Rental Housing Journal Arizona November 2015

Rental Housing Journal Arizona

November 2015 - Vol. 7 Issue 11

2. 9 Tips for Getting Started in Real Estate Investing

7. Will Your Retirement Hit Rock Bottom if the Markets Plummet?

3. Keeping Cool if the Heating System Fails

10. Property Managers Seek Cues on Economy and Local Real Estate Valuations 11. Americans Think Homeownership is a Sound Investment

WWW.RENTALHOUSINGJOURNAL.COM • PROFESSIONAL PUBLISHING, INC Monthly Circulation To More Than 7,000 Apartment Owners, Property Managers, On-Site & Maintenance Personnel

Five Real Estate Investing Fundamentals

Long-term Hold Investing For Owner/Managers

By – Jeff Watson, The Jeffery S. Watson Law Firm LTD, General Counsel National REIA

O

ne of my favorite movie moments is when Ernest Borgnine, portraying the legendary football coach Vince Lombardi, stood in front of the world champion Green Bay Packers at the beginning of training camp and held aloft an oblong object proclaiming, “Gentlemen, this is a football.” What Vince Lombardi taught the Green Bay Packers then applies to real estate investing today.

Master The Basics Practice them over and over again.

Consistently do the fundamental things that make you a successful real estate investor.

Repeat Your Successes And Keep Repeating Them The vast majority of “investors” today suffer from what I call “squirrel or shiny-object syndrome.” They have a little success in one area, but then they are suddenly distracted by something else and go to another area, and then another, and then another. The bottom line is they lose their focus and intensity, and they don’t continue to practice the same thing over and over again. Let me remind you, slow and steady wins the race!

Establish Your Parameters In addition to becoming good at the basics, I urge real estate investors to establish their investment parameters.

• What kind of investments or deals do you want to do? Are you going to do loans? Are you going to use options? Are you going to buy rentals or tax liens? Are you going to invest in commercial properties?

Pick two or three (no more than that) of these things and get very good at doing them. Do them over and over again.

• Determine what you are looking for in each of your potential investments. continued on page 5 Professional Publishing Inc., PO Box 6244 Beaverton, OR 97007

The rental property investing strategy for a hold time of 15+ years is significantly different, than a short term real estate investment strategy. This is even more critical for owners who plan to do their own property management.

Owning and managing a property for 15-20 years is similar to raising a child, from birth through high school. Price is always important when buying any property. If you are planning to own a property for decades, do not consider purchasing a potential “problem child”, because it is cheap. Bad purchases are of-

ten made when investors feel they must purchase quickly. Adapt the motto that “I can always spend my money” and keep shopping to you find the “right” deal. Investors need to seriously consider the location, quality of construction, target tenants and financing for a long term hold rental property:

Location: Properties should be located within 30 minutes of where you reside. Anything longer than an hour round trip drive will become cumbersome over time. It is

always a wise idea to geographically diversify your rental portfolio. Therefore, owning properties in different neighborhoods. Within 30 minutes of your home, is preferable to owning all your properties, in one neighborhood.

Target property purchases in desirable residential neighborhoods with a low percentage of rental properties. Initially, the annual cash and cash return will probably be less, than what could be bought in less desirable locations. Rental properties in more desirable locations usually are priced at a lower capitalization rate, than rental properties in less desirable areas. Over time, the quality of tenant, ease of leasing, and appreciation potential will compensate for the initial lower return. Buying in a neighborhood, that you feel may decline, is a big mistake. You can change many things about a property, but you cannot change its location. continued on page 6

Are You Leaving Money on the Table?

By Cliff Hockley CCIM President, Bluestone & Hockley Real Estate Services

M

ost real estate investors tend to operate their properties with a simple rule in mind: If money appears in their checking account by the end of the month, their property is healthy. As long as they see the same amount every month they’re happy.

However this rule inevitably leaves money on the table. Sophisticated investors know that they need to plan for their properties to be successfully operated.

They need to buy the right property and operate it with a vision in mind. That vision should include an annual focus on rent increases and tenant relations.

Rent Increases Residential: Multifamily or single family investors have the opportunity PRSRT STD US Postage PAID Portland, OR Permit #5460

to increase rental income at least once a year through the annual budgeting process. This process starts with an annual inspection, followed by a local area renewal rate review (rental comparison survey). Keeping your property well maintained is the key to managing long term rental increases. Tenants will not be as hesitant to pay more if you treat them with respect and keep the property

looking well maintained. A clean property with great looking landscaping, a current paint job without any mold or a refinished roof will net you more rent.

Yes, it will cost more to maintain, but in my opinion the payback will be in the form of higher rent, longer tenancies and lower turnover costs. Don’t forget, continued on page 4

Advertise in Rental Housing Journal Arizona Circulated to over 10,000 apartment owners, on-site and maintenance personnel monthly.

Call 503-221-1260 for more information

Rental Housing Journal Arizona

9 Tips for Getting Started in Real Estate Investing

By: JC Underwood, Crown Properties

T

reat This As A Business One of the biggest mistakes I see new investors make is to treat real estate investing as a hobby instead of a profession. If you’re counting on real estate investing to provide income now and retirement income later you must treat it like a business. Real estate investing is now your profession. Treat it like one.

By that I mean you have to advertise, devote time to it, show up for appointments on time, act professionally, do your paperwork properly and treat your clients professionally.

Most real estate investing isn’t passive.

Unless you are a private lender most investing takes real work. Even a landlord using a property manager has work at the outset and should continue to remain active in oversight.

This is not a get-rich-quick scheme.

It takes time to build client lists, credibility, partnerships and associations.

A well-grounded business is built over time unlike “overnight sensations.” It will take you 3 to 5 years to become a real success in this field.

Learn About The Business and Stay Informed “If you think education is expensive, try ignorance.” Derek Bok You can lose more money with a mistake than you can learning how to avoid

Com peti Pric tive ing

one. Even if you have been at this business for years, you need to keep up with current trends and laws. You never get to the point where you know it all or even know “enough”. Some investors honestly believe that there is nothing else that they really need to know to be successful, then a law changes, the market turns, or a new strategy begins to be used. They either miss changes coming in their community that will majorly effect their profits, put themselves in a position of huge liability, or miss out on time and money saving tips because they just didn’t take time to stay informed.

In the real estate business, like everywhere else, knowledge is power and for investors it’s profit too.

There Are Many Profitable Strategies In Real Estate Most new investors get into real estate investing after hearing about one specific strategy. They have a friend or family member that has participated in real estate, they saw a TV show or infomercial or they went to their first REIA meeting and heard a charismatic speaker that made them want to pursue a specific investing strategy. They begin to invest using that strategy because they are drawn to the certainty and proven success of the individual that is in front of them.

After the new investor has any success with one strategy they often develop the idea that other strategies are less profit-

able, more difficult to execute, and generally inferior to the one they are using.

Suddenly they develop a certainty that their particular strategy is the supreme strategy so there is no earthly reason to even consider anything else.

Following a one particular strategy as a beginning investor can be extremely valuable for the overwhelmed new investor since it allows him to really, really learn how a particular technique works.

The downside of being so narrowly focused is that it limits the new investor’s opportunities. If you believe that your investing strategy is the only strategy worth pursing, to the exclusion of all others, you will have a narrow viewpoint of what a “good” deal is, and pass up a lot of opportunities to profit with another strategy.

Don’t get so stuck in a mindset that you can’t even see good deals if they are out of your comfort zone. That being said. You can’t try to participate in a dozen strategies at once…see number 4.

Have A Plan All businesses need a game plan. You can’t just wander aimlessly hoping to find a deal. You also can’t rent an office, decorate it and then sit behind your desk waiting for the phone to ring. It just doesn’t happen that way. You need to decide upon a strategy, learn what you need to do, set your goals and make it happen!

Have a plan. Pass out 50 business card

a week (or whatever goal you decide is appropriate for the amount of business you want to generate). Talk to 50 people by phone. Make 10 offers a week, spend $100 a month on advertising – whatever your goal is, make it happen every single week – day in and day out – work the market. Eventually you will start to see results.

Surround Yourself With Like-Minded People Real estate investing can be “creative” and a bit non-traditional, which means that this profession won’t appear on the Forbes top 100 professions. Because those participating in real estate often do so by working for a corporation or as a realtor, investing as an independent isn’t a main stream career choice. Thus, most people you speak with will tell you it won’t work. Some of your friends might even ask if you bought a course from a late-night television “guru.” They may even laugh and call you “gullible.”

Attorneys and other professionals may denounce it because it sounds unusual.

Keep in mind that these people are either threatened by their own lack of success or are looking to protect their own butts.

The first thing you should do is join a local real estate association connected to National REIA. These associations will help you keep your thoughts in the continued on page 6

Tops g Startin at $77

Showers & Counter Tops We are experts!

Licensed Contractors

(480) 633-0342

www.bravoresurfacing.com 1855 E Southern Ave, Suite 206, Mesa, AZ 85204 2

Rental Housing Journal Arizona · November 2015

Rental Housing Journal Arizona

Keeping Cool if the Heating System Fails

A

s winter fast approaches, a landlord must keep in mind that even though we live in the desert, it is important to be prepared for the cool desert nights and know the rights and obligations of both tenant and landlord.

Landlord Obligations A.R.S. § 33-1324 states that the landlord shall: 1. Comply with the requirements of applicable building codes materially affecting health and safety as prescribed in section 9-1303.

2. Make all repairs and do whatever is necessary to put and keep the premises in a fit and habitable condition.

3. Keep all common areas of the premises in a clean and safe condition.

4. Maintain in good and safe working order and condition all electrical, plumbing, sanitary, heating, ventilating, air-conditioning and other facilities and appliances, including elevators, supplied or required to be supplied by him.

5. Provide and maintain appropriate receptacles and conveniences for the removal of ashes, garbage, rubbish and other waste incidental to the occupancy of the dwelling unit and arrange for their removal.

6. Supply running water and reasonable amounts of hot water at all times, reasonable heat and reasonable air-conditioning or cooling where such units are installed and offered, when required by seasonal weather conditions, except where the building that includes the dwelling unit is not required by law to be equipped for that purpose or the dwelling unit is so constructed that heat, air-conditioning, cooling or hot water is generated by an installation within the exclusive control of the tenant and supplied by a direct public utility connection.

If the heating system goes down, the landlord should take all reasonable steps

to fix the problem in as timely a manner as possible. Keep in mind, A.R.S. § 331324 does not say the landlord shall prevent the heating system from breaking down, but only that the landlord must do normal maintenance and fix problems as they arise. A.R.S. § 33-1364(c) allows the landlord to disconnect utilities without penalty to make needed repairs.

Invariably when the heating system fails, residents’ tempers rise. One thing a resident should never do is withhold or refuse to pay rent.

A.R.S. § 33-1368 specifically says a resident may not withhold rent unless he or she complies first with the limited provisions of the Arizona Residential Landlord and Tenant Act. There also is no provision in the law for a resident to put the rent money in an escrow account while resolving the heating dispute.

Residents’ Remedies The resident has three remedies available under landlord-tenant law. One is to give a noncompliance notice under A.R.S. § 33-1361, then terminate the lease and move if the problem is not fixed in time allowed (five or ten days). However, if the landlord is doing everything possible to fix the problem, but the repairs cannot be made in the appropriate time, the resident may not be able to terminate the lease. A.R.S. § 33-1361 allows the landlord to “adequately” remedy the problem, which is ultimately a question for a court to decide.

Second, under A.R.S. § 33-1363, the resident can notify the landlord of the problem, and if he or she does not attempt to fix it, the resident can us selfhelp. Self-help requires hiring a licensed and bonded contractor, having the repairs done and then presenting the bill to the landlord for payment. If the landlord fails to reimburse the resident, he or she can deduct $300 or one half of the monthly rent from the next rent payment. Again, the landlord must receive notice in writing and have a reasonable opportunity to fix the problem and receive a lien waiver from the contractor.

The third and final option is under A.R.S. § 33-1364. The resident must first prove the landlord deliberately or negligently is failing to fix the problem.

Again, if the landlord is taking steps, such as waiting for a part to arrive from out of state, or the repairman is unable to schedule the work until a few days later, there is no negligent or deliberate conduct by the landlord.

If the resident can prove deliberate or negligent failure to repair, he or she can: Obtain substitute heating (buy a space heater) and deduct the actual but reasonable cost from the rent.

Sue for diminished rental value of the apartment. Heating is only one-forth of the essential services listed in A.R.S. § 33-1364, so the resident would only recover one-fourth of the daily rent for the number of days without heating.

Obtain substitute housing (hotel/motel) and deduct the daily rent and twenty-five percent of the daily rent.

Andrew M. Hull Hull, Holliday & Holliday, PLC www.doctorevictor.com 602.230.0088

Rental Housing Journal Arizona · November 2015

3

Rental Housing Journal Arizona

Leaving Money on the Table ...continued from page 1 tenants want to be appreciated just like If you make a concession regarding you do. If you have a property manager a starting rent to get a tenant in, plan you work with, have them help you draft to step it up to market value within an annual budget and forecast the annu- three years. Aim for a minimum of 21/2 al increases. Think into the future; plan % to 3% in annual increases based off your rent increases and capital expenses the pre-negotiated step increase or pertwo to three years ahead so you can bet- centages that increase on the basis of a ter control your long term destiny. business’ success (typically used by reCommercial: Owners of office, retail tail businesses). I am not a huge fan of or industrial buildings need to think CPI (consumer price index) increases through the same process. They need because the government has too much to develop a plan that lasts through the control of those numbers. Don’t permit initial lease term and includes details expense caps unless you can stay ahead regarding the tenant’s options to renew, of the expenses, regardless of the caps.

Landlords and their property manag(since commercial tenants tends to stay for 3-10 years, even more planning is in- ers should not automatically cave into ARIZONA very low or METRO, zero rent increases at lease volved in controlling the costs and the VALLEY, renewal time, even if the tenant threatrental increases). Annually, property owners need to review the comparative ens to move out. Run realistic scenarios position of their property. They need to regarding the cost of re-tenanting. Inbe realistic regarding the value of their clude vacancy rates, leasing commisreal estate. Just as with residential in- sions and tenant improvements in these vestments, they must consider the con- calculated scenarios. Consider also, the moving costs an existing tenant will face. dition and location of their investment.

Feb, Apr, Jun, Aug, Oct, Dec Understand their business and business Commercial landlords need to have a long term plan in place that keeps rent goals, their staffing and their success at your location. increasing on an annual basis

Most importantly while they are renting from you, fix repairs that are required by your lease, and fix them quickly. Show your tenants you appreciate them by treating them how you would want to be treated, otherwise they will blame you and possibly hold back rental payments, do the repairs themselves or, worse yet, move out.

We once had a client who took two months to repair the air conditioning units on a newly leased space. It was wintertime and it was raining; the tenant was livid and hired an attorney to preserve their rights under their lease. The landlord wanted absolutely the lowest APT. price forNEWS the repairs and getting the lowest price took over 30 days of negotiating with vendors. The tenant almost moved out because it took so long, and alternative cooling systems needed to be provided. The experience drove them to become a hostile tenant. These bad feelings could have been prevented and we could have agreed on rent increases and lease renewals with this tenant if the landlord would have allowed the property manag-

ON-SITE-NW SEATTLE Salsbury Industries

er to be more proactive. Note: Typically property managers have vendors they work with that are reasonably priced who respond quickly, but they may not be the absolute – lowest, period.

Conclusion Inevitably, attention to detail, future planning, a current understanding of the marketplace, and a fair and realistic approach to taking care of your properties will yield higher returns for real estate investors. A key component to profitability is a focus on current and future rental incomes. Sticking to the basics with an annual planning process and taking care of your tenants will increase your annual yield and keep reliable tenants in your properties.

ON-SITE

VALLEY, METRO, ARIZONA APT. NEWS

Salsbury Industries

Jan, Mar, May, Jul, Sep, Nov,

1010 East 62nd Street, Los Angeles, CA 90001-1598 Phone: 1-800-624-5269 • Fax: 1-800-624-5299

September

p

Octoberp

The Industry Leadermyitzchaki@MSYLaw.com in Quality 1/8 Page 4 7/8” x 3 5/8” On-Site4

bw

Contact Us Today for a Free Catalog!

Order Factory Direct!

1010 East 62nd Street, Los Angeles, CA 90001-1598 Phone: 1-800-624-5269 • Fax: 1-800-624-5299

Advertise in Rental Housing Journal Arizona Circulated to over 10,000 apartment owners, on-site and 1/8 Page personnel monthly. maintenance

4 7/8” x 3 5/8”

bw

On-Site3a Call 503-221-1260 for more information

4

Rental Housing Journal Arizona · November 2015

Rental Housing Journal Arizona

Five Real Estate Investing Fundamentals ...continued from page 1 • How much capital per investment are you willing to put at risk?

• How much time will you put into this investment?

• What is the length of time you want your capital to be out working?

• What is the projected rate of return you are seeking?

• What is the minimum rate of return you want from your cash and/or time in each of your investments?

When I say “rate of return,” I’m not just talking about an interest rate.

• Do you want your investments to result in your receiving monthly income payments, either interest only or something else, so each investment is generating a monthly cash flow to you?

These are just some of the parameters you need to establish for yourself. There is no one book, manual or class where you can learn all this information. No, it requires your spending some time working on what you think is best for you.

That means you may have to do one of those activities in which investors should engage on a regular basis but often don’t – think and plan. As you think and plan, you will be able to clearly define your investment parameters in a way that you can clearly communicate with others who may want to do business with you.

Do Your Essential Due Diligence Another key component of real estate investing involves your due diligence

process. There are two very crucial questions to be asked at the beginning: • Who is involved?

• How are they involved?

Allow me to explain why these questions are so important. It doesn’t matter how papered-up or how careful your lawyer is when drafting the agreements.

If the person on the other side is a person of weak or poor character whom you know has a tendency not to honor their word, it will not be a good deal.

You want to be in a situation where someone you know who has very high character and is a capable investor is involved in the transaction. You still need to know HOW they are involved.

Are they going to be involved in a way that will make sure the deal goes well, or are they just on the periphery and their name is just being “borrowed” for marketing or window-dressing purposes?

Once those key questions have been answered and you understand who is involved and how, and you have done some basic due diligence on them, then you are able to determine if you want to proceed with further due diligence on the deal or investment.

Even though you may have a long, successful track record of doing multiple deals with individuals, it never hurts to check up on them again to see if things have been going well in other aspects of their lives. Allow me to share a brief story to illustrate this point.

A client of mine indicated that he had made a series of large-dollar, hard-money loans to a rehabber who always got

Rental Housing Journal Arizona · November 2015

the properties finished in great condition, and they sold for top dollar. After doing several of these deals, he began to feel very comfortable with this borrower.

Unbeknownst to him, this borrower was having marital problems. Once those problems grew to the point where domestic relations court and lawyers became involved, this individual’s rehabbing business fell apart, and one of my client’s loans was put in a great deal of jeopardy. Fortunately, things worked out and full payment was made, but it was late and destroyed my client’s belief that this rehabber could be counted on to perform and pay on time.

Make sure you develop the type of relationship with the individual with whom you are doing business that allows you to look them in the eye and ask them how they are doing and what else is going on in their life so you can pick up on what issues may be on the horizon that could affect the way you are doing business with them.

Organize Your Deal Paperwork There is one last fundamental principle that investors need to understand that I want to share with you. You need to organize your paperwork. You need to have all your baseline transactional documents saved in Word format so you can easily do your own word processing and create nearly-completed drafts of your documents to be reviewed by the appropriate outside professionals and other parties to the transaction (yes, get a professional review each time).

By always working from a baseline document, you have a template in place

so you aren’t reinventing the wheel every time. You are also able to maintain a greater degree of privacy and security over what you’ve done with other deals.

I often see individuals who grab the last document they used (last lease, last trust agreement, last operating agreement, etc.), and they begin making edits to that one for the next deal, not realizing that there may be holdovers, both digitally and facially, in that document. Has that ever happened to me? Embarrassingly, yes. I have taken steps, however, to prevent it from happening again in the future. That’s why I’m sharing this concept with you.

Whatever the type of document, whether promissory note, mortgage, deed of trust, option agreement, due diligence checklist, or borrower questionnaire and loan application, have them saved in a baseline format that you can quickly modify it for the particular deal on which you are working. This will allow you to be much more organized as you prepare these documents on your own to be sent to your lawyer or other licensed professional for review and then used in the transaction.

Remember, it’s all about getting good at the basics. Make sure you master the basics of real estate investing, establish your parameters, do thorough due diligence regarding those with whom you are working, and work from the same, consistent set of documents so you can continue to repeat your successes.

5

Rental Housing Journal Arizona

Long-term Hold Investing ...continued from page 1 Quality of Construction: Properties that are built in quality materials and workmanship tolerate the abuse of tenants, time and the elements much better, than marginally constructed properties. Tile, metal or shingle roofs last longer and require less maintenance than flat roofs. Copper plumbing is preferred to galvanized plumbing.

Tenants damage themselves, rather than interior walls, when they punch a plaster wall. Solid wood cabinets will last decades longer than press-board or veneer cabinets. Even if you intend to remodel a property, choose one that has good “bones”.

Target Tenant: When you preview properties, form a realistic mental picture of who would be a potential tenant(s) for that property. Is it located near a college or a senior center? Is there a major employer or a hospital nearby? Does the rental have a private outdoor patio? Covered or enclosed parking for a newer car?

With the number and size of bedrooms, how many people could realistically live in the space long term? What does the property lack, that the potential tenant might desire?

Now that you have formulated a mental picture of your tenant(s), think how it would be interacting with that tenant(s), or a succession or variation of that tenant(s), for the next 18 years. If the mental picture you are formulating is not pleasant, keep shopping for the right property.

6

Financing: Investor loans are fixed rate amortized loans, up to 30 years, for 1-4 family properties. When you purchase 5 unit or larger properties, it is considered a commercial loan. Institutional lenders fix the interest rate for 3-10 years, and then it is variable or renegotiable, on commercial loans. Sometimes you can find a fixed 15 year fully amortized commercial loan. If you are going to hold a property long term with a commercial loan, develop a game plan for dealing with interest rate adjustments or renegotiation, before purchasing.

Formulating a long term rental property real estate investment strategy involves more than analyzing the numbers on paper. Location will be a huge factor in future appreciation and convenience of management. Quality of construction will determine long term maintenance and capital expenditures. If you self manage your properties, the tenants you choose and your relationship with those tenants, will contribute or detract from your quality of life, for decades. Securing stable long term financing, while interest rates are historically low, will insure strong cash flows until the properties are paid off. Incorporate the importance of location, quality of construction, target tenants and financing strategy into your long term invest portfolio strategy.

Jade Bossert is a licensed Real Estate Broker in Tucson, Arizona that specializes in multifamily property sales. She has been successfully selling real estate in Arizona for over 35 years. She can be contacted at 520-797-6900 or tucsonrealestate@ mindspring.com.

9 Tips for Getting Started ...continued from page 2 right place and prove to you that investing with a plan really does work. You will be connected to investors that have had great successes, those that can share what they learned from their not so successful deals, and to those who are just starting in the business just like you.

Be Persistent Anyone who’s ever been in sales will tell you that being persistent is the key to success. Just because a person says “No” to an offer the first time doesn’t mean that’s the final answer. Waiting a couple of weeks and checking back to see if the situation has changed can make all the difference, or changing the terms of the offer slightly to accommodate the seller can jump start negotiations.

Have a good follow-up system for tracking contacts, leads and conversations you’ve had with both buyers and sellers. You’ll get to the point where you’re so busy you can’t possibly remember all the conversations you’ve had with everyone – it’s important to be able to pull up that information so you know where you are in the negotiation process.

Anyone who has ever been in sales will tell you that few deals are ever made on the first try. Use a system that allows you to schedule follow ups and keep a running history of calls and conversations.

One of the National REIA benefits is a huge discount on Realeflow, but you could also use ACT by Sage, an Outlook or Gmail plug-in or one of hundreds of apps for your phone or iPad. It doesn’t matter what software you use as long as you actually use it.

Have a Team On Your Side Don’t wait until you have a big deal pending and need to ask questions before assembling a team you can turn to.

You need to go out and cultivate relationships with reliable professionals you can depend on. Here’s who you need on your team: • Attorney – preferably someone who’s familiar with the needs of a real estate professional. Make sure they understand the specific real estate strategy that you are using and that they’ve had some experience in that specific strategy. You don’t need to know all of the real estate laws that will affect your business but you need an advisor who does.

• Insurance Agent – you need one that also understands your strategy and investors in general. Make sure the insurance products they sell are right for investors. We have needs that are far different than your average home owner.

• CPA or Accountant – find one that’s a real estate investor – they’ll know the ins and outs of the business and when to be aggressive. You can lose $1,000s in deductions and tax breaks without a professional that knows the most up to date tax law as it applies specifically for investors.

• Contractor – you need a reliable professional that shows up on time, completes the job within budget continued on page 8

Rental Housing Journal Arizona · November 2015

Rental Housing Journal Arizona

Will Your Retirement Hit Bottom if the Markets Plummet?

W

A Portfolio Done Right Should Shield Retirees From Tumultuous Ups And Downs, Financial Planner Says

all Street hasn’t been for the faint of heart lately.

Jittery investors saw the volatile market play havoc with investment portfolios. But while the ups and downs may have created anguish for some, financial planner Bryan S. Slovon says he fielded few if any calls from nervous clients.

And that’s the way it should be when your clients are retirees or people nearing retirement, he says.

“Retirees really shouldn’t be seeing major changes in the values of their portfolios every time the market takes a huge dip,” says Slovon, founder and CEO of Stuart Financial Group (www.Stuartfg.com). “A well-constructed portfolio for a retiree should shield them from much of the volatility that happens with the stock market.”

If their portfolio changed as much as the market did, he says, they need to revisit their allocation plan before something really significant happens.

He says portfolios that have an appropriate level of risk – with a percentage of the money in such areas as real estate or fi xed annuities – allow retirees to avoid significant losses when the stock market takes a drastic turn for the worse.

“It definitely relieves stress for people when they know they have an investment strategy that matches their stage of life,” he says.

Any retirees who felt queasy over the recent swings in the market probably have their money invested in the wrong areas, Slovon says. He suggests options that retirees, or those nearing retirement, should look for as they try to figure out how much investment risk is right for them: • Rule of 100. In trying to ascertain an acceptable level of risk, people should look at the rule of 100, Slovon says. For those unfamiliar with this rule, here is how it works: Start with 100 and subtract your age (or, in the case of married couples, the average of both your ages). The result is the approximate percentage of your investments that you should have in riskier investments, such as stocks.

• “The rule of 100 is not the end all, but it’s a good long-term financial planning tool that’s stood the test of time,” Slovon says. For example, if you are 60, 100 minus 60 comes to 40 percent risk. “That can vary depending on each person’s situation, but it’s a good place to start,” Slo-

von says. “Unfortunately, one of the things that can happen is you work with people who offer nothing but risk. They offer only risk because they are part of Wall Street.”

• Annuities. If you want a steady stream of income during retirement, an annuity can be a good choice, Slovon says. Essentially, an annuity is an insurance product that pays income. You buy the annuity, and then it pays money to you on a regular basis for life. You can have either a fixed annuity or a variable annuity.

• The fixed version pays a set amount, so market performance isn’t a factor, Slovon says. With the variable version, though, you choose from a list of investments and the payout depends on how well those investments do.

• Bond alternatives. Bonds can be a handy part of your portfolio, shielding you somewhat when the stock market takes a dramatic tumble.

Bonds tend to lose their value when interest rates rise, though, so it’s not a bad idea to consider some alternatives, Slovon says. One possibility is mutual funds because with a mu-

tual fund you are investing in a collection of stocks, bonds or other securities. That gives instant diversity to your portfolio. Another alternative is real estate investment trusts, which are companies that own and usually operate income-producing real estate. These could be office buildings, apartment buildings, shopping centers or other types of property.

“Whether you are a few years away from retirement, or already retired,” Slovon says, “you want to make sure your money is properly situated for steady cash flow, for health care costs or for that proverbial rainy day. It should look very different from when you were still saving for retirement.”

About Bryan Slovon

Bryan Slovon is the founder and CEO of Stuart Financial Group (www.Stuartfg.com), a boutique financial planning firm exclusively serving retirees and soon-to-be retirees in the District of Columbia metro area. He is a financial planner specializing in retirement planning and wealth preservation to a select group of clients. He currently holds his Series 65 license and is a Registered Financial Consultant as well as a Comprehensive Wealth Manager offering investment advisory services through Global Financial Private Capital, an SEC registered investment advisor.

Want to build your business?

Start by building your education.

An online CE platform with easy and convenient options that fit your schedule. Enroll in your real estate continuing education courses today and save 20% with promo code RHJ20.

rhj.theceshop.com | 888.827.0777

Rental Housing Journal Arizona · November 2015

7

Rental Housing Journal Arizona

9 Tips for Getting Started ...continued from page 6 and knows how to make suggestions that will save you money. Free estimates don’t hurt either.

• Mortgage broker, private money lender, hard money lender or other money professional – find one that’s experienced with investors, knowledgeable and creative.

You can never have too many people who are willing to fund your deals.

• Mentor – someone who’s been there and done that.

• Title or Escrow Company – find one that caters to investors. Make sure they understand double closings, land contracts, etc.

Your local REIA group has local and national providers to use to build your team. These professionals work dai-

ly with investors and understand their special needs and requirements. It is a beautiful day when you realize that you can find people to add to your team that can do all of the things in your business that you hate.

Don’t Waste Time With Unmotivated Sellers This is possibly the most common mistake new investors make. Some beginning investors waste time talking to sellers who are only marginally motivated. Even worse, they drive by the house and look for comps without even talking to the seller first. There’s a difference between being persistent with a seller or buyer who hasn’t yet made up their mind about what they want to do and dealing with a seller who really has no intention of selling anytime in the near future.

Don’t waste your time if the seller falls

into the latter group.

Never Forget That Real Estate Is Really About People In the end real estate isn’t about the land, the house, or even the money. On a practical note and an altruistic note, it really is all about the people.

Many people go through their first years of real estate investing making all their offers based on the properties. This is a huge mistake. These investors worry about making really low offers because they are concerned that it will make them a “bad” person to “take advantage” of a seller, especially one in a tough situation. What they don’t understand is that many people will happily forgo profits if other benefits are more important to them. Some people need speed, some need ease of exit, some need someone else to blame. I’ve heard more than one

How much does the job pay?

How much

SHOULD

investor tell a story about a seller who happily sold below market because their son, sister, nephew – pick a relation – wouldn’t pay rent or move and they honestly just wanted to sell the house and let you deal with the situation!

There is a scale of client motivations, the Hustead Scale, that concisely describes the level of motivation a seller has. The most motivated sellers will pay to get out of a house. Something in their life makes being out of that property so important that they will pay you to take the property.

Many investors make offer after offer, receiving rejection after rejection, never bothering to ask the seller what they want, assuming they already know.

Making offers on the properties because you think you understand the value is far less effective and far less profitable than making an offer that provides the seller an option they didn’t know existed, a solution to their problem.

The moral of the story here is that if you listen, and I mean REALLY listen, and try to solve the seller’s problem you will always make more money than if you try to just apply your cookie cutter approach. Zig Ziglar used to say “You will get all you want in life, if you help enough other people get what they want.”

He’s right. This business, at its core, is about people. We provide housing, we provide solutions, and sometimes most importantly, we provide options they didn’t know were available.

There you have it. Follow these nine simple steps and before you know it, you’ll be an outstanding real estate investor.

it pay?

Help us find the answer!

Take our 4 minute salary study survey

www.RHJsal ary.com 8

Rental Housing Journal Arizona · November 2015

Rental Housing Journal Arizona

With over 25 years of collective experience, the principals of PIP-Group have effectively provided its clients with remarkable profits in Tax Liens, Tax Deeds and other forms of default real estate opportunity, such as bank foreclosures.

 Turn-Key Investments in Tax Liens, Tax Deeds and Traditional Bank Foreclosed Acquisitions  Opportunities in GA, FL, KY, IN, IL, OH, SC and NJ  Tax Free Investing using your Self-Directed IRA  More than 600 clients satisfied clients in 14 years

Nationally recognized, PIP - Group is the only agency of its kind, offering its clients extraordinary return on their investments, while allowing them to retain 100% control and ownership of their investments.

Investments with PIP-Group, are “self-directed” by our clients. Our success is based on our abilities to provide you with the best margins of profit possible, by utilizing our extensive resources and knowledge within the field.

Total Investment:

$63,000

Total Investment:

$57,000

Total Investment:

$52,000

Sale Price:

$99,500

Sale Price:

$101,000

Sale Price:

$96,000

DOM:

71

DOM:

71

DOM:

5

877-335-2529

PIPGroupTaxLiens.com With over 25 years of collective experience, the principals of PIP-Group have effectively provided its clients with remarkable profits in Tax Liens, Tax Deeds and other forms of default real estate opportunity, such as bank foreclosures.

 Turn-Key Investments in Tax Liens, Tax Deeds and Traditional Bank Foreclosed Acquisitions  Opportunities in GA, FL, KY, IN, IL, OH, SC and NJ  Tax Free Investing using your Self-Directed IRA  More than 600 clients satisfied clients in 14 years

Nationally recognized, PIP - Group is the only agency of its kind, offering its clients extraordinary return on their investments, while allowing them to retain 100% control and ownership of their investments.

Investments with PIP-Group, are “self-directed” by our clients. Our success is based on our abilities to provide you with the best margins of profit possible, by utilizing our extensive resources and knowledge within the field.

Total Investment:

$63,000

Total Investment:

$57,000

Total Investment:

$52,000

Sale Price:

$99,500

Sale Price:

$101,000

Sale Price:

$96,000

DOM:

71

DOM:

71

DOM:

5

877-335-2529 Rental Housing Journal Arizona · November 2015

PIPGroupTaxLiens.com 9

Rental Housing Journal Arizona

Property Managers Seek Clues on Economy and Local Real Estate Valuations

By Marc Courtenay

K

nowledge is power, especially in the field of property management. Behind the scenes insights about the direction of interest rates, the national economy and housing values can make a lucrative difference.

Recent news that home prices relative to personal income are soaring again is a good example. When the price of buying a condo or house goes ballistic compared to renting, smart managers take note.

Also the direction of mortgage interest rates which are determined by the yield on the 10-Year U.S. Treasury bond is a vital economic tipping point. So is the direction of short-term interest rates.

Don’t just parrot the popular mainstream media. Do like the independent reporters do and gather your own anecdotal clues and real world data.

As an example, the Federal Reserve and the Department of Labor keep tabs on the unemployment rate. Officially they claim it’s hovering at about a 5.5% level. Is that the way it really is in the “real world”?

Back in 1994, the discouraged longterm unemployed — meaning those who haven’t had a job for more than two years and are no longer collecting unemployment benefits — were defined out of existence. In other words, since 1994 when the government tabulates the number of American adults who aren’t working, they pretend that the long-term

10

unemployed who have stopped looking don’t count.

According to my research, when these disenfranchised unemployed are factored into the equation, the real unemployment number is more like 22%. Savvy property managers know why that’s important! When screening rental applications you’ll want to know the sources of income and employment history of potential residents. Most local, state and federal laws permit landlords to ask.

So if more than one out of every four people who should be employed isn’t, do we really have a healthy, vibrant economy? This is a big reason why the Federal Reserve is reluctant to raise interest rates. It also explains why 47 million

people depend on government assistance programs like food stamps … a rate that is increasing at an alarming rate. Are you aware of how this impacts your work region?

As a property manager your economic IQ will become more critically vital as clients rely on you to gauge the condition of your local economy. Now may be an opportune time to create an awareness campaign. If you’ve been a property for 15 years or more you remember the challenges your clients faced in the economic recessions of 2001-2003 and 2008-2011. Your owners and residents also remember. Contingency plans for the eventuality of another possible financial crisis during the next 24 months

are both timely and instructive. Ask your clients for their thoughts, feedback and questions.

If real estate values are reaching a crescendo and your property values are “toppy,” now may be the right time to discuss 1031 exchanges or other tax-friendly strategies. The current economic cycle is approaching its 8th year.

Zero interest rate policy (ZIRP) and Quantitative Easing (QE) programs still haven’t had enough positive results to fi x all the problems.

You’re one of the key people your clients and residents will be looking at to help them deal with the economic challenges that lie ahead. Remember the lessons of history. Looking back over the past 30 years we’d be wise to remember what the final year of a 2-term presidency and the first year of a new presidency feels like financially.

From 1981 all the way to 2008-2009 we find important clues on the potential for major economic hurdles we’re likely to face sometime during 2016-2017. We can hope for the best, plan for the worst.

In the meantime I’ll be interviewing top trend spotters, real estate analysts, and long-time veterans of the property management business. Expect more articles to help hone your economic IQ and expertise.

Published courtesy of www.propertymanager.com

Rental Housing Journal Arizona · November 2015

Rental Housing Journal Arizona

A

Americans Think Homeownership is a Sound Investment

vast majority of Americans believe that buying a home is a solid financial decision, and most believe they could sell their home for at least its initial purchase price, according to a new survey from the National Association of Realtors®. The 2015 National Housing Pulse Survey also found that a preponderance of Americans think that now is a good time to buy a home.

The survey, which measures consumers’ attitudes and concerns about housing issues in the nation’s 50 largest metropolitan statistical areas, found that more than eight in 10 Americans believe that purchasing a home is a good financial decision, and 68 percent believe that now is a good time to buy a home. Seventy-one percent believe they could sell their house for what they paid for it, a jump of 16 percentage points from 2013.

When asked for reasons about why homeownership matters to them, respondents’ answers did not change significantly from past years. Building equity, wanting a stable and safe environment, and having the freedom to choose their neighborhood remain the top three reasons to own a home.

“Homeownership is part of the American Dream, and this survey proves that dream is alive and thriving in our communities,”

said NAR President Chris Polychron, executive broker with 1st Choice Realty in Hot Springs, Ark. “Realtors® believe that anyone who is able and willing to assume the responsibilities of owning a home should have the opportunity to pursue that dream in a safe, responsible way, which is why NAR advocates homeownership issues and educating potential buyers about achieving their property investment goals.”

The number of renters who are now thinking about purchasing a home has increased since the last survey in 2013, up from 36 percent to 39 percent. Sixty-one percent of renters stated that

owning a home is a priority for their future. According to the survey, 80 percent of respondents believe that pre-purchase counseling programs and classes are very or somewhat important. Forty-five percent of homeowners who said they did not take a counseling program, reported they would have taken part in one had it been easily available to them.

Attitudes about the housing market have improved in recent years. Forty-nine percent of respondents indicated that they feel activity in the housing market has increased in the past year, compared to 44 percent in 2013 and 12 percent in 2011. Eight-nine percent expect home sales in their area to either increase or remain the same. Concern about foreclosures has also declined, with only 15 percent of respondents indicating that foreclosure is a major concern.

In addition to improved attitudes about the housing market, survey participants also showed an improved outlook regarding the economy. Only 36 percent think that job layoffs and unemployment are a big problem, a substantial drop from 45 percent in 2013.

Perceived obstacles to homeownership have remained mostly unchanged compared to recent years; 78 percent of respondents point to college debt and student loans as the main obstacle to

making a home purchase affordable.

Seventy-six percent of participants said they have a full-time job but still did not make enough money to purchase a home. Seventy-four percent believe they do not have enough money for a down payment and closing costs.

As the market has improved, concern about the cost of housing has increased.

Two-thirds of survey participants said that home prices are more expensive than they were a year ago. There is additional concern over the lack of available housing; 41 percent said the lack of affordable homes is either a very big or fairly big problem in their area, an increase of 9 percent points from 2013.

For adult millennials under the age of 35, the burden of student debt is their

chief concern, with 86 percent of respondents naming college debt as an obstacle to homeownership. Over half reported that their housing costs are a financial strain on their budget, 65 percent are concerned about high rental prices, and 60 percent are concerned about high home prices. However, millennials tend to have a more upbeat and positive view about the future of the nation than older Americans, with 42 percent of millennials saying that the country is headed in the right direction compared to only 20 percent among those aged 50 and older.

The 2015 National Housing Pulse Survey is conducted by American Strategies and Myers Research & Strategic Services for NAR’s Housing Opportunity Program. The telephone survey polled 1,000 adults nationwide in the 50 most populous metropolitan statistical areas.

An additional 250 interviews were conducted with millennial adults (born after 1981) from the same geography. The study has a margin of error of plus or minus 3.1 percentage points.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.1 million members involved in all aspects of the residential and commercial real estate industries.

NATIONAL REIAU IS HERE TEST DRIVE IT NOW! Enroll In Online Classes And Start On Your Path To Real Estate Education With National REIAU Today Visit Us Today at www.NationalREIAU.com

ABOUT US Imagine real estate investing training that is fast, easy and convenient! National REIAU delivers great low cost, high quality investor training on exactly the subject you want, exactly when you want it. It is all available right here, right now with www.NationalREIAU.com.

We provide comprehensive course material through videos and provide the professional education that will set you apart from your competitors. Our ever-expanding selection of courses is timely, accessible and cost effective. REIAU will be the leading online resource for real estate investors, both beginners and advanced. The National REIA University is the most comprehensive educational program available for real estate investors.

Advertise in Rental Housing Journal Arizona Circulated to over 10,000 apartment owners, on-site and maintenance personnel monthly.

Call 503-221-1260 for more information www.rentalhousingjournal.com

Rental Housing Journal Arizona · November 2015

OUR GOAL National REIA’s goal is to put you in control of your education and training so you can learn more and earn more – on your schedule! From the “Quick Tips” clips, to on-demand videos to regularly scheduled webinars, National REIA brings you the information you need to manage your real estate investing business more effectively. We help you boost your bottom line, while reducing your stress and worry.

Visit Us Today and Start on Your Path to Real Estate Education At www.NationalREIAU.com

USER EXPERIENCE “Fingertip Technology” – education brought to you on your desktop, laptop, tablet or phone Cost Efficient Learning – education without travel costs or scheduling issues Accessible – 24 hours a day, 7 days a week Convenient – flexible and easy to use Engaging – education brought to you by highly qualified instructors with easy to follow presentations Personalized – work at your pace and in a location of your choice Real-time - information following best practices to keep you up to date.

7265 Kenwood Rd Ste 110 Cincinnati, OH, 45236

Toll Free: 888-762-7342 Email: info@nationalreiau.com

11

Rental Housing Journal Arizona

12

Rental Housing Journal Arizona 路 November 2015