REI Voice Magazine - March-May 2012 by San Jose Real Estate Investors Association

ER NN WI f t h e a l o ion d r t N a Awarint A P I R E B est t ion f o ru b l i c a P

SOUND OPINION—WISE DECISIONS: VOICE OF THE PROFITABLE REAL ESTATE INVESTOR

TABLE OF CONTENTS An a lysi s

Fe at u res

has Sprung— But In Intimate Detail: Phoenix AZ Spring has the Real Estate Market? The Great Valuator REI Voice publisher Geraldine Barry interviews Terry J. Kass about the Phoenix market. He has been an active investor in Phoenix for almost fifteen years, and is a Certified Commercial Investment Manager and Certified Property Manager.

Larry Stone, Santa Clara County Assessor oversees a $300 billion assessment roll and a staff of 243. How a former Wall Street exec brought private sector sensibilities into a public sector department and transformed it into the most well-run office in county government.

“Is it time to buy real estate and if so, where?” is the question most encountered by Lori Greymont, CEO and investor educator. Her answer hasn’t wavered and she explains why.

B asi cs

19 8 Bullish on Bay Area Multifamily Investments What’s the insider’s perspective on San Francisco Bay Area rentals? Joshua Howard, Executive Director for the California Apartment Association, Tri-County, analyzes the trends and predicts strong returns for multi-unit investors.

A dv i c e

10 Low Risk Multifamily Ownership It was the best of investments; it was the worst of investments. Experienced investor, Tom Wilson, shares his experience with multifamily units. When considering a multifam purchase, he advises how to understand the rewards, manage the risks, and seek complementary strategies for portfolio building.

4,000 Reasons to Keep Your Tenants Happy Do you know the cost of a vacancy for your rental property? Understand the real cost of vacancy and discover the top reasons tenants move.

20 Five Things Real Estate Lawyers Won’t Tell You Real estate attorney, Jeffrey Hare, takes you behind the curtain to understand what motivates lawyers, how to select the right lawyer for the project, and how to keep your attorney fees in check.

26 Blog World Expo, Final Report Our regular columnist on all things social marketing, Aaron Norris, issues his final report on Blog World Expo. What’s in? Social Search. What’s also in? Offline Relationships (a.k.a. face-to-face networking). Reality rebounds!

24 REI Voice Data Mine Number & Occupants of Rental Units; Number of Rental Units by Structure

to Thrive 30 Words By: Tuigim, Ger

22 Financing Multi-Unit Properties The common wisdom is that you can’t get a mortgage for a mulit-unit. Not so, says mortgage expert and host of Real Estate 360 Radio, Joe Cucchiara. He shares the single most important tip for financing a multi-unit investment.

In v estor R es ou rces

The best of the best. Phone/email/web contacts.

March-June 2012 REI VOICE

REI Voice™ Magazine A publication of SJREI Association™

P UB LIS HER’ S NOTE

Publisher Geraldine Barry | 408-264-3198 Geraldine@SJREI.org

WELCOME It is an exciting time in Silicon Valley, there is energy and anticipation in the air. Many believe, and I am inclined to agree, that the bottom has been hit locally. Inventory is low and prices are strong in our market – it’s simply a supply and demand issue.

Geraldine Barry Publisher, President of SJREI Association

Job creation has taken flight, and cash rich corporations in the area are beginning to hire and spend money fueling growth. Banks are loosening their grip and supplying more loans, and with the historically low interest rates, that is great news. Northern California is often the last to decline, and the first to come back. Resurgence is in the air. It’s time to look at your investment strategy and decipher what you want to do! When you pick up REI Voice magazine, we want it to be not only an educational experience for you, but also a source of timely information in terms of developments in the real estate market. Our goal is to keep you ahead of the trends, and equip you with the information that you need to make wise, profitable investment decisions. This issue focuses on apartment investing with a great article from Joshua Howard, Executive Director of the California Apartment Association, Tri-County Division. His analysis includes data, statistics with thought provoking information from several sources, plus an upbeat outlook for 2012. Check out my interview with Mr. Larry Stone, Santa Clara County Assessor and real estate investor himself. It was a pleasure to interview a government official who is seriously on top of his game. Mr. Stone shares his views with us on his job, and clues us into how he operates the asses-

4 REI VOICE March-June 2012

sor’s office (very efficiently and effectively). The Terry Cass & Jeb Henley team, share some keen insights into the Phoenix commercial markets, having jointly weathered several real estate cycles, they know what they are talking about! Speaking of which, history is a great source of information for us from an economic and financial perspective when looking at cycles. When we review financial data from crises throughout history, common threads emerge – greed, carelessness, fiscally irresponsible behavior, and then opportunity for those poised to take advantage. This is where we stand today – there are some great deals available, but there is a reluctance to pull the trigger. We were all a little shaken by the intensity of this recession, and many felt it personally. Look ahead 20 years. History will tell us that NOW is a great time to invest in real estate. Do what you need to do to participate and you will not regret it. With three chapters in the San Francisco Bay Area, our sister company SJREI Association, www.sjrei.org, makes it easy for you to attend our meetings, hear great speakers, and fraternize with a community of like-minded people. All of these things help us be more successful investors.

Editor-in-Chief Susan Hare | 408-391-8068 Susan@REIVoice.com Advertising Sales Meghan Ben | 408-264-3198 Meghan@REIVoice.com Art Director Kevin Bell kbell@Western-Web.net Director, Administration Meghan Ben | 408-264-3198 Meghan@SJREI.com Printer Western Web Western-Web.net

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REI Voice™ is a publication of SJREI Association™ www.SJREI.org

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AN ALYSIS

In Intimate Detail: PHOENIX, AZ

An Interview with Jeb Henley and Terry Kass by Geraldine Barry

JEB HENLEY 831- 419 - 4200 jebhenley@gmail.com

TERRY KASS terry@klcommgroup.com

Phoenix is known as a strong multi-unit marketplace. I asked Jeb Henley, a real estate broker and investor with strong ties in Phoenix to help me understand this market. He led me to one of his long-time associates, Terry Kass of Kasten Long Commercial Group, headquartered in Phoenix. Both men have been through multiple cycles and have gained some valuable insights from this experience. Here is their interview. Q: How long have you been working the Arizona market and what is your relationship?

Jeb: I became interested in the Phoenix four-plex market several years ago when I was seeking strong cash-flow placements for California investors. It was then I met Terry, my feet-on-the street associate. Terry: I’ve lived in the Phoenix Market since 1978 and have been active in investment real estate since 1993. Living here this long has made me understand the fundamentals, and value of this market. Jeb is our go-to associate for California investors. Q: As part of the Sunbelt, Arizona has a certain appeal. What are your thoughts?

Terry: Great weather, almost no natural catastrophes, job and population growth, great rental market, pro-owner environment, affordable living standards, and continual investment in the market by large companies. Q: How would you summarize the Phoenix commercial market today?

Terry: We have reached bottom. Pricing on apartments is moving up. We have a classic demand versus supply issue, and we have more buyers (although cautious) than sellers. There are only 84 fourplexes on the market as of today. As long as there is no alternative for investment dollars, and interest rates continue to stay low, the market will continue to grow. Q: Where do you see the opportunities for investors?

Jeb: We see great opportuni-

ties for pr ice gains while buying proper ties at 1990 pr ices. The massive foreclosures have dropped pr ices below replacement or standard cash flow values. Fear of high vacancies and low prices hammered pr ices. Now the reverse is occurring with prices and rents rising. The best buys are still four-plexes with strong, positive cash-flow. Terry: I concur. There are opportunities in all real estate investments. We are back to 1990’s apartment pricing with real positive cash flow. Based on my experience, to take advantage of a market like this, you need to move fast. If you do a good job of due diligence in evaluating an investment, you will be assured of a great investment opportunity. Q: What do out-of-town investors need to be wary entering your market place?  A lot of when of them were burned when the market crashed in 2006, and they got side-swiped when properties lost 50% of their previous value.

Terry: Agreed. But buyers got greedy. They bought on appreciation not cash flow. Cash flow was erroneously based on negative amortization loans, and assuming that prices would always continue rise. Any investor has to realize that all real estate markets move in cycles, and timing is everything. If an investor was willing to buy in 2006 at inflated prices, why would they not invest now when prices are 50% lower with relatively the same rents and expenses? Jeb: In the past, California investors got overly excited with the idea of 90% leverage and rising

rents, despite older buildings in poor condition. Vacancy, turnover, and repairs need to be accounted for as part of standard expenses for an income property--whether in Phoenix or in your backyard. A sound investment is a sound investment. I can’t overstate the importance of dispassionate due diligence without fear of past mistakes or unsupportable enthusiasm.  Q: How is the Phoenix market different from California markets?

Jeb: Both markets have vacancy and turnover, but because rents are 35% below historic levels, most Phoenix properties cash flow day one. Just by returning to normal rents the buildings can double in ROI. Terry: Phoenix also offers more affordable investments that most California markets--the barrier to entry is much lower. I also think the market dynamics are better relating to jobs, population, business atmosphere, etc. Q: What are the employment numbers currently?

Terry: Arizona’s unemployment rate is currently 8.7%, and is trending down. Population and job creation is up from 2010. We did take a major hit on these factors over the last couple of years, but we have bottomed out and are now trending up on all categories. Q: How are rents trending?

Terry: Strange thing is, rents are down, but vacancy is also down. Most experts in the field think the reason is the number of units coming on line, but at the same time there are more

renters in market. Q: What are the economic drivers in Arizona?

Terry: We have a very strong electronics industry (Intel, Honeywell, Motorola, etc.), a strong healthcare industry, major companies opening warehouses (Amazon), and a strong defense industry base. Our solar industry is also doing well. The state offers a good business environment and a low cost of living. A lot of hourly service jobs are being created, and they are the source of our renter pool. Q: What resources do you recommend for researching the AZ market place?

Terry: Phoenix Chamber of Commerce, Arizona State University School of Real Estate, and the local Apartment Broker Houses are good sources of information. Q: Is Phoenix a flip or buyand-hold proposition?

Jeb: My clients are buying both to hold for long term cash flow and are doing flips with self-directed IRA funds. Recently, one person I know bought a 4,000 foot fourplex for $128,000 including renovation. He flipped it for $179,000 to a long-term hold investor from Los Gatos who loves it. His stock market account did not come close to the cash-flow yield of the property. Both investors got what they wanted. One took a higher risk and received a short-term reward. The other wanted a lower risk, with long-term results. Because of the price of Phoenix real estate, those are the kind of deals I see on a daily basis. In a growing market, buyers have the opportunity to do what they want.

AN ALYSIS

Bullish on Bay Area Multi-Family Investments JOSHUA HOWARD Executive Director for California Apartment Association, Tri-County. He is charged with overall management of the Division and plays an active role in local public affairs serving as the Associationâ&#x20AC;&#x2122;s primary lobbyist with the City of San Jose. Previously he served as Vice President, Public Policy & Communications for the San Jose/Silicon Valley Chamber of Commerce, Public Affairs Director for CAA Tri-County, and as a senior aide to former San Jose ViceMayor Pat Dando. He holds a Master of Public Administration degree from the University of San Francisco.

8 REI VOICE March-June 2012

by Joshua Howard The California rental housing industry continues to show signs of improvement. Pundits and economists have predicted a strong rebound following the long recession. Several factors including the lack of new rental housing coming to the market in the past two years, the difficulty of qualifying for a mortgage, and the new jobs being created in the San Francisco Bay Area have jolted the rental market into a rebound. In late January the California Apartment Association, Tri-County Division, hosted its annual economic and legislative conference. The panels of local rental housing industry leaders agreed that 2012 is likely to be another good year for the rental industry. Silicon Valley added 28,400 jobs in the first 11 months of 2011: 12% of all jobs created in California and 65% of all new jobs created in the Bay Area. Joint Venture Silicon Valley reports there are 48,000 jobs with internet companies, more than we had during the dot com boom. California’s unemployment rate has also fallen and now stands at 10.9% and while unemployment has declined, there are counties like Fresno and Stanislaus

where unemployment exceeds 16%, and Imperial County where unemployment is 27%. Employment numbers are relative and geographically based. Another indicator that holds out promise for Silicon Valley is the return of IPO’s. Last year, LinkedIn went public, and the prospect of a Facebook IPO is likely to have a major positive impact not only on jobs, but also on the housing market. CAA Tri-County and its members don’t see a dramatic change in trends from 2011, but expect job growth to accelerate in San Francisco and the East Bay, with moderate growth in San Jose (after a very strong 2011). Rental supply deliveries are expected to be minimal in all three Bay Area markets in 2012, but among individual submarkets, we expect new supply coming to the North San Jose/ Santa Clara submarket; however, the impact will likely not be felt until early 2013. The main trend being seen now is an increase in multi-family permits and starts, which will lead to more apartment construction over the next several years. Depending on job growth (which impacts demand) and the location of the new supply (which impacts competition), the increased supply will likely have an impact on

the rental market and asking rents. It is likely we will continue to see strong growth in the population of young adults (age 20-34). With recent signs of an improving economy, many of these young adults will form their own households, supporting continued apartment demand. I expect markets with a high-tech employment base will continue to be the strongest markets for job growth in 2012, supporting population inmigration. The high cost of hiring and living in the Bay Area may result in employers adding workers on a short term/consulting basis, producing additional demand for rental housing. San Francisco will continue to attract residents who may work elsewhere in the Bay Area but want to live in the city. This applies to Mission Bay and the western submarkets with easy access to I-280. With all of these indicators of “good news” in the market, it only takes an innocent misstep or an overreaching landlord to energize tenant advocates to urge the adoption of excessive government rules and regulations that aim to provide so-called “renter protections.” Rental property owners and managers should avoid doing what would be embarrassing if reported on the

front page of the local newspaper. Following this simple bit of advice will make an owner’s decisions less likely to come back to haunt them. A long-term strategy of gradually and consistently providing moderate rent increases is the best tool for retaining long-term tenants. This approach also avoids the difficult situations where landlords allow rents to drop far below market levels or purchase new properties with high levels of debt. Landlords caught in this situation sometimes panic and try to make up lost ground by issuing an excessive rent increase that comes as a major shock to their residents. For the first time in years, we are beginning to see confidence return to the Silicon Valley economy. 2012 is likely to be a strong year of job growth with investments in high-technology, social media, and of course, infrastructure projects like the new 49ers stadium, rapid transit projects, and new housing in certain submarkets. We are all cautiously optimistic for the year ahead. Contact Joshua Howard at 408-342-3500 ext. 3507 jhoward@caanet.org

March-June 2012 REI VOICE

a dv i c e

Low Risk Multifa by Tom Wilson

Tom Wilson is a thirty five year real estate veteran who has executed over $100M and 1,700 units of real estate investments. After thirty years of managing some of Silicon Valley’s pioneering technology companies, Mr. Wilson put his business and management experience toward fulltime investing. One of his companies, Wilson Investment Properties, offers high quality, highcash flow, fully rehabbed and leased properties to other investors.

The best investment property I ever owned was a multifamily property. And the worst investment property I ever owned was a multifamily property! Over the years I’ve bought and sold 12 of them ranging from 10 units for $400K to 176 units for $10M. A multifamily property is defined as 5 units or greater, and single family homes, duplexes, triplexes, and fourplexes are referred to as “1-4s.” Today, I own two multifamilies along with many single family homes. For someone with a large portfolio I generally recommend considering the inclusion of a commercial or multifam property with one caveat—get a loan. Don’t sink all your cash reserves into one large investment. About that loan…getting a government backed loan such as from Fannie Mae is virtually impossible in today’s tight money market without current or significant past multifamily ownership experience. Regional banks and private lenders may sometimes provide loans at the cost of higher rates, shorter terms and amortization, and lower LTVs. Multifams offer a little high-

Pros & Cons Multi fam ily • Potential Higher Cash Flow • Higher Risk, Potential Lower Cash Flow • More Complex, More Due Diligence & Less Predictable • More Employees & Supervision • More “Eggs” in One Address • Only One Loan, Tax, Utilities, etc • Tougher Loans, More Down Payment • Avoids Current 10 Loan Restriction

Single Family Units and 2-4 Units • Lower Risk • More Liquid • Lower Cash Flow • Simpler & More Predictable • Higher Appreciation • Multiple Properties in Various • Locations Spread Risks • WOften Simpler, Cheaper Loans

er potential reward along with higher risks. On the surface, an apartment building seems to be nothing more than many units, like condos, in one address, however, their proper management is a specialty. There are many more variables and expenses than in 1-4s including utilities, landscaping, contract maintenance, on site maintenance, office management, tenant profile, advertising, government inspections and

requirements, and more. On the plus side, the rent ratios are usually higher. At least on paper. In the multifamily world, rent ratios are represented as the GRM (gross rent multiplier): the property price divided by the annual gross income, the lower the better. There may also be an efficiency of scale for maintenance and other expenses, and with good management, expenses may be easier and more efficient

to control. The advantage of scale best manifests itself when the monthly income is great enough to afford full-time, onsite management and maintenance. For non-high end metro areas this is usually about a $2.5M property or higher. With a typical 60-70% loan this is a stiff barrier to entry. A small multifam is difficult to manage effectively. Stories of offsite management showing up after a week or two at small

mily Ownership multifams only to discover that drug dealers have run off decent tenants are common stories. Also, a single vacancy in a small mulitfam has a greater percentage impact on cash-flow than in a larger investment. There is no way around it; a multifam has all of the eggs in one basket and this can leverage your results in either direction. Due diligence is much more critical that with single-family rentals. First of all, a multifam’s seller’s proforma (projections of the potential income and expenses in a perfect world) should for the most part be disregarded. True expenses are seldom less than 50-60% of gross income, otherwise be suspect. And study local demographics care-

fully. Visit the prospective property unannounced, walk it, and then sit in your vehicle to observe who is living on and visiting the property. Take note of the time of day and night. Yes, evening observations are the most enlightening. Do you feel at risk parked so near your potential property, or would you feel comfortable joining the tenants for a barbeque? Please do not rely on website data about the neighborhood. There are a lot of variances in a onemile radius. How can one have most of the benefits of a multifam with less money down, an achievable loan, and much less risk? A portfolio of single family properties.

A portfolio of single family homes spreads your risks by building a “mutual fund” of properties in various locations. In addition to having a variation of rent, price appreciations, and occupancies that tend to converge on the averages for a region, single family homes are more liquid, have less expenses, are less complex to manage, and tend to appreciate more because they are based on owner occupant demand rather than on income. In the next decade, most economists project a higher upward trend in occupancies and rent for single family homes than for multifams. Why? Because all of the families who have been displaced from

home ownership would rather rent a house than an apartment. When you invest in real estate, don’t start with the “deal.” An honest assessment of the amount you have available to invest, your risk tolerance, your experience, and your long term goals will lead you to the right deal, or deals: one multifamily investment or a portfolio of 5 to 16 cash-flowing single family properties. Yes, I’m biased. Over the years, I’ve found that the investors who sleep most soundly at night started small and diversified. That’s what I did, and boy, do I sleep well. Contact Tom Wilson at 408-867-1867 tomkwilson@earthlink.net

ADVICE

Spring has Sprung BUT HAS THE REAL ESTATE MARKET? By Lori Greymont

Lori Greymont is CEO of Summit Assets Group. She offers educational presentations around the U.S., trains and mentors people new to purchasing distressed assets and coaches on creative financing techniques. Her company sells single Turnkey Cash Flow Investment properties, Fix and Flip properties, and Bulk lists.

One of the repeated questions I have been asked is, “Is it time to buy real estate and if so, where?” In Silicon Valley there is a lot of talk about how the economy is recovering, rents are up, unemployment is down and everyone is excited about the financial uptick expected with the Facebook IPO. Northern California real estate investors that have been sitting on the sideline are wondering, is this the right time to buy? My answer is a resounding YES! And that has been my same answer even through the darkest of times. For most passive investors, real estate investing should not be a onetime event timed perfectly like a game show contestant trying to leap onto a moving object or face landing in the muck. We saw what happened when families bet their financial future on appreciation and many are still living with the wounds today. Instead, investing in real estate ought to be a long term plan of buying cash-flow properties in several markets over a several year period. This simple risk mitigation technique may not bring you the highest returns, but will allow you to sleep at night knowing you have cost averaged your purchases. It’s taking investing step-by-step instead of making one giant leap. The point I want to make clear is that American real estate has been on clearance over the past four years and if you haven’t been buying when it was on sale, don’t wait too much longer because the

12 REI VOICE March-June 2012

prices will be going up. The rule of buy low and sell high still exists. And the unfortunate truth is that the only way you know you are at the bottom is when you have past the bottom and you are looking back. Now to the second part of the most commonly asked question, “Where should I buy?” That depends! Really, what you need to do is plan your exit before entering the real estate market. You need to know how long you plan to hold

the properties. Are you buying for cash flow and wealth building? Or do you need to be more active in real estate right now to replace your daytime job? I typically tell people that they should invest in two-to-three growing metropolitan areas that are geographically diverse from each other. For example, don’t buy in three California cities, but rather if you can find cash flow in California, pick one city in California and also purchase someplace

different like Atlanta. Having your investments in different major metropolitan markets will reduce the risk of your losses due to local economic failures. When I look into a new investment market, I analyze and look for seven key success factors: 1. Strong Demographic Growth, 2. Strong and Diverse Economy Sectors, 3. New Infrastructure Improvements, 4. Easy Affordability, 5. Opportunity for Appreciation, 6. Tightening Vacancy, 7. Sales Inventory is Turning. Based on these seven factors, I then assess the area’s median rent prices. It is important to analyze the median sales price, quality and quantity of the houses in a given area. The areas offer at least a 1.25% or better rent ratio (monthly rent/sales price) get a second look.  When it’s time to buy, I look for houses that will cash-flow at just under the area’s median rent. Buying the right property is only a small step in investing success. The biggest factor of profitability is keeping your property rented. A lower rent range will expose your properties to the largest group of potential renters in the area and let you select the best tenants. So, going back to the question“ Is it time to buy real estate and if so, where?”- Yes it is the right time to buy. Where? In a market that will provide you stabile dependable cash flow for the long term. Contact Lori Greymont at 888-298-0652 Lori@SummitAssetsGroup.com

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March-June 2012 REI VOICE

FE ATURE

THE GREAT VALUATOR by Geraldine Barry

arry Stone, Santa Clara County Assessor, sits comfortably in a spacious office overlooking a sea of rooftops. Each one represents a source of income for Santa Clara County, but that’s of no import to one of Silicon Valley’s 100 most powerful leaders. “In this role,” he said, “I am not concerned with funding constitutional responsibilities, (despite what I may feel strongly about personally) but to provide accurate assessment values on real property.” It is Mr. Stone’s laser-like focus on providing accurate assessments, along with a keen mind for efficiencies and customer service that has kept him in office for sixteen years. The County Assessor oversees a $300 billion assessment roll and a staff of 243 – a number that has remained consistent during this recent downturn. Prior to becoming County Assessor, Mr. Stone was a City Council member and Mayor of Sunnyvale. He also worked on Wall Street, and later was a co-founder of a successful real estate development firm. He currently has an interest in two affordable housing projects totaling 500 units in San Jose. A good indication of his focus is in the composition of his staff. Of the over twohundred employees of the assessor’s office, there is exactly one administrative assistant. Everyone else has a job description that directly relates to assessing and getting the mission of the office completed. Mr. Stone said, “My job is to ensure that we do our job as efficiently as possible. As assessor I am independent of

16 REI VOICE March-June 2012

the politicians that spend the money that this office generates, and I covet that independence.” This distinction is important because during the recent downturn, 124,000 properties were reassessed to reflect the decline in values— a whopping $26 billion dollars in value reduction. Mr. Stone laughingly said, “You have to be strong politically, and in yourself to pull that off. My loyalty in this job is to the tax payer and giving them a fair property valuation.” Longtime San Jose Mercury columnist Scott Herhold called Mr. Stone, “the third most powerful elected official (in San Jose).” Mr. Stone’s power position was clearly earned. When he took office in 1996, he was struck by the inefficiencies in the organization and immediately started to review and develop processes to make the office more efficient, something he had very successfully accomplished as Mayor of Sunnyvale. He noted, in his new position, that staff members waited in line to use fax machines, waited further to print documents, and that computers were few and far between. He immediately set about remedying this situation. “One can’t ask people to work more productively and not give them the tools to do so,” he said. With a backlog of 16,400 items, which represented $3 billion in delayed assessments, he persuaded the county board of supervisors to allocate funds to purchase the new equipment and furnishings for all county assessor offices. The only mandate involved was to clear the backlog in return. Mr. Stone set a goal to use technology to streamline processes. He ordered new computers and training for every staff member, and standard-

ized the offices with new cubicles laid out more efficiently to maximize the space. These changes ultimately resulted in the creation of one of the more technologically advanced assessor’s offices in the country. The Santa Clara county assessor’s office is now almost paperless. An online system allows tax payers to essentially perform most tasks without having to leave the comfort of their homes or offices. The assessor’s office mails out 465,000 post cards to property owners every year giving them advance notice of their property assessments before they are finalized. This provides an efficient way to communicate any changes, and more importantly the opportunity to dispute the assessment. Additionally, the assessor’s office now provides a pin number to each property owner that provides access to the comparables used online. With an insight into the logic behind the assessment, property owners are more accepting of their assessment. This transparency has eliminated a lot of work for the assessor’s office and provided consumers with a tool that the Silicon Valley technologically savvy residents love. Mr. Stone spent a lot of money and resources to drive people online and it is working. Complaints are down and more property owners are satisfied. Interestingly, the majority of the 4,000,000 hits the assessor’s website receives each year are after work hours. One of the lessons Mr. Stone has learned from his lengthy tenure as County Assessor is that “many real estate investors made money, gave it back, made it again, and gave it back.” The biggest problem with this current

LARRY STONE Santa Clara County Assessor

downturn in his opinion is that it impacted all real estate classes, and was more widespread than anyone could have anticipated. He frankly shared that financial fraud was perpetrated. “Developers have a tendency to over-develop and banks used very little judgment or discretion in why and who they gave financing to.” One thing he suggested that developers could benefit from was truthful and straight information from the Planning Commission, City officials and Mayor’s office in terms of their projects. As a developer himself for many years he learned this lesson. “If I can’t support a developer I tell them that and why. At least with a truthful conversation the developer knows what he has to do. I don’t want anyone to spend time spinning their wheels -- that does not serve any of us well in government or the private sector.” What is his viewpoint of the state of real estate in Silicon Valley? The apartment market is particularly strong right now, as are rents. Mr. Stone shared this story. A large commercial developer who had a practically empty building for two years, recently went on a cruise. When the developer returned, he found his building was 90% occupied with large, well financed toptier companies. Mr. Stone contemplated the view from his window. “We are rising from the depths of the worst economic decline in my lifetime.” The Google effect, the Apple phenomenon, Hewlett Packard, Facebook, and Microsoft to mention a few are causing an economic uptick in Silicon Valley and the assessor’s tax role is upward bound judging from the most recent tax roles for 2011, at least that’s the view from the assessor’s seat.

March-June 2012 REI VOICE

Your Investing Education You can spend thousands of dollars and hundreds of hours and still have gaps in your knowledge about real estate investing. For a solid grounding in the fundamentals look no further than SJREI Association’s JumpStart program. We bring you a solid curriculum designed both for the novice real estate investor and for investors ready to tune-up on the latest legal, financial, and practical knowledge necessary for successful investing.

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Listen. Learn. Join The Discussion. Joe Cucchiara is the Manager for Partners Mortgage San Jose Branch, an established, thriving mortgage company. As a top producing mortgage planner, Joe has spent over a decade providing his clients with first class customer service and sound financial guidance. Joe surrounds himself with trusted business partners, giving his clients access to proven professionals who treat his clients with the same respect and integrity that he does. His commitment to developing trust-based relationships, combined with his drive for success, make Joe a highly sought after loan source!

Geraldine Barry

Jeb Henley

Nancy Chillag

In pursuit of further consumer education, Joe hosts his own radio show, Real Estate 360. This engaging weekly program covers buying, selling, investing, financing, retirement and tax planning, home improvements, legal perspectives, and more. Tune in to KDOW AM 1220 Saturdays at 11am to listen, learn, and join in the discussion.

Lori Greymont

Vernon Williams

Jeff Hare

Joe’s positive energy is apparent in all that he does. Whether you are hoping to discuss current market trends, obtain a rate quote, or seek a trusted advisor, Joe would be more than happy to assist you.

Presenter lineup is subject to change. Tom Wilson

Lamarr Baxter

Joe Cucchiara

dre 01330627 | nmls 273084

Partners Mortgage | RE360Radio p: 408.342.3755 e: jcucchiara@partnersmortgage.com www.re360radio.com

B ASICS

4,000

Reasons to Keep Your Tenants Happy

by Susan Hare

Ms. Hare is a real estate investor and principal of Susan Hare Marketing. Her consulting firm focuses on bringing big business marketing to small businesses and professionals. Ms. Hare is also a published author and editor-in-chief of REI Voice magazine.

Carpet + paint + leasing fees + zero cash-flow during a vacancy adds up to thousands of dollars worth of reasons to keep your tenants happy and paying rent. Do you know the cost of a vacancy for your rental property? Multifamily Insider estimates that the average cost of renter turnover is $4,000. (Check out their useful

on-line calculator at tinyurl.com/REIVturnover) Depending upon how long your property is vacant, and the repairs required to make it rent-ready, your vacancy may consume your entire profit for the year. Worse, if your margins are skinny and you’re making a mortgage payment on the investment property, you may need to dig deep into your own pocket just to make ends meet.

MAIN REASON FOR LEAVING PREVIOUS UNIT Other To be closer to work/school/other To establish own household New job or job transfer Needed larger house or apartment Other, family/personal related Wanted better home Wanted lower rent or maintenance Not reported Married, widowed, divorced, or separated Other housing related reasons Other, financial/employment related All reported reasons equal Disaster loss (fire, flood, etc.) Change from owner to renter or renter to owner Private displacement Evicted from residence Government displacement

Before you can slow turnover, you need to understand the reasons that renters move. Every two years the U.S. Census Bureau conducts a housing survey and answers this specific question and more. Here are the top responses to the multiple choice question, “What are the main reasons for leaving your previous unit?” Answers are in thousands.

1,548 1,416 1,282 1,220 1,103 1,004 881 867 779 628 614 527 450 126 120 118 112 45

Source: American Housing Survey National Tables. tinyurl.com/REIV-renters

Almost half of all respondents left for reasons you can do something about, such as wanting a better home, lower rent, or other. Yes, “other” is a reason that can be impacted by the way you treat your tenants. Other

means, “I just can’t put my finger on my reason for moving.” So, give your tenants a reason to stay. Isn’t it worth sharing a little love with your tenants to keep them and their contribution to your bottom line?

Contact Susan Hare at 408-391-8068 susan@susanharemarketing.com

B ASICS

FIVE THINGS REAL ESTATE LAWYERS WON’T TELL YOU by Jeffrey Hare, APC

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 land-use attorney and real estate investor, Mr. Hare provides clients with a pragmatic but thorough approach to due diligence, contract review, and negotiations. He has vast experience in entity formation (LLCs, etc.) for check-book IRAs and other business purposes.

Finding a lawyer isn’t hard. Finding the right lawyer can be a challenge, especially for the real estate investor. Investors make money by taking risks. Lawyers are trained to avoid risks. Yet one of the biggest risks an investor takes is failing to consult with a lawyer until it’s too late. Managing Risk. Many investors make money doing deals their lawyer advises them not to do. There is a big difference between taking a calculated risk and being reckless. The smart investor consults with their lawyer to understand what legal risks are involved, and takes steps to avoid or minimize those risks. There is always risk involved. An investor should seek a lawyer who can correctly identify those risks and help manage them. Investment Strategy. Many real estate lawyers (as well as many real estate agents), do not understand the essential investment dynamics involved in real estate transactions, such as how to calculate ROI, obtain financing, or structure the deal. These items are typically not taught in law school or required to obtain a license to practice law (or real estate). Finding a lawyer who understands investing may save you thousands of dollars by helping you navigate around typical traps and pitfalls. Obstacles. Most real estate disputes have nothing to do with the property itself. The first step to solving a problem is to correctly identify the problem. Family arguments, divorces, financial problems, and disputes over wills and trusts are often the culprit. Other obstacles to a successful investment plan may include obscure government regulations and policies, political wrangling, and erroneous title reports.

20 REI VOICE March-June 2012

In many cases, the smartest use of a client’s money would be to hire a CPA, trust attorney, a land use consultant, or an architect. Specialization. Most lawyers specialize in certain areas of the law, and might not be experienced or qualified to identify all of the relevant issues involved in a particular transaction. In many cases, an investor may need to consult with more than one lawyer to develop a successful and cost-effective strategy. Lawyers who are familiar with investors’ issues can provide guidance and referrals to specialists who often save the client money and time. Reduce Legal Fees. Most clients could save themselves thousands of dollars in legal fees with a little preparation. By necessity, developing a successful legal solution requires the lawyer to become familiar with the client’s facts and circumstances, and chart a course that best achieves the client’s goals. By providing the lawyer with a concise, accurate and comprehensive summary of the background facts, a client can drastically reduce the cost of getting the lawyer up to speed. By providing the lawyer with clearly defined, realistic goals, the client can help the lawyer to focus on the course of action most directly in line with those goals. A real estate lawyer familiar with investment strategies and dynamics can be a valuable member of your investment team. The right lawyer can help you identify and minimize your exposure to risk only if you consult before you get trapped. You can also save yourself time and money by setting clear and realistic goals, planning ahead, and keeping good records. Contact Jeffrey Hare at 408-279-3555 jeff@jeffreyhare.com

“Investors make money by taking risks. Lawyers are trained to avoid risks.”

FREE Pest Inspection or Limited Termite Inspection for Your Personal Residence Mention REI Voice Magazine When You Call!

March-June 2012 REI VOICE

B ASICS

Financing Multiby Joe Cucchiara With both mortgage interest rates and the housing affordability index at all-time lows, investors know that opportunity knocks. Mortgages are available for buyers of duplexes, as well as three- and four- unit dwellings. While there are more borrowing options for owner occupants, there are mortgages available for investors who have performed their due diligence. Investor or Owner-Occupant?

Owner-occupants can choose between Federal Housing Administration or Veterans Affairs or conventional financing. Investors are limited to conventional mortgage loans. For owner-occupants, the best financing is an FHA loan, which requires only a 3.5% down payment even when you are purchasing a multi-unit building. Investors must use conventional financing with a minimum down payment of 20% for a duplex, and 25-30% down for a property with more units. Some lenders may be reluctant to approve loans for investors because

22 REI VOICE March-June 2012

they are considered to be a higher risk. Investors need a higher credit score and more cash reserves to qualify for a multi-unit mortgage. They may also pay more in upfront fees or a higher interest rate on the loan.

reduces the amount of rent that can be added to the borrower’s qualifying income. For example, in some places, borrowers can add $750 to their gross monthly income if they are receiving a rent of $1,000.

Can You Use Rental Income to Qualify for a Loan?

Remember To Get PreApproved

Buyers of a duplex or multi-unit home can sometimes use the rental income from the additional units to qualify for a loan, but in general, the renters must have already signed a lease (12-months is preferable) so that the rental payments can be verified. A percentage of the rental income is included as part of the underwriting for a loan. However, if the property is vacant you can’t base a loan approval on anticipated rent payments. Some lenders may use a market analysis to estimate the rent, but in general they are very reluctant to lend a higher amount than the buyer qualifies for on their own unless there are renters in place. One thing to keep in mind is that for FHA loans, different jurisdictions have their own vacancy factor that

The first step in seeking an investment property is to determine how much you can qualify for. Many start property searching before they know what they can afford, but performing your due diligence is critical to your financial position and the strength of your offer. Work with a trusted advisor who will analyze your income, assets, and related factors to assess your eligibility. Once your pre-approval package is complete expect to wait three to seven days to determine the size of loan that may be available for your multifam purchase. Remember, you don’t have to have a deal in hand to be ready to make a deal. Contact Joe Cucchiara at 408-342-3755 jcucchiara@partnersmortgage.com

P RE A P P ROVAL CH ECK LIST



Copies of two most recent years federal tax returns 1040’s including all schedules



Copies of two most recent years business or corporate returns including all schedules (if self employed)

 Copies of two most recent years W2’s  Copies of two most recent pay stubs (if applicable)



Copies of two most recent checking account statements (including all pages)



Copies of most recent asset statements including 401K, IRA’s, Mutual Funds etc.

 Copies of your drivers’ licenses

-Unit Properties Joe Cucchiara is Branch Manager of Partners Mortgage San Jose and Host of Real Estate 360 Radio. As a Platinum Mortgage Planner and mortgage media expert, Joe has dedicated over 15 years of his career to helping clients achieve overall financial stability through real estate. With a firm belief in consumer education and first class service, Joe utilizes his widely established network to provide superior guidance at every level of every transaction.

March-June 2012 REI VOICE

Funding Available for real estate investors

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Total Occupied Rental Units

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35,378

■ Elderly (65 years and over) 4,623 ■ Below poverty level

9,334

■ All Other Renters

21,421

Source: American Housing Survey National Tables: 2009

SOUND OPINION—WISE DECISIONS: VOICE OF THE PROFITABLE REAL ESTATE INVESTOR

Number o f Renta l U nits by St ru ct u re 12,000

10,000

8,000

WHO YOU GONNA CALL?

6,000

Need a house inspection, repairs, or property management? Need help from a legal, accounting, banking, or marketing professional who understands real estate investments? Ready to purchase investment property or performing notes? Make our advertisers and resources on page 29 your first call.

2,000

Mobile home/trailer

50 or more

20 to 49

5 to 9

2 to 4

1, attached

1, detached

10 to 19

4,000

Source: American Housing Survey National Tables: 2009

24 REI VOICE March-June 2012

Learn How to Invest in Real Estate With Your IRA or 401k A self-directed IRA from The Entrust Group, Inc. gives you the freedom to invest in commercial property, rentals, rehabs, and more. As an IRA administrator, we will help to educate you on the choices available for self-directed investments, and how to achieve tax-deferred or tax-free growth. Entrust offers a full range of retirement accounts, so that you can invest in what you know best.

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Find out how you can take advantage of a world of investment options.

Lamarr Baxter 9245 Laguna Springs Drive Suite 200 Elk Grove, CA 95758 phone: (916) 509-7271 fax: (916) 405-4000

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EMAIL: stuart@CSRteam.com March-June 2012 REI VOICE

FE ATURE

Blog World Expo, Final Report by Aaron Norris

Aaron Norris is Vice President of the Norris Group where he is responsible for business development and production of TNG’s award winning radio show, events, and educational seminars. Mr. Norris is also principal at Palisoul, Norris, + Conroy, a marketing and strategy team based in Southern California and hosts the marketing and business podcast, The Cocktail Party Statement.

In the previous issue of REI Voice, I reported on a few of my personal takeaways from Blog World Expo held November 2011. What? You missed it? Then catch up with the online version at REIVoice.com/magazine. Or just skip ahead... (your loss, really!) SOCIAL SEARCH

I covered the concept of social search several issues ago. In social search, search engines aren’t just looking at your geographical location and your personal search criteria to deliver you great results. Rather, they’re also incorporating your social network to refer you to results that your friends like and recommend. If you have a Facebook account, log in and then immediately go to Bing.com and do a search for “Pizza.” My Bing results show paid search results at the top (Dominos and Papa John’s), followed by a Wikipedia article on pizza. After that, things get interesting. My next result is the link to the Pizza Hut website which is liked by three of my friends. Drop down a couple more lines and there’s Papa John’s with three more friends expressing their approval. Word of mouth is still the most powerful sales tool. Technology is and will continue to strive for better search results that bring social data into the search results. I’m much more likely to listen to a friend’s referral than that of an online review or paid advertisement. The Bing and Facebook partnership now has competition from Google. We’ll see if Google+

26 REI VOICE March-June 2012

can get the critical mass needed to truly compete socially. If Kawasaki is correct that Facebook is reserved for loved ones only, G+ may prove not to be as powerful in the social search arena. It’ll be fun to see how all this plays out in the coming months. BRING RELATIONSHIPS OFFLINE

Even though the BWELA team provided free Internet access to all attendees, much of the weekend

was spent networking in the reallife, face-to-face, offline sense. It’s great to meet some of the people you read about and admire and realize they’re real people working hard every day, just like you and me. Thought-leaders are great, but it could be the person sitting next to you that inspires your next great idea. Attending an event like this also exposed me to vendors and reports I didn’t even know existed

or that could help my business. I enjoyed the data from Technorati’s State of the Blogosphere report immensely and I had never even heard of bookbaby.com. At the end of the day, one small idea can be a revolution in the way you work. Maybe I’ll catch you next year at the event. Contact Aaron Norris at 951-780-5856 aaron@thenorrisgroup.com

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Investor Resources Accounting Michael Gray, CPA 408-918-3162 mgray@taxtrimmers.com www.realestateinvestingtax.com Richard Smith, Enrolled Agent 408-446-5551 rsmithtax@aol.com www.richardsmithtax.com

Attorneys Chillag & Associates, P.C. Nancy A. Chillag 650-321-6796 nancy@chillag.com www.chillag.com Jeffrey B. Hare, APC 408-279-3555 jeffrey@jeffreyhare.com www.jeffreyhare.com

Data & Analysis Altos Research Scott Sambucci 415 - 931 -7942 scott@altosresearch.com www.altosresearch.com

Insurance Brighton Financial Group Vernon Williams 408-931-6582 vwilliams@farmersagent.com www.farmersagent.com/ vwilliams

IRA Entrust Administration Inc. Lamarr Baxter 916-509-7271 www.entrustcalifornia.com/ oakland IRA Services Trust Company Michael McNair 650-593-2221 www.iraservices.com

Mortgage Brokers Joe Cucchiara Mortgage Planner/Branch Manager 408-342-3755 jcucchiara@partnersmortgage.com www.re360radio.com Michael Ryan Mortgage Broker and Banker DRE License # 01090891 NMLS # 295351 408-986-1798 mike@michael-ryan.com

Private Financing Socotra Capital Jeff Simmons & Chris Baumann 916-617-2047 jeff@socotracapital.com chris@socotracapital.com www.socotracapital.com

Property Services Thrasher Termite & Pest Control Inc. Janet Thrasher 408-354-9944 info@thrashertermite.com www.thrashertermite.com

Real Estate Agents CSR Real Estate Service Stuart Baeriswyl DRE License # 01807909 408-373-6766 stuart@csrteam.com www.customerservicereality.com

Real Estate Investments Equity Transitions Jeb T. Henley DRE License # 00608973 831-419-4200 jebhenley@gmail.com www.equitytransitions.com MemphisInvest.com Chris Clothier 877-773-9998 chris@memphisinvest.com www.memphisinvest.com

Summit Assets Group Lori Greymont 888-298-0652 lori@summitassetsgroup.com www.summitassetsgroup.com The Norris Group Bruce Norris DRE # 01219911 951-780-5856 info@thenorrisgroup.com www.thenorrisgroup.com Wilson Investment Properties Tom Wilson 408-867-1867 tomkwilson@earthlink.net www.tomwilsonproperties.com

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March-June 2012 REI VOICE

Tuigim*, Ger by Geraldine Barry In my role as President of SJREI, I am constantly reviewing books or creating educational content to share with our members. We now include a new educational/motivational segment before every meeting. When I help others step up their game, and increase their efficiency and happiness, I am living my life’s mission – and that makes me happier. So here are some ideas that may be helpful to you in your daily life. Sometimes we create momentous goals for ourselves, and then it is overwhelming to think about where to start. Little changes matter – here is one excellent tip from our current book club selection, The 7 Minute Solution by Allyson Lewis. Before you finish work each day, or go to bed at night (this is relevant whether you are a corporate employee, a student, or self-employed) compile a list of the five things that you absolutely must accomplish the next day to get you where you want to be – you are creating your 5 before 11 a.m. list. Then execute. Complete those five objectives before 11 a.m. the following morning. Consider this – if you complete five tasks for five days you will have accomplished 25 things that have been hanging over your head. By preparing your list the day before, you give your sub-conscious mind an opportunity to work on them for you overnight, and they become easier to accomplish as a result.

What things belong on your list? Tasks that will yield the best results for you when they are completed – and if they are done by 11 a.m. you will feel a sense of accomplishment. It could be reaching out to 5 clients, writing thank you notes, reading 10 pages of an educational book, completing forms that have been on your desk for weeks, or simply registering for a class. Your goal is to incrementally build momentum by creating little habits that ultimately make your life more manageable and productive. Remember that success breeds success and ultimately make you happier too. Life is complicated and will inevitably throw us curve balls, but when this happens, if we have developed good disciplined habits, those habits help us to navigate life’s inevitable up’s and down’s. Stability and structure is soothing and comforting in the face of a storm. Interestingly enough, will-power is like a muscle – the more you use it the stronger it becomes. Our goal is to eliminate negative thoughts, and take positive action to constantly grow, learn and become more selfreliant, and content. Share your thoughts at www.SJREI.org, because here is another tip. When you write down your thoughts and share your insights or goals, they become stronger.

Tuigim (pronounced tigg-im) is the traditional Gaelic answer to the question, “An dtuigeann tú?” (Do you understand me?)” Tuigim means “I understand,” “I got it,” “I follow,” “I’m with you…,” and is the answer Geraldine Barry, native of the emerald isle, most loves to hear.

Geraldine Barry is founder and president of SJREI Association the premier educational and networking association for real estate investors in the Bay area. Under Geraldine’s leadership SJREI has grown from a half-dozen investors to a vibrant three chapter organization with over 400 investors attending monthly meetings. SJREI won the Award for Excellence from the National REIA (Real Estate Investors Association) in several categories in 2010. As an avid investor herself, Geraldine has interviewed multiple real estate pros, many of whom have been guests of SJREI. In addition to leading SJREI, Geraldine is the frequent host of the radio program, Going Beyond Real Estate, a regular guest on the nationally broadcasted NTDTV, publisher of award winning publication REI Voice Magazine, and producer of the much acclaimed annual Real Estate Investment Expo Silicon Valley. As a serial entrepreneur Geraldine is also a principal in Miles/Barry Contract Furniture serving corporations in the Silicon Valley. Additionally, she coaches business principals and CEO’s, guiding them in becoming more productive in less time in their leadership positions, helping them identify their core strengths, focusing on those to achieve their vision, and delegating effectively. Geraldine resides in Silicon Valley, and is the proud mother of Colin & Claire her two children.

30 REI VOICE March-June 2012