REI Ink February 2019

PREMIER ISSUE FEB 2019

A PITBULL IN P R I VAT E L E N D I N G

LEONARD ROSEN 1 4 C OM M ER CI A L Single-Tenant Triple Net Leases 18 LEG I S LAT I O N

The Opportunity in Opportunity Zones

36 R EG I ON A L F O CU S

Memphis, Tennessee

F I N A N C I A L I N VR EE S IT IIN NG K I

Listen and Earn REI INK

National podcast brings a fresh, no-nonsense perspective to passive real estate investing.

Norada

REAL ESTATE INVESTMENTS Are you looking for actionable steps to create wealth and passive income? If you are wanting to get your foot in the real estate investment game, then we have just the podcast for you. As a top-ranked business and investing podcast with over 800 5-star reviews, the Passive Real Estate Investing show is packed with strategies and insight for adding money to your pocket. Marco Santarelli, from Norada Real Estate Investments, brings his expertise and knowledge on both passive and turnkey real estate investing, and he provides listeners with helpful tools and tips to create the wealth they’ve always wanted.

Head on over to iTunes or Google Play today and join Marco Santarelli on The Passive Real Estate Investing show or visit PassiveRealEstateInvesting.com.

Available on I I F E B R UA RY 2 0 19

WHAT'S INSIDE COMMERCIAL

L E G I S L AT I O N

ACQUISITIONS & DISPOSITIONS

14

18

22

INVESTING IN

UNDERSTANDING THE

6 COMMON

SINGLE-TENANT

BENEFITS OF OPPORTUNITY

QUESTIONS ABOUT

TRIPLE NET LEASES?

ZONE INVESTMENTS

REAL ESTATE IRAS

Consider these 6

A new economic development

questions before you

tool can help you reduce or

make your investment.

avoid the capital gains tax.

Many IRA and qualified plan participants are still unaware they can hold real estate in a retirement plan.

PROFILE

REGIONAL SPOTLIGHT

R I S K M A N AG E M E N T

30 LEONARD ROSEN

36

44

MEMPHIS,

PROTECTING

TENNESSEE

AGAINST PEOPLE

A pitbull in

A hot market

PROBLEMS

for investors.

Your tenants can be the source of claims that erode

private lending.

A LT E R N AT I V E I N V E S T I N G

your investment profits.

A LT E R N AT I V E I N V E S T I N G

FROM THERE TO HERE

48

54

60

IS TAX LIEN

FUELING YOUR

THREE BROTHERS:

INVESTING

PASSION WITH

FROM BASKETBALL

FOR YOU?

NOTE PORTFOLIOS

TO BUSINESS

Understanding key factors

Seller-financed notes turn

Brothers bond over

can determine your success

a business into a portfolio.

with this investment vehicle.

basketball and carry teamwork into business.

F I N A N C I A L I N VR EE S IT IIN NG K 1

REI INK

PUBLISHER’S LETTER

WELCOME TO THE PREMIER ISSUE OF REI INK! As I was laying the

available that cater to the

is to serve all the various

foundation for REI INK, I

beginner investor, teaching

investment types, not just

made it a priority to speak

them about what kind of

single-family homes. So, REI

with leaders in the real

carpeting and counter

INK will cover commercial,

estate investment industry

tops to buy, providing

land, mixed use and

to get their opinions on

information on and access

other types of real estate

several key issues:

to coaches and gurus, and

investments, in addition to

functioning basically as

single-family housing. We’ll

a Real Estate 101 course.

also touch on issues that

Then, there are magazines

aren’t specifically related to

that serve certain niches,

real estate but may impact

such as default servicing

the real estate industry or

and the mortgage industry.

your business in some way

While these are all

(often in ways you may not

extremely good magazines

have thought about).

Is there room for another magazine catering to the real estate investment industry?

Is there a need not being

R O BER T R A K OW S K I Publisher & CEO

met by current publications?

What should the focus of a new magazine be?

What advice can you offer?

Here’s what I discovered: Yes, there is room for another real estate

and provide valuable information and services, REI INK serves a different purpose: to be a businessoriented publication for serious real estate investors

business publication first and foremost: quality of content, design and connections.

But, you’ll find some items that speak to your lifestyle

magazine, as long as it

and service providers.

has a different focus.

Yes, there is a need not

to discover a page or two

being met, and that need

containing an inspirational

ROBERT RAKOWSKI

WRITERS

There are magazines

Publisher & CEO

MONICA MANSFIELD Managing Editor

2 F E B R UA RY 2 0 19

REI INK is a quality-focused

too. Don’t be surprised

Jeremy Byars Bill Deegan Mark Dzulynsky Joanne Musa Glendon D. Nelson RJ Palano Eddie Speed

message (thank you, Robert

Hire the best and let them

Finally, our website colors

Deane) or an ad for luxury

tell you what to do! Leave all

are primarily black and

cars, fine wines, expensive

egos at the door! You’re here

gold. It’s a total coincidence

cigars or designer clothing.

to provide a valuable service!

that I’m an alum of Purdue

This is a multi-trillion-dollar

University (black and gold)

industry. There’s room for

and a former Army officer

everybody, so play nice!

(official Army colors).

Finally, I received no shortage of advice from the industry leaders I spoke with. Here are just a few nuggets of wisdom that were passed along to me: Take care of your readers and advertisers. If a reader is not satisfied or if an advertiser does not obtain an acceptable and reasonable ROI, bend over backward to make them happy, even if it costs money. Check. Done.

Change the name of the magazine. I was told the original title was BORING! Check. Done.

Don’t hold grudges! Take the blame for everything and credit for nothing! Do it with integrity! Check, Check and more Checks.

Happy reading.

SUBSCRIBE NOW

R E I - I N K .C O M / S U B S C R I B E

For a magazine in its infancy, we are off to a great start. Rome was not built in a day, so expect changes as we listen to your feedback

PREMIERE ISSUE FEB 2019

and incorporate tweaks.

And, what better way to launch a magazine than to have Leonard Rosen on the cover, sharing his story

A PITBULL IN P R I VAT E L E N D I N G

L EO N AR D R O SEN 1 4 C OMMER C I AL Single Tenant Triple-Net Leases 18 L EG I S L AT I ON The Opportunity in Opportunity Zones 36 R EG I ONAL FOC US Memphis, Tennessee

and perspective!

F I N A N C I A L I N VR EE S IT IIN NG K I

Copyright ©2019 by Choice Publishing LLC. All rights reserved.

No part of this magazine may be reproduced in any form or by any electronic or mechanical means without permission in writing from the publisher.

REI INK is a bi-monthly publication of Choice Publishing LLC. To subscribe or to order single copies, please visit REI-INK.com/subscribe, call (816) 623-0762 or email robert@rei-ink.com. Annual subscriptions are $29.95; single-issue copies are $6.95.

The views and opinions expressed in this magazine are not necessarily those of Choice Publishing LLC or the publisher. The articles are intended for general information only and are not intended to provide specific recommendations or advice. Be sure to consult your attorney, accountant and other relevant business professionals when considering a new strategy or idea. We are not responsible for the content of any paid advertising.

F I N A N C I A L I N VR EE S IT IIN NG K 3

REI INK

ANNOUNCEMENTS

APEX CRE R AMPS UP

Apex CRE , a bou tiq u e co mmercia l real e s tate co mpan y, h a s s tarte d operatio n s in th e greater P h oe nix m a r ke t.

The co mpa ny f oc u s e s on b uy er a nd te nant repres en tation ac ros s a v ariety of c om m e rc ial

UNI V ERSE HOLDINGS WINS APARTMENT DEAL NEAR NEW R AMS STADIUM

U

niverse Holdings has

bring the building’s exterior

acquired Chateau Park

and interior units up to

Casino Royale V, a 15-unit

contemporary standards.

multifamily community in

Renovations are expected

A pex CRE is a s e r vic e -

Inglewood, California, for

to be completed to coincide

dis ab l ed ve te ran- owne d

$3.8 million. It is the firm’s

with the opening of the

ninth acquisition in the past

new stadium and

four years in the area. The

entertainment complex.

submarket has gained

Universe Holdings CEO

pro duct ty p e s .

b us in es s fou nde d by Al ex Popovic and Lydia Chelle.

national attention as the site of the $3 billion NFL stadium that will be home to the Los Angeles Rams and Los Angeles Chargers. Located at 232 West Olive Street, the community is five minutes from the redevelopment of Hollywood Park and the new NFL stadium.

4 F E B R UA RY 2 0 19

Henry Manoucheri identified Inglewood as a strong multifamily market two years before the Rams decided to make Inglewood home to the new stadium complex. Universe plans to double its portfolio in Inglewood in 2019. The company has completed investment transactions of

Universe Holdings plans

more than 7,500 apartment

to implement a capital

units throughout the

improvement program to

United States and abroad.

NEW CTO FOR RENTERS WAREHOUSE

R

enters Warehouse

As the new CTO, Jable

of single-family rental

served as CTO of FirstKey

has hired Todd Jable

will focus on working with

investing­—non-institutional,”

employees, customers and

said Jable.

Homes in Atlanta.

providers to ensure that

Jable has been in IT since

as the company’s chief technology officer.

Kevin Ortner, CEO of Renters Warehouse, said, “With his technology background coupled with single-family rental industry experience, Todd is a big addition to our leadership team. He has a great vision on where we can take not only our internal systems, but how we can shape and further improve our client experience through consumer-facing technology and tools.”

Renters Warehouse is ahead of valuable opportunities for efficiency and innovation and set strategies for the company’s information technology.

launching his career and has played a role in the single-family rental industry since its inception as an institutional asset class.

Before Renters Warehouse,

“With the incredible

Jable was the founding

business that Kevin and

CTO for Silver Bay Realty

the Renters Warehouse

Trust Corp. Silver Bay, which

team has built over the

was the first public compa-

last 10 years, including

ny in the SFR sector, went

the recent acquisition

public in the fourth quarter

of OwnAmerica, I think

of 2012. After the company

that Renters Warehouse

sold to Tricon American

is uniquely positioned to

Homes in 2017, Jable

tackle the largest segment

Renters Warehouse is the only property management company focused on single-family rentals to be rated by Morningstar Credit Ratings, a nationally recognized statistical rating organization. Since acquiring OwnAmerica in December 2018, renters can find quality homes to lease, and investors can plan, research, buy, track and sell their real estate investments all in one place with the Renters Warehouse investor marketplace.

F I N A N C I A L I N VR EE S IT IIN NG K 5

REI INK

ALTLO AN ANNOUNCES PARTNERSHIP WITH NEW CAPITAL M ARKETS COMPANY

A

LTLOAN, a dba of BM Real Estate Services, has announced a new capital

market partner that will enable the company to widen its non-QM product menu.

“Our new partner is able to provide the back-end infrastructure and operating expertise that complements our online pricing eligibility engine and self-service loan portal for Non-QM (non-agency and hard money) mortgage financing,” said Blake Scheifele, ALTLOAN’s co-president.

Product offerings include jumbo prime, portfolio full doc and alternative doc, Alt-A and non-prime credit grading, investor DTI, DSCR and no doc, foreign national, bridge and fix and flip and ITIN.

SOLARWINDOW TECHNOLOGIES DEV ELOPING INNOVATI V E WINDOWS

S

olarWindow Technologies

is developing innovative electricity-generating windows as well as other products.

The company completed $25 million in equity financing in November 2018, allowing them to move forward with manufacturing the new products.

“This capital infusion marks

of transparent electricitygenerating glass to harness solar energy streaming a decade ago. SolarWindow is the subject of more than 90 U.S. and international patents and trademarks.

The recent investment will drive the commercialization

a historical inflection point

of Rayat’s early vision.

for SolarWindow and our

“My financial investment

nearly 15,000 shareholders.

With this capital in hand and a decade of research and development behind us, we can now purchase equipment and hire personnel required for the

and confidence in SolarWindow is stronger than ever,” he said.

“I believe that we’re in the right place at the right time. … “I envision SolarWindow changing the way we

manufacturing of electricity-

power our buildings with

generating glass, a brand-

clean energy that not only

new form of electrification,”

benefits our environment,

said John Conklin, SolarWindow president and CEO. Kalen Capital Corporation (KCC) invested approximately $24.9 million. KCC is owned

by Harmel Rayat, the founder and chairman of SolarWindow.

6 F E B R UA RY 2 0 19

Rayat conceived the idea

but also generates greater financial returns. As a commercial real estate investor and building owner, I see huge upside for developers, building owners and even tenants who can lower their operating costs while increasing property values as green buildings.”

HIGHER CONTRIBUTION LIMITS FOR SELF-DIRECTED IR AS

The IRS has announced an increase in the amount of allowable contributions for Self- Direc ted IR A s MEASUR ABL R AISES $1 8 MILLION FOR EXPANSION

M

easurabl, providers

data to the capital and

of software for

commodity markets.

commercial real estate ESG (environmental, social, governance) data management, has closed $18.7 million in Series B funding. Sway Ventures led the round after participating in the Series A. Other repeat investors include Salesforce Ventures and real estate technology specialists Camber Creek, who led the Series A, Building Ventures, Concrete Ventures, Impact Engine and DivcoWest.

Major new investors included Constellation Technology Ventures, the venture investing arm of Exelon Corporation, and S&P Global, a leading provider of transparent and independent ratings, benchmarks, analytics and

More than 30,000 commercial buildings representing nearly 7 billion square feet across 70 countries measure, manage and report ESG performance using Measurabl. The database includes everything from traditional office and industrial buildings to major sporting venues, education facilities, government campuses, data and retail centers.

Measurabl will invest Series B proceeds into product research and development, partnerships and customer service. The company also plans to expand its platform to Asia, in addition to growing the European and North American markets it already serves.

for 2019.

Traditional IR A s, including Self- Direc ted IR A s, saw increases from $5,500 in allowable contributions to $6,000 per year. The same was true for Roth IR A s, which includes Self- Direc ted Roth IR A s.

The annual catch-up contribution allowance for those aged 50 and older remains unchanged for the tax year 2019.

The change mark s the firs t increase in limit s since 2013.

F I N A N C I A L I N VR EE S IT IIN NG K 7

REI INK

PERSPECTIVE

CHANGE YOUR THINKING—AND CHANGE YOUR WORLD

BY R J PA L A NO

“People are looking for a place for their cash, and the security of holding

YO U'R E N O T W H AT YO U R E A D

Yes, a buyer’s market

something physical is

is coming again.

appealing,” said Anthony

Think about that. Do you

Maxwell, director of Livex, the London–based wine exchange. “They are looking outside security, and gold is not what it used to be. This is why hedge funds and private investors have acquired single-family houses for cash flow and upside potential.”

believe it?

If you’re anything like me, you’ve probably read all kinds of economic, housing and global predictions for 2019. Let me just get this out there right now: Everything I read is someone’s opinion that is supported by the used toilet paper it’s written on.

2018 started with higher home prices, historically low mortgage rates and, basically, a seller’s market. In recent months, home price growth has faltered, interest rates have risen to their highest level in more than seven years and favor has shifted from seller to buyer.

8 F E B R UA RY 2 0 19

Sure, some of the opinions and predictions are backed by usable data, but most of what I read will have zero impact on me and what I do in the future. The same goes for you. Do you want to know why? Because others’ opinions have no

ONLY OUR OPINIONS COUN T, BECAUSE OUR ACTIONS COME OU T OF OUR V IEW OF WH AT WE THINK reflection or bearing on

Many investors gather

A BOU T OUR SPECIFIC REA L

your life or mine. Only our

too much information and

opinions count, because

become paralyzed by fear.

ESTATE M A RKETS.

our actions come out of our

C’mon! There’s too much

view of what we think about

news, too much noise in

our specific real estate

our lives and far too

markets. Don’t get me

many distractions that

wrong—others’ opinions

stop people from taking

can help shape our thoughts

meaningful action. It’s

and views but, ultimately,

good to know what’s

all action is driven from

going on, but most

what we believe.

news on TV and in the

Look at some of the recent contradictory predictions for 2019: “Less Growth and

More Uncertainty”

“Experts Expect

Steady Growth”

“Prepare for

Heightened Volatility in the Coming Year”

“A Great Economy Til 2020”

newspapers will have zero impact on your life.

Turn the TV off, throw out the newspapers and do something positive in your life—like make money.

I could give you all kinds of statistics and information about the U.S. GDP, rising interest rates and trade wars with China, but it’s not going to impact your life nearly as much as your ability to take action and make

profitable transactions.

W H AT D O YO U WA N T ?

For example, there’s a

Forget about everything

good chance that you don’t live in Tampa, Florida, which is where I live. And, it’s likely that you invest in different cities than I do. My point is this: The U.S. real estate market is local in nature— the different markets do not go up and down in value together. Las Vegas, Tampa, Cleveland, Atlanta, Memphis, Dallas, Kansas City, and San Francisco are all different from each other in price points,

you’ve read and take a deep look inside. Challenge yourself to write out your criteria for investment. If you don’t have written goals, you don’t have a plan for your life, and you will end up being a “walking generality” instead of a “meaningful specific person.”

Start by following these four steps: 1) Identify your financial goals.

2) Determine whether

construction, climate,

you want to invest in

age of homes, cash

single-family houses

flow, appreciation and

or other real estate.

local economies.

F I N A N C I A L I N VR EE S IT IIN NG K 9

REI INK

PERSPECTIVE

3) Establish how to buy it.

4) Decide where to buy it.

These four steps require you to think about how you want your future to look.

You must approach the real estate business with specific intentions and purpose.

I still have my day planners from the 1980s with my goals for the next year, five years, 10 years and 30 years. It was interesting to look in the rearview mirror

And guess what? Two

FINANCIAL FREEDOM

years ago I reached all

In that time of renewal, I

my financial goals. It was very unsettling for several months because those goals were a large part of my purpose in business.

Now that I’d reached them, what would I do?

YOU R E AC H YOU R G OA L S , T H E N T H AT B E CO M E S YOU R N E W S TA R T I N G P O I N T T O C R E AT E N E W G OA L S .

gone off course quite a bit with my financial goals.

I’ve tracked myself every year since 1985, and I’ve had a few life-correcting experiences along the way that shaped me into the person I am today.

10 F E B R UA RY 2 0 19

that end, I wrote a book.

The best part? It’s yours for free. (See how to obtain a copy on the back cover of

I realized that when you

I wrote the book for those

reach your goals, then that becomes your new starting point to create new goals.

I decided to reinvent

to give new purpose to my life. One of the things that occurred to me in this period of self-reflection was that none of us are self-made.

Oh, I’m sure some of you probably think you made it on your own because you came from a working-class

of my life and realize I have

from helping others. To

this magazine).

entirely new set of goals

I R E A L I Z E D T H AT W H E N

greatest joy in my life came

In my self-discovery,

myself and set up an

I N M Y S E L F - D I S COV E R Y,

realized that some of the

family like I did. But let me tell you, there was and is a boatload of people I relied on to help me get where I

who want to be successful in the single-family housing business and become financially free. When you become financially free, it’s a lot easier to live life on your own terms. That’s why I do what I do. And you can do it too—it’s all in the book.

At some point, I thought I would use the book to create a teaching platform to coach and mentor others, but I’m rethinking that as my life is ticking down. At the end of every year, I reset my goals for the following year and the years ahead. I use the wisdom I’ve gained so I can continue to evolve in

am today. Whatever I have

business and as a person.

accomplished would not

That’s why all these

have been possible without a supporting cast. I bet the same is true for you.

predictions about the future of the housing market, interest rates and Trump—

yes, Donald Trump—do

will they create their value

not impact your business

in the world? If we invested

decisions and U.S. real

the monies we earn over

estate, except to the extent of

the years, then as we get

taxation. What should impact

older, hopefully we have

your business decisions

more money than time. At

going forward are your:

this point, you get to plan

Goals Age Working capital Access to credit Knowledge Skill set Ability to take action

out your legacy and what you want to be known for.

S O , W H AT A R E YO U GOING TO DO?

Can you see that relying on headlines and what the pundits say has no bearing on your future? We’re all in different seasons of life.

TIME AND MONEY

When you’re young, you

When we’re young, we

can afford to take risks; as

usually have more time

we grow older, we become

than money. Thus, we have

more risk averse.

more time to invest in a

Remember, the only views

skill set that allows us to be financially rewarded. So, if the goal is to make money, then study how to make money. When I was growing up, I wanted to do what I wanted, when I wanted and for how long I wanted to do it. For me to do that, I got involved in real estate.

What about you? What about your children? What are they learning, and how

that count toward your future are the views you hold for the future. Folks, it really all starts with a mindset for positive outcomes. I firmly believe that business is good or bad in between your ears. You can have all the information in the world, but if you don’t take action, what good is it?

Business is about acting and getting things done.

F I N A N C I A L I N VR EE S IT IIN NG K 11

REI INK

The stock market will resume its bull run once the government gets back to work full time and the trade war with China gets resolved.

Here are my toilet paper views and predictions for 2019

There will not be a housing crash or bubble in 2019, but some markets will continue to soften.

There will be fewer transactions and institutional buyers, and individuals will continue to battle it out for single-family housing opportunities.

Well-funded hedge funds have large marketing budgets, and their spend makes it hard for the small investors and the wannabe

Generally speaking, real estate has

homebuyer to compete.

The key to acquire distressed properties is to target

peaked in most areas of

distressed owners.

the country.

In case you don’t know

Sales will be somewhat stagnant in most markets due to the quadruple threat of rising interest rates, low inventory, home price appreciation and Donald Trump.

Yes, “The Donald” is a wild card with his unorthodox approach to politics.

1 2 F E B R UA RY 2 0 19

what distress looks like, just think in terms of: foreclosures, divorce, probate, tax liens, absentee owners and code violations.

The bigger the budget, the more leads you get, and then it comes down to your ability to negotiate. This is where the rubber hits the

road. You see, the big hedge

sell directly to the funds.

there was a plethora of

even though in most cases,

funds were doing fine when foreclosures, which have

all but dried up. Now, they have to work a lot smarter to obtain houses for their portfolios. Most of the

hedge funds’ acquisitions are currently provided by

This will continue into 2019, you will get more money

for a house by selling it to

a would-be homeowner at retail pricing.

Your risk is significantly reduced if

aggregators of single-family

you avoid leverage and pay

and rent the properties

investors that primarily

packages to the hedge

are the ones that are

houses that purchase, rehab,

cash for properties. The

and then provide them in

get hurt in a downturn

funds. I’ve done this several

highly leveraged.

times, and many others have made this their business.

When buying from distressed owners, you have to out–negotiate your competition and negotiate for terms or price. This is not new to investors, but it becomes more important as competition heats up. To compete in an overheated market, it’s important to have some secret sauce— some tactics that separate you from your competition.

Competition will

heat up. Some funds

Rents will be flat in most markets.

As prices stagnate and sales slow down, it becomes increasingly important to consider your holding time for a property. If you’re flipping houses, they may stay on the market longer, sell for less and require sellers’ concessions. Don’t underestimate the cost of doing business, including the opportunity cost. Be selective of opportunities, and don’t press to make transactions.

have stopped buying, while

new ones are coming late to the party and many investors like me who can get

enough opportunities will

My views of 2019 in three words: stable but stagnant.

I N V E S T I N G F O R 2 0 19 A N D O N WA R D

Tune the naysayers out of your life and take a breather. Take stock of where you are right now financially, physically and mentally. Determine what it is you want out of what’s left of your life. Lest we forget, tomorrow is promised to no one, but often we think we are invincible. We become prisoners of our habits. For many of us, our

Is it all about work

diabetes. The doctors

is the money if you have no

and sacrifice?

chopped half his foot off,

one to share it with or help

I had a terrific friend

but he died a week later.

others with it?

who died in December.

I’ve learned a lot from my

It’s lonely at the top, folks.

friend over the years, as he

Go through life with a

taught real estate to anyone

thought-out plan of how

who would listen. He knew

you want your life to be, and

the ins and outs of hard

then go and do it. We all

money lending. At the time

have a number—a net worth

of his death, he had more

number and/or an income

than 100 hard money loans

number that provides the

out. But you know what

lifestyle we want to attain.

I’ve noticed at funerals?

What’s yours?

There is no luggage rack

My gift to you is a digital

on the hearse to take your

and audio copy of my

money with you! Enjoy the

book. The book is about

fruits of your labor and

what I do in business and

understand why you do

some challenges I went

what you do. If your only

through. Send me an

goal is to amass money, ask

email and let me know

yourself why and what you

what you think or need

will do with it. What good

to know more about.

He worked and sacrificed and lived well below his means. Anthony took pride in the fact that he never squandered money—he told me those exact words five days before he passed away. His net worth was several million, but you know what?

primary fulfillment in life

He was a prisoner of his

comes from work.

success, and he thought

Wake up! How old are you

money was only for

and how much time do you have left? What is it you really want to do with the limited time you have left?

investing. He ate every day at McDonald’s, Taco Bell or KFC because it was cheap. He died of complications from

Robert “RJ” Palano has acquired and sold proper-

for people with less experience. His most

United States. He purchased his first property in

Real Estate Dealmaker.”

ties in 12 states and over 50 cities throughout the

1977 and started acquiring foreclosures in 1979 in

Western New York. By the late 1980’s, he managed and owned over 300 properties. He is considered an expert in single-family home investing and

strategically using self-directed retirement accounts

for investments. RJ has been involved in the creative acquisition and disposition of real estate for nearly 40 years.

RJ Palano has written three books, with the intent of passing on wisdom accrued through his long career

recent book is “Confessions of a $200 Million RJ is currently the CEO and acquisitions director

of Buy Cash Flow Properties, a Tampa-based real

estate investing company that primarily provides

turn-key single-family homes for real estate investors in Florida and Georgia. Since 2012, Buy Cash Flow

Properties has acquired and sold over 1,000 homes in the Atlanta area to international investors, hedge funds and U.S. buyers. Turnkey sales to investors

exceeded $100 Million over the last few years in the Atlanta area. RJP@ BuyCashFlowProperties.com

F I N A N C I A L I N VR EE S IT IIN NG K 13

REI INK

COMMERCIAL

INVESTING IN SINGLE-TENANT TRIPLE NET LEASES? Consider these 6 questions before you make your investment.

BY B I LL D E E G A N

M

any real estate investors are

attracted to single-tenant commercial buildings occupied under triple net leases in which the tenant pays for some or all the costs of operating the building, including real estate taxes, insurance, utilities, maintenance and capital improvements.

Although simple in concept and a very attractive investment, triple net

What type of triple net lease is acceptable

to the following criteria.

to me?

Each acquisition

What are the criteria for the tenant?

What type of building use is acceptable to me?

Why is the seller selling the property?

OBJECTIVES

It is crucial to define your investment objectives.

Your objectives may

lease properties can have

change as you receive

pitfalls, so investors must

more information and

do proper due diligence.

Here are several questions investors must answer as they consider any deal: What are my objectives?

Where is the location of the investment?

data about geographical areas, types of investment, lease terms and returns on investment. For example, one investor who focuses on currently occupied single-tenant Midwest properties defines his acquisition

1 4 F E B R UA RY 2 0 19

objectives according

must have: 1) Occupation by

strong regional or national tenants.

2) An acceptable

triple net lease.

3) A positive cash flow.

4) E-commerce-resistant retail businesses such

as convenience stores, dollar stores and fast food restaurants.

5) At least five years

remaining on the lease.

L O CAT I O N

Location, location, location.

That’s the age-old adage of real estate investment.

Determining a good location for your investment is crucial.

A LTHOUGH SIMPLE IN CONCEPT A ND A V ERY AT TR ACTIV E IN VESTME NT, For an investor seeking a high-density population area, the investment may be much more expensive. But, the rewards of rapid growth are often worth the high cost of the investment.

Remember, too, that a downturn in the economy will have the most significant impact on these areas, ushering in rapidly decreasing values.

In lower density areas, the investment required is much lower and the returns are more stable.

That’s because these areas do not experience the significant high values of rapidly growing areas, nor the significant lows during economic downturns.

T Y PE S O F T R I PLE N E T LE A S E S

When analyzing the triple

TRIPLE NET LEASE PROPERTIES CA N H AV E PITFA LLS, SO

net lease of a potential

IN V ESTORS MUST DO PROPER

investment, think of the

DUE DILIGENCE .

lease as the investment rather than the building.

The two primary questions to ask when reviewing the lease are: Is the tenant responsible for all the obligations for the building, including real estate taxes, insurance, utilities, maintenance and capital improvements?

Does the landlord/ investor have any

All triple net leases are not

and operating expenses for

the same. It is imperative

the building, including real

that you carefully analyze

estate taxes, insurance,

the lease to understand

utilities, maintenance and

the risks and returns on

capital improvements.

your potential investment and determine which type of triple net leases are acceptable to you.

The types of triple net leases include:

TRIPLE NET LEASE The type of lease you may see most is the Triple Net Lease, in which the landlord is responsible for all or some of the capital

obligations for the

ABSOLUTE TRIPLE NET LEASE OR BOND LEASE

improvements of the

building such as capital

This type of lease is the

foundation and walls).

improvements (e.g., a new HVAC) or structural improvements (e.g., roof or foundation repairs

most attractive for an

building (e.g., HVAC, roof,

investor because the lease requires the tenant to be responsible for all the fixed

or replacements)?

F I N A N C I A L I N VR EE S IT IIN NG K 15

REI INK

COMMERCIAL

MODIFIED NET LEASE In this type of lease, the tenant pays for utilities, insurance and interior maintenance and repairs.

The landlord is responsible for all the other obligations such as real estate taxes and capital improvements.

GROSS LEASE It is not likely an investor would invest in a building with a gross lease. In a gross lease, the tenant pays only for the rent on the building, and the landlord pays for all the fixed

either annually or after

factor. The leases for more

You must also determine

a period of years?

creditworthy tenants, such

whether the use is a

as well-capitalized national

specialized use that may

If there are escalators, are they a flat percentage increase? Or, are they tied to some local or national indicator such as “fair market rent” or a percentage return on capital based upon the value of the building?

Is the term of the lease near its end?

What is the perceived risk in the market in which you are investing?

and operating expenses

TENANT CRITERI A

for the building.

Possibly the most import-

Some other issues and

ant question an investor

risk factors you’ll want to consider when analyzing the lease are: Are there any rent escalators in the lease,

must address is the tenant’s ability to pay and meet the terms of the lease. The capitalization rate (cap rate) is an indicator of the risk

tenants, will have a lower cap rate, and less creditworthy tenants will have

the end of the term of the lease or in the event

a higher cap rate.

the tenant vacates the

BUILDING USE

Examples of specialized

The categories of

uses are restaurants and

commercial real estate are:

medical buildings.

lease for any reason.

Most retail spaces other

Office

than restaurants are

Industrial

standard in design and

Retail

scope, and a reuse is more

Multifamily

easily accomplished. The same is true for industrial

Hotels Undeveloped land As discussed, some types of commercial real estate, such as multifamily and hotels, are management intensive. Retail and industrial are the uses most often acquired by investors.

use, which will often meet the requirements of any type of industrial user.

In conclusion, it is crucially important to do comprehensive due diligence when considering a real estate investment.

Bill Deegan has more than 40 years of real

resort properties in Central America, was involved

sales experience.

limited partnerships and real estate investment trusts

estate development, accounting, finance and Deegan served as senior vice president of the

New York State Urban Development Corporation, a major public authority in New York State with more

in the syndication and distribution of real estate

and has consulted with several businesses on the

implementation of business strategies designed to enhance shareholder value.

than $2 billion in real estate assets, including more

Deegan maintained an active license as a

participated in the development of single-family and

and is a graduate of Pace University in New York.

than 10,000 rental units. In the private sector, he

16 F E B R UA RY 2 0 19

be harder to convert at

certified public accountant for more than 30 years

Money is like water.

It is never gone, it is merely somewhere else.

ROBERT D. DEANE

rober tddeane.wordpress.com F I N A N C I A L I N VR EE S IT IIN NG K 17

REI INK

L E G I S L AT I O N

UNDERSTANDING THE BENEFITS OF OPPORTUNITY ZONE INVESTMENTS A new economic development tool can help you reduce or avoid the capital gains tax.

BY M AR K D Z U LY NS K Y

W

hat if there was a

Opportunity Zones receive

These Opportunity Zones

way to avoid paying

their designation by being

are intended to incentivize

nominated by the state in

institutional investment

which they are located and

into local communities and

then receiving certification

businesses. Opportunity

from the Secretary of the

Zones can be located

U.S. Treasury.

anywhere—in upper,

the capital gains tax?

It’s possible through a new economic development tool called Opportunity Zones.

Added to the tax code by the Tax Cuts and Jobs Act

OPPORT UNIT Y ZONES A RE IN TE NDED TO INCENTIVIZE INSTIT U TIONA L IN V ESTMEN T IN TO LOCA L COMMUNITIES

WHERE ARE O PP O R T U N I T Y Z O N E S L O CAT E D ?

The U.S. government has designated 8,700

are economically-distressed communities in which certain new investments may be eligible for preferential tax treatment.

1 8 F E B R UA RY 2 0 19

they are in lower-class communities in order to stimulate development in those areas.

Opportunity Zones. There

Projects that do not qualify

are currently Opportunity Zones covering parts of of Columbia and five U.S. territories. New York City has 306 Opportunity

of 2017, Opportunity Zones

communities. In general,

communities as

all 50 states, the District

A ND BUSINESSES.

middle or lower-class

Zones; Los Angeles County, 274; and South Florida, 123 (Miami-Dade County has 67; Broward County, 30; and Palm Beach County, 26).

are gambling facilities, tanning salons and massage parlors. Multifamily, apartments, hotels, condominiums, offices and shopping centers make the most sense since these are possible 10-year investments, a timeframe that is critical to avoiding capital gains on Opportunity Zone investments.

W H AT I S A Q UA L I F I E D O PP O R T U N I T Y F U N D ?

H OW D O O PP O R T U N I T Y Z O N E S B E N E F I T YO U?

basis of the QOF invest-

A Qualified Opportunity

According to the Internal

Fund (QOF) is an invest-

Revenue Service, you can

ket value on the date that

ment vehicle that is set up

defer tax on any prior

as either a partnership or a

gain (e.g., stocks, bonds,

corporation for investing in

annuities, real estate, 1031

eligible property located in a Qualified Opportunity Zone. Additionally, LLCs that choose to be treated as a partnership or a corporation for federal tax purposes can organize as a QOF. QOFs were created to build or to rehab Opportunity Zones. Some QOFs are large $3 billion funds.

Others are smaller, coming in around $50 million.

Investment amounts vary too, ranging from $10,000 to $250,000. One thing for sure, be cautious with the fees that the funds charge and understand the ROI you will be getting.

exchange, bitcoin, cryptocurrency, a business, etc.) that you invest in a QOF “until the earlier of the date on which the investment in a QOF is sold or exchanged, or Dec. 31, 2026. If the QOF investment is held for longer than five years, there is a

ment equal to its fair marthe QOF investment is sold or exchanged.”

You can receive the tax benefits even if you don’t live, work or have a business located in an Opportunity Zone.

You simply must invest a recognized gain in a Qualified Opportunity Fund and then choose to defer the tax on that gain.

The three biggest benefits

10 percent exclusion of the

QOFs offer:

deferred gain. If held for

1) Your investment is 100

more than seven years, the 10 percent becomes 15 percent. … If the investor holds the investment in the Opportunity Fund for at least 10 years, the investor

percent tax-exempt after 10 years of

investment in a Qualified Opportunity Fund.

2) Typically, you will receive a monthly dividend

is eligible for an increase in

F I N A N C I A L I N VR EE S IT IIN NG K 19

REI INK

L E G I S L AT I O N

after the rehab or the construction is finished (it depends on the fund).

3) You will receive a

compounded return on your investment after the 10-year investment timeframe (the ROI will vary from fund to fund).

Be aware that in most cases it is not easy to withdraw your investment funds earlier because real estate is an illiquid asset. Furthermore, if you withdraw earlier than the 10 years, your funds will not be tax free and will not be exempt from the capital gains tax.

FIND THE RIGHT FUND

graphic area because the

Be patient and search for

There are hundreds of

developer is located there;

the right QOF. There are

QOFs to choose from, but not all are recommend-

for example, a South Florida Opportunity Zone Fund will

ed. Most funds will work

target projects located in

through intermediaries,

South Florida and a New

which means you will be

York Opportunity Zone

paying higher fees and

Fund will target projects

receiving a lower return on

in New York.

your investment. Typically, the projects are scattered around the country.

On the other hand, some QOFs are owned by commercial real estate developers that invest directly

When you work with a commercial real estate developer, you typically get: 1) A higher ROI.

offices or similar structures located in a specific geo-

versus getting to know an intermediary.

4) To know the projects being invested in.

to use. Sooner or later, the projects located in Opportunity Zones would have been built or rebuilt either way. As an investor, you are winning because you are obtaining a huge capital tax break as well as the benefits of a strong ROI

A complete 10-part series on Opportunity Zone investing is available at www.dolphinpi.com.

5) A developer who gets to know you (the investor).

Mark Dzulynsky is the CEO of Dolphin

how to avoid capital gains tax on your investments

development company focusing on multifamily

information, visit www.dolphinpi.com or contact

Property Investments LLC, a commercial real estate (apartment) building and construction in the

Miami, Florida MSA. Currently, Dolphin Property

Investments has a $50 million 202-unit multifamily construction project in Pompano Beach, Florida.

Visit https://bit.ly/2rlDTrU to find out more about

2 0 F E B R UA RY 2 0 19

can put your investment

3) To know the developer

Zone or project. These deapartment complexes,

estate developers who

and a monthly dividend.

2) Lower fees.

into a specific Opportunity velopers build warehouses,

lots of commercial real

via our real estate Opportunity Zone Fund. For more (954) 248-3073 or mark@dolphinpi.com. In 2018 Mark’s speaking engagements have brought him

to San Paulo, Rio Di Janeiro, Johannesburg, Cape Town, San Francisco, Los Angeles, San Diego, Detroit, Boston and Scottsdale.

Need Capital to Buy or Invest in Real Estate?

Use your IRA or someone else’s IRA money!

Call us to find out how.

Learn how you can 1.) Set up a Self-Directed IRA. 2.) Buy Real Estate with your IRA. 3.) Lend monies from your IRA. 4.) Borrow from an IRA. 5.) Go in Partnership with an IRA.

800/607.0145 x270

Call TODAY for a FREE consultation!

MidAtlanticIRA

Self-Directed IRAs & Tax Strategies www.MidAtlanticIRA.com

F I N A N C I A L I N VR EE S IT IIN NG K 21

REI INK

AC Q U I S I T I O N S & D I S P O S I T I O N S

6 COMMON QUESTIONS (AND SOME LITTLE-KNOWN FACTS)

ABOUT REAL ESTATE IR AS Many IRA and qualified plan participants are still unaware they can hold real estate in a retirement plan.

BY J ER E MY BYA R S

R

eal estate is widely

There’s even a common

If you’re interested in this

considered to be

misconception that owning

investment possibility,

real estate in an indepen-

seek the services of a

dent retirement account

qualified alternative asset

(IRA) is illegal. This is

custodian who can handle

completely untrue. As long

“administrative burdens”

as you follow IRS rules,

and who permits real

you can own real estate

estate holdings in its

in a retirement account,

clients’ accounts. Find a

including IRAs.

custody services provider

among the top alternative investments. Many investors transfer or roll over funds into self-directed accounts because their current custodian either

THERE ’S EV EN A COMMON MISCONCEPTION TH AT OWNING REA L ESTATE IN A N

W H Y T H E L AC K O F AWA R E N E S S ?

Why are so many still unaware of this

INDE PENDEN T RETIREMENT

investing possibility?

ACCOUN T (IR A) IS ILLEGA L .

A major reason is that many IRA trustees do not allow IRA owners to invest IRA funds in real estate. De-

won’t allow real estate holdings or because they have little experience with the asset when held inside tax-advantaged accounts.

spite the fact that IRA law doesn’t prohibit investing in real estate, trustees aren’t required to offer it as an option, sometimes because of administrative burdens.

2 2 F E B R UA RY 2 0 19

with the experience and solutions available to provide the best service before, during and after the investment process.

And above all, work with a custodian well-versed in real estate investments.

But that’s just Step 1.

You also need to educate yourself on real estate investing using retirement funds.

GETTING SOME ANSWERS

Here are answers to the top questions investors ask about IRA investments.

1. What due diligence should I perform?

While custodians may provide general information on IRS guidelines and walk you through processes, timelines and potential tax implications of an investment, keep in mind that custodians are not tax professionals or investment advisers, so you should seek other professionals to do some due diligence.

There are a number of questions you should discuss with your accountant, attorney and financial adviser:

Does the investment

retirement accounts. By

transaction, any repairs,

align with your long-

investing in real estate via

improvements and so on

term goals?

a Self-Directed IRA or

must be performed by a

other retirement plan,

non-disqualified person

returns may be sheltered

or entity. In addition to

Do you risk creating a prohibited transaction?

Should you choose a Traditional or a Roth account?

Will you have to worry about Unrelated Debt Financed Income (UDFI) or Unrelated Business Income Tax (UBIT)/Unrelated Business Taxable Income (UBTI)?

Will the investment

from taxes. Whether taxdeferred (Traditional) or tax-free (Roth), the profit won’t be as devastated by capital gains taxes.

Gains from Traditional IRA investments will see deferred taxation until withdrawals are made from the account. Gains from Roth IRA investments can anticipate tax-free

yourself, the following are disqualified: Spouses Parents, children, grandchildren and their spouses The IRA’s investment providers or fiduciaries Corporations, LLCs, trusts and other entities in which a disqualified

need more money down

qualified withdrawals.

person owns more

the road? When will you

3. May I manage the

than 50 percent

start to see a return on your investment?

property myself?

Any entity in which the

Technically, this is allowed,

IRA account-holder

2. Is investment income

but only when it comes to

is an officer, director,

making decisions about

a 10 percent or more

may be an eye-opener for

the property. Since you

shareholder, or a highly

may not personally benefit

compensated employee

really sheltered? This one you, especially if you are new to investing using

from a property-related

F I N A N C I A L I N VR EE S IT IIN NG K 23

REI INK

In other words, you can’t

so would be an indirect

You can also invest in

“put a hammer to it”

furnishing of goods,

real estate crowdfunding

yourself. Additionally,

services or facilities

opportunities and own

all expenses must be

between the IRA and a

a smaller percentage

paid by the retirement

disqualified person. As

of a property. Other

account, and all income

the retirement account

possibilities include

must go to the custodian

holder, you’re considered

real estate investment

and back into the IRA

a plan fiduciary and, thus,

trusts (REITs) and other

(both proportionate to

a disqualified person.

stock-market-based

the account’s ownership

Retirement account

investments relative to

percentage). It’s best to

assets are to be used for

the real estate industry.

have a non-disqualified

investment purposes only.

third party manage the

5. What if I don’t

6. Would I have to sell

property. Visit the IRS website for additional information on nondisqualified/qualified persons or entities.

4. May I use the

2 4 F E B R UA RY 2 0 19

the entire property

have enough funds to

in order to take a

full? One of the beauties

don’t have to liquidate 100

purchase the property in

distribution? No, you

of self-directed investing

percent of your ownership

is the numerous options available. For example,

property myself? This

your IRA isn’t required

one’s easy: absolutely

to purchase an entire

not. According to the

property outright. You

IRS, using the property

can finance through a

yourself is a prohibited

non-recourse loan, or

transaction. More

your IRA can partner with

specifically, doing

another entity or entities.

for a distribution. Although you may choose to sell a real estate asset for distribution purposes, many investors don’t realize you can distribute just a percentage of the asset instead. This is often how real estate investors

will fulfill IRA-required

First, your IRA can absolute-

percent of an asset, your

how you choose to invest in

minimum distributions

ly partner with other IRAs

IRA may be able to secure

or other investors. Similar

what’s called a non-re-

real estate with a retirement

to buying fractional shares

course loan. The IRA

of certain investments, your

account holder is not per-

IRA may also invest in a

sonally liable for repay-

percentage of real prop-

ment of a non-recourse

erty. Perhaps your IRA has

loan. In the event of loan

only enough available cash

default/foreclosure, the

to purchase 40 percent of

lender must only look to

a commercial real estate

the property as the sole

property. The account may

source of repayment and

personal reasons.

partner with another IRA or

cannot pursue other IRA

A BONUS

other investors to purchase

assets or assets owned

the remaining 60 percent.

directly by the IRA account

It’s important to note, as

holder. Not all lenders

(RMDs). The percentage distributed must be re-registered to reflect the new percentage of ownership held by the IRA holder. One very important point to keep in mind: Only after you’ve completely distributed the asset may you use the property for

Because question 5 tends to generate follow-up questions, let’s dig deeper into it.

Two options, partnering and non-recourse loans, aren’t always apparent to even some of the most-seasoned IRA investors.

question 3 outlines, that all income and expenses must come to and be paid by your IRA according to your ownership percentage.

Also, as previously mentioned, your IRA may secure a loan to purchase a real estate asset. If you don’t have the available funds to purchase 100

make this type of loan, however, and those that do often require significant down payment.

account, be sure to consult with tax, legal and investment professionals on how best to proceed. These professionals should outline distribution requirements, prohibited transactions rules and special tax circumstances or burdens related to income-producing assets and debt-financed investments. Investing and account-related decisions should be made only after significant research and due diligence.

Don’t forget how important it is to work with a custodian

D O YO U R D U E DILIGENCE

well-versed in real estate

Have you found commercial

account stays qualified per

space, farmland or rental property you want to hold in an IRA? Regardless of

investing. That ensures your IRS rules and regulations and your investment is made without a hitch.

Jeremy Byars joined Kingdom Trust in 2014. He

document management and special project

education. Byars is responsible for leading all inter-

qualified custodian for the assets of clients of

is the senior vice president of communications and nal and external communications and education.

Additionally, he is responsible for process analysis and documentation, new employee training and

orientation, technology integration, web content,

management. Kingdom Trust is an independent registered investment advisers, broker-dealers and investment sponsors, as well as their IRAs, non-

qualified plans and qualified defined contribution 401(k) plans.

F I N A N C I A L I N VR EE S IT IIN NG K 25

REI INK

S TAT S

IN DECEMBER OF EACH YEAR, WEBUYHOUSES.COM ASKS ITS INDEPENDENT BUSINESS OWNERS WHAT THE NEXT YEAR WILL BE LIKE IN THEIR MARKET.

After receiving responses from 45 local market affiliates, WeBuyHouses.com CEO Jeremy Brandt summed up the outlook for 2019: “After five years of nonstop price increases in most areas, residential real estate is likely to slow down in most local markets next year. In 2018, we’ve definitely seen the cooling effects of rising interest rates (up 70 basis points since our last survey), and we expect that to continue with similar increases in 2019.”

2 6 F E B R UA RY 2 0 19

FIVE HOUSING MARKET PREDICTIONS FOR 2019 The WeBuyHouses.com 2019 Housing Market Survey makes the following five housing market predictions for this year:

H O M E PR I C E S A R E

I N V E N T O RY O F E X I S T I N G H O M E S

E X PE C T E D T O LE V E L O U T

AVA I L A B L E F O R S A L E W I L L R I S E

They will drop on the West coast,

IN MOST MARKETS

rise in the South and start to level out everywhere else. On average, WeBuyHouses.com expects home prices to rise about 3 percent next year (to a predict-

As a result, days-on-market will increase, resulting in a slower turnover rate for invested capital. Longer days-on-market will require greater investment in marketing

ed year-end median price of $264,000).

properties for sale.

R I S I N G I N T E R E S T R AT E S W I LL

H O M E R E N OVAT I O N C O S T S W I L L

B E A B I G FAC T O R I N S L OW I N G

R I S E I N A L M O S T E V E RY M A R K E T

D OW N T H E H O U S I N G M A R K E T.

Labor and materials will be in high demand,

The Fed might have wanted to cool down a market that ran too far too fast.

Expect 5 percent-plus home mortgage rates a year from now (up 75 basis points from here).

THE MARKET WILL SWITCH

even as home prices start to soften. Rising renovation costs combined with softening prices will put margin pressure on real estate investors and push many unprofessional players out of the market.

Dev Horn, vice president of marketing and author of the 2019 report, said: “The pullback will be most dramatic in [the] West, particularly California.

FROM A SELLER’S

Luxury home prices hit the wall in 2018 and will continue to drop as demand

MARKET TO A

softens next year, while entry-level housing is likely to rise in value a bit more

BUYER’S MARKET.

as demand will remain strong for at least another year.”

Detailed reports and video content for the 2019 Housing Market Survey are available from WeBuyHouses.com. Contact Dev Horn at press@webuyhouses.com or (817) 251-8296.

F I N A N C I A L I N VR EE S IT IIN NG K 27

REI INK

S TAT S

WHAT’S THE HOUSING MARKET LOOK LIKE IN 2019?

T

rulia’s most recent hous-

prices, even though the lat-

years or older. Respondents

predictions about housing

ing market report makes

ter is seeing slower growth.

were asked how they felt

inventory, home-buying

At least that’s the overall

about housing currently

activity, mortgage rates, the

and in the future. Using

impact of natural disasters,

the information collected

millennial home buying and

in the survey, as well as

the top housing markets.

several key predictions.

Americans want to buy a

finding from Trulia, a home

house, but they might not

listing portal, that enlisted

be able to afford one due

The Harris Poll to conduct an

to rising interest rates on

online survey in November

mortgages and home

2018 of 2,021 U.S. adults 18

some of their own housing research, Trulia made 2019

I N V E N T O RY

H O M E-B U Y I N G AC T I V I T Y

Housing inventory will continue to

Even though home prices may begin to fall,

be tight.

the limited inventory will continue to create pressure on pricing. In particular, renters who want to buy cite saving for a down payment (53 percent) and rising home prices (36 percent) as

M O R T GAG E R AT E S

major impediments to home ownership.

Mortgage rates are predicted to reach 10-year highs in 2019.

M I L L E N N I A L H O M E-B U Y I N G

More young Americans will become first-time homebuyers. In the millennial age group (18 N AT U R A L D I S A S T E R S

to 34), 21 percent say they plan to buy a home

Although natural disasters such as wildfires

within the next 12 months, an increase of

and hurricanes will impact more communities, their effect on the housing market should be moderate.

2 8 F E B R UA RY 2 0 19

7 percent over a year ago.

Trulia’s ranking of the

TOP 10 HOUSING MARKETS TO WATCH IN 2019 along with the hottest neighborhoods in each metro

2

1

6 4 7 9

#1

Colorado Springs, Colorado

#3 Jacksonville, Florida

10

8

5

3

#5 Austin, Texas

#7 Phoenix, Arizona (Agritopia)

(Album Park)

#8 Columbia, South Carolina

#10 Oklahoma City, Oklahoma

(Southeast Colorado Springs)

(Normandy Estate)

(Southeast)

#2

#4 Bakersfield, California

#6 Fresno, California

Grand Rapids, Michigan (Alger Heights)

(Northeast Bakersfield)

(McIane)

(South Kilbourne)

#9 El Paso, Texas

(The Village)

F I N A N C I A L I N VR EE S IT IIN NG K 29

REI INK

3 0 F E B R UA RY 2 0 19

LEONARD ROSEN A PITBULL IN P R IVATE LENDING

by Monica Mansfield

W

hen Leonard Rosen

she passed by and

the conference is held in

create a culture ... we treat

held his first pri-

promised her a good tip

premier locations such

people like they’re family,”

if she let them stay.

as the Ritz Carlton. Rosen

Pitbull Conference has

prides himself on the vibe

Rosen said. “It’s obviously

come a long way from its

his team creates.

they were both comped.

meager beginnings.

They sat in a coffee shop

“All of our events are

Now with 600-800

premium events ... cocktail

attendees and more than

parties, butler service, live

know that that’s the

50 sponsors at each event,

music. We create a vibe, we

Pitbull experience.”

vate lending conference almost 20 years ago, only two people attended—and

for five hours, while Rosen winked at the waitress as

a business relationship, but it’s a warm business relationship. And people that go to our events

F I N A N C I A L I N VR EE S IT IIN NG K 31

REI INK

PROFILE

PI TBULL W I TH A PU R P O S E

Rosen wanted to fill this void

When it comes to putting

nies and escrow compa-

His mission for the event

by creating a place where all

your own team together,

nies. Create a team that you

the different players in the

Rosen believes in building

industry could network and

relationships with credible

put deals together.

people based on respect.

you know what to expect.”

“I realized that if you have

“At the end of the day,

Rosen believes the

is to bring people together and educate them on emerging opportunities available in the marketplace, which has changed dramatically in the last two decades.

In fact, there wasn’t much of a marketplace for private lenders at all back then.

3 2 F E B R UA RY 2 0 19

the borrower, the brokers, the real estate investors and the capital providers all in one place, good things are probably going to happen,” Rosen said.

never forget that people do business with people that they like and trust ... it’s all about creating credible relationships with funding sources, appraisal compa-

work with so the next deal goes just as smooth and

relationship you have with yourself is even more important than your relationships with others.

“Keep in mind you’re the sum total of the five closest

people that are around

with. ... We pay our people

private lending industry

changed the real estate

you,” he said. “And so I

well. We’re careful who we

since Pitbull’s inception

community overnight.

believe the most powerful

hire, we give them great

came with the JOBS Act.

conversation that you ever

opportunities for growth.

Before this act, private

“From 1933 to 2014, the

have is never with your

Nobody makes the kind

lenders had to follow the

team, but the most power-

of money that our people

rules put in place by the

ful conversation, the most

make in the industry, and

1933 Securities Act.

in-depth conversation

we have no turnover. If you

you ever have, is always

use that basic concept,

“In that 1933 Securities Act,

friends, and they also had

with yourself. What do I

you end up with a different

it said you could only accept

to be accredited. Your

need? Who do I need to

result. I think you’re doing

be around? What kind of

a disservice to yourself by

culture do I want to be a

just taking a job for the sake

part of? What kind of vibe

of just making a living. You

is our company? When you

take a job for the purpose

understand that that’s an

of making a contribution

important conversation,

to yourself, making a

that’s when you see things

contribution to your family

start to change in your life.”

and making a contribution

POWERFUL CONVERSATION,

He credits this line of

to the company you work

THE MOST IN-DEPTH

thinking for the Pitbull Conference’s employee

for. It’s not about making money. It’s about making

real estate community worked under the premise that you could only raise capital for family and

I BELIEVE THE MOST POWERFUL CONVERSATION THAT YOU EVER HAVE IS NEVER WITH YOUR TEAM, BUT THE MOST

CONVERSATION YOU EVER HAVE, IS ALWAYS WITH YOURSELF.

retention rate—it hasn’t had

a contribution.”

any turnover in almost 20

He calls it capitalism with

years. Not one employee

morals. Although this

has ever left his company.

mindset isn’t widespread

capital from people that

investors still need to be

“We’re very careful with

in the business world, he

were known to you. So it

accredited investors, but

insists that this can change,

was basically a friends and

you can scream from the

one company at a time.

family clause,” Rosen said.

highest building in the

In September 2013, the new

land and solicit investors

who we bring into our team. That’s No. 1. We have to have the same values.

I’m not interested in people

A CHANGING I N D U S T RY

that are looking to make a

Perhaps he believes

paycheck. I’m interested in people that are looking to build a business, that are vested. Those [are the] kinds of people that I’m interested in working

this change is possible because of the dramatic changes he has seen in the industry since his career began. One of the biggest developments in the

Securities and Exchange Commission rule went into effect allowing general solicitation and advertising for certain offerings of restricted securities, if the purchasers were accredited investors. Rosen said this

to deploy capital with you.

When that changed, that made a significant impact, not only in the economy, but also for the private investor ... who didn’t want to take all the risk of buying or lending on a piece of

F I N A N C I A L I N VR EE S IT IIN NG K 33

REI INK

PROFILE

property. They don’t want

taking 100 percent of the

“That’s something we’ve

lem is that the regulators,

to take all that risk because

risk on one property.

never seen before ...

because of the 2008 real

in real estate, like anything

Another noteworthy

there’s credit facilities now

estate implosion, prevent

for lenders that enable

them from [doing so].”

the lenders to grow their

Although a borrower will

in life, things can go sideways. It allows you to be, in essence, in a mutual fund scenario where you benefit from all the loans.”

change in the last 5-7 years is hedge funds acting as credit sources for private lenders. For example, if a private lender has $10

If, for example, he said, two

million deployed in the

out of a hundred loans go

marketplace and doesn’t

south, the private inves-

have any money left to

tor won’t feel the effects

lend, a hedge fund can

because the other 98 went

come in and buy their

well. They might earn 8.1

book of business. Not only

percent interest instead of

will the lender have $10

8.2 percent. For an investor

million more to lend, but

who may have only $10,000

the hedge fund will also

to invest, this is a much

provide another $20-30

safer investment than

million line of credit.

business using the capital provided by hedge funds.”

F I L L I N G T H E VO I D

Private lenders have been an integral part of the real estate market for the past 50 years, but even more so since 2008. Rosen goes as far as saying that private lenders have saved the industry.

“The unique part of private lending is that it fills a void that the banks have left. The banks would love to lend on a lot of the asset classes in private lending. The prob-

pay higher interest rates with a private lender, they can expect a much faster closing than with a conventional bank. Once a private lender has determined the value of a property, they can close in a matter of days. A conventional bank can take up to 60 days.

This can make all the difference for investors in a fast-moving real estate market, particularly investors in the rehab niche who have come to rely on private lenders to finance their deals.

“The private lending community is making a

PRIVATE LE NDE RS H AVE BE E N A N IN TEGR A L PA RT OF THE

huge contribution to small and large communities,” Rosen said.

REA L ESTATE M A RKET FOR

L O O K I N G F O R WA R D

THE PAST 50 Y EA RS, BU T EV EN

Rosen is confident the

MORE SO SINCE 2008. ROSEN GOES AS FA R AS SAY ING TH AT PRIVATE LENDERS H AV E SAV ED THE INDUSTRY.

market will remain strong in 2019.

“Keep in mind that we have a big country, and that there are submarkets within that country,” he said. “I would say [in] 2019 we’re going to see a modest increase in val-

3 4 F E B R UA RY 2 0 19

uations across the country.

ed to building your business

There are some areas of the

rather than buying your

country that we’re going to

stock back. When you build

see less, some areas where

your business, that’s when

we’re going to see more,

you hire more people. You

but as an overall, I think

give more people opportu-

we’re going to see a modest

nities. You’re able to give a

increase. We have a very

better wage to your workers.

strong real estate econo-

That was the part that was

my and the last I checked,

missing from the tax breaks.”

there’s only so much real

The health scare that Rosen

estate in the world. They don’t make any more, and we have a growing population.”

experienced last year may play a role in shaping his perspective. Rosen, who has

Rosen also noted that the

run 18 marathons, coached

political environment has a

and competed in wrestling,

considerable impact on real

and is a world champion

estate. What happens from

in Jiu Jitsu, was ill for more

2019-2022 will depend on

than three months last year

what the current adminis-

with a diseased gallbladder.

tration does, as well as who

He describes the experience

wins the 2020 election.

as a “blessing.” It changed

He is not a supporter of the

his view of the world and

current administration’s tax

how he runs his business.

cuts or the new Opportunity

“Now I have a much deeper

Zone Program.

understanding [of myself

“It was good for me from a

and business],” he said. “The

tax standpoint,” he said, “and I think it’s good for other high net worth people, [but] it did not help the middle class. If you’re going to give a big tax break, then there should be a requirement that says for every dollar that we give you a tax break for, there has to be 30 percent of that tax break that’s provid-

more you give, the more you provide value, the better you are as a human being.

The most powerful people that I know are people that are not focused on making money, but focused on providing value. An emerging opportunity that falls in line with Rosen’s philosophy of contribution is the assisted

living industry, which is fueled by the aging baby boomer population.

“This is not like the old school where when your parents got old, you took them into your home,” Rosen said.

Yet many people are hesitant to put their parents in large, impersonal facilities and prefer something smaller and warmer.

As a solution, investors are purchasing 3-bedroom, 2-bathroom homes and converting them to 5-bedroom, 3-bathroom properties. Not only are investors buying the real estate, but they are investing in the businesses themselves, which provide a high

return on their investment.

Investors can choose to invest in the real estate, the business or both.

Rosen promises he has no plans to retire anytime soon and says he’s just getting started. When asked about his current projects, he maintained an air of mystique. He is currently working on an educational video series, but refrained from giving too many details. Instead, he says the six most dangerous words in the English language are: “We’ve always done it this way.” He hints that the series will shake up the way we look at doing business.

“You’ll see,” he said.

F I N A N C I A L I N VR EE S IT IIN NG K 35

REI INK

REGIONAL SPOTLIGHT

MEMPHIS, TENNESSEE A H OT M A RK E T FOR I N V E S TOR S

BY M O NI CA M A NS F I E L D

3 6 F E B R UA RY 2 0 19

H

ot real estate

predictions for the follow-

markets like Las

ing year. The company just

Vegas and Phoenix can

released its 2019 Housing

generate a lot of hype in

Report. Brandt talked to

the real estate world, but

REI INK about the findings

Jeremy Brandt, CEO of

and spoke in-depth about

WeBuyHouses.com, would

one of their favorite

argue these aren’t always

secondary markets:

the most ideal markets

Memphis, Tennessee.

for investors. His most successful affiliates work in secondary markets.

“Not the biggest cities,” explains Brandt, “but kind of the midsize cities... because they’re value investing. They’re buying at a good price. They’re adding value to the property by fixing it up, and then there’s a ready demand of buyers or renters.”

Each year, WeBuyHouses. com surveys its independent business owners about their local market and writes a report with

GENER AL PR E D I C T I O N S

The 2019 Housing Report goes into detail about specific submarkets, but it also makes a few general predictions for the housing market as a whole. It anticipates that residential real estate will slow down in most local markets next year.

“In 2018, we’ve definitely seen the cooling effects of rising interest rates (up 70 basis points since our last survey), and we expect that to continue with similar increases in 2019,” F I N A N C I A L I N VR EE S IT IIN NG K 37

REI INK

AVER AGE RENT

T H E AV E R AG E R E N T F O R A N A PA R T M E N T I N M E M P H I S I S $769.

AV E R AG E RENT

Brandt said. The report foresees 5 percent or more home mortgage rates a year from now (up 75

AV E R AG E A PA R T M E N T SIZE

ALL

STUDIO

1 BED

2 BEDS

3 BEDS

$ 769

$ 62 6

$716

$7 71

$927

890

SQ . FT.

460

SQ . FT.

69 8

SQ . FT.

94 8

SQ . FT.

1 ,277

SQ . FT.

basis points).

The report also predicts the market will shift from a seller’s to a buyer’s market and that home prices will level out. Prices will likely drop on the West Coast, rise in the South, and level out everywhere else. On average, home prices are expected to rise 3 percent next year, with a year-end median price of $264,000.

The inventory of existing homes for sale will probably rise in most markets, which will result in dayson-market increases and slower turnover rate for

3 8 F E B R UA RY 2 0 19

invested capital. This will

A L O O K AT M E M PH I S

also require more invest-

seller of homes in all of

Even with a slowing market,

Memphis. Regarding

ment in marketing properties for sale.

Renovation costs are likely

Brandt is excited about the unique opportunities Memphis has to offer.

the current market, Sean Tagge, an investor at the Memphis office, said, “If I find a deal, I can capitalize

to rise in 2019 in almost

WeBuyHouses.com predicts

every market. Labor and

that Memphis will be a

on it easily.”

seller’s market in 2019. They

Brandt said, “The best real

materials will be in high demand next year, even as home prices soften.

The combination of rising renovation costs and declining prices will put margin pressure on real estate investors and push unprofessional players out of the market.

anticipate prices increasing, inventory decreasing and prices for contractors and materials rising.

The We Buy Houses Memphis office sold 247 homes last year with a total volume of $26,997,648, making them the No. 3

estate investing markets are actually ones where you have things like a good ratio between the cost of the house and the rental rates in that market, or a fairly ready labor pool that’s relatively inexpensive compared to other

A CHANGING INDUSTRY

THE MAN BEHIND THE BR AND

Jeremy Brandt started flipping houses after the stock market crashed in 2001.

Today, he is well-respected as an

markets and you have a

to rehab and rent

lot of people moving

distressed properties.

into the area.”

“Memphis has come a

According to the Mem-

long way when it comes

phis Area Association of

to entrepreneurialism,”

Realtors, in December

Brandt said. “I think you’re

2018, the median sales

starting to see more small

contributor to FOX News, “Larry King

price in Memphis was

businesses started...in

$138,000 and the average

Memphis because it’s an

Live,” CNBC, CNN, FOX Business, NPR, the

sales price was $174,835.

inexpensive labor mar-

The average rent ranges

ket, inexpensive housing

When Brandt bought We Buy Houses in

from $626 for a studio

market and it’s easy to live

apartment up to $927 for a

there. It’s easy to start a

2012, he wanted to revitalize the company

three-bedroom apartment.

business with lower costs

Memphis has a strong

in general than starting a

economy and job market, low cost of living and high percentage of renters compared to the national average. The large inventory of older existing homes makes it an ideal place

company in Silicon Val-

industry leader and has built many successful companies in the real estate field. He is the current chair of the Global Governance Committee for the Entrepreneurs’ Organization, and is a regular

Wall Street Journal, USA Today and Forbes.

by creating a nationally recognized, credible brand for real estate investors.

The company vets all investors operating

ley, where almost every

under the brand license, requiring them

expense you have is going

to be experienced and capitalized and

to be three or four times as much than if you started in a place like Memphis.”

to adhere to a code of ethics. With more than 60 offices throughout the country, WeBuyHouses.com licensees bought approximately 2,500 homes in 2018.

F I N A N C I A L I N VR EE S IT IIN NG K 39

REI INK

REGIONAL SPOTLIGHT

As more people move

number of houses under

The combination of

“So, I haven’t seen strato-

to Memphis to take

construction and they

strong demand and low

spheric price increases,

advantage of the strong

weren’t able to sell or had

inventory is pushing home

but I think there have been

job market and low cost

to sell at a discount and

values and renovation

some price increases on

of living, homebuilders

maybe a loss when the real

costs upward in Memphis.

building materials just

are struggling to keep

estate market slowed down.

Contractors are in high

because it’s a little bit more

up with demand. “A lot of

So, I think homebuilders in

demand right now.

difficult to source them and,

homebuilders are more

general are a little bit more conservative than they used

“When you have a market

really, uncertainty in busi-

conservative than they have been in the past,”

to be. ... Inventory is going

Brandt said, “because

down just because they

when we had the housing

haven’t built houses fast

slowdown 10 years ago, a

enough to accommodate

lot of homebuilders really

the number of people that

got caught with a large

are moving into the area.”

M E M PH I S

like Memphis,” Brandt said, “where there’s a lot of rehabs going on and a lot of new home building going on, there’s competition for the good contractors, and so the price of contractors

the real estate market a little bit nationally.”

Brandt said the rehab and

also more difficult to find

rental market in Memphis is creating a unique oppor-

reliable ones.

tunity for foreign investors.

When asked if he thinks

“There are a couple of

$ 769

N/A

$1 ,381

12%

BARTLETT

$792

2%

LAKELAND

$1 ,061

3%

things. Certainly, things

COLLIERVILLE

$1 , 188

4%

seeing a lot of is most of

MILLINGTON

$684

2%

ARLINGTON

$1 ,061

3%

the new tariffs on Chinese imports will affect the cost of building materials, he said, “It’s tough to gauge what’s actually going to happen.

I think we’re hearing about price increases on different like steel. I think what I’m the things we get from China, we can get from somewhere else. It’s just a little bit more work to get it from those other places.

4 0 F E B R UA RY 2 0 19

it will definitely slow down

Brandt said contractors

Y O Y CHANGE

GERMANTOWN

price increases in materials,

goes up.”

AVERAGE RENT MEMPHIS

I think if there’s significant

T U R N -K E Y INVESTMENTS

also get scarcer, so it’s

CO M PA R E D T O N E A R BY C I T I E S

ness and in real estate. ….

companies that specialize in doing turn-key real estate investment for passive investors, which is very attractive to foreigners because they don’t have to be in Memphis to invest,” Brandt said. “So, the company will identify a property, buy the property with the investor’s money, rehab the property with the investor’s money, rent it out and property manage it for the investor.

And so, for the investor, it’s

be as cost effective to buy,

a fairly turn-key, passive

renovate and rent out a

investment. And Memphis

house as a passive investor.

has a really good ratio of

“Somebody who lives in

rent rates to cost of houses, so it’s really a good rental market, because rent rates are good compared to the cost of real estate there.”

Los Angeles, for them to buy a house, renovate it and rent it out would cost them $500,000 or more... whereas in Memphis they

T H E R E H A B A N D R E N TA L MARKET IN MEMPHIS I S C R E AT I N G A U N I Q U E OPPORTUNITY FOR FOREIGN INVESTORS.

can do that for $100,000

According to Brandt,

to $150,000 and then have

investor-owned properties

a cash flowing property

Brandt also noted that it

it’s unique to Memphis

are a big trend in Memphis

that provides them passive

is common to see foreign

to see so much foreign

right now because there are

income with a property

investors put money into

capital in the single-family

so many opportunities. In

management company

commercial real estate

residential market.

many other cities, it may not

there,” Brandt said.

in big cities; however,

F I N A N C I A L I N VR EE S IT IIN NG K 41

REI INK

REGIONAL SPOTLIGHT

“You know it’s a pretty solid investment, a pretty safe investment, especially if you live in a country with currency fluctuations or

SALES REPORT M E M P H I S A R E A H O M E S A L E S R E P O R T • 2 018

other issues, and to the

YTD TOTAL SALES

degree that they can be

2018

2017

% CHANGE

19,734

19,734

2 .2%

MEDIAN SALES PRICE

$148,000

$139,000

6.5%

AVERAGE SALES PRICE

$182 ,465

$173,219

5.3%

entirely hands off and just provide the capital, but then own a tangible asset in the United States.

I think that’s pretty attractive,” Brandt said.

UNITS

Memphis provides plenty

YTD EXISITING HOME SALES

of attractive opportunities

2018

2017

% CHANGE

18,790

18,498

1 .6%

MEDIAN SALES PRICE

$140,000

$133,000

5.3%

AVERAGE SALES PRICE

$173,337

$165,824

4.5%

to investors in a softening market. Whether you’re looking for a passive, turn-key investment or

UNITS

a house to flip and rent out, Memphis’ strong economy and low prices will be sure to add value

YTD NEW HOME SALES

to your portfolio.

2018

2017

% CHANGE

944

810

16.5%

MEDIAN SALES PRICE

$315,375

$289,000

8.8%

AVERAGE SALES PRICE

$364, 161

$342 ,083

6.5%

UNITS

YTD FORECLOSURE ACTIONS

TOTAL

4 2 F E B R UA RY 2 0 19

2018

2017

% CHANGE

1 ,413

1 ,833

22 .9%

F I N A N C I A L I N VR EE S IT IIN NG K 43

REI INK

R I S K M A N AG E M E N T

PROTECTING AGAINST PEOPLE PROBLEMS Your tenants can be the source of claims that erode your investment profits.

BY G LEN D O N D . NE L S O N, J R .

Y

ou likely protect your

a small premium payment.

investment properties

Risk transfer can benefit

offers coverage against just about any type of

against fire, floods, earth-

you as a real estate inves-

quakes, severe storms and

tor by transferring the risks

other obvious threats. But

associated with owning

do you protect your prop-

property and the financial

erties against your tenants?

consequences resulting

Are you prepared to settle

from claims that arise

a property or bodily injury

from that risk.

covered against. Instead,

PR O PE R T Y I N S U R A N C E

are excluded. If damage to

claim out of your profits for years to come?

Tenants can hold the success of your investment properties in their hands.

But, your insurance policy should play a role in transferring that risk and maintaining the security of your assets.

RISK TR ANSFER

Risk transfer is a risk management strategy that

Whether your investment property is an apartment unit or a family home, if you

damage you can think of, with certain exclusions.

The policy does not list the perils your home and/ or personal property is it only lists the perils that the home is not caused by something listed on the exclusion list, you

are renting the property, you

are covered.

will have little control over

Rather than listing exclusions,

the physical damage that can occur in or on it. To mitigate your risks, tenant-occupied dwelling insurance will cover the costs incurred by damage. It does not, however, cover your tenant’s

allows you to transfer your

personal property.

insurable risk to a third

There are two common

party (i.e., insurance com-

types of insurance policies

pany) by exchange of

for investment properties: special perils and named perils.

4 4 F E B R UA RY 2 0 19

Special perils policy

a named perils policy

specifically lists the perils for which your home and/or contents are covered. If your home or personal property is damaged by something not on the named perils list, you are not covered.

As with all homeowners insurance, be sure there is enough coverage to protect all your property values and

TENANTS CAN HOLD T H E SUCCESS OF YOU R assets. A typical policy will

condition. You may be

provide the replacement

required to pay out-of-

cost value for your building

pocket to finish the repairs.

and the actual cash value for your contents.

Replacement cost value is the amount necessary to replace or repair your building with similar materials, without considering depreciation.

Actual cash value, on the

Liability insurance covers you for accidental injuries to your tenants and their visitors. As the owner of the property, you are responsible for taking steps to ensure that anyone who enters, whether welcome or unwelcome, stays safe.

of your property when it

Ensure that gates are

This amount is typically determined by subtracting the depreciation from the replacement cost value.

A word of caution about actual cash value: The limits in place may not be enough to replace your building to rentable

IN THEIR HANDS.

LI ABILITY INSUR ANCE

other hand, is the value is damaged or destroyed.

INVESTMENT PROPERTIES

secure and fences cannot easily be climbed. Adequately cover or protect any conditions, including pools, ditches, walls or other manmade physical features that might pres-

ing sturdy fencing around hazardous areas and placing warning signs.

Property owners are also liable for maintenance and security. Negligence means that the property owner was aware that someone could get hurt on the property and did nothing to prevent it. If you take all necessary precautions to protect individuals who are on your property, you are less likely to be found negligent in a premise liability suit.

ent a hazard. This includes covering pools to avoid accidental drowning, install

F I N A N C I A L I N VR EE S IT IIN NG K 45

REI INK

Consider, for example,

enough to adequately

had happened to the

Conversations with property

an investor who owns

cover the array of claims

investor in the example

more than 75 properties

that may arise.

who had just $300,000 in

managers and tenants will

throughout the Southwest. This client carried an individual insurance policy for each home, ensuring separate limits. Most of the homes were built in 2005 or after, and most had swimming pools. But each home carried a liability limit of just $300,000—an amount that isn’t nearly

As an example, think about a drowning in either a pool or a bathtub. In one recent tenant child bathtub drowning claim that occurred in an investment home, the total claim paid was over $1.5 million following all litigation and settlement costs. If this

coverage, he would have been responsible for more than $1.2 million in claims expense.

Securing the best insurance package for your real estate investments begins with planning. Analyzing all your risk is critical to successful implementation of your insurance program.

Glendon D. Nelson Jr.,CIC, is a commercial

insurance broker and surplus lines insurance broker.

He is following in a family insurance tradition established by his great-grandfather. He is a

fourth-generation insurance professional with

nine years of commercial insurance experience

and a 14-year tenure with The Mahoney Group.

4 6 F E B R UA RY 2 0 19

uncover areas that need additional attention.

Be sure to partner with a provider that offers ongoing assistance, consultation and risk mitigation service that helps you control your insurance expenses and enjoy a profitable investment property.

Nelson began his career working within the special-

ty programs department as an assistant. Through his

passion for the insurance industry and his eagerness

to learn, he has amassed a variety of knowledge and experience. In addition to obtaining his CIC, Nelson is working toward earning the CRM designation.

Nelson can be reached at (480) 214-2794 or gdnelson@mahoneygroup.com.

.com

We bought over

300 houses in 2018 using the

WeBuyHouses.com brand.

“We weren’t finding enough properties to buy. We needed to create opportunities rather than wait for deals to come to us.

To accomplish that, we joined WeBuyHouses.com, and now we’re one of the largest home buyers in Tennessee.”

JAMES WACHOB | LICENSEE

To hear more of his story, visit WeBuyHouses.com/ink COMPLETE BRANDING SOLUTION

WORLD CLASS SUPPORT

EXCLUSIVE TERRITORIES

PREMIUM MARKETING SERVICES

LEARN MORE:

1-866-771-4114 F I N A N C I A L I N VR EE S IT IIN NG K 47

REI INK

A LT E R N AT I V E I N V E S T I N G

IS TA X LIEN INVESTING FOR YOU? Understanding key factors can determine your success with this investment vehicle.

BY J O A NNE MU S A , A .K .A T H E TA X LIE N LADY

Counties and municipalities depend on money from property taxes to meet their budget. When property owners don’t pay their taxes, the local taxing district of some states will sell the taxes to an investor in an auction. At these auctions, the investors bid for the right to pay the taxes on the property and place a lien on the property.

Why would an investor want to do this? Two reasons.

First, they receive a high interest on their investment (much higher than they could get in the bank or a money market account).

Second, the tax lien that is created on the property is a super lien. That means it must be paid off before all other liens, except for government liens. This makes a tax lien a very secure investment.

4 8 F E B R UA RY 2 0 19

DIFFERENCE BETWEEN A TA X L I E N A N D A TA X D E E D

R E D E E M A B LE TA X D E E D S

In some states, when

able tax deeds.” In these

property taxes go unpaid, instead of selling a lien on the property, the county or municipality sells the property at a tax deed sale.

In states that sell tax deeds, you are buying the property. In most states that sell tax deeds, the bidding starts at the amount of back taxes and penalties that have accrued on each parcel.

In some deed states, however, the minimum bid is a certain percentage of the assessed or market value of the real estate. A tax deed can be a good investment, especially in states that sell the property for the back taxes. It all depends on how much competition there is at the tax sale and what investors are willing to pay.

Some states sell “redeemstates, the county auctions the deed to the property at the tax sale. But even though the investor is paying for the deed to the property at the tax sale, ownership does not transfer to the investor until the redemption period is over.

During the redemption period (which is a different time period in each state), the delinquent taxpayer can redeem the property by paying a hefty penalty or interest on the amount that was bid at the sale.

The tax deed holder (investor) gets their investment back with the interest or penalty amount. In some states, the penalty or interest can be quite high, making it very attractive to the investor, and more

TAX LIEN INVESTING USED TO BE SOMETHING THAT ONLY THE WEALTHY KNEW difficult for the delinquent

tion period is over, the

property owner to redeem

lien holder will automati-

the deed.

cally get the deed to the

COMMON MY THS A B O U T TA X L I E N INVESTING

People have been told that tax liens are a great investment. Many investors assume that interest is paid out by the county or municipality on a regular basis.

The truth about tax lien investing is that you do not

property. The truth is that in most states, you need a

In the state of Florida, the property will be sold in a tax deed sale and will be auctioned to the highest bidder in order to satisfy your lien. You only get the property if it is not sold

delinquent property owner

Some are under the

owner does not pay during the redemption period (which is different for every state), then you can foreclose on the property.

Another misunderstanding about tax lien investing is that after the redemp-

LITTLE-KNOWN, HIGH-YIELD INVESTMENT VEHICLE .

the deed to the property.

at the deed auction.

If the delinquent property

OF. FOR DECADES IT WAS A

lawyer to foreclose and get

get paid a cent until the decides to redeem the lien.

ABOUT AND TOOK ADVANTAGE

impression that tax lien investing is a good way to buy properties for pennies on the dollar. The truth about tax lien investing is that almost all tax liens on good properties will redeem, especially in states where the value of

If the lien is not redeemed during the redemption period, it will almost always redeem sometime during the foreclosure process.

Even when the lien is not redeemed, you may have to wait years to foreclose the right of redemption and get the property.

Tax lien investing is a way to get a high return on your money. If you are interested in buying property for under market value, you are better off with tax deeds or redeemable tax deeds.

real estate is very high.

F I N A N C I A L I N VR EE S IT IIN NG K 49

REI INK

A LT E R N AT I V E I N V E S T I N G

Tax lien certificates are sold

issue tax lien certificates;

at tax sales conducted by a

they keep them on

county or municipal official.

file in the county

These sales are usually held

treasurer’s or county

as auctions, in most states

tax collector’s office.

just once a year. There are

If you have the time to

a few states with counties that hold tax sales quarterly or even once a month. In order to invest successfully, you need to find out when and where these tax sales are held, research the properties in the sale and in many states physically attend the auction to bid on properties.

I S TA X L I E N I N V E S T I N G F O R YO U?

Tax lien certificates are an

Tax lien investing used to

small investors because

be something that only the wealthy knew about and took advantage of. For decades it was a little-known, high-yield investment vehicle. All of this has changed in the past couple of decades as more and more people have become aware of the high yields and minimal risk of investing in tax lien certificates.

Still, many are not sure if it’s really something they can do.

5 0 F E B R UA RY 2 0 19

attractive investment for you don’t need thousands of dollars to start and you don’t have to pay any brokerage fees. There are drawbacks, however. You

W H AT H A PPE N S A F T E R PU R C H A S E?

Successful bidders are issued a document, either a tax sale certificate or a

spend investigating properties and enjoy the challenge of learning something new, then perhaps investing in tax lien certificates could be a good way for you to grow your wealth without the risks of the stock market or typical real estate investing. If, however, you don’t have the time to spend researching properties and finding out about tax sales, then this is probably not the right investment

tax deed. Sometimes the

vehicle for you.

document needs to be

Another thing you’ll want

recorded with the county clerk (in some states you do

almost have to be an expert

not need to record the lien).

to invest profitably. This

You are also responsible

is an investment that you

for maintaining accurate

need to be able to devote

records and submitting

some time to. It’s not like

the proper documents to

you can call your broker

safeguard your investment.

and tell him to buy some

Some states like Florida

tax liens for your portfolio.

and Arizona that have online auctions do not

to consider is your location. Some states do not sell tax liens, and if you do not live in a state that has tax lien sales, you may have to spend a considerable amount of money traveling to tax sales to buy tax lien certificates. Although some counties have online

3200 Apartment Units

WHO WE ARE $300+MM In AUM

WHAT MAKES US UNIQUE 25% Average Investor Return

Contact Jesse Worcester Directly

816-759-0904

REI INK

A LT E R N AT I V E I N V E S T I N G

auctions or sell tax liens

each county within a state.

to complete a W-9 form for

through the mail, you still

Not knowing the rules and

tax lien and redeemable

need to research the tax

procedures, or not follow-

deed sales. Either have

sale properties before you

ing them, can cost you!

the form completed and

place a bid. If you don’t,

You’ll have to do some

bring it with you to the

you could end up buying a tax lien certificate on a worthless piece of property and losing money.

G E T T I N G S TA R T E D

First, find out where and when the tax sale is held, and get all the information you can about the tax sale.

You’ll want to get the tax sale list. You also need to know the rules and procedures for the tax sale. This is sometimes published online on the tax collector’s or county treasurer’s website. The rules and procedures can vary from state to state,

research on the parcels that are in the tax sale to determine which ones to bid on. Check the tax records to find out as much about each property as you can. Estimate the market value for each property you plan to bid on. For tax deeds, do some type of title search to check for

sale, or have your tax ID (Social Security, ITIN or EIN #) ready. Depending on which type of tax sale (deed, lien or redeemable deed sale) you’re going to, you may also need to fill out a bidder information form, or an affidavit stating that you don’t owe any property tax

liens or judgments that

in that taxing district.

might survive the tax sale.

You’ve done your home-

For vacant land (both liens

work and now you’re

and deeds), check any

prepared to bid at the

zoning laws to make sure

tax sale!

the property is buildable.

Next, prepare for bidding at the tax sale. You’ll need

and sometimes even for

Joanne Musa is a tax lien investing expert and

industry. She is the best-selling author of the book

entrepreneurs and small business owners profit

Without the Typical Risk of Real Estate Investing or

consultant who has helped hundreds of investors, from high-yielding, real estate secured, tax lien certificates. Known online as the Tax Lien Lady,

she is one of the most trusted authorities in the

5 2 F E B R UA RY 2 0 19

“How You Can Get 8%-36% Return On Your Money the Uncertainty of the Stock Market.” She can be

reached via her website at www.taxlienlady.com.

Knowing is easy.

Consistency is the tough part.

ROBERT D. DEANE

rober tddeane.wordpress.com F I N A N C I A L I N VR EE S IT IIN NG K 53

REI INK

A LT E R N AT I V E I N V E S T I N G

FUELING YOUR PASSION WITH NOTE PORTFOLIOS Seller-financed notes turn a business into a portfolio.

BY ED D I E S PE E D

I

have a favorite question

the next deal. For example,

with high maintenance

to help people focus

if you flip a house, you get

customers, you must

their core business princi-

paid once. Or if you’re a

constantly work and rework

ples. It’s only three words:

landlord you get paid for a

your customers to catch

What’s your “why?” That

year or two until your tenant

up on their payments—or

question helps people think

moves out (not to mention

even deal with defaults and

deeply about why they work

the calls in the middle

foreclosures. Low-quality

so hard at what they do.

of the night to fix a leaky

notes keep you on a short

Once they’ve pinpointed

toilet). While your space is

leash. You have to spend

vacant, you get no income,

lots more hours than you

but you still have to pay the

expected. Eventually you

mortgage, insurance and

realize you own a business

have a goal if you have no

property taxes.

you never intended to own.

idea how you’re going to

But as a note owner, you

It takes time and energy

reach it.

don’t make payments, you

Your “why” might be hav-

don’t pay for insurance or

their “why,” I ask them: What’s your “how?” It doesn’t do much good to

ing the financial freedom to travel with your family, or play golf, or dig water wells in the Congo. When

deal can bring years (or

This is why I encourage

even decades) of paychecks.

people to consider

about the “how,” people

Even with a business built

With most real estate deals, one deal nets you one paycheck. Then you have to shake the bushes to chase

5 4 F E B R UA RY 2 0 19

to pursue.

we get around to talking

business in real estate.

“why” passions you want

property taxes, and one

H O W S T ABL E IS Y O U R BU S IN ES S ?

often say it is to build a

away from the important

on seller-financed notes, it doesn’t necessarily mean all your problems are over.

If you make the mistake of building your business by creating low-quality notes

becoming a portfolio owner instead. How can a business owner make the transition to portfolio ownership? By being more discriminating in the type of seller-financed notes you create. Portfolio owners have the time and financial freedom to take a month

IF YOU CAN IMAGINE OWNING A WHOLE PORTFOLIO OF NOTES THAT EACH BRINGS MONEY RELIABLY TO YOUR MAILBOX FOR 15 TO 30 YEARS, THEN YOU CAN SEE THE EXCEPTIONAL WEALTHoff here and there to pursue other passions. As a portfolio owner, you can also live wherever you want.

If you can imagine owning a whole portfolio of notes that each brings money reliably to your mailbox for 15 to 30 years, then you can see the exceptional wealth-building potential of being a portfolio owner. With predictable checks coming securely every month, you can take the time off to pursue other fulfilling interests.

T H E T I ME IS RIGHT F O R S E LLE RF I N A N C E D N OTE S

Today’s market conditions are ideal for entrepre-

neur-minded investors to build a portfolio of

high-quality seller-financed notes. Conventional financ-

number of homebuyers.

Banks aren’t motivated to pursue mortgages under

A PORTFOLIO OWNER.

$100,000. This is not an is-

sue in every single market, but in 20 or more states,

it’s an inherent problem.

Banks and finance companies were initially forced out of this price band by regulations like Dodd-Frank, which capped the percentage of

resort. Banks are normally your biggest competition, but in this price band, you’ll have almost no competition. In the high price range mortgages, banks compete against each other to get customers. But, in this low-

FIN DIN G G REAT C U S T O M ERS

By owning notes, you’re basically becoming a bank.

Naturally, you must pay close attention to the kind of customers you want your bank to have. Since you

er price range, customers

have the freedom to choose

compete against each other

your customers wisely, you

Capped fees mean the

to get a note from you.

can create loans with higher

banks had to do as much

You have the freedom

value and more long-term

fees and points that can be charged on mortgage loans.

work for a $75,000 loan as they do for a $300,000 loan and only make a fourth of the income. For their own efficiency, they decided not to fool with the small loans.

This is your opportunity to step in and fill this underserved niche.

ing for home mortgages

By offering seller financing

not an option for a huge

won’t be a customer’s last

through normal banks is

BUILDING POTENTIAL OF BEING

for this price band, you resort. You’ll be their only

to keep the notes you create to receive income for years to come, or you might decide to cash out at any time and sell them to funding companies.

When you’ve got paper that performs, its good stuff.

A good note for you is a good note if you decide to sell it. Either way, your profit potential is huge.

profit potential. If you’re not selective, or if you target customers with habitual

bad credit, then don’t hold your breath that you’ll still

be making money from your notes 20 years from now.

I’ve seen lots of people who weren’t discerning when

selecting customers. They ran ads with headlines like, “Bad Credit? No Credit?

No Problem!” If a customer

F I N A N C I A L I N VR EE S IT IIN NG K 55

REI INK

A LT E R N AT I V E I N V E S T I N G

can’t make a good down payment, there’s a good

chance they can’t make the

other payments either. You’ll end up with problematic, high-maintenance notes.

When you put out a

their bills who are getting left behind.

With a gap this big in the

marketplace, you’re sure to

find qualified customers the banks have turned down.

message like that, people

To build a portfolio of high

show up because they’ll

you’ll need a good filtering

shop interest rates. You

can make a good down

the very customers you’re

of paying their bills. Remem-

with good credit won’t

quality, trouble-free notes,

figure you’re offering pawn

process to find people who

don’t want to scare away

payment and have a history

trying to reach.

ber, just because a person

I was shocked when I

heard that only 10 percent of people who qualified for mortgages through

Freddie Mac or Fannie Mae

can pay their bills doesn’t mean they will. There are lots of chronically bad

payers, and you don’t want them as your customer.

have a credit score of 700

One big segment to pursue

who got approved have

America legally but aren’t

This shows how high the

sneak in, and they’re not

There are plenty of honest,

to America to make mon-

or below. The 90 percent

is homebuyers who are in

a 700-plus credit rating.

yet citizens. They didn’t

bar is for people to qualify.

bad people. They’ve come

hardworking folks with a proven history of paying

ey and pay their income taxes, but they have a

much tougher time getting

on their house, along with

tional financing. Another

crow. The longer they pay,

approved with conven-

big segment to pursue is

self-employed people. They have a harder time getting approved even though

they’re hard working and have a good income.

the more future income

you’ll get from this single transaction. This caliber

of customer is out there,

and this is how you build a

high-quality note portfolio.

One more segment to

By filling the gaps wherev-

self-directed individual

market, you’ll have the

who want to use the IRA as

home ownership to lots of

rental property. They pay

you’ll make money in the

seller financiers do the rest

win. If your “why” is helping

use their IRA money to buy

notes are for you.

pursue is people with

er there is an underserved

retirement account money

opportunity to provide

a down payment to buy a

people who deserve it, and

a big down payment, and

process. That’s a huge win/

(although they can’t legally

people, seller-financed

the house where they live

If you find your “how” this

or a vacation home).

way, you’ll fulfill your “why.”

You’re looking for great

Money doesn’t solve all

been left behind by the big

goal and smart strategies,

is a trouble-free borrower

wealth with a predictable

people who have simply

problems, but with a focused

banks. Your ideal customer

you can build phenomenal

with no irritations. They

business model.

can make the payments

Eddie Speed knows how to architect a deal like

In 2003, he founded NoteSchool, a real estate

has purchased more than 40,000 notes, and the

sell performing and non-performing notes, as well

the back of his hand. For almost 40 years, he

NoteSchool executive team has bought $3.5 billion

in notes. As an esteemed teacher of all aspects of real

estate notes, Eddie’s innovative methods have earned

him multiple industry awards and inaugural induction into the Small Balance Real Estate Hall of Fame.

5 6 F E B R UA RY 2 0 19

enough for taxes and es-

coaching program that teaches students to buy and as other alternative purchasing strategies like seller financing. Over the past decade, he has helped

countless investors expand their portfolios by the millions using his out-of-the-box techniques.

AI N DV DE URSTTO RY R ISAPLO T L I G H T SPONSORED CONTENT

Patch of Land WHAT WE DO Patch of Land is a real estate lending

support our innovative crowdfunding

gives individual investors the oppor-

marketplace that originates residen-

investment platform.

tunity to achieve attractive yields by

tial, multi-family and commercial real

In addition to offering mortgages on

purchasing fractional ownership of

estate loans. How do we do that? By leveraging proprietary technology to

non-owner-occupied residential and commercial properties, Patch of Land

their loans—with as little as a $5,000 investment.

WHO WE ARE Patch of Land was co-founded by

JOBS Act, a 2012 law that helped

current CEO Jason Fritton, a success-

pave the way for what has become

ful e-commerce entrepreneur with a

known as real estate crowdfunding.

passion for helping to repair communi-

Patch of Land has emerged as a

ties devastated by the housing crash.

leading company originating loans

Fritton was an early supporter of crowd-

in 44 states and providing accredited

funding capital formation exemptions

investors access to a previously

that would later become a part of the

difficult-to-reach asset class.

MARKET NICHE Patch of Land, which began providing

To be sure, the real estate crowdfunding

cial properties. Because Patch of Land

loans in 2013, is different from tradi-

sector where Patch of Land operates has

underwrites and funds our loans, we can

tional banks and nonbank mortgage

become competitive in recent years as

offer borrowers a quick decision on loan

lenders. We use an advanced online

startups emerge to meet the needs of an

applications and are typically able to

platform and proprietary technology to

evolving real estate investment market-

fund a loan in as little as seven days.

facilitate the underwriting and lending

place. These online portals often have

process. Our online platform provides

different target customers and operate

efficiencies, speed, 24/7 access, trans-

using different business models.

parency and lower costs than traditional

Patch of Land’s business model is to ful-

“hard money” lenders who typically

ly fund real estate loans before offering

operate with a limited geographic

them to investors on our proprietary

reach and have yet to adopt state-of-

crowdfunding platform. About 75 per-

the-art technology.

cent of our loans are for single-family residential property, with the balance

PATCH OF LAND Robert Greenberg Chief Marketing Officer 15000 Ventura Boulevard, Suite 300 Sherman Oaks, CA 91403 (888) 959-1465 rgreenberg@patchofland.com www.patchofland.com

consisting of multifamily and commerF I N A N C I A L I N VR EE S IT IIN NG K 57

I N D U S T RY A DV S PEORTTLO IG R IHATL SPONSORED CONTENT

Baldwin Advisory Group W H AT W E D O Baldwin Advisory Group (BAG)

investment services. BAG coordinates

growing profitability. We are your

provides a fast, professional

all the vendors needed to serve your

“go to” provider with one BAG for

turnaround for a variety of real estate

investment needs, so you can focus on

all real estate services.

WHO WE ARE Dickie Baldwin, the CEO of Baldwin

branching operations. Leveraging the

Advisory Group, has 35 years of real

long-term business relationships he’d

estate experience as a realtor, loan orig-

built with all his service providers over

inator, mortgage wholesaler, mortgage

the years, Baldwin created Baldwin

correspondent and mortgage ware-

Advisory Group to provide real estate

house professional. In addition, he has

investors with a “One Stop Shop” for

set up multiple national mortgage net

all their investment needs.

MARKET NICHE Baldwin Advisory Group is full service.

We’re a one-stop shop.

• RMLO (Residential Mortgage Loan Officer)

Property preservation companies in the Baldwin Advisory Group network provide

What essential services do we coordinate

For example, if you are a seller or buyer of

services such as evictions, cash for keys,

for real estate investors?

REOs or Notes, Baldwin Advisory Group

debris and personal property removal,

will connect the two parties. If you are the

lawn maintenance, winterization, repairs

• BPO (Broker Price Opinion) • Title and Escrow • Collateral Review

seller, you simply complete a form on our

to plumbing, electric and gas, roof repairs

website to let us know what you have to

and replacement, snow removal, securing

sell. If you are the buyer, simply complete

and boarding and code violation abatement.

• Record and Document Retention

the form and let us know what you want

• A Nationwide Attorney Network

to buy. If there is a match, then we will

• A Nationwide Realtor Network

connect the two—the seller and the buyer.

• Self-Directed IRAs

So, we offer a very simple and time-saving

• REOs and Notes

process to real estate investors.

• Various Money Lenders

With regard to property preservation,

• IRS Tax Attorney

Baldwin Advisory Group can save real

• Mortgage Servicing

estate investors time by connecting them

• Property Preservation

with the companies already in the network.

5 8 F E B R UA RY 2 0 19

BALDWIN ADVISORY GROUP Dickie Baldwin, CEO 20821-D Eva Street #2 Montgomery, Texas 77356 (936) 447-4170 or (713) 825-4365 dbaldwin@baldwinadvisorygroup.com www.baldwinadvisorygroup.com

F I N A N C I A L I N VR EE S IT IIN NG K 59

REI INK

FROM THERE TO HERE

THREE BROTHERS: FROM BASKETBALL TO BUSINESS Brothers bond over basketball and carry teamwork into business.

BY J ES S E W O R CE S T E R

“That’s a foul! That’s an offensive foul!”

“Take a charge then.”

“I’m not taking a charge on gravel!”

“You calling a foul or not?” “... It’s just, if I cut you off, you can’t go right through me.”

“All right, check.”

These are my two older brothers, Paul and Joel.

We’re at the “Bean Courts” on the University of Oregon campus, a slowly dilapidating set of six full basketball courts four blocks from our house. We pretty much live here. I watch my brothers day in and day out as they practice various moves hundreds of times in repetition. We prepare for,

6 0 F E B R UA RY 2 0 19

even obsess over, every

and teacher, though his

move, every game-time

expertise does not extend

scenario until the move-

to business or finances.

ments become instinctual.

We often overhear our

This level of obsession would define us more and more as we grew older.

parents voicing their fears and anxieties about the prospect of running out of

At the time, I didn’t fully

money. I believe this fueled

comprehend the value

much of our ambition to

or significance of money.

create a different financial

We’re lower middle-class.

reality for our own families

Our father is a pastor;

and children. What we

our mother, a third-grade

lack in material goods, our

school teacher. Our parents

parents more than make

drive station wagons, we

up for with love, wisdom

shop at goodwill and we

and parental devotion. My

rent rooms in our house to

brothers and I go to school,

college students to help

have friends and, of course,

get by. We learn work ethic

get into plenty of trouble.

at a young age: working

But, for the most part, our

summers at a local flower

upbringing consists of three

nursery and doing endless

main disciplines: theology,

projects around the house

chores and basketball.

for our father. He has us

We would go on to have

learning Greek and Hebrew as well. Our father is a brilliant theologian

considerable success in basketball, including earn-

A FTER COLLEGE , IT QUICKLY BECA ME CLEA R WE WOULD GO INTO BUSINESS TOGETHER IN SOME WAY.

ing all-league and all-state

fact, it’s more accurate to

honors and winning a state

say we had always been,

championship at Churchill High School in 2001 at the highest level of prep competition in Oregon. We

and continue to be to this day, virtually inseparable.

It was a no-brainer. The big question was, “What type of

each earned scholarships

business do we go into?”

to play small-college ball.

During this period, we read

But, the most important things we learned were the value of hard work, the importance of teamwork and how to persevere through challenges and difficult times. They are all lessons we carry with us to this day.

many influential books. One especially stood out to us: “Rich Dad Poor Dad.” It laid the foundation for our desire to build passive income and focus on ongoing cashflow over one-time profits.

We were also influenced

A BO UN C E TO BU SI N E S S

by the wisdom of Warren

After college, it quickly be-

he and his mentor Benjamin

came clear we would go into business together in some way. We had become quite entrepreneurial at this point, and as best friends and often teammates throughout the years, we knew we worked well together. In

Buffett. To this day, we feel Graham have coined the single greatest answer to the question “What is investing?” As quoted in the book “The Intelligent Investor,” it is something that “through careful analysis promises safety

of principal and an adequate return.”

As a result of these influences, we determined that real estate, and specifically multifamily real estate, was the industry that made the most sense for us. There was just one small problem: We had no money.

About this time, our father made a bold and daring financial decision—something very uncharacteristic of him—that would forever influence our course.

He took out a second mortgage on the home we grew up in and invested his entire life savings of $200,000 to help us start our real estate investment firm: Worcester Investments.

F I N A N C I A L I N VR EE S IT IIN NG K 61

REI INK

In hindsight, it was a

pregnant wife, Kiran, were

much riskier investment

rained on in the middle of

than I realized at the time.

the night the first day they

The important thing is our

moved to Kansas City. We

father believed in us, and

were paying ourselves less

we believed in each other.

than $2 an hour at this point,

What we didn’t know is

so we couldn’t afford much.

how soon that belief and

We bought small

commitment to each other would be tested.

FULL-COURT PRESSURE

After realizing our home state of Oregon, at the time, offered little in terms of cash flowing real estate, we moved our young families to Kansas City, an ideal market for the type of real estate opportunities we were seeking.

Some of the most difficult, but valuable, few years in the history of our company ensued. Our first office was 120 square feet. The building sewer line was exposed and ran down the back wall; there were no windows. We paid $100 per month for that office, and it was overpriced.

I personally lived at the office for three months before my wife and our first child moved out to join me in Kansas City. Paul and his

6 2 F E B R UA RY 2 0 19

residential rentals: singlefamily homes, duplexes and fourplexes, and we ran everything ourselves.

We leased the apartments, collected the rent (often late at night and mostly in cash at first) and learned the ins and outs of rental real estate one deal and one mistake at a time. We learned the hard lessons of partnering with the wrong person, making a bad purchase, hiring the wrong person, being seemingly perpetually low on money and, most importantly, how to grow from those lessons. It was grueling, thankless work. In terms of honing our skills, we were drinking from the firehose.

Instead of practicing the correct footwork and form for our spin-move, we were obsessing over underwriting templates, management best practices, acquisitions

negotiations, hiring and

property and then a 107-

state-of-the-art amenities.

leadership and how to not

unit property. From there,

repeat our mistakes.

we never looked back.

One of only five dual stops

A WI N N IN G S TRE AK

Today, we own an equity

front door.

stake in and operate more

JU S T A WARM U P

In 2009, we had a breakthrough. We simultaneously bought our first larger-unit apartment community (60 units) and hired our first seasoned veteran in property management. Both had a profound impact on us. We experienced the benefits of economies of scale with an apartment community.

All the units were in one place instead of spread all over town. We also learned that by finding and hiring the right people, we could scale our company and empower professionals who were better at property management than we were. Later that year, we bought a 96-unit

than 3,000 apartment units in the greater Kansas City area, employ over 130 exceptional team members and oversee over $250,000,000 in real estate assets. In December 2018, we closed on 909 Walnut, a 34-story tower one block

on the streetcar is at its

We’re grateful and humbled by the relative success we’ve had so far. As we see it, we’re only getting started. We love what we do. We plan to pursue our passion and grow our company for the rest of our lives.

off the streetcar in down-

Just as we did with sports,

town Kansas City. It has 152

we’re taking something

luxury apartments along

we love, seeking to be the

with almost 90,000 square

best in the world at it and

feet of commercial space.

doing it together. Growing

It is the tallest residential

up, we had shared pas-

tower in the Midwest out-

sions, aligned goals, deep

side of Chicago. Two blocks

friendship and a team-

away, we’re getting ready to

mate/partnership inter-

break ground on the rede-

personal dynamic. Today,

velopment of the Flashcube

the only difference is the

building, bringing on 184

emphasis has shifted from

luxury apartment units with

basketball to business.

Jesse Worcester is the co-founder and partner at Worcester Investments in Kansas City, Missouri.

He can be reached at (816) 399-4190 or jesse@worcesterinvestments.com.

F I N A N C I A L I N VR EE S IT IIN NG K 63

REI INK

Success is about reaching goals instead of rewards.

ROBERT D. DEANE

rober tddeane.wordpress.com 6 4 F E B R UA RY 2 0 19

HEARTLAND INCOME

Creating Value In America’s Heartland

P R O P E R T I E S

$25,000,000 Capital Raise Accredited Investors Only

2,500 Units - $10,000 Per Unit

$25,000 Minimum Investment (2.5 Units) IRA Qualified

Projected Annual Return 8% to 14% Paid Quarterly

Strict Underwriting Criteria:

Single-tenant, triple net lease model Existing cash-flowing properties Strong regional and national tenants Corporate tenant guarantee Rent escalators

Below replacement cost No construction or distressed property 8% average portfolio cap rate Tenant profitability Conservative leverage employed

DES MOINES, IA

OMAHA, NE

TWIN CITIES, MN

KANSAS CITY, MO

WICHITA, KS

TULSA, OK

DALLAS, TX

SIOUX FALLS, SD

For More Information and to Receive a Copy of Our Private Placement Memorandum Please Contact:

BILL DEEGAN, CEO

602-601-5293 bill.deegan@heartlandincome.com

This presentation is not an offer to buy or sell a security. Such offer can only be made to qualified persons who have received a copy of Heartland Income Properties, LLC Private Placement Memorandum. Statements in this presentation related to our future business and financial performance and future events or developments involving Heartland Income Properties, LLC (HIP or the “Company”) and its affiliates and subsidiaries may constitute forward-looking statements. These statements may be identified by words such as “expect” “look forward to” “anticipate” “intend” “plan” “believe” “seek” “estimate” “will” “project” or words of similar meaning. We may also make forward-looking statements in other reports, in presentations, in websites, in material delivered to shareholders and in press releases. In addition. our representatives may from time to time make oral forward-looking statements. Such statements are based on current expectations and certain assumptions of HIP management, of which many are beyond HIP control. These are subject to a number of risks, uncertainties and factors, including but not limited to those described in disclosures, in the Annual Report, economic downturns, changes in state and federal legislation and regulations, adverse outcomes of any legal, regulatory or other proceeding, settlement, investigation or claim applicable to us and/or the properties, or adverse changes in the markets or industry laws, policies and regulations. Should one or more of these risks or uncertainties materialize or should underlying expectations not occur or assumptions prove incorrect, actual results, performance or achievements of HIP may (negatively or positively) vary materially from those described explicitly or implicitly in the relevant forward-looking statement.

F I N A N C I A L I N VR EE S IT IIN NG K LXV HIP neither intends, nor assumes any obligation, to update or revise these forward-looking statements due to developments that differ from those anticipated.

REI INK

L X V I F E B R UA RY 2 0 19