RE Journal Summer 2023

Pete and Cindy Fischer are members of the Chicago Creative Investors Association and met in 2006. Well into adulthood, both have had not only many experiences but also children and a couple of marriages behind them. They both spent over 30 years in other professions working for someone else, with about eight of those occurring simultaneously in real estate investing.

In 2009, after a lot of discussion and an investment trial run (buying, rehabbing, and selling a property to Cindy’s son), they created an LLC and started on their journey in real estate investing. They have done well and have shifted investment goals several times.

Like others, they have made mistakes and had good successes along the way. Their friends and

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2. Innovation is More Critical Than Ever

3. NREIA Legislative Update

5. Is Automation Helping or Hurting You?

6. How to Grow a Small-Balance Retirement Account With Real Estate

9. The Impact of Student Debt on Qualifying Tenants

10. Maximizing Returns: Why Real Estate Investors Turn to Private Money Lending for Higher Yield Investments

14. Understanding Tax Laws, Regulations is Crucial for Real Estate Investors

15. Proceed With Caution

18. The Infinite Banking Concept: A Safe Haven for Real Estate Investors

Why Are Forecasts All Over the Place?

By Chris Kuehl, Ph.D.

If you have been turning to the dismal scientists for guidance regarding the rest of 2023 and into 2024, you are likely a little frustrated and confused. One set of talking heads asserts that the world is on the precipice of total economic breakdown and the other set is urging calm as they issue reassuring predictions of a short and mild downturn. Not very helpful for those running a business.

I wish I could say I have all the right answers, but I am looking at loads of contradictory data as well. Why? What is making this period so much harder to categorize? It seems to come down to two factors: the labor market and consumer behavior and their subsequent impact on inflation behavior.

Nothing has been quite as out of sync as the labor market. There have been rate hikes and a myriad of other attempts to slow the economy, and yet hiring remains strong month after month, the rate of joblessness stays low and wage rates keep rising (faster than inflation).

This kind of labor-related stress usually occurs when the economy is booming, not when it is facing threats of recession.

It is a problem that has been building for decades but little or nothing has been done to address it. There are too few workers in general due to retirement of the Boomer generation as well

as factors such as the emergence of the gig economy and all the incentives to stay off payrolls in general. The expectation every month is that job growth will stall and it doesn’t. The hike in the unemployment rate was simply a matter of people in the U-6 category moving to U-3 (in February it was at 7.3% and is now at 6.4%). The U-6 measure counts the “discouraged worker” and these are the people that re-enter the labor force when conditions improve.

Consumer behavior has also been unpredictable. Usually

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The 8 Bad ‘Ds’ of LLCs – Part 2 More Considerations to Review Before Signing Multiple-Member Agreements

By Jeffery S. Watson

In my article in the last issue of the RE Journal, I shared the first four of eight bad “D”s that I consider when drafting multiple-member operating agreements for clients – Disagreement, Death, Divorce, and Disability. If you missed that article, you can find that information by visiting watsoninvested. com/articles/.

Let’s talk about the last four.

5. DISINTEREST

I have been involved in more than one LLC in which one of the memberowners became disinterested with the day-to-day operations of the LLC once

they realized the LLC was not going to be nearly as profitable or exciting to operate as was originally planned. That disinterested member was then unwilling to participate in many of the day-to-day activities.

When establishing a multiple-member

LLC, there needs to be a specific section in the LLC operating agreement outlining the roles and responsibilities of each member. There also needs to be language at the beginning that spells out the consequences when a member fails to fulfill their roles and responsibilities. A good operating agreement will contain language as to what happens if there is a capital call, and one of the members is unable to respond to that call. The same thing needs to be thought through when it comes to member disinterest. Is their ownership interest in the LLC diminished? Is their income from the LLC diminished? What is going on with the business that has

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Cindy and Pete Fischer

Innovation is More Critical than Ever!

By Rebecca McLean Executive Director, National REIA

Looking back through my commentaries over the last two years, a word that comes up repeatedly is challenges. And while as a community, country, and world, we are still facing significant challenges that we can’t ignore, including supply chain issues, a labor shortage, and inflation, we often need to take time to celebrate what’s good and a cause for celebration.

Within our industry, we celebrate the upcoming REIA Awards at National REIA’s MidYear conference, taking place this June in Las Vegas, Nevada. We will publish the results of those awards in an upcoming issue of the Real Estate Journal and on our website. The focus of our awards is innovation. And now, innovation is more critical than ever. Also of importance is the power of our industry and the organization’s culture. Now more than ever, an organization and industry’s culture matters. An organization’s shared values, beliefs, goals, and practices set the tone for everything that organization does and affects how our members feel about the work they do, where our industry is going, and, ultimately, how long those members stay in our industry contributing to their communities. That’s crucial in this new era!

We want to know what your business is doing right now so we and our other members can learn from your best practices. Please submit any interesting stories from

your business to us at info@nationalreia.org so that we can highlight your business and how you contribute to your community, personally or professionally. Not only is recognition great for you and your REIA group, but it also helps our industry, further boosting our community and our reputation as a thriving industry. Please nominate other REIA members and their businesses that you believe are successful due to the power of innovation or their culture. We highlight those winners in our quarterly publication through the Member Spotlight and our “We Provide” channel on YouTube and social media.

We have an upcoming session on our REIA Now monthly webinar series about the “State of the Industry.” On some of our past monthly calls and our blog, we’ve heard from experts and members alike that despite familiar concerns, including inflation, labor issues, the pandemic, and tax worries, an astounding 80-plus percent of our members expect revenues to increase in 2023 thanks to strategic choices they made and improving economic conditions as the pandemic recedes. Talk about something to celebrate! (If you aren’t planning to participate in our upcoming live webinar, you can see that replay on our YouTube channel.) Experts have also said that it’s been a challenging but very profitable 12 to 18 months for many businesses in our industry. However, challenges continue to mount around inflationary pressures, higher borrowing costs, shifting supply chains, a tight labor market, and

increasing legislative pressures.

Small business owners must be adaptable in the months ahead and concentrate on managing both sides of their personal and business balance sheets.

National REIA’s mission and purpose includes nurturing and educating real estate investors about their business and helping those businesses drive a vibrant economy. We work hard to be a valued partner delivering knowledge, connection, and community. Our commitment to our members is both broad and deep. We will continue to bring you relevant offerings in person and online — including expanding our benefits and tools to help your business. We seek continued membership expansion by welcoming all investors to National REIA and our local groups and chapters. We’re here to help in the face of headwinds. Remember this: We are stronger together as we share, learn, and support each other!

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

With National REIAU, we have made learning from some of the best fast, easy and inexpensive. National REIAU delivers great low-cost, high-quality investor training on exactly the subject you want, exactly when you want it.

Leg/Reg/Fin

No, this is not a biology update, rather those three-letter abbreviations reflect a host of issues that are confronting the modern housing provider. Macro issues ranging from global inflation and pandemic related logistics concerns are reluctant to give way to brighter days. Interest rates and clamp down on cash liquidity by the Fed has impacted housing in a couple of different ways. First, the climbing interest rate has a dampening effect on valuation increases and the willingness of buyers to step into the market. While this can be offset by price decreases as in the case of many of the early high-flying cities like Denver and Phoenix, the sheer need for housing by the “Millennial Bump” demographic is creating a scenario different from the 2008 housing crisis. An additional factor that is starting to be acknowledged is the solidifying effect of rising rates. Homeowners locked into 30-year rates in the 3 percent range are very unlikely to make a jump to 6 percent+ rates. Additionally, the value increase they may have been counting on has also been diminished by higher rates. In this way higher rates tend to impact the housing market by reducing supply as existing owners sit tight, fewer properties are available for sale, and there is less value available in the market for the buyers driven to purchase.

If you are remodeling properties, what can you do to get an edge on the competition? First and foremost, don’t get HGTV glammed up! Make sure the property is in the right area – built for the appropriately-priced customer. Beyond that basic, many communities incentivize renovation by creating Community Reinvestment Acts which allows for the tax valuation to be locked in at the current rate for seven to fifteen years. This can be a solid attraction in a world of increasing values and tax rates! Most municipalities keep this a simple process – but it typically needs to be filed for BEFORE the work starts. Additionally, there CRA requirements for banks and occasionally a bank will get sideways with the regulators for not investing enough in low-income areas – knowing when this happens can provide an opportunity for sales in those areas, as well as an opportunity for refinancing at discounted rates. A local bank (unnamed publicly) for example is offering 5.75 percent at 85 percent LTV for 20-year amortization on residential/commercial buildings, and 30-year amortization on owner-occupied rentals. That extra percent or two saved in the downpayment and interest can help make a deal – or a better deal!

The commercial property discount

As noted above, the potential recession (some say

current recession) is really focused on commercial property and most specifically office space, not on single family housing. This is good for the overall housing market, at least until the Millennial Bump moves through somewhere around 2027 or 2028. In the meantime, there will be an ongoing shakeup in the commercial market. As A space becomes more available and companies consolidate office space, there will be two key impacts: B & C grade spaces will drop in price as some companies upgrade space or at the very least reduce their footprint. This will have a rolling impact on a variety of commercial properties that were sold between 2017-2020 on interest only loans that need to be refinanced. The decreasing square foot costs will mandate the sale of the property as it will not meet financing debt service. Additionally, with reduced liquidity in the primary capital markets there will be even larger devaluation potentials – for those with cash and available for a quick closing. Market size and culture will determine if this is prime space just outside of a downtown area or smaller suburban sites. This year and next could be a good time to pick up some nice smaller office space.

Introduced! Meet HR 3464

The freshly prepared and introduced bipartisan Affordable Homeownership Access Act was made public on May 18th by Rep. Andy Barr (R-Ky.) and Rep. Vincente Gonzalez (D-Texas). Both Congressman stating: “The Affordable Homeownership Access Act is a critical step towards providing a pathway to homeownership for hardworking Americans. By reducing barriers and streamlining processes, we empower individuals and families to achieve their dreams of owning a home.” Congressman Barr said “This legislation not only addresses the housing and credit challenges faced by many, but also ensures that vital consumer protections are upheld. I am proud to champion this initiative, as it promotes economic mobility and strengthens our communities.”

“Homeownership is a vital pillar to building strong communities and generational wealth. I am proud to join Congressman Barr to re-introduce the bipartisan Affordable Homeownership Act, which will increase opportunities for South Texans to achieve the American dream,” said Congressman Gonzalez. “This bill offers another path to homeownership through seller financing, a flexible option that can meet the needs of working-class families without forfeiting critical consumer protections.”

National REIA is proud to work with the Seller Finance Coalition (www.sellerfinancecoalition.org) on this latest version of the bill that appears to be headed

to committee hearings – and quite possibly a first ever bicameral introduction as the Senate has taken an interest in this work as well. Special thanks go to Jeff Watson, General Counsel for National REIA and Bob Repass of Note School. These two fine gentlemen have worked with numerous individuals over the years and wrangled the legislative cats to the point where legislative traction is digging in!

S 1212 Electronic approvals

While it may be a bit amusing watching octogenarians debating the electronic signatures verification, it is in fact making its way through in the Senate with S.1212. Having already passed in the House, the formal process is expected to be approved in the Senate – at least as much as a bipartisan no-brainer bill can! The bipartisan Securing and Enabling Commerce Using Remote and Electronic (SECURE) Notarization Act is especially helpful for investors as this bill would allow for interstate commerce of electronic notarization! If you have ever bought property out of state, you know this is a big deal! Remote Online Notarization (RON) would become standardized for all notaries and allow for a quick and convenient option in a variety of real estate related transactions including lien releases! National REIA strongly supports the passage of S 1212 the SECURE Notarization Act!

The Sky is Falling

Numerous articles on politics are often about the sky falling and the excessive use of the word “dramatic.” Hold on for more. As the split House/Senate leadership que up for a final run-on debt ceilings, in preparation for the Constitutionally required 12 budget bills, the world will resonate with calls of the sky falling. The potential claw back of Covid funds from local and state bureaucracies unable to spend the money fast enough(!) could lay the groundwork for local calls for tax increases – so be prepared to address those demands locally. The real concern, as has been written about over the past couple years now, is the likelihood of increased regulatory efforts.

One key area of confusion is the difference between arrest records and a criminal record. In America, we pride ourselves on the principle of innocent until proven guilty. And while our media may jump the gun in the court of public opinion, it must remain clear that by actual court process, that is due process, is due to every citizen. Arrest records have been utilized by some background searches and while arguments are made that they may reflect a pattern and practice, they

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Gain

Preferred

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

Is Automation Helping or Hurting You?

By Jane Garvey

Ijust got off the phone with a fellow landlord who was insisting that his Virtual Assistant (VA) was the right answer for showing his property. Is it?

I think it is time to look at this issue from both sides – housing provider and customer.

they have a repair request? Even if your automation is better than everyone else’s, your first impression will lead people to believe that the standard nightmare will be the norm.

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 the years have passed, I have witnessed more and more automation of the routine tasks in our business. I have also witnessed more and more automation of everything in life. This supposedly makes things more efficient, saves us time, and allows us to be consistent in our service. But… who is this process meant to benefit?

Old fashioned as I may be, I prefer talking to a human being. When I have a problem with a product or service, I dread the “new normal” process. I place a call to a help line that will run me through 18 automated questions that don’t really fit my circumstances. Eventually, after what seems like an eternity on hold, I reach a remotely located human who asks me the same 18 questions and then tells me that I need to talk to someone else. After 2 hours of button pushing and being placed on hold, I sometimes am disconnected. If I reach a person, they often don’t have answers or authority.

I am thrilled on the rare occasion that I call the listed number and a real person answers the phone. Why not be the service provider that adds the human touch?

If you are trying to rent property, what is the most important thing you can do?

I would contend that you should try to demonstrate great customer service. If the first encounter with your company is a VA with a script, this is what your potential residents will expect. A handsoff, manager from a big company. They will be renting from a computer and a VA. Is this what they are going to encounter when they have an emergency? Is this what they will have to go through when

Personally, I have found that people really respond well to a person answering the phone, the text, or the email. The more personalized the response I can give, the better. I am not talking about violating Fair Housing Laws, but rather a friendly greeting with a list of preliminary questions about their wants and needs, as well as some about their job and income, and potential no-goes from my end. I end with a promise of what will happen once they answer the questions. “I will get you in touch with our on-site maintenance guy to set up a viewing if this looks like it will be a good fit.”

My fellow landlords are going with the “send me a picture of your driver’s license and I’ll send you a code to show yourself the property.” Some of the people follow through and look, but there is no pivot to the sale that happens during their showing. No one is pointing out the great features. No one is talking about how tight the market is. No one is talking about the neighborhood amenities. And no one is asking if they are going to be filling out an application. In addition, no one is making sure the doors and windows are locked, the lights are out, the toilets are flushed, and the faucets are turned off. No personal touch.

In my case if it seems like a good fit based on their answers to my preliminary questions, I send the name and phone number of the person who will be showing them the property. That person ideally has intimate knowledge of the property and the community, as well as being a great representative of my business.

So, how is this working out? To compare apple to apples, I am going to talk about units in a townhome complex. When I have a unit available, I look at

what else is on the market for rent. I will look at size, condition, and time on market. I often price mine at or above the top price listed. I find that mine are rented while the others are still sitting on the market. So, I am getting $25 to $75 more per month per unit and have shorter vacancies by several weeks. In my view, that is significant. I am sure that we have less showings since they are usually rented within 1-3 showings, and occasionally with zero showings. This is less wear and tear on the units, and less clean-up required before the move-in. One might wonder if my criteria are more lax than other owners or managers. I can assure you that is not the case. I have discussed this with the HOA management.

Can I scale this business model? This is how people have operated for a long time, so yes, it can be scaled. One just needs to find the right people to help. Is this business model going to last? I think it will. I have many residents and potential residents tell me how refreshing it is to talk to a “real” person. I get it, your VA is supposed to take the place of a “real” person, but they have less latitude in going off script or building any rapport. I want to end the initial interaction with people having them want to like the unit so that they can rent from me or appreciating that I haven’t wasted their time when it wasn’t a good fit. That great first impression is critical.

Overall, I am still happy with the personal contact rather than the VA. Great customer service comes from putting yourself in the customer’s shoes and creating the experience you would like to see.

M. Jane Garvey is President of the Chicago Creative Investors Association.

How To Grow a Small-Balance Retirement Account with Real Estate

By John Bowens

Real estate investors are catching on to the fact that they can use retirement accounts – known as self-directed IRAs – to invest in real estate, including fix-and-flips, rental properties, raw land, and much more. Many investors start small and grow their accounts by increasing their buying power with the real estate profits that flow back into the IRA or other account.

You’re probably thinking, ‘Wait a second, how in the world would I invest in real estate with a small amount of money in an IRA when real estate prices in the U.S. have never been higher?’

Investors utilizing their self-directed IRAs are leveraging a little-known strategy called real estate joint ventures. You could potentially look at partnering your IRA funds with another investor’s IRA funds to acquire property, and then split the profits based on your negotiated percentage split.

Example 1: Finding $200,000 for a transaction

Scott from Milwaukee had $24,000 in his self-directed Roth IRA and was looking to acquire a property that required $224,000 for the purchase and renovations. He then would sell the property and make approximately $60,000 – a great opportunity. Scott’s challenge was that he needed to come up with the other $200,000 for the investment.

Scott met real estate investor Kate at his local REIA group. Coincidentally, Kate had an Equity Trust self-directed Roth IRA and health savings account (HSA). They partnered all three accounts together to acquire this property, sold the property in approximately six months, and made a $60,000 profit.

Per their real estate joint venture agreement, 70 percent of the profits went back to Scott’s Roth IRA and 30 percent of the profits went back to Kate’s Roth IRA and HSA. Scott’s the one who found the property opportunity and Kate was the one who brought in her Roth IRA

and HSA for some of the funding, so Scott made $42,000 tax-free in his Roth IRA, growing his Roth IRA from $24,000 to over $66,000 tax-free. Kate made approximately an 18-percent annualized return between her two accounts on a $200,000 investment.

Example 2: Turning $13,000 into nearly $50,000

For this example, I won’t use names because the investors choose to be anonymous. I’ll call them Investor A and Investor B. Investor A only had about $13,000 in his Roth IRA and Investor B had a significant amount of capital in their self-directed accounts, which they hoped to deploy and make an attractive rate of return.

The two investors partnered to acquire a property and rehab it for a total of $75,000 and subsequently sold the property for $150,000. Per the negotiated joint venture split, Investor A contributed $13,000 in the transaction with his Roth IRA. After closing costs, they split the profit 50/50, so Investor A made about $34,000, 100-percent tax-free, growing his Roth IRA to nearly $50,000 on just one transaction.

Those are just two examples of real estate transactions where investors got creative, found an opportunity, and put

Legislative Update ... continued from Page 3

are NOT to be used. A conviction in a court of law is very different than an arrest. As such criminal records have been a gold standard for the industry to review to determine the likelihood of risk from a potential tenant. This is very different from the current push by the administration as noted in the White House Blueprint for a Renters Bill of Rights, page 11 paragraph 1(!) that opposes background checks and screening for tenant applications alleging disparate impacts, and is seeking through regulatory changes at CFPB to strictly limit access to background checks and threatening Fair Credit Reporting Act violations for screening companies. Please make sure you are using a verified and legitimate screening process.

For more information on this issue be sure to check out David Pickron’s Rent Perfect podcast episodes 90-94 with his general counsel, Denny Dobbins! These episodes can be found online at www. RealEstateInvestingToday.com.

Much ado about FHFA

Having received grief from a reader who conflated arrests with convictions, confused proposed regulations with existing rules, and contestation over the truth of the matter related to FHFA mortgage insurance rates – please understand that media headlines are often written to draw attention. However, when the truth of the story is consistent with the purported headlines, such as in the case of the recent FHFA

together a real estate transaction with another real estate investor or interested real estate investor.

Putting these concepts into practice

To provide more details on this real estate joint venture concept, Equity Trust Company developed a Self-Directed IRA Master Transaction Handbook. The handbook provides sample documents, including a real estate joint venture agreement, along with diagrams on how other investors are structuring various transactions. The intent of the Master Transaction Handbook is for you to provide it to your real estate attorney as the foundation so they can then customize your specific documents based on your needs, the state you’re in, and your investor partner(s) you’re working with.

The handbook is available as part of our education course, Wealth Accelerator for Small Balance IRAs. The comprehensive education package includes step-by-step processes and frequently asked questions, presented in video modules that allow you to learn at your own pace. Topics include actual investment strategies investors are using with their self-directed accounts, including joint ventures, wholesaling,

and private money lending. We also introduce existing self-directed IRA investors who share real-world examples of how they are finding success with their self-directed IRAs.

National REIA members can receive $50 off this education package: visit https://info.trustetc.com/nationalreia to claim this offer.

John Bowens, CISP, 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.

restructuring of fees, such that even proadministration “fact checkers” have to go to great lengths to excuse the behavior of the department, which has a history of underestimating the risk pricing of its insurance product such that previous administrations had to raise rates in order fiscally stabilize the program, it begs the question of reduction offsets. For example, if someone with a 740 credit score sees an increase in their fees by almost 60 percent and someone with a 640 credit score sees a 25 percent reduction in their fee, even if the actual percentage charged is higher for the 640 credit score – there is a perceived and real increase in cost for the 740 credit score and perceived and real decrease in cost for the 640 credit score. To say that one is not truly subsidizing the

other may be accurate – but without the actuarial charts to prove otherwise, the perception and the reality are one and the same: bad credit scores got a break and good credit scores are paying more than before!

Be sure to check out National REIA’s Action Center on NationalREIA. com to weigh in on legislation and rules before they impact you! Likewise, stay up-to-date with current industry news and updates by visiting RealEstateInvestingToday.com.

caused the disinterest?

Addressing member disinterest requires careful planning and a lot of up-front conversation between the potential member-owners of an LLC before they work with their counsel to draft the LLC operating agreement.

6. DRUGS

When I use the word “drugs,” I’m referring to anything of an addictive nature, such as prescription or nonprescription drugs and alcohol. It can include any addictive behavior that is detrimental to the person or the business. There needs to be language in an LLC operating agreement as to what happens when one person becomes an addict and is no longer acting in a responsible manner, whether that person is a member-employee or whether that person has inherited a membership interest in the LLC. You don’t want to continue to fund an addictive behavior that is detrimental to the life and interests of that person. Does the LLC have the resources available to pay for an inpatient treatment program? Does the LLC have specific provisions in the operating agreement as to how power and authority are taken away from the person with an addiction? These are things that need to be thought through.

The most important advice I can give you regarding this bad “D” is to not think that this will never happen to you or any of the other members in the LLC, because it usually happens to those who thought it couldn’t happen to them.

7. DEBT

Too much debt will cripple or kill a company. An LLC operating agreement needs to contain clear language, which is agreed to in advance by all members, as to how much debt the LLC will take on and what form or manner of debt is acceptable. This is so important because two common causes of business failure are (1) taking on too much debt and not being able to pay that debt with the income from the LLC, and (2) inadequate bookkeeping and tax records which result in tax liabilities that put the LLC out of business before it really had a chance to get going.

Owing back taxes is another form of debt that the LLC needs to be aware of and must plan for. As an owner of an LLC, you must be aware of all the tax obligations you have with your employees. I have seen businesses that started out with a big splash, lots of employees, and lots of excitement and sales, but when it came time for the 941 payroll tax returns to be filed, they didn’t have the money to do so and ended up in trouble. Make sure all aspects of the LLC’s finances have been discussed with all members.

8. DECLINE

Unfortunately, businesses do decline as market conditions shift and change. Businesses that were once vibrant and dominant (Blockbuster, Sears & Roebuck, numerous hamburger chains and retailers) are now relics of the past. Why? Because there was a decline in their business that needed to be addressed.

If market conditions change to the point where your business is no longer viable, that needs to be recognized and agreed to by all members of the LLC. Metrics should be defined in advance as to what it will take for everyone to agree that the business has declined to the point that it is no longer viable.

One of the easiest ways to track decline in a business is to know your numbers on a weekly, or at least monthly, basis relative to the amount of new matters, projects, deals, or opportunities coming in and how much money is coming in versus going out. For example, if you are a house-flipping enterprise that used to get 40 leads a month of people interested in selling their houses, and you closed 3 deals a month, but now you are down to 5 leads a month and only close 1 deal every other month, then your business is in serious decline. You need to adjust accordingly.

Make sure your operating agreement spells out what to do in case of declining business. An operating agreement will usually contain a section regarding winding up the LLC in which it is agreed that the person who continues to run the company during the process of winding it up will get paid. Make sure there is enough money on hand to continue to pay that person who is left with the responsibility of shutting down the operations and bringing everything to a close (closing out bank accounts, reconciling the books, submitting the final tax returns, and distributing whatever money is left). All too often, businesses wait too long and there is no money left to do this process, so no one wants to take on the responsibility because they will not be compensated for doing it. This is a sign of failure to plan ahead for what may be inevitable.

I trust this series has been helpful to you. If it has, I’d love to hear from you.

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.

The Impact of Student Debt on Qualifying Tenants

By David Pickron

As an investor and housing provider, one of the things I fear most is a long-term vacancy. I’m about to face the worst vacancy of my life… all three of my children will finally be out of the home, with two of them heading out over the next few weeks in pursuit of educational advancement.

In today’s world, that advancement is usually accompanied by something else we are becoming all too familiar with in the United States, student debt. My children will leave school in 3 years with around $50,000 in student debt, which has become easier than ever to access. Never before have I seen such willing lenders who are anxious to provide funding to someone who statistically is less than likely to make the lender whole.

As an industry, this overfunding of student loans, and the high volume of defaults, will begin to affect how you and I manage into the future.

Starting at the end of June, student debt will no longer be paused as a side effect of COVID, and payments will again be called due. Over one-third of all Americans between the age of 18 and 30 have some type of student loan. Thirty percent of those loans were already delinquent before the COVID pause. As a housing provider you are going to see the impact of this over the next several months and years and need to be educated and ready to make the best decision possible.

Having been a private investigator and housing provider my entire adult life, I have seen the ebbs and flows of a changing world when it comes to credit, criminal, and eviction data. Most people see the

headlines that credit scores are going up in this country. I have to ask myself; how can that be? Five years ago, the major credit bureaus removed liens and judgments, including evictions, from their credit scoring. Last year it was decided to remove medical debt from credit bureaus.

With removal of these, the most common factors that affect scores, it’s no wonder credit scores are going up. I can see student loans being added to this alarming trend in the near future. Until that happens, I would consider these three key factors when it comes to analyzing an application where there is evidence of delinquent student loans.

1. FINANCIAL

What is the balance of the student loan? If my applicant ends up being garnished by the government to pay their student loan, will they still have enough to pay the rent? Did their education put them in a better paying job, or do they have the same job as if they never went to college?

2. MARKET CONDITIONS

How much interest is my property getting in a challenging market? A delinquent student loan will affect the applicants score and might place them in a “Conditional” range where I have to look at all the other factors, and then make the best decision possible. If my property is not getting much action and I see the only bad mark is a student loan and the rest matches my “Approval” criteria, I might have a new business partner. For me, if I see delinquent student debt

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coupled with any other negative data, my decision is almost always a “no.”

3.

TIME FRAME

How long has the student debt been delinquent? It is not unusual to see student debt not be paid back immediately as people are getting settled into new jobs. This is often accompanied by moving to new areas of the country, new responsibilities, and a variety of other factors. If I see unpaid long-term student debt, that usually signals that they have little to no intention of

Continued on Page 14

Maximizing Returns: Why Real Estate Investors Turn to Private Money Lending for Higher Yield Investments

Exploring the Pros and Cons of Using a Private Lender for Real Estate Financing

By Gita Faust

When traditional financing options fall short, real estate investors turn to private lenders to secure the needed funding. Private lenders offer an alternative avenue for financing, bringing flexibility and potential advantages to the table. These lenders can be individuals, companies, or organizations that provide loans for real estate investments. While

private lending is appealing, investors must fully understand the dynamics and considerations involved. Let me address the pros and cons of using private lenders in real estate financing, empowering investors to make informed decisions that align with their financial goals.

Pros of Using a Private Lender for Real Estate Financing

1. Flexibility: Private lenders have

more flexibility in evaluating loan applications and can consider unique circumstances that traditional lenders might overlook. They are often more open to unconventional property types or borrowers with less-than-perfect credit.

2. Faster Approval and Funding: Private lenders typically have a quicker approval process than traditional lenders. This allows investors to act swiftly on time-sensitive investment

opportunities and close on properties without delays.

3. Customized Loan Terms: Private lenders can offer customized loan terms to meet the borrower's specific needs. This flexibility allows for more tailored financing solutions, such as interestonly payments or flexible repayment schedules.

4. Access to Capital: Private lenders provide an additional source of capital when traditional financing options are limited. This allows investors to diversify their funding sources and increase their purchasing power in the real estate market.

5. Relationship Building: Working with private lenders allows for building solid relationships. Repeat business with a trusted private lender can lead to ongoing access to capital for future investments and potentially better terms and rates.

6. Less Stringent Requirements: Private lenders may have less stringent qualification criteria compared to traditional lenders. They often focus more on the underlying asset's value and the potential for a successful investment rather than strict borrower criteria.

7. Creative Financing Options: Private lenders are more willing to consider creative financing arrangements that traditional lenders may not entertain. This flexibility allows investors to structure deals that align with their investment strategies, such as short-term loans for fix-and-flip projects.

It's important to carefully evaluate and compare the terms, rates, and reputation of different private lenders to ensure they align with your investment goals and risk tolerance.

Cons of Using a Private Lender for Real Estate Financing

1. Higher Interest Rates: Private lenders typically charge higher interest rates than traditional lenders. This is because they take on higher risk by providing financing to borrowers who may not qualify for conventional loans. As a result, the higher interest rates can increase the overall cost of borrowing.

2. Shorter Loan Terms: Private lenders often offer shorter loan terms compared to traditional lenders. This can result in higher monthly payments, which may put additional strain on the borrower's cash flow. Therefore, assessing whether the shorter loan term aligns with the investor's financial goals and ability to repay the loan is essential.

3. Limited Regulatory Oversight: Private lenders are not subject to the same regulatory scrutiny as traditional

Member Spotlight - Cindy and Pete Fischer ...

family often ask them when they are going to quit investing and “really” retire. They tell them that they don’t really have an answer, except they’ll let you know when it happens. In the following interview, Cindy will be speaking for both of them.

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

My business (and life partner) and I have different professional backgrounds. I started working in retail and wholesale food sales. I married and started my family in my early twenties. As a wife and mother, I got my bachelor’s degree in education with the goal of completing a masters in counseling and going into private practice. At 28 years old, I was a not traditional college student. Post-college went as planned; I was an educator, taught high school and some adjunct faculty college courses and adjunct college counseling, and started my counseling in private practice – which included teaching a courtmandated class for divorcing parents. I have my counseling practice and, more recently, have added life coaching to it

Pete would say that his first career started when he was practically in diapers, going to work with his father who was a painter and small-business owner. As the story goes, his mother worked and didn’t want to hire a babysitter, so he and his brother went to work with dad, and they actually worked. After high school, he worked briefly in the printing industry before becoming a union carpenter. He started as an apprentice and learned from several mentors. As he gained experience, he was given more responsibilities and eventually ran jobs, often serving in superintendent positions and traveling to various states. He also learned as much as he could from other trades workers and (before YouTube) from trial and error. He rehabbed several homes he owned and lived in. Eventually he purchased a vacant lot and built his own home, serving as his general contractor as well as doing as much of the work as he could. Later he sold the first property and repeated the process a second time.

As with many people, life events (divorce) resulted in singlehood for both of us. After my children were grown and his were almost in adulthood, we met in the fall of 2006. Though we had quite different professional backgrounds, we had some strong commonalities. The biggest things we have in common are a love for our children and family, being raised in small business/entrepreneurial families, a desire to want to invest in real estate and what I call “passion for the project.” Our discussions often lead to talking about how much fun it would be to invest in real estate.

We started out thinking that it would be great to buy vacant lots on or near water and build homes on them after we retire. This would allow us to travel, enjoy the water and chase a project. After purchasing a few lots, we decided to shift our focus to homes already built and becoming landlords. We felt this plan would help others and build us a nice passive income.

Where is your current market

and what is your focus or area of expertise?

We have properties in multiple states. When we decided to purchase existing homes to rent out, we focused on the suburbs of Chicago. We expanded our investing to Florida, Missouri, and Arkansas. We own long-term rentals (single-family and 2-to-4-unit properties), vacation homes, and in 2022, we added a self-storage facility to our portfolio.

As for our area of experience, I would say determination and creativity. They are the qualities that have kept us going and gotten us where we are today. We also have a lot of general knowledge; Pete’s are in the building trades and working with tenants. Mine are the creative deal-making and money management/ financing arena.

How did you get started?

Once we realized that we were both committed to becoming real estate investors, our goal was to purchase five properties. We worked with a real estate agent in our investment areas who worked a lot with investors and purchased auction properties. After we had five rental properties (in about 2012) we kept buying, mostly single-family and 2-to-4-units. We quickly found that investing is a lot like eating a few potato chips: You think you will just have a few but before you know you’ve lost count and can’t seem to stop.

While still working our primary and secondary jobs, we would pack a suitcase on the weekends and head east about 55 miles to where our first properties were and rehab them until time to go back home and to our other jobs. At that time, we did most of the work ourselves, hiring out only what we could not do ourselves. We would sleep on air mattresses on the floor and cook on hot plates and in crock pots if a stove wasn’t in the property.

We often found ourselves purchasing in sets of three. It just seemed like deals didn’t come one at a time, they came in sets of three, so we found ways to get all three. At one point, we decided it was time to see if we could be hands-off landlords (using property management companies). We knew it would not be possible if they were close to where we lived so be headed out of state. We went to Florida and purchased, yes, three houses. We came home for a few weeks and packed up a rented SUV and headed south to rehab those properties. We found a property manager in the area we liked and headed home when we were done. The process of buying and occasionally selling has continued throughout the years. As the number of properties grew, so did the paperwork and off-site

responsibilities. My role shifted then to the behind-the-scenes tasks and Pete did the hands-on property work.

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

It is hard to think of any week as typical. There are so many moving parts and phases. It is common to start the week with a very carefully thought-out and clearly defined plan only to have a text or phone call change that all together. The plan change could be an emergency repair that needs immediate attention to a new opportunity that we decide to go check out. One week could be filled with bookkeeping and preparing for taxes or clearing out a tenant who left us with a mess and lots of repairs or updating financial statements and rent rolls for a bank. Perhaps the best way to put it in a typical format is that we start the week identifying key tasks that we need or hope to accomplish and then reevaluating each day with the three to five most important for that day. Then hope that nothing takes you off course.

How long have you been investing in real estate?

My quick response is a little over 13 years ago, however, it depends on how we define our start. I purchased a vacant lot in Canyon Lake, Texas, in 2004 as my cousin had gotten several lots under contract but didn’t really want them all so I bought one. I still own it but I’m still unsure of what I want to do with it. Maybe someday we will build there. In 2008, we purchased a few more lots together, also on/near water and have sold two of those. In 2009, we purchased a pre-sold property as a test run for investing and rehabbing. That said, if we factor all that into the equation, somewhere between 13 and 19 years, but who’s counting? The big question we still can’t answer, as with many other investors, is when will we stop.

Tell us about your first deal:

Our first deal after we established our LLC was a four-bedroom, two-bath, and a two-car detached garage. It was on a corner lot with almost no backyard but a large side yard. The amount of work

involved in the rehab process would probably discourage many from ever purchasing again. There was a hole in the roof that we laughingly called the skylight – with a nearby wall that was so rotted that the 2-by-4s crumpled in our hands. We gutted and rebuilt just about every room, redid most of the electric, replaced the roof and much of the drywall. Most of our children were there pitching in to help. Even the grandchildren had a few jobs. We did as much as we could and hired out what we felt needed professionals. I honestly don’t remember how long it took but it felt like forever (I think we got it done in 3-4 months). Our first tenant was there for one year. Not that we had any plans to sell but our second tenant expressed from the very beginning he wanted to buy it. The husband had grown up in the neighborhood and his family still lived there. Within a few years after they moved in, they approached us about buying it. We came to what I would call win-win terms and they bought it. They were overly excited and it felt good knowing that we helped a family find their forever home.

How do you fund your investments?

I wish I could say always creatively; those credit pulls really hurt when you’re an investor! That has not happened nearly enough, but we give it a shot whenever possible! We use a variety of strategies to fund our deals. We have used some of our rainy-day savings as well as home equity funds in the beginning. We have used owner financing, private funding, bank commercial financing, cash out financing of rehabbed and rented investment properties we already own in preparation for the next deal, and on one occasion, a hard money lender. Note that when it comes to risk, I always identify worst-case scenarios and come up with a plan to keep us afloat and from losing what we have accomplished. If you ask me what I would recommend to a new investor, it is perseverance and always ask if not your bank, then who do you know in the area that is lending. Very similar, if not now, what needs to change for you to consider me as a good candidate for a loan with your bank.

Do you have a real estate license?

Neither of us have a real estate license. What projects are you currently working on?

We are currently selling off a few of our single-family homes and, with the leverage of 1031 exchanges, investing in more vacation rentals. We are also getting bids to expand our self-storage facility to include RV and boat parking. At some point in the next year or two, we will be building vacation rentals on two vacant lots I bought in my self-directed IRA back in 2020.

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

We are members of two local REIAs and attend them as often as possible. I cannot say enough about how CCIA (Chicago Creative Investors Association) has helped us. Jane Garvey is so knowledgable and involved in legislation

Continued on Page 13

Member Spotlight - Cindy and Pete Fischer ...

affecting the industry. We generally attend one to two new trainings per year. We have attended specific niche trainings as well mastermind events with a host of presentations, each offering a different set of knowledge on different parts of investing. Our most recent training was a three-day event taught by Tony Youngs. Has coaching or mentoring played a part in your success?

The answer is; definitely yes! Throughout all of my professions (sales rep, educator, counselor, coach, and real estate investor), I have had key people I leaned on for help and I commonly still reach out to them today. Pete says this as well. He will reminisce of specific key people in his career as carpenter and in our real estate investing. Most of the trainings we have taken offer an extended mentor/coaching component and the opportunity to reattend the event without additional charges. Having the ability to reach out to the real estate gurus we trained with is super-helpful and no doubt, makes a difference.

What are your current and future goals?

We have goals in several areas:

1. Diversifying our portfolio, which we started in 2019.

2. We want to do some flips, utilizing a variety of strategies from trainings we have attended, or fix and shorter-term holds as “rent-to-owns.”

3. Build out two lots in Branson, and meeting our goal of the “Klassic Lodge Treo” vacation and event center.

4. Reducing debt with a variety of strategies as noted above, as well as other financial debt-reduction strategies.

5. Building my real estate coaching practice and developing structured workshops.

What has been your top struggle in this business?

To identify one top challenge we have encountered is hard. I think it is important to say that we have had many and we are still moving forward and passionate about investing. Our challenges include:

1. Finding good tenants, and very closely linked to this challenge is evicting tenants that are not paying and other lease violations. We have many good tenants that were renting when we purchased the property or were our first tenant to the building. We have also had tenants that rented, moved away and when moving back to the area, call us

up because they respected us as landlords.

2. Buying with our heart vs. with an investor mindset. We bought a shop property thinking it would be great to have. We could save money by buying good deals on materials and store them in part of it and rent out the rest of the space. We didn’t give it enough thought and wound up losing money due to location/parking challenges, repair costs and property expenses. We held it for seven years and sold it for more than we paid for it but it was often vacant and the taxes more than tripled so it was often a negative cash flow.

3. Trusting a builder too much and not questioning and requiring more documentation. Our second vacation rental investment was a new build. We overly assumed if the title company wasn’t questioning a draw, it was okay to sign off on. The house was pretty far along before we caught on and fired the builder. We spent almost five months on-site finishing it up ourselves but it has been a great success.

What do you like most about what you do?

The short answer is the challenges of the whole process as well as the joy of the finished product and the “helping” aspect of the business. Whether it’s rehabbing a property getting it ready for tenants, or deciding on a theme for a vacation rental, it’s fun to work through the challenges and so joyful when you have a finished product ready for tenants or vacationing guests. It also feels like we are helping people! Whether it is restoring a community by taking a rundown (often abandoned) property and turning it into affordable housing and getting people into a place they can call home or creating an experience that allows a vacationer to relax, recharge, and build memories with family and friends — we feel like we are helping.

As an example, I’d like to share a story about a tenant. A few years back a person with a disability approached us about renting. Even at a reasonable rent rate for the area, the house was more than his budget and was not accessible based on his needs. We thought a lot about it and decided it would be a great way to give back. We made the necessary changes to the property and rented it to him. On numerous occasions Pete has helped him with a few things when he didn’t have the needed assistance. We are proud to say that four years later, we still have him as a tenant.

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

We could easily get on a soap box of advising but at the top of the list is attending your local REIA, including time networking. Get the contact information of those you meet and stay in touch. Through the years, we have built friendships with other investors, and it really keep us grounded. The general public often has a distorted view of real estate investing and if that’s all

you hear, it can be hard to get through setbacks or you may take the advice of someone who really doesn’t get it. In the world of non-investors, there are a few common perspectives out there that can bring you down very quickly, especially in the early stages. They will say things such as, “real estate is too risky” or “you can only do that if you have a lot of money,” “investors are money greedy, just out to get rich” or, my personal favorite “well I did that once and it was a disaster.” By attending REIA meetings and learning from other investors who are passionate about their endeavors, you become empowered and stay energized. There are hard times and challenges for sure; but being around like minds whose perspectives are focused on how can we get through the challenges, you will be comforted and inspired to continue on.

If I am allowed to offer a second piece of advice, it is “Know thyself.” Over and over, we have spoken highly about trainings. That said, each one has lot to offer and makes a strong case for their training recommendations. One example is property management: selfmanagement vs property managers. Pete and I are using both styles but are moving more and more to property managers as we prepare to travel more. We also are impressed by property owners who only self-manage. It is so important to take information presented in trainings and explore how that fits your personality as well as the short- and long-term goals you have for yourself. Again, I passionately believe that knowing yourself is a key ingredient for real estate success. That said, another little plug for life coaching; it does help you take in all that you learn and who you are as an individual and find your personal best course in your real estate investing journey.

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

There is no doubt in our minds that your local REIA is helpful for success. Meeting like-minded people makes a big difference. You will be inspired and supported in so many ways. You will likely be introduced to successful people often selling their programs (and I advise you to invest as needed in the trainings but know that you will still need to be wise in your purchases). That said, we have learned and utilized strategies we learned in these trainings.

What is your favorite self-help or business book?

I have always been inspired by reading autobiographies and memoires of people who have achieved a significant goal and/or overcome some significant life obstacle. There are many that come to mind when I think about it. There are also many inspiring self-help books that I have read and still recommend to this day as a counselor. When I think though

of the significant books on real estate investing or wealth building, three books come to mind immediately: Rich Dad, Poor Dad by Robert Kiyosaki; I Have a Millionaire Mind by T Harv Eker; and Multiple Streams of Income by Robert Allen. We have both found all three very helpful and energizing as investors.

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

Our top hobby is hanging out with our grandkids and incorporating them into our projects. In general, we enjoy spending time with family. We work hard to make sure we fit time in with them as often as possible. Whether it’s going to a theme park, hanging out at home, or working on projects, we love being with them. We hope our passion for projects and a good work ethic is rubbing off on them as well.

Beyond family and investing, we have a few other interests: I love to garden, from potted plants to vegetable gardening. For most of my life, I have loved gardening and passionately believe that it is “good medicine.” I find that whether I am planting, pulling weeds, pruning, or simply walking around my garden (generally including talking to plants), my stress melts away and calmness and happiness take over. Plants are good listeners and never give bad advice. Going to comedy shows is a favorite for both of us; like gardening, laughter is good medicine.

We both like classic cars and in addition to our two daily vehicles, we have two special cars we enjoy driving in good weather: a 2004 Hard Tract Retractable SSR and a 2004 BMW 325i convertible. Our love for cars is evident in one of our vacation rentals, “Klassic Lodge,” where the first floor has an automobile theme. The whole first floor is dedicated to cars. It’s probably no surprise, but Pete is a NASCAR fan and could be classified as a “car guy.” He often tells a story of when he was a young adult still living with his parents. They felt vehicles have only one purpose: to get you from one place to another. For Pete, they are life. That said, knowing his parents would not approve of a muscle car, he bought one and kept if hidden from them at a neighbor’s house. When going out, he would leave in his work car and then switch cars along the way.

Does your business have a website?

We currently do not have our own investment websites. Our self-storage facility has one that is managed by our property manager. Our vacation rentals are all on property manager sites as well as VRBO, Airbnb, etc.

Cindy’s counseling/life coaching website: https://cindyfischer.net/

Understanding Tax Laws, Regulations is Crucial for Real Estate Investors

By Tiffany McBroom and Melanie Sikma

Real estate investment is a popular and profitable venture for many individuals, but navigating the tax implications can be overwhelming. It is crucial for real estate investors to understand the tax laws and regulations specific to real estate to minimize their tax liabilities and maximize their returns. In this article, we will discuss some important tax tips for real estate investors.

Keep Accurate Records

The first tip for real estate investors is to keep accurate records of all financial transactions related to their investments. This includes income, expenses, and any repairs or improvements made to the property. By keeping accurate records, investors can provide evidence of their deductions and avoid any potential audits or penalties.

Understand Depreciation

Depreciation is a tax deduction that allows investors to deduct the cost of their property over a certain period of time. For residential properties, the depreciation period is 27.5 years, while for commercial properties, it is 39 years. This means that investors can deduct a portion of the cost of their property each year, reducing their taxable income and lowering their tax liability. Keep in mind when you take advantage of depreciation, it is a deduction against your ordinary income and then it gets recaptured when sold as a capital gain.

Take Advantage of 1031 Exchange

Investors can deduct the interest payments on their mortgage loans, reducing their taxable income and lowering their tax liability. This deduction applies to both primary residences and investment properties,

but there are certain limitations based on the amount of the loan and the property’s use.

Understand Capital Gains Tax

Capital gains tax is the tax on the profit made from the sale of an investment property. The amount of the tax depends on the length of time the property was held, with short-term gains (property held for less than a year) taxed at the investor’s ordinary income tax rate and long-term gains (property held for more than a year) taxed at a lower rate. Since there are ways to avoid or defer capital gains on the sale of a highly appreciated asset, it is imperative that you plan around selling your properties.

Deduct Interest Payments

Investors can deduct the interest payments on their mortgage loans, reducing their taxable income and lowering their tax liability. This deduction applies to both primary residences and investment properties, but there are certain limitations based on the amount of the loan and the property’s use.

Keep Track of Deductible Expenses

Real estate investors can deduct a variety of expenses related to their investment property, including property taxes, insurance, repairs, and maintenance. These expenses can be deducted from the investor’s taxable income, lowering their tax liability. However, it is important to keep track of these expenses and ensure that they are legitimate and necessary for the investment property.

Consider Passive Income Tax Rules

Passive income tax rules apply to income earned from rental properties,

and they can be complex. Investors should understand the rules related to passive income, including the limitations on deductions and the potential for passive activity losses. Email tiffany@ onestoptaxstrategists.com or text 209924-4192 to see if you qualify as a real estate professional.

Understand State and Local Tax Laws

In addition to federal tax laws, real estate investors must also understand the tax laws specific to their state and local area. This can include property tax rates, state income tax rates, and local tax laws. By understanding these laws, investors can minimize their tax liabilities and maximize their returns.

Consider the Benefits of LLC or S-Corp

Investors may consider forming a limited liability company (LLC) or S-corporation for their real estate investments. These structures can provide liability protection and potential tax benefits, including the ability to deduct business expenses and potentially reduce self-employment taxes.

Consult with a Tax Professional

Finally, real estate investors should consider consulting with a tax professional who specializes in real estate tax law. A professional can help investors understand their tax liabilities and provide guidance on strategies to minimize their tax burden.

In conclusion, real estate investment can be a profitable venture, but it is

important for investors to understand the tax implications of their investments. By keeping accurate records, understanding depreciation, and taking advantage of tax deductions and strategies such as 1031 exchanges, investors can minimize their tax liabilities and maximize their returns. It is important to stay up to date on tax laws and regulations specific to real estate, as they can be complex and subject to change. Consulting with a tax professional can be a valuable investment to ensure that investors are making the most of their real estate investments while minimizing their tax burden. With these tax tips in mind, real estate investors can make informed decisions and reap the rewards of their investments for years to come.

Tiffany McBroom and Melanie Sikma are a sister powerpack combo! They grew up listening to Byron, who is their father, mentor and guide, talk tax and financial strategies with his business owning friends on camping trips. Byron has been a CPA for 30+ years and thrives on finding new solutions to saving business owners more on taxes. His excitement for helping entrepreneurs make their dreams come true led both of them into the same field as his. www.onestoptaxstrategists.com

The Impact of Student Debt on Qualifying Tenants ... continued from Page 9

paying it back. Unlike other loans, student loans can be delayed, altered, or forgiven. If I have an applicant that completely ignores a student debt, that says something to me.

For applicants who show evidence of consistently paying their student loans….you are golden in my eyes. Living up to the promises you made as a student shows responsibility that usually bleeds into other parts of your life and shows you take care of your responsibilities. In that case, here are the keys to my rental property.

Most housing providers will be seeing delinquent student debt for many years to come. I would advise you to put that data to the side for a minute and look at all the other factors in your rental criteria. At the end of

your normal onboarding process, I would then review the student debt component to help you make a better, informed decision. Your criteria might say “delinquent student debt will not result in an automatic decline but will be measured with the entire scope of the data on the credit, criminal and eviction report.”

The reality of these students, most still developing into young adults, getting into debt at such a youthful age does not serve our society well. Though I don’t want to say that it’s not their fault, I will say that we are allowing them to enter unknowingly into a debt that will affect their future… and maybe even their first rental.

David Pickron is President of Rent Perfect, a private investigator, and fellow housing provider who manages several short, mid, long-term rentals. Subscribe to his weekly Rent Perfect Podcast (available on YouTube, Spotify, and Apple Podcasts) to stay up to date on the latest industry news and for expert tips on how to manage your properties.

Members of National REIA can take advantage of special pricing from RentPerfect; the solution for rental property owners and managers for screening & managing tenants. Learn more by visiting www.rentperfect.com or calling 1-877-922-2547.

Proceed with Caution

By Tony Youngs

As I go to various states pursuing distressed property acquisitions, I am finding an uptick in the number of sellers that are willing to sell their off-market properties. These include probate situations, tired landlords, elderly moving to assisted living, vacant properties, bankruptcies, and pre-foreclosures.

The problem is, sellers still have the impression their homes are worth a lot more than is often the case. They all remember their neighbors getting multiple offers and selling for above the norm, but that has all changed…somewhat. I live in a high demand area and houses can sit on the market for 30 days before they go under contract. Around other parts of the country that I visit, it can be even longer. Although most of the housing markets are still seeing lower than normal inventory, higher interest rates have had an effect as well as the uncertainty of government affairs.

The reason I say proceed but with caution, is because if you are going to rehab a property, right now, the rehab costs are outrageous. The cost of materials has come down a little from the pandemic but they are still high and I think those highs are here to stay. Businesses know that people are willing to pay and consumers are spending like crazy. However, on the other hand, contractors are charging much higher labor costs. Sheetrockers, framers, painters, plumbers, electricians, and HVAC servicing is much higher today.

I was rehabbing houses all through the pandemic years and I am doing one right now. The costs are much higher than they were even a year ago. We have used the same plumber, electrician, and HVAC guys for years and their prices are much different. When we sit down with them to go over the figures, comparing them to our last few jobs and ask them why the difference, they show us the higher material costs and how their labor

costs are more because of the cost of living being higher (groceries, gas, food, clothing, and shelter, etc.). Just to make sure we do our due-diligence, we get estimates from other companies and have found the prices are very comparable.

My point is, as you find property owners willing to sell, make a sensible offer and stick to it. I make offers every week and when a seller tells me it is too low, I say, if you are willing to fix some of the items, I can go a little higher. After researching the costs and time involved, it doesn’t take long for them to see your way of thinking and then you can negotiate. Some sellers refuse to budge but it’s better to walk away than to lose money.

Today, if you do buy a house and begin your rehab, and it seems to be costing more than you thought, nobody can force you to finish it. If a project starts looking like you will lose money or just break even, stop your work and sell it incomplete. There is always someone that will buy it in the condition it’s in and finish it themselves. Especially if they like the location. Homebuyers realize they are here for long term and don’t mind spending money for their long-term home. Even in the recent days of multiple offers, I would fix up a house beautifully and sell it for top price, and then the homeowner would sink more money into it. Why? Because they were so happy that they got a home in the area that they wanted.

When we rehab a house, we make a list of what we want to accomplish this week and then I stay on top of that list to make sure it gets done. I shop around for good prices, I use low-cost labor to do many of the things like demolition, carrying trash to the dumpster, keeping the grass cut, painting, replacing broken glass, applying fire retardant caulking to the holes where new wiring was installed, digging drainage ditches, etc. There are plenty of important little items like those.

We also have a guy who has a full-time job but wants to earn extra money after work. He is an excellent carpenter and installs new windows & doors, installs trim around the windows, puts in attic stairways, etc. Knowing him saves us plenty of money. However, I personally still do some of the work that I can. It keeps the other workers busy when they see me on site working. There are still many more money-saving things you can (and must) learn when doing a project. One thing I learned from my father when getting an estimate; Don’t give the impression that you are rich and successful. Project costs can be higher.

The bottom line is this, proceed with caution and make your offers, but be aware of today’s renovation costs. Learn all you can on estimating repairs.

Tony Youngs has been an investor, trainer and a national speaker for over 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.

Why Are Forecasts All Over the Place? ... continued from Page 1

there is a reduction in retail activity when there are threats on the horizon. People who are afraid of losing their jobs become more frugal. There are signs that consumers are changing their patterns in reaction to inflation, but spending is still more robust than would be expected. Much of the rationale for this is that workers still have their jobs and many have been getting raises that have allowed them to maintain a chosen lifestyle. As long as people are willing to spend, there will be price hikes.

These two factors have impacted the potential speed of an inflation slowdown. The Fed’s preferred measure of inflation is the Personal Consumption Expenditure index, and it reached a peak last December. The expectation was that it would keep falling, but it has just stabilized at about 4.6 percent. This means that all the efforts from the Fed have not managed to budge the numbers. There are calls for the Fed to hike the rates again, but the bigger question is whether this will make any difference given the other factors. Thus far labor is not reacting to the rates and neither is consumer behavior.

In the middle of all this came the manufactured crisis over the national debt. This has been almost routine, as the good men and women of Congress can’t seem to address the budget during the budget process and wait until the bitter end to act. As expected, there was a last minute “deal” that did little or nothing to address a debt that is now roughly 135 percent of the national GDP. If it makes one feel any better, other nations are in worse shape (China has a debt that is 280 percent of GDP, Japan is at 260 percent of GDP and the average in Europe is 180 percent).

Now that the debt ceiling has been allowed to expand, the next phase of the problem emerges as the Fed will need to issue over a trillion in treasuries to rebuild its cash balance. This will suck massive amounts of cash from banks and will hike yields on these securities. That ripples through the entire bond market and quickly. Demand for corporate bonds will fall, and there will be a similar reduction in demand for municipal bonds.

The real estate market is already reacting to the concern expressed by the banks regarding commercial activity. Many banks are selling off their commercial loans at a loss even when these loans are stable and current. Their assumption is that commercial property is going to lose a great deal of value in the near future and they had better sell that paper while there is still a market for it. Waiting for the inevitable collapse will create big losses and many now want to cash out so they can buy more of those treasuries that will be on offer.

The assumption in the commercial sector is that office development is not going to recover any time soon. The move back to the traditional office environment has slowed down, as only about half the previous number of office workers have returned from working at home.

One of the fast-growing sectors for commercial development was warehousing and logistics, but that has slowed as well. The supply chain chaos that prompted companies to load up on inventory has passed to some degree and now 65 percent of companies assert they are overstocked and unwilling to buy anything additional until that overhang dissipates.

The sector that keeps growing is related to manufacturing. There have been two major drivers here: the expansion of reshoring and the need to accommodate the introduction of robotics and technology. The manufacturing sector accounts for 35 percent of new construction.

Housing numbers have improved a little but are still far from where they were a year ago. The latest data showed a gain of 2.2 percent over the previous month, but this is still 22.3 percent below the rate a year ago. Permits are showing the same pattern, as they are up 1.6 percent over the last month but still 22.8 percent below the level of last year. Single-family numbers remain far lower than multi-family numbers. In a recent study it was determined that it was cheaper to buy than rent in only four major cities (Detroit, Houston, Philadelphia and Cleveland). This means a steady demand for multifamily in the majority of the country despite the rising rental rates. They have yet to exceed the rising rates of home buying.

Thus far the U.S. economy has been able to dodge the arrival of recession. Many had expected to see these quarterly GDP numbers fall into negative territory by Q3 of last year but instead we got 2.6 percent growth. The next assumption was for negative numbers in Q4 and we got growth of 2.9 percent. The analysts were certain that Q1 of this year would be the negative one and we eked out a gain of 1.1 percent. Now we are close to the end of Q2 and GDPNow from the Atlanta Fed holds that we will see a gain of 2.1 percent.

How long will we stave off these declines? As mentioned at the start of this piece there are about half of the economists predicting recession yet this year and half asserting we will miss that dip. For real estate there has been a similar mixed bag with enormous regional differences and sector variation.

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

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The Infinite Banking Concept: A Safe Haven for Real Estate Investors

By Jason K. Powers

The recent banking crisis, marked by the collapse of several major financial institutions, has been a wake-up call for investors worldwide. This crisis has unveiled a hard truth: the traditional banking system, often perceived as a bedrock of financial stability, can be incredibly fragile. Banks, even those with longstanding reputations and seemingly robust structures, have been unable to withstand the economic pressures, leading to sudden collapses. These failures have left countless customers in the lurch, struggling to regain control of their financial futures.

For real estate investors, this crisis has posed significant challenges. The property market, inextricably linked with the financial sector, has felt the shockwaves of these banking collapses. Investors have had to grapple with issues such as frozen assets, interrupted cash flows, and declining property values, and even not being able to get checks written or cashed, casting shadows of uncertainty over their investments.

“In such a volatile environment, the question arises: is it prudent for investors to continue trusting all of their hard-earned money to these unstable institutions? Or is there a safer, more reliable alternative?”

Enter the Infinite Banking Concept (IBC)

This financial strategy, grounded in the principles of self-reliance and financial autonomy, empowers you to become your own banker. Instead of depositing money into traditional banks that may falter or fail, IBC encourages individuals to utilize properly structured whole life insurance policies with cash values. These cash values can be borrowed against, ensuring that your money remains within your control, and providing a safety net in the face of banking crises. With IBC, your financial security is no longer at the mercy of external institutions, but rests firmly in your own hands.

The U.S. Inflation Crisis and Infinite Banking Concept as a Hedge

The U.S. is also currently grappling with a significant inflation crisis, the likes of which hasn’t been seen in decades. Consumer prices are soaring, the cost of living is on the rise, and the dollar’s purchasing power is rapidly eroding. This economic climate can be particularly detrimental for real estate investors. As inflation increases, the real value of rental income can decrease, and the cost of property maintenance can escalate, both factors potentially eating into your profit margins.

Furthermore, inflation can also affect the value of money sitting in traditional banking accounts. When inflation rates surpass the interest rates offered by these accounts, the real value of your savings diminishes over time. In essence, your money is losing value while it sits idle in the bank.

This inflation crisis underscores the need for a solid, reliable hedge—a way to protect and potentially grow your wealth despite escalating prices. Here, the Infinite Banking Concept (IBC) presents a compelling solution. The cash values in properly structured whole life insurance policies, the cornerstone of IBC, grow on a tax-advantaged basis. These policies provide a guaranteed, contractually ensured rate of return that often outpaces inflation rates due to its compounding nature. Unlike traditional banking, the value of your ‘bank’ under the IBC is not directly tied to the economy’s performance. This financial insulation offers a level of protection against inflation, helping to preserve your purchasing power and safeguard your wealth.

The Infinite Banking Concept in Real Estate Investment

The beauty of the Infinite Banking Concept (IBC) is its universality. This strategic financial approach isn’t the exclusive domain of the wealthy or financially elite—it’s accessible and beneficial to anyone, regardless of their current financial standing or investment portfolio size.

In the realm of real estate investment, many potential investors are daunted by the significant capital often required to enter the market. Properties, especially in popular or high-demand areas, can carry hefty price tags. Add to that the potential costs of renovation, maintenance, and property management, and it can feel like a financial mountain too steep to climb.

However, the IBC presents a potential solution to this hurdle. When you adopt the Infinite Banking Concept, you are essentially establishing a personal banking system. This properly structured whole life insurance policy accumulates a cash value over time, against which you can borrow to fund your investments. This mechanism allows you to tap into a source of capital that grows over time and remains under your control.

So, whether you’re a seasoned real estate investor looking to expand your portfolio or a newcomer eager to make your first property purchase, the Infinite Banking Concept can provide the financial foundation and flexibility you need. It is a strategy that transforms the intimidating financial mountain into a manageable, even scalable, hill throughout one’s lifetime.

Moreover, the death benefit associated with the insurance policy provides a financial safety net for your

loved ones, adding an extra layer of security to your investments. And as your policy’s cash value grows over time, so does your ability to invest and generate wealth.

Conclusion

In today’s uncertain economic environment, the Infinite Banking Concept can provide real estate investors with a stable and secure financial strategy. It offers protection against banking crises and hedges against inflation, all while providing a powerful tool for real estate investment. Regardless of your financial status, the Infinite Banking Concept is an accessible and practical tool to harness.

Not only does it safeguard your wealth, but it also provides a continuous flow of capital for your real estate investments. By leveraging the IBC, you’re not just saving for the future; you’re actively investing in it.

The banking crisis and inflation serve as reminders of the inherent risks in traditional financial systems. By contrast, the IBC allows you to take control of your finances, mitigating risk and promoting growth. For real estate investors, it is a pathway to greater financial freedom and security.

In a world of financial uncertainty, the Infinite Banking Concept is more than just a strategy—it’s a revolution in personal finance that empowers each individual to become their own bank. It is time to explore this opportunity and witness the potential it holds for your real estate investment journey.

Jason K Powers is a Multi-Business Owner, Real Estate Investor and an Authorized IBC Practitioner. Jason works with clients across the country showing them how to achieve their financial goals by taking control of the banking function in their life and creating financial velocity that can last for generations. Reach out to Jason to see how the Infinite Banking Concept can work for you. Learn more at: www.1024wealth.com/NREIA.

Why Real Estate Investors Turn to Private Money Lending ... continued from Page 10

lenders. This means there may be fewer consumer protections in place, and borrowers must exercise caution when entering into loan agreements. Therefore, thorough due diligence on the lender's reputation and track record is crucial.

4. Potential for Unscrupulous Practices: In the private lending market, there is a risk of encountering unscrupulous lenders or predatory lending practices. Some private lenders may take advantage of borrowers in desperate need of financing. It's important to carefully review all terms and conditions and seek legal advice to avoid falling victim to predatory lending practices.

5. Limited Resources and Services: Private lenders may have limited

resources and may not offer the same range of services as traditional lenders. This can include a lack of online banking platforms or fewer loan modifications or refinancing options.

6. Lack of Reputation and Stability: Private lenders may not have the same reputation and stability as established traditional lenders. It's essential to thoroughly research and vet private lenders to ensure they have a solid track record and are financially stable. Thorough research, due diligence, and seeking professional advice are crucial to mitigating risks and maximizing the benefits of private lending. Investors should always make informed decisions that align with their investment strategies and financial objectives by

weighing the pros and cons. Ultimately, the choice to work with a private lender should be based on a thorough assessment of individual needs and a clear understanding of the associated risks and rewards.

Tip of the Day

Tracking all funding by property in your accounting software can benefit your real estate investment endeavors. You can gain valuable insights into a property and streamline your financial management by organizing your funding sources based on whether they are primary or secondary and whether they are secured or unsecured loans.

Gita Faust is the founder & CEO of HammerZen, which helps businesses save time & money by keeping track of The Home Depot purchases and efficiently importing receipts and statements into QuickBooks. National REIA members receive discounts on QuickBooks services and software. Learn more by visiting www.hammerzen.com/nreia.