SJREI Journal III

Journal

Connecting People - Educating Investors Retirement Planning - Roth Conversions David Beck, CFP..........................................3 New Year - New Market?

Jason Lee, Broker...................................... ..4 Strict Rules for Tax-Deductible Investment Travel Richard Smith, Enrolled Agent...................5 Ten Questions to Ask Yourself Before Hiring a Lawyer Jeffrey B. Hare, Attorney.............................6 Has the Bottom been Reached?

Michael Ryan, Mortgage Broker.................7

Vol. III

www.SJREI.net

(408) 264-3198

What’s Really Happening in Today’s Market from a WellConnected Insider!

Interview with Jon Freeman, President and Founder of Stonecrest Financial Jon has built relationships with top management at many financial institutions and hedge funds, from whom he has bought many large REO packages. He has his hand on the pulse of what is happening in the REO world.

Buying Bulk REO Packages Lori Greymont, Investor/Entrepreneur........8 True Property Acquisition Cost Tom Wilson, Owner/Investor.....................14 Short Sale Case Study Natalie Knowlton, Short Sale Expert........16 Investor Profile John Schaub, Investor/Author....................17 Buying Fundamentals Stuart Baeriswyl, Broker............................18 The Best Deals are Made on the Sandlot Hilda Ramirez, Marketing Consultant......22 “Short Sale” Legal Issues Anthony F. Earle, Attorney........................23

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eraldine Barry, SJREI President, sat down with Jon Freeman recently to discuss economic trends, lending industry status, and investing opportunities in the current market.

ny. I continued and had some success early on purchasing properties. I found that most homeowners did not want to sell, but wanted a new loan instead. I then started referring those leads out and eventually started a hard money company. That company evolved, and Tell us about your company – you we now provide all types of lending products have been in business 20 plus years, and also started a mortgage fund six years ago and are hiring right now so you are to handle our hard money lending component.

At the end of 2009, we took over the mandoing something right? agement of a competing hard money fund and The company was founded in 1986. The goal hired more staff to accommodate the increase was to purchase pre-foreclosure sale proper- in work load. ties in the South Bay. My partner and I drove On the purchasing side of our business we the streets knocking on doors and attempt- started fixing and flipping and slowly started ing to purchase properties. My partner who to keep some of our purchases and turn them was older than me could not afford to con- into rentals. We continued work pre-foreclotinue working for free so he left the compa- sures but evolved into (Continued on Page 19)

Housing on Steroids Are We Addicted?

SEAN O’TOOLE ForeclosureRadar Founder and CEO Are higher home prices really the answer to the housing crisis?

Looking back at 2009 we saw unprecedented support for the housing market in terms of government subsidized interest rates, tax credits,

foreclosure moratoria and loan modifications that make subprime lending look safe. Clearly the drop from the dizzying heights homes prices reached in 2006 was staggering, and just as clearly the drop would have been far worse without this intervention. To justify this intervention one has to assume that higher home prices are in our best interest. But are they really?

(Continued on Page 11)

Today

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Notes from Geraldine’s Desk

elcome to the latest edition of the SJREI Journal. This is our largest issue to date and we have a broad selection of articles and topics to share with you to help you grow your real estate business. Real estate is a wonderful tool to help you achieve your financial goals, particularly retirement. There are a several reasons this is a great asset class to participate in, here are a few of my favorites.

GERALDINE BARRY President SJREI Association The SJREI Association provides the education and networking necessary to enable individuals to make wise, profitable investment decisions. Whether you have yet to purchase your first investment property, or are working on your hundredth deal, you’ve found the bay area’s most dynamic investors association.

Three Chapter Meetings monthly to choose from: »» East Bay »» South Bay »» Mid-Peninsula

Published by: SJREI Asso.

(408) 264-3198 www.SJREI.net Editor: Geraldine Barry Publisher: Belle Li 2 SJREI Journal www.SJREI.net

»» Real estate is a tangible asset, you can see it – it will not evaporate as is often the case with stocks in the stock market »» Interest is tax deductible in most cases, as are operation and ownership costs »» Real estate can be rented, exchanged, depreciated, and you can borrow against it »» If you buy right you have a good shot at making money long term – real estate generally appreciates over the long haul. Understanding where we are in the cycle and buying deals that cash-flow and make good financial sense is key. »» Real estate is a good hedge against inflation, as rents increase with inflation Remember, effective investors are typically contrarian in their view of the market – they are getting in when everyone else is exiting the market, and they are sitting on the sidelines when others are buying in, driving prices up in an over-inflated market environment. Be on the right side of that equation. Successful investors are constantly exploring niches to decipher new profit centers, to determine if they make sense to participate in even temporarily. Stay close to your market and alert to take action when opportunities present themselves.

In this current cycle, understanding the market is paramount-our goal at the SJREI is to bring you the speakers, and information, that will assist you with making wise, profitable, investment decisions. I am constantly looking for knowledgeable hands-on professionals in the com-

munity that can keep us posted on what is going on in the market, and what we can anticipate in the short and long term. I am very excited about some of our upcoming speakers. Jon Freeman (see article on front page) is presenting at the Mid-Peninsula meeting on February 16th. Jon is a wonderful resource for us in terms of understanding the REO market, where it is headed, and how we investors can take advantage of this once in a lifetime opportunity. On page 3, David Beck shares specifics to consider with regard to the Roth IRA conversion for 2010. Attorney, Tony Earle addresses what you need to know when doing a Short Sale, on page 23. Check out our calendar on page 13 for our schedule of events over the next couple of months.

Investor John Schaub – (see page 17) will join us at the May meeting in the East and South Bay Chapters, and will is doing a day seminar on building wealth one house at a time in May. This is our first time having John speak at the SJREI so this is an opportunity to see him locally.

Consider attending our JumpStart program on February 6th, at the SJREI Education Center, which is conducted like a college class. Each segment is 50 minutes followed by a 10 minute break, and includes a networking lunch.

Check out the details on page 21. It is one of the better programs out there to get you the key resources and connections necessary to get you started investing . Our next one is February 6th. - this program is offered a couple of times a year with an excellent line-up of professionals teaching.

We look forward to seeing you at one of our upcoming events!

Geraldine Barry

SJREI President Connecting People, Educating Investors

Disclaimer: SJREI Association, it’s founders, members, or presenters, assume no liability or responsibility for the outcome of any real estate transaction, decision, or other action that any member, guest, or visitor, may enter into as the result of attending any meeting of SJREI, listening to any guest speaker, or talking to any SJREI member, guest, or visitor. SJREI in no way endorses any real estate offering that may be made.

Members of SJREI, guests, and visitors are urged to perform their own due diligence investigations before entering into any real estate transaction or other contractual relationships.

Retirement Planning by David Beck

Roth Conversions

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’m sure you have seen articles and news reports on the topic of Roth Conversions in 2010. I’d like to illustrate a few key points before you make that big decision.

Roth Conversions are presented as tax savings or investment opportunity. Most of what you read is driven by the voracious financial services industry (AKA Wall Street) which will benefit from the fees collected on these conversions. The cards are stacked to make them look good. For example, would you believe that most, if not all, free online calculators are loaded in favor of conversion?

David Beck, CFP® Bay Area Planners David Beck is an independent, fee-only financial planner. He specializes in helping clients understand their financial situation and explaining issues such as Roth Conversions and how real estate fits into an investment portfolio.

Mention this article for 15% discount

Here are some aspects of the topic you probably haven’t read or heard about: 1) To benefit, you MUST pay the taxes out of your current (after tax) savings – not ‘should’ but MUST. 2) A key factor is not what future tax rates will be – they are almost sure to go up at some point - but what will YOUR marginal tax rate be in retirement.

You don’t know what this will be and neither does anyone else, yet a higher number will be suggested to favor conversion.

3) That the increase in your Adjusted Gross Income due to a conversion could reduce your Schedule A and other deductions, cause Social Security income to be taxed, reduce child and education credits, subject you to AMT, and increase your future Medicare Part B taxes. Importantly for SJREI investors, it could eliminate taking passive losses on rentals. Not one of these potential costs is taken into account by online Roth calculators.

4) That you still have the option to convert after 2010, and there are options other than a conversion – for example, you might just add money each year

as a regular contribution.

When you peel everything else away, all that is left is the “one-time special offer” hype that converting this year allows you to split the tax bite over two years. Even this is of dubious benefit, since you don’t know what income tax rates will be when you come to pay. You won’t hear this, because it doesn’t help get your butt into the seat at some advisor’s luncheon presentation.

In reality, it’s not a simple decision and you shouldn’t trust anyone who says it is. There are retirement income and estate planning issues in addition to the investment and tax considerations.

Here’s my advice:

The default decision is to keep the money in your traditional IRA while you figure it out. Common sense says not to pay additional tax now unless there is a compelling advantage to doing so. Next, find someone with an unbiased viewpoint who can help you map out your financial future so you can see where a Roth fits and how it will affect your income and net worth. Roth’s have a place in the scheme of things, and moving money from a traditional IRA might actually be wise for you, but it may turn out to be for totally different reasons than you supposed.

What is the alternative? Another go on the Wall Street slot machine. Good Luck!

408-725-7135 David@RetirementPlannersOnline.com www.RetirementPlannersOnline.com

Bay Area Planners provides:

Comprehensive financial planning and investment advice for the real estate investor.

Real estate investors want a financial planner in tune with their goals, and knowledgeable about real estate. Financial Planner David Beck provides options and solutions that honor your interests. He will guide you to achieve your financial goals. David advises clients on financial independence, investments, tax reduction strategies, retirement distribution strategies, and estate and wealth preservation. Specific to real estate, David assists with cash flow evaluation, real estate acquisition and disposition, tax reduction and deferral, and estate planning for investment real estate owners. Using professional financial planning software, he will show you if a proposed real estate investment increases or decreases your future net worth and makes good sense.

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MARKET UPDATE by Jason Lee

New Year – New Market?

Jason Lee President, Silicon Valley REO Silicon Valley REO specializes in: • Analyzing statistics and trends within the local market • Providing a true understanding of the real estate investment process • Putting together difficult deals by thinking outside the box while working with sellers, buyers and investors of all types.

(408) 348-7988 (408) 998-1300 Jason@SVREO.com www.SVREO.com (DRE 01051200) 4 SJREI Journal www.SJREI.net

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he numbers of homes, available, for sale this year are down significantly compared to January 2009. Numbers of banked owned inventory dropped 78%, short sale inventory dropped 64% and regular sale inventory dropped 31%. The Buyers, of homes in Silicon Valley, ignored all the negative headlines and expert predictions of the “foreclosures tsunami” and lower home price that were coming. The demand for distressed homes, available, outpaced the supply; which resulted in higher prices and has setup the market for a strong price increase this spring.

The bank owned market will have little influence, on prices, due to small numbers of closed sales.

The short sale market will flourish and represent an opportunity for investors. The challenges will vary from real estate agents to services to investors.

The regular sellers will be frustrated, since their homes will be compared to the sold and pending short sale listings.

Last but not least, expect a major reduction in the number of professional Real Estate Agents and Brokers in the field as the competition heats up in 2010, even hotter than 2009.

By that I mean that buyers agents are having a hard time making a living with the low level of inventory available. Experienced realtors have survived and succeeded as they have established those long term connections over the years.

TAX PLANNING by Richard Smith

Rules of the Road are Strict for Tax-deductible Investment Travel

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any investors want to deduct travel for investment purposes. Individuals may deduct travel expenses for business under IRC 162 while investment travel is deducted under IRC 212.

IRC 162 and 212 have very similar requirements, but the courts and the IRS have held investment travel to stricter requirements because of the increased potential of abuse. There is only one statutory difference between business and investment travel: no deduction is allowed under IRC 212 for attendance at a seminar or convention. Otherwise the differences between the 162 and 212 requirements are very subtle and have been developed over time by the courts.

RICHARD SMITH Enrolled Agent Richard Smith & Associates Richard Smith, who is an Enrolled Agent and licensed by the IRS, and his team have prepared taxes for individuals and corporations for more than 30 years.

Richard is an active real estate investor who has more than 100 houses in his portfolio plus a large multi-family building.

10050 N. Wolfe Rd. SW2-140 Cupertino, CA 95014 (408) 446-5551 rsmithtax@aol.com www.richardsmithtax.com

IRC 162 allows a deduction for the “ordinary and necessary expenses” paid in carrying on a trade or business. IRC 212 allows a deduction for expenses paid or incurred for the production or collection of income or for the management, conservation, or maintenance of property held for the production of income. In either case, the activity must be for purposes of making a profit.

Most losing cases involving investment travel have been the result of:

• Failure to prove a profit motive.

• Too little investment activity compared to personal activity.

• Too little potential profit compared to the costs of travel.

• Failure to prove the reasonable and proximate relation between the travel and the investment.

In one of the most-often cited cases on investment travel, the court concluded that the travel must be “rationally and systematically planned” and reasonable in cost with respect to the investment involved, and there must not be a disguised personal motive.

In another case, the court reiterated this requirement and added three more requirements:

• The costs must be reasonable in relation to the magnitude of the investment and the value of the gain expected to be derived from the trip.

• There must not be a significant personal motive for the trip.

• There must be some showing of practical application of the value gained from the trip Looking for investment property: A taxpayer was not allowed to deduct travel expenses in looking for investment or rental property, but was allowed to capitalize the costs related to it’s acquisition. A taxpayer who owns rental or investment property may deduct travel expenses to maintain that property. However, the IRS will apply the ordinary, necessary, and reasonable criteria.

The IRS uses the hobby loss criteria in determining whether investment travel is deductible. Treas. Reg. 1.183-2(b) provides a list of nine non-exclusive factors that determine whether an activity was conducted with an actual and honest objective of making a profit.

1. The manner in which the taxpayer carried on the activity.

2. The taxpayer’s expertise.

3. The time and effort expended by the taxpayer in carrying on the activity.

4. The expectation that the assets used in the activity would appreciate in value.

5. The success of the taxpayer in carrying on the activity.

6. The taxpayer’s history of income or losses with respect to the activity.

7. The amount of profits, if any, which are realized in the activity.

8. The financial status of the taxpayer.

9. Whether elements of personal pleasure or recreation are involved.

The IRS will give more weight to objective factors that merely to a taxpayer’s statement of intent.

Not all is lost, however. We have found examples of taxpayers who were allowed a deduction for:

• A lengthy trip to Canada, where the taxpayer had extensive interests in property and investments there.

• Substantiated expenses to travel from New York to Florida to check on the condition of rental property and commence necessary cleaning and repair.

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Attorney Corner by Jeffrey Hare

TEN QUESTIONS TO ASK YOURSELF BEFORE HIRING A LAWYER JEFFREY B. HARE Attorney Jeffrey B. Hare, Attorney at Law, provides client focused outcomeoriented legal services to his clients.

Specializing in real estate and land use law, Jeffrey combines legal expertise with practical experience as a real estate investor and entrepreneur to help his clients develop a clear and comprehensive strategy designed for a successful outcome.

408.279.3555 Jeff@Jeffreyhare.com www.jeffreyhare.com

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etting a lawyer on your team is important. Finding the right lawyer at the right time is even more important. If you wait, you’re late. The key is to find the right lawyer who understands your investment objectives, and can provide effective, timely advice to help you achieve them. Asking yourself the following questions will help you and your lawyer better manage your legal costs.

1. ARE YOU SEEKING KNOWLEDGE, JUSTICE OR REVENGE? A lawyer can play many roles on your team. Helping you avoid legal problems is one. But sometimes, disputes happen, and a lawyer can play a key role helping explain your options and defending your interests.

6. HAVE YOU DONE YOUR HOMEWORK? You know (or should know) more than anyone about the facts of your case. Take time to learn the relevant law as well. Use the Internet and library. Knowing the law will help you ask good questions and make better decisions. It may also save you money.

2. HOW DID YOU GET HERE? If a dispute arises, he first question you should ask yourself is “How did this happen?” Prepare a chronology of events. Sometimes knowing how you got to this point will yield clues how best to resolve the matter. Focus on facts, make a chronology.

7. WHAT WOULD YOU SETTLE FOR? You need to establish a realistic and reasonable settlement position. Over 90% of all cases settle before going to trial. The sooner you settle a dispute, the less it will cost. Period.

3. IS THIS A BUSINESS OR A LEGAL ISSUE? Most disputes involve business issues rather than legal issues. A lawyer cannot make business decisions for you, but they can describe different legal strategies and consequences affecting your strategic planning and the “bottom line.”

4. HOW MUCH IS AT STAKE? Do a realistic cost-benefit analysis. Legal disputes can cost hundreds of thousands of dollars, and there are no guarantees you will recover anything.

5. CAN YOU MAKE BETTER USE OF YOUR TIME AND MONEY? What is the best use of your time over the long term?

Consider the realistic probability that you will recover anything. Can you put the money and time to better advantage? Do the math.

6 SJREI Journal www.SJREI.net

8. HOW COULD THIS BEEN AVOIDED? Hindsight teaches us the true value of foresight. Consulting with a lawyer before commencing a transaction might turn out to be the most valuable investment of your time and money. You cannot prevent litigation, but you can reduce the opportunities for it to occur.

9. WHAT IS THE BEST WAY TO PROTECT MY ASSETS? The two most important steps you can take are (1) good management practices, and (2) adequate insurance.

So-called asset protection schemes can be a waste of money. Invest in assets, not gimmicks.

10. WHEN IS THE BEST TIME TO TALK TO A LAWYER? Now. Really – now! It may be the wisest investment of time and money that you’ll ever make!

Financing Insights by Michael Ryan

IS IT TIME TO TAKE CONTROL? HAS THE BOTTOM BEEN REACHED?

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conomic cycles ebb and flow. Sometimes, however, these waves of change can be shocked by the unexpected, and in 2009, we had two such shocks.

1.

The Home Value Code of Conduct Regulations, which set new rules for appraisals.

2.

Governmental interdiction to manipulate interest rates - keeping rates artificially low, creating a possible short-term bubble in home sales and refinances.

With these uncertain economic times there are lots of questions being asked. I will address the more common ones I hear.

Is now a good time to buy?

First Time Home Buyers: If you have good Michael Ryan Mortgage Broker

Michael Ryan & Associates

Michael Ryan - GRI, CCRM, CAM and founder of Michael Ryan & Associates.

Our corporate motto is to put YOU, our clients, first and exceed your mortgage expectations. With 19 years of industry experience, we have proven our business model to be successful. Call me if I can be of assistance.

(408) 986-1798 mike@michael-ryan.com www.Michael-Ryan.com

credit, savings, and steady employment now could prove to be a perfect time to purchase. Interest rates and tax credits should more than offset any potential decline in home prices over the short term.

Investors: It usually proves best to buy when in-

terest rates are low and prices are near the bottom, especially if governmental policy appears to be to inflate real estate prices as a tool to end the recession.

What can we expect to have some answers to in 2010?

Commercial property – Is it being impacted

their underwater properties? That remains to be seen.

What to be aware of and watchful for: Closing Cost Estimates- January 1 brings the

first revision to the Settlement Statement in decades. This new Statement provides a more certain guarantee of accuracy. Though somewhat complex and confusing, the false promises of $1,200 closing costs are gone. Good consumer protection move.

Appraisals: No changes expected. May 2009 was the coming out party for the Home Value Code of Conduct rules (HVCC). Although a higher price paid for appraisals resulted (average increase of 17 %), the marketplace has stabilized in relation to bad appraisal work. Another ‘no change’ issue is the expectation for appraisal values to continue to be conservative.

Interest rates to stay low? Yes. The Federal Reserve purchased 20 % of the mortgages in 2009.

This is attributed to the interest rates being so low. We are seeing interest rates begin to creep up as the Federal Reserve is currently planning to cease this program the end of March 2010. Another driver to interest rate movement is inflation.

Most believe inflation to stay very tame through 2010, with the expected result for interest rates to remain low.

by the recession? Will the government inject new capital into a market where default rates are increasing? Does this represent the beginning of the next real estate opportunity for the astute investor? This year we will see major developments in the commercial market.

Recession/Depression: The year 2007 was the

Shadow inventory of residential homes: The

assist you; to provide explanation and guidance as you prepare for a most interesting financial year ahead. We offer additional services for construction, owner occupied purchases and refinances, as well as, commercial and small businesses. Our specialty is in providing you with the best information and resources available in the marketplace.

latter part of 2009 showed a shift towards shortsales rather than foreclosures. This may continue in 2010 and become a niche business to explore.

A second piece is the interest rates for those who bought with interest only, and negative amortizing loans. Most are adjusting to 3 - 4 % interest rate.

Will this result in less people walking away from

bubble of overbuilt new construction, 2008 saw the collapse of the banking industry, and 2010 hints at recovery, even though real unemployment rates remain far above 10%.

Conclusions: My associates and I are here to

Create your own best of 2010!

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Investor Profile The Risks and Rewards When Buying Bulk REO Packages

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hen you purchase a bulk REO package, you can pretty much expect 1/3 of your properties to be good, 1/3 of them to be OK and 1/3 of them to be junkers. Remember these properties are not the cream of the crop inventory, but rather the bottom of the barrel properties.

LORI GREYMONT Founder and COO summitsolutionsteam.com

Lori has over 20 years of real estate and entrepreneurial experience. She is involved in Summit’s financial management, project planning, sales support, operations, marketing, training, and strategic planning. Lori has significant hands-on experience in fix-and-flip strategies, land banking, land to vertical development, rezoning, multi-family re-performance and single family sales and marketing through traditional and creative methods.

8 SJREI Journal www.SJREI.net

A good package is when about 10% of your properties will sell for cash, 80% will sell with seller financing and the other 10% will be given away or sold at a loss. In this business, you will profit on the package even though you may lose on an individual property. The key is to evaluate the package as a whole.

Most wholesalers require that you buy a “blind” package which means they compile the list of homes for you and you either take the whole list or you don’t. You will have 24-72 hours to do your research on the package to determine if you want it. The type of research involves checking values, back taxes and liens (water, code violations, tax, waste, HOA, and mechanics). This is the period that if you have a ground crew in place, have them drive by. DON’T SKIP DOING YOUR RESEARCH. Horror stories include properties that have over $24,000 water liens or $50,000 in code violation fines. You are buying As-Is, Where Is with a Quit Claim Deed, so you are buying with all the defects.

You can hire someone to assist you without this component-you don’t have to try to do it alone.

Once you decide on your package, you will sign the contract and wire your funds directly to your wholesaler. You may not get the deed for up to 6 months, so that is one of the many reasons why seller financing works in this business. The wholesaler will then order a signing crew to go to your properties, do a high level inspection, take photos, and hang up pricing signs with your (800) phone number, email you a report.

Once your properties are signed, you need to be prepared for the calls. You will have the most volume of calls the first two weeks and you need to do everything you can to get someone in before your activity wanes. The longer your property sits vacant, the more risk there is of injury or vandalism.

Let’s say you pay $7,500 for a particular property. It is signed for $600 down and $375 per month. Using the $375 fully amortized payment at 9% interest for a 15 year term creates a land contract of approximately $37,000. In 15 years, with interest, this contract will pay around $67,500. What a return!! And the best part is instead of buying the property, fixing it up and having a tenant trash it, you buy a trashed property and your tenant-buyer fixes it up for you.

That is why they can buy in at such as low cost of entry.

This business is evolving, so ask your wholesaler for ways to increase your odds for success: 1.

Cherry picking your package with a slight or no premium 2.

Guarantee of “No Lots or Burn-outs” 3.

Money placed in escrow-cash for deeds 4.

Deeds in weeks, not months Our buyers have asked these from us and we delivered. Do your research, take action and good luck!

Direct: 408-891-2983 Toll Free: 888-255-3973 FAX: 408-762-2019 lori@summitsolutionsteam.com www.SummitSolutionsTeam.com

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Founder and CEO, SEAN O’TOOLE Sean nearly lost his first home to foreclosure twenty years ago. With the help of a local Realtor, he was able to negotiate a short sale with the lender and move on. Years later, after a successful career as a Silicon Valley entrepreneur and executive, Sean returned to the foreclosure market — as an investor. It did not take him long to realize that the foreclosure data and tools he was forced to rely upon were sorely lacking. In purchasing more than 150 foreclosures, it also became clear to Sean that the marketplace itself was deeply fragmented in ways that harmed both consumers and real estate service providers. So he pulled together a development team from his days in technology and got to work.

(Continued from front cover ) Like an athlete using performance-enhancing steroids, should we be willing to risk our economic health and future for a remarkable, but likely unsustainable, performance now? Is it really reasonable to expect our current steroid induced housing market won’t come back to haunt both our personal finances and our national economy in the future?

Looking back to our previous foreclosure crisis, we worked our way out of hat one with housing steroids as well. We started with the Taxpayers Relief Act of 1997 that incentivized every homeowner to flip-that-house with taxfree gains on real estate and as we entered the millennium the housing steroid cocktail was enhanced with a loosening of regulations, and an extended period of low interest rates. This stimulus led to the greatest housing bubble in our history, the aftermath of which we will continue to deal with for years to come.

As with steroids use by athletes, there was short term artificially induced gains followed by serious negative side effects. The gain was stratospherically higher but unsustainable home prices. The side effect has been negative equity, foreclosure and recession as the steroids wore off and homes prices returned to earth. As we once again embark on injecting a powerful cocktail of stimulus into the housing market let’s look at the winners and the losers of housing on steroids.

ing them stuck in an underwater prison-of-debt during the inevitable busts.

• Realtors: While the highs are great, the busts are devastating - not only to their own income, but also to their reputation among those who trusted their mantra that “now is a good time to buy” at the peak.

• Retirees: And other fixed-income investors who can’t get a decent return on investment thanks to artificially low interest rates. It’s hard to get those 5-10% returns your retirement plans are counting on during a period of near zero interest rate policy.

Is the solution to our housing crisis really more housing steroids in the form of government intervention? Might we better off by kicking the habit and returning to a sustainable market, realistic growth that keeps pace with inflation, and prices that reflect actual incomes? Ask yourself a few questions:

As a homeowner, which would you prefer?

• Artificially inflated home values that eat at your income with higher taxes and insurance premiums while not otherwise benefitting you so long as you still need a roof over your head , or • Confidence that the value of your home will remain stable and keep pace with inflation as you build equity by paying down the mortgage.

As a Realtor, which would you prefer?

Who are the winners and losers of housing on steroids?

• An unstable and dysfunctional boom/bust housing market with periods where commissions can be hard to find, or • A stable housing market with continuous sales bringing a consistent stream of commissions.

Winners

As a citizen, which would you prefer?

• Government: Higher property values mean higher property taxes and higher government revenues.

• Title & Escrow companies: Higher prices mean higher transaction fees.

• Realtors: Higher prices mean higher commissions.

• Insurance Companies: Higher prices mean higher premiums.

• Sellers: Anyone who flips, sells, downsizes, or simply cashes out – assuming they get the timing right.

Losers

• Homeowners: Periods of artificially inflated values only mean inflated taxes, insurance premiums and unpredictable future value potentially leav-

• Covering up the real problem (too much debt) by artificially inflating home prices using tax payer dollars we don’t have (creating more debt) while still leaving our consumer-driven economy weak because too much income is going to mortgage payments, or • Addressing the negative-equity problem and allowing prices to return to levels supported by reasonable incomes and loan terms.

The reality is that housing prices aren’t too low; it is our debt that is too high.

Rather than continue to waste tax dollars we don’t have on temporarily inflating home prices, perhaps its time to “Just Say No” to the housing steroids that got us in this mess to start with.

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2009 Real Estate Expo Review Information

Community

“We had a very well attended event, with almost 30 exhibitors who were very pleased with the turnout, marketing opportunity, and the business that was generated from the event. We organized this Expo in 6 weeks - the 2010 one will be organized over four months and we are anticipating a much bigger event with several experienced speakers and a panel of professionals. I always say that free events are generally very sales oriented, I am coordinating the educational component of this event and it will be educational and informative.”

Geraldine Barry, President of the SJREI Asso..

Marketing “We got a lot of clients from this event, I am looking forward to the next one.”

Speaker & Exhibitor, Tom W.

“As an investor and exhibitor I am very happy with the results and I very much enjoyed the presentations.”

Hannah, F.

Networking

“I was very impressed with the level and quality of the speakers, and the variety of information shared. I was glad I took the time to attend.”

Caroline H.

Mark your Calendar for 2010 Real Estate Expo, May 22 (See page 13 for details)

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“Good statistics and information were shared which give us investors a good indication of where the market is heading.”

Jeff K.

Mark your Calendar for SJREI Events!

JumpStart Program East Bay Meetings

Get on the fast track to competent investing!

South Bay Meetings Mid-Peninsula Meetings JumpStart Program

Feb 6, 2010 Sat 8am - 5pm Biltmore Hotel, 2151 Laurelwood Road, Santa Clara, CA

The SJREI Association has put together a great team of instructors to educate you.

The information available at this workshop can literally save you tens of thousands of dollars by keeping you away from the wrong properties, and helping you evaluFebruary 2010 ate and invest wisely. This is your opportunity to learn from some very experienced T F S investors who have wide ranging specific skill sets. Come spend the day with us, 4 5 6 and get ready to take flight.

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Are you ready to learn and implement advanced strategies that can increase your profits and reduce your management expense?

18 19 20 »» Learn how to negotiate better terms and better deals 25 26 27 »» Understand how to use options »» Instruction regarding sandwich positions and creating wraparounds New strategies for borrowing at lower rates on better terms, with less risk April 2010 »» Come join us to meet John!

2010 Real Estate Expo

May 22, 2010 Sat 10am - 4pm Milpitas Crowne Plaza 777 Bellew Drive, Milpitas, CA

The 2010 Real Estate Expo is the only real estate show in Bay Area geared excluMay 2010 sively towards the real estate investors and real estate related professionals. We focus on bringing the highest quality real estate suppliers and service providers to you.

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This is an exclusive opportunity for Targeted Networking and Connecting with your ideal clientele.

We will also be offering FREE Educational Seminars all day. Learn from the stories and tested methods of our hugely successful speakers.

Come join us for this dynamic Real Estate information gathering and networking opportunity.

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Property Acquisition Cost by Tom Wilson

Will the True Cost of Acquisition Please Stand Up? TOM WILSON Owner/Investor, Wilson Investment Properties Tom Wilson is a retired high-tech manager who has bought and sold more than 1500 units, including three condo conversion projects, two syndications and seven multi-family properties.

Currently, Mr. Wilson is focusing on a program of providing high quality, high cash flow rehabbed and leased foreclosures to investors. He is active in real estate investment clubs and provides mentoring to new investors.

P

tomkwilson@earthlink.net

urchasing an investment property can and should be a great experience and financially rewarding. The real happiness occurs downstream after it has truly performed as well or better than expected. Unfortunately, many investors find that their investments under-perform. Why is that? For starters, it is somewhat similar to buying properties with insufficient rent ratios. If you don’t start off on the best foot, i.e. cost basis, no matter how good your later efforts are, you will never make up for a poor start. Often the problem is that the initial costs to get the property to the point of cash flowing are far greater than expected. If one can project the true costs at the time of purchase with good accuracy and completeness, then the probability of success greatly improves.

Let’s look at the typical investor purchase scenario. The optimistic and anxious investor finds a property presented by an agent, who says that with a little carpet and paint, it should be rented up in no time. What a deal! How can you go wrong? Unfortunately, let us count the ways! It often goes wrong because in the mind of the prospective investor, this translates to $3K fix up costs, and it is rented within a week of close of escrow. The reality is that the percentage of agents who have much experience with investment property ownership is very low. The agent, even in his zealous desire to get a commission, may indeed think that their suggested scenario is really possible. Actually, the true costs are more like in the table, many times what was initially conceived, both in time and money. When one calculates or projects CCR (cash on cash return), one has to include ALL of the costs to the point of actually cash flowing. While the fantasy in the heat of pursuit is that the cost is the purchase price plus carpet and paint, it is always far greater. One has to add the total cost of purchase, complete rehab, along with the surprises, and the total cost of carrying the property (PITI, utilities, ads, lease up fee, etc per the table) until the first rent clears the bank and the property is occupied. We all like to boast about the great deals we get. The prob-

14 SJREI Journal www.SJREI.net

www.tomwilsonproperties.com

(408) 867.1867

lem is not the stretched story that we tell our doubting friends, peers, and family, but the story that we want to believe ourselves. Do your homework, be truthful with yourself, and do your due diligence, while you can still bail and move on to a better investment.

Typical Property Acquisition Costs Purchase Till Leased Market Value $118,361 Rent $1,242 Purchase Price $94,197 Closing Costs $2,743 Rehab $8,170 $409 Utilities Debt Service Loan $1,571 Insurance $591 Taxes $1,004 Advertising $405 Lease Up Fee $550 Total Avg Additional Out of Pocket $$ $15,441 % of Purchase Price 16% Total Out of Pocket Costs with 20% Down $33,195 Debt Service Additional if Borrowed $497 (Down Payment & Rehab etc @ 6%) Avg Days Purchase to Lease 73 Initial Rehab Estimate Avg $6,689 Initial Rent Ratio Estimate 1.32 Rent Ratio After Rehab & Lease 1.05 Total Acquisition Cost $109,638

Property Acquisition Cost by Tom Wilson I can’t tell you the number of clients and prospective clients whom I’ve met who really like the Wilson Investment Properties quality turnkey business model, but decided that they had to try it themselves, only to return and confess that they should have left the risk and the cash out of pocket to get properties to the point of cash flow to an experienced dealer/investor. They found that it is really hard to do better than someone with experience, success and the cash and proven resources to do it right.

Typical Rehab Cost Items Appliance Repair Appliance Replacements Bath Repairs Cabinets Refinish Carpet Cleaning, Final Elec Fixtures & Fans Exterior Paint Exterior Repairs Interior Repairs General Kitchen Counter Rehab Kitchen Repairs Landscape Cleanup Landscape Improvement Locks Paint Interior Plumbing Fixtures

Sheetrock Repair Trash Out Vinyl/Tile Flooring Window Blinds Window Repair Window Replacements Heating System Air Conditioning System Roof Repairs Foundation Fencing Water Damage Garage Door Opener Plumbing Repairs Electrical Repairs Staging Misc.

Wilson Investment Properties has been purchasing, rehabbing, leasing and selling quality turnkey properties to investors for many years. In over 200 properties that we have provided to investors, only four required just paint and carpet or less. Could we have gotten away with that on a few more? Maybe. But if the intent is for you to have maximum long term cash flow ROI (return on investment), I believe that it is being penny wise and pound foolish to not present an excellent product that will attract the best tenant at the best rent and who is stable and responsible. At Wilson Investment Properties we believe, that doing anything less is going to cost you dearly in the long run. Whether you buy from an experienced and reputable investment properties dealer for long term hold or to flip, or decide to do it yourself, please do your homework and give yourself full disclosure before you embark on your next investment property.

Our company was created to serve investors with the highest level of professionalism and competence. With this in mind, our goal is to assist each investor in achieving maximum results. Our sales team has over 40 years’ collective experience in the real estate industry. We understand that property management is a key element of the successful equation. Our managers are Licensed Real Estate Agents who have knowledge of both rental and sales markets. With P.A.M. you will never have to worry about your investment, whether you live in town or across the country!

PROFESSIONAL SALES

PROFESSIONAL MANAGEMENT

• Advertising and Marketing

• Licensed Leasing Agents

• Area Knowledge

• Marketing/Advertising

• Property Selection

• Competitive Management Fees

• Competitive Market Analysis • Comprehensive Market Study • Negotiations

• Individual Property Accounting

• Closing Coordination

• Maintenance/ Make Ready

• Updated communication

• Delinquent /Eviction Procedures

• Due diligence

• Regular communication

• Smooth transition to Mgmt.

Pam Blanco,

Owner/Realtor ®

2000 E. Lamar Blvd., Suite 600

Arlington, TX 76006 817-907-7347 Cell 817-549-0013 Fax pam@pamtexas.com

SJREI Journal

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SHORT SALE CASE STUDY by Natalie Knowlton

Bank writes off $291,754 for an “Investor owned” property, no Deficiency

J

NATALIE KNOWLTON Short Sale Results Team Natalie comes to us with 5 years of experience with Short Sales transactions. She has been a guest speaker at several nationwide training conferences on the topic of Short Sales.

Natalie leads the Short Sale Results Team- serving the Bay Area as well as Monterey and Santa Cruz Counties. The Team is a group of professionals understand real estate and the processes involved to complete a successful short sale for homeowners who are in need of help.

ack bought an investment property for $347,754.00 in 2006. The property was underwater, and about to become vacant with increasing HOA fees. Jack owns a company, primary residence and investment property. The company’s sales were decreasing each month. His primary concern was to save his business and residence. He did have proof of the decreased income and diminished reserves. He wasn’t behind on any payments. We reviewed his situation and after he consulted his accountant and attorney he decided a short sale was worth a try.

We worked on his short sale package and after a few months we received the following from the Short Sale lender:

Approval letter stated:

“We agree to accept the proceeds generated by the purchase price of $56,000.00 “as is condition” purchase as full and final satisfaction.”

Many people told us this couldn’t be done for many reasons. They were wrong -The proof is in the approval letter!

Review:

This was an investment property, business owner, condo, payments current, rented out, bank wrote off over $291,754 with no deficiency in a state that allows for deficiency.

Purchased for $347,754 sold at $56,000. A difference of $291,754.

Seller’s Benefits with a short sale can be.

•Satisfy the loan for less than current balance.

•Avoid a foreclosure on credit history •Avoid pursuit of a deficiency or deficiency judgment •Family can stay in the house without making payments or rent during the approval process »» This alone can be worth it for the debtor. »» Since the process can be lengthy this can extend the time if it went directly to foreclosure.

•Opportunity to negotiate with the lenders •Decrease the debt to the 2nd lender •Fannie Mae and Freddie Mac will allow them to qualify for another home in 2 yrs - 5 yrs.

•Release internal Stress that is going on at home, work, family and friends.

•Eliminate the sleep deprivation**Priceless**

Who is Eligible for a short sale?

Homeowners who have an involuntarily documented financial hardship or an unavoidable increase in expenses. People who are facing immanent default.

Example: job loss, pay reduction, medical bills, divorce, death in family, additions to family, relocation

The Short Sale Results Team Serving the Bay Area as well as Monterey and Santa Cruz Counties.

FREE PRIVATE CONSULTATION. vices please contact us.

If you or someone you know is currently behind on payments and can benefit from our ser-

Ask for Natalie Kowlton (650) 900-4608 FREE to the Debtor = “Completed” short sale

We are paid from the short sale lender approving the commissions for the transaction.

There are few absolute answers with short sales. Each file is a case by case situation. What is important to one family may not be for another.

Every family is suggested to consult with their attorney and CPA. Not all attorneys and CPAs will agree to each other’s advice. If it was an easy decision it would already be done.

16 SJREI Journal www.SJREI.net

INVESTING EXPERT John Schaub You Can Make Better Investments Than The World’s JOHN SCHAUB Smartest Banker Nationally Known Real Estate Expert

John Schaub learned his craft in the best way possible: 35 years on the job, investing in every kind of real estate, dealing with every twist of the economy and managing hundreds of tenants. John’s unique focus on investing in single-family homes in quality neighborhoods enables his readers and students to accumulate wealth while providing affordable housing for families.

Come Meet John in Person East Bay(5/5) & South Bay(5/6) Meetings “John Schaub's is one of my favorite real estate teachers, his books are a must read for all Investors. From the beginner to the experienced investor, all will gain some very useful insights from his books and learn even more from his seminars.

I have benefited from his practical, no-nonsense approach to investing. “ Reggie Lal, Investor/Entrepreneur Recently CEO of Goldman Sachs Lloyd Blankfein, a fifty million dollar a year man, confessed that they made several big mistakes including pricing some risky loans too low, and then over leveraging.

Really smart bankers took unreasonable risk and over-leveraged, and then lost billions of dollars. Many buyers of real estate fell into the same trap. You can do better!

(Continued on Page 7) To be a long-term success, you want to take only smart risks. My role model for smart risk taking is Warren Buffet. Buffet’s first rule of investing is “don’t lose money”. His second rule is “reread rule # 1”. I use leverage when I buy property, but never in a way that I could lose my money.

You need to use leverage. Buying with nothing down is good strategy if the terms, the price and the property are profitable. My student, Robert Allen, wrote a good book by that title after taking my seminar in the 1970s. The secret is learning how to borrow without risking your other assets.

This fear of leverage stymies many investors.

The fear is caused by a lack of knowledge of how to borrow safely. You need to know how to borrow on terms that allow you to make a prof-

it, and allow you to hold a house long enough to make a profit. Bad terms can force you to sell too soon.

expense of closing the loan. By avoiding the bank there were no closing costs or payments, not to mention no interest.

When you borrow from a bank, you have to sign their lengthy and hazardous (to you) paperwork. If prices drop, or you have a cash flow crisis, working something out with the bank is virtually an impossible task.

Since 1975 I have been teaching students in the more expensive areas of California to buy houses as investments without going to banks.

My students have accumulated hundreds of well-located houses that they rent to long-term tenants. As their loans pay off and their cash flow increases, they are financially set for a great life. Although they may not have the fifty million dollar a year income of a top investment banker, they have safely accumulated a fortune in profitable properties by managing risk well.

The solution is to learn to buy without borrowing directly from banks. Millions of lowinterest rate bank loans have been created over the past few years. Taking advantage of them can lead to profits, but borrowing directly from banks is difficult, expensive and not the path to success as a real estate investor.

A couple of months ago I put together a transaction in Santa Cruz, CA. A builder agreed to sell a house and take a note with no interest and no payments for three years, combined with an agreement that he would receive the balance due him after the sale of another property. The builder was delighted to get rid of an empty house, even at a bargain price and on terms.

Borrowing directly from the seller, rather than borrowing the $300,000 from the bank made the deal more profitable and safer. The payments on a bank loan would have been several thousand dollars a month, not to mention the

Markets change and bring opportunity to those who understand how to buy and borrow safely.

As an investor, you want to prosper every year.

You will make your best buys in the down years if you are prepared and know how.

John Schaub is the author of Building Wealth One House at a Time and Building Wealth Buying Foreclosures, both published by McGraw Hill.

941-366-9024 Johnschaubforyou@aol.com www.johnschaub.com SJREI Journal

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Financing Insights by Stuart Baeriswyl

Back to Basics in a Buyer’s Market…

F

rom about 2005, when it became evident that California real estate values had gotten completely out of control and prices in nearly every part of our State had no-where to go but down. In fact, from way back to about 2002-2003, when appreciation really began to soar beyond all reason, it was very difficult to find a ‘deal’ on a piece of income generating property. Inflating property prices were so out pacing rents that basic business fundamentals simply would just not allow for it.

STUART BAERISWYL Broker/Principal Pebble Beach REI

Stuart Baeriswyl is the founder of Pebble Beach REI, a real estate brokerage. With it’s affiliation with SJREI and the up-to-date cutting edge information, Pebble Beach REI is structured to offer the flexibility and individuality of a small firm with market knowledge, business strategies and professional relationships derived over the years involving every facet of real estate investing from procurement to property management.

(408) 373-6766 (DRE# 01807909) Stuart@PebbleBeachREI.com www.PebbleBeachREI.com 18 SJREI Journal www.SJREI.net

There were the exceptions, as some income property could be successfully structured to cash flow by putting a large amount of cash down on the purchase. Also, up until about 2005-2006, an experienced buyer could find properties and successfully flip them for a profit – very easily done during a strongly appreciating market. However, for the many of us investors who are not interested in flipping properties, the past several years have been a time to sit back and wait. As investors, we want to find and buy decent properties, in good solid neighborhoods, and that will cash flow - along with the added expectation of appreciating values in the long run.

Consider for a moment what an awesome time it is, now, to buy real estate in California. I don’t think that our market is a perfect buyers market.

For one thing, I would say that there is no such thing as a perfect buyers market. In reality, each ‘buyers market’ is fraught with its own difficulties or imperfections. Actually, the heart of what makes a particular real estate market undervalued and advantageous for the buyer/investor is the very fact that a particular market is largely not recognized or perceived as being undervalued by most people. So, with that in mind, let us consider why in many areas, now is a good time to find investment property for your portfolio.

What is attractive about current market? First of all, in all areas that I have been checking across the Bay Area, inventory is way down from where it was 12-18 months ago. This is true across the board; for high priced neighborhoods on the

Peninsula as it is for the many lower to middle priced ends of the market (generally investor grade) across the Central Valley. In many areas, inventory has come down significantly, helping to cause a slight resurgence in prices last year. It would be perfect to have a higher or an increasing level of investor grade property hitting our market of interest, but except for some Central Valley regions where there has been a recent uptic of inventories, this is not the case right now.

Obtaining traditional financing has certainly become problematic. It is much harder today to get a loan, but if you qualify, the almost historical low rates available now are in and of themselves a great opportunity. If you don’t qualify there are private money lenders available.

Finally, the general feeling of uncertainty may cause investors to pause. The banking industry appears to be in shambles, and the very weak state of the Californian economy and housing sectors may impact the decision to take action. Investors by nature (the good ones) are contrarian, that is, when others are afraid to buy they jump in.

Late in 2008, my wife and I purchased three single family rentals in Contra Costa County. Many people thought that we may have bought too early into this cycle. We bought because they made good financial sense and were in strong rental neighborhoods. We bought because the price-torent ratio was right and that, except for one of them, they were newer and thus minimized the potential of high maintenance costs.

Let’s look at the numbers - a typical investor grade single family home, that rents monthly for about $1550, can now be found and purchased for around $150,000 (with 20% down - $30,000).

This property should be able to kick-out about $400 of monthly cash flow (see table on page 19).

(Continued on Page 19)

Financing Insights by Stuart Baeriswyl Purchase Price: Cash: Loan amount: Principle & Interest: Insurance:

$150,000 $30,000 $120,000 $750 $50

Taxes:

$150

Property Management:

$120

Maintenance cost:

$120

Total:

$1190

Rent:

$1595

Cash flow:

(Continued from page 18 ) The rehab costs involved for a property purchased like this (typically an REO or from the courthouse steps) would need to be considered – often costing up to $10,000 - $25,000. Plus, the costs both in time and money in locating a property like this, has to be accounted for. Yet, also, the strong potential for upward price appreciation over the next 10 to 30 years is an inherent benefit.

In conclusion, finding good undervalued properties takes patience and some skill, and often times ‘all cash’ to close. Yet, for the investor who is willing to do the research, buying income producing property here in California is now actually possible, and potentially very financially rewarding for the long-term investor.

$405

(Continued from front cover ) purchasing tax-delinquent properties, starting adverse possessions and ultimately into purchasing probate interests from heirs. We purchased a handful of REO properties, but that was not a robust market until recently.

elements before?

I was a little too young and poor to take advantage of the Savings and loan crisis of the late 80’s though I know of people who did and made fortunes. I believe the potential to make significant profits in our current market dwarfs the S &L opportunity. A chaotic market is an investors best friend , all one has to do is identify a niche in the market, be flexible I read a Wall Street Journal article in early 2007 about a investor pur- and aggressively go after it. When the asset managers don’t have time to chasing “low value” REO properties in bulk from the banks. His busi- think, you have to do is solve their problems for them and they will sell ness model was intriguing. He didn’t rehab the properties: he sold them you properties. “as is” and let the buyer fix them up with there own sweat equity. He carried the financing mostly in the form of a land contract which makes What is different about this cycle? it easier to evict the buyer for most states. I knew this business model Really the scope of the problem is so much larger then anything I have was for me and after extensive research contacted the man and started seen before. Every sector of Real Estate is being affected in some way. buying properties from him.

There are also no “quick fixes” for this problem. Our economy was to heavily dependent on consumer spending. People were living far above We have now built up our own direct contacts with many of the top lend- their means because credit was cheap and available. So until the econers, hedge and equity funds, servicers and savings and government agen- omy pays down debt and grows without overly depending on consumer cies. We sell our houses through both retail and wholesale channels. We spending unemployment will not decrease substantially. Without sighire Realtors and also carry back financing on many of the lower priced nificant job growth the real estate market will continue to be weak. houses. On the wholesale side of the business we teach investors our business model and sell them mini-bulk pools of properties.

What stage are we at in this cycle?

It all depends on how much government intervention we experience.

How has your model changed to accommodate the chang- The government possibly stopped a global depression but in their zest ing financial and economic climate? for stopping foreclosures they have just pushed the problem further out We are now 100% focused on the REO and non-performing note business. The financial crisis and bursting of the housing bubble has created enormous opportunities. The number of properties and profits that can be made in the REO market far out weigh working NOD’s, tax lien sales, probate etc. When the markets have stabilized and REO’s are back to normal levels, we can always go back to our old business model.

into the future. I believe we are 35-40% through the cycle for residential and just starting the commercial cycle.

Where specifically do you see opportunities for investors right now?

Depending on the experience of the investor I believe they need to think nationally. It is almost impossible to purchase pools of houses from You have been through several cycles now – give us your lenders, servicers and hedge funds in one small geographic region. If historical perspective on that? Have you have seen similar investors are willing to expand their market areas they will be more successful in working in the REO arena.

(Continued on Page 20) SJREI Journal

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(Continued from page 19 )

What are your thoughts on the real estate market here in When do you think it will be easier for investors to get fiNorthern CA? Are values going to go up or down this year nancing?

Fannie Mae just repealed the 90 day anti-flipping rule for one year startin the Bay area?

I believe values will stay flat or slightly increase for the first half of the year before declining in the second half of the year. There are many different markets in the Bay Area which won’t work in concert with each but the underlying foundation for values is supply and demand. The Obama administration has done a good job on reducing the speed and the number of REO’s hitting the market. I don’t believe that this is sustainable and many more REO’s will hit the market starting in the third quarter of 2010. A large number of modifications will fail.

ing Feb 2010. Changes like the one I just mentioned will be helpful and we will see more of those this year I am not optimistic about significant easing in investor financing until our foreclosure problems are dealt with.

As an investor yourself what is your investing philosophy?

Never pay retail. I purchase properties for the long term. That doesn’t mean I don’t flip properties: I do. It means though even if I am flipping properties I will always be thinking about which ones to keep for the long term. Owning free and clear cash flowing rentals is always the What about values over the next 2-3 years with respect to goal. I never purchase property based on appreciation. I try to make my money on the buy and only care about cash flow. Also if a market single family homes?

I see the market dropping between 10-15% in the next three years. The is hot for too long, start selling, I will start selling into it and pare down country is large and there are micro economic and well as macro eco- my holdings. nomic forces at play so not all markets will perform similarly.

Any thoughts on the commercial market?

Great opportunities ahead but investors need to be cautious. Some projects should have never been built and will never be viable again. Investors in this space will need to have patience and cash because tenants will be hard to come by in the coming years.

Does anybody really know what is going on with the “shadow inventory”, really - seriously?!

I believe there is. The large banks are being constrained by the administration who don’t want fragile markets to get pummeled with more REO’s. Fannie and Freddie are now government owned and will do whatever they can to not hurt the markets. The reality though is that the government can only do so much. Gravity still applies even to the government and Fannie is now more aggressively selling REO pools. We have purchased pools from Fannie and expect to see many more from them in the coming months.

What are your thoughts on the financial markets?

Are you buying property for yourself right now, or will you be waiting for some future time?

I am buying aggressively right now and selling for cash as well as building up a note portfolio by carrying back financing and using land contracts. I am not worried about inflation for the next couple of years but do believe inflation will come roaring back after that. I am always evaluating how well are notes are performing in different parts of the country.

At some point we will focus on a couple of areas and turn our purchases in those areas into rentals.

Where do you get your real estate news from? Who do you listen to?

I want to understand exactly how asset mangers think and work. I subscribe to DS News and National Mortgage News. Both of these publications have been highly beneficial in helping to work the REO market.

Any book recommendations?

The Chain of Blame by Paul Muolo is a great book which accurately reflects how we got here from a lending perspective.

I have been surprised that they have been so strong. I believe though that they are ahead of themselves and we could see a pull back and then a flat market for 2010.

(408) 557-0700 www. STONECREST.net

Come Hear Jon Present at the Mid-Peninsula Chapter Meeting on Feb 16th 20 SJREI Journal www.SJREI.net

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nvesting in real estate is an exciting and rewarding business that can even be fun.

Yet there are several keys to making your investing activities a success. Understanding these basics are the key to building a solid foundation for your investing career. It is the goal of the SJREI Association to help you succeed.

The knowledge you will gain by attending this program will set the stage for a successful investing career. You will learn how to make wise choices, and discover where to get the help and information that you may need along the way, minimizing your exposure to unnecessary pitfalls and costly mistakes. By attending this workshop you will be provided with the important tools you will need to start investing your way to achieve financial freedom.

Get on the fast track to competent investing with JumpStart Program The SJREI Association has put together a great team of instructors to educate you. The information available at this workshop can literally save you tens of thousands of dollars by keeping you away from the wrong properties, and helping you evaluate and invest wisely.

This is your opportunity to learn from some very experienced investors who have wide ranging specific skill sets. Come spend the day with us, and get ready to take flight.

SJREI Education Center Instructors Class offered quarterly, Instructors subject to change Call (408) 264-3198 or Visit www. SJREI.net to Register

Rehab and Property Management for Investors Nancy Chillag, Attorney/Investor Chillag & Associates is an innovative law firm specializing in real estate & construction. As a buy, fix and hold investor Nancy has great information and experience to share with investors.

Financial Planning – Know Your Net Worth & Where You Want To Be David Beck, Financial Planner Understanding your own balance sheet is the foundational piece in taking control of your finances. David will set the stage for this.

Due Diligence for Investors Jeffrey Hare, Attorney/Broker/Investor Jeffrey specializes in real estate law & real estate property transactions. He picks up the pieces when investors don’t do their due diligence, and will share his expertise with this very important component of investing.

Understanding Cash Flow and Property Analysis Richard Smith, Accountant/Investor Accountant for 30 plus years, serious investor will share tips and worksheets to complete a cashflow analysis… the numbers tell the story.

Locating Deals & Market Analysis Stuart Baeriswyl, Broker/Investor Stuart buys for his own portfolio and assists with finding properties that will perform over the long-term. A seasoned pro, Stuart will share his insights with investors on how to do to find deals that make sense.

Financing for Investors Michael Ryan, Mortgage Broker Michael Ryan & Associates is an 19 year veteran of the lending industry. As an investor himself Michael understands investor needs and his knowledge and expertise will easily guide you through the extensive maze of loan options for home or business financing.

Secrets of an Experienced Investor Tom Wilson, Investor A 30 year experienced investor who has most of his personal portfolio in DFW and makes his team of professionals available to his peer investors and clients.

Orientation, Goal Setting and Business Planning Geraldine Barry, President of SJREI Association, Investor, Entrepreneur Strategy is the name of the game; come join us to customize one to fit your need & goals.

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Social Networking Tips

The Best Deals are Made on the Sandlot

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iral Marketing, Social Media and Social Networking, all germinate from the basic premise of human connectivity. Networking and building business opportunities through referral is the oldest and best practice ever known to mankind and even more highly regarded in times of economic challenge. Internet giant Google has coined a term called Hyper Local which by definition means “Community” and they offer higher Search Engine Optimization (SEO) to those who focus on their local demographic. This speaks strongly to the term “Netweaving”, an advanced form of networking.

Hilda Ramirez Social Media and Real Estate Marketing Consultant Founder of Got2BSocial, Providing Social Media support through consulting, marketing, branding, education, training, and resources.

President of Equity Preservation, Inc. (1031 Tax Deferred Exchange Intermediary)

Hilda Ramirez (800) 336-1031 Hilda@Got2BSocial.com Hilda@equitypreservation.com 22 SJREI Journal www.SJREI.net

Netweaving takes networking to a new level. It promotes integration of contacts and resources to support the greater good.

Netweavers are connectors, online and especially in face-to-face meetings. They are the influencers, not strictly for their knowledge but for their key contacts. Key contacts in the real estate industry are invaluable. They can make the difference between getting your offer accepted and funded or not. They are persons of power who make decisions based on business reputations and honorable working relationships. They will go beyond measure to assist you in reaching your goals. They set and lead trends, scouring the market for opportunities and extend them to others. As Karma would have it, they are often the ones that are presented opportunities so they can be leveraged with their associates. Imagine being in a position where the deals come to you? Getting to know these personalities is a step in the right direction for purposes of manifesting your own success in real estate.

Collaboration among investors, to catch deals and create financing options is critical to a capital restricted market.

Use your time effectively at real estate meetings by getting to know these individuals and sharing your “wants and needs”. Let people

know what deals you are looking for or what you have to offer. You can begin developing your own Netweaving skills by giving out referrals among the group. “The best deals are made on the Sandlot but you have to show up to play and meet the Players.” The information and resources that are leveraged at clubs and business groups is normally first hand knowledge and comes to you before it becomes public record, giving you a market advantage. Real Estate Gurus and National Trainers have built their brands on this model and you can use these techniques to create successful transactions too. I’ve implemented these skills over the past 24 years as I have assisted investment property owners with their Section 1031 Tax Deferred Exchange and Real Estate Marketing needs.

Having the inside track on a trend can save you from losses as well as catapult you into the next wealth cycle. Get out to a face to face meeting and start shaking a hand or two. The next person you meet might present you with an opportunity of a lifetime. Use Social Networking Sites to help you maintain and grow your community of contacts externally.

What we learn in a book becomes knowledge, what we learn from others is wisdom. When we learn them both, we become wealthy.

“Hilda is a sought after speaker with

an incredible memory for detail and her understanding of the fundamentals of creative financing and the real estate market in general is second to none!”

Randy, L.

SHORT SALE by Attorney Anthony F. Earle

“Short Sale” or Short Detour to the Courthouse?Y ou are in a difficult situation: The home you purchased several years ago has declined in value and, in accordance with the terms of the “teaser-rate” loan you obtained to purchase or refinance the property, your monthly mortgage payments have increased dramatically. To make matters worse, you are all but certain that your income will not increase in the foreseeable future; furthermore, your spouse’s income has actually declined slightly, due to an involuntarily-reduced work schedule. You know you will not be able to continue making monthly mortgage payments on your home.

ANTHONY F. EARLE Attorney Anthony F. Earle is an attorney licensed to practice law in all California state trial and appellate courts, the United States Supreme Court, the United States Court of Appeals for the Fourth and Ninth Circuits, federal trail courts in the Northern District of California and the United States Tax Court.

He has served as judge pro tempore for the Santa Clara Superior Court and is also a licensed Real Estate Broker.

408.786.1060 800.515.7560 www.earlelaw.com

Your real estate broker assures you that your situation is not unlike that of many other of the broker’s clients and explains that a “short sale” is simply an agreement by the lender to accept less than the full amount owed on a mortgage loan. The broker tells you that many lenders, recognizing the realities of the current economic recession, understand that the fair market value of many residential properties is now less than the face amount of the loans which are secured by those properties and that because of this situation, lenders sometimes agree to accept – in full satisfaction of a loan – less than the amount owed on the loan.

Thinking this is too good to be true, you ask the broker, “What about the $200,000 difference between what I owe on the house and the sale price of the house?” The broker says the lender would rather write-off a $200,000 loss than foreclose on the house and then be responsible for reselling the property.

You and your spouse decide to list your home for sale and see if a successful short sale transaction can be completed. Several months pass. Finally, you receive a short sale purchase offer from a qualified buyer.

You accept the offer, subject to the approval of your lender. Over the months that follow, you respond to your lender’s many requests

for documents, requests which concern every aspect imaginable concerning your financial situation. Finally, after many sleepless nights and a few tense moments with your spouse, a notification from your lender arrives which communicates your lender’s agreement to the proposed short sale.

Your house is sold and several months pass.

Life is proceeding normally and you have almost forgotten about the short sale. Then, one day, you go to the mailbox and, mixed in with the usual assortment of junk mail is one envelope which looks very formal: the return address is that of the law firm Dewy, Cheatem & Howe. Your level of anxiety builds as you open the envelope. You read the letter from the law firm and are shocked; you can barely believe what you are reading. The letter informs you that the law firm has been retained by your now former mortgage lender to collect from you the $200,000 you supposedly owe the lender as a result of the short sale.

You refuse to pay the $200,000 demanded by your former lender. A few weeks later, a process server appears at your front door and serves you with a lawsuit which seeks a judgment against you in the amount of $200,000, plus interest and attorney fees.

Cases in which lenders have inserted repayment clauses in what borrowers understood were short sale agreements which amounted to loan forgiveness, are becoming more prevalent. Although each case is different and thus must be resolved on its own facts, there may be many claims and defenses a borrower might be able to successful assert in defeating such lawsuits.in which the exchange occurred. Also, the replacement property must be identified as such not later than 45 days after the date on which the transferor transfers the property. The identification of multiple replacement properties is permitted. Special rules apply to exchanges between “related” parties.

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hether you have yet to purchase your first investment property, or are working on your hundredth deal, you’ve found the bay area’s source for sound, principled advice and networking. As investors ourselves, we understand the challenges that investors face, and customize our programs to address real-life situations and scenarios.

Hear the best speakers, get the best advice Our educational meetings are delivered by recognized experts in their field. They keep you up to date on issues such as market timing, new legislation, and techniques that may

affect or enhance your real estate investing.

Network with investors, buyers, sellers, and the people who support them All successful people rely on a network.

Bringing like-minded people together to share information, assistance, and resources is a core goal of our chapter meetings Stay motivated, avoid pitfalls Who but another investor understands the doubts, challenges, and successes of real estate investing? SJREI Association fosters a positive climate of mutual support and sound advice. Your questions are respected, your participation is valued.

Guest passes  Discounts on special events

Member Benefits

SJREI Association supports three chapters: Mid-Peninsula, South Bay, and East Bay. Membership entitles you to free admission to your local chapter’s monthly educational and networking programs and much, much more.

Make a commitment to your future by becoming a member of the bay area’s most dynamic real estate investment association—join SJREI Association today!

Commit to Your Future— Become a Member Today (408) 264-3198 www.SJREI.net

Members-only web forum

SJREI Association is a proud member of the National Real Estate Investors Association. Our affiliation with National REIA entitles our members to thousands of dollars in savings in goods and services.

 Insider Luncheons  Name badge and

expedited check-in

 Discounts on essential goods and services

Audio library of past Benefits

Annual Membership Dues Additional Member* Guest passes (use at any chapter meeting) Free registration & attendance at local chapter meeting Network with other investors at each event Free registration & attendance at all chapter meetings: Mid-Peninsula, San Jose, East Bay Invitation to annual Leadership roundtable VIP seating at registered events Personalized name badge with expedited event check-in On-line community: member profile, read and post messages on message boards Hundreds in discounts for goods and services through National REIA affiliation Discounts on workshops and special events Invitation to Quarterly Insider Luncheon Audio library of past events New member orientation 24 SJREI Journal www.SJREI.net

Executive Premium Membership Membership $500 $300 2

$225 $200 2

• 2% cash back from The Home Depot through the National Rebate Incentive Program • 20% off on your Quick Books purchases • Up to 26% discount off Fed-Ex shipments • Discounts on insurance through National Real Estate Health Insurance • Deep discounts through Sherwin Williams on paint, accessories and supplies • Discounts up to 65% from Office Max office supplies, copier paper, computer/technology products, furniture and print services • Discounts on car rentals through Avis/ Budget and Enterprise • Discounts on Cell Phone service from Saba Wireless Details on how to claim these valuable benefits are provided in the new member package.

Availability of discounts is subject to change without notice.