Reivoice January 2015 by San Jose Real Estate Investors Association

SPRIN G

2015

$ 4.95

VOICE MAGAZINE The Voice of the Profitable Real Estate Investor

Industry Experts Weigh in on 2015 From Distress to Success in Real Estate Kathy Fettke

PETE FLINT The man behind Trulia

PREDICTIONS FOR

Jamie Matthews

Mayor of Santa Clara Known for his positive energy, achievements, and unflagging commitment to the people and economy of Santa Clara, Mayor Jamie Matthews shares some exciting news and predictions: The combined Montana and Related City Place Projects, proposed to be constructed adjacent to Levi’s stadium, will create an unrivaled retail, entertainment and shopping destination in the South Bay. At nearly 9.0 million square feet, these developments are anticipated to generate over 23,000 new full time jobs in addition to the thousands of construction related jobs during development. This new destination is proposed to include large anchor retailers, restaurants, offices, hotels and an Arts and Jazz district. The private investment to make this possible is over $6.5 billion. Mayor Matthews once said “I think too many people limit themselves. There may be something they wanted to do, but they are not willing to do what’s necessary to make it happen. So, just have the faith to throw yourself into the abyss of possibility.” Judging by his predictions, he clearly walks his talk; big things are on the horizon for Santa Clara and our favorite Mayor!

Phil Mahoney

Commercial Real Estate Broker

Large, frequently discussed companies, such as Apple and Google, have experienced unprecedented growth for years; this continued in 2014. Literally millions of square feet were either leased or purchased by these two companies alone. That doesn’t take into account the expansions of LinkedIn, FaceBook, Erikson, TSMC, Box.Net, etc. By any measure, 2014 was a record year for absorption of space. It is hard to fathom how 2015 could be as robust. That being said, there are a number of smaller companies from the Silicon Valley that are presently looking to expand, or will, next year. Although office deals are often in the spotlight, there have been numerous logistics and manufacturing transactions over the past year. Some of the larger ones were done by Amazon, expanding its footprint

here in the Valley, and by Flextronics as well as Vander-Bend Manufacturing and Living Spaces. This sector has a number of requirements in process or on the horizon. Although some stalwarts of the past, such as Lockheed, Cisco, and Hewlett Packard continue to reduce their Bay Area headcount, the overall trend has been nothing short of dramatic. As the year closes, the Valley seems to be firing on all cylinders. Of course this growth comes with heavily publicized issues, such as a lack of affordable housing and traffic concerns. These are not new problems for Silicon Valley, and there have been some minor improvements in both areas, but, in general, not nearly enough to deal with the ever increasing number of employees. However, having been through the 2008-2010 crisis, I’m happy to take a little more traffic for better economic times where more residents of the Valley are employed. The issues with growth are always easier to deal with than than issues of contraction.

Joe Cucchiara

Mortgage Broker The 4 things in lending to watch for in 2015 in the mortgage industry: As we wrap up 2014 and make our way into 2015, there are four things that I would strongly suggest consumers, and investors alike, keep their eyes on in the world of lending. Expect rates to stay around the same levels as they were in late 2014. However, be careful as my prediction is that we will see rates move up anywhere between .375 to .500 by Q3 and Q4 of 2105. Jumbo financing has been tracking lower as 2014 came to an end, and this trend will continue. Most lenders now participate in the jumbo market, which has created more competition; this will continue to equate to lower jumbo rates for the consumer. In some cases now, jumbo rates are better than conforming rates! Stated income financing is back: What? Yes, you heard it right: stated income financing is making a comeback and will take center stage in 2015. Many lenders and government officials are nervous about publicizing and promoting the return of stated income. (Cont. on page 31)

Spring 2015 REI Voice

Photographer - Frank Biehl

Photographer - Ken Ta

Welcome Publisher’s Note:

Contents

Features

Diversify & Succeed: Todd Pigott By Geraldine Barry

Advice:

Do Your Math: Avoid Legal Problems By Jeffrey B. Hare, Attorney at Law 5 Important Steps to Flip & Fix Success By Andy Pollack Why are so many real estate investors going bankrupt? By Brandon Turner Are Real Estate Syndications for you? By Tom Wilson

Analysis: California Housing Market By Selma Hepp, PhD. Understanding California Housing Affordability Crisis By Joel Singer A New Ballgame?

Bruce Norris on Market Timing By Geraldine Barry By Michael Grigelvich

A Niche Strategy: Eddie Speed By Geraldine Barry

Kathy Fettke’s journey from distress to success

The Man Behind Trulia: Pete Flint By Geraldine Barry

Larry Stone Assesses John A. Sobrato By Geraldine Barry

6 20

By Michael Grigelvich

17 19

Basics:

Predictions for 2015 By Geraldine Barry

Investing Tools that Work By Geraldine Barry

22 35

2015: A lot of Gas in the Tank Dr. Christopher Thornberg, PhD.

The State of the Market Interview with Carole Rodini By Geraldine Barry

The Science of Real Estate: Pam Blanco.

Jason Hartman & the Revolutionary Power of Podcasting

Alain Pinel

www.reivoice.com

By Michael Grigelvich

Calendar Investor Resources Ger’s Tuigim Column

23 41 43

Rei Voice Magazine spring | 2015 Publisher Geraldine Barry 408.264.3198 geraldine@reivoice.com

EditoR Michael Grigelevich michael@reivoice.com

Director of Design Bach Pho Bachpho@yahoo.com

Photographer Ken Ta

Advertising Sales Brigitte Jones 408.898.7534 brigette@reivoice.com

Production Manager Belle Li belle@reivoice.com

publisher’s

note I

t’s been an eventful year for real estate in Silicon Valley and across the country, for that matter. CA rents continued to skyrocket, the job market continues to thrive, and the CA economy moved along at a fast clip with companies making record profits, as well as leading the way nationally in terms of economic growth and employment numbers. We’ve also seen technology evolve rapidly and change how people source data and information online, especially when they start the journey of looking for a home to rent or purchase.

It’s been an eventful year for REI Voice, too, as we’ve seen our publication grow and become more enriched by quality content and contributions from top-tier insiders. This issue illustrates the forward-thinking spirit that helped facilitate the recent growth of both the industry and our magazine, and we couldn’t be happier to share it with you. We’ve spoken to some of the biggest names in real estate, people who exhibit the special blend of energy and creativity that make our industry so exciting. For our feature interview, I sat down with Pete Flint, Trulia’s CEO. His company stands as a pioneer in the field, providing comprehensive online residential tools, price trend analysis, crime maps, and interactive capability to its users. While technology has become more advanced, Flint reminds us that the real estate agent is still paramount in the home buying process: “There’s a human element of providing service to clients that can’t be replaced by technology.” I was honored to speak with Pete Flint who is from my part of the world, Great Britain, and his company Trulia and it cutting edge technology, and growth, over the last few years is nothing short of spectacular. We also spoke with Kathy Fettke, the CEO and co-founder of the Real Wealth Network, host of the Real Wealth Show, and author of the recently published and highly-regarded Retire Rich with Rentals. Twice named one of Goldman Sach’s 100 Most Intriguing Entrepreneurs, Kathy shared her personal story of success, discussed the numerous merits of buy and hold real estate, and offered her insights into the future of the market. Todd Pigott, the President and founder of Zinc Financial, a diversified lending company, discussed his rise to success with us and offers his thoughts on choosing good deals, the state of the market, and where the industry is headed. Pigott had made quite a name for himself, and he has a valuable story to tell.

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 408.264.3198 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.

We tapped into a host of other key players in the industry to discuss current trends and future possibilities; we also received a bounty of exclusive content from our regular contributors and made sure to continue our own special features. Always a favorite, our “Predictions for 2015” gives an array of surprising depth from area experts, including both residential and commercial arenas. It covers everything from interest rates to office space absorption, as well as Santa Clara’s growth and what is on the horizon there with our favorite Mayor Jamie Matthews. We are proud of this issue as it continues our tradition of giving you carefully considered information and opinions that will help educate and motivate you. Best wishes to you for a productive and successful year!

Geraldine Spring 2015 REI Voice

Analysis

California’s Housing Market

Will uncertainty lead to certainty in 2015? by Selma Hepp, Ph.D., California Association of Realtors

ousing experts looked for 2014 to be full of expectations for a relatively more balanced and healthier housing market. However, the fast and furious gains made during 2013 came to a halt following the Fed’s announcement of tapering their asset purchases. 2014, in contrast, turned out to be marked by lower home sales activity in California and home price appreciation slowing to long term averages.

on lackluster housing demand. While their disengagement was frequently attributed to fading affinity for homeownership, numerous surveys of millennials have shown otherwise. One difference from the previous generations that cannot be discounted is millennials’ postponement of adulthood. They are less likely to be married or have children today than previous generations were at the same age.

According to the California Association of Realtors, C.A.R., current sales of existing detached homes in California hover below the 400,000 annualized benchmark at about 396,000 units, which is almost 9% lower than 2013. Similarly, the double-digit home price appreciation seen in 2013 started resembling another housing bubble also markedly slowed to a historical average of about 5% year-over-year growth today. Median home prices in California reached $450,000 in October of 2014, increasing about 85% since 2009. Some parts of the state, particularly in the Bay area, have, however, surpassed the previous cyclical peak.

Nevertheless, the C.A.R. 2014 Survey of Millennials indicated that the majority still values homeownership and aspire to own a home, but are unable to purchase one due to financial constraints. Similarly, the C.A.R.’s Renter Survey showed that the majority of renters chose to rent because they cannot afford to buy. Lack of down-payment or ability to save for a downpayment emerged as a theme across many surveys. In general, lack of housing affordability in California is a significant impediment to homeownership. According to C.A.R.’s surveys, affordable home prices, instead of starting a family, are more likely to motivate renters of all ages to buy a home.

Now, moving into 2015, what can we expect? As a starter, it is critical to understand that housing fundamentals are strong and continue to improve. California has experienced some of the strongest employment growth in the nation, and while the growth was initially concentrated in the Bay Area, employment has expanded to most of the state and across most sectors. In the summer of 2014, California, like the nation, reached an important benchmark by recovering all jobs that were lost during the recession. Also, mortgage interest rates continue to remain at relatively historical lows. Despite experts’ anticipation of rising interest rates following the Fed’s ending of the asset purchase program, mortgage rates have remained low and even fell slightly since the beginning of 2014. Most important, however, is the improvement seen in the inventory of homes available for sale. Much of price bidding seen in 2013 resulted from historically low inventory levels. And while inventory remains an issue in areas with strong demand, there are about 15 to 20% more properties available for sale than were a year ago. Fortunately, inventory of entry-level and affordable homes is slightly higher than last year. One could ask, then, what is the problem? There are still headwinds holding back both the demand and supply side. A lot of debate in 2014 focused on the impact of Millennials www.reivoice.com

Further deterioration in housing affordability will have an adverse effect on California households. For a typical California household, the monthly payment (including taxes and insurance) required to pay for a median-priced home will increase by 13% in 2014 and 8% in 2015. The minimum required annual income will increase accordingly from about $81,000 in 2013 to about $92,000 in 2014, and to almost $100,000 in 2015. Meanwhile, real disposable income in California is projected to increase by only 3% in 2014 and 3.8% in 2015. The Housing Affordability Index is projected to fall to 27% in 2015. However, affordability conditions are going to become even more constrained in the Bay Area where the affordability index is projected to fall to about 10%. In other words, only 1 in 10 households are able to afford a median priced home. Two other important trends that affect the demand for homeownership include changing household composition and decreasing mobility rates. Multigenerational housing and the doubling up of households has emerged as a result of the economic downturn but also the changing demographics in California. As minorities in California continue comprising a larger share of consumer population, cultural trends, including multigenerational housing, are more prevalent among home buyers. It is still unclear if the trend is a long term solution or if it is due to financial constraints; perhaps improving economic conditions will reverse these trends.

Analysis

Furthermore, historically low interest rates that persisted throughout 2012 and 2013 allowed many homeowners to lock into exceptionally favorable mortgage financing terms. As home prices and mortgage interest rates rise, those households will have less incentive to sell their homes and purchase new ones at less favorable terms. Similarly to the deterring effect of low mortgage rates lock-ins, Proposition 13 strongly diminishes one’s motivation to move. Taken all together, 2015 will not be short of challenges for California’s housing market. Nevertheless, improving economic conditions and a continually stronger labor market will help bolster the market. C.A.R. projects sales of single-family detached homes to increase by 5.8% in 2015 to little over 400,000 units, while home prices are anticipated to increase 5.2% to a median price of $479,000 (see Figure 2 below ).

EVOLUTION AVERAGE REAL HOUSING ASSETS RELATIVE 2007 LEVEL BY AGE

120 100 Levels set equal to 100 in 2007

Another supply side constraint still lingering is negative equity. With about 9.7% of households remaining underwater, the majority of these 650,000 homeowners are younger households. Figure 1 suggests that population aged 40 years and younger has hardly regained any real housing assets relative to 2007. Consequently, the younger population, which generally also owns homes in affordable price ranges, will have lesser incentive to sell their homes at the moment, thus limiting the supply of homes available for sale to first-time or financially constrained buyers.

80 60 40 20 0

1989

1992

Under 40 40-61 62 and Over

1995

1998

2001

Figure 1

2004

2007

2010

2013 Q3

SOURCE: Federal Reserve Board’s Survey of Consumer Finances for all years between 1989 and 2020, our estimates for 2013 Q3

CALIFORNIA HOUSING MARKET FORECAST

SFH Resales (ooos) % Change Median Price($ooos) % Change Housing Affordability Index 30-Yr FRM SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

2011

2012

2013

2014

2015F

422.6 1.4% $286.0 -6.2% 53% 4.5%

439.8 4.1% $319.3 11.6% 51% 3.7%

413.3 -5.8% $407.2 27.5% 36% 4.0%

380.5 -8.2% $455.0 11.8% 30% 4.4%

402.5 5.8% $478.7 5.2% 27% 4.5%

Figure 2

Spring 2015 REI Voice

Features

Diversify & Succeed: Todd Pigott by Geraldine Barry

seriously driven man, Todd Pigott had just seventeen dollars to his name in 1987. As a student at Fresno State, making a meagre $2.61 an hour, college tuition was simply out of his reach. Fees over $300 a semester combined with the ever-increasing cost of books sent him home to consider his next move. The university reached out to him about his sudden departure - and, upon hearing his dilemma, offered him a sports scholarship (which he gratefully accepted). This experience changed him fundamentally: he did not want to be that vulnerable financially ever again. Always entrepreneurial, and never afraid of hard work, Todd started and founded a successful cleaning company while at college; over a period of several years, Todd grew it into a multi-million dollar facilities management company, servicing corporate giants such as: Albertsons; Smart and Final; Target; Mervyn’s and PetsMart in three different states. As the business grew more successful, he ventured into the private money arena, lending money from his profits to people who were investing in real estate. Eighteen years after he founded it, Todd sold his multi-million dollar facilities company and rolled those funds into a new venture: Zinc Financial in 2006, opening right at the real estate market’s peak. As conventional loans are lengthy and cumbersome to navigate and secure, Zinc, an investment-focused lender, developed the private money niche to help investors sidestep the traditional financing channels quickly and seamlessly. Zinc’s business model is as focused and results-oriented as is Todd. Zinc includes three distinct divisions. One is its the Buy & Hold Investor Program which offers solid rates of 7.5 percent - 9 percent for a 5 year note, another is the Buy & Flip Investor Program, and a third does auto financing for used cars at price points of $12,000 and under. Zinc Financial fills a niche for investors looking to leverage their capital in “fix & flip” properties’, working to ensure all parties have a successful outcome. An astonishing 1,000,000 cars per day are sold between Fresno and Sacramento in the $12,000 and under price range. Zinc’s auto division serves as a strong backbone and helps to diversify against the often unpredictable real estate cycles while servicing a demographic that is consistent and reliable: they need vehicles to work and live. Additionally, car loans are in an asset class collateral that is widely used, and amortized over a 48 month period as

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opposed to the typical private money, interest only amortization schedule on real estate loans. Developing this niche has been lucrative for Zinc, creating diversification and a consistent source of income in both good and bad economic times. This is something that Todd believes is relevant in real estate investing as well: hit the sweet spot in the market in terms of investment properties to minimize risk and capture a larger pool of potential buyers. I had the pleasure of sitting down with Todd to learn more about his successful business and his thoughts on the market today. What he shared is something we can all learn from, regardless of our individual enterprises and investment paths.

What are your thoughts on the the current market-place and what could potentially impact it? The Federal government is heavily involved in real estate, controlling interest rates and taxation. We have a fast moving information and technology driven economy that impacts all

Features industries. One cannot look at the historical data to predict where the market is headed housing or otherwise. We are in a different place with the war on terror, ISIS is a wild card, and federal spending is out of control - we have an unsustainable model, and we cannot continue to print money at this pace. All of these factors threaten the real estate market and make it less predictable unlike ever before. Securing your own position is a must financially for long-term security, and real estate and entrepreneurialism are the way to go with accomplishing this. Social security is not a reliable retirement strategy.

How do you decipher if a deal is solid, and minimize your risk exposure? We loan on character, good collateral (the property), credit history, and integrity. We have run into the “credit criminals” who borrow money, but don’t want to pay. That is a “walking argument” waiting to happen - we don’t want that kind of business. We want responsible borrowers who look at a deal logically, partner with us, keep emotions out of the equation, and have several exit strategies. We make our our own underwriting decisions in house, approve, and wire funds from our office - this process can happen in less than a week. If we do three loans with someone we don’t qualify them after that - we look at the deal, they have built a history of performance with us. This is a relationship business, and we have many repeat clients. We are a licensed lender much like a bank, not a broker who sources the financing - we provide our own inside

Diversify & Succeed: Todd Pigott financing. Most capital comes from our own funds, that means we stand to lose our own money if the investor does. We look on these loans as partnerships with the investor, and that makes us very cognizant of the details.

What are you seeing in the field today? Inventory is low, it’s a very competitive environment, and margins are shrinking. Everyone thought that there was a great opportunity to buy in 2011, when many distressed properties were available, and it was. However, investors you could not sell as easily at that time - the exit strategy was not as well defined. Today, if you have inventory it will sell because inventory is limited, the exit scenario is clearly defined for the buy and flip investor. The ability to move the inventory on the open market is very strong in today’s environment. The bottom line for investors is - can I sell this property for a profit? I recommend that investors focus on product that is below the median cost of housing for a given geographic area, and stay in that price point unless there is a significant advantage to deviating from that. There is a larger pool of buyers in this category, and risk is minimized. Married happily for seventeen years with three lovely children, Todd is currently building a new home on a golf course in Fresno. This successful entrepreneur’s parting words of advice for all of us? Love what you do. Be passionate about it. Enjoy every day. That is the secret to success for sure.

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Advice

DO YOUR MATH Avoid Legal Problems by Jeffrey B. Hare, Attorney at Law

hat does math have to do with legal problems? As a general rule, investors don’t file lawsuits when they’ve made a nice profit from a deal. An investment partner who doesn’t get paid is more likely to resort to legal action than one who does. So, it makes sense to figure out if the deal will make cents. Understanding the numbers can often help avoid both financial and legal problems.

So how can doing the math help? Pretty simple, actually. A prudent investor who does the math is more likely to avoid a financial disaster. New investors are easily distracted by flashy powerpoint charts and shiny flyers promoting great deals that don’t tell the whole story. Let’s consider an example of an “Investment Opportunity” featuring a “Positive Cash Flow” investment property for your retirement portfolio. “Like-new rental property; Only $250,000. 20% down payment; financing available. Rent: $2,000 per month. Hurry! This offer will not last!” The deal sounds good to someone who has $50,000 to invest. Chances are they will qualify for a 6% loan for the balance, which means mortgage payments of only $1200 per month. $2,000 in rent minus $1,200 in mortgage payments works out to $800 per month. That’s $9,600 per year in passive investment income! Right? No. Not even close. And if the investor is using money from an investment partner – a friend or relative – the problem could get ugly. One way to look at an investment is from a lender’s perspective. A lender looks to see if the amount of the loan is covered by the value of the property, or Loan-to-Value (LTV) ratio. The lender also wants assurances that the rental income will cover the operating expenses and the debt service. In other words – will there be positive cash flow? A simple formula is known as the Debt Service Coverage Ratio (DSCR). This is the ratio of Net Operating Income (NOI) to Debt Service (think mortgage payments). DSCR = NOI/ Debt Service. Where NOI = $1,000 and Debt Service is $1,000 the ratio is 1.0. This means there is no cash flow, negative or positive. Lenders generally look for a DSCR of 1.2 or better. Using our example, let’s calculate the DSCR. Net Operating Income (NOI) is calculated from Gross Income minus all Operating Expenses. Operating Expenses (OE) must include all costs (but not debt service). OE includes maintenance, make-ready repairs, www.reivoice.com

property taxes, insurance, etc. It also must include property management fees (8 – 12%), re-lease fees (usually one-half to a full month’s rent), and a factor for vacancies – often ignored or underestimated. For example, a single-family investment property that is vacant for two months would have a vacancy rate of 17% for that year. A vacancy also means make-ready repairs – painting, carpets, repairing plumbing, light fixtures, latches and handles, etc. You should budget a month’s rent for make-ready repair costs every two years. In our example, the property was purchased for $250,000 with $50,000 down. Let’s be optimistic and assume an 8% property management fee for 11 months ($1,760); one month’s vacancy (rental income loss of $2,000), with one-half month’s rate to release the property ($1,000); property taxes ($5,000); Insurance ($960.00); maintenance and upkeep ($2,400), for a projected total of $11,120 in Operating Expenses. Our Net Operating Income works out to be $12,880. (NOI = $24,000 - $11,120 = $12,880). Therefore, the DSCR works out to $12,880 / $14,400 (NOI / Debt Service) = 0.89. Since this is less than 1.0, it means a negative cash flow for the investor and potential problems for his partners.

You can see how a relatively simple calculation can reveal a potential loss, or change the dynamics of the investor’s negotiation over the purchase price. Even if there was no vacancy factored in, the NOI would increase to $15,720 and yield a DSCR of 1.09. This is still lower than most lenders would accept, and would result in a net cash flow of only $110 per month – hardly enough margin for emergencies! Other factors must be considered, such as a natural disaster (hurricane, windstorm, wildland fire, flood, tornado), or a bad tenant creating an eviction process, wreaking havoc on both the property and the bottom line. Even a relatively minor disaster – broken water line, falling tree, or broken sewer line – can easily wipe out the net profit for the year! The intent here is not to frighten away investors, but to make it clear that doing a realistic projection of possible gains and losses can make a big difference in predicting the outcome of the investment. Avoiding losses = Avoiding legal problems. It’s that simple. Yet time and time again, investment partners jump into the lake without first checking for rocks. Protect yourself, and your partners. Do the math first.

Features

Bruce Norris on Market Timing:

An Art & a Science... by Geraldine Barry

orn in Brooklyn, New York, Bruce Norris’s path to success began at an early age. As a child, Bruce saw his father make success a priority when he left his home in West Virginia for a job with Lockheed Martin. Bruce’s father and his brother Dwight, both physically imposing men, were born with fiercely competitive spirits. Bruce was more of a pacifist in the family. Despite this, he forged his own path to success. Bruce married Marsha, his high school sweetheart, as a teenager. Together, they had four children. Bruce gives Marsha a great deal of credit for his success, saying that he was driven to give her financial stability: “I would do much more for Marsha than for myself,” Bruce reflects, “if she wanted something, I found a way to get it.” They had three boys and one daughter together. Marsha came home one day from a friend’s house and commented that the house she had been to was fabulous. Bruce’s competitive spirit kicked in, and he questioned her for details. Marsha said it was a beautiful, custombuilt home. The very next day Bruce bought a site for a custom home for her on which he built a lovely home. They lived happily together there for thirty years… President of The Norris Group (TNG), Bruce has built a powerful company that has several distinct facets -- acquisition, trust deed investing, a hard money division, investor education -- all built around Bruce’s investor experience, his research and analysis, and his love of data. How did Bruce become the market timing expert he is today? He attributes it to his constant quest for knowledge, his tortoise-like approach and his respect for data: I enjoy studying. I learned through the school of hard knocks. I’m essentially self-taught. Theorems always made sense to me. I get a picture from specific charts that tell me what the market is doing. I’m very interested if an outcome is not what was anticipated - I want to explore and understand why and determine if this is the new normal. Why is a slowdown happening, for instance? I don’t draw opinions until I’m done looking at the evidence. It is not my opinion: the data tells the story, and I just put the pieces together.”On his highly accurate market timing reports, Bruce draws a conclusion only after reviewing the body of evidence, and then he puts a report together. Sometimes he is surprised with the conclusion, but he relies on the data, confident in what it tells him. There is a psychological component to cycles, Bruce notes, that should not be ignored. Greed. Fear. A tendency to follow the crowd. These human factors are prevalent in cycles. It’s human nature, Bruce states. Crowd mentality influences markets greatly. When

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there is no price decline in sight, a lot of different factors can end up as a catalyst for one. Market conditions. Economic conditions. Inventory build-up. What is happening right now? “There is very low inventory available. Even despite current under building in relation to household formation, builders remain nervous about participating. They are playing it safe and they’re not taking big risks on sub-divisions. They got hammered over the last couple of cycles, so there is a lack of participation.” The following interview gives an even more in-depth view of Bruce’s approach to real estate and his thoughts on the industry.

How has the Great Recession impacted your view of the market? It has not changed. In CA we have cycles as do other locales, but CA cycles are not as exaggerated as other areas of the country. Our investor community took advantage of the recession, and did very well, but many people were damaged financially and emotionally where they lost their homes and may never own again as a result of that experience. Understanding cycles and the emotional component is the key to navigating them well.

Are the Millennial’s buying homes today? They were raised in a house where both parents may have lost jobs and lost their home; their lives were impacted by the recession. They experienced first hand the financial disaster that unraveled over the period of the recession. They may have a master’s degree, but why take on that burden of a home? They want a different lifestyle, buying a house later, getting married later.

What do you think about the real estate market today? Housing was over-priced by 10% last year. That does not change dramatically overnight - also changes take time to become evident. CA is often over-priced and undervalued for shorter periods of time. In CA, we have enjoyed an incredible comeback; yet building supply is not hitting demand. The number is falling short of what is needed. It will be interesting to see how this plays out next year.

What are you most proud of in your life? My family… my three sons, my daughter Sarah – the decent human beings they are, and the people my 9 grandchildren will become because of the great parents they have. (See page 15 for the upcoming TNG event)

Steve Forbes

Big name guests John Mauldin

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Meredith Whitney

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Over 5,000,000 downloads George Gilder

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Jim Rogers

Ken McElroy

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Listeners in 164 countries Robert Kiyosaki

Harry S. Dent

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Advice

Andy Pollack 5 Important Steps to Fix and Flip Success: WDB Funding offers food for thought

he risk and reward components for a Fix and Flip property transaction balance several gating factors of successes and setbacks. Compared to other types of real estate deals, Fix and Flip deals offer the possibility of large returns but also come with risks. Too often, investors do not take advantage of opportunities that will bring improved value to the bottom line, deals that can capture them thousands or even tens of thousands of dollars. While the process of fixing and flipping is not an exact science, most investors focused on this area are making a respectable and viable living. Luckily, by learning from the successes of other investors, an individual can further capitalize by keeping the following in mind:

Due Diligence – Regardless of experience, proper due diligence

and investigation must be performed on each property. Each prospective acquisition brings with it a unique set of circumstances that present potential challenges and rewards. The due diligence process includes exploring market analysis, new housing construction, the overall regional economy and detailed property inspections. Proper investigation and background research provides valuable insights into the deal well before any demolition or rehabilitation work is performed. It is much more than simply location, location, location… discovery and research efforts must be performed.

Management Accounting (aka: The Budget) – The mathematics are relatively simple: a Fix and Flip must ultimately sell for more than the investor spends on the property acquisition and renovations. No doubt that one of the most regular mishaps for investors is going over the budget. Not everyone finds cost accounting all that alluring, but if the transaction expenses run out of control and subsequently shrink profit margins…everyone wants to become a duly qualified Cost Accountant. Before purchasing a property, take the necessary steps to get accurate estimates from your contractor, and stick with your budget. If the total cost exceeds the benefit and potential for profit, then move to the next prospective property. Project Plan – A comprehensive project management plan ensures that the Fix and Flip endeavor starts and finishes on time, thus keeping holding costs to a minimum. With the investment capital, elapsed time is one of the most critical components of real estate investing – time is money! The discipline to follow a work www.reivoice.com

schedule and structured plan ensures a well executed project.

Property Holding Time – It is all about supply versus demand. The ability to specifically outline the level of demand for a property is not a straightforward task. A large part of this process reverts back to the due diligence and investigation step and the econometrics affecting demand and supply. Holding a property longer than an investor plans will have a negative impact on profit margins. There must be a solid plan for marketing, listing, and selling the subject property once all the renovations have been finished. The carrying costs should be clear for insurance premiums, utilities, property taxes, debt service etc. Exit Strategy – An exit strategy must be top priority when initiating a Fix and Flip transaction. There must be an endgame that closes the real estate transaction and provides the financial benefit for the Fix and Flip undertaking. This can be accomplished through a myriad of options – fix/sell, fix/hold, lease option, rental, etc. The critical component is to establish the selected strategy and build your real estate investment business plan around it. The opportunities for success within the Fix and Flip real estate transactions far outweigh the risks. The key attributes and steps to be taken to ensure a profitable Fix and Flip venture must be evaluated on a property-by-property basis. The roadmap to success is attainable with the proper due diligence, fact finding, preparation, and overall transaction execution.

About WDB Funding: A premier product innovator, WDB Funding offers non-owner occupied business purpose Hard Money and Alternative Equity Lending Solutions, which meet the needs of even the most creditchallenged borrowers. What matters to us is proven results, keeping the deal alive, streamlining the transaction process, and getting a deal funded fast. Our company is a nationwide lender. Whether it’s to purchase or refinance an investment property anywhere in the United States or to finance a dream project you’ve always imagined, WDB takes a common sense approach to lending, giving Real Estate Investors their very best return.

The IndusTry WaITs For Bruce norrIs’ calIFornIa real esTaTe PredIcTIon His Latest anaLysis is Being ReLeased On JanuaRy 31st in RiveRside, Ca.

n this odd, soft market, everyone in the California real estate business is wondering what to do. The big question on everyone’s mind: Are we about to see price declines on a mass scale? And if price declines occur, when will it happen? And, how will smart investors pivot to continue producing income and protect their existing investments?

Bruce has titled Chapter 23, “Why I’m Considering Exiting Now with Some of My Chips.” If you do nothing else for the health of your business and income in the next 12 months, you must either research to find these answers or get your hands on someone else’s research because as you well know …

in timing a market, the benefits of getting in near a bottom pale in comparison to the benefits of getting out near a peak. if you miss a bottom, it can still be hugely profitable. if you miss getting out, it can be devastating. What’s next for real estate will be up to a wide variety of decision makers. Will budget concerns take a bite out of the benefits we know, love and enjoy by owning real estate? Will lending policies loosen up or remain restrictive? Will the volume of sales in 2015 and beyond go up significantly from the levels of 2014? What about affordability? In other words … are we done going up in prices for this cycle? The conclusions made researching this report will tell you if it’s the right time for you to sell some of your inventory. And again, you can still be extremely profitable if you get into the market late during an upcycle. But failing to get out before the decline can be devastating!

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Features

Freedom is a Free Education: Jason Hartman and the Revolutionary Power of Podcasting by Michael Grigelevich

ith audience numbers that rival -- and sometimes even surpass -- television viewership, podcasting is a digital medium that cannot be ignored. Often free from the time and advertising constraints of traditional radio, podcasts offer their hosts virtually complete control over content and episode length. In short, podcasting just might be the best way to deliver focused, in-depth audio content to targeted audiences; it’s a crucial vehicle for the dissemination of information about real estate. The real estate industry pulls from a broad spectrum of disciplines; to be successful in it, one must have knowledge in many areas. One must also be careful to avoid the seemingly endless supply of huckster financial gurus that plague the industry. For these reasons, and others, Jason Hartman, the CEO of Platinum Properties Investor Network and creator/host of the successful “Creating Wealth” podcast, stands out as a trustworthy voice in the world of real estate and financial podcasting. Expertly schooled in all the right disciplines, and with a sincerity, passion, and honesty that matches his knowledge, Hartman’s body of podcast work should be the first stop for anyone with a desire for real estate/ financial knowledge and success. Hartman’s “Creating Wealth” show, focused on investing with a leaning toward real estate, boasts somewhere between 5-6 million downloads; his 15 other podcasts offer something for everyone, from seasoned industry vets to newcomers. Like many podcasts, Hartman’s work is available free. When asked what drives him to work in this often less-than-lucrative medium, he quotes Zig Ziglar: “You can have everything in life that you want if you will just help enough other people get what they want.” Hartman puts this into practice, as he strongly believes in free education and gives his audience “a deep, PhD-level understanding” of real estate and finance. Anyone who listens to his two most popular shows, “Creating Wealth” and “American Monetary Association,” will find Hartman’s claim to be true. Offering insider information from topnotch and varied guests such as Steve Forbes, Robert Kiyosaki, famed investigative reporter Greg Palast, psychologist and author Kelly McGonigal, and Noam Chomsky, his podcasts appeal to a diverse audience hungry for knowledge. After all, as Hartman says, “People are holistic beings. They don’t just think about real estate.” Hartman -- a very successful real estate investor in his own right,

www.reivoice.com

owning properties in 11 states and 17 cities -- cut his hosting teeth on the radio around 2004. During this time, he hosted a weekly radio show for KRLA out of Glendale, CA. While he enjoyed this work, he felt he couldn’t dig deep enough into the content of his shows due to time constraints. Driven by a desire to help people learn, as well as provide more focused content, he started podcasting around 2005, which was still early in the industry’s development. Hartman notes that the internet has made it possible for people to get the most specific information they require, and he aims to provide this on his podcasts. He says, “I am an agent for the listener. I want to really go to bat for them.” He set high standards for his podcasts right out of the gate, insisting on asking guests deep questions and exploring their views in great detail, a process he refers to as “holding their feet to the fire.” In fact, Hartman openly admits to scrapping entire shows that didn’t meet his standards for content. Hartman certainly doesn’t shy away from the fact the his podcasts can increase his profits for Platinum Properties Investor Network, but he leaves the choice of where to invest up to his listeners. (Cont. on page 45)

A Niche Strategy: Eddie Speed and the Business of Real Estate Notes’

by Geraldine Barry

EDdie Speed H

assles. As a real estate investor, they are part and parcel of what we do. If it’s not a tenant issue, it’s a vacancy; if not that, it’s another broken pipe. Just as there is an ebb and flow to the market, there is an ebb and flow to what our properties need at any given time. Though as investors we must find a way to navigate the sometimes choppy water, some real estate investors find themselves afloat in calmer waters. For Eddie Speed, and his business, those calmer waters are real estate notes. Eddie Speed was 20 when his mentor/father-in-law, a pioneer in the field of real estate notes, introduced him to sourcing and finding loans. It was a trial-by-fire entry into the business. An immature industry when Eddie first met it, industry standards and procedures simply didn’t exist. He reflects that if he’d had formal training, he could have avoided “a lot of the mistakes I made.” Eddie’s company, Colonial Funding, participates at many levels by sourcing and purchasing notes, warehousing them, and packaging them for resale. They connect capital to inventory and trade upwards of 1,000 notes on an annual basis. In 2015, they are on track to double that number. Buying, holding, and selling notes can bring returns without the tenant and property maintenance issues that real estate investing is known for. There are currently around 9 million defaulted notes available in the marketplace; 33% of those are worthless due to title and tax issues, or they are simply bad properties with no value. That leaves a whopping 6 million viable notes for purchase. Freddie Mac and Fannie Mae sell these notes in large quantities to institutional investors - Eddie’s strategy at Colonial Funding is to buy what the big companies don’t want to hold, essentially properties that don’t fit their stringent criteria. Institutional buyers want the higher-end notes with properties that fit a very high standard. The lower end of the spectrum is where Colonial is focused. These are the properties they purchase, working through the shadow inventory that still exists in markets throughout the country. Only five million Real Estate Owned (REO) properties sold between 2006 and 2009,

according to RealtyTrac statistics; however, there are, cumulatively, approximately 9 million notes available today in the market place. Eddie says, “I’m a guy that helps clean up a market that has problems, helping asset holders sidestep a lengthy foreclosure process. Banks do not want a deed in lieu of foreclosure, as they’re just not nimble enough to make that process happen easily.” Speed has a business model, and niche, that serves him well. His note business is “asset indifferent, and includes performing, nonperforming and sub-performing (which have 9-10 payments per year, as opposed to twelve) notes and REOs.” Approximately 10% of his notes are REOs. Most businesses that do this focus on a specialty, but Colonial Funding is more diversified: “Our specialty bandwidth is wide. We adjust our model depending on what the economy is doing and what opportunities are available out there.” Speed also diversifies his practices: he has a Note School, which educates investors on how to source, evaluate and manage after purchase. Speaking of diversification, another division of his business, Colonial Capital Management, provides portfolio and capital fund management for accredited investors. Eddie has been managing loan portfolios for over 30 years, and even his mother-in-law is part of of his client list: she owns 500 long-term notes that he

“We buy notes in bulk -- notes the smaller investors will never have access to. We give them access. We have the ability to buy by the case and sell by the bottle.” manages for her; he has done so for a couple of decades. When it comes to acquiring material for investor portfolios, Speed uses an illustrative example: “We buy notes in bulk -- notes the smaller investors will never have access to. We give them access. We have the ability to buy by the case and sell by the bottle.” It’s a unique selling proposition and a way for small note holders to get involved in that sector. Spring 2015 REI Voice

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Features

Kathy Fettke’s Journey from distress to success in real estate

by Michael Grigelevich

t one point in her life, Kathy Fettke felt overwhelmed and distraught. Doctors told Rich, her husband, that he had about six months to live -- they believed that cancer had most likely spread to his liver. In shock and with uncertainty about the future, the Fettke’s were concerned about their two daughters and what things would look like without Rich in the picture. Admittedly, Fettke never cared much about money and how it worked. Now she faced the biggest challenge of her life: she would have to take the financial reins and plan her family’s future. She rose to the occasion, leveraging her radio show, just a hobby at the time, into a money-making entity through a sponsor-turned mentor who suggested she earn her broker’s license. This led Fettke into the lucrative world of buy and hold real estate, an area in which she flourished. As the Fettke’s planned for the road ahead, they learned some amazing news: thankfully, Rich was misdiagnosed: his tumors were benign. Relieved, Kathy realized she had started growing something impressive: a strong real estate portfolio and deep, insider knowledge of the field. Building on these skills, she now stands as the CEO and cofounder, with Rich, of the Real Wealth Network, which boasts over 16,000 members; she hosts the Real Wealth podcast, which now broadcasts in 27 countries; in November 2014, she published Retire Rich with Rentals; and, of course, many have seen her as an expert guest on CNN, CNBC, Fox News, and CBS Marketwatch. Affable and direct with her words, Kathy Fettke is keen on sharing her knowledge. This desire took shape in her recent book, Retire Rich with Rentals. Written in a straightforward style that distills complex ideas to make them accessible to everyone, her book serves as a guide for people interested in purchasing buy and hold real estate, a practice she feels is the safest way to secure and maintain wealth. When asked why she wrote the book, Fettke explains that she wanted to share her knowledge with people and tell her personal story; also, she notes “it really comes down to the fact that no one in the media talking about building wealth via buy and hold . . . It’s not sexy TV.” She adds, humorously, that no one would be interested in watching a TV show about a bread and butter property being rented; it’s more fun to watch a show about flipping.

While real estate newcomers stand to earn a degree-level education from Retire Rich with Rentals, Fettke shares that experienced investors were fascinated by the creative ideas and strategies laid out in her book. One such strategy, she explains, is the model of buying ten rental properties. The idea makes sense: acquire ten cash flow properties and use them as leverage; earn $300 a month in cash flow after expenses, and, ultimately, pay down the mortgage on one property a year by following this model. If this sounds too good to be true, or a goal too difficult to obtain, it simply isn’t -a story called “My Mom’s Pastor,” from Retire Rich with Rentals, illustrates the point. As Fettke explains, a pastor wanted to follow a vocation he loved, but, unfortunately, it left him with no retirement. As he settled into his career, he and his wife bought a home but then had to relocate; due to the quick move, they had to rent the property instead of selling it. They rented the home to tenants for more than their mortgage and rejoiced in the cash flow they earned. They pursued real estate further and built up a portfolio of 10 properties, all of which they ultimately paid off. When the crisis hit in 2009, the properties lost a ton of equity, reducing the pastor’s real estate assets to $1 million; this didn’t matter, however, because he paid his properties off and rents increased due to the increase in foreclosures. Ultimately, due to the increased rental income, the pastor ended up with the equivalent of a raise, in cash. This is just one of the many real life stories that peppers Retire Rich with Rentals. The book, Fettke says, grew organically from the work she and Rich do with the Real Wealth Network, a real estate network with around 16,000 members. What does the Real Wealth Network offer clients? According to Fettke, “first and foremost, we provide education.” This education comes through several channels, such as podcasts, webinars about emerging markets, one-on-one strategy sessions, blogs that keep on top of market cycles, and monthly events with diverse speakers. The Real Wealth Network also offers tours of booming markets, and a recent tour took Fettke to North Dakota. She says the tour showed her that “North Dakota is the economic wheel of this country right now; it was like an ocean of oil.” While some may consider out of state markets too much of a headache, she is quick to explain that “the numbers work. Right now, we have the opportunity to buy property for lower prices.” These lower price points exist because of the fundamentals in that area, or because the market is still recovering from the recent downturn. (Cont. on page 42) Spring 2015 REI Voice

Analysis

Understanding California’s Housing Affordability Crisis by Joel Singer

ecades from now, when history writes the story of the Millennials, they may well be remembered as the first generation for whom using smartphones and social media was as natural as taking a breath. Yet unless things change, there’s a good possibility they’ll also be known as the generation that couldn’t afford to buy or rent a home.

contributions, run up credit cards, or moved to a cheaper neighborhood in order to cover their rent or mortgage over the past three years, according to the MacArthur Foundation. Another study reports that 45% of college-educated Millennials have moved back in with their parents because they can’t find a job, or the one they have doesn’t cover student loans and a place to live.

It’s ironic that when the first Millennials were born, their Baby Boomer parents couldn’t afford a home either. Looking back to October 1981, interest rates on a 30-year, fixed-rate mortgage exceeded 18 percent. It wasn’t until rates fell below 10 percent in 1986, and to the 7 percent range in the early 2000s, that affordability ceased to be a major impediment to homeownership.

A lack of new home construction is likely to cause further affordability issues unless housing starts increase in line with local job gains, according to the National Association of Realtors® (N.A.R.). Its analysis found that too few homes are being constructed in relation to local job market conditions, and that lack of construction has “hamstrung” supply and slowed home sales.

Today, California’s housing affordability problem is back – only this time it is fueled by rising home prices and lack of access to capital rather than double-digit interest rates. On Nov. 14, the California Association of Realtors (C.A.R.) convened economists, policymakers, and practitioners for “The Real Estate Summit: Partnering for Change in California.” The summit explored the issue of housing affordability, as well as California’s infrastructure, foreign investment, consumer trends, housing finance, and policy implications.

Here in California, it has been estimated that the post-recovery real estate market could easily absorb 250,000 new units of owner-occupied or rental housing – a need that isn’t even close to being fulfilled. A key reason? Many small builders continue to experience limited access to credit and rising construction costs. Despite strong demand, the number of single-family housing permits issued in August 2014 declined by nearly 21% from the same month in 2013, while the number of multi-family permits was down almost 24% year over year.

So: how serious is the problem?

There are some who believe California’s housing affordability problem will work itself out as the economy improves and consumer expectations align with real estate market realities. They may be right. The question is: What will be the ultimate cost of such inaction, both now and over the long term?

C.A.R.’s Housing Affordability Index (HAI) – which tracks the percentage of households that can afford a median-priced, singlefamily detached home assuming current interest rates and 20 percent down – fell from 33% in the first quarter of 2014 to 30% in the second quarter, a 26% decline from a peak of 56% in early 2012. While home buyers needed to earn an annual income of $56,320 to purchase the median-priced house two years ago, today they need an additional $37,270, or $93,590 annually, to qualify. The reasons behind the decline in affordability are many: slowerthan-expected economic growth, incomes that haven’t kept pace with rising home prices or rents, pent-up demand, lack of supply, tighter lending criteria in response to new mortgage regulations from Congress, and indecision about the future of Fannie Mae and Freddie Mac, to name a few. What the numbers don’t reveal is the impact the problem has on individuals and families. Nationally, more than half of adults surveyed say they’ve taken a second job, postponed retirement www.reivoice.com

Joel Singer is Chief Executive Officer of the California Association of Realtors® (C.A.R.).

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Basics

Lori Greymont Investing Tools that Work by Geraldine Barry

xperience. Skill. Flexibility. Three assets that make a real estate investor successful; Lori Greymont has these in spades. Give Lori a challenge and she’ll find a deal no matter what the market is doing - it’s what she does, and she does it with precision. Having grown up amid the family business of real estate investing, and doing the required work to make properties rent-ready from a young age - she learned the business from the ground up. As an investor herself since 1987, Lori knows her markets both near and far, and takes a strategic approach. She employs strategies to win big and utilizes different ones depending upon the deal at hand. Some of her strategies include fix and flip, land banking, land to vertical development, and creating and buying notes. In addition to her strategic mindset, Lori has extensive experience in buying, selling and managing properties nationwide. Her experience is multi-faceted, she shared that like every business person she has experienced failure, and things that have not gone according to plan. “In my opinion the difference between a successful business person, real estate or otherwise, is the ability to navigate the inevitable market fluctuations and adjust accordingly. What worked three years ago does not work today.” It is this kind of flexibility and ability to adjust that has led to success over the long haul.

Lori has buying and selling real estate down to a system. When you can automate much of the process you know that you’ve found the sweet spot to keep on going forward. For Lori, that means having potential sellers call into a 24 hour automated phone message. Her team then calls these sellers back and negotiates the purchase of their properties. The seller profiles often fit the profile of people who are tired of the property or have inherited them and didn’t earn the equity. They want to let go of the property sooner rather than later.

Experience. Skill. Flexibility. Hassle free investing and dependable passive income are the name of Lori’s game. To achieve this, she deals with both out-of-state, long-distance deals and local ones. Recently she located a 3/2 house valued at 65,000 in the hot market of Atlanta Metro. She, and her team, negotiated a sell price of $42,250. She got all of the contracts signed and inspected the property. There was some deferred maintenance, prompting Lori to ask the seller to further reduce the price by $6,500. The house was occupied with a tenant and rented for $775 a month. A similar deal she found was a house that rented for $850, was valued at $75,000 and was purchased for $48,750. Lori knows which properties to buy and where to buy them. In the Bay Area, Lori’s team is hard at work. Over the summer, she completed one flip and two wholesale deals. The flip was a great opportunity. She was able to negotiate with the seller to keep his existing financing in place while they renovated and resold the property. They moved the property into a land trust, of which Lori served as trustee. The original owner had a beneficial interest up to his sales price and Lori held the remaining interest. Doing so protected Lori and minimized her financial exposure. She financed the rehab which was completed in three weeks - the house sold and closed four weeks later.. The total time to complete the project from start to finish was just seven weeks.

www.reivoice.com

Basics

Lori Greymont

Through leveraging the seller’s loan payment, with five percent interest, instead of private money with points and high fees, Lori was able to skillfully make this deal happen. A total of $45,000 was spent on the rehab, and after closing costs and payments to all involved, Lori and her team netted $35.000. This meant a 77 percent return on the invested $45,000 in less than 8 weeks time. This is just one example of how Lori employs strategy to increase Return on Investment. (ROI) Communication was a main key to making a deal like this happen.She had to skills to explain the deal to the seller so that they were aware of the risk and benefit. On her strategy of having the seller hold the note while she rehabbed, Lori says, “Don’t assume that because we are in an inflating market, you can’t get seller financing”. This is an example of one of those “time-tested” investment strategies that still works - when they’re

done by the right person and team, with the right deal. Lori’s company, Summit Assets Group, was founded in 2009. Today, it is a bustling business that focuses on investing and training investors. The group is on a mission to help investors minimize their risk and costly mistakes while helping to maximize returns. They focus on bringing investors the best deals, training them to be poised for success and giving back to the communities of which they are a part. In this day and age in which shiny new investing techniques and “surefire” paths to results are being forged round the clock, Lori Greymont’s approach is grounded, thoughtful, data-reliant - and, more importantly, it works!

Lori Greymont is the CEO and Founder of Summit Assets Group, the premier purveyor of Turnkey properties with passive cash flow in Atlanta and Birmingham. Since 2009, Summit has transacted over 1,600 houses, helping investors achieve their personal financial goals. For a free no-obligation consultation on creating your own investment plan, please call 408-782-9162.

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The Extraordinary Ordinary Guy: Photographer - Ken Ta

n a gray, blustery, wet San Francisco morning recently, I had the pleasure of interviewing Trulia’s CEO, Pete Flint, at the company’s beautiful new facility in the Mission District. Having toured the campus prior to the interview, I had an opportunity to view the space. It spoke to the laissez-faire management style, with a library, game room, and multiple collaborative areas. It appeared that a sea of happy, productive people occupied the building. Energetic Millennials populated the area, chatting, working, and drawing on white boards that were strategically located, in typical Silicon Valley fashion, throughout the building with the hopes of facilitating the sharing of cutting edge ideas. Industrious is the word to describe the energy that permeated the building, which is not surprising for a company that went from 0-100 in less than ten years. Trulia founders, Pete Flint and Sami Inkinen, met while pursuing graduate school at Stanford University. The idea for the company grew out of the experience they had locating timely, complete information when looking for an apartment in San Francisco. Using technology to simplify the process, Trulia founders sought to fill the need they experienced as frustrated consumers in the market place. Providing comprehensive online residential tools, price trend analysis, crime maps, school information, and amenities with interactive capability, Trulia products assist consumers and professionals alike in the search and information gathering process, helping “transaction ready consumers” gain timely, comprehensive information. As of July, 2014, Trulia enjoyed 57 million unique monthly visitors. Trulia filed an Initial Public Offering (IPO) in September, 2012, with an opening price of $22.10. In July, 2014, Zillow announced a deal to purchase Trulia for a reported $3.5 billion. That deal is in the works as we speak. I met Pete Flint in an all glass conference room overlooking the Mission district. Charming, articulate, modest, smart, and down to earth, Pete proved to be a regular guy who mused that “the first

Pete Flint

by Geradine Barry

office we had was about the size of this conference room.” Born and raised in Britain, Flint earned a Masters in Physics from Oxford University and a Masters in Business Administration from Stanford. His father, a retired professor, and his mother, a retired school teacher, visit frequently from Britain. Pete’s only sibling lives in Yorkshire, where he runs a division of SKY TV. Having met and married his French wife Melanie in San Francisco, Flint currently resides there with his wife and two year old daughter Camilla. He enjoys cooking -- although his wife is a better one -- road biking, travelling, spending time with family. Skype and Facetime technology make it much easier today to stay in touch with family abroad. When asked, off the cuff, about the differences between the British and Americans, Flint reflected that there’s a classic British tendency to grumble, while the overwhelming bias here in the U.S. is ‘How can we fix that?’ The positivity of Americans is infectious; there is a keenness to try new things here, which he loves. I asked if failure is more acceptable, or even celebrated, here as opposed to his homeland. He shared, definitively, “I think saying failure is celebrated is a misnomer; failure sucks no matter where you live or who your are.” The more serious issues of business and Trulia’s role in the sea change in the industry are addressed below.

How do you like living in the Bay Area as opposed to your native Britain? I love it here, which is why I made it home for myself and my family. After spending two years doing my MBA at Stanford, I was smitten. I love the diversity of activities like skiing, beaches and hiking; the natural beauty; the positivity and entrepreneurial spirit; plus the international population. I do miss the incredible culture of museums and theater that London provides and, of course, the pubs. (Cont. on page 28) Spring 2015 REI Voice

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Analysis

Alain Pinel A NEW BALLGAME? REI Voice Contributing Colmnnist

he real estate market pulse is a bit slippery and ephemeral nowadays. You know what you’ve got to deal with today, but tomorrow is another day and another set of new conditions and challenges. If it’s good, we’ll take it. If it’s not, we have to take it anyway.

Where We Are Now?

Luxury market: Up – Price is no issue at the top end of the market. More and more buyers are writing offers on multi-million dollar properties, some at the $100M level. The recession has not affected this segment of the buying demand near as much as others, and money has bought more and better homes during and after the crisis. Foreign buyers: Up & Down – Over the last 3 years, at least, they have been the engine that drove prices up at the high-end. It could be said that, in the top tier of the price ladder, foreign buyers coming from China, India, Europe, the Middle-East and our neighbors from both the North & South, have kept that market alive and robust. Good thing because, relatively speaking, the qualified domestic demand actually shrunk. Interesting to note that, as good as the foreign demand has been, it diminished in the second half. Stay tuned.

Let’s try to understand where we stand now and what appraisal can be made of 2014 in the residential real estate arena. For this exercise, allow me to paint the picture of the market with a big brush. The problem with this task is that we have way too many states in the country and each one has a multitude of micro-markets evolving at different speeds and sometimes going in different directions. So, we’ll stick here to the general traits that marked the year and compare the statistics and overall performance to that which was Cash buyers: Down – At least in relation to the previous year. Still achieved in 2013: very high though, around 30% of all sales. At the high-end, it’s Number of listings: Down – Curiously, more sellers chose to more like 75%. The higher the price, the higher the percentage, up play the waiting game this year, whether because of the risk of to the ceiling of 100%. not finding a satisfactory replacement home in a tight inventory market, or because of economic uncertainty, or because they still Multiple offers: Down – Lots of buyers are getting sick and tired of expect the market to deliver more dollars for their homes in the bidding wars. Only one wins and the others move together to the next one, and are less motivated to give it another try. As a result, months ahead. fewer homes are selling over the asking price. It is especially true at Number of sales: Down – No real surprise here: we can only the high-end where prices are soft. sell what’s listed and, as we just said in the above paragraph, the number of listings, which was already alarming last year in the Distressed properties: Down – Big time. Quasi inexistent (5 to most desirable markets and the so-called high-end markets, 10%) in hot markets. After years of dominating the transactions, short sales, foreclosures and the likes, have been replaced by a huge actually shrunk further. and growing wave of equity sales. Good sign. Median price: Up – Nothing too surprising here, either. it’s simply a supply demand phenomenon. That’s what you get when the Real estate investors: Down – Low inventory and price hikes economy is growing/accelerating, lots of new and well-paid jobs have sidelined most of those small investors who benefited from are being created, much of the pent-up demand from the pre- the recession years and their cortege of distressed sales. Even large recession days is still waiting at the gate… And there is not much institutional investors have been playing low-key this year. for all these potential buyers to choose from in the way of homes. Mortgage money: Up – Banks and other financial institutions have Price appreciation: Up - Double-digit for most markets during reloaded on loanable dollars. They are now anxious to make them the first half of the year, with enough momentum to carry on for available to home buyers, and at rates which are still at bottom level. the entire year. Note, however, that the percentage has gone down substantially in the second half. In many markets across the US, the appreciation is now “only” half of what it was through the first 6 months. Sign of the times?

That, in a nutshell, represents the real estate picture and market pulse a few weeks before we close this year for good. The market velocity is still going fairly strong but it is slowing. Seasonal slowdown? Sure, for the most part, but we’ll need to wait a while Affordability: Down – Salaries & savings have not kept pace with longer to draw more conclusions and start analyzing the trends. inflationary prices. Today, the affordability index is down to around Today we are in yet another transition market. Let’s see what comes 30% in most hot markets. Less than a third of would-be-buyers are next. in a financial position to live the American Dream. Spring 2015 REI Voice

Features

Pete Flint (Cont. from page 25)

The average age of a Realtor today is 57 years old. You said recently in an article that starting in 2015 a new breed of agents will join the market. What will they look like? It has less to do with age, and more to do with the rapid consumer adoption of technology over the last 5-10 years for information and entertainment, which has literally transformed the real estate industry. This trend creates new opportunities for agents and brokers. There is an emerging profile of an agent that is getting ahead because they are tech savvy and data driven, in addition to being providers of excellent client service.

How do you feel the role of a Realtor is going to change in this new world? Are they as relevant? Previously they held exclusive access to properties via the MLS, and there was no other way for consumers to access that information. That is no longer the case. How do you see that impacting buying decisions and Realtors business? The short answer is that yes, I see the relevance of Realtors lasting for the foreseeable future. Buying a home is an infrequent, highly stressful, and emotional transaction that requires the knowledge and guidance of an experienced professional. Changes in technology and access to information have changed the way people begin their search for real estate, but this presents new opportunities for Realtors to connect with consumers where they are researching homes – online and on mobile devices.

Technology is utilized by the majority of consumers now to navigate the marketplace, eliminating the need to be dependent on a Realtor. How do you see Realtors adjusting to this new normal?

Trulia One, which includes a free and premium version, will help agents collect and manage leads from any source and then engage them with marketing campaigns to secure more clients.

Mobile apps were the big focus when I spoke with you a couple of years ago. You were excited about where that technology was headed and Trulia had embraced it early in the game. Your predictions for where that was headed were accurate. Can you share your thoughts today on mobile technology? The growing importance of mobile technology to real estate continues. For example, in our last reported quarter, for the first time most of our traffic came from mobile devices.

Realtors are already adjusting to the new normal. As much as the game has changed, it’s also the same. Just as before, Realtors provide value with excellent client service, skillful negotiating and on the ground knowledge about properties and communities.

This is great news for real estate professionals who want to reach transaction ready consumers. According to Trulia’s research, consumers using mobile devices are 60% more likely to contact a real estate professional, and leads and calls to agents are more likely from mobile devices.

Companies like Trulia are facilitating change for agents. How does Trulia bring value to the Realtor community?

This is why I continue to believe that the future of real estate – for home buyers and Realtors – is mobile.

Trulia delivers value in a variety of ways, based on the large audience of home sellers and buyers that use the website and mobile apps. Currently over 400,000 agents use either our free or paid tools from Trulia.

You have a new CRM that you are launching for Realtors. Why is this important and what value will it bring to Realtors in their business?

Trulia offers a number of free tools and resources, such as Agent Profiles in our directory, where agents can demonstrate their experience and expertise to generate leads and improve their personal brand. Trulia is actively partnering with brokers and the MLS community to make it free and easy to post listings on Trulia and ensure accuracy to connect with consumers. Trulia provides several paid tools for generating leads, including the popular Trulia Mobile Ads, which helps agents get in front of mobile Trulia users. www.reivoice.com

Early next year we will make Trulia One commercially available to over 400,000 agents. It includes a full suite of Market Leader tools that enable agents to manage the sales process in one place, wherever they go. The new product is available in two editions. Trulia One is the real estate industry’s most comprehensive free CRM platform. Trulia One Elite—the $99 Premium Edition—includes all of the features in the free version, plus additional services such as robust marketing campaigns, agent-branded consumer websites, an elite badge and sales coaching.

Features This is a game-changer for real estate and we will have more to share on that over the coming months.

What keeps you up at night? We’re working through the details and approvals of the merger with Zillow and it’s a pretty complicated legal and regulatory process, so with that and running Trulia, I’ve got my hands full. Other than that, I’m sleeping great.

What real estate services are not easily replaced by technology? There’s a human element of providing service to clients that can’t be replaced by technology. Information is more widely available because of technology and it efficiently connects consumers with real estate professionals.

What do you think the biggest challenge for consumers is when purchasing or selling a home? There’s different challenges for each. Our research continues to show that the biggest challenge for home buyers is saving enough money for a down payment, followed by challenges in securing a mortgage. For home sellers, it depends on the market, but working with your Realtor to establish the right listing price can be challenging and emotional.

You have discussed the fact that the house buying process is the one of the “lengthiest and more doubtfilled financial transactions.” How is technology changing that? Buying a home is stressful, especially the first time. People are uncomfortable with the unknown, and companies such as Trulia help ease concerns for people as they find answers to their questions. We provide tools to help them understand what they can afford, what areas are safest, or how close a favorite property is to their daycare center, for example. These are powerful insights for home buyers.

First time buyers are not participating in the market at the rate they did previously. It seems like move-up buyers are dominating the market when once first-time buyers were a large part of the process. This has far reaching consequences, as the cycle is impacted when you have one component virtually missing from the equation. Your thoughts? Overall, the market is continuing its gradual, albeit uneven, recovery. As we look to next year, household formation, which eventually leads to first time home buyers, continues to be an issue. We expect that next year will see strong rental demand and lots of new supply. While apartment construction is breaking records, single-family housing starts and new home sales are still not much better than half of normal levels. They’ll improve in 2015, but not as much as we’d like.

How will the merger with Zillow influence your

Pete Flint direction going forward? The proposed merger of Zillow and Trulia has not closed yet, so right now it’s business as usual for both companies. I can tell you that we intend to operate both brands, and that we expect a lot of benefits for our users and advertisers. We expect the acquisition will close in the first half of 2015, and we’ll have more to share as we get closer to completing the acquisition.

As Trulia is so tech-based, are your users mainly first time buyers, move-up buyers or a mix? It’s a mix, but the majority of our visitors are interested in moving in the near-term, which is why we call them ‘transaction-ready.’

How do you see the home-buying process in five years? What big changes are on the horizon? The industry has come a long way in the last 10 years, and I expect significant changes are ahead. The home search process currently takes about 18-24 months, and I think as the industry continues to improve the search and discovery process, we’ll see the time spent searching begin to decline. There’s room for a lot of innovation here and we’ll be releasing new products in this area early next year. I expect the process will continue to improve as companies build better tools.

What book did you last read and why? Unbroken by Laura Hillenbrand. I was inspired by the cofounder of Trulia, Sami Iniken, to read it. It’s the story of an Olympic runner who survives a plane crash in the Pacific Ocean and survives almost 50 days adrift at sea during World War II. Sami, who no longer works at Trulia, recently completed a trip rowing from California to Hawaii with his wife, and it was that book that inspired Sami to do it.

What magazines and blogs do you read to stay on top of the market? Pretty much the only physical magazine I read is The Economist, which I avidly read offline and online. I love the global content, including a healthy amount of British coverage, and it’s my weekly must read. For online sources, I’m typically on the usual tech blogs such as re/code, TechCrunch, plus Inman news for real estate, Ben Evans’ blog on technology, Calculated Risk Blog on housing. Finally, in closing, I asked Flint about his thoughts on home ownership. He shared: “There is a sense of ownership, permanence, safety and home ownership strengthens that sense of belonging. I don’t like the responsibility that it brings like leaky roofs that need to be addressed when we experience several inches of heavy rain like the last 24 hours…” Pete Flint, a regular guy, deals with regular home ownership issue. He’s just like the rest of us . . .

Basics

Predictions 2015 (Cont. from page 3)

financing. However, in a media world fighting for a controversial story -- we will hear more and more about stated income in 2015. Expect more consolidation in the mortgage and lending industry: With our industry still somewhat in denial ,and waiting for that next refinance boon, forget it; it’s not going to happen anytime soon. Therefore, there will continue to be more lenders and loan officers fighting over fewer deals. This dynamic and reality will result in more consolidation and more leaving the industry as well.

Anne Marie Valenzuela

Real Estate Agent

When analyzing the housing market, we have to remember that each area is local and that recovery is still in process. The market gained substantial momentum through 2013 and 2014 and reestablished the lost fundamentals, particularly in the Bay Area. Homeowners saw their property regain appreciation, which in turn gave them the confidence and ability to sell. What do these gains mean for the economy next year? 2015 will continue to bring a slow but steady increase in price gains. The Housing Affordability Index will also tick upward; however, the buyer’s profile will continue to have increased income, allowing them to purchase properties, particularly in the Bay Area, where the job market is thriving. 2015 is going to bring a new wave of first time buyers. The Millennials will become the driving source in our economy, and, as they gain financial stability over the next couple of years, they will also become important participants in the real estate market. In conclusion, thanks to a stronger job market and tighter housing supply, the Bay Area is quickly outperforming other regions and has earned first place as the fastest growing market in the country.

Larry Stone:

Santa Clara County Assessor Larry Stone has served as the Santa Clara Assessor since 1995. Known for his deep community involvement and professional achievements, here he offers some thoroughly considered predictions based on his insider experience:

WAREHOUSE/INDUSTRIAL: I’m bullish on the industrial sector bolstered by a modest resurgence in manufacturing as companies begin moving manufacturing back to the U.S. OFFICE/R&D: The office sector was a trend-setter in 2014. The once endangered bird, the construction crane, has reemerged in Silicon Valley. Moderation will take hold in 2015. Increased worker densities, space compression and “One size fits all” will begin to run its course. RETAIL: Always cyclical and unpredictable, the retail sector continues to face challenges from the exploding increase of online shopping versus brick and mortar stores. HOTEL/HOSPITALITY: Hardest hit during the “Great Recession,” the hotel sector should continue its upward surge in 2015.

Arthur Zwern Based in Silicon Valley, Arthur Zwern, a Physicist and a multiple patent holder, as well as the founder of Next Level Assets, is known for his creative spirit and commitment to innovating real estate practices. Zwern shares some critical points for current/future investors to consider: 1) Outside of some market cycle points in some anomalous markets (like Silicon Valley now), real estate is NOT a liquid investment. You may be in any deal much longer than you plan, or need more reserves than anticipated. 2) Debt leverage is a two-edged sword: it can make you rich faster, but also make you poor faster if you need to sell or refinance at the wrong time. 3) Diversification is vital for risk reduction: if a majority of your net worth is in one asset class/market, consider spreading it among others using this framework. I do. The Bottom Line: Before making a real estate investment of any kind, carefully assess the resources you can bring to bear on each step in the process, and then decide if your risk/reward profile is better served by doing that step yourself, or by leaving it to a focused professional. Understand your strengths and passions, and work from those. Thinking this way can expand your universe of potential real estate options, make you more money with less work or risk, and help you avoid costly mistakes.

HOUSING: The limited inventory of homes for sale in Silicon Valley will continue to put upward pressure on residential property values. APARTMENTS: The multifamily/apartment market is approaching saturation. Rents should level-off and record low cap-rates should adjust upward.

Spring 2015 REI Voice

Analysis

2015: Lots of Gas in the Tank Dr. Christopher Thornberg, PhD Contributing REI Voice Columnist, Co-founder of Beacon Economics

Good Tidings From Expert Christopher Thornberg

014 came in like a lamb, but it is going out like a lion. After a year of decent growth in 2013, it was a bit of a shock to see the U.S. economy contract sharply in the first quarter of the year. But the forces that caused this slowdown were purely transitory and since then the nation has been growing at a 4% plus pace. Most impressive is that this growth is being driven almost exclusively by internal factors (given the slowing pace of global growth). Consumers continue to ramp up their spending, businesses are investing more, and public spending has finally stabilized after years of austerity. When all is said and done, expect 2014 to be a better year for growth than 2013 despite that first quarter glitch. Moreover, the really good news is that there is little reason to expect this pace of growth to slacken in 2015. Start with consumer spending. Consumer spending growth has been decent in recent years, but not great. This isn’t surprising given the credit cycle that households were working through and the fact that wages have been largely stagnant since the recovery began. But there are two major changes afoot on this front. First, 2014 saw a significant acceleration in job formation – and unemployment has continued to fall for all types of workers. There are signs that small portions of the labor market have started to become quite tight (in San Jose for example) and wage gains are starting to appear. This will become more widespread next year. Second, much of the turmoil that was roiling the consumer credit markets is starting to fade. Foreclosures and consumer debt delinquencies have fallen back to normal levels. People are comfortable borrowing again and consumer credit is starting to expand. Additionally, consumers can afford to borrow more. According to Federal Reserve data, the financial obligations ratio— the share of disposable household income used to support current financial obligations—has fallen to close to a record low level. There should be little surprise then that auto sales have risen to a 17 million unit annual pace. And while Black Friday was a dud relative to last year—we don’t hear retailers complaining. Indeed, this is a sign of growing strength in consumer spending – and the fact that many people don’t feel the need to get up at 3:00 a.m. to wait in painfully long lines for discounted goods. As for businesses, revenues and profits continue to grow, and capacity utilization has risen to a point where companies are again investing in capital goods of all kinds. Real spending on equipment and intellectual property has reached a record high share of GDP. www.reivoice.com

The one major fear is that a major slump in the stock market— sitting currently at record high levels—will significantly slow business hiring and spending. But this seems unlikely. After all, the stock market tracks two main things, profits and interest rates. Profits are 30% higher today than they were before the downturn began – and while the growth will slow as more money starts accruing to workers, profits are unlikely to fall. And interest rates remain very low. Indeed, using basic fundamentals such as the equity earnings spread over government bonds, the market looks slightly undervalued at the moment. But this could all change if or when rates start to rise. Quantitative Easing (QE) is at an end and rates have not only not risen, they have actually slumped back to the level they were at before the ending of QE was announced by then Chairman Ben Bernanke. Those who have been predicting an unavoidable sharp rise in rates claim this is only a temporary reprieve due to the weak global economy – and that when Europe, China, and Japan get back on track, rates will begin to rise.

We disagree. Ultimately, long run rates are driven by the relative supply of capital as compared to demand. The issue today is the massive supply of savings in the world economy – a phenomenon Bernanke called the ‘global savings glut’ at the start of his term, long before the recession hit and quantitative easing became an active Fed policy. That global savings glut is still in place. Rates will rise somewhat when the global economy returns to better growth, but it will be a mild increase at most. Dr. Thornberg So what does this all mean for real estate? Good things. Consider the residential market. Although housing did not live up to expectations in 2014, that is largely because those expectations were too high. It is also true that home sales slipped mid year, new home sales were flat, and price growth slowed sharply. But these were all due to the fact that the investor surge that drove the market from 2012 to the start of 2014 finally began to fade (as prices increased and a collapse in the number of distressed units rid the market of much of the arbitrage opportunities). The fact that the

Analysis

2015: Lots Of Gas In The Tank

surge in the market was investor driven also explains why new home sales remained flat. Retail buyers drive new home sales—and that market remains weak. But the housing market will surely begin to come back in 2015. As mentioned, incomes are starting to rise with tighter labor markets. Equivalently, mortgage credit is becoming easier to get; it is still tight compared to more ‘normal’ times, but it is improving. The average Fico score for those receiving a Fannie Mae prime mortgage has fallen from a ridiculous 760 in 2013 to below 740. Banks are also getting back into the mix and holdings of closed end mortgage products have actually been expanding for the first time since 2007.

Add in all the new home equity created by rising prices—$6 trillion total since 2012—and all this points to a second surge in the housing market. And this time it will come with more demand for new units. The one market that might suffer is in rental units, particularly multifamily. But we think the adjustment will be slow enough to avoid major pain and, ultimately, the slowdown of new apartment construction implies the market will not be as oversupplied as we had originally feared. Dr. Thornberg

As for nonresidential, it has been an odd recovery to say the least. Office space, for example, still has very high vacancy rates, but construction activity has been picking up, as have rental rates. The apparent breakdown of typical correlations is due to a distinct difference in the market for different sorts of properties. Suburban properties continue to lag far behind in terms of recovery. But as with the labor markets, there are pockets of high demand that are driving up market prices and creating new demand for product in these areas. We see similar trends in retail and industrial. We expect that nonresidential construction will continue to pick up through next year as the pockets of demand slowly widen. There will be another recession—there is always another one somewhere in the future. But at this point, we don’t see anything in the current patterns of U.S. growth that give us pause to worry. And that is the best holiday gift of all! Christopher Thornberg, PhD, is an economist and Founding Partner of Beacon Economics LLC. Learn more at www.BeaconEcon.com. Spring 2015 REI Voice

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Basics

Carole Rodoni The State of the Market Interview with Carole Rodoni by Geraldine Barry

arole Rodoni is hawk like - she quickly sees the aerial view of the market and is ready to swoop in with her keen predictions and unique point of view colorfully and accurately articulating ideas and predictions. Having formerly worked as President of Fox & Carskadon Real Estate, and CEO of Cornish and Carey Real Estate and President of Alain Pinel Realtors, Carol is one qualified forecaster. Here’s our most recent on the state of the market discussion edited for clarity.

Q. The Bay Area market is very hot - it’s still a seller’s market even though it has slowed which is typical at this time of year. Will this growth continue into 2015? A.The market is more balanced between buyers and sellers - it’s not as frenetic. Right now, it’s a good healthy market. There are still some locations that are crazy. Demand is high in the Bay Area, but there’s not enough supply. Foreign investment is strong. This year, it was approximately $92 billion and it’s projected to be $150 billion next year. China is poised to surpass Canada and Mexico in terms of foreign investors. Africa is an up and coming participant. These foreign investors are looking to diversify into a market that they admire and feel safe with. One interesting new development is the 10 year visa available for foreign nationals which opens things up for the foreign investor to more easily participate here. Domestically, look at players such as Berkshire Hathaway, a Warren Buffett backed company: you will see them acquiring more profitable companies under their umbrella next year.

Q. What is new on the horizon? A. The big game changer right now - in my opinion - is Auction. com. This site successfully brings real estate sales online. The seller does not have to pay the commission: the buyer pays the fee. The seller will need to do the open houses and prepare the property for sale etc, however Auction.com brings the buyer to the table. Their commision structure is simply that agents are paid 1 per cent, and Auction.com is paid 5 percent. The company recently opened an office in the Bay Area. They had a $60 million infusion of cash from Google. Watch this space for changes with the entrance of

high-tech. Auction.com has 96,000 listings in 42 states. Agents are putting their heads in the sand, not wanting things to change, but a tsunami of change is here… Redfin is trying to do take some market share also, but does not have the weight of Google behind them. Agents need to assert their expertise and find ways to add real value to the process. Serious wall street companies are following the money into the real estate sphere. The current 6% commission structure is a huge sum in a state where real estate hits such high price points. A million dollar house means a $60K payday for agents.

Q. What the real estate market will look like in 2015? A. The revolution is coming. Our market today is a consumer driven one: today’s consumer will get what they want. The consumer is king. They are armed with information: they can virtually pull up any statistic that they need from the Internet. Things are changing: 25 percent of homes never hit MLS today. Eric Trailer, founder and CEO of Producers Forum, provides a service that addresses that arena by providing private listings. We should expect to see 3 percent to double digit growth depending on the area. Many A-list locations are becoming overpriced which means that secondary areas are becoming more appealing to consumers who are willing to explore Bernal Heights as opposed to Noe Valley, for example. There are many condos construction projects on the horizon. It’s the only option: build up where land is scarce. On that note, a lot of shopping centers will take parking underground, as land is so valuable now.

“Real estate is in a transformation

on every level. There is an explosion of trailer parks in Malibu: one purchased recently by movie star, Matthew Mcconaughey was $2.3 million. Look for a 2015-2020 seachange, who buys, how they buy, and what they buy.” Carole Rodoni

(Cont. on page 44) Spring 2015 REI Voice

Advice

Why Are So Many Real Estate Investors Quietly Going Bankrupt? by Brandon Turner

hey started investing in real estate 30 years ago… with so much hope for their future. A rental house here, a duplex there… and soon they had a rental portfolio anyone would be proud of. They actively managed their properties and worked to make sure they were operating at peak efficiency. Several years ago both the husband and wife retired from their day jobs and eased into retirement – funded by their rental income and social security. This year they are filing bankruptcy and losing a majority of their properties to foreclosure. This is not some made-up example… this is the story of one of my best friend’s parents, and they are not alone. In fact, 95% of the properties I’ve purchased have been foreclosures purchased from landlords who have failed and lost their properties in a foreclosure. Most of them, I would guess, will never again get into real estate investing. They worked hard for years to build a financial future for themselves, only to see it come tragically crashing down around them – dashing any hopes for lasting wealth creation.

became too great and they lost. As rock ‘n roller Nick Cave sang, “if you’re gonna dine with them cannibals; Sooner or later, darling, you’re gonna get eaten . . .” So how should someone prevent this? Avoid risk altogether? Only invest in 100% safe deals? Of course not. Risk is required for entrepreneurs, but learning to navigate that risk will define your success. Like a team of white-water rafters braving the wild waves, you can’t always see what the future will hold, where the rocks hide just below the surface, or where the next waterfall will be. However, by having the right people on your team, keeping an eye out for potential dangers, working to avoid the problem areas, and wearing the proper life-saving jacket, you can avoid a premature death. I would caution anyone reading this to view risk as a dangerous, but powerful tool. Never forget that this tool cuts both ways.

This begs the question: why?

Not Enough Education

If real estate is as good an investment as we all make it out to be… why do so many real estate investors fail? Perhaps more importantly: how do I avoid this possibility in my own life?

Far too many people jump into buying real estate before understanding what they are doing. They simply decide that real estate is the right path, and they start buying properties. Additionally, there is a big difference between being busy and being effective, and this is the case with a lot of real estate investors; they believe that because they are buying properties they are going to succeed. Never mind the fact that they bought the wrong property in the wrong area with the wrong financing.

This is the question that has been swimming around my mind for some time now. Each week on the BiggerPockets Podcast I ask our guest “what is it that sets apart successful investors from those who fail?” I’m intrigued by this idea and scared that I may end up the same way. After all, as Mark Cuban famously said “everyone is a genius in a bull market.” Is that what real estate is? Do some people simply get lucky and others don’t? What are some of the trends that lead to this failure… and what are some trends that can minimize this risk?

Too Much Risk? Let’s talk about the elephant in the room first: risk. Risk is inherent in every investment there is. After all, you know the phrase, “high risk, high reward.” However, there is obviously a tipping point where the risk becomes too great, as my friend’s parents discovered. Perhaps it’s over-leveraging properties by obtaining too many “low down” deals or maybe it’s trying to buy too many, too fast. Maybe it’s constantly refinancing the properties, pulling out the equity and investing it in more and more deals. Whatever the reason for their bankruptcy, it’s clear that the risk www.reivoice.com

The solution to this problem is proper education. I’m not talking about the “Get Rich Quick” late-night TV kind of education. I’m talking about taking the time needed to build an educational foundation that can support your investing future with methods like online Forums, Podcasts, the blogs, this magazine, and more. Furthermore, I encourage you to continue your education with books, meetups, and other low-cost sources. You don’t need to spend tens of thousands of dollars to gain an education. Information has been democratized, so you simply need to reach out and grab it. No one can do it for you!

Not Enough Analysis? When I first began investing in real estate I thought I knew what I was doing… but I made some big mistakes because I didn’t do a careful enough analysis. Had I continued on that path, I would have been in the same boat my friend’s parents are in. (Cont. on page 44)

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SOBRATO

by Geraldine Barry

The restaurant business isn’t easy, but it teaches anyone who works it the meaning of hard work, commitment and the value of a dollar. John’s father, John M. Sobrato, emigrated to the U.S. from Italy: volunteering as a dishwasher and cook for the U.S. military. When John left the military, he opened a restaurant in San Francisco; John’s Rendezvous, a speakeasy which quickly became journalist Herb Kane’s favorite restaurant. John brought his military work ethic to the restaurant; he worked eighteen-hour days and honored the then-tradition of being there to meet and greet his customers regardless of the hour. After the war, and the severe food rationing that accompanied it, John’s Mom suggested buying some property in Atherton. Buying the property would mean they could live, grow their own vegetables, raise chickens for the restaurant, and elevate their quality of life. They did just that - and five years later they sold that property for a nice profit. The elder Sobrato got cancer, and John reflected, “My Dad died from overwork.” On his deathbed, the elder Sobrato advised his son, “We made more money on the sale of the Atherton property than I made in the restaurant in years – don’t go into the restaurant business.” The restaurant business, and its pitfalls, was the start of the Sobrato family’s now well-documented real estate journey in Silicon Valley. As a pioneer at the time, John’s mother continued in real estate (this was at a time when most women did not work outside the home except to teach or nurse) building the first tilt up buildings in Redwood City. John laughingly shared “Mom thought she could make no mistakes in real estate in the 1960’ies, and in fact she couldn’t.”

Photographed by Frank Biehl

John graduated from Santa Clara University at 21, and went to work at Midtown Realty, and soon thereafter partnered with Carl Berg; the two became a formidable team. Together they developed such projects as the Amdahl campus, which the company could not afford to occupy once completed, causing major consternation to the partnership. Eventually, Fujitsu became a tenant, and still occupies that site today. John went on to explain, “Carl was a brilliant guy who eventually ventured into the tech world - helping a company that got in financial trouble by working with them weekends and evenings. Carl developed, and executed, a plan to turn them around. He found a niche that he loved. My preference was to stay in real estate.” Stay in real estate he did. Sobrato’s journey has been much storied - making legendary status. Today, John Sobrato is a real estate mogul, a self-made, humble, slightly shy man. Though he would rather not be recognized as a billionaire the truth is he is one of the world’s most successful men. Sobrato shuns the “limelight” and frankly does not care for it. His focus today is on his family, his charitable foundation and the “occasional deal”. Santa Clara’s highly respected county assessor Larry Stone, a formidable-man himself, with his own sizeable career with great success in government, politics and public service, caught up with John for an interview. What follows is a fascinating portrait of a career, a philosophy, and John’s unique perspective on the city of San Jose.

Q&A

Q: Larry Stone, There is a strong family tradition and legacy in philanthropy through the Sobrato Family Foundation benefiting 450 companies with $260 million since 1996. Tell us more. A: John Sobrato. I’m very proud of the Sobrato Family Foundation and its work. Warren Buffet called and asked me to join the Giving Pledge. (The Giving Pledge is a commitment by the world’s wealthiest individuals and families to dedicate the majority of their wealth to philanthropy.) I told him that 100% of my money was already donated. “Fine you’re in.” Buffet said. John continued, “The reason my wife and I were able to do that was because our family were taken care of via family partnerships that were established with our children when they were very young. That was the best business decision I ever made…” Q: Larry Stone, What are the plans for the three large lots you purchased from the San Jose downtown Redevelopment agency? A: John Sobrato. When we purchased those we were hoping the A’s were coming to town. They are all approved for high-rise buildings - but we can’t make the numbers pencil. When you build from scratch the numbers simply don’t work, and the rents are not there to justify building yet. www.reivoice.com

Q&A

John Sobrato

Cont.

Q: Larry Stone, What do we need to do to make San Jose prosper and grow for the next generation? A: John Sobrato. We need to make it easier to develop and secure building permits. The lack of adequate staffing at the building department is a problem. They recently relaxed fees, which is good. What is the biggest problem in San Jose right now? It takes too long to get projects approved and built. We need to develop a vibe in San Jose that makes it a place where young people want to come. In a few years Caltrain will be electrified and a trip San Francisco will take only 40 minutes, which gives people the option to live in San Jose and work in the city. If they can have the nightlife, and fun lifestyle, outside of work in San Jose, that is just what young people want. Larry Stone: What was your best and worst project? The same 17-story building at 488 Almaden Boulevard – it was the best because it was a great project, but the worst because it came on the market at the peak of the dot.com bust. We were fortunate to eventually sell it to BEA Systems. Larry Stone: How do we turn around the homeless situation in San Jose? Currently, the Sobrato Family Foundation has 25 housing units in Gilroy dedicated to families, but that is a drop in the bucket. I’d like to see utilizing the top of some of these buildings downtown that are not serving a purpose: bring in units on skids, get people off the streets, turn them into 10x10 living spaces. There could be one centralized kitchen and shower facility available. Asked by an audience member if he were granted one wish what would it be? Mr Sobrato said “I would like to extend a preschool language program for three year olds that the Sobrato Family Foundation founded, that currently educates 11,000 children from Spanish-speaking families in Santa Clara, and San Mateo counties. I would love to see this program implemented statewide simply because the program works.” As evidenced by both the back-story and this interview, John Sobrato is not a common man. He has lived in the same house for 50 years, and has been married for over 50 years to Sue with whom he has three children. A yacht is his one extravagance - it’s where he spends several weeks a year and entertains family, friends, and business associates. Aside from that, there are no butlers or staff to answer his door, no chauffeur drives him around; they cook their own meals, and in living as they do - set an example for the rest of us to follow on what matters most in life. One of the world’s top billionaires, John’s story is a testament to a successful life lived with integrity, clarity of vision, true philanthropy, and leadership.

Writer’s Note: Special thanks to Larry Stone, for including REI Voice at the interview. Please note, this interview was edited for clarity and length.

Spring 2015 REI Voice

Advice

Tom Wilson Are Real Estate Syndications for You? C

rowdfunding is a hot practice these days, but real estate syndications have used its financial strategies long before crowdfunding became a common practice. Basically, both syndicaton and crowdfunding are the pooling of capital with other individuals for a common purpose or goal. In real estate, that common purpose is the purchase of a real property of any kind, including multifamily residential, or commercial space such as retail, office, medical, industrial, warehousing and more. For illustrative purposes, envision a chef who wants to open a restaurant and has the experience and willingness to put in the sweat equity, but insufficient capital. He finds an investor who has no desire to run the business, but who has the money and wants to reap the benefits of ownership. A formal professional syndication reflects the same intent on a larger scale with more players. At it’s best, it is a synergistic win/win relationship enabling individuals to accomplish a goal by utilizing the capital or skills of the parties involved. Recently, to my surprise, one of my radio listeners asked me if syndications were legal. If done property, they certainly are. In fact, a high percentage of large real estate investment ventures are syndications. The term syndication has no legal significance. The responsibility, obligation and relationship of the syndicator to the investment group and the investors to each other are determined by the legal agreement. Any person or entity can syndicate a deal, and that includes gangsters; so, without a doubt, care and research must be taken when getting involved in any partnership. Why do people invest in real estate syndications? Most investors do not have the time, knowledge, resources, or experience to search hundreds of properties to find a gem to acquire and underwrite; however, there are real estate companies who do this professionally. By getting involved with a good real estate syndicator, investors have access to larger and higher quality investments than when they fly solo. They also gain the ability to invest in real estate without the burden of acquisition, operation, and disposition. One also benefits from the expertise, management, and borrowing power of a team of proven experts. Who is involved with a real estate syndication? The first ingredient for a real estate syndication is a “syndicator” (also called “sponsor” or “promoter”.) This individual or company is in charge of finding, acquiring and managing the real estate. They have a history of real estate experience and the ability to underwrite and perform due diligence on the project. The other party is the investors. These are the individuals who invest with

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Advantages of Syndications: 1. Enables an investor to participate in larger and higher quality investments. 2. Utilizes the syndicator’s ability to find the best products, leveraging their expertise. 3. Reduces the investor’s risk, and creates an opportunity for diversification. 4. Taps into the syndicate’s ability and experience to manage the acquisition and project throughout the investment hold period. 5. The liability is limited to the investors contribution. 6. Leverages the experience and expertise of an expert in entering a non-local market. the syndicator and own a percentage of the real estate as a result. They get all the benefits of property ownership, but they are not involved with acquiring the property, arranging financing, and doing the day-to-day management or disposition at the end of the hold period. Professional management is crucial to successful commercial or multifamily ownership and is usually provided by the syndication. What is the process of a syndication? There are many moving parts to a commercial or multifamily acquisition, operation, and disposition. In all syndications, if done correctly, the due diligence and loan process steps are enough to choke a horse. Hundreds of hours are generally invested by the syndicator and his team to secure the product, including the research and projections for the regional market economics; there’s also research on the subject acquisition and the demographics, as well as many inspections and bids; and, of course, execution on any improvements. Then there is the legal process and finding the best loan source and terms, along with the extensive application and qualification. It’s convoluted and makes a home loan look like a visa charge at the convenience store. And that is just the starting point. Once the property is purchased and rehab is complete, a professional property management company, for both the strategic and the day-to day-operations, is critical to maximize the return on investment. This component can make or break the projections. When it is time to sell, the syndicator has excellent knowledge of the market in that region for that type of product and can maximize the sell price and terms. Having a syndicator who can synergize all of these parts increases the potential returns and mitigates the risk.

Advice

Tom Wilson or annually according to the terms set forth within the entity agreement. A property’s value usually appreciates over time as rents escalate, which increases the Net Operating Income (NOI). When the property is sold, the increased equity is first distributed to the investors according to the preset preferred rate of return, then the additional equity above that is distributed according to the additional terms of the contract between the investors and the syndicator. The syndicator, therefore, to the advantage of all, is highly incentivized to manage the investment to outperform the proforma and projections.

The Three Aspects of Syndication Include: 1. Origination: planning, due diligence, acquiring property, satisfying registration and disclosure rules, and raising the capital for the investment. 2. Operation: the sponsor usually has the expertise to optimally manage the property. 3. Liquidation or disposition: resale of the property at the end of the hold period.

The only thing that matters is what you do next.

How does a syndication make money? Rental income from a syndicated property is typically distributed to the investors from the syndicator/manager monthly, quarterly,

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

BANKING Umpqua Bank Bryan VanHuystee Mortgage Sales Manager NMLS #669364 408-832-2195 BryanVanHuystee@ umpquabank.com www.umpquabank.com/ bryanvanhuystee

HOME IMPROVEMENT HD Supply Remodel and Repair Nangvorlee Vang 408-330-0934 Nangvorlee.Vang@ hdsupply.com www.hdsrr.com

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

IRA

Accuplan Benefits Services Lamarr Baxter 916-708-0235 lamarrbaxter@accuplan. net www.accuplan.net The Entrust Group Gary Kowalski 800-392-9653 ext. 245 gkowalski@theentrustgroup.com www.theentrustgroup. com IRA Services Trust Company Michael McNair 650-593-2221 www.iraservices.com

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

If control and liquidity are top priorities, then syndications may not be for you. Do you want to leverage the experience and capabilities of experts to maximize the return to risk ratio of a large real estate investment? Is minimal involvement a priority? If so, then it may be very worthwhile to find a great syndicator and explore the possibilities...

PRIVATE FINANCING

PROPERTY SERVICES

REAL ESTATE INVESTMENTS

TRAINING & EDUCATION

Socotra Capital Chris Baumann

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

Jason Hartman Platinum Properties Investor Network 714-820-4200 jason@jasonhartman.com www.jasonhartman.com

SJREI Jumpstart Inverstor training Geraldine Barry 408-264-3198 sjrei.geraldine@gmail.com www.sjrei.org/jumpstart

DRE License # 01907957 916-277-9304 chris@socotracapital.com www.socotracapital.com

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

PROPERTY MANAGEMENT ACL Property Management Charles Lassey BRE # 01893837 510-786-9025 lassey@aclrealestate. com www.aclrealestate.com facebook.com/aclrealestate

REAL ESTATE AGENTS Sheryl Martinez DRE License # 01310103 408-209-7674 sheryl@sherylmartinez. com http://about.me/sherylmartinez Keller Williams Realty Silicon Valley Anna Maria Valenzuela 408-832-7727 amv@annamariavalenzuela.com http://about.me/annamariav

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

OTHER SERVICES Taxes Gladys Jimenez Tax Preparer Office: (831) 784-0163 Mobile: (408) 449-2646 gladysinmigracion509@yahoo.com Denise Wilson Tax Preparer & CTRP (408) 377-9703 denise@richardsmithtax.com

Spring 2015 REI Voice

Features When an opportunity presents itself, Eddie says, they are fast to act: “we have the funds ready to go, and we execute quickly.” Eddie explains, “we can buy from the large noteholders, which is a requirement when dealing with the banks. Then we dissect and analyze and turn around and sell quickly, We assist our note students by “scrubbing” the assets and controlling them to determine if they are good. Smaller companies have underwriting issues that sometimes knock them out of the game: we have the people in place to take care of the details, which are complicated.” He links this success back to Colonial’s Note School, saying: “We deploy money to buy notes, iron out the wrinkles and help our clients who purchase notes from us be successful. We have experienced every variation of a problem that can arise before, so we understand what our clients are going through, and can assist with providing solutions.” Eddie discusses some finer details about what makes his business different, and more creative, than others: “The rental market has less inventory, so buying performing notes has become an alternative to buying rental houses,” Eddie explains “we simplify the process and iron out the details for individual buyers. We anticipate a vendor, a process, roll money over for portfolios under contract and go on to find more. Most of what we deal in these days are lower priced band properties. Everyone wants beautiful properties and notes, but there is so much competition in the higher value products that this niche just makes sense to us. We have a 30 year history of buying in working class neighborhoods; it is an area that, if navigated properly, can be very profitable. The competition is not as fierce there, either: the top 15 hedge funds just don’t want these but that does not mean they have no value.” Individual Retirement Accounts (IRA) have people sitting on inactive funds, in many cases, and notes has been an effective way to get those investment dollars to work.

Features Fettke feels passionately about the merits of buy and hold properties. They are, after all, free from the laundry list of hassles that come along with flipping. According to Fettke, flipping is a “full time job, not investing.” She goes on to enumerate the dangers associated with this risky practice, such as turned markets, the wait time for profits to materialize, and, perhaps the biggest oversight that many make, repairs. She shares that, more often than not, your best estimate on a repair isn’t going to come close to the actual cost. On top of this, dealing with contractors can be a mixed bag. Quite simply, if you don’t have the skill set to handle difficult projects, you’re playing a game while blindfolded. “I respect those who can pull it off, but there are many dangers oftentimes overlooked, until it’s too late.” In her characteristic even-handed approach, though, Fettke acknowledges that investing in rental properties isn’t always going to be foolproof. What’s the biggest issue? Property management. Our country, she notes, only recently started focusing

Eddie Speed

(Cont. from page 17)

Eddie’s team is a pro one. Bob Repass, a $2 Billion Bayview institutional investor, and Charles Mangan of Home Investors, who ran its financial arm for many years, did business together for decades before coming on board with Eddie. As they sold loans to each other for years, their long track record of doing business together means they all work well together. Eddie comments, “We try to be the guys that are doing the business. Sharing the story. Teaching the business.” If Eddie’s education was a trial by fire, it’s no surprise: his family background is made up of firemen and note experts alike. His father-in-law is a retired fire chief, and his older son just finished both EMT and fire-fighter training; his younger son wants to follow the same career path. His son-in-law works in the family business, and his wife Martha helps Eddie deploy systems, fill in the gaps, and she still maintains resident inhouse expert status for retirement accounts. His father-in-law, Eddie says, wants his grandsons to be “millionaire firemen.” With Eddie and Martha as their parents, this seems to be an achievable goal. All family members work in the business in addition to their full time gigs. Even Eddie’s daughter, a professional dancer, works for him during the off season. Eddie reflects, “I had the vision to connect the small investor to inventory...inventory that the small investor would not normally have access to. We give them the map to the destination - how to analyze, find, manage, and sell. The trail is blazed and easier for others now, and I never knew how hard it would be, but we made it through with perseverance and tenacity. This journey has changed my family, and our lives, and also those whom we have worked with, and it is very gratifying.”

Kathty Fettke

(Cont. from page 19)

on the importance of quality property managers and holding them to higher standards of professionalism and efficiency. Ultimately, Fettke believes anyone can be a successful buy and hold real estate investor and that it’s the best, time-tested way to secure wealth (refer to her 2013 Fox Business News debate with famed economist Robert Schiller to see her ideas take flight). When asked what someone needs to get started, she offers four tangible attributes: good credit (if your credit isn’t strong enough, she recommends using a credit repair service); the ability to qualify for a loan; live below your means, and finally, have a secure job (it need not be high-paying). Kathy Fettke has been there -- she knows what it’s like to feel despair, but, conversely, she knows that anyone with enough motivation and hunger for education can prevail. Her story stands as proof positive of that, as it is one that should motivate newcomers as well as reinvigorate experienced market veterans.

Kathy Fettke is the CEO of Real Wealth Network, and is frequently featured on CNN, NPR and CBS MarketWatch. She is also an active real estate investor, licensed Realtor, certified coach, and former mortgage broker. She founded Real Wealth Network in 2003 to help investors avoid “the scammers” and get the right price on the best income properties in the strongest markets. Kathy and the team at Real Wealth Network focus on helping investors grow their real estate portfolios through creative finance and planning.

www.reivoice.com

Tuigim* Ger by Geraldine Barry When I started planning this issue, I didn’t have a specific theme in mind; I tend to let these things happen organically. I did see two themes emerge, though, as I read through each article before going to print: motivation and technology. Pete Flint, Kathy Fettke, Bruce Norris, and Todd Pigott all spoke with candor about their rise to success, and their personal stories inspire and encourage all of us on our life journey. Life, for those who have attained some measure of success, has never gone in a straight line -- life just does not play out that way: crises occur, challenges arise, the unexpected happens, and joy presents itself, too. Grab those opportunities for joy, embrace those challenges, and stay calm, strong and focused -- that is the secret that distinguishes those who accomplish their life and business objectives and those who do not. I’m so grateful to have the occasion to interview people who attack life, push through adversity, stay the course, and change the world. That is why each of us is born -- to change the world in little and big ways. Pete Flint changes the world in big way, and you and I enact change, maybe on a smaller scale, professionally, and personally, by simply being the best spouses, parents, and/or friends, so we can make the world a better place for those we touch. Think about your life and what you want from it; explore and edge your way there one step at a time. Be a light in the life of those you touch, and you will become the light and attain a peace and serenity that changes your perspective on everything. In our last issue I shared that this has been the most challenging year of my life. I lost two very dear friends this year, one very suddenly, and it caused me to pause and reflect on my life. Now that the year has ended, I understand the valuable lessons in all of the pain. Pain can be transformational, but it cannot define us unless we allow it to. In the end, the people that are attractive to me are not those who own scores of houses, but simply those who love and care about others and make a difference in the world. I have come to admire many in my circle for their courage, strength, tenacity and quiet resilience. I realize how transformative this

journey called life can be if we are open to it. Keeping these lessons in mind, with the market and economy looking up for the new year, we should all feel motivated to succeed; if you’re having trouble finding your motivation, reflect on what drives the people you admire, be it family, the uncertainty of financial vulnerability, finding and filling a niche in the industry, and the desire to secure a stable future. Whatever it is, find it and use it. When it comes to technology, our second theme, much of the material here discusses its use and how it’s changing the industry. Jason Hartman and Kathy Fettke, for example, both use podcasts to educate large audiences and share market insights. The foundation of Pete Flint’s Trulia is, of course, technology. Providing users with instant online access to virtually everything they would need to know about a property, Trulia certainly changed the world of real estate. Bruce Norris and Carole Rodoni both acknowledge that technology has completely revolutionized how potential buyers and investors access information and purchase properties, especially on mobile platforms. I find technology guides my own life, both personally and professionally. For professional use, I use cloud services to collaborate on writing and get the magazine published; it’s a crucial part of what I do here. I also use it to schedule appointments and to track my activities and stay on top of things; it’s a huge time saver with my children. When it comes to personal use, it’s indispensable to my communication with family back in Ireland; it really helps me stay up on what’s happening over there. As you move forward in this new year, I encourage you to make the most out of it. Set goals and chase them as if your life depends on their achievement. After all, many of the people in this issue did just that, and it paid off in dramatic ways. Giving in to setbacks is the easy part; overcoming them is the true challenge and the ultimate marker of your character. Proceed with passion, use the tools available to you, and get the job done. Here’s to your impending success this year!

* Tuigim (pronounced tigg-im) is the traditional Gaelic answer to the question “An dtuigeann tu?” (Do you understand me?) Tuigum 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.

Spring 2015 REI Voice

Basics Q. What do you think the CA Association of Realtors or National Association of Realtors will do to capitalize on these technology trends? A. They will try to make an agreement with technology companies and partner up. Change does not happen quickly at organizations such as these - they take time to assess, complete due diligence and decipher their new direction.

Carole Rodoni (Cont. from page 35) happens. There is a revolution taking place in the industry and a shake-up is happening with who holds the power. Basically next year rents will hold; prices will hold. The big change is technology: the 1st phase is what we have experienced over the last several years with the consumer driven focus; the 2nd phase is how real estate will be bought and sold.

Q. What are some companies to watch for 2015?

Q. Why does it have to change?

Berkshire Hathaway, backed by Warren Buffett, will be going on the prowl to buy more real estate companies. Right now, they are buying local companies; watch out for them.

A. Consider the money involved and you’ll understand why. There is so much money on the table. The Wall Street boys want to play. I’m surprised that it took so long for them to participate. Agents will need to offset the value that they bring by becoming niche experts.

Q. When will the Millennials finally start buying? A. The 25-49 year olds will start to re-enter the marketplace; they are ready to diversify from stocks to real estate. They have not been buying real estate over the last couple of years but are now getting involved. They are establishing trusts and LLC’s to hold real estate - they want to protect themselves and their assets. Pre-nuptial agreements are common with this group also. This group is getting married later, and are ironing out the money details before the marriage even

Anything that you see here is different than any other area in the nation. The median home price is $681,000. In the Bay Area, we are our own bubble. If California were an economy, it would be the 22 second largest internationally. We contribute an inordinate amount of dollars to the U.S. and world economy. Nationally the average home price is $205-$215K - here it’s $681: see the difference? There is a reason: our bustling economy.

Advice You see, so many people buy properties without exploring the numbers correctly. As I often say, “Without the right math going into an investment, you’ll never get the right profit coming out of it.” The future is impossible to predict, but with solid analysis the chances of success are higher. It’s for this reason that I began to invest a lot of time and effort into building an in-depth spreadsheet that I could run all my potential deals through. No matter how you do your math, just make sure you are doing it – and doing it right.

Are You Working ON Your Business or IN Your Business? Is real estate your investment or your hobby? I believe one of the greatest reasons investors fail is because they don’t treat their business like a business.

Brandon Turner

(Cont. from page 36)

shows. If you want to avoid failing, treat your business the same way a CEO looks at his charge, because that is what it is. Monitor your business’ health, hire the right people to do the right jobs, and continually find ways to improve your bottom line and create a longer-lasting business.

Let’s Sum Up There are a variety of reasons that a real estate investor may fail. However, in my limited time on this planet, I’ve seen the above mistakes played out time and time again in the lives of those who have failed as investors. It breaks my heart to see someone so excited for what real estate could do – only to lose it all in a foreclosure or bankruptcy. Don’t be that person. If you want to avoid losing all the hard work you are putting in pay attention to these four points: •

Understand that risk is a powerful, but dangerous tool, so tread cautiously.

•

Build a solid educational foundation for yourself before getting in too deep.

They treat their tenants like friends.

•

They don’t create clear policies and systems for finding good tenants.

Don’t skimp on the math. Always understand the numbers for any property you buy.

•

Work ON your business, not in it. Treat your investments like the business that it is.

They don’t develop systems to help them as they grow.

They simply approach their investing like a church picnic, and it

www.reivoice.com

Features

Jason Hartman (Cont. from page 16)

According to him, education should come first and potential investors can then make wiser decisions, because real estate investors don’t need to pay big money to gurus; they don’t have to join organizations designed to pick their pockets. With the education he offers, he believes the real estate industry gets a better potential client, one who has heard “the good, the bad, and the ugly” of the business. Some listeners choose to invest in the properties Hartman has to offer; some even buy into the dozens. What matters most to Hartman, though, is the dissemination of quality information. When it comes to the rewards of his work, Hartman cites the numerous emails, calls, and face to face interactions he has with clients and potential clients. He appreciates the personal satisfaction he receives from doing something that matters to so many people. Perhaps this is best exemplified by a podcast listener who admitting to spending $60,000 on a coaching program, only to tell Hartman that he learned more from his free podcasts. Another example of the personal reward can be found in the “Young Wealth” podcast, funded by The Jason Hartman Foundation, his charity organization. The goal of “Young Wealth” is to give young adults a basic, solid foundation in financial literacy, which is something sorely lacking in many educational systems. Hartman

finds it disappointing that many secondary education programs do not give these tools to young adults, so he works to correct this oversight. The Jason Hartman Foundation also gives to the Khan Academy, a web-based, non-profit organization that offers free online education platform in fields such as mathematics, physics, biology, and art history. Essentially, listeners of Hartman’s podcasts stand to learn about a variety of topics. “Creating Wealth” teaches diverse topics such as emerging investment property markets, how to harness willpower to yield the best results in life, the importance of stable industry and job creation in investment markets, as well as general knowledge (every tenth episode of every Hartman show is given over to general interest). The “American Monetary Association” podcast strives to “help people prosper in the midst of uncertain economic times” and explains the impact of government policy on the economy. Education is crucial to success; Jason Hartman knows this. Whether you are exploring the business as a newcomer or an experienced investor, check out his podcasts for a wealth of information; they are available free on iTunes, and provide investors the information they need to execute deals and stay on top of their game.

HOW TO SUCCEED IN THE NOTES BUSINESS with Veteran Eddie Speed

SJREI PRESENTS:

Eddie Speed, NoteSchool Founder Personal training from the nation’s most experienced note buyer! Since 1980, W. Eddie Speed has dedicated his professional life to the seller financing and non-performing note industry. Over the years, he has introduced innovative ideas and strategies that have positively impacted the way the industry operates today. Register on www.SJREI.org

Save the date May 9th, 2015

Basics

Pam Blanco The Science of Real Estate:

Pam Blanco’s Formula for Maximizing ROI by Michael Grigelevich

exas has a lot going for it. Boasting 31 Fortune 500 companies, the 3rd busiest airport in the country (Dallas-Fort Worth), and the soon-to-be Toyota headquarters in Legacy Park in Plano, it’s no surprise that Texas stands as “the business capital of the south.” Such economic stability and growth, as well as affordable properties, consistently make Texas an attractive place for real estate investors. When it comes to sales and property management companies, it can be difficult for investors to make the best decision; however, in this bustling market, Pam Blanco’s Professional Management & Sales (PAMS), a full service real estate and property management company, stands out in the crowd. Let’s explore why, and see what we can learn from her well established “oil machine.” Family-owned and operated, PAMS employs a comprehensive approach to find investors the best properties. According to Pam Blanco, the president and broker for the company, her business stands apart from the rest because they do, quite simply, everything. Blanco’s team researches properties and puts together comprehensive Return On Investment (ROI) reports based on their findings; they sell properties to investors; and when the deal closes, they manage the property. The company holds a vested interest in the properties they sell, as their relationship with clients continues after the sale. Service offerings includes a full rehab team that can handle minor or major property renovations -- a component that can be riddled with headaches for the clients. When it comes to researching properties for clients, Blanco and her team take a scientific approach to their data mining. Focusing on important things like school districts and average rents, Blanco’s team 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. When the purchase is complete, 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 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 it; currently they 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. Every 6 months, the company conducts interior inspections of all properties. 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 the 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. 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. In short, analyzing PAMS gives the 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 the Lone Star State, Blanco and her business stand alone thanks to their peerless performance.

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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