THE INVESTOR YOU NEED TO KNOW NOTES Presented by Joe Varnadore
Note Marketplace: Buy or Sell a Note Tonight! OPHP: 1 hour Finance
Did you know that many REIAGC members are also note investors? Buying performing notes for passive income or defaulted notes as a way to “get the property” is a hot strategy; so is selling properties you own and carrying back financing for cash flow without tenants and toilets.
Whether you’re into buying and selling properties for quick cash, or you love passive income (or both!) you can’t maximize your income until you understand the business of buying, selling, and creating notes and mortgages. When you ‘get’ how they work, you gain abilities that other investors just don’t have, like: • You can use ‘defaulted’ notes as a little-known back door for buying houses for pennies on the dollar • You can buy performing notes and get truly passive, hands-off income with double-digit returns • You can create your own notes on properties you already own, and get income WITHOUT dealing with tenants, toilets, vacancies, maintenance, and all that. While it’s true that thousands of investors are making billions of dollars every year in notes and mortgages, it’s also true that less than 10% of your competitors know
how to take advantage of this strategy. Let’s put you in that top 10%, shall we? As usual, when we introduce you to a super-hot topic, we want the very best, most experienced and successful presenter we can find—and in this case, we went all the way to sunny Florida to grab the best of the best. Joe Varnadore has bought and sold— get this—10,000 notes and counting. He’s hyper-experienced, and he’s also a great instructor. His going to spend an evening with us sharing all the basics—why notes are so important to your success, the opportunities and challenges of the 2017 market, and what you can do to take advantage of it. Join REIAGC on Thursday, February 2nd to learn more on notes! Register today at www.CincinnatiREIA.com. OPHP: 1.5 hours finance
Since the topic of tonight’s main meeting is how the note business works, we thought we’d give members who have notes to SELL a chance to get up and explain their wares—what they’re selling, the return on investment, how they acquired it, and what they’d take for it. If you’ve thought about buying notes, or you’re just curious, come see who’s got notes for sale and what they have to offer. If you have notes you’d like to present for sale, please contact Nancy at info@CincinnatREIA.com. Members and guests are welcome to the session; however, to present a note for sale, you must be a member of REIAGC.
JOIN US EARLY AND ENJOY HEARTY HORS D’OEUVRES! The Real Estate Investors Association of Greater Cincinnati (REIAGC) has added food to our general meetings! Please be sure to join us early for hearty hors d’oeuvres and networking fun with your industry peers.
10945 Reed Hartman Hwy | Ste. 113 Cincinnati, OH 45242 P: 513 407-3137 www.cincinnatireia.com
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2017 BOARD OF DIRECTORS & COMMITTEE CHAIRS President Anita Johnson 513 334-0444
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Treasurer Scott Ellsworth 513 272-8400 Board Members Ben Bauer Eric Kottner Narendra Mundhe Cheryl Long Linda Hull Tom Terlau Association Manager Nancy Terry 513 407-3137 Cincinnati REIA 10945 Reed Hartman Hwy | Ste. 113 Cincinnati, OH 45242 P: 513 407-3137 | F: 844 734-2472 www.cincinnatireia.com
Disclaimer
The REAL ESTATE INVESTORTM is published 12 times a year by the REAL ESTATE INVESTORS ASSOCIATION OF GREATER CINCINNATI. The subscription cost is $120 per year. First class postage paid. © Copyright 2016 by the REAL ESTATE INVESTORS ASSOCIATION OF GREATER CINCINNATI. All rights reserved. Reproduction or dissemination in whole or in part, in any form whatsoever, is expressly prohibited. Printed in the USA. The information contained herein and information shared at meetings and events is believed accurate, but it is not guaranteed or warranted in any manner. The information is provided with the understanding that neither the author(s), program speaker(s), nor the publisher (or its directors, officers, employees or agents) are engaged in rendering legal, accounting or other professional advice. REIAGC does NOT pre-qualify, evaluate, endorse, guarantee or warranty any particular deal, service, company, or person. We recommend you perform your own due diligence and seek appropriate legal, accounting, or other professional advice before making any investment.
2015 2 | The Investor ||August February 2017
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WHOLESALING FOCUS GROUP
6:30 pm | Perkins 7108 Hamilton Avenue North College Hill Michelle Clayton - 513 400-4937
GENERAL MEETING
6 pm - Note Marketplace: Buy and Sell A Note Tonight 7:30 pm - You Need To Know Notes Crowne Plaza Blue Ash
FRIDAY MORNING MEETUP 9 am to 11 am Crown Plaza Blue Ash 5901 Pfeiffer Road, Blue Ash Linda Hull - 513 549-7821 Cheryl Long - 513 429-2583
INVESTORS LUNCH
11:30 am - 1 pm Century Inn Restaurant 10675 Springfield Pike Dave Jasper - 513 942-5110 or Max Arroyo 513-772-5736
GENERAL MEETING
6 pm - Great Deals: What They Are and Where To Find Them OR Debunking 13 Insurance Myths For Real Estate 7:30 pm -How To Use Technology To Grow Your Real Estate Business Crowne Plaza Blue Ash
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LANDLORD FOCUS GROUP 6:30 pm Crosley’s Sports Cafe 4901 Vine Street, Cincinnati Scott Ellsworth, 513 659-5531 Jim Shapiro, 513 515-6717
FORECLOSURE NOTE BUYING SHORT SALE FOCUS GROUP
6:30 pm, Wendy’s Restaurant 5909 Mulhauser Road Deb Meyer - 513 266-4008 or John Dohtery - 859-653-3290
CREATIVE BUYING AND SELLING FOCUS GROUP
6:30 pm Perkins, 7108 Hamilton Avenue North College Hill
NORTHERN KENTUCKY FOCUS GROUP
6:30 pm at PeeWee’s Place 2325 Anderson Road Crescent Springs, KY Brandon Brewer - 859-240-7339 Tom Terlau - 859-653-6412
MISSION STATEMENT
OF THE REAL ESTATE INVESTORS ASSOCIATION OF GREATER CINCINNATI (REIAGC) • Encourage our members’ success through education and professional services • Represent REIAGC members as positive, ethical contributors to the economic and the social well-being of our community
PRESIDENT’S CORNER
By Anita Johnson, REIA of Greater Cincinnati President Happy February! We’ve already turned the corner on the first month of the year, and hopefully you have been enjoying the additions to this year’s meetings:
right, when we saw that the weather might not cooperate for the January 5th meeting we quickly moved to put livestreaming in place so our members could still attend the meeting. Ingenuity at it’s best!
Remember, Cincinnati REIA is here to help you achieve your real estate investing and entrepreneurial goals. And what better way to do that than by starting the year with a session all about “How to Get Started”, which was our Saturday session for January. This month’s Saturday session is all about Notes, and what you need to know in or• Case studies to allow you to learn from deals der to successfully buy and sell notes. Make sure to come your fellow investors are either doing or have out on Saturday 2/11 to hear Joe Varnadore, one of the done industry leaders on Notes. • Market Updates to keep you abreast of the latest trends in the market and opportunities for Don’t forget about our Subgroup Meetings and the Friday you as an investor Morning Meetup. All of our events are posted on our cal• Concierge Table for any questions you may endar which can be found on the website. have about your OPHP credits, membership benefits, and any other items Have a great February! • Light hors d’oeuvres served before the meetings to give you an opportunity to eat and do a little networking
And just when you thought that you wouldn’t be able to make the first meeting of the year due to the weather, we brought the meeting TO YOU….LIVE! Yes, that’s
FRIDAY MORNING MEETUP Have deals to sell? Services to provide to real estate investors and landlords? Or just want some time to just hang out with fellow real estate investors, landlords, and service providers with no agenda except making connections? Then join our Friday morning meetup—it’s free and open to the public. This morning networking meeting doesn’t have a topic, but just the chance to meet with fellow entrepreneurs and service providers. This meeting will take place the Friday after the 1st Thursday of every month.You’ll meet great, helpful people and make connections to build your business. A breakfast buffet is optional and available for purchase - prices are $12 for hot buffet and $8 for cold buffet, available in the lobby/atrium area until 10:30am. Our next meeting is scheduled for Friday, February 3, 2017, from 9 am to 11am at the Crowne Plaza Blue Ash located at 5901 Pfeiffer Road in Cincinnati 45242.
Anita Johnson
FEBRUARY CREATIVE DEALMAKING FOCUS GROUP SELLING HOUSES ON LEASE/OPTIONS: HOW TO GET MAXIMUM INCOME WITH MINIMUM RISK Lots of investors like the idea of selling rentals using a lease with option to buy, because the tenants take care of the repairs, pay nonrefundable up front fees, and, ultimately, buy the property for top dollar. Maybe. Since, statistically, 70% of lease/options “fail”, it’s probably a good idea to understand the best ways to ensure success and what’s the worst that can happen if a deal does go wrong. It’s at Perkins at Hamilton and Cross County in College Hill on February 27 at 6:30.
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COMING UP AT THE FEBRUARY 16 MEETING NEW INVESTORS FOCUS GROUP: GREAT DEALS: WHAT THEY ARE AND WHERE TO FIND THEM WITH VENA JONES-COX The first key to your success as a real estate entrepreneur is your ability to find the sellers who have the great deals. Who are these sellers? How do you find them? How do you know a great deal when you see one? And are there really enough great deals out there for all of us? Come find out in this meeting for new investors only beginning at 6 pm on February 16 at the Crowne Plaza Hotel in Blue Ash. ACTIVE INVESTORS FOCUS GROUP: DEBUNKING 13 INSURANCE MYTHS FOR REAL ESTATE INVESTORS WITH SHAWN WOEDL Rental Property Insurance can be complex and confusing because it is very different than insuring your primary home, and there are a lot of myths floating around out there that can get you burned when you least expect it. Let a rental property insurance expert educate and recommend insurance coverage that is the best fit for you personally, based on your current rental properties, locations, future acquisition goals, deductible preferences, coverage requirements, and more. In this informative session, attendees will learn: • All policies and coverages are not created equally • Differences between personal and commercial property and liability insurance • Common Policy Exclusions • The Ins and Outs of Liability Insurance coverage and its limits, as well as umbrella policies • Claims examples as it relates to property and liability coverage and common exclusions. Join us at 6 pm on February 16 at the Crowne Plaza Hotel in Blue Ash.
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You’re guaranteed to walk out with hacks that will make your buying, selling, or management business more profitable and less stressful.
Join Ben Rao on Thursday, February 16th at the General Membership Meeting to learn more! Register today at www.CincinnatREIA.com.
MAIN MEETING: HOW TO USE TECHNOLOGY TO GROW YOUR REAL ESTATE BUSINESS AND MAKE YOUR LIFE EASIER: A PRIMER FOR NON-NERDS WITH BEN RAO Unless you’re a millennial, you’re probably not fully leveraging online resources, apps, and software to run your business, get more deals, track leads, store data on properties, or manage rentals more easily. How do we know? Because in our member survey, “Teach us more about great, easy-to-use technology” was #5 on your most-wanted list! That’s why we’ve invited Ben Rao, who has applied his vast tech knowledge to his decade-long career as a real estate entrepreneur, to share the ways that he uses the web and software to acquire and manage rentals, rehabs, and more. Ben will share: 4
How to get the word out on the web about your buying, selling, or renting business to the best prospects—without spending a lot of money or even knowing much about “the web”. Cheap or Free programs and apps that will help you manage everything from your time to your business 5 programs he positively can’t do without, because they reduce stress or increase profits or both • Managing your tenants and rentals with technology How to take advantage of what technology has to offer you without going back to school
February 2017
WELCOME NEW AND RENEWING REIAGC MEMBERS!
FEBRUARY LANDLORD FOCUS GROUP
COMMON SENSE LANDLORDING WITH JIM SHAPIRO
REIAGC Would like to welcome its new members and thank its renewing members in the month of December: Pamila Christy - JPC, Rolston Grey, Mycarth, Ibash, EdStarr Jim Christy Sean Hill - Hilltop Funding Group Tiberiu Berger - Investa Limited Juan Lazarde - Investa Limited Patrick Maney - Creekwood Real Estate Garth Kukla - TriState Discount Real Estate Ronald McCloud - REM Remodeling
Join mega-door landlord, Jim Shapiro, at the Landlord Focus Group on February 21 as he shares his wisdom on Common Sense Landlording. In addition, bring some of your own ideas that have worked as well to share with the group. The group will meet at Crosley’s at 6:30 PM. Attend and you will receive OPHP credits!
Benjamin A. Bauer, Attorney at Law 10999 Reed Hartman Hwy., Suite 108A (513) 851-7600 ● ben@thebauerfirm.com -
Wills, Trusts, & Probate ● Real Estate ● Evictions LLCs ● Small Business Law ● Civil Litigation -
Licensed in Ohio, Kentucky, & Florida -
www.thebauerfirm.com
The Investor
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CAN PLAYING MONOPOLY HELP YOUR REAL ESTATE INVESTING BUSINESS? BY DON DEROSA
Negotiating is not something to be avoided or feared – it’s an everyday part of life. – Leigh Steinberg
can stay up. He gets what he wants and I get what I want – a clean room and a lower dentist bill.
What does the term ‘negotiate’ conjure up in your mind? • A conflict where each side tries to ‘win’ by outsmarting the other? • A car salesman going to ”talk to his manager” about your offer, when you know he’s just going to get a cup of coffee and let you sit and stew? • A store clerk trying to convince you to buy something you don’t need, for more than you want to pay?
As a successful real estate investor, your job is to figure out how to meet the needs of a buyer or seller and make a profit for yourself. Sometimes the numbers just don’t appear to work. So you have to orient your thinking to not following the rules to come up with ways to make the deal work with both of you. It’s trite, but you really do have to “think outside the box.”
Do you get sweaty palms and a dry throat just thinking about negotiating with a homeowner? I hope not! But if you do, rest easy, because it’s really not difficult, if you keep a few things in mind. A good negotiator finds out what the other party needs and figures out if he can meet those needs and still get what he wants out of the deal. A simple example is when my 10 year old son asks if he can stay up an extra 30 minutes to watch the hockey game on TV. I tell him that if he puts his toys away, changes into his pajamas and brushes his teeth, he
criterium-cincinnati@fuse.net
As an example of creative thinking let me tell you true story. My two older sons were about 11 and 12 years old (they’re 18 and 19 now). My wife and I loved to have ‘game night’ and pull out Monopoly, or another board game. (We haven’t done that in a long time! Talk about great family memories!) I only had 2 properties, Boardwalk and Park Place. And I had hotels on them. But I was getting slaughtered, as I kept going around the board, paying rents and taxes. Finally, my son landed on Boardwalk. Hehe. Hand it over,
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BUILDING EVALUATIONS BY LICENSED PROFESSIONAL ENGINEERS • Residential and Commercial Inspections • Structural Inspections • Reserve Studies
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Commercial Services First Circle Property Management
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February 2017
dude. And lo and behold, next time around the board, he landed on Boardwalk again. Cha-ching! Now, I didn’t want to wipe him out – it’s always more fun to have everyone play. And he still wanted to play. So I said, “Instead of paying me, how about I take your next five turns and you just give me those 3 properties.” He was great with that idea. But my wife said, “You can’t do that!” So I picked up the box top (where the rules used to be written ages ago), handed them to her and said, “Show me where it says you can’t do that.” And she looked over all the rules, threw down the box top and said, “It doesn’t say it, but you can’t do that.” My attitude is – if it doesn’t say I can’t, then I can. (This was quite literally thinking outside the box!) Well, needless to say, Monopoly took on a whole new life after that. So – next time you’re playing Monopoly or another game, think about how you can mix it up to add negotiating to the mix. Develop those skills and creative thinking in a nonthreatening environment. Go to a garage sale and offer something you have for something they have, instead of paying cash.
If you constantly think of ways to practice creative deal making, it will carry over to your real estate. Guarantee it. Don DeRosa was recognized as one of the nation’s top 21 real estate investors in the New York Times bestseller The Millionaire Real Estate Investor. Don, who is a full-time investor, trainer, and mentor, offers a complete system to build and run a thriving real estate business. He is the first to make all of his training material available on mobile devices like the iPad, so investors can truly leverage tools and technology to make more and work less.
The Investor
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VERDICT: GUILTY!
BY KATHY KENNEBROOK (MARKETING MAGIC LADY) “If you were arrested for being a real estate investor would there be enough evidence to convict you?” I was once asked! I wholeheartedly responded with a resounding, “YES!” You must be able to do that which makes you stand out from your competition. As you begin your campaigns as part of your overall marketing strategy and goal, continue to diligently test and track results as you go. You MUST be able to determine what marketing tools work best for you in your market place in order to draw the highest number of motivated sellers to your real estate investing business. People often ask me, “What is the best way to find motivated sellers and buyers?” My response is to do that which your competition will not and do a lot of it. Dare to be different in your approach to locating motivated sellers. Analyze, discover and continue to rediscover the best combination of marketing methods that will generate the highest number of motivated sellers for your business. Develop three to five marketing techniques that give the very best lead-generating leverage possible and devote your resources to those marketing techniques which net the very best results. As simple as it may sound---don’t spend time on something that is not productive.
Constantly test and track new marketing techniques since your market and your business will continue to change over time. In most cases, change IS good, especially if YOU plan that change. Spend time listening or reading about those who have come before you and developed marketing strategies that draw high numbers of motivated sellers to you. Spend your time and energy constantly seeking new knowledge about new combinations of marketing methods to create even more leads. Pursue innovative marketing methods in your business to bring you the highest number of motivated sellers. Be innovative. You’ll get “status quo” results if you stick to the status quo! Don’t be afraid to use unusual types of marketing products such as florescent orange or pink business cards, post cards or signage to attract sellers. Use t-shirts in your business and wear them all the time. We even had a t-shirt made for our German Shepard dog. When we would take him for a walk people knew what we do for a living. “Wrap” your vehicle in signage and be sure to include a web site address. Implement several different ways to attract sellers since you will need to reach your market in a variety of ways. Direct mail is another essential tool to use to attract lots of
Building Value LLC 4040 Spring Grove Ave. Cincinnati, OH 45223 (513) 475-6783 www.buildingvalue-cincy.org 8
John C. Wagner | 513.857.9179
February 2017
motivated sellers. This is a method most of your competition is not using in their business. Implement mailings on a residual basis so you are in constant contact with these sellers. When their circumstances dictate that they do so, they will want to sell to you first, even if they have been contacted by someone else in the meantime, since you have taken the time to build credibility with these sellers. Use lumpy mail pieces in your envelopes to entice your reader to open the envelope and read your message. Design your direct mail piece so different that it demands people’s attention, so it gets opened and read. Don’t be worried about people who make negative comments about you or your marketing methods. You will be the one who will get “the last laugh” all the way to the bank with the profits from your real estate deals. Throw your business cards out into the bleachers when your children’s team scores a point. Give business cards to everyone you deal with on a daily basis. Write an article on real estate and
submit it to your local newspaper. Offer to do a free talk on real estate for your local radio station or your local library. Become a local expert in the real estate field and sellers will seek you out first when they need to sell. A marketing genius once said, “Perception is more important than reality.” People are more comfortable dealing with someone they perceive to be an expert in their field. Most importantly, absolutely KNOW what your competition is doing. Literally track their every technique. Research and find out all that your competition is doing. Knowing about your competition gives you the ultimate edge over them. The more you know about your competition, the better idea you will have about your market. One of the best ways to find out what your competition is doing is to join local associations or clubs where you are likely interact with them.
STRIVING TO REACH YOUR FINANCIAL GOALS TOGETHER
Investing in real estate is a serious decision. Don’t go it alone. • Investment Analysis and Due Diligence Assistance • Accounting Services Different levels of service to match your budget • Clean, organized records means less hassle at tax time • Tax Planning and Compliance
Ellsworth & Associates 513-272-8400
What you’ve always dreamed of, someone else who knows accounting and tax to handle it for you. The Investor
9624 Cincinnati Columbus Road Suite 209 West Chester, OH 45241
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There are lots of great ways for you to stand out in your business. Don’t be afraid to be different. Although you will still use some tried and proven marketing techniques, those who are willing to take a little risk are the ones who are the most successful.
What is your portfolio worth?
Believe me when I tell you, some of these lessons come from difficulties, pain, and even a couple of failures along the way. But once you make a mistake, never make that same mistake again! Different gets attention and that’s what you want, to get the attention of sellers who need your services. Very simply, if you don’t let people know that you buy and sell houses, you won’t! Dare to be different in your approach to finding motivated sellers and buyers.
Find out from Steve Hering stevehering@prodigy.net 513-253-2644 We have portfolios to buy and sell
www.ownamerica.com
So when someone asks you, “If you were arrested for being a real estate investor, would there be enough evidence to convict you?” Your VERDICT must be: GUILTY! If you like what you’ve read... check this out! Kathy Kennebrook is a speaker, author and real estate entrepreneur. This 4’11”grandmother is the country’s leading Real Estate Marketing expert on finding motivated sellers using direct mail. She has been actively investing in real estate since 1999, and is known throughout the United States and Canada as the Marketing Magic Lady.
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February 2017
Contact REIAGC for more information
MARKETS ARE TOUGH: SHOULD WE BRACE FOR A BUBBLE OR CONTINUE TO INVEST? BY BY JERED STURM, BIGGERPOCKETS.COM The national S&P CoreLogic Case-Shiller Index, which tracks home prices, reached a post-recession high of 184.8 in September, an index level last seen in July 2006. Since 2012, the average home price across the nation has increased 37.9%. Commercial real estate cap rates have continued to fall year over year. All of these statistics are important, but how do most investors feel this invisible sway of the market cycles? They see the deal flow drying up. Many real estate investors couldn’t tell you prices have climbed 37.9%, but almost all of them can tell you it’s harder to find a deal today than it was 1, 2, or 3 years ago. If deals are harder and harder to find and prices are at pre-recession levels, does this mean we are in a bubble again? Does that mean a crash is coming? Should everyone stop buying and start hoarding cash? ARE WE IN A BUBBLE? First let’s address the “are we in a bubble” question. If you type into Google “are we in a real-estate bubble,” your results will be filled with a third of articles that say “smooth
sailing ahead,” “fundamentals are good,” and “we are on pace to see amazing years of growth for the foreseeable future.” The second third will say we’ve had several great years since the recession, but we are coming off our recovery and will see things stabilize going forward. And finally, the last third will tell you the world is going to collapse and the financial system as a whole will implode. The world is complex. Sure, there are statistics and fundamentals to be tracked and monitored, but when shifted, framed, and paired the right way, those statistics can be made to say anything. Go back to 2007 and read articles on the same exact subject and guess what? You will see a third saying sunny skies, a third calling for a level out, and a third predicting a a crash. So why the major variation in perditions from the same data? Emotion, emotion is the x-factor that determines what becomes of the fundamentals. You may be thinking, “Actually, history always repeats itself, and a large grouping of people’s emotions are, in fact, more predictable because they average out and end up doing typically the same thing as they did in the past.” Recently, I listened to an economist who shared that belief. In his interview, he was discussing the future of the real estate market. He was rattling off current statistics and fundamentals that mirror events like the great depression of the 1920s and the hyperinflation of German Marks back in the ’20s. While listening, I couldn’t help but to think, “Yes, fundamentals and data are important and should be monitored, but it is how the whole system interprets them and reacts according to that interpretation.” I am a firm believer that tracking fundamentals is important so you can position yourself for several outcomes, but much comes down to human emotion. Still, to say that human re-
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actions will occur the same way as they did in the 1920s seems to me a stretch. How astronomically different is the landscape for emotions to form and spread today than it was 100 years ago or even 10 years ago? I am not saying that economist is wrong; I am simply saying I don’t know, and I don’t think anyone really knows. I can’t tell exactly what will happen in the market. I also think anyone who says they are sure one way or the other is a fool. SO WHAT DO WE DO ABOUT IT? Deals are harder and harder to find, and prices continue to climb. What should we as investors do? The good news it there is several options. You can quit, wait it out, get more creative, change your strategy, change your market, or be patient and stay disciplined. So let’s dig into those options. Quit or wait it out. Well, I guess these are the easiest to execute and pretty self-explanatory. Get more creative. My favorite option! In today’s market, I hear so many investors say, “There are no good deals to buy,” and I liken it to when someone stands in front of the open refrigerator and says, “There is nothing to eat,” even though 99 percent of the time there is plenty to eat in the fridge — you just have to get in there and cook. You’re not going to open your fridge to a fully prepared home-cooked meal, and you’re not going to open Zillow and buy a home-run deal. When the easy trail like Zillow has been beaten down, you have to change course. Change your strategy. If you are a smaller company that can pivot on a dime, you have an advantage to adjust to market conditions like the large companies cannot. For example, as supply for good deals continues to decrease, demand goes up. Flippers begin to squeeze margins tighter and tighter just to keep
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the deals going. If you are getting deals, oftentimes in these conditions it makes more sense to simply wholesale than flip when all things are considered. You may consider many other variations of adjustments depending on your skills, market, and size. Change your market. Some markets are crazy expensive. Maybe for years, you were buying cash flowing rental in your local market and now you can’t hit your same targets. There is likely a market nearby you could adjust to continue making sense of your same investing strategy. Stay disciplined and patient. What I do in my own business is combine this and the previous action of getting creative. I believe staying disciplined is vital to long-term success. Know your underwriting metrics and stick to them throughout the cycles. Think of it as a graph going up and down through the cycles, but your underwriting metrics are the constant linear horizontal line running through that wavy graph. The reason I write this article is to help investors realize there is success and good deals to be had in any market; they just become harder to find. The question then only becomes is it worth your time to find them? Jered Sturm is co-founder and director of sales and marketing at SNS Capital Group. Jered began in the real estate industry in 2006, working for a successful real estate investment company as a handyman. From 2009-2012, Jered cofounded the construction company Sturm Properties. Using his background in contracting and construction, he began investing in “Value Add” real estate. Now, after co-founding SNS Capital Group, Jered has conducted over 10 million dollars in real estate transactions. He currently co-owns and operates a portfolio worth over 3.7 million dollars in investment real estate.
February 2017
8 TIPS FOR A SUCCESSFUL LEASE OPTION SANDWICH BY BRANDON TURNER
Here are eight tips for making sure that your lease option sandwich goes off without any major issues and that you are able to achieve the most security, income, and fairness for everyone possible. 1. The longer your contract is with the homeowner, the better. Three years is better than one, five is better than three, and ten is better than five. The more time you have, the more options you have. Also, ensure that your contract with your tenant/buyer is shorter than your contract with the owner/seller. You don’t want to o er your tenant/buyer a five-year lease but sign just a three-year lease with the owner. 2. Always let the owner know what you are doing. This is not a strategy you should ever think of using without having everyone on the same page. Don’t pretend you’ll be living in the home just to get the contract, only to turn around and sublet it to the tenant. Be up front and honest, and make everyone comfortable with the arrangement. Your job as a real estate investor is to solve problems, so do that!
• Look for stability. A tenant who moves every six months without reason is probably not a great candidate. • Don’t discriminate. Doing so could land you in jail, so know your local and federal discrimination laws and adhere to them. 4. Connect and qualify your tenant/buyer with a mortgage professional, also known as an RMLO—short for residential mortgage lenders and originator. This individual can sit down with your potential tenant and explain what they need to do to qualify for a loan, to make sure they can reasonably hope to actually qualify. A good mortgage professional can work with your tenant/buyer to create a credit road map to help guide them from where they are now to being able to qualify for a mortgage. Setting up a meeting between the tenant/buyer and your favorite mortgage professional is helpful for both the tenant/buyer and you, and it can also help prove that you are not trying to take advantage of a tenant if you are ever accused of such.
3. Screen well! Screening your tenant is one of the most important steps you can take to ensure a positive landlording experience, especially with a lease option sandwich. Although tenantscreening practices are beyond the scope of this book, the most important things you can do are as follows:
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• Always run a background check on your tenant. Look for evictions, criminal activities, etc. • Make sure the tenant/buyer has good enough credit. Their credit score doesn’t need to be 800 for them to qualify, but it needs to be reasonable/improvable for them to be able to get a mortgage to cash you out eventually.
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5. Arrange to pay the owner’s mortgage for him. After all, you don’t want to send the owner a payment each month and suddenly find out the bank is foreclosing on the property because the owner decided to pocket the money rather than passing it on to the bank. 6. Legally record your option contract with the owner at your county administrative department. By legally recording the option contract, you will put a “cloud” on the title, and the owner will not be able to sell the property until it’s cleared. If you do not record the contract, the owner might decide to sell to another investor or a retail buyer, and your only recourse would be a very expensive and stressful lawsuit. Recording can usually be done for less than $100 and normally requires only that the agreement be signed and notarized. 7. Don’t apply any portion of the rent toward the tenant/ buyer’s future down payment. This was a popular method of doing lease options in the past, but since the SAFE Act and Dodd-Frank legislation were passed, there has been legal concern on the part of many investors that portions of rent applied toward the tenant’s future down payment constitutes a “security,” which means many additional rules and regulations must be followed (ones you don’t want to deal with). Additionally, most banks will not allow this credit anyway, so it’s just best to make the rent the rent.
them a short time frame in which to buy, kick them out, and then repeat the process. The tenant, on the other hand, ends up in a far worse financial position than they were in originally. I believe this kind of unethical behavior is what gives the real estate investing industry a bad name. Don’t add to the problem. Treat your lease option agreements as a chance to create a win-win-win scenario and help others get what they want as well. Use your power for good, not evil. This means only entering a lease option with tenants who could very reasonably obtain a loan within several years, without charging an exorbitant option fee. I want to be fair and have all parties happy with how things turned out at the end of the transaction, whether the tenant officially buys the property or not.
8. Don’t be a jerk. Do you remember the scene from Spider-Man where Uncle Ben states, “With great power comes great responsibility”? By this point, you can probably see that there is a lot of potential power in the lease option sandwich, but this same advice that guides Spider-Man should guide you as well, because with lease options, one could very easily be a jerk and take advantage of tenants.
Finally, the government knows this is a problem and frowns on landlords who take advantage of people. The SAFE Act and Dodd-Frank legislations were enacted, in part, to help deal with these problems. Not only can you give landlords a bad name, but you could wind up in prison. Don’t be a jerk.
For me, this is one of the biggest concerns for someone looking to engage in a lease option agreement. Because the vast majority of lease option tenants never end up actually purchasing the home, the lessee may be primed for failure from the beginning. Many lease option investors know this and proactively take steps to make it nearly impossible for the lessee to ever close on the deal. They charge huge upfront fees for a totally unqualified tenant to move in, give
Brandon Turner (G+ | Twitter) spends a lot of time on BiggerPockets.com. Like... seriously... a lot. Oh, and he is also an active real estate investor, entrepreneur, traveler, thirdperson speaker, husband, and author of “The Book on Investing in Real Estate with No (and Low) Money Down”, and “The Book on Rental Property Investing” which you should probably read if you want to do more deals
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[This article is an excerpt from Brandon Turner’s The Book on Investing in Real Estate With No (and Low) Money Down.]
February 2017
Vendor Members Directory Business
Company
Contact Info
Business
Company
Contact Info
Accounting
Chuck Vonderhaar, CPA
Chuck Vonderhaar 513-563-0598 chuck@cpvcpa.com
Inspection Services
Criterium – Cincinnati Engineers
Mathew Klein 513-474-9600 criterium-cincinnati@fuse.net
Property Mgmt
Berkshire Hathaway HS Commercial Division
Accounting
www.cpvpa.com
Ellsworth & Associates, CPA’s www.ellsworthcpa.com
Building Supplies
Butler County Edge-Co www.edgcowholesale.com
Scott & Deanna Ellsworth 513-272-8400
sellsworth@ellsworthcpa.com
Max Arroyo 513-772-5736 marroyo@bhhspro.com
www.firstcirclepm.com
Brent Fening 513-868-2068 edgcobp@yahoo.com
Rehab & Restoration
Cincinnati Home Improvement Co., LLC
www.cincyhomeimprov.co
Building Supplies
Pease Warehouse
Stephen Pease 513-867-9926 Stevep@peasewarehouse.com
Rehab Project Mgmt
Building Supplies
Surplus Warehouse www.surplus-warehouse.com
Brent McCleneer 513-245-2222
swcincinnaticlrn@ecbarton.com
OdorXit
www.peasewarehouse.com
www.criterium-cincinnati.com
Christopher Penn 513-898-1878 cincinnatihomeimprovement@g mail.com
BildWise
Dan Poske 513-301-0247 dposke@cmsllc.com
Real Estate Brokerage
Exit Best Realty
Deb Meyer 513-266-4008 deb@odorxit.com
Real Estate Brokerage
Federle Inc., Realtors
Marty Russell 513-545-1637 martysrussell@gmail.com
Sasha Allen 513-344-3972 TeamAllen@fuse.net
Real Estate Brokerage
Outside The Box Real Estate
www.BildWise.com
www.bestexit.com
Dennis Taylor 513-851-4021 dennist123@aol.com
Cleaning Products
www.OdorXit.com
Cleaning and Evictions
Swept Away Property Cleanouts
Contractor Services
BKH Contracting
Keith Hardig 513-266-8719 keith@bkhcontracting.com
Real Estate Brokerage
Exterminator
Formula Exterminators
Fred & Cindi Goff 513-671-7378 cindi.goff@gmail.com
Real Estate Services
LD and SL Properties
Steve Hering 513-253-2644 wtevehering@prodigy.net
Financial Services
Badcat Properties, LLC www.badcatproperties
Sam Moore, Jr. 513-485-8599 moorejrsam@hotmail.com
Real Estate Services
CORE Group
Jiries Dawaher 513-504-5565 jtd8.re@gmail.com
Financial Services
Dayton Capital Partners
Darrin Carey 937-458-3303
Real Estate Services
Exit My Foreclosure
Kristin Caledine 513-509-9814 Kristin@ExitMyForeclosure.com
Restoration
Icon Environmental www.IconPropertyRescue.com
Jeremy Clayton 513-396-6653
clayton@IconEnvironmental.net
Security
ADT Security Services
Kristen McClanahan 513-497-7990 kmcclanahan@adt.com
Tenant Screening
National Tenant Network
John Spafford 877-579-3520 john@ntnonline.com
Title
Servicelink
John Wagner 513-857-9179 John.wagner@svclnk.com
Parkway Title, LLC
Financial Services Financial Services Floor (wood) Restoration System
www.DaytonCapitalPartners.com
Secured Investment Lending
securedinvestmentlending.com
Spring Valley Bank
www.springvalleybank.com
Fabulous Floors of Cincinnati
Darrin@DaytonCapitalPartners.co m
Brittany Kiah 407-878-2830 Brittany@securedinvestment lending.com Dave Woodcamp 513-761-6688 springvalleybank@cinci.rr.co m David Caldwell 513-453-4006
www.fabulousfloorsusa.com
davidcaldwell@ fabulousfloorsusa.com
Floor Restoration
Olmec Reflections, INC.
Donald Boling 513-300-9203
Title
Flooring
McSwain Pro Floors
Legal
The Bauer Firm, LLC
Jon O'Connor 513-354-4400 joconnor@mcswaincarpets.c om Ben Bauer 513-851-7600 ben@thebauerfirm.com
Wholesale Properties
www.olmeccarpetcleaninginc.com
www.mcswaincarpets.com
www.thebauerfirm.com
OlmecReflectionsinc@gmail.com
The Investor
www.federleinc.com
www.OTBrealestate.com
ERA Real Estate Services
www.realsolutionsrentals.c om
www.coregroupre.com
www.ExitMyForeclosure.com
www.ntnonline.com
www.svclnk.com
www.parkwaytitlellc.com
You Buy Houses www.youbuyhouses.com
Christina Carey 513-509-2705 Christina@OTBrealestate.com Jennifer Day 513-276-2996 jenniferday@era.com
Louis Breeden 513-701-6216 Louis.breeden@parkwaytitlellc.co m
Drew White 513-471-0141 DrewWhitePix@gmail.com
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