the first quarter of the year, and I have been talking with friends about creating a vision for our lives that is more compelling than simply money –and about how ironic it is that, as an investor, when our visions are bigger than just making money, we tend to make big money. Zig Ziglar is often quoted as saying, “You can have everything you want in life if you will just help enough other people get what they want.” This is why I am so excited – and you should be too – because applying this idea is how you become the successful real estate investor you aspire to be.

Our REIAs help you understand that solving challenges for people is how you make the most money. Improving communities as you invest is how to be wealthy in spirit and finances. This principle is what drives National REIA, its chapters, local associations, and the investing community that will support you in pursuing your vision.

At National REIA, we are also taking the idea of a BIG vision and focusing on applying that to our plans for 2023. We look forward to pursuing this expanded vision over the next 12 months. Thanks to the efforts of previous presidents, previous and current boards, and the staff of National REIA, we are taking our place among other influential large professional associations. In 2022, the Business Courier named National REIA one of the largest business advocacy groups. This didn’t happen overnight, and it didn’t happen by accident. It happened as a result of a vision and the efforts of those who came before us. That extraordinary effort is why we are where we are today. As that vision has helped create more and more success, it’s time to build the vision even bigger!

All across the modern REIA landscape, and in fact, our entire culture, change increasingly seems to be the only constant. And the fast-paced diversification of our members and potential members and their investing strategies is transforming many of the industry’s rules. We are seeing unprecedented swings in markets from up to down and back up; swings from no buyers to no sellers; new regulations, new laws, and new players. It’s

enough to drive any individual investor crazy! More than a half-century of economic change, social change, and perhaps most importantly, governmental change has also changed the real-estate-investing industry. As a result, REIAs and the services and support we offer have had to change. Opportunities have exploded, and the antes for today’s REIA groups and leaders has risen right alongside them. To support our members with all of this change, we are rolling out exceptional new programs and resources to benefit our associations and members.

We are poised for our most incredible leap forward to date. We have the edge. We aren’t just individual investors. We are a community of investors – a large association.

I believe that change is here to stay and that it will be our greatest advantage as an organization and as individual investors. How? By using the built-in advantages we have as an organization: our numbers, our collective personal contacts, our networking, and events that keep expanding in size, professionalism, and influence.

We are a growing organization that is about networking, supporting each other and doing it better with more integrity and professionalism than the

average investor portrayed in the media. By raising our standards in how we do business and standing up and fighting for the property rights of real estate investors across America, we will change how we are perceived. Being a member of National REIA should be something we are proud to put on our business cards and websites. When they hear the words National REIA, our goal is for the public to immediately associate that name with the “trusted authority” in real-estate investing.

So, look out for new opportunities, programs, and events designed to serve you to become the real-estate investor you want to be. You can subscribe to our Weekly Roundup, visit our online news site at Real Estate Investing Today (.com), check out our monthly REIA Now broadcast, and read your copy of our quarterly publication, the Real Estate Journal, to stay connected to our ongoing updates. And perhaps most importantly, visit your local REIA’s monthly meeting for even more local benefits and updates.

House Hacking is Gaining in Popularity

By Alex Capozzolo

House hacking is a real estate investing strategy that has become extremely popular over the past decade. First-time and repeat homebuyers are getting creative when buying real estate through various forms of house hacking. This strategy can be successfully pulled off in a single-family home with multiple rooms or a multi-family building. The goal is to rent out the other available rooms (or units) and use that rental income to offset your housing costs. Even if house hackers don’t entirely break even and cover their full monthly mortgage payment, it should still be considered a win!

Here are several undeniable reasons why house hacking has become more popular amongst the real estate investing community.

Real Estate Forums Have Popularized House Hacking

Many real estate forums have helped popularize the concept of house hacking. Many have eloquently broken down this real estate investing strategy into digestible and understandable pieces of content. Real estate investors across the country are able to grasp and take matters into their own hands to implement this homebuying strategy. This enabled some people to actually be able to afford a piece of real estate in their market.

Alex of SD House Guys, a homebuyer based in San Diego, used house hacking to purchase his first home. “My wife and I considered buying a condo, but instead went with a larger single-family that we house hacked. We rented out two empty rooms and actually became great friends with our tenants while offsetting a portion of our mortgage with the rental income.” Even in an expensive market, real estate investing is possible with enough creativity.

Real Estate Affordability is Fleeting

Without question, the affordability of real estate is fleeting. Purchasing a home in the United States – in many expensive markets – is getting seemingly more unattainable. SD House Guys was a great example of using house hacking to purchase a home in San Diego, California, which is an expensive market. This is true for many cities across the country. Up until recently, real estate values were continuing to skyrocket at rates that left many buyers priced out of the market. While values are currently dropping in some markets, they will eventually bounce back and continue rising. Once home values break all-time high values again, affording a house will be a financial challenge.

Additionally, the landscape of homebuyers is different now than a decade ago. Most millennials have insurmountable amounts of debt, mostly from college. This prevents many people from purchasing a home because they simply can’t afford it. House hacking has acted as a proven strategy for millennial homebuyers

to offset part (or all) of their mortgage and purchase a house.

Aside from other macroeconomic factors that are pushing more homebuyers toward house hacking, wages aren’t keeping up with inflation. Things cost more – including real estate – yet many people aren’t making much more than they used to. This widening gap between the cost of living and income puts large purchases, like a house, on the back burner for many people across the country. Fortunately, house hacking enables people to purchase a property, rent out the available spaces, and cover part of their expenses. If house hacking is done well, you can completely cover your mortgage payment, utilities, taxes, and other costs while earning positive cash flow from the investment. The dream of earning passive income through real estate has also inspired many homebuyers to try out house hacking.

Alex Capozzolo is the owner of the Home Offer Solutions blog, a member of San Diego Creative Investors Association and a content writer for the real estate industry. Alex’s focus is on helping people through one of the most important investment decisions of their lifetime by seamlessly providing fast, honest, and professional real estate services.

Rebecca McLean is the executive director of National Real Estate Investors Association.

Overheard in the Senate

The U.S. Senate’s Banking, Housing and Urban Affairs Committee held a “State of Housing 2023”-focused session in early February, and a few key insights reflected the political divide that is likely to prevent substantive housing legislation from moving forward in a split-control House/Senate. Housing is considered a priority due to affordability issues regarding interest rates and the expanding presence of Wall Street investments in single-family housing. The partisan divide can be differentiated:

• Democrat solutions: Tax credits and housing vouchers.

• Republican solutions: reduction in regulatory red tape and caution against additional federal spending.

The committee’s makeup is as follows:

MAJORITY MEMBERS (12)

Brown, Sherrod (OH), Chairman

Reed, Jack (RI)

Menendez, Robert (NJ)

Tester, Jon (MT)

Warner, Mark R. (VA)

Warren, Elizabeth (MA)

Van Hollen, Chris (MD)

Cortez Masto, Catherine (NV)

Smith, Tina (MN)

Sinema, Kyrsten (AZ)

Warnock, Raphael G. (GA)

Fetterman, John (PA)

MINORITY MEMBERS (11)

Scott, Tim (SC), Ranking Member

Crapo, Mike (ID)

Rounds, Mike (SD)

Tillis, Thom (NC)

Kennedy, John (LA)

Hagerty, Bill (TN)

Lummis, Cynthia M. (WY)

Vance, J. D. (OH)

Britt, Katie Boyd (AL)

Cramer, Kevin (ND)

Daines, Steve (MT)

It is important for NREIA Members living in these communities to make it a priority to meet with these offices representing 20+ states, as they will have a significant impact on everything from HUD regulatory oversight to new legislation. Whether you attended the Washington D.C. Day on the Hill event (March 7-8) or not, reaching out through your local REIA to develop relationships with these offices as community stakeholders will be crucial for future efforts to be

Legislative Update

effective - especially if residing in Ohio & South Carolina!

Blue Print for a Renters’ Bill of Rights

U.S. President Theodore Roosevelt referred to his office as a “bully pulpit.” He said this because it is a terrific platform from which to advocate an agenda and lay the groundwork for pushing policy, even when Congress cannot or will not move. This largest of soap boxes (currently being used by the Biden-Harris Administration) recently pushed the latest in a new round of housing policy in late January by supporting a multi-pronged housing blueprint aimed at federalizing housing policy and ultimately, nationalizing housing.

The key features listed are:

1. Protections against evictions

2. Rent control and affordable housing

3. Health and safety standards

4. Fair and equal access to housing

With the massive expansion of the federal government into the traditionally state and local domain of housing during the COVID-19 pandemic, the 10th Amendment (which defines the relationship between federal and state governments) is further being pushed aside with this new round of policy surge. More than 20 departments are preparing new regulations to further these four points over the next six to 12 months in a “whole-of-government” response. This is being done as if inflation and chronic underbuilding of single-family & multi-family housing are natural disasters. However, the blueprint is really little more than an excuse for an anti-capitalist and state-centered agenda by a few elites who are completely unplugged from the reality of housing in America. The language within the report is very telling:

“Prior to the pandemic, few federal or local efforts supported eviction prevention or a fair eviction process and only a few of these have been evaluated.” (Pg. 17, Paragraph 3)

In all 50 states, all territories, and throughout the land, evictions have been unfair. Note to every member of the bar and housing judge or magistrate – they just called you corrupt and complicit! The real irony and most telling piece that this is an agenda more than a solution, is the admission that “only a few have been evaluated!” If only a few of the few have been evaluated, how can they all be unfair? In a typical political response, this is a solution in search of a problem.

The real focus is on a core group of housing advocate wish-list items, long shown to be ineffective. The first of, course, is rent control. Please see the response below for a simple summary of how devastating this idea is for a community.

Second, rent setting – the Department of Justice and other agencies are seeking to halt the process of dynamic rent setting, which is the same process airlines use to sell tickets, hotels use to sell rooms, and just about every other facet of the market works in response to changing demand. Again, it’s anti-market and anticapitalism.

The third focus, is source of income (SOI). This is the rule that overrides Congress’ intent to make the Housing Choice Voucher Program, often referred to as Section 8, mandatory rather than voluntary. The reason for making it mandatory? HUD programs, as (mis)managed through 3,000 various public housing authorities, are so poorly run that housing providers do not want to participate in their programs. Rather than fix the program and compete in the marketplace, this administration and housing activists are pushing for laws that ban choice and guarantee the government is a partner in as many housing choices as possible.

While there is lip service to eviction prevention, the main answer has been “hire more attorneys.” As this does little to resolve the financial shortfall, it does drag out the process and tie up eviction courts, causing even longer delays in addressing the problematic and even dangerous residents in communities. The real focus has been to greatly reduce a property owner’s ability to screen residents, and thereby limit risk to the community and the asset.

Following up on the Texas Department of Housing case in 2014, the Department of Housing and Urban Development, in conjunction with the Federal Trade Commission (FTC), the Consumer Financial Protection Bureau (CFPB), the Federal Housing Finance Agency (FHFA), the Department of Agriculture (USDA), and the Department of Defense (DOD) wants to set new standards for resident screening. The FTC is especially interested in credit reports being used by housing providers to determine if someone actually pays their bills (or not!). To date, more than 40 states and/or municipalities have developed various limitations on screening criteria.

Ironically, after rolling out these “new” policies as a blueprint to federalize American housing, they committed to work with renters and their advocates rather than the stakeholders of the millions of units presently being rented.

Rent Control: A Housing Solution for the Economically Uninformed

In recognition of how devastating rent-control experiments have turned out around the country and the world, 31 states have preemptively banned rent

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Gain

*Preferred return is not guaranteed and is subject to available cash flow. All offerings shown are Regulation D, Rule 506c offerings. Potential returns and appreciation are never guaranteed and loss of principal is possible. Please speak with your CPA and attorney for tax and legal advice.*The There is a risk Investors may not receive distributions, along with a risk of loss of principal invested. This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please read the entire Memorandum paying special attention to the risk section prior investing. IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your situation. This material is not to be construed as tax or legal advice. There are material risks associated with investing in real estate securities including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed. Securities offered through FNEX Capital.

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

How to Turn a Bad Situation to Your Advantage

By Jane Garvey

Attitude can make or break you. We all have times in our lives where it is tempting to doubt ourselves and our abilities. Many of us also fall into the trap of externalizing control. It may be tempting to think we are a victim when people do something, intentional or not, that harms us. When other people, or even circumstances, force a change to our routine, our immediate reaction is sometimes to feel angry or put upon. No matter what is happening, you have the choice of your attitude. You have the ability to do better.

similar questions take your mind out of the victim mode and put you back in control. It is not about what happens, it is about what you make of it.

For instance, my internet provider was recently acquired by a new company. That new company is forcing its customers to change their email addresses from the old company email to their new brand. My initial thought was: What a huge waste of time. I also have concerns that there will be problems created if I am not totally thorough and successful in getting my email changed everywhere it is used as a “user id,” or is the sole contact info someone has for me.

but I have found opportunities that are helping me approach this change with a better attitude. One other side benefit is the elimination of tons of spam emails that have crept into my life over the past 20 or so years since I last changed email addresses.

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.

© 2022 All rights reserved.

As Henry Ford said, “Whether you think you can, or think you can’t –you’re right.” This quote has stood the test of time. Attitude is of the utmost importance in doing our best. We need to believe in ourselves and our abilities and avoid the limitations created by selfdoubt.

We can take this process of adjusting our attitude to another level when we examine our feelings about the difficult things we are facing or have faced in our lives. Looking for the benefits and the opportunities in everything will be eyeopening if you have never tried it. This process can take you to new heights. When something you perceive as bad happens in your life, start looking for a different way to perceive it. A friend of mine suggests the question – What is right about this that I am not seeing? I tend to ask myself, what opportunities does this present? These and other

In looking at this situation, there is no doubt that there is work to be done, and lots of it. It is also on their timeline, not one of my choosing. It is annoying to not be in control. Where are the opportunities? First, I acknowledge that I should have known better when I chose to use the internet providers’ email, rather than setting up my own brand. So, this is forcing a change, and I can do better. I set up my own URL with email service so that I can control this as I move forward.

The second opportunity this presents is that I will soon be free to change internet providers. I was captive while using their email. Their prices have gotten outrageous, and their service is sometimes lacking. I have not made a move because this didn’t seem to be the best use of my time. Now that it’s being forced, they will be losing a customer. Unintended consequences for them,

There are benefits to be found by going through times in your past where you still have feelings of being a victim, or any other negative emotions. If you can rework your thoughts to look for what was right about these times and the changes you were forced to make, there are still opportunities to be captured. The more you do this, the more you can free yourself from the control the people, events, or circumstances involved have over your ability to prosper.

In my life I have a treasure trove of these types of things. Each time I investigate them, I am rewarded with insight, opportunities, and growth. It always amazes me what I find out about myself. The more you do this, the easier it will be to pull yourself out of depression, fear, anger, and other emotions that come from feeling out of control.

Jane Garvey is president of the Chicago Creative Investors Association.

Real Estate Investing to Revitalize Communities

... continued from Page 1 more on their property than it was worth and they couldn’t sell it the traditional way and pay a real-estate commission.

“I met with this couple and I was stunned because they only owed $50,000 on this property,” Jan recalls. “It was a lovely three-bedroom, one-and-a-half bath, all-brick ranch house. And it was just a few miles from where we were doing our high-end renovations, where we were buying houses from $200,000 to $400,000, putting $100,000 to $300,000 in fix-up, and then selling them for $700,000 to $900,000.”

Jan was surprised to see a house she could buy for $50,000 on a cul-de-sac street that she felt comfortable with.

“I paid off their loan, and even gave them a little money to move to the senior community,” Jan says, adding, “They were so dear.”

While Jan had purchased, rehabbed, and sold properties in her self-directed IRA before, this would be the first one she would fix up to rent.

“Our daughter was a junior in high school at the time and she was coming up on her summer break and she wanted a job,” Jan says. “She asked if she could renovate the house and I thought, perfect, great idea. So, handed her the keys and there wasn’t a lot of work needed.”

The home was dated, but wellmaintained.

“To our surprise, I show up two weeks later, and there’s no kitchen,” Jan says, laughing. “The contractors had talked her into just removing the kitchen and starting over again.”

This turn of events ended up being a blessing.

“We put a brand-new kitchen in, brand new baths, all new flooring, and new lighting,” Jan says. “And then we attracted a top-notch tenant, a lovely nurse with an 800 credit score, and her mom who wanted to live with her. And they’re still in that house five years later. Every time I go over, I say, ‘Oh, this looks like a display home.’ They’re taking beautiful care of it.”

A new strategy

This sparked the idea for a new approach for Jan, one which has benefited the community as much as her IRA.

“What I learned from that,” Jan explains, “is that if we went in and did a renovation similar to what we were doing with our luxury homes, we could attract a top-quality tenant who would stay a long time and take care of the property and give us a higher return. So, we’ve duplicated this many, many times in this area.”

Property values have doubled in this area in the past five years. Recently, a new development, including a Costco store, broke ground just down the street from some of Jan’s investment properties.

“We feel like we’re improving this community one house at a time,” she says.

Others in the community – including city officials – have taken notice.

“We’ve actually been noticed by the director of planning and development for the city, who called us in and brought the director of the building department in as well,” Jan says. “And they just wanted to thank me for the work that I’m doing in these communities and how I’m helping

to improve the property values, which they feel is helping to attract business dollars that are now coming into the community. To see that snowball in such a short period of time…that only took two or three years before we started to be recognized for the contribution that we’re making to the community. It was really rewarding, fun and very exciting.”

The Golden Rule

In her real-estate investing business, Jan adheres to the Golden Rule: Treat others as you’d like to be treated.

“I love my tenants,” she says. “During the pandemic, we were delivering gifts to their doorsteps: games, puzzles, and terrariums that they could build. They were so appreciative of that thoughtfulness. At Christmas time, we hand-deliver gifts to them.”

Jan recently offered a free deepcleaning service at each property.

“I’m always trying to give back to them,” she says, adding, “It’s really fun to establish those relationships and to get these sweet text messages of appreciation with all the little heart emojis. And it’s been lovely.”

Jan employs the same philosophy with contractors she hires.

“If you treat them well, they treat you well,” she says. “We’re always making sure that everybody’s happy and having fun. If you’re not having fun, you’re not doing it right.”

Jan’s mindset applies to her renovations, too. Each updated property, whether for rent or sale, is always a home she would live in herself.

Impact on her future

In addition to the effect on the community, Jan’s blown away by the impact her self-directed real estate investing has had on her financial future. By using her tax-advantaged retirement account to invest in real estate, Jan doesn’t have to give up some of her profits to capital gains taxes. And because she

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uses a Roth IRA, her withdrawals from this account in retirement will be taxfree.

“It’s almost too good to be true,” Jan says in amazement. “It’s just incredible. Now that I’m seeing the returns on these houses that we’re renting, our returns average 12 to 14 percent, with some outliers…we’ve got one at a 23-percent return. And that’s cash on cash. Those funds start to build up quickly to the point where every year I’m able to buy two more houses, free and clear, and put them in the rental portfolio. It’s just an amazing wealth-building technique.”

The sooner you can get started, the better, Jan adds. “I wish I’d figured this out in my 20s and not my 40s, but it’s just amazing.”

Visit www.trustetc.com/yourstories to learn more about Jan and other investors who are making a difference with their IRA investing.

John Bowens is director, head of education and investor success at Equity Trust Company, a leading custodian of self-directed IRAs. 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.

The Effects of Drugs on Your Property

By Scot Aubrey

If you ‘ve ever been on a boat, you are familiar with the wake that is left behind on the water. Regardless of the boat’s speed, it is impossible not to disturb the pristine glassiness of even the most still water. The same concept applies to your properties when someone has used or manufactured drugs on the premises; there is always an impact, large or small, on the condition of the property, and that impact can be as far-reaching as the ripples of a passing boat.

A client recently called in to our offices to explain that she had been suffering some rather serious health problems since moving into a new property. After multiple doctor visits and testing for mold, they hired a professional to come in to see if the property had been used for drugs. Results came back that the kitchen held extremely high levels of methamphetamine residue while the common areas and bedrooms of the home also showed significant levels. Mystery solved, but that was just the beginning for this unfortunate tenant and for the unknowing landlord.

For landlords, the legal standard of “what you knew or should have known” is critical when applying it to a situation like the one described above. Here are a few practical applications for you to consider while your properties are occupied, but especially after the tenants move out and you are doing your post-occupancy inspections. There are always tell-tale signs of the residual effects of drug manufacturing or use on your property.

• Inspect anything porous; drug residue can find its way into many parts of your property, but especially any porous areas. Pay special attention to rugs/carpets, exhaust fans, HVAC vents and returns, and even plumbing. The P-traps in plumbing are notorious for being a place for drug residue to hide and wreak havoc.

• Yellow residue around the roof vents is one place even the most meticulous drug manufacturers overlook. Bring binoculars to inspect closely without having to climb up on the roof.

• Foil over the windows is one way that paranoid users and manufacturers try to hide their illegal behavior. Inspect each window for any left over foil that may remain.

• If the property smells like dirty socks, dirty diapers, or even ammonia, this can be a clue to illegal drug use and manufacturing taking place in your property.

• A high volume of visitors to the property, usually taking place during irregular hours and for shortterm visits, could be a sign that your property is being compromised. Being friendly with the neighbors of your properties can be beneficial as they can be the eyes and ears that you need for regular oversight of activities on your property.

• Drug users or manufacturers rarely, if ever, leave a property in good condition. The importance of having a consistent and timely move-out inspection will almost always give you hints as to how your property was used (or misused).

If you find any of these things, or if a tenant complains about any of these things, you have a duty to take those findings or complaints seriously. Again, the standard of “what you knew or should have known” comes into play. It is bad enough that your property may have been damaged by drugs; don’t double down on the problem by trying to ignore or hide it from the next tenant, or, if

selling the property, the next owner. You are obligated by law to remediate the property to a safe and habitable state, regardless of the expense.

The best way to avoid the “wake” of a bad tenant is to properly onboard the tenant, use in-person inspections of the property during tenancy, and perform a moveout inspection with the tenant prior to them leaving the property. There are no guarantees, but using these tools will help create a process that results in smoother sailing during your journey as a property owner.

Scot Aubrey is vice-president of Rent Perfect, a private investigator, and a fellow landlord who manages shortterm rentals. Subscribe to the weekly Rent Perfect podcast (available on YouTube, Spotify, and Apple) to stay up to date on the latest industry news and for expert tips on how to manage your properties.

control. Some areas are trying to repeal those bans, and many smaller communities are considering the controls, as their decades of mismanagement of housing development have caused a lack of investment that is intensifying an increase in housing costs. As industry representatives, it is critical to relay the short- and longterm impacts while also committing to and working through real solutions on housing rather than easy knee-jerk language. If in doubt about how to convey the concern, consider turning to something as simple as artificial intelligence chat-creator “ChatGTP” (chat. openai.com), as noted below:

Even AI gets it: Rent control is bad news

The following is a summary statement on rent control generated by AI:

Rent-control policies are designed to regulate the rental market by setting a cap on the amount of rent that landlords can charge for their properties. While the aim of rent-control policies is to provide affordable housing to tenants, there are several problems associated with these policies:

Shortage of Housing Supply: Rent-control policies can lead to a reduction in the supply of available rental units, as landlords may choose to convert their properties to other uses, such as condominiums or commercial buildings, in order to avoid the regulations.

Reduced Quality of Housing: Rent-control policies may discourage landlords from making investments in their properties, leading to a decrease in the quality of

housing available to tenants.

Inefficient Allocation of Housing: Rent-control policies may result in an inefficient allocation of housing, as the low rents may cause tenants to stay in apartments that are too large or too small for their needs, or in locations that are not optimal for them.

Disincentives for New Construction: Rent-control policies can discourage developers from building new rental properties, as the potential profits may not justify the costs of construction.

Inequitable Distribution of Benefits: Rent-control policies tend to benefit current tenants, who are able to secure affordable rents, at the expense of new tenants, who may have to pay higher rents due to the shortage of supply.

Overall, while rent control policies may provide some short-term benefits to certain groups of tenants, they can also have significant long-term negative effects on the rental market*, including reduced housing supply, reduced quality of housing, and inefficient allocation of housing. As such, policymakers need to carefully weigh the costs and (lack of)* benefits of rent-control policies before implementing them.

(*Emphasis added)

Seller Finance Coalition

With new committees and leadership in the U.S. House, the National Real Estate Investors Association has hit the ground running with the Seller Finance

Coalition. A new bill is being prepared for a bipartisan and bicameral introduction, and due to years of foundational relationship-building, is progressing nicely. Several new congressional and senate offices were quite open to the idea that sellers should be able to sell more of their own properties with less government restriction. For more information about the SFC please visit sellerfinancecoalition.org. More to come on this important issue!

Three States are Legislatively Active

Maryland, Tennessee and Colorado are all in legislative struggles and we are engaging members in those states to communicate a message of concern about their issues. Ranging from bans on wholesaling to the repeal of rent-control bans, or the expansion of inspection programs around the state, the industry members in these areas need help. Please check out the Legislative Action Center on NationalREIA.org to take part.

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 up today with current legislation and governmental actions.

Become Pet-Passionate: The Statistics Tell the Story

By Victoria Cowart, CPM, NAAEI Faculty

Are you acquiring residential rental property and wanting to start out on the best foot? Here’s a question that will affect approximately 70 percent of your renters: How will you respond to pets in your rental properties? Will you prohibit them? Will you become pet-friendly? Or will you push yourself and your success even further by becoming pet-passionate?

Available data today says 76 percent of the property management industry consider themselves and their rental properties pet-friendly. Contrast that with those seeking pet-friendly housing, with 72 percent saying it’s hard to find. Also, consider that somewhere north of 90 percent of residents and property-management professionals agree that pets are important family members.

The rental property-management industry today has a wide variety of responses to pets. Some companies prohibit cats and dogs in their rentals, some permit pets, and even have no restricted breeds of dogs. In contrast, other companies have 10 or more restricted breeds. Some companies have no weight restrictions, while others have varying weight restrictions, from 25 to 100 pounds. These policies are all over the map. So again, what will your pet policies and restrictions be?

And if you’re willing to permit pets, where do you stand on pet-related fees or deposits? The industry has pet rents, nonrefundable pet fees at move-in, and occasionally additional deposits as well. Some areas of the country have regulations on these rents, fees, and deposits. How will you structure those?

As you continue or begin new propertymanagement endeavors, these are great questions to ask yourself. But you may also be wondering, “Why is it so important?” From a human perspective, pets promote relaxation, reduce loneliness and depression, and reportedly caused their pet parents to report a higher life satisfaction than non-pet owners do. One study showed that 80 percent of pet owners say their pet makes them feel less lonely, and 54 percent connect with others more readily. Pre-pandemic, one in 10 adults would raise their hand as someone who lives with a mental or emotional disability. Would it surprise you to learn that it is now four in 10? And does this factor into your policymaking in this arena? I know, more questions. It’s a more complex topic than a first glance might suggest.

But let’s not shy away before we’ve given this a full once over! Let’s quantify this a bit further. Twentyseven percent of households in the country have children, whereas 70 percent of households have pets. This means that today’s households are more likely to include pets than children under the age of 18. Our most extensive group of renters, millennials, are very

pet-enthusiastic. Seventy-five percent of people in their 30s own a dog, and 50 percent of people in their 30s own a cat. The resulting pet population is astonishing: More than 230 million cats and dogs in 137 million households in our country. Those are statistics that are hard to stare at for long if you’re thinking of being less than pet-friendly, but pawsitively exciting if you’re on the road to becoming pet-passionate!

As you read this, you may be saying, “But they make such a mess in rental properties!” And while many share that sentiment, there are statistics on this as well that are worth considering before you decide on your pet policies. One source said, “Pets are a safe bet in the rental housing industry.” “How so?” you might ask. The statistics show that only nine percent of pets caused damage and that the national average value of that damage is only $191.00.

With that said, what do your customers, renters, really think about pets in rental housing? Seventy one percent of renters know that pets create community— they bring people together. And not surprisingly, there

enhanced performance. Turnover is lower in more pet-inclusive rentals. Pets are a reason for turnover 24 percent of the time. With more inclusive pet policies, the occupancy duration is longer as well. Instead of 18-month tenancies in more pet-prohibitive rentals, pet-passionate rentals can have renters for 27½ to 46 months! And with the average December 2022 rent in the country at $,2007 per month, every month of additional tenancy counts! With even one extra month on average, that’s $2,007 in additional rent and better than a $40,000 boost in property values at a 5 percent CAP rate. And in addition to additional months, renewals are enhanced as well— with one petpassionate PetScreening partner reporting a whopping 80 percent of pet-owning residents renewing their lease. Eighty percent renewals, anyone?

With enhanced lengths of tenancy and renewals, there is reduced turnover and the accompanying benefits. With reductions in turnover, you will save money marketing your vacancies. The National Association of Realtors says landlords spend less than half as much money advertising their pet-friendly units. And let’s be sure to address the ever-present pressure – vacancy. One study revealed that petfriendly rentals have a vacancy rate that is four percent lower and that their vacancies rent 10 days more quickly.

But let’s double back to the renters. Let’s consider them just a touch further. The largest consistency among all ages and locations of renters is pet ownership. Ponder that for just a moment... We all try to analyze our renter persona. When you picture your renter, do you imagine them with one or more pets? You should. Again, it is the largest consistency among all renters!

was a better than seven out of 10 correlation between the presence of pet-related amenities and the likelihood of rentals and renewals.

Studies show several beneficial results when we become more pet-passionate about our policies. Among them:

• An increased disclosure about pets, leading to fewer unauthorized pets

• A decrease in the risk of unvaccinated bites

• The creation of a tie that binds—community.

• And you’ll receive more applications, more potential renters per available rental, a competitive edge, and faster and easier leasing. Eighty-three percent of property managers say their rentals rent faster, and 79 percent say their rentals are easier to fill with more inclusive pet policies. Are your levels of pet passion on the rise yet?

Let’s get even more specific about the areas of

With all these statistics, what are your reasons for remaining pet-prohibitive? Or are you already pet-friendly? Wherever you are in the realm of pet passion, consider what more you can do to enhance your pet policies. Pets make our renters happier, create community, increase their length of stay, increase revenue, decrease vacancy, and do wonders for your bottom line. Become pet passionate, spread the word— and stay pawsitive!

Victoria Cowart, CPM, NAAEI faculty, and the director of education and outreach for PetScreening. For more information, please visit PetScreening.com.

Growth Through Procrastination

By Mark Faust

Have you put off implementing an effort—one that could significantly impact your business or life?

We all procrastinate, but how we react to this alarm bell makes the difference. When there are initiatives that are painful but important for you to do, you can use a few insights and steps to help to unlock the chains of procrastination. This includes leveraging the turnaround mindset. It builds on three principles:

1. All growth occurs in relationships.

2. Your weakness can be your strength.

3. Your crisis can be your gift.

As entrepreneurs and successful leaders, we may think we should be willing and able to do most anything ourselves — whether it’s the proverbial “I’m willing to clean the toilets” or “I need to be responsible for getting this big project done.” But if procrastination holds you back from doing something to grow you or your business, then perhaps you aren’t the best person for the job.

Odds are, a slew of people are much better and happier to do the exact job on which you are procrastinating, and they are willing to do it for a fraction of the value of your time. It isn’t just outsourcing. It could be hiring a coach to help you be accountable or a consultant who gives you insights. These are relationships that can accelerate growth. If the project isn’t your forte or you just don’t want to do it, then that weakness can be your strength.

Realizing that you are a visionary or starter and that someone else is a better implementer or finisher is why you are a leader.

Here’s how this delegation can work. One client’s company grew from $0 to $40 million in annualized revenue in 14 months. Three and a half employees manage more than 20 virtual assistants and more than a dozen vendors. The founders focus on their greatest strengths and delegate most everything else. That isn’t laziness. It is innovativeness.

To hand off responsibilities successfully, find great clarity on these questions:

1. Specifically, what do you want the results to be with this accomplishment?

2. How will you measure excellence versus mediocrity in the results?

3. Why is this important to you and others?

4. What are the risks and costs of not successfully accomplishing this?

5. What rewards are you willing to share with those who help complete this?

It is astonishing that more of us aren’t leveraging the blessing of the alarm bell we feel when procrastinating and using it to accelerate growth.

Mark Faust Sr. works with owners, CEOs and sales managers who want to grow their businesses. He is a growth consultant, bestselling author of “Growth or Bust! & High Growth Levers and a Coach to successful leaders.” He has been a Growth Advisor, Speaker, and Turnaround Facilitator with Echelon Management since 1990.

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Member Spotlight - Kevin Tacher ... continued from Page 1

and neglected children, supporting our valued military families, granting wishes case by case, and assisting with disaster relief locally as well as abroad. He is an active member of BPM REIA in South Florida.

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

Prior to moving to Florida in 2001, I grew up on Long Island, NY where I was a firefighter and fire safety director for the Crowne Plaza Hotel in New York City. I moved to Florida only 20 days before Sept. 11, 2001, narrowly missing that tragic event. I am so grateful for the “go in together, get out together” beliefs it instilled in me; leaving no one behind. Therefore, I am passionate about uncovering real-estate fraud across Florida. I believe in serving others first and this platform gives me the ability to do so.

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

My current market is South Florida, but we cover the entire state of Florida. We have been handling real estate closings for investors and real-estate agents for the past 20 years. We focus on land trust deals, assignment of contracts, and double closings.

How did you get started?

I moved down to Florida 20 days before Sept. 11. My uncle owned a mortgage company and asked me to move here to start a new life. I did this, but learned quickly that I knew no one and needed to find different ways to network to build my brand and credibility. So, this is where I started getting out to network at all the different REIAs across South Florida.

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

A typical work week for me as a title insurance agent is getting up at 5 a.m. to work on myself first. I train with a United States Marine during the week so I can be ready to tackle anything that comes across my desk. I actively work at my office during the week and network at many investor events across South Florida during the evenings.

How long have you been investing in real estate?

I have been active in the real estate industry since 2001. I was first a mortgage broker, then I earned my real estate broker’s license and then eventually in 2003 I earned my title insurance agent’s license. I have been involved in more than 25,000 closings, both personally and professionally. I own residential and commercial properties myself and love the real estate industry.

Tell us about your first deal:

My first deal was a three-bedroom townhome in Parkland, Fla. I funded this transaction using a

conventional loan, but my down payment and closing costs were part of a first-time home-buyer’s 401K liquidation. My first investment property was a two-family rental property in Fort Pierce, Fla. I purchased this property for $12,500 and it was a two-family home. There was a 3/1 in the front and a 1/1 in the back. My handyman lived in the back unit and worked off his rent in exchange for repairs to my portfolio. The front was rented for $1,350 by a veteran and he paid on time, every time for many years.

How do you fund your investments?

Being that I went through the crash of 2006-2008, I am a firm believer in not accumulating high loan-to-value debt. Most of my investments are purchased using cash or longterm conventional financing.

Do you have a real estate license?

I do have a Real Estate Broker Associate License, but I do not practice real estate as an agent. I am a firm believer in having my license for my own personal transactions, but I also would never compete with my clients. So, since Realtors are a large portion of my business, I decided to hang up the license and keep it inactive so I can focus 100 percent on my title insurance business.

Continued on Page 13

Title Agent turned Crime Fighter

Team Independence Title at the Operation Leadership book launch

3rd Battalion Fire Parade

Kevin’s recent best-selling book

What projects are you currently working on?

We are currently focused on strategically preparing our title agency for the upcoming market changes. We truly believe there is an opportunity like no other on the horizon with the eventual lowering of interest rates and the banks finally agreeing to finalize the foreclosure proceedings that they have been sitting on over the last four years since the inception of the global pandemic.

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

I am still to this day investing in my real estate education as well as that of being a successful entrepreneur. I am involved with several highlevel masterminds and several different networking organizations, and most importantly I attend almost every REIA meeting in South Florida. There is not a day that goes by I do not listen to some podcast or read some content on the changes in the market. By keeping up on your education you will stay ahead of your competition and know exactly what is going on in your local market.

Has coaching or mentoring played a part in your success?

Both coaching and mentoring have played huge roles in my success. I have hired many mentors for different areas of business and training. I have hired coaches from everything in business, to marketing and social media to fitness. Having someone to hold you accountable besides your friends and family will help you level up in all areas of your life. Leveling up is the key to any successful entrepreneur.

What are your current and future goals?

We set short-term goals and long-term goals for our business and monitor them monthly. We are currently working on our strategic plan to prepare for the upcoming changes in the market. This plan (once the market is ready) will end up generating about 100 closings each month. We are also looking to be able to speak at more REIAs and other like-minded events across Florida and nationally as well. Real-estate fraud is becoming a huge issue, and when people know what to look out for they are able to save deals from moving forward and causing financial harm to others down the road.

What has been your top struggle in this business?

The largest struggle in my business is duplicating myself. Everyone always says if they could clone themselves, they could travel to the moon and back. After being in business for 20+ years as my own entrepreneur, I think finding a true business running mate is key to success. So, if you know my “match” please send them my way, as I am always looking for someone to help take my business to the next level. Do they exist? Only time will tell.

What do you like most about what you do?

As discussed in my bio I am known and have trademarked the term “Title King.” What I love most is uncovering real estate fraud across Florida. Going back to my days as a firefighter, I love to serve others. So, conducting real estate closings is my job but savings people’s investments and homes is my passion.

Social media accounts?

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

The first piece of advice I give most investors after they join their local REIA is focus on one aspect of investing. Do not be the jack of all trades and master of none. We are entering a time where we can help so many homeowners from financial crisis. So, I would focus on one arm of your real estate investing business and once you master that one leg it’s then time to entertain getting into a different part of the business.

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

As a new investor, this is the single most important place to start your real estate investing career. When you join a network of like-minded individuals you have access to the resources you need to make an impact on your community. In addition, you get to meet just about every vendor you need to get your real estate business off the ground.

What is your favorite selfhelp or business book?

The Go-Giver by Bob Burg

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

I love traveling, scuba diving, fishing, and spending time with friends and family. I enjoy living in South Florida with my wife and two children.

Does your business have a website?

www.TitleRate.com

• Twitter: www.twitter.com/kevintacher

• Instagram: www.instagram.com/kevintacher

• Facebook: www.facebook.com/kevintacher

• Linked In: www.linkedin.com/in/kevintacher/

• YouTube: www.youtube.com/channel/UCZ5CJ2of1oFSVgQKxzbJBow

• Spotify: www.open.spotify.com/show/5mzD2Kfomw1czQjud5qBkC

• Amazon Books: www.amazon.com/kindle-dbs/entity/author/B0036HZJG4

Firefighter Kevin en route to a fire call

Kevin raising money for Lifenet4Families

Kevin’s first investment property

Unlocking Property Financial Insights How to Use Formulas and Reports to Analyze Your Business

By Gita Faust

Net cash flow is a crucial aspect of any business, especially for real estate investors who need an accurate understanding of their financial performance to make sound investment decisions. In simple terms, net cash flow refers to the amount of money that comes in and goes out of a business during a specific period. It is different from profit, which is the overall indicator of financial health after expenses have been deducted.

The net-cash-flow formula, measured monthly or annually, determines a business’s total cash inflow, including rent, minus the total cash outflow, such as maintenance and financing costs. The formula can be used to analyze the income and expenses of individual properties or the entire portfolio.

Net cash flow = Total cash in – Total cash out

While positive cash flow is the goal for real estate investors, hidden costs may hinder it. Strategies to maximize cash flow include increasing rent (within reason), renovating and upgrading properties, using online rent collection to prevent late payments, enforcing late fees, charging monthly rent, and reducing tenant turnover through comprehensive screening.

However, the net cash flow formula has some limitations. It does not consider non-cash expense deductions, such as depreciation, and it heavily depends on the market in which the business operates. Therefore, landlords should use other formulas, such as:

• Net operating income

• Capitalization rate

• Gross operating income

• Gross rent multiplier

• Occupancy rates, in conjunction with the netcash-flow formula, to get a complete picture of landlords’ rental properties’ financial performance.

Yes, QuickBooks allows you to track a budget and forecast by property. For example, you can create a budget for each of your properties or rental units and then track your actual expenses against that budget to ensure you stay on track financially.

Once you have created the property or rental unit budget, you can track your actual expenses against that

budget by running a profit-and-loss report with the class filter set to the property or rental unit class you created. This will show you how much you have spent on each expense account compared to the budgeted amount and your total income and expenses for that property or rental unit.

Here are five reports to customize to track your equity:

1. Profit loss by property

2. Profit loss by property compare multiple years.

3. Profit loss by percent by income

4. Balance sheet by property

5. Budget vs. actual expenses by property

Finally, accounting and property management software such as QuickBooks can help landlords track their income and expenses, collect rent online, digitize receipts, and categorize expenses, making calculating net cash flow at any given time easier. Knowing net cash flow is vital to being a landlord and can help investors make informed decisions about their rental properties.

Gita Faust is the founder & CEO of HammerZen, which helps businesses save time and 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.

utility?” The reality is that people rarely do this – they react to everything they shouldn’t pay attention to and ignore what they really should be paying attention to. What does this mean when trying to puzzle out what to expect for this year’s economy?

Basically, there are two schools of thought competing with one another on the subject of recession. There are the true dismal scientists that are predicting a recession in 2023 and a fairly deep one. They point to a variety of factors, ranging from a slowdown in industrial production to slumping retail and the retreat seen in measures such as the Purchasing Managers’ Index. They mostly assert that the central banks are still committed to dealing with persistent inflation and that will propel them towards even higher interest rates. They cite the comments by Jerome Powell as he indicated that inflation as measured by the PCE (Personal Consumption Expenditures) is still more than twice as high as the Fed prefers. They want that rate at 2.0 percent or slightly below, and right now it stands at 4.6 percent.

The other school asserts that 2023 will see nothing more dramatic than a minor downturn that starts to evaporate by the 2nd or 3rd quarter. They look at the fact that inflation has started to erode (probably peaked at the end of Q4 2022). They believe the Fed will slow down when it comes down to rate hikes and they point to the still solid jobless numbers. They look at the fall of commodity prices and the surge in industries such as automotive and aerospace.

If one looks at the data that comes from the Armada Strategic Intelligence System you will observe that we are somewhere in the middle. There was a substantial peak in 2022 – a holdover from the rapid growth that was seen in 2021. That started to ebb last year and is expected to keep dropping for a while this year before tracking back up to what it was in the last decade. The long- and short-term projections are very close to the 10- and 20-year trend lines. I continue to be

impressed by the performance of the ASIS (if I do say so myself) accuracy rates of close to 96 percent month after month. In the more detailed breakdowns, we see some significant variations – booms in automotive and aerospace but declines in machinery. Less volatility in fabricated metal and more volatility as far as primary metal is concerned.

What is the conclusion one can draw from all this? The first is that there is a substantial degree of uncertainty to contend with, which forces companies to develop a wide range of contingency plans. The outlook for the coming year depends on factors such as Fed willingness to halt or even reverse rate hikes. There is a fear that political gamesmanship will lead to a default over the debt ceiling and that could shove the economy into reverse. Global activity will play a huge role as well. Does China finally resume its production activity or has the world moved on enough to blunt that impact? Commodities have been down, but there are still major disruptive threats to oil supply as well as industrial metals. Leftist regimes in Latin America have already affected copper, aluminum and other metals. Europe asserts that it is no longer staring a recession in the face – at least not a severe one. Does that mean more market for U.S. goods or more competition from European producers? Probably both.

The bottom line is that companies are facing a year of unknowns after a couple of years of predictability. We all knew 2020 and much of 2021 would be miserable and we knew part of 2021 and 2022 would feature growth - we don’t quite know what to do with 2023 yet.

What does all this mean for the real estate market?

As with many other aspects of the economy, there are some big differences according to sector and region. Commercial construction has been in a pattern for the last couple of years but these conditions are shifting. The predicted death of the office building now seems premature as companies grow tired of the virtual system. Employees may like working from home, but

their supervisors are not big fans and the limitations are more apparent every day. The projects are smaller and located in more distant suburbs, but there is a comeback. The surge in warehouse and distribution centers has slowed as consumers are starting to return to the brick-and-mortar experience. The reduction in expansion plans asserted by Amazon just a few months ago is a case in point.

Housing has been profoundly split between the multi-family and single-family categories. Permits for multi-family are up by more than 22 percent and as high as they have been since the 1980s. Single family permits are down by 11 percent. There is still a shortage of some five million homes, and that has been driving up house prices as well as rents. At some point the price of homes will start to fall as demand flags but it has not happened yet. Beyond that there is the regional impact – hot markets that are still blazing. As people have the opportunity to work remotely, they choose their city based on where they want to live as opposed to where they were given employment. Finally, there is the demographic driver to consider. A recent national poll found that over 27 percent of Gen Z males were planning to remain living at home until their 30s. That limits the demand for both multi-family and singlefamily expansion. Interesting enough – only 12 percent of Gen Z females wanted to remain in their parent’s home.

Chris Kuehl, PhD., is an economist and Managing Director of Armada Corporate Intelligence. Visit www. armada-intel.com for more information.

Buying Foreclosures Directly From the Owner

By Tony Youngs

There are some important things to consider today when making an offer to a homeowner in foreclosure. If and when their home goes up for auction, the opening bid is calculated by the balance of the loan, court fees, attorney fees, and advertising costs for the legal ad. At the auction, the auctioneer will open the bid at that amount. If no one else bids, the house is sold back to the lender and it becomes a lender-owned property. However, if someone bids a price over the opening bid, the lender gets paid what he is owed in full, and the surplus funds will be used to pay a second mortgage or underlying liens. It may not be enough to cover the entire lien, but they are entitled to whatever the amount may be. After all underlying liens are paid, if there are any funds leftover, it goes to the homeowner. However, not all states inform the owner of this and the homeowner usually has to file a claim to recover it.

I recently attended an auction in my county and there was a house that had an after-repair value (ARV) of $366,800 The opening bid was $94,000. Several people started to bid against each other and the house was sold at $216,000. That meant the buyer got the house for 59 cents on the dollar. It also meant

the defaulting homeowner will receive about $122,000 dollars – IF they claim it. I’m sure there are probably some junk fees that would be collected before the owner can receive it, too. Therefore, when I am offering to buy a house from a homeowner in foreclosure, I like to be up front with them and tell them that if their home goes up for auction, they are entitled to the excess funds if the home sells to a third-party bidder. I also let them know that they may have to claim them.

Next, I explain the benefits of selling before the auction. I inform them that if they allow me to make an offer, we will calculate the amount they would receive if it goes to auction and sells for the average price. I show them some of the recent sales at the auction and what they might expect. Then I write an offer explaining that selling before the auction means they will not have a completed foreclosure against their credit which, in turn, could hinder them from getting another home in the near future. I also offer to help them find a place to live, like an apartment or rental house. I do this because in the past, some owners have no idea where they can move. Finally, I explain that my offer is a sure thing, and if they choose to go to auction in hopes of getting more money, there is always a

possibility that if no one bids, there will not be any money left over.

Therefore, when dealing with homeowners in foreclosure, we should try to get as close to what they might receive if it goes to auction. In the case study described above, the house sold for fifty-nine cents on the dollar - which is not too bad. So, how can we do this?

Here is what I do: I attend foreclosure auctions as often as possible and collect data on each house by writing down the opening bid, and if applicable, what it sold for. Next, I do the comps on the after-repair value. Then I make note of what percentage it sold for. At most county courthouse websites, you can usually print any documentation justifying the figures on what a house sold for.

In addition, there are many other benefits of attending foreclosure auctions. One very good reason is that it gives you the pulse of the local market. As long as there are investors bidding on houses, it is safe to buy in the hidden market. On the other hand, if you attend a foreclosure auction and there aren’t

any investors, there is probably a good a reason why. It may just be a hint that now is not a good time to buy. Although I have seen investors buy during bad times as well as in good times - they just change their strategy. For example, in bad times, you buy and hold.

In real estate, I don’t put all my time in the foreclosure arena, the majority of my time is working the hidden market. The information I have provided is by no means the rule, it is just something to consider on your real-estate investing journey. However, since the beginning of the year, more and more homeowners are selling their homes before the auction date.

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.

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The 8 Bad ‘D’s of LLCs – Part 1

It’s Essential You Review These Considerations Before

Signing Multiple-Member Agreements

By Jeffery S. Watson

When drafting multiple-member LLC operating agreements for clients, or when reviewing ones that someone else has drafted, I look at them with eight bad “D”s in mind that need to be addressed in detail. In this article, I will cover the first four. Look for my article in the next issue to find out what the other four are.

allowing LLC operating agreements to have language in them saying that the membership certificate transfers on death to a party designated in writing on the membership certificate or set forth in the operating agreement, it can quickly lead to a situation in which the surviving members of the LLC now find themselves in business with someone they did not anticipate working with, nor do they wish to continue to be in business with them.

Plans need to be in place to deal with the issues this scenario brings, such as key person insurance, buyout provisions, and accountability and accounting access. Anyone going into a multiple-member LLC business arrangement needs to consider these provisions in the operating agreement from the perspective of if they were the one who passed away, how would they want the other members of the LLC to treat their heirs or estate? Is there a fair and accurate valuation method to calculate the value of the LLC? Is there transparency as to the business activities, operations, and books and records of the LLC? Is there a clear mechanism as to how distributions will continue to be paid as the membership interest is bought back or transferred from the heirs?

decree so there is a division of the LLC ownership interest between the divorcing parties. The original member will remain a member but at a reduced percentage. The former spouse will get a “profits interest.” This will result in a change to the operating agreement as well as a change to the LLC tax return, meaning an additional K-1 will now be generated. Each of the parties in the divorce, if they divide the membership profits interest of the LLC between them, will now get separate K-1s. It is imperative that this be diligently done as expeditiously as possible. Buyout language should be carefully talked through and included if feasible.

1. DISAGREEMENT

Whenever you have a multiple-member LLC, you have the potential for disagreement among the various member-owners. The operating agreement for the LLC needs to clearly spell out how that disagreement is going to be resolved. The scenario I frequently see, which results from poor draftsmanship, is when there are two 50-50 owners of an LLC and no tiebreaking mechanism has been put in place. Here are some simple but effective mechanisms I’ve seen used:

• When there are three or more member-owners, a vote is held based on percentage of ownership, and a 51 percent or greater majority vote carries. While this sounds simple and effective, it can also lead to a great deal of resentment and distrust by the minority owners.

• Do a coin toss. Seriously, I have seen this suggested for any sort of disagreement on an expenditure of $10,000 or less.

• I personally believe that a neutral third party should be agreed to in advance, someone all LLC owners respect, who will make the tiebreaking decision. Obviously, you want to reach out to that neutral party and get their consent to name them as the tiebreaker or arbitrator. It’s important to set out in the operating agreement the procedures by which each party presents their case to the neutral third party.

When more than one person is involved in a business, things can go sideways when they don’t see eye-to-eye on business strategies, moves, etc. You need to plan in advance for that. If you fail to plan for the disagreements that will eventually happen, you are planning to fail.

All these things need to be thought through, talked through, and carefully drafted into the operating agreement.

4. DISABILITY

The reality is that none of us is getting younger, and with age comes the likelihood of more health problems. Given the uncertainties of life and a myriad of things that can result in some form of physical or mental disability, it is imperative that the operating agreement for an LLC deals with that possibility. What happens if one of the members of the LLC becomes disabled in whole or in part? What if a member is involved in a car accident and sustains a stroke or traumatic brain injury, or they visit the doctor after not feeling well and are diagnosed with some form of cancer?

2. DEATH

The death of a member-owner of an LLC is probably the worst of the eight D’s. With many states now

3. DIVORCE

Given the prevalence of divorce, particularly among individuals who are in the entrepreneurial space, it is a reality that you need to consider when drafting an operating agreement for an LLC. Public policy has pretty much mandated in all family courts that irrespective of how craftily and creatively an LLC operating agreement is drafted, that LLC membership interest is a marital asset unless there is a clear and specific signoff to the contrary by the non-member spouse at the time the LLC is formed.

In the event one of the business partners in an LLC goes through a divorce, you need to be aware of two things. First, that business partner did not go away, but that partner has been severely hampered with things that are draining their time, energy, and focus. Hopefully, you and the other members of the LLC will see things from the perspective of if you were in that business partner’s shoes, and you would extend to that hurting business partner the grace and kindness you would want extended to you if you were in that situation.

Second, you need to understand that part of the LLC or a profits interest in the LLC is now going to end up in the hands of someone who may be hostile by virtue of the way the divorce occurred. That potentially hostile person needs to be bought out or minimized in a fair and equitable manner.

It is very important that the LLC operating agreement be amended pursuant to the terms of the final divorce

Have you drafted your operating agreement to account for disability? Does the LLC provide any sort of disability insurance to its member-employees? Does the LLC rely on the activities of the now-disabled person in order to continue operating? Is there a way to transition and keep the business moving forward? Once again, approach the drafting as if you are the one who becomes disabled and are counting on the income from the LLC to be available to you at the time of your disability.

Look for Part 2 in the next issue.

Jeffery S. Watson is an attorney who has had an active trial and hearing practice for more than 25 years. As a contingent fee trial lawyer, he has a unique perspective on investing and wealth protection. He has tried more than 20 civil jury trials and has handled thousands of contested hearings. Jeff has changed the law in Ohio four times via litigation. Read more of his viewpoints at WatsonInvested.com.