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
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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
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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.
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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
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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
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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
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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.
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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
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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
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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.
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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
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