REI Voice July 2015

J U L Y

2015 $ 4.95

VOICE MAGAZINE The Voice of the Profitable Real Estate Investor

Real Estate:

Not a Spectator Sport Dr. Christopher Thornberg on U.S. Financial Markets Join a Local REIA: Your Success May Depend on it!

From High Tech to High Rewards: Tom K. Wilson’s Real Estate Success Story

Connecting People, Educating Investors, Inspiring Action.

Presented by Lori Greymont

SJREI, CEO

With SJREI Membership You Will...

• Hear the best speakers and get the best real estate investing education • Network with investors, buyers, sellers and the people who support them • Stay motivated, stay on top of the market and avoid the pitfalls • Have the opportunity to attend monthly meetings

Education. Networking. Success.

SJREI Association is peopled by experienced real estate investors. We offer high quality educational programs presented by recognized experts in their field, and the grand opportunity to network with other local had-working real estate investors.

$349 NEW MEMBERS

$299

RETURNING MEMBERS

Join today, or learn more: www.sjrei.org

Connecting People - Educating Investors - Inspiring Action

Affiliate Members Tom Wilson Dan Noble Mark McKeller Louis Bardis John Citrigno Niki Canotas Todd Pickett/Tom Valentino Chad Schriefer/Dustin Rose Chris Bauman Gabe Bodner Tiago Moules Michael Ryan Bill Neville Denise Wilson Michael McNair

Wilson Investment Properties Summit Assets Group HomeVesters FJM Capital Cirius Capital Mobius Financial Network Zinc Financial Cash Flow Links Socotra Capital Lending Home Tiago Media Michael Ryan Mortg Broker The Entrust Group Richard Smith Tax IRA Services Trust Co

To learn more visit us at: www.sjrei.org

July 2015 REI Voice

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Welcome Publisher’s Note:

Advice: The 10 Types of Notices for Every Landlord

5 6

By Lucas Hall Free Legal Advice

14

By Geraldine Barry Should You Hire a Property Manager For Your Rentals?

39

By Brandon Turner

Analysis:

Assessor Releases Residential Market Data, Confirming Silicon Valley Boom

8

Dr. Christopher Thornberg, PhD. Stay Calm!

By Alain Pinel

From High Tech to High Rewards:

By Michael Grigelevich Should you Join a Local REIA? Absolutely: Your Success may Depend on it!

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32 29

18

By Michael Grigelevich Real Estate: Not A Spectator Sport

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By Dan Noble

Basics:

Follow your Heart and Embrace Opportunity

By Anna Maria Valenzuela

By David Ginsborg U.S. Financial Markets: What, Me Worry?

Features:

Tom K. Wilson’s Real Estate Success Story

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By Jeffrey B. Hare, Attorney at Law Technology, Closing, Strategy… Everything Matters!

Contents

Summer Reading For Success: REI Voice Book Picks

By Lori Greymont What will Market Disruptions Mean for Real Estate?

19 41 36

By Carole Rodoni One-Stop Shopping with Integrity: Pam Blanco’s Professional Asset Management & Sales Delivers

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By Michael Grigelevich

Calendar Investor Resources Coach’s Corner Affliate Members www.reivoice.com

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24 44 46 3

Rei Voice Magazine April| 2015 Outgoing Publisher Geraldine Barry PUBLISHER LORI GREYMONT 408.782.9162 lori@sjrei.org EditoR Michael Grigelevich michael@reivoice.com Director of Design Bach Pho Bachpho@yahoo.com Contributing Writer Hannah Ash Photographer Tiago Moules 408.763.0083 Advertising Sales Dan Noble 408.269.9777 dan@sjrei.org Affiliate Membership Sales Mark Gagner mark@sjrei.org Production Manager Loraine Cruz 408.782.9162 Loraine@sjrei.org

REI VOICE™ Magazine A Publication of SJREI Association™ Reproduction or use of any editorial or graphic is prohibited. To request reprints or reprint rights, contact info@REIVoice.com.

REI Voice Magazine www.REIVoice.com 408.782.9162

publisher’s

note A

s you all know, it’s been an eventful 2015 for both myself and the association. It’s certainly been a time of transition and has opened up wonderful opportunities for myself and our members. As I reflect on how much life can open up for all of us, I’m reminded of the other side, which is how quickly life can be lost. In this regard, I would like to dedicate this issue to David Dunnivan, my dear friend and former employee, who recently lost his battle with lung cancer. David was a pastor, friend, and teacher, and he will be missed by all who knew and loved him. In his spirit and name, I would like to urge all of you to make decisions today and take action; don’t wait for your life to start, because it may be too late. You never when something will come along that changes your life forever, be it positive or negative, so let go of fear and be alive! Fear blocks us from achievement, but it doesn’t have to -- please recognize that fear is a normal part of existence, and it can even be used for motivation.

David Dunnivan In many ways, this issue honors risk-takers and big thinkers, people who made decisions and boldly followed them. We talk with Tom K. Wilson about his journey from the high tech world to mastering several modes of real estate; Dr. Christopher Thornberg, known for accurately predicting the downturn in housing, shares his analysis of the current economic market; our regular, forwardthinking contributors also bring their unique commentaries and visions to share with all of you. We have skilled analysis, as always, as well as some more personal pieces mixed in for good measure. I’m excited to share this issue with you, and I am sure you will take away useful lessons from it.

I like to think of this magazine as a utility: in it you will find items that can help you make decisions that will shape your life. Maybe it’s making a call to look into that investment opportunity you’ve wondered about; maybe it’s deciding to diversify your personal portfolio; maybe it’s a small decision that can lead to a bigger one, like simply thinking positively (you never know how many doors this will open). The main point that I want to drive home is this: take some type of action, whether big or small.

As I look forward, I’m committed to leading SJREI and REI Voice in a positive, useful direction. Being of value is one of the most important things we can offer others in this life. As such, our goals remain the same, which is to bring all of you the quality of content and resources you’ve come to depend on and expect from us. The future looks promising!

Lori

SJREI Association and REI Voice Magazine make no representations or warranties regarding the content, accuracy, or validity of the advertisements or of the articles contained herein. All persons should exercise due diligence and consult with legal and tax professionals before making any investment decisions.

Copyright

© 2015 SJREI Association.

All rights reserved.

July 2015 REI Voice

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Advice

The 10 Types of Notices for Every Landlord

Lucas Hall is the Chief Landlordologist at Cozy, which offers free online rent collection and tenant screening tools, and is the founder of Landlordology. cozy.co | landlordology.com

by Lucas Hall

Y

ou’d be amazed at the stories I’ve heard from fellow landlords over the past two years of running Landlordology.

From the dirty cat lady to the lucrative traveling tenant who is rarely home, but never misses a rent payment. From meth labs to prohibited subletters, a landlord has to be ready for anything

My 7 Cardinal Rules The good news is there are really only seven “Cardinal Rules” for successful property management (in my opinion): 1.

2.

3.

4.

5.

6.

7.

Screen well and don’t discriminate.

Make rent payments easy and automatic.

Have a rock-solid lease and stick to it.

Always give proper notice before entering.

Be fair, honest, and make timely repairs.

Know how and when to use “notices.”

Only withhold the deposit for actual, itemized damages (material or financial).

Obviously, property management is more complicated and involved than these seven rules, but following them will put you above 99.9% of other managers and help to ensure your success.

In this article, I’m going to review rule six – knowing how and when to use the different types of notices.

The 10 Different Types of Notices The industry best practice is to send a formal notice via Certified Mail/Return Receipt Requested, via the US Postal Service. Certified mail is the only proof of delivery that most courts will accept, apart from a registered server.

1. Notice to Pay or Quit “Pay up within X days, or move out because I’m terminating your lease.” (these opening quotes for each section were set off and centered in his original blog post and it looked good. Anything like that would work -- maybe even just center and italicize them, and put in different font? Make it easy?)

When a tenant doesn’t pay rent when it’s due (plus any grace period), the landlord can send a warning notice that basically says “Pay up within X days, or move out because I’m terminating your lease.” www.reivoice.com

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This notice does not give a landlord permission to change the locks on a tenant or cut off the utilities. You would still have to go through the formal eviction process to have the unlawful tenants removed by the police.

Most states have their own rules on exactly how much notice a landlord must give a tenant. Generally, only three to five days notice is required.

2. Notice to Cure or Quit “Fix the violation within X days, or move out because I’m terminating your lease.”

If a tenant violates a condition, clause, or rule within the lease agreement, a landlord can provide them with a notice that says “Fix the violation within X days, or move out because I’m terminating your lease.”

The most common lease violations are: • • •

Unapproved subletters/roommates Unapproved pets Unapproved renovation or use of the property

If the tenant remedies the violation, then he or she can stay in the property, and the lease continues as normal.

3. Unconditional Quit Notice “Your lease is being terminated in X days because of _______.”

In the previous two notices, a tenant is allowed a specific number of days to fix the problem. With an unconditional quit notice, a tenant is not given the opportunity to stay, even if they remedy the issue.

It doesn’t forgive their sins (i.e. unpaid rent or noise violations), but it just means that they won’t be allowed to stay even if they pay up or keep quiet.

The most common situations where a landlord can serve an unconditional quit notice are: • • • •

The tenant has been late on rent more than once.

The tenant participated in a serious illegal activity (such as drug dealing) on the premises.

The tenant caused serious damage to the rental property, or damage that cannot be remedied.

The tenant has repeated the offense or violation (noise disturbances, pet hoarding, etc).

Because an unconditional quit notice is considered to be the most harsh of all the notices, not all states allow for it. Even those that do specifically restrict its use to certain situations.

Advice 4. Offer of Renewal “Your fixed-term lease is set to expire on MM/DD/YYYY, and I’m pleased to offer you a renewal.

Because most fixed-term leases don’t auto-renew (hence the point of having an end date), the landlord and tenant must sign a renewal agreement in order for the tenancy to continue.

If I want to renew a lease, I’ll notify the tenant of the offer 60-80 days before the end of their current lease. This is because I require 60 days notice of non-renewal from my tenant, so I want to make sure they have enough time to consider their options and are still able to give proper notice if they choose not to stay.

Please, please, please don’t be that landlord who requires 60 days notice of non-renewal but then doesn’t present them with a renewal offer in time – that’s just not fair.

5. Notice of Non-Renewal “Your lease or monthly rental agreement is set to expire on MM/ DD/YYYY, and a renewal will not be offered. You will be expected to vacate on or before MM/DD/YYYY.” Any time you want to terminate a daily/monthly/weekly/yearly periodic lease, you’ll need to send a notice of non-renewal. It’s also commonly called a no-cause eviction, because the landlord and tenant can terminate a periodic lease, with proper notice, at any time.

If you have a fixed-term lease, but it auto-renews, and you’d rather it not, then you should use this notice as well.

Again, every state has rules on how much notice is required for periodic leases. The amount of notice required varies from 7-60 days for a monthly lease, so be sure to check out your state laws.

6. Notice of Rent Increase “Your rent will increase to $X, an increase of X%, starting on DATE.” Raising the rent is tricky business. If you raise it too high, your tenants will leave. If you don’t raise it at all, you’ll lose money due to inflation.

If you do raise the rent, you need to send proper notice to the tenant, which is usually 30-60 days in advance, depending on your state laws.

My suggestion is reward great tenants by not raising the rent, and then make up the difference when they finally vacate.

For example, if I have an excellent tenant named Bill, who renews twice (three-year tenancy) and I don’t raise the rent 3 percent every year, I can still make up the difference (relatively), by increasing the rent 10 percent for Sookie, who moves in after Bill vacates. Bill is happy and might stay longer. Sookie is none-the-wiser, and I kept a great tenant for three years, whereas he might have moved out after one year if I had tried to raise the rent.

8. Notice of Intent to Dispose of Abandoned Personal Property.

“Come pick up your stuff, or I’m going to sell it/throw it out/put it in storage.”

Again, each state is different in how it requires landlords to deal with

the abandoned personal property of a tenant. Some states require a landlord to send a 30-day letter to the last known address. Others allow a landlord to throw out or sell the belongings immediately after the tenant has abandoned the premises.

Though I always tell my tenants to remove their “Trash AND Treasures,” selling the tenant’s abandoned fish tank can sometimes mitigate the financial damages that the tenant caused.

9. Notice of Repairs/Renovations/Outages “A contractor will be changing out the electrical panel on Friday, and the power will be out all day.”

This type of notice is often combined with the “Notice of Entry” because someone usually has to enter the property to make the repair.

If you will be cutting off essential services, such as water, electricity, or heat for more than a day, you should consider relocating the tenants to a hotel (at your expense) until the repair is complete.

Without access to essential services, a dwelling is considered uninhabitable.

10. Notice of Transfer of Ownership/Management “Effective immediately, I have transferred ownership of the property to Mr. Smith. He, or his agent, will contact you soon to provide instructions for your rent.”

When a property is sold, the lease is transferred to the new owner.

Despite what some landlords would like to believe, a lease doesn’t automatically terminate upon the sale of a property. The new owner becomes the new landlord, and the tenant is usually allowed to finish out the rest of their lease.

I rarely give the contact information of the new owner to the tenants, because, quite frankly, I don’t know if the new owner wants to be contacted. As the new owner of the property, he or she can decide if they want to be an active participant, or a silent investor.

The new owner certainly has the right to stay anonymous, and hide behind a property management company, if they choose. I leave it up to the new owner to make contact with the tenants, and to dictate how he/she wants to manage the property.

You can also use this type of notice if you change management companies.

Where to Get These Notices Though I’d love to give you my personal notices, they wouldn’t work in every state. I’ve compiled a list of my favorite vendors for legal notices. They vary greatly in price, but these links will get you started.

Please know that I DO NOT receive any revenue from these companies, nor am I affiliated with them in any way. I simply think that they each provide a great product, and I hope you find them helpful.

• • • • •

Nolo US Legal Forms EZ Landlord Forms Legal Zoom RocketLawyer July 2015 REI Voice

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Analysis

Assessor Releases Residential Market Data Confirming Silicon Valley Boom

by David Ginsborg, Deputy Assessor Special to REI Voice Magazine

J

ust weeks before the Santa Clara County Assessor’s Office determined assessed values that will serve as the basis for property taxes, the Assessor released key market trend property value data. “In every sector and every part of Santa Clara County, market values are up, and in many instances way up,” said Assessor Larry Stone. “A good example is Silicon Valley’s apartment market—it’s on fire.”

According to the assessor, vacancies in the apartment sector have declined, and rents increased ten percent in 2014. In San Jose the average rent for a two-bedroom apartment was $2,300 a month.

“Even though 8,900 apartment units were completed in 2014, and an additional 5,900 were under construction with permits issued for 2,650 more units, the supply is simply not keeping up with demand,” said Stone. Apartment occupancy for Silicon Valley stands at 97 percent. “It should come as no surprise that San Jose was listed by Multifamily Executive Magazine as the number one apartment ‘boomtown’ in the U.S.” “The demand is driven by job growth, and Silicon Valley is at the epicenter of the nation’s recovery,” said Stone. According to Joint Venture Silicon Valley’s 2015 Annual Index, Silicon Valley added 58,000 jobs in 2014, following 44,000 jobs in 2013.

California added 471,000 jobs in 2014, a growth rate of 3.1 percent.

The market data for single-family and condominiums released by the Assessor’s Office mirrors explosive increases in the multifamily sector. For the first time in years, every city in Santa Clara County experienced a year-over-year increase in market values. According to Stone, the median price of single family homes in Santa Clara County increased 11.1 percent to $810,000 last year, yet the average price was dramatically higher, topping out at a record $1.1 million.

“What that means is a lot of expensive homes are being purchased by newly wealthy, tech workers,” said Stone.

www.reivoice.com

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The Assessor’s detailed market value data focuses primarily on the residential market. The data is used to determine the assessed value of all residential property, including the status of 36,000 residential and 2,000 commercial properties in which the assessment was reduced during the prior year, reflecting the steep decline in property values during the Great Recession.

“By providing this information to the public prior to the close of the assessment roll, we hope to inform homeowners about changing market conditions in their areas, and prepare them for potential increases in assessed values and property taxes,” said Stone. The data is broken down by 25 geographic areas, primarily following elementary school district boundaries. “The one predictable value indicator for single-family residential property in Silicon Valley is schools. Neighborhoods with excellent schools experienced fewer declines in market value during the recession.

These same neighborhoods have experienced greater increases in market value during the recovery,” added Stone.

The Assessor’s Office tracks all property sales transactions on a monthly basis, and calculates the average median sales price within each neighborhood.

The changes are used to determine a s s e s s m e n t adjustments based on the sales of comparable properties. “I want to stress that this information is only one indicator, albeit an important one, used by the Assessor’s Office to determine changes in the marketplace. However, they are NOT a direct indicator of increases in assessed values. Many other factors—such as location, school district, quality, age, and number of bedrooms—impact property values,” Stone said.

Detailed charts and maps of each area are available online at https://www.sccAssessor.org/index.php/median-sales-price-2015, or upon request.

Analysis Every area recorded increases from the prior year, and a majority of the properties experienced double-digit increases, reflecting the strength of the local economy.

Mountain View, Cupertino and Palo Alto surged more than 40 percent above 2008 levels (see chart below).

Nevertheless, the Assessor noted that 23,000 properties remain assessed below their base year purchase price, consistent with the provisions of Proposition 8. When the market value of a property declines below the previously established assessed value measured as of January 1 each year (lien date), the Assessor is required to proactively reduce the assessed value to reflect the lower market value. Communities like Gilroy and portions of San Jose (like Alum Rock) were the hardest hit by the recession, and the recovery has been slow. In these communities, market values remain below 2007.

“Unfortunately, the depth of the recession was so severe that even the current ‘red-hot’ residential market hasn’t been strong enough to restore all value lost during the downturn,” said Stone. Onethird of the 5,700 properties in Gilroy that were in a declined status in 2012 remain assessed below their purchase price. In San Jose, the assessed value of 19 percent (over 14,000 properties) remain in a decline status.

In stark contrast, few properties in the “high-end” communities are assessed below their purchase price. Consistent with the explosive growth in the northern part of the Santa Clara County, today nearly all homes in Sunnyvale, for example, are assessed at their Proposition 13 levels. By contrast, approximately 16 percent of homes in Gilroy remain below their purchase price. Between the current boom and the end of the last boom (between 2007 and 2014), the market value of properties in the cities of Los Altos,

Passed by California voters in November 1978, Proposition 8 provides that property owners are entitled to the lower of the fair market value of their property (as of January 1, 2015), or the base year value as determined at the time of purchase or construction, and increased in accordance with Proposition 13 by no more than two percent annually. Extensive information about Proposition 8 is available on the Assessor’s website: https://www. sccAssessor.org/index.php/online-services/decline-in-value/ prop-8-information.

For the nearly 400,000 other residential properties, the assessed values will increase by 1.998 percent, the California Consumer Price Index (CPI) for the 2015-2016 property tax roll. This is the maximum amount allowed by Proposition 13, which limits the increase of a property’s assessed value to the lesser of two percent or the California CPI. During four of the last six years, the CPI has been below two percent, and in 2010-2011 the CPI was actually negative.

On June 26, the Assessor mailed 483,000 assessment notices to every property owner in Santa Clara County, informing them of their 2015 assessed value, which is the basis for their property tax bill. “Santa Clara County is one of only ten counties in California to provide this early notice. Most property owners in California learn their assessed value for the first time when they receive their tax bill in October,” said Stone.

(Cont. on page 13) July 2015 REI Voice

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Advice

FREE Legal Advice Jeffrey B. Hare, Attorney at Law, provides outcome-oriented legal services to real estate investors, commercial and residential property owners, and real estate developers. As a real estate attorney with over 25 years’ experience in real estate and business transactions, Mr. Hare provides his clients with a practical, cost-effective approach to solving complex legal issues, including due diligence, contract review, and negotiations. He also has extensive experience with entity formation (LLCs, etc.), and is very familiar with the use of self-directed IRAs for alternative investments such as real estate.

by Jeffrey B. Hare, Attorney at Law

F

ree legal advice is worth what you pay for it. You’ve heard it many times – at presentations, seminars, workshops – “Be sure to speak to your lawyer,” or “Seek legal counsel before signing the document.”

People who attend real estate workshops, mentoring programs, and seminars are almost always cautioned to consult with a lawyer. Real estate transaction forms contain boldface provisions that demand you seek legal counsel. There is no lack of advice about getting legal advice. So, why do most investors refuse to follow this advice until it’s too late?

There are several possible explanations. First and foremost, human beings are not necessarily rational creatures. How many people seek qualified medical advice before they get sick? How many investors consult with a tax specialist before they structure a deal?

How many people take their car to their mechanic for a thorough check up before leaving for a long road trip? The answer is clear: very few. Why? If it ain’t broke, why pay to have it fixed? It costs money. It takes time. Worst of all, you may find out something you didn’t want to hear!

Seeking legal advice before you do a deal is no different. It takes time and effort to find the right lawyer and schedule an appointment.

Asking your brother-in-law who specializes in DUI defense cases about a real estate transaction is probably not the best approach, but neither is trying to set up an appointment with a senior partner at a major law firm that specializes in corporate mergers and acquisitions. It is highly unlikely that the advice you get in either case would be relevant to your situation.

Another reason people don’t seek legal advice in advance of a crisis is a misperception about the cost. Lawyers charge anywhere from around $300 to $600 per hour for their time, which is very similar to rates charged by tax, financial planning, and other similar professionals. In the early stages of a transaction, the investor is easily overwhelmed with documents and information, and typically has no idea what questions they need to ask a lawyer, let alone any realistic concept of what the lawyer would need to see in order to provide useful legal advice. In many cases, the investor is trying to be very careful about not wasting any more money; after all, they just paid $3,000 to attend a 3-day investment boot camp and another $10,000 for a mentoring program, and they’re itching to start investing, not spend more money for advice!

Of course, a rational view of the situation would quickly reveal that spending $1,000 for two or three hours of a lawyer’s time to review the situation and the documents might actually SAVE the investor at least that much by helping the investor avoid mistakes that would cost several times that amount. What if spending $1,000 ended up saving you from losing $250,000 in a bad deal? But, as we noted, human beings are not rational. Taking the car to the mechanic before a long road trip is a rational idea, but the car’s running fine, and you plan to bring it in for that long, overdue oil change as soon as you get back anyway. Besides, you’re just too busy. It’s so much easier to rationalize than to act rational!

Yet another reason that people don’t seek legal advice before a crisis strikes is a general lack of knowledge about how lawyers work. A common complaint sounds like this: “I asked my lawyer to review the paperwork and let me know whether or not it was a good deal, and all he said was ‘It depends,’ and charged me $1,000.” Or worse, the investor ends up being more confused about the deal than before going to the lawyer. “I asked my lawyer if he thought the documents were sufficient, and now I’m more confused than ever.” Inevitably, there is a looming deadline to make a decision.

The investor is frustrated, stressed out, and $1,000 poorer.

It is important to understand that “legal advice” is not a magical panacea for all that can go wrong, or a guarantee that nothing will go wrong. Yogi Berra once said that “making predictions is hard, especially about the future.” A lawyer cannot predict the future any better than the crazy lady with all the candles and incense in the dark tent at the county fair. So, what is legal advice, and why is it essential? If it’s not going to prevent catastrophe or guarantee that you will recover your investment funds, why pay good money for it to start with?

www.reivoice.com

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Advice Why is there such a common disconnect between the services clients expect to get and what lawyers can provide? First, different lawyers have different practice areas and specialties. Some lawyers specialize in criminal law, defending individuals charged with DUIs and other criminal offenses. Others practice in the area of civil law, but this covers a wide range of topics. Some handle corporate matters, whereas others specialize in family law issues, others focus on personal injury or “tort” cases, and others handle trusts and estate planning matters. Another distinction is between lawyers, sometimes known as “trial lawyers” or “litigators,” whose practice arena revolves around the courtroom. Others, sometimes known as “transactional” lawyers, help clients set up or buy and sell businesses, obtain patents, negotiate and write contracts.

Which type of lawyer should you go to if you have an issue involving a real estate investment? Well, it depends. It depends on the nature of the problem you are trying to solve within the context of a real estate matter. Are you trying to set up an entity, such as a limited liability company (LLC) with your investment partners?

Or are you trying to resolve a dispute over whether the buyer or seller should pay for the newly discovered crack in the foundation?

Are you trying to evict a tenant in one of your rental properties who refuses to pay rent or leave the premises, or are you facing prosecution for code violations because it turns out your newly remodeled duplex is in an area zoned for single family residences?

Are you in a dispute with a lumber company who wasn’t paid by the guy you thought was a licensed contractor, or you just got word that one of your tenants was severely injured when a second floor balcony collapsed?

The range of legal issues that arise in the context of real estate is extremely broad and varied.

All of these situations can be classified as “risks.” In the context of real estate investing, risk is anything that reduces your profit. Risk cannot be eliminated, but it can be managed. Smooth-talking real estate investment gurus trying to sell you on the benefits of certain investment programs tend to minimize the part where they discuss risk, or try to convince you that their business model – unlike the others – is “risk free.” When someone tries to tell you that a certain real estate investment strategy is “risk free,” think “snake oil.” There’s no such thing! And that is why you should consider talking to a qualified real estate lawyer before you write that investment check!

Sure, it is understandable that when a new investor is very excited about a particular strategy they just spent a few thousand dollars to learn about, the last thing they want to hear is all the things that can go wrong! But if they get a good understanding what can go wrong, the smart investor can take reasonable, logical steps to minimize the degree of risk involved. Because most experienced lawyers have seen what happens when thing go wrong, they usually have some good advice about how to avoid these situations, or at least minimize the degree of damage that can occur. You may end up changing your mind and decide not to go forward with the deal, or you may buy some additional insurance, modify the contract terms, and jump in. Either way, you will have taken a rational and intelligent step to minimize your risk, and if that means you avoided losing hundreds of thousands of dollars, spending a few bucks to learn how to do that may turn out to be the best return on any investment you will ever make!

The takeaways: (1) Consult with an experienced lawyer who can provide you with practical and relevant legal advice. (2) Be prepared to pay for that advice – it’ll be worth it. (3) You can manage, but not eliminate, risk.

Analysis

David Ginsborg (Cont. from page 9)

In addition to the assessed value, the notice details the process for requesting an informal review of their assessment. The Assessor’s Office completes as many informal reviews as possible prior to August 1, the deadline for making changes that will be reflected on the property tax bill. “This is an opportunity for realtors to reconnect

encourage property owners to review the information provided free of charge online, and if they still have questions to contact a realtor. We do a great job, but we’re not perfect, which is why we’ve created a simple way for property owners to request an informal review.” Property owners may request an informal review online at https://www.sccAssessor.org/index.php/online-services/declinein-value/decline-in-value-request.

The notice provides important information about the process for filing a formal assessment appeal. The deadline to file a formal appeal is September 15, 2015 deadline and additional information is available at http://www.sccgov.org/sites/bos/cob/AssessmentAppeals/Pages/default.aspx.

Larry Stone

with property owners who might be interested in validating the comparables used to determine their assessment,” noted Stone. “I

Also available online is the market and Proposition 8 assessed values broken down by city, school district and property type contained in a table comparing the average of the median sales price-per-square-foot for the two months prior to the lien date (January 1) and the month of January for lien date 2008 through lien date 2015 for each of the 25 geographic regions. The information is available at https://www.sccAssessor.org/index. php/online-services/whats-new/item/420-silicon-valleys-risingeconomic-tide-for-3-year.

TAKING CARE OF BUSINESS

Owning your own business is a dream;

HARD MONEY LOANS MADE EASY! Fix & Flip or Buy & Hold CONTACT:

JOHN CITRIGNO

(800) 951-9501 john@ciriuscapital.com CA BUREAU OF REAL ESTATE – REAL ESTATE BROKER #00526596

MEMBER SJREI SINCE 2007

running one is hard work. You need an investment plan that addresses every stage of your business life cycle, from opeing your doors to selling the company when it’s time to head into retirement.

I can provide the financial guidance you need to help meet important business and personal objectives, and give you the freedom to focus on what matters most.

Call today 408-871-1414 for more information or to schedule a consultation.

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MoBIUS Financial Network

Independence Powered by LPL Financial

Niki Canotas is a registered representative with, and securities offered through LPL Financial, Member FINRA/SIPC.

www.MoBIUSFinancial.Net

info@MoBIUSFinancial.net July 2015 REI Voice

13

Advice

Technology, Closing, Strategy…

Everything Matters!

Geraldine Barry,

Real Estate Commentator & Investor

Technology Technology is rapidly advancing the real estate sphere; the news last year of Google and Auction.com partnering just confirmed this. From online listings to virtual house hunting, technology puts the world at our fingertips in the form of our smart phones. For real estate agents, this means they need to be as savvy as possible to land listings and sales. Social media such as Facebook and Instagram are game changers and online searches are becoming more and more common. Let’s take a look at more game-changing technologies that are shaping the industry.

the internet – so too are Goji Smart Locks. As more and more appliances and devices are connected the process of figuring out a fixtures origins for valuation, repair or replacement stands to get a whole lot easier.

It’s exciting to think of how technology will continue to rapidly change our industry in the next few years, and who knows how quickly new technology will evolve over the next 10 years. For investors, big data can lend a real edge while making the process easier for all parties.

Big Data Big data yields big results. When the power of technology merges with the power of statistics, the results are impressive. Predictive reports can now be generated quickly and with ease – and stand to change the way we view markets, buyers, sellers and trends.

eSignatures Say goodbye to paper and ink. Meet your new best friend: the eSignature! The days of signing a hundred documents are over thanks to new technology from innovators such as Reesio and Docusign. A big plus of virtual signing means documents are stored in a more efficient and safe manner, and make it very convenient for the consumer.

Closing

3D Environments

Don’t Run Through the Walkthrough

Floored.com is exploring 3D environments and soon many more websites will follow. For the real estate industry, 3D technology just makes sense. Buyers want a more fluid experience from the convenience of their couches or wherever they happen to be.

Not a home inspection – but not insignificant either, the final walkthrough is an important step in the buying process. The saying “it’s all in the details” rings true here: there are several key details you don’t want to step over when you’re taking your last walk before owning said property. The final walkthrough typically happens anywhere between several days and several hours before you close and though it happens so close to closing, it’s still very important. The goal, no expensive surprises after the closing.

Beacon Technology Beacon technology is frequently used by stores to alert customers about specials, products of interest and of their location. It’s safe to say that sooner rather than later an app will be unveiled that alerts prospective buyers of a potential property of interest! Previously big corporations reigned supreme – now the consumer is in the driving seat with information at their fingertips.

Internet of Things As retailers begin to embrace the Internet of Things, homes and appliances are too. Nest Protect smoke alarms are connected to www.reivoice.com

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Final walkthroughs are your time to ensure that: 1. You are satisfied with the condition of the property 2. You understand fully what you are getting 3. That repair requests were indeed fulfilled and that your property is in the condition you expect it to be. Don’t take things at face value – be sure to see for yourself that things are indeed in order.

Bottom line? Don’t walk too fast in a hurry to get to your close.

Advice

Geraldine Barry

What to do during your next final walkthrough

Your Investing Strategy

Buying a vacant home? When a home sits vacant, as you know, additional issues may arise. Find out if you’re in for a broken pipe or other problems ahead of time by performing being detailed oriented and being complete in your inspections, essentially knowing what to look for prior to finalizing the purchase. When a home is occupied, you may not have had the opportunity to spend much time in the house. Focus, stay involved, and head off problems before you buy. Here’s a checklist outlining what you should do when you’re buying an occupied or vacant home:

“By failing to prepare, you are preparing to fail.”

•

Stake out electrical issues and try out every single light fixture in the home. Ensure all is in working order.

•

Test out the appliances! Run the dishwasher, plug in the refrigerator, try out the air conditioning. Don’t take things at face value.

•

If the house comes with garage door openers, make sure they actually open.

•

Flush the toilets (all of them). This may seem too easy but you don’t want to miss a potential plumbing problem.

•

Open the doors and close them. Make sure they do what they’re supposed to do.

•

If the house has a garbage disposal, try it out to make sure it actually works.

•

Flick on the exhaust fans – this one may surprise you.

•

Warm up a bit: Test out the heating to make sure you won’t get left out in the cold.

•

Open up all of the homes’ windows and then close them to ensure they are in working order.

•

Visual inspection: Is all of the trash remove from the home?

Do you see anything glaring that you may have missed?

•

Consider: paying it forward and asking for the seller’s forwarding address to send any loose mail that may come your way.

~Benjamin Franklin Real estate investing, like any entrepreneurial endeavor, is a serious business. It’s important to treat it as you would any other business. Though the approach is different, the optimal end result is the same: profit. To profit from any endeavor, it’s key to develop a business plan that details what you need, what you have and what you hope to achieve. Set goals for yourself: one year, three, year and ten year goals. Your business plan should set you on your path to success. Let’s take a look at the basics for crafting your real estate investing business plan.

Step One: Your Mission Statement What, exactly, do you do? What do you aim to do? Your mission statement needs to address these two pressing questions. It helps you better define your work, and gives you clarity and vision.

Write your purpose. Outline your gameplan to investing. What makes you, and your investing, unique? Get it all out. Look at other mission statements to get a better idea of what you want to sum up for your own.

Step Two: Your Goals This is exciting. Clearly define your goals. What do you want your business to look like in one year? What about ten? Be realistic but don’t set the bar too low. Plan with healthy doses of both caution and optimism. Start small and then dream big. Your goals may change as your business evolves but getting them out now will set you in the right direction, regardless of where you end up.

Step Three: Your Strategy…

What is your strategy? Put it into words so that it’s easy to grasp.

Are you buying subjective to existing financing? Are you investing in commercial, multi-units or lease options? As you plan and write, you may find ways to improve upon your strategy or discover things you didn’t realize you were doing (both right and wrong). Don’t skip over this important component of the business plan. Is your strategy temporary so that you can progress to the next one or are you a buy and hold investor who plans to stay that way? Get specific – the details count.

The above three steps are crucial for crafting a business plan that serves you well, regardless of the economic climate. Other elements to consider include, but not limited to: exit strategy; time frames; steps to profit on deals; financing info; financing, exit strategy, and backup plans.

July 2015 REI Voice

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Should you Join a Local REIA? ABSOLUTELY

Your Success may Depend on it!

By Michael Grigelevich The real estate industry can be overwhelming. The vast amount of free information online can potentially tax the most discerning minds. Newcomers may be bombarded by the advice and informational exchanges hurled around online forums, virtual group meetups, and investment sites. Many gurus, holding followers at a digital arm’s length, offer failsafe methods for financial success, but can they always be trusted? Performing due diligence certainly proves more challenging in a time when face to face meetings are rapidly receding into the past. Thankfully, many real estate insiders and general entrepreneurs, such as Gary Vaynerchuk, predict that business practices will look to the past for guidance, creating a smaller, tighter network built around trusted relationships with associates you see face to face. For these reasons, it’s time to investigate one of the industry’s most trusted tools: local Real Estate Investors Associations (REIAs).

Many think, erroneously, that local REIAs cater to industry neophytes. Nothing could be further from the truth. The goals of these organizations are, in fact, applicable to all investors, even the most experienced ones. Put simply, they strive to create a safe space where investors can build lasting relationships, increase their knowledge, and maximize success over time. Let’s take a look at some of the finer points and discuss the many benefits of joining a local REIA. It’s no secret that the real estate industry can be defined by ups and downs, big successes and, unfortunately, sometimes even bigger failures. Like any industry where significant amounts of time, money, and labor intertwine to form the foundation of the process, real estate can be a risky proposition. It doesn’t help things along when, perhaps more than any other field, real estate is chock full of self-styled/proclaimed experts and, at times, education is not a prerequisite to get a career started. In other words, anyone with a little startup cash and basic connections can stumble into real estate, but not everyone can succeed. It takes the right amount of education, experience, guidance, opportunities, and leadership to build the framework for a sturdy, profitable career. Thankfully, local REIAs can deliver all of these things and more. www.reivoice.com

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Overall, an educated investor has a better chance for success. For this reason, every local REIA will have some educational program in place for its members, which usually takes shape in a formal series of ethically and diligently chosen guest speakers. Depending on financial resources, speakers can range from local industry insiders to national figures. No matter what level the speaker is on, he or she will have valuable information and experience to share with members. Everyone has different perspectives on the industry, so the knowledge gained from a diversified group of people with proven track records will certainly be an invaluable arrow in an investor’s quiver of resources.

In addition to speakers, most organizations will offer some type of newsletter or magazine that should offer useful, practical content provided by a stable of industry experts, national or local figures from applicable fields, and knowledgeable staff writers. Having access to this material will deliver educational insights into everything one needs to know about, such as economics, political developments, personal business advice, and local market news.

Anyone in any industry recognizes that reading quality literature is one of the best and most important ways to stay apprised of current trends, changes, and best practices.

When it comes down to it, though, local REIAs offer the most indispensable resource: people. The crucial importance of longterm face to face interactions with people fully invested in the same industry cannot be understated. Whether it’s gleaning knowledge from someone else’s personal experiences, building a solid business network, or finding a valuable, trusted mentor, these types of quality personal interactions cannot happen anywhere else. You can learn vicariously through the experiences of others.

In fact, your interactions with members can even lead to lucrative relationships with important local and national industry figures, such as partnerships with big box retail outlets and related businesses, local political affiliations, and, above all, a reliable group of people who can help guide one through his or her real estate career with an eye toward the best investments. Undeniably, these opportunities cannot be found online; they must take place in the physical world.

(Cont. on page 44)

Basics

Follow your Heart and Embrace Opportunity

by Anna Maria Valenzuela

A

s a local Real Estate professional and relocation specialist, I have the opportunity to keep my finger on the pulse of the housing market every day. I love working with sellers and buyers, and I also enjoy working with high tech employees as they make their transition to the Bay Area. The process can be overwhelming, and it helps to have a guide that knows the area; after all, I’ve lived in Silicon Valley for more than 30 years! It is definitely a great time to be in real estate.

I still remember when the mortgage industry experienced the greatest meltdown, and, as a result, a virtually catastrophic market crash in 2008. While we are still recovering in many ways, as I navigate through the market, there is a true glimpse of joy in my heart when I see that our reality today is completely different from what it used to be just a few years ago. Things are getting better.

Not too long ago, San Jose was named one of the fastest growing markets across the nation, and today resiliency continues to be prominent in our local economy. We are in the Silicon Valley, and we are definitely one region under God. Statistics prove that a vast majority of our baby boomers are downsizing and cashing out, while a growing cohort of Millennials are diving into the market and fulfilling the American dream. This is great news for a potentially growing market.

Open yourself to the great possibilities in real estate and in life altogether. Free yourself from anything that is contrary to your heart’s desire and you will naturally fulfill your goals.

But the real estate market and its opportunities are not limited to new homeowners, or buyers looking to move up or downsize. If you look around, you will see that the real estate market is calling out for investors, too! Options are virtually limitless, as investors can choose from a variety of opportunities, not just residential properties.

all is that the competitiveness of this market can be used to our advantage.

As a Realtor, and in my personal life, I am committed to seizing the moment each day. I invite you to do the same. Let go of doubt, hesitation, and fear. Open yourself to the great possibilities in real estate and in life altogether. Free yourself from anything that is contrary to your heart’s desire and you will naturally fulfill your goals.

Anna Maria Valenzuela

As a Silicon Valley resident for more than three decades, Anna Maria Valenzuela has the experience and local market knowledge you deserve when buying or selling your Silicon Valley home.

With over 12 years of professional real estate experience, Anna Maria also understands the complexities involved within a real estate transaction, and, most importantly, how to avoid costly mistakes.

As the past president of the Santa Clara Valley Chapter of the Women’s Council of Realtors, Anna Maria embraced the importance of leadership and building strong relationships within the community. Her passion for service is reflected in her commitment and dedication to the success of her clients.

Anna Maria is fluent in both English and Spanish. Her number one goal is making the real estate transaction a smooth and enjoyable experience from beginning to end.

Anna Maria is a proud wife, mother of three boys and one girl, grandmother of two little girls, and a soon to be baby boy.

Anna Maria’s services always carry her very own signature of excellence!

Truth is, not everyone strives for homeownership. For some it might be a lack of ambition, fear, lack of funds, or bad credit. For others, it may simply be skepticism after the unforgettable 2008 market crash.

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Advice

Real Estate: Not a Spectator Sport A look at the most consistently reliable investment of all time

by Dan Noble Director of Investor Relations Summit Assets Group

I’ve worked exclusively with people, their money and my money throughout my life. If real estate is a game, and it is, I’m something of a coach. Over the course of my career, I’ve found people are more likely to let their life be determined by money instead of controlling their money as a way to provide life options. If there is one thing I want you to take away from my article, it’s this: “Money always moves to where it’s treated best-Do nothing & you will lose it” Let me illustrate. If you need more money than you currently have, and you’re struggling to get it, your life ends up being controlled by that need for money. In this all too common picture, you don’t control money: money controls you. I say it’s time for a brand new mantra, especially as you plan for retirement: “Hesitate & the opportunity will be lost.”

The way we invest is changing. Over the past three years, I’ve been noticing something new happening. There is a whole bunch of smart money held by private investors and groups who are looking for variety. It’s not the same “buy a house from a realtor and rent it out” pattern that it used to be. It’s a private game and many are getting into it. And you know what? This game is a win-win.

What makes right now different? First, income and employment continue to be on the rise. Smart liquid cash is more and more available. Interactive geospatial technology is advancing. There’s a real lack of typical bank and credit options (as we all know, only the best of the best end up with the traditional loan). Frankly, individuals and businesses today are starving for, and chasing, immediate and long term profits.

Immediate and long term profits. For over thirty years, you could make a choice: one or the other. You simply couldn’t have your cake and eat it, too (income plus appreciation). Now, the investing world is getting downright crowded with investors doing just this.

If you think you’re too late to the game, think again. It’s not too late to get in the game. Do, however, remember your mantra: “Hesitate & the opportunity will be lost.”

A Look at the Field: Real Estate Matters Just how much does real estate impact the American economy?

Truth is, real estate is larger than all investments in the stock market combined. Consider this: it’s a $54 trillion industry used by both individuals and businesses to create wealth.

Today, America’s real estate industry creates or supports approximately 9 million jobs:

1. The construction industry includes 1.6 million self-employed and 6.7 million wage and salary jobs; 2. U.S. commercial real estate is worth approximately $5 trillion, including 4 billion sq. ft. of office space; 13 billion sq. ft. of industrial property; almost 9.5 billion sq. ft. of shopping center space; 4.4 million hotel rooms; and 33 million sq. ft. of rental apartment space.

3. In 1900, 75 percent of urban Americans lived in rented apartments or flats. In contrast, U.S. home ownership in 2006 reached a record high of 68 percent. Housing accounts for about 15 percent of gross domestic product (GDP) in a typical year.

4. In 2006, U.S. shopping centers generated $2.25 trillion in sales, and $124 billion in state sales tax revenues.

5. The nation’s multifamily housing market provides homes for over 23 million households.

6. There were approximately 200 publicly traded real estate investment trusts (REITs) in the U.S. with a total equity market capitalization of $312 billion (as of Dec. 2007). Tens of thousands of individual investors own shares of REITs. 7. Spending by resident and international travelers in the U.S. averages $1.9 billion a day. One out of every seven Americans is directly or indirectly employed in the lodging and tourism industries. from <http://rer.org/media/statistics_about_the_real_estate_industry.aspx>

Get in the Game and Out of the Stands If you want to control money to create options for you, instead of having money control your options, you’ve got to swing the bat.

If you’ve been working hard all your life, now is the time to create true financial freedom with real estate Why Now •

Individually owned real estate is priced now as it was in 2003

•

The private market (not the traditional real estate agent model) is brimming with easy to navigate and understand providing profitable opportunities for small to medium sized investors

•

Technology is expanding and doing far more than ever

(Cont. on page 23) July 2015 REI Voice

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Advice

Dan Noble (Cont. from page 21)

•

Tax laws favor business ownership (not employment)

•

•

Prices have been rising and will continue to do so for several more years given the scope of current economic growth

You need to find a good team to play on; playing alone without experience can mean failure

•

•

Immediate income is plentiful - so you get a return right now!

That’s better than almost anywhere else you could put your money. As property values rise, profit options improve even more.

If you don’t have enough money for reserves (6 months income recommended)

•

You have to carefully choose areas and property to buy

•

You will need to work on property when a tenant moves out before another one moves in

•

100+ more reasons (just like any other investment or business)

The Impact of Investing Now •

Lots of qualified help is available at low or no cost

•

Immediate investment return exceeding anything else available

•

You control entry, exit, asset value, profit, and market timing

•

Choose to build a small or large retirement portfolio using retirement savings if advantageous

•

Owning real estate is a business which could save tax dollars going to IRS.

The Best Window Doing this now will allow you to take advantage of rising income, appreciating of asset values, and you’ll face less competition than a few months or years from now - meaning far better opportunities.

Drawbacks & Considerations •

It will cost you an extra 2-5 hours a week to run your business

•

You have to plan it: Entry (how to get in), Management (of the asset), Exit strategy

•

Toilets get clogged, roofs lead, tenants must be replaced, you have more paperwork

Countless people began their real estate businesses with no money, no experience, no contacts and no clue how to get started.

Despite that, they do it anyway and succeed. Will that be you?

I don’t know what your character is, your ethics, your desire or motivation, but I will tell you this: whatever it takes to get to that place in life where you have all you need for a satisfying and comfortable retirement, and where plenty of passive income is flowing your way, is priceless and a game well worth playing.

As you look back on what it took to get there, you notice the only real price you had to pay was this: Taking Your First Swing at the Ball!

It has been my joy to look back at all those I’ve helped, mentored, coached, or counseled over my career.

It wasn’t always pretty, but it was always worth it to work with those who were willing to take the important steps to get the job done.

So, what do you say? Come join us: our team is winning and we’re still welcoming new players!

July 2015 REI Voice

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July

October

July 9:

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October 8 :

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November

August August 6 :

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September September 3:

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SJREI Monthly Meeting- William Bronchick Domain Hotel Sunnyvale @ 7PM September 5: William Bronchick Workshop

November 5: SJREI Monthly Meeting- Kathy Fettke Domain Hotel Sunnyvale @ 7PM

December December TBA :

Members Holiday Party

Visit www.SJREI.org for updated information

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From High Tech to High Rewards:

Tom K. Wilson’s Real Estate Success Story

by Michael Grigelevich

W

hen it comes to real estate, Tom K. Wilson, the CEO/founder of Wilson Investment Properties, Inc., is equal parts analyst and pragmatist. In his former life, Wilson worked as an engineer in Silicon Valley, climbing his way to management roles in various aspects of the high tech industry, overseeing everything from factory lines to sales; these experiences taught him the importance of data analysis and numbers, skills that he transferred to the world of real estate.

These experiences also taught him the pragmatic side of things: sometimes you have to step back and ask, quite simply, “does this make sense? Will this work?” Data-driven strategy plays a key role in Wilson’s business, but so does common sense. These skills blended together to drive his real estate career down a path of incredible success (he’s bought and sold over $120 million in real estate); in fact, he left the tech world for good in 1999 to become a full time investor.

Today, Wilson Investment Properties, Inc. stands as a top-tier business that offers investors high quality products chosen according to a strict set of standards, such as location, price, and rent ratio. These properties are fully rehabbed and professional management is secured. Wilson Investment Properties, Inc. also prides itself on full transparency and goes above and beyond to provide potential investors with all the key information they need to know right on their website..

I recently had the opportunity to speak with Wilson about his beginnings, success strategies, and recommendations for investors.

What follows is a inspirational story of success peppered by Wilson’s down-to-earth demeanor and genuine desire to share his knowledge with anyone interested in real estate.

BEGINNINGS: FROM HIGH TECH TO REAL ESTATE In the late 1960s, a young Tom K. Wilson arrived in California to start his engineering career. He rented his first house and lived next to his landlord, who Wilson later learned owned half the street.

www.reivoice.com

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He describes this as his first “A-ha moment” in real estate, and he began investing in rental properties in the 1970s, buying about a house a year.

With his feet firmly planted in both the high tech and real estate industries, Wilson confesses that he made an early mistake: he confused investing with landlording. Managing his investment properties simply came with too many headaches. He also wasn’t seeing as much cash flow as he hoped. He knew he needed to make a change, so he turned to his primary career in tech for help.

During his time in Silicon Valley’s high tech industry, Wilson accrued 30 years of management experience and even co-founded two startup companies. Here he earned valuable skills such as sensitivity analysis, where one looks at independent variables and moves them around to see the different effects yielded from the process. He spent a lot of time thinking about how skill sets can be transferred from one industry to others. In fact, he offers that “most people undervalue or underestimate their own skills,” which might lead to lack of confidence and willingness to take chances on new endeavors. Meditating on these facts drove Wilson to seek out the help of others.

A self-described observational learner, Wilson’s pragmatic side kicked in and he began meeting with successful investors to ask them everything he wanted to know. During this time, Wilson learned about out-of-state investing -- he was stunned to learn how much difference there was between rent and purchase price within the U.S. -- and the importance of building a strong team and delegating tasks.

Things came to a head for Wilson in 1998: burned out from the grind of the tech industry, he awoke and took a look at his personal real estate portfolio. Wilson was surprised to see that he basically “made more money sleeping” due to his investments than he did at his day job. At this point, the decision was obvious: he moved into real estate full time and started his path to incredible success.

Features

Tom K. Wilson

Dallas-Fort Worth had a lot going for it, due to its business-friendly more “moving parts” with a multifamily property than with houses. nature, affordable housing, and higher than average household Wilson prefers properties that are large enough to afford full time incomes. Wilson built his business holdings here and became so on site management to provide better control (unlike houses, all successful that potential investors started reaching out to him for products around 2005. They had the money and the interest, but not the time or knowledge.

Today, Wilson Investment Properties, Inc. stands as a toptier business that offers investors high quality products chosen according to a strict set of standards, such as location, price, and rent ratio. These properties are fully rehabbed and professional management is secured.

In 2006, he put things together to market rental houses for investors.

Priding himself on quality of product and full transparency, Wilson steered his company to impressive heights. At this point, he has diversified his holdings to include multifamily properties, commercial properties, and syndications. He has provided over of the tenants are close neighbors), and full time maintenance 500 investment homes to clients as well. for economy of scale efficiency. The importance of high quality STRATEGIES FOR SUCCESS: CRUNCHING THE NUMBERS property management cannot be overstated since this can often AND LEVERAGING SKILLS make or break performance.

With more than 2,500 unit transactions, and projects that include 5 syndications, 3 condo conversions, 4 commercial and 7 multifamily properties, Tom K. Wilson’s success strategies clearly work. When asked about the keys to success, he outlines a few important points, the first being analytics. When choosing the best metro, he suggests you look at not only CAP rates and rent ratios, but also current employment rates, historic growth rates, and building and absorption rates (you don’t want to buy into an area that’s overbuilding). According to Wilson, “all of these variables interact, and you have to look at all of the data together to draw good conclusions and predictions.” While data is important, Wilson says you should also ask yourself the simple questions, such as “would I want my daughter to live here?”

One common sense piece of advice that Wilson offers to those interested in multifamily properties who are doing it on their own is this: visit the property day and night, unannounced, and spend some time observing it; see who is living in your prospective property and what their behavior is. Visit the local stores; that will give you a lot more worthwhile demographic information than what you can get on the internet.

Wilson urges you not to believe broker proformas or internet statistics, since there can be significant variances with your prospective property and submarket from the regional demographics. One big advantage about investing with a company like Wilson’s is that they only offer properties that have been thoroughly researched and meet their stringent standards of He recognizes the importance of teamwork, too. Building solid, quality. trustworthy teams, he says, greatly contributed to his success both in high tech and in real estate investing. When looking for team members, Wilson said he looks for three things: integrity, attitude, With retail and industrial properties, Wilson likes businesses and experience. that mostly provide local services because it makes them

less vulnerable to internet sellers, which in turn make the He notes you can leverage the skills of others to great effect, which business more stable. The owner of a business that provides a is why he recommends surrounding yourself with people who are local service, such as a hair salon, will be more motivated to smarter and stronger in certain areas than you; after all, one of the maintain his/her livelihood and the internet can’t style hair. best lessons he learned was “how much more you can produce through delegation.” He cautions people against trying to do everything themselves, a move he describes as “a recipe for failure.” COMMERCIAL INVESTING For these reasons, Wilson Investment Properties, Inc. features a handpicked team with individual strengths that combine to best In this higher demand than supply residential market, Wilson has been diversifying and focusing more on commercial properties serve their clients. and syndications because the returns are currently better. One MULTIFAMILY INVESTING should be flexible in investing and be willing to change course with Although Wilson started with residential 1-4 properties and still the market. Right now, there are simply too many buyers chasing owns many, he has always liked multifamily properties, too, since too few residential and multifamily deals. He still likes houses and they can provide higher cash flow due to higher rent ratios. They recommends everyone have some in their portfolio, because they do, however, require much more careful selection, more due provide more liquidity and generally appreciate more; however, diligence, and excellent property management. There are many good ones are currently difficult to find.

July 2015 REI Voice

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Features When it comes to commercial properties, Wilson has his reasons for favoring them in this market over multifamily. He points out that true commercial is a different asset class with different lender terms than multifamily. Commercial includes properties such as retail, office space, industrial, self-storage, or medical centers and Wilson urges investors “not to reinvent the wheel; instead, find high-experienced teams with integrity and delegate tasks. Select teams on metros that make sense.”

Tom K. Wilson A good syndicator has access to hundreds of deals from which to select the diamonds and negotiate the best deals. They have the experience and expertise to do a high level of due diligence, and qualify for and secure the best loans. They will also have an end of project financial incentive to provide the best management of the property and syndication.

The key is to find the best syndicators. Ones with the highest integrity and experience, small enough to care about the individual investor, and experienced enough to find and manage the best have a separate class of lenders. While such properties certainly deals. Unquestionably, Wilson Investment Properties, Inc. strives come with risks, the amount of benefits should be carefully to provide this level of excellence. considered.

PARTING THOUGHTS First of all, commercial properties come with less headaches -- these properties tend to be easier to manage than scattered residential properties because of the higher credit and quality of the tenants, the longer leases with scheduled increases, and because of the triple net (NNN) leases which pass the taxes, insurance, and maintenance costs on to the tenants. This results in more predictable future expenses which in turn result in more predictable returns.

With 35 years of experience in the real estate industry, Tom K. Wilson stands as a voice of integrity and wisdom. His data-driven, strategic approach is tempered by his no-nonsense advice and willingness to help investors reach their full potential.

With retail and industrial properties, Wilson likes businesses that mostly provide local services because it makes them less vulnerable to internet sellers, which in turn make the business more stable.

The owner of a business that provides a local service, such as a hair salon, will be more motivated to maintain his/her livelihood and the internet can’t style hair. He also likes path of progress communities that are within major economic centers or MSAs (metropolitan statistical areas).

Priding himself on full transparency and quality of information and product, Wilson urges investors “not to reinvent the wheel; instead, find high-experienced teams with integrity and delegate tasks. Select teams on metros that make sense.” He also suggests that you “diversify but not so much that you create a management nightmare.”

SYNDICATIONS

“Most people undervalue or underestimate their own skills.”

All in all, Wilson stands as a solid voice of reason and integrity in a crowded industry; his words and actions serve as guideposts for anyone interested in getting into real estate.

The final item in Wilson’s preferred deals are syndications.

Simply defined, a syndication is a collection of people pooling money for a common goal. If this sounds familiar, it is because this was crowdfunding long before this was a popular word in the investment world.

Tom K. Wilson is a 5 decade real estate investing veteran who has executed over $120M and 2,500 units of real estate investment transactions, including 7 apartment buildings, 4 commercial properties, 3 condo conversion projects, 5 syndications, over 500 house flips, and has many long term hold units in his personal A good syndicator will seek out a deal, and then a group of people portfolio. After thirty years of managing some of the Silicon Valley’s will each invest a certain amount of money into the property pioneering technology companies, Mr. Wilson put his business and (Wilson usually asks for $50,000 per share). One of the benefits management experience toward full time investing. is that investors gain access to a much higher level and quality of One of his companies, Wilson Investment Properties, offers highproduct than they could on their own and they can spread their quality, high-cash flow, fully rehabbed, and leased residential and risks by distributing their investment capital into many properties. commercial properties to other investors.

Mr. Wilson is a popular speaker on real estate investing and is also a weekly host of the Real Estate Radio Live Program on KDOW 1220 am every Wednesday at 2 pm PST. He and his wife have been residents of Silicon Valley for 46 years, where they are active in their community and church. www.tomwilsonproperties.com tom@tomwilsonproperties.com 408-867-1867

Analysis

Alain Pinel STAY CALM!

General Manager of Intero Prestigio International

Hence the tension I was referring to earlier. Among agents, the air is thick with stress and mistrust. If you have a great offer, all cash, over the asking price, a short close, no contingencies, and you lose the sale to a “better” offer, it’s not uncommon to start thinking that the listing agent cheated you by trying to beat your price, or favored a co-worker, or whatever.

Crazy year in the real estate business. It is. Take my word. I have been around for a while and got to enjoy or endure good years, bad years, and everything in between. But I have never experienced the tension which is so palpable today among all the protagonists involved in a real estate transaction, whether buyers, sellers, or real So much for fraternity, trust, and respect. Suspicion is rampant. estate agents.

That’s life in the fast lane today. It’s exciting when you do well (the If you are one of the aforementioned, you probably know what I top players have never done better thanks to rising prices), and am talking about. If you are a buyer and happen to look for a home no fun when you don’t. You still need to keep smiling and write you love and can afford (rare combination), chances are you feel another offer, on another house, and give it another try. pressured to fight over a house with many other equally anxious Now you understand the title of this article: “Stay Calm!” When candidates and need to offer well over the asking price to have a the heat is on, when the pressure is mounting, it helps to be cool. chance to win the trophy.

For a while at least. Easier said than done, of course. Good idea If you are a seller and happen to own a property in one of the many to relax or meditate if it’s your thing. Yoga may help. Try reading areas in the US which are coveted by a host of potential buyers, (between offers). The other day, at a managers’ meeting, we passed you kind of assume that not only you will sell your home within around a paper from Scott Ginsberg, titled “Five Ways to be a days, but you will pocket a hefty bonus beyond the listed price. It Force of Calm in a Time of Turmoil.” That’s the type of reading to is not that unusual, these days, for bidding wars between multiple take to the beach during your Summer vacation! offers in the most desirable regions to push the price 5% to 40% No time here to tell you about the “5 ways.” Instead, I can repeat over asking. That expectation exists even if the sticker price was a few one-liners that may convince you to relieve some of the perceived to be too high to begin with. tension and reap the benefits to become more successful: If you are an agent and you do everything right, you are likely to be blamed no matter what if your magic is not powerful enough to fulfill all of your clients’ expectations. Tough. You don’t know • In times of crisis, people turn to people who are what to do. Price low to stir up wild competition? Price high to calm stay clear of lowball offers? Price at market when nobody seems to know what “market price” means anymore? Go figure.

• Those who exhibit a calm temperament are The underlying problem, of course, is the lack of listings. It is dramatic in many parts of the country. In those parts, chances are agents, buyers, and sellers will understand my comments. If, however, you live in an area where the real estate market is rather slow and multiple offers are only something to dream about, you may think that I come from another planet.

always in high demand

• Calm is what builds trust, mitigates stress, remedies confusion, and inspires followership

In the Bay Area, the part of the world where I spend most of my time, I have never seen the level of active listings so low. During Good luck. If it does not work, don’t worry too much. The market the first week of June in San Mateo County (where I reside), the will not be this way forever. As they say in Boston about the available inventory was 34% below that of the same time in 2014. weather: “if you don’t like it, wait a minute.”

And you know what? Last year was a terrible listing year! Every year, for the past 5 years, has been worse than the previous one when it comes to the number of listings. We are down 72% from the 2011 stats.

Something has to give. With properties so scarce and the demand so large, bidding wars are the norm and prices keep on escalating.

July 2015 REI Voice

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Analysis

U.S. Financial Markets: What, Me Worry?

Dr. Christopher Thornberg, PhD Contributing REI Voice Columnist, Co-founder of Beacon Economics

by Dr. Christopher Thornberg

T

here has been a lot of ‘bubble’ talk lately. Sure, there is the lunatic fringe—such as Ron Paul’s online interview about the coming crash of the U.S. currency, or Jim Rickard’s dire warnings of the impending 25-year depression conveniently laid out in a $25 hardcover book ($13.99 for the Kindle edition!). But now, a number of more conventional voices are getting into the mix. Type ‘bubble’ into Google’s news search and all sorts of stories pop up about stocks, technology, and property bubbles on the verge of popping.

I’ve been receiving a lot of inquiries about the current situation— bubble or not?!—perhaps because of my correct call regarding the fortunes of the U.S. housing and financial markets back in 2006 and 2007. That said, a lot of callers seem surprised as to how sure I am that we are not in a situation I would refer to as a bubble this time around nor is the current U.S. expansion threatened by the trends we’ve seen in asset prices in recent years.

My reasoning is founded on exactly the same logic it was in 2006 and 2007. It isn’t enough to just look at price appreciation. Rather you have to look at economic fundamentals and ask whether they line up with trends in the financial markets. If they do, there is little reason to worry—and right now they most certainly do.

I am not worried about the U.S. financial markets because: 1. Asset values are being built on actual performance, not speculation.

2. The U.S. economy is not being driven by an excess amount of financial liquidity.

3. Trends in the real and financial economy do not suggest that any sector is growing excessively.

4. In 2006 the exact opposite was true on all three counts.

Consider the first point—that prices are based on performance.

The stock market has set record high after record high over the last few years and is far above its previous peak set back in 2008 prior to the meltdown. But this by itself is not evidence of a bubble. Stock prices are determined largely by profits and interest rates. Profits www.reivoice.com

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for U.S. corporations are also at a record level—35% higher than in 2007. And interest rates are still very low—10-year bond rates are running roughly 2%. The equity earnings spread—the expected return in the stock market minus interest rates—is still quite high from a long-term perspective. None of this would suggest that the market is overvalued.

“Bank lending is growing modestly and is more than well funded by increases in deposits and investor capital. This implies that excess reserves have stayed remarkably stable. And if the banks do start to pull on these reserves, the Fed has plenty of tools to slow things down significantly in order to prevent major problems.”

A similar argument can be made for home prices. Yes, they have been rising rapidly since 2012. Home prices nationally are within a whisker of their pre-collapse peak, set back in 2007. And some sub-markets are far beyond those record prices. But this doesn’t tell us much. We have to consider what the cost of buying a house is for the average homebuyer. Incomes have been rising over the last few years—admittedly slowly—and even more importantly, mortgage rates have fallen back below 4%. When we look at housing affordability while controlling for these trends a vastly different picture emerges. Home prices have been rising (and affordability falling) but only from the record low levels hit during the worst years of the bust. From a long-term perspective homes are still very affordable—more so than at any time since the early 1990s. This is not a bubble market.

Of course this logic blows away if we consider the potential for a sharp increase in interest rates, bringing us to point two, regarding liquidity and leverage. A lot of doomsayers continue to point to Fed policy over the last few years, which has massively increased the gross monetary base through three quantitative easing (QE) programs. According to these arguments, eventually the liquidity in the system will cause massive inflation, a huge spike in interest rates, and ergo, a massive financial collapse.

Analysis It’s true the monetary base has grown by massive amounts—but almost 87% of all the cash ($2.5 trillion) pumped into the system through the three rounds of QE is stored within the Fed itself on behalf of its member banks in the form of excess reserves. This money has no impact on the money supply, interest rates, or pretty much anything else. And this is by design—previous rounds of QE in Japan and the U.S. have showed that most money goes nowhere.

“Today, the U.S. economy does not seem overheated. If anything, it is still struggling to achieve normal rates of growth.”

If the Fed wants to fight deflation, they have to go big to get enough through to the real economy.

And there is little sign that this cash is going or will go anywhere.

Bank lending is growing modestly and is more than well funded by increases in deposits and investor capital. This implies that excess reserves have stayed remarkably stable. And if the banks do start to pull on these reserves, the Fed has plenty of tools to slow things down significantly in order to prevent major problems.

In short, interest rates are low not because of Fed policy, they are low because there is a lot of capital floating around the global economy relative to demand. And with global growth slow, underfunded pensions trying to catch up on their obligations, and Chinese capital fleeing for global markets, there is little sign that this will change for some time.

Lastly there is the real economy—something that is often forgotten

U.S. Financial Markets in the high debates of finance. By themselves, asset prices going up and down have only a limited impact on the economy. The damage they typically inflict has to do with real flows within the economy that are disrupted as a result of the shift in the markets.

For example, the 2001 recession was not caused by the collapse in Nasdaq but rather the coincident collapse in business investment that occurred after the ‘New Economy’ failed to show up after years of record spending. Equivalently the ‘Great Recession’ that began in late 2007 was driven by the collapse in construction after years of excessive building and the massive string of failures on Wall Street due to the dangerous increase in leverage being carried by financial firms.

Today, the U.S. economy does not seem overheated. If anything, it is still struggling to achieve normal rates of growth. The pace of construction remains subdued, consumer spending is at a normal level relative to income, and business investment has been tracking earnings. There is no major overhang in the economy. And the same can be said for leverage as well. The U.S. economy is just pulling out of years of deleveraging in the private sector. In other words, it seems there would be no major financial or real market repercussions from a decline in asset prices.

Just remember this is 2015, and the world changes. Today’s steadyas-she-goes markets could well overshoot the mark in a couple of years. And I have little confidence that the rules put into place by Dodd Frank did much to cool the worst incentives among Wall Street barons. So it could get ugly. But not now. Today, I invest with the confidence of Alfred E. Neuman!

Christopher Thornberg, PhD, is an economist and Founding Partner of Beacon Economics LLC. Learn more at www.

BeaconEcon.com.

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Analysis

Carole Rodoni WHAT WILL MARKET DISRUPTIONS MEAN FOR REAL ESTATE?

by Carole Rodoni

A

re we experiencing bloom, doom or gloom in the economy this year?

It depends on which economy you are talking about. If you are talking about the national economy, GDP will probably end the year at about 2.6%, unemployment will be at around 5.3%, and inflation at around 1.5%. It’s not much to get excited about, and, unfortunately, it’s pretty much been the trend over the past two years. Yes, the national economy is slowly getting better thanks mostly to low interest rates and the stock market, but the numbers are still weak and one wonders if we had more than a recession and are now experiencing a structural evolution in which slow growth will now be the new norm for the national economy. So, no gloom or doom, and certainly not a bust; instead, we face a challenge going forward.

In contrast to the national economy, the San Francisco Bay Area’s economy is not only blooming but causing disruptions as to the way we will work, play and live. Thank Apple for introducing us to the smartphone, their Apple pay system that is taking on the credit card business, and the Apple watch that is a computer on your wrist. How about Uber that now has 360,000 drivers around the world and over 20,000 in just the Bay Area? They are not only taking on the taxicab industry, but they also plan to take on the auto industry. Next we have Google with the driverless car, which will certainly disrupt the auto insurance business. And how about Netflix, which is taking on the cable and movie business? Last quarter they increased their subscriber base by several million, and the statistics show that people watch Netflix, on average, for two hours a day. We are just starting with the healthcare field in

terms of digitized records and robots that can perform delicate surgical operations. In fact, the future world of artificial intelligence will open up a world new world that will impact everyone.

As to what all these disruptions do to real estate, just look at our market here: it is blooming, too. The San Francisco Bay Area real estate market appreciated 24% last year and we are on track this year for at least 10% more. Rents in San Francisco are up 10% year to date and in San Jose 13.5% year to date. Inventories in most areas are down to 1-3 months versus the average over the past years of 6 months and interest rates have remained low and even if the Fed decides to raise rates at the end of this year it will be a small bump up and the pace of future increases going forward will be measured and slow. Add to all of this that we still have a market where 23% of buyers or investors pay all cash and foreign investment will be at the highest level ever at around 23% this year. Even outer areas like Turlock, Stockton, Modesto and Ripon are showing signs of life again and the East Bay is finally on fire. In fact, according to a recent article in the San Francisco Chronicle San Francisco now has the highest per capita income in the nation. If you are in the top 95 percentile the average income is $453,000. Of course we have issues too like traffic, affordability etc... but economies still grow based on free market capitalism, less government regulation, full time employment, abundant salaries and then extras like bonuses and stock options. Here we have all that and more.

No wonder we exceed the national economy. Perhaps Washington should take a hint.

Basics

Pam Blanco One-Stop Shopping with Integrity: Pam Blanco’s Professional Asset Management & Sales Delivers

by Michael Grigelevich

I

t’s tough for real estate companies to stand out in today’s market.

Potential investors are faced with an overwhelming amount of choices, and it can be difficult to discern who will deliver on their promises. Many claim to be “one-stop” real estate services, but can you always trust them? In this crowded market, though, one name you can trust is Pam Blanco’s Professional Asset Management & Sales (PAMS), a full service real estate and property management company that serves the Dallas-Fort Worth area. What does full service mean? Well, in PAMS case, they do everything for clients, from selecting the property, closing the sale, completing any rehabs, marketing the property to renters, and, of course, providing comprehensive property management. It’s hard to find a business so comprehensive and with this level of integrity. Let’s take a closer look and see what makes PAMS uniquely successful.

Family-owned and operated, PAMS finds investors the best properties by following an airtight process. According to Pam Blanco, the president and broker for the company, her business does everything it can to ensure client success and happiness.

First, Blanco’s expert team researches properties and puts together comprehensive Return On Investment (ROI) reports based on their findings, because, as we know, you can never underestimate the importance of data. Blanco and her team take a scientific approach to their data mining. Focusing on important things like school districts and average rents, PAMS looks deeper and considers other aspects, such as whether or not a neighborhood is saturated with rentals and how long rental properties sit on the market.

When research is complete, the client gets a detailed ROI sheet, sharing with full transparency the process, as well as providing, according to Blanco: “a detailed breakdown of cash flow for both cash and financed offers. To further evaluate the property . . . we give a breakdowns of insurance, taxes, maintenance repairs, vacancy loss, HOA costs and closing costs.” These detailed reports contain the most recent information available; after all, Blanco’s staff conducts daily research. They know their market inside and out and are aware of the most current data and happenings.

Once properties pass the numbers test, PAMS sells them to investors. When the deal closes, PAMS will manage the property.

Blanco’s company holds sincere interest in their products, as their relationship with clients continues after the sale. Service offerings include a full rehab team that can handle minor or major property renovations -- a component that can be riddled with headaches for the clients, since many simply don’t have the time, know-how, or resources to deal with them. So, when clients purchase properties that require renovation, Blanco provides services from basic to major rehab, simplifying the often complex process. A complete property rehab department handles any job, large or small. Blanco makes a point to say that they will never put an investor into a situation where a property cannot perform; due diligence is key for her. However, vacancies happen and expenses arise; this is a business, after all. The unexpected can and does happen, but Blanco has the experience to handle problems and strives to make the process easy and effortless for clients. PAMS simply goes above and beyond for clients.

Speaking of going above and beyond, here’s one thing that really sets PAMS apart from the pack: the property management wing of the company helps market clients’ properties to get the cash flow rolling. The company employs a full time marketing and leasing manager that strategizes ways to fill properties as quickly as possible, which, Blanco says, helps “reduce days on the market, which increases cash flow.” The marketing and leasing manager also creates programs to help thwart vacancies, such as staging vacant properties to entice potential renters.

Once a client’s property finds a stable renter, Blanco’s company manages the operation; they currently manage approximately 500 doors. Blanco states, “Our goal is to delight our clients, our point of difference is that we are very involved in the day-to-day operations of each property. We have an all-inclusive team that performs every aspect of the process.” They walk each property monthly and take photos; this documentation becomes part of an end of the month report given to clients/owners.

(Cont. on page 42)

July 2015 REI Voice

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Analysis

Should You Hire a Property Manager For Your Rentals?

Brandon Turner is an active real estate investor in the Gray Harbor, Washington area. Brandon is also VP at BiggerPockets.com, the real estate investing social network and the author of The Book on Investing in Real Estate with No (and Low) Money Down, available on Amazon.

by Brandon Turner

Congratulations!

This article originally appeared on BiggerPockets, the real estate investing social network. © 2014 BiggerPockets Inc.

You’ve navigated the confusing world of real estate to buy a rental property, and now you are the proud owner of an income producing asset.

However, all of that time, money, and work could be jeopardized if you don’t manage the property correctly. Therefore, an important question for any investor is: Should I take on this valuable role myself or hire a professional property manager to do it for me?

The response to this question is another one of those “there is no right answer, but there may be a right answer for you” kind of questions. Every person has different skills, personalities, and time availability. The purpose of this piece is to help you make the best choice for you and your family.

Role of a Property Manager First, let’s talk about what a property manager actually does. But even that is tough to give a straight answer about! You see, property managers do a wide variety of tasks depending on the manager and the owner they will be working with. However, most of the time a property manager will: • • • • • • • • •

Advertise vacant units Screen applicants Approve tenants and sign leases Handle phone calls from tenants Schedule maintenance issues Issue late notices File eviction if needed Keep a record of income and expenses And possibly pay your property’s bills, depending on the manager

In addition to these tasks, property managers also offer numerous other benefits: • • • •

A property manager can clear up your day, allowing you to spend more time with family, friends, or your day job.

A property management company will have the infrastructure in place to handle your rental, including office staff, paperwork, and signage.

A property manager will have a reliable set of contractors to work with and benefit from volume pricing.

A property manager will give you more time to look for other deals, helping you focus on just the tasks that bring in the most

•

money for you.

A property manager will have a lead system in place for attracting potential tenants. People will know their name, recognize their signs, and call without them even needing to advertise your property.

Sounds like a dream, right?

Property management can be a powerful thing, allowing you to work on your business rather than in it.

However, management does come at a price. Let’s talk about a few of the disadvantages.

Disadvantages of Property Management Price Although the price for management will depend greatly on where you live, management is usually in the 8-10% range, plus a fee when a new tenant is moved in, usually between 50% and 100% of a month’s rent.

In other words, if the rent on your property is $1,200 per month, you might pay $120 per month, plus $1,200 every time a unit is turned over. Furthermore, some management companies charge a “renewal fee” each year, even if the tenant doesn’t move. Clearly, the expense of a property manager can be a huge drain on your cash flow and something that must be budgeted for.

For example, let’s look at the numbers on a sample property.

123 Main Street is a 3 bedroom home that you purchase for $100,000 (with a $20,000 down payment), and you now have a mortgage payment of $500 per month. When you ran the numbers, you found that all the expenses (taxes, insurance, maintenance, cap ex, vacancy, etc.) came to $400 per month on average, over time.

This means your total expenses on the property would be $900 per month. If the home would rent for $1,100 per month, you are looking at about $200 per month in cash flow, or $2,400 per year.

On your $20,000 investment, this is a 12% cash on cash return on investment.

Not too bad, right?

Now, let’s factor in property management.

If your local management company charges 10% of the rent, that’s $110 per month. Your $200 per month in cash flow has now dropped to $80 per month, or $960 per year. On your $20,000 investment, you are looking at a cash on cash return of just 4.8% now, a huge difference than what you thought you would be getting.

(Cont. on page 45)

Julyl 2015 REI Voice

39

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Summer Reading for Success: REI Voice Book Picks

by Lori Greymont

N

eed some ideas for summer reading? Reading is a fantastic way to learn from the best minds who are on the cutting edge.

In a very tangible way, you have a conversation with the author as you read. Just as exercise is good for our bodies, reading is good for the mind. If you want to expand your life choices, dreams and options, pick up a good book.

fully now, regardless of your age. This author defined the idea of lifestyle design. He sees nothing stopping you from achieving your dreams in the here and now.

The 4-Hour Workweek is a blueprint for living out of the box and out of the cubicle. For real estate investors, it’s full of motivation.

This is what true real estate investing is about: designing your life, Here are three good picks that will help you bring more to your life and your work, the way you want it. Ferriss advocates the use of and finances: outsourcing, working less, living more, traveling and a novel idea: “mini-retirements.”

The Millionaire Real Estate Investor

by Gary Keller, Dave Jenks, Jay Papasan What drives wealth? What can you learn from investors who have achieved real wealth? Lots. This book is solid - packed with information, experiences and wisdom from those who have been there and done that.

Get a behind the scenes look at the real strategies have worked for these investors.

Hear why their motivation and subsequent successes changed their lives. The Millionaire Real Estate Investor serves as a handbook for what’s worked, what’s available to you, and why ambition comes with big payoffs.

The 4-Hour Workweek: Escape 9-5, Live Anywhere, and Join the New Rich

by Timothy Ferriss

Secrets of the Millionaire Mind

by T. Harv Eker Want success? What’s stopping you from achieving it? This book can help you discover what’s holding you back. Why do some people succeed while others fail? T. Harv Eker says it’s not destiny - it’s a money and success blueprint. If we change that, we can change our futures.

If your money blueprint isn’t design to bring you to success, you aren’t going to get there or keep it there - regardless of what you do. This book helps you makeover for blueprint for achievement. Demolish your old blueprint and reconstruct. Learn about how the wealthiest among us think and act differently from others. Take action. Increase your income. Bring more wealth into your life.

Toss out the tired idea of retirement in your 60’s and deferring living until you retire. Timothy Ferriss thinks you can live July 2015 REI Voice

41

Basics In addition to this, the company conducts interior inspections of all properties every 6 months. All this work serves one clear objective: “to keep the out-of-town investor as well-informed as possible.”

It’s rare to find a full service real estate company, particularly with such a comprehensive property management component, that has a clean, clear mission to service their clients, investors, and tenants as professionally and cost effectively as possible. The secret to success? Her systems as outlined above, which include the following: attention to details; continual reevaluation to improve the operation; regular property management inspections; solid tenant screening and selection practices; and, finally, a long time horizon regarding their clients.

One thing that helps the PAMS stay on top is their knowledge of their metro market. Dallas-Fort Worth has a lot going for it, and this company has a deep knowledge of it. First of all, Dallas-Fort Worth is the 4th largest metropolitan statistical area in the U.S. And boasts a population of 6.8 million. It’s been the fastest growing metro area since 2,000, and it is known as “the business capital of

Pam Blanco (Cont. from page 37) the South” (it is, after all, home to 18 Fortune 500 companies, which is the 3rd most in the U.S.). It should also be noted that the median household income is 10% higher than our country’s average. When it comes to school districts, Dallas offers the #1 and #8 best public high schools in the country. Cultural attractions such as AT&T Stadium, home of the Dallas Cowboys, and the Dallas Museum of Art are sure to bring people into the area. When you work with PAMS, you have access to all this area has to offer.

Subjecting PAMS to the same type of rigorous analysis in applies to its properties, we have opportunity to see how the best gets the job done and incorporates those practises into our business as investors. Locating a top-notch, comprehensive real estate service that sets a high water mark for professionalism and efficiency in the industry is difficult. But, under Pam Blanco’s leadership, the company can only continue to thrive and offer clients quality service. In the fast-moving market of Dallas-Forth Worth, Blanco and her business lead the way to success.

Pam Blanco is the Founder and President of Professional Asset Management and Sales. Catering to investors, the company has developed into a turn-key solution provider to help investors grow and manage their portfolios of properties, both single and multi-family. - www.PamTexas.com

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Features

Should you Join a Local REIA? (Cont. from page 18)

Today, everyone wants to maximize value. Clearly, joining a local REIA is one of the best ways to get value in the world of real estate.

Whether one is a newcomer to the field or stands as a time-tested success, there is always something to be gained from one of these organizations. When it comes time to choose a local REIA, there are a few things on which one should focus. Take a look at membership numbers and remember that bigger is not always better; smaller numbers can often lead to more close-knit relationships.

Take note of the event schedule, too: does the organization routinely attract quality speakers? Do speaking events regularly occur? Also, one should see if the organization offers motivated seller leads.

The final thing to look at would be the language on the website, particularly the mission statement and member testimonials. Do they avoid sales pitches? Do they offer non-members access to

ATTORNEYS Jeffrey B. Hare, APC 408-279-3555 jeff@jeffreyhare.com www.jeffreyhare.com

IRA

IRA Services Trust Company Michael McNair 650-593-2221 www.iraservices.com Bill Neville The Entrust Group bneville@theentrustgroup.com (800) 392-9653 www.theentrustgroup. com

MORTGAGE BROKERS

PRIVATE FINANCING

Michael Ryan Mortgage Broker and Banker DRE License # 01090891 NMLS # 295351 408-986-1798 mike@michael-ryan. com

Socotra Capital Chris Baumann DRE License # 01907957 916-277-9304 chris@socotracapital. com www.socotracapital. com

MARKETING

Hard Money Broker Mark Hanf (800) 605-8050 Mark@PacificPrivateMoney.com www.PacificPrivateMoney.com for Borrowers www.PacificPrivateInvestments.com for Investors

Tiago Moules Tiago Media (408) 763-0083 www.tiagomedia.com

Louis Bardis FJM Private Mortgage Fund lbardis@fjmpmf.com (415) 248-1167 www.fjmpmf.com

events? All of these things speak directly to an organization’s integrity.

In any field, the best learn from pooled resources. Just like a college study group, a local REIA can give you strength through numbers. For local readers of REI Voice, please keep in mind that this magazine speaks for SJREI (San Jose Real Estate Investors Association) and consider joining. This awardwinning organization offers speakers on a variety of topics, quality investment leads, and a network of trained professionals to help guide or mentor others, or even just share ideas.

Ultimately, one should find the best local REIA that meets his or her investment goals and join it. Success may depend on it!

FINANCIAL SERVICES Gabe Bodner Lending Home gabe@lendinghome.com (650) 218-0976 www.lendinghome.com Susana Schreiner WDB Funding Hook8marketing@gmail. com (408) 482-3232 www.wdbfunding.com

John Citrigno Cirius Capital john@ciriuscapital. com (800) 951-9501 Tom Valentino Zinc Financial tom.v@zincfinancial. net (559)326-2509 www.zincfinancial.net

Niki Canotas Mobius Financial Network niki@mobiusfinancial.net (408) 529-2174 www.mobiusfinancial.net

44

Keller Williams Realty Silicon Valley Anna Maria Valenzuela 408-832-7727 amv@annamariavalenzuela. com http://about.me/annamariav

REAL ESTATE INVESTMENTS Summit Assets Group Lori Greymont 888-298-0652 lori@summitassetsgroup. com www.summitassetsgroup. com Wilson Investment Properties Tom Wilson 408-867-1867 tomkwilson@earthlink.net www.tomwilsonproperties. com Mark McKeller Homevestors Mark.mckeller@homevestors.com (800) 200-6475 www.homevestors.com Dustin Rose Cash Flow Links dustin@cashflowlinks.com (916) 932-6865 www.cashflowlinks.com

www.reivoice.com

REAL ESTATE AGENTS

TRAINING & EDUCATION SJREI Jumpstart Inverstor training Lori Greymont 408-782-9162 lori@sjrei.org www.sjrei.org/jumpstart

OTHER SERVICES Denise Wilson Tax Preparer & CTRP (408) 377-9703 denise@richardsmithtax.com

Analysis

Brandon Turner (Cont. from page 39)

However, is that difference of $1,320 per year in cash flow worth it for you?

the right one. Treat it like a job interview. Get referrals and actually talk with those referrals!

Could you invest your time elsewhere now to make a better return?

Ask hard questions to the property manager in an interview. Don’t settle for mediocre.

Or are you better off self-managing and keeping that extra income?

No One Cares Like You Care

If you are going to trust the most significant investment in your portfolio and the key to your family’s future wealth to someone, shouldn’t you do your homework up front?

The fact is: No one will care as much about your property as you do.

Property Manager Interview Questions

Your property manager will likely have hundreds, if not thousands, of properties to manage. Yours will not be special.

When you sit down with the property manager, I would recommend starting with the following questions:

When a potential tenant walks through their door, they have no incentive to show your property over another. They won’t be able to drive over to the property and check it out as much as you might.

It’s not that they don’t care; it’s just that you are one in a bunch.

• •

These are questions you’ll need to ask yourself

Case-in-point: I used property management on just a few properties that I own, as an experiment.

• • •

Recently, the tenant called the company and said that their gutters were getting detached from the roof on one part of the house. The property manager got a bid from their main contractor to get it fixed, and the bid came in at $1,200.

• • • •

Now, I’m no Handy Manny but even I knew that fixing this gutter problem would require a few screws and maybe one hour of work.

• •

So $1,200?!

Someone was getting ripped off.

I told the manager to get a second bid from someone else. The second bid? It came in at $115, and they took care of a few other issues while at the house. Now, had I not encouraged the second bid, the property manager would have blindly accepted the $1,200 price tag because they don’t care like I care. It’s not coming out of their pocket, so they don’t have the incentive to dig into the bid to know if they are getting ripped off or not.

Therefore, if you end up hiring a property manager, understand that your job is not 100% passive. You will still need to manage the manager and stay on top of them to make sure they are doing what they are supposed to do. Don’t assume property management means you can forget about the property and just collect checks..

Property Managers Kinda Suck Okay, maybe not all of them.

But I would venture to say most property managers are pretty terrible. Of course, if you begin managing your properties, you’ll likely be terrible also. But because it’s your property, you’ll learn and grow quickly from the “on the job training.”

Therefore, if you are going to use a property manager, just remember: most of them suck. You need to find the one that doesn’t.

• • • •

What are your management fees?

How do you communicate with owners? How frequently?

What about?

How many properties do you manage?

How long have you been a property manager?

Am I locked into a management contract with you? If so, how does that work?

How many evictions do you have each month?

What kind of reserve does your company require?

How long does a typical tenant stay in a property?

How long do properties usually stay vacant before being rented?

How do you screen tenants?

Do you accept people who have had an eviction on their record?

How do you handle maintenance requests?

Is there a minimum charge for a maintenance visit?

What do you do if a tenant doesn’t pay rent?

How do you market vacant properties?

These questions should serve as a starting point for conversation, but don’t let it end there. Dig in on each point until you truly understand the kind of manager they are. Write down each answer so you can review them later, and compare your notes with other property managers (because, of course, you should be interviewing more than one).

So… Should You Hire a Property Manager?

I wish I could tell you a simple answer as to whether or not you should hire a property manager or do it yourself.

But I don’t know you.

You might be a terrible manager.

You might be really busy.

Or maybe you’ll be great.

However, I can say this: Managing tenants is not as difficult as it might sound IF you treat it like a business. This means continually learning, growing, networking, etc. It means having systems in place to handle problems. It means always trying to improve.

A property manager will be one of the most important members of your team, so it’s imperative you invest the time upfront to find

April 2015 REI Voice

45

Coach’s Corner

The Road Less Travelled T

he ability to make a decision: yes or no. Simple enough, right?

For many of us, it’s not at all. It is, however, a crucial ability for every investor to possess.

I’ve often found that people find themselves so afraid of making a decision that they don’t make one at all - and that is, in itself, a decision. When I first started my coaching business, I thought everyone was like me: they could make quick and decisive decisions. I was shocked at the struggle I saw. I became motivated to dig further and discover the reason why making decisions was so difficult for so many. To really learn about this, I analyzed exactly how I process decisions. I ended up with my ‘Decision Matrix,’ which I share with you later on in this article.

In life, decision making is a requirement. So often though, we let circumstances and convenience guide our path when we should be making a deliberate decision to move our lives in the directions we really want. Take a moment and reflect. What are some of the things in your life that you wish were different? What will you do with this reflection? If you’re like most, you may just shrug your shoulders and write it off with a dismissive, “....guess it’s just my life.”

Stop and think that through. It’s your life because you just decided it is! My question for you: what if you took just one thing in your life and made a deliberate decision to change it? Start simple: maybe it’s the color of your kitchen walls, those 10 pounds you want to lose, always being late, or “you name it -- fill in the blank!”

What if you brainstormed all the ways you could change this one thing? Just like you make a doctor’s appointment, imagine just writing down the first step and a date when you’ll take it. Do you think it really would happen? Most likely it would, just as you would keep that appointment with your doctor!

This process is the same when it comes to changing your financial picture. If you want to be a real estate investor, it takes one incredibly simple decision: “I want to be a real estate investor!”

Once you make the decision, you need to take the first step, and then the second and so on.

by Lori Greymont outcome. One of the greatest gifts I learned from my mother was how to analyze a situation, make a decision and truly trust that I did the right thing, regardless of the outcome. She taught me how to believe I would be better off knowing the outcome than wondering what if?

There is one thing we never get back in life: time. If we waste time wondering, we will never know. If we lose money with our decisions, we can always gain that back. If we are smart about our failures, we will round to that same situation again and do it differently - with our new knowledge of what didn’t work.

So, where does this fear come from? We all have a true need to be loved and accepted, but we also have a very real fear of abandonment and rejection. It may be worth some personal reflection to see how these needs and fears impact how you make your decisions. Do you make decisions based on your fear of rejection? Do you skip the things you really want in life so that you don’t make waves with those close to you? Or, do you throw caution to the wind and dive in head first, seeking love and approval for your actions?

To be honest, I’m not certain there is a right or wrong answer here. I do know that it is important to be aware of this emotional propensity we all have. You must weigh it with the desired outcome against the comfort you get from from taking the easier way out.

As poet Robert Frost once wrote, “Two roads diverged in a wood, and I— /I took the one less traveled by/And that has made all the difference.” What difference would it make in your life if you took the road less traveled - the path you want most and fear? Think about it...

Lori’s Decision Matrix:

If I do it?

If I don’t do it?

What is the worst possible thing that can happen?

What is the best possible thing that can happen?

Every single step of the way, you need to make a deliberate choice about the next best action for you and your life. I know it sounds simple, and, honestly, it is. The process of making decisions is easy.

So, why do so many of us allow life to be the author of our paths instead of authoring our own life paths?

How to Use: Start by filling in all the ideas and visions that come to mind for each of these boxes. You can further synthesis this down by answering two questions (read them carefully).

1. What all the ways doing X will help my life?

2. What are all the ways not doing X will HELP my life?

One word: fear. We fear the consequences of making the wrong decision. We fear the results of making a bad decision. We fear the judgement of others. The fear of failure robs us of a positive

If you are still stuck on which path to take, ask yourself this: when I am lying on my death bed, which decision will I regret more- 1.

Doing it and failing? or 2. Not doing it and wondering if?

www.reivoice.com

46

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