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Apartment Investing with a Short-Term Hold Strategy:

Filed under: Buy-and-Hold,California,Flipping,Memphis,Multifamily,Out-of-State,Real Estate,Real Estate Development,Real Estate Investment admin September 21, 2016@ 3:06 pm

David Jankowski

I wrote this summary of the local apartment market last summer and I think it bears repeating this year because the market’s fundamentals have not changed at all.

Apartments in Southern California are on a roll with lots of momentum. They have been among the most desirable real estate investments in this region for decades because of several characteristics that are not going to change anytime soon.

• Fundamental and permanent imbalance between supply (low and growing very slowly) and demand (high and growing relentlessly). Applies to both operational and investment perspectives.
• Relatively impervious to evolving technology, compared to other property types
• Favorable treatment by IRS (depreciation & 1031 exchanges)
• Massive and diverse regional economy with some high-growth industries

And some factors that are helping multifamily now, but will likely not last forever

• Low interest rates
• High cost of construction
• Unusually low supply of properties listed for sale
• Property tax increase limited under Prop 13 (commercial properties might lose Prop 13 protection)
• Large amount of cash from overseas investors seeking a safe parking place

I look at multifamily from two perspectives:

Operational- the rental market for apartments (supply/demand balance) and the day to day operation of the property regarding things such as rent collection, maintenance, capital upgrades, unit turnover, utility bills, trash pickup. Consolidates into a property’s net operating income.

Investment- the market for apartments as financial investments, including cap rates, prices, price and availability of debt, price and availability of equity, global capital markets, risk/return tradeoff, and supply/demand balance of apartments for sale.

Buying, renovating and selling is one way to make money in this market, especially if you have a short term time horizon.

Apartment prices in relation to rents are so high in most parts of Southern California that generating much cash flow in the near term is very hard, if not impossible, so, much like house flipping, you need to focus on sale profits after a renovation.

The good news about apartments, compared to houses, is that their value as a finished product is based much more on math (capitalizing the income) than on hoping to find a buyer who likes the renovated house and will pay a big price for it. Apartments are valued based on a multiple (around 14 today) of their income.

When considering an apartment fix & flip, it is easy to figure out how much money you can make:
Multiply the total annual post-renovation income by 14 (will be higher or lower depending on location and age) and subtract your purchase price, renovation costs, and transaction fees, then multiply by the percentage of profits you get as the investment sponsor.

It is also very easy to find lots of properties for sale where the amount of money you can make in the short term is… zero or less.

But there is more good news—
The Southern California apartment market is so large that if you stay focused and disciplined as an investor, you can find enough opportunities to make very good money with a short-term ownership strategy.
The process of flipping apartments breaks into a few categories:

1. Finding a good deal. (very hard but possible if you are patient)
2. Finding money, both debt (relatively easy) and equity (hard at first, then easy).
3. Operating (relatively easy with a 3rd party manager) and renovating the property (easy if you know a good contractor, hard and expensive if you don’t).
4. Selling the property (easy).

I’ll elaborate on these categories at the FIBI meeting as well as discuss the ups and downs of running an apartment investment business that is focused on short-term holds.

About David Jankowski

David is a founding principal of Revere Investments. Revere acquires and renovates multifamily properties all over Southern California. David is involved in all aspects of the business, from finding the deals to selling them after they are repositioned and stabilized. Prior to forming Revere Investments in 2002, David was Vice President of Lend Lease Real Estate Investments, Inc., an institutional real estate advisor. David joined Lend Lease (then Equitable Real Estate) in 1993, where he was responsible for supervising all aspects of investments in Southern California and other southwest markets. David earned a BA in Economics from Pomona College and a Master of Public Policy from Harvard University.

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Flipping Apartment Buildings:

Filed under: Buy-and-Hold,California,Due Diligence,Flipping,Memphis,Multifamily,Out-of-State,Real Estate,Real Estate Development,Real Estate Investment admin @ 2:30 pm

About Tuna Eric Hirun

A lot of money has been made and lost investing in real estate. I will emphasize the word lost. Not knowing what you’re getting into, or getting into a situation blind, has lost investors hundreds, thousands, and sometimes tens of thousands of dollars. How do I know this? From first hand experience! I look back at all the potential profits that I have lost due to not knowing what to do and how to repairs before flipping a property.

The fastest way to becoming wealthy in real estate is to take a property that is in need of small repairs, fix it up, and resell it for a large profit. It’s a great way to build a chunk of savings to buy properties for long-term hold and monthly rental cash-flow. I called this strategy a “pot of gold”.

Along the way in your investing career, you will undoubtably come across properties that you want to buy to hold for the long-term. You may be inspired by the idea of having passive income and owning rental properties for positive cash-flow, can help you achieve that goal. But often times, we lack liquidity to buy a property or multiple properties for long-term hold. That’s where the “pot of gold” strategy comes into play.

So using the “pot of gold” strategy, where you take a multi-family property, fix it up, and then flipping it for a minimum of $30,000 profit; helps you build a treasure chest to buy more properties.

Why flip apartment buildings over single-family houses? Because you can get some great deals from people who entered the landlord game without educating themselves on how to play properly. They tend to burn out fast, and you do them a great service by taking over their property. Another positive for flipping apartment buildings is existing cash-flow. Typically while you’re rehabbing an apartment, there will be some units that will be paying rent. That can help you with monthly expenses. Unlike a single-family house, where if you’re doing rehab to resell, there’s typically no tenant paying rent while you’re rehabbing. Lastly, apartment buildings are sold by net income instead of comparable value. You can extract extra profit by raising rents and operating the property better. A single-family house will be mainly based on what other houses have sold for in the area, instead of what kind of income it’s bringing in.

About Tuna Eric Hirun

Tuna Eric Hirun founded Tuna Investment Group in 2010, during the last great recession to buy real estate for monthly positive cash-flow. We have been fortunate to partner with investors throughout the years, who share the same vision for monthly cash-flow returns and long-term capital gains. Throughout the last 6 years, Tuna has been able to invest in over 50 different investments from residential properties to commercial properties that each spits out monthly cash-flow. Tuna has actively and passively invested in over $100 million dollars worth of real estate. Being a cash flow focused investor has allowed him to stay out of the 9-5 corporate world, and be financially independent. He also runs a personal finance website catering to passive income investments called www.TunaFishy.com.

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VALUE-ADD APARTMENT INVESTMENTS:

Filed under: Buy-and-Hold,California,Due Diligence,Flipping,Multifamily,Out-of-State,Real Estate,Real Estate Development,Real Estate Investment admin @ 2:21 pm

By Michael Flaherty

Apartments remain the most attractive real estate investment of its class. Why? Because cash “flow” is KING again. The Great Recession taught us a lot, financial pain mostly. Its learnings are endless. However, the universal takeaway was…. Invest in Cash Flow. Better yet, invest in something that has a track record of attractive investor cash flows. Even better, invest in something that is “asset” based. Add good accessibility to jobs and retail to the mix, and you might just have a very attractive apartment investment.

Investing in apartments for cash flow alone is not as simple as it once was. Like anything good in life, additional value must be added. Rule #1 – Buy right. Rule #2 – Understand your rent comparables/competition. Rule #3 – Always add value. What does that mean exactly?

Apartments, like other sound business models, must compete. To quote former USC football coach Pete Carroll’s famous mantra, “always, always compete.” With apartments, we compete to raise rents, compete to increase occupancy, and compete to provide safe, attractive housing and amenities or services that renters seek out. This philosophy and understanding of “competition” will help to accelerate your ability to raise rents and increase investor returns in bull markets, while also protecting your downside in bear markets.

Value can be added in many ways, primarily with physical or operational improvements. At L5 Investments, our goal is always to maximize investor returns on select value-add apartment investment opportunities. We strive to remove obsolescence from the apartment market and offer more contemporary spaces for today renter. Whether it is enjoying a coffee in one of our new cyber cafés, or relaxing by one of our resort-style swimming pools, we work hard to provide the upscale amenities that many would only expect to find at much higher-priced communities.

Raising rents is not as easy as some may expect. One must understand the needs of your tenants. Note that Millennials will have different demands than Seniors. We are also adding value with higher-end black appliance packages, stainless shows dings. We are adding USB ports in kitchens and bedrooms. We are implementing Rent Café – an on-line service that enables our tenants to make applications, submit deposits, pay rent via credit card or direct deposits, and submit maintenance requests and work orders. If we are not adding washer dryers to the units (huge demand for this), we are adding state of the art laundry facilities that text you when your clothes are dry. We are even providing valet trash removal to our apartments and Vegas-style cabana day beds at our pools. Seriously. Who doesn’t want to have someone else take out the trash or lounge pool side in Vegas?

In some ways, value-add apartment investing can be all about having your tenants work less and enjoy more. Smart cash flow investments like apartments must always compete for the short term and the long term. This is not achievable without adding value to your property and your tenants. You must compete for their business to maximize your returns and protect your downside.

About Michael Flaherty

Michael Flaherty is the Founder and Managing Partner of L5 Real Estate Investments. Through the strategic acquisition and management of premier multifamily properties, Mike and L5 strive to provide partners with stable cash flow returns and long term capital appreciation. Throughout his career, Mike has been involved in the ownership, development and entitlement of over 200+ nationwide commercial and residential properties valued at over $1 billion in total – including multi-family, resort, hospitality, office, retail and large master planned residential communities. Mike and his partnerships have bought and sold over $120 million in multifamily properties since 2009.

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Investing in Second Mortgages – Possible Outcomes?:

Filed under: Buy-and-Hold,California,Due-on-sale,Lending,Notes,Out-of-State,Real Estate,Real Estate Investment,Retirement,Self Direct IRA,Self directed IRA admin September 19, 2016@ 4:21 pm

by Gerald Lemoine

We buy non-performing 2nd position real estate notes on a regular basis. Once we buy a note, we contact the homeowner to negotiate some type of payment plan or payoff. Sometimes we expect a certain outcome and it doesn’t turn out that way. We might of thought “there’s no way the homeowner can afford to keep this place” and then they surprise us by coming up with $50,000 for a payoff. Maybe they cash out a 401k or borrow money from a friend or family member.

That being said, here are some of the possible favorable outcomes that you can expect on a 2nd position mortgage note.

Performing on a temporary payment plan, usually interest only.
Performing on a permanent loan mod.
Performing on the original terms of the loan.
Short payoff
Full payoff
Foreclose and sell the property
Foreclose and keep the property as a rental “subject to” the existing 1st
Owner signs Quit Claim deed to us for cash payment (Cash for keys)
There are also some undesirable things that can happen.

Lien strip in a Chapter 13 bankruptcy.
Wiped out by foreclosure of Senior lender
No collection activity due to negative equity or delinquent 1st (loan on hold)
It’s important to think of a loan portfolio as a mutual fund. Buy a basket of loans and expect to get a good yield on the overall portfolio. If you have $100,000 to spend don’t buy one loan for that $100,000. Buy a pool of maybe 10 or 15 smaller, less expensive loans with that money. We just had a loan that I bought for $250 payoff at $2,500. That was a loan that we bought and stuck in the file cabinet and forgot about it. The property went into escrow in a short sale and the title company contacted us for a payoff.

One of our favorite strategies is to take title to the property “subject to” the 1st mortgage and hold it as a rental. The following chart shows how we took ownership to $1.8mm worth of property for an initial note purchase of $83,651.00. Gross rent is about $10,000 with payments to the underlying Senior mortgage and HOA’s of $4,800, so cash flow on these rentals is very good.

About Gerald Lemoine

As an experienced note investor, Gerald is an expert at acquisition, management and liquidation of performing and non-performing notes nationwide. With an emphasis on Partnering and Joint Ventures he has achieved success in raising capital and producing impressive returns for their partners. He currently manages a note portfolio of over $25 million. Gerald has been involved in real estate since the late 1990’s, first as a developer, then later with rentals and the purchase, rehab and sale of investment properties. Prior to the real estate business, Gerald was a project manager for a global heavy industrial general contractor with annual revenue of over $1 billion

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TOP 5 BENEFITS OF INVESTING IN TURN-KEY RENTAL PROPERTY:

Filed under: Buy-and-Hold,California,Flipping,Memphis,Out-of-State,Real Estate,Real Estate Development,Real Estate Investment,Retirement,Self Direct IRA,Self directed IRA admin July 28, 2016@ 3:30 pm


by Mathew Owens

Many investors are looking for good investment options that create cash flow and have decided that investment rental properties provide many benefits above other asset classes. Real estate can create a great cash flow at a higher rate than other asset classes, provide tax benefits, provide an inflation hedge and can be leveraged to create exponential returns if done correctly. Investing in real estate can be one of the best income generating and wealth building machines available. However it has many barriers to entry which are hard to penetrate without a significant education curve that can cost investors thousands of dollars in mistakes and bad investments. How do I know this? Because I have made all of these mistakes myself over the last 10 years purchasing over 500+ rental properties. Due to those mistakes and the mistakes I see investors make every day, buying a turn-key real estate investment can have some substantial benefits. A turn-key investment property is a property that has already been fully renovated, tenanted with a qualified tenant, with professional property management in place. Everything is done for you in a turn-key investment property. It gives you a head start, skipping over much of the learning curve that goes along with investing and allows investors to start developing a passive cash flow stream right from the jump.

(1) Local Market Knowledge

Many investors start off investing in property in a different area than they live due to a variety of factors like pricing, cash flow, job growth, timing of the local market and more. When investing in a different market it takes a significant knowledge base of the overall market to know what areas to purchase in and more importantly what areas NOT to purchase in. Good and bad areas, major city dividing lines, schools, neighborhood specific crime and rural areas are all factors investors should consider before investing. A professional investor that works a specific market has a significant amount of local market knowledge that can be shared with a investor when buying a turn-key property.

(2) Renovation expertise

Proper renovations are key in any successful real estate investment. There is a HUGE learning curve when it comes to renovations. The turn-key property providers knowledge base includes what renovation items actual costs are so they do not get taken advantage of by un-ethical contractors. They also know what major items can really kill cash flow, what preventative maintenance is most important to allocate for in the future and what things to repair now to stop a property from bleeding you dry and creating negative cash flow. The major systems like roof, plumbing, electrical, HVAC, appliances and more can cost a lot of money. A smart investor allocates funds for this monthly so that they have a reserve built for these major repair items that will come up in the future.

(3) Property management experience

Property management will make or break your investment. More importantly it’s extremely important to understand how managers manage your property, what items they can be bad at, and how to properly monitor your managers. Many Turn-Key providers have been through this with bad management before and due to the amount of properties they already have being managed can have a significant amount of control and experience with the property manager they have setup. They know what makes a good and bad manager mostly because they have dealt with bad management in the past, and know how to manage them correctly and when to fire them for non-performance. Its important to manage the managers on every investment you invest in. Managers have to deal with accounting, renovations, rent readies, repairs, collections, tenanting, evictions and much more. It is very difficult for a manager to be proficient in all of these areas so it’s extremely important to pay attention to all of these factors to insure the property is managed the way you want it managed to create an efficient and properly running long term investment.

(4) Mitigating risk

Understanding insurance protections, legal structures and how to run your investment property to mitigate liability can be extremely confusing and complex. Many professional turn-key providers have already gone through this headache and the pitfalls that can come from opening the wrong type of entity or opening too many entities. They understand what insurance protections you should have in place and what exclusions exist in the insurance policies to look out for. For example, for a rental property you should look out for liability associated with tenants which include vandalism, theft, dog bites, slip and falls at the property, loss of rents coverage, etc. All important to understand and mitigate as best you can.

(5) Resources, tools and investment analysis

There are a ton of resources that need to be developed when investing in real estate. Renovation and property management software’s to make your investments more efficient, square footage estimators, online marketing websites, data resources and much more can be of a huge help to an investor. Most turnkey real estate providers can help you with these tools to start you off on the right track and give your investment a jump start. Analyzing investments is also very key to any real estate investor’s success. Most savvy investors know how to analyze a property correctly putting vacancy factors and repairs factors into the equation. There are also other factors to consider like future capital improvements, adjusting efficiencies for areas and tenant bases that can hinder the performance of your investment. There are a number of factors that go into a proper investment analysis. Most turn-key providers can be a great resource in these areas.

The turn-key rental provider can be a huge resource to investors just starting out or more experienced investors that do not have the time to do all of the things required in order to make the investment run efficiently. The bottom line is that a turn-key property can set up investors to do what the investment is supposed to do, produce a consistent, reliable monthly cash flow stream.

Mathew Owens, CPA
www.ocgproperties.com

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THE POWER OF INVESTING IN PROMISSORY NOTES:

Filed under: Asset Protection,Buy-and-Hold,California,Due Diligence,Economy,Lending,Memphis,Mindset,Notes,Real Estate,Real Estate Investment,Retirement,Self Direct IRA,Self directed IRA admin June 6, 2016@ 10:43 am

By Mathew Owens

Most investors in the U.S. have limited options when investing for cash flow primarily because of a lack of education as to what investment types are available to them and how to protect themselves when investing in alternative investment types.  The primary investment types they invest in are stocks, bonds, mutual funds, money market accounts and CD’s.  Yes, many people invest in real estate, promissory notes, outside syndicated investments and in a multitude of investment strategies.  However, the vast majority of people invest in stocks and bonds.  This strategy is primarily a capital gains strategy with a significant amount of risk without true collateral.  Cash flow is available with these investment types but at a rate that does not typically beat inflation.  This is a big problem because as people save and focus on cash flow streams in that market, they are losing purchasing power through inflation even though they might be gaining dollars.

Through promissory notes you can supercharge your cash flow stream with real protection, a hard asset that backs your investment that has a greater value that your investment amount.  That way if the value of the collateral goes down, you are still in a secure position where you will not lose half of your investment money like in the last stock market crash.  Now of course your collateral can go down to the point where you can lose money if the promissory note stops paying and you have to call that collateral due.  However, just because the collateral goes down in value doesn’t mean that your promissory note investment will stop performing.  Typically there is emotional equity in a piece of collateral as well so the percentage of promissory notes that fail with the right structuring is very small.

It is imperative to invest in above inflationary returns and protect yourself.  There are specific due diligence steps and paperwork that get put in place to protect you.  Normally when investing in a promissory note investment, you have a promissory note that is the contract.  It goes over the interest rate, term, collateral, late payment penalties, and a list of other items to protect you.  You also have a Deed of Trust that secures your money against the real estate collateral at the county recorders office along with an assignment of rents and leases, which gives you the right to any rental income from the property.  This just scratches the surface of the documentation to understand when investing in promissory notes but once understood, it unleashes the true power of the promissory note.

Many people know that one of the biggest powerful tools of investing in real estate directly is the power of leverage and controlling real estate by using the banks or other people’s money.  However, many investors do not realize you can use leverage when investing in promissory notes as well.   Through note hypothecation you can borrow funds against your note, sell off pieces of the note or just specific portion of the cash flow stream.  For example if you own a promissory note for $100k that pays 8% interest on your money you are just making 8%.  However, what if you were to borrow $75k against your $100k note at a 6% interest rate?  Now your return on investment on your remaining $25k investment goes from 8% to 14%, thus supercharging your investment.  Before you do this you have to understand the paperwork and how to protect your private investors.  There are many ways to use leverage on your promissory note investments that can do this with the right education.  You do not need your own money in order to create these types of returns and spreads as well.  If you have the ability to find higher cash flow investments and raise capital from investors at a lower rate, you can make a great spread and be on your way to financial freedom through cash flow investing.

Come learn more about how to invest in promissory notes with an upcoming webinar on June 8th at 6:30pm.  Here is the link to sign up immediately to start off investing in promissory notes:  https://goo.gl/JDlkvM

About Mathew Owens

Mathew is the founder of OCG Properties, a company that specializes in equity and cash flowing real estate investments. He graduated from UC Santa Barbara with a bachelors degree in economics with an emphasis in accounting, earning his CPA license while performing audit and taxation engagements at various CPA firms, and worked primarily on large real estate clients. He currently specializes in value add cash flowing residential and multifamily real estate investments having purchased and renovated over 450+ properties. Mathew works with investors in multiple ways to acquire real estate in high cash flow markets around the country. He also helps investors develop various cash flow streams through syndications run by professional operators, promissory notes and other real estate related assets. Many of his clients benefit from his knowledge of real estate taxation and due diligence, legal and investment structuring, and long term investment planning and analysis.
• BA in Economics w/ Emphasis in Accounting from UC Santa Barbara
• Certified Public Accountant, 2002
• Bought, renovated and sold or held over 450+ properties Currently buying 5+ single family rental properties per month
• Purchasing an apartment building per quarter
• Raised over $25 million in private investors capital
• Currently own over 150 units in Memphis, TN & Atlanta GA Property management 7+ years experience
• Investments • Syndicated investments • Performing and non-performing Notes • Single family, multifamily properties flipping & holding • Private lending
• 10+ years experience taxation and auditing
• 8+ years full time real estate experience
• FIBI Long Beach Real Estate Investment Club Founder, 2009, 1638 members
• FIBI South Bay Real Estate Investment Club Founder, 2012, 1518 members

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THE FORGOTTEN COMPONENT OF INVESTMENT RETURN:

Filed under: Buy-and-Hold,California,Due Diligence,Economy,Lending,Memphis,News,Notes,Out-of-State,Politics,Real Estate,Real Estate Development,Real Estate Investment admin June 2, 2016@ 2:37 pm

By Ellis San Jose

Performing or Non-performing notes, how do you decide what is best for you?

I am often asked what ‘s the difference & of course, which is better. When lecturing at a local university I typically ask the class, what are the fundamental components of investment return. They most often reply “Risk & Reward”. They are right for the most part, however, I ask them to consider additional important factors as well.

The most frequently neglected component in not only notes but in all real estate investments is TIME.

I purchased a performing investment that would pay like clockwork every month & I received an 8% yield.  My involvement was pretty close to zero, month in & month out over the 6 years that I held the investment.  I would pretty much just deposit checks. In contrast, I had a non-performing note that frequently required time & many times additional capital.

Consider the difference between a performing 8% note investment & a non-performing note investment with a possible 20% return.  The spread between 20% & 8% begins to shrink each time you spend resources of time &/or money to collect on your 20% gross return.

What is your time & peace of mind worth to you?  What is the opportunity cost of your time spent on tending to your investments rather than uncovering other opportunities?

Always consider the NET return before you make a final decision in what makes the most sense for your situation.

 

About Ellis San Jose

Ellis is licensed real estate broker in Los Angeles, a frequent public speaker on investing & real estate. He is focused on helping others in building their passive income portfolio by investing in income property & acquiring trust deeds & notes. He is constantly striving to further develop his skills as an investor.  Ellis loves to share his passion for investing with others, & seeks to surround himself with like-minded goal oriented individuals. Ellis resides in the Los Angeles area with his wife & three children. Ellis is also the founder & leader of several investment groups in California, Arizona & Texas.

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The Most Important Thing In Passive Real Estate Investing – Who You’re Making A Bet On:

Filed under: Buy-and-Hold,California,Due Diligence,Economy,Memphis,Mindset,News,Out-of-State,Real Estate,Real Estate Development,Real Estate Investment,Retirement admin May 19, 2016@ 5:09 pm

By Jeremy Roll

Passive investments in real estate can be a fantastic way to be build wealth and, perhaps more importantly for some investors, can provide consistent cash flow over a long period of time. In fact, passive real estate investing can literally change your life. For example, passive real estate investments changed my life by providing my family and I with enough consistent cash flow to allow me to leave the corporate world more than 8 years ago. But investing passively in real estate requires that investors understand and consider hundreds of different aspects for each opportunity. While each aspect of an opportunity is important to consider, I am often asked: “What’s the single most important item to consider in a passive real estate opportunity”. And, after more than 14 years of investing in real estate passively, my answer is always the same: Who you’re making a bet on (the managers of the opportunity) is the single most important consideration. I would argue that the same holds true for startup investors, who are often drawn in by a great concept and/or idea when, in reality, the company’s founders and senior management team are even more important to consider than the concept/idea itself if you’re trying to determine the probability of a startup’s future success.

At this point I am sure some readers are saying to themselves: “But isn’t the property the most important thing to consider in a passive real estate opportunity”? While that does seem logical, and clearly the property is a vital part of any passive real estate opportunity, I would argue that the managers are still more important than the property, as you can invest in the best fully occupied property in the best location but if the managers don’t properly manage the property, tenants, and all other aspects of the investment, then ultimately it didn’t matter that it was the best property in the best location because the bank will foreclose on the property and investors will be left with nothing. And, in the end, the only thing that mattered is that investors made a bet on the wrong people.

Another great example of why the managers are the most important item to consider in a passive real estate opportunity is the possibility that some managers will go to the greatest extent possible to protect their investors’ capital, while others will do the exact opposite. In the case of the latter, making a bet on the wrong managers can lead to significant losses, especially in the event that an investor is a victim of fraud (ie. a Ponzi Scheme) and/or gross mismanagement. But perhaps you haven’t considered that making a bet on the right managers can result in positive outcomes for investors even in the most challenging of circumstances. For example, I made a passive investment in a 300+ unit student housing apartment complex many years ago that was 99%+ occupied in a fantastic location (it was, in fact, the first property located across the street from a state university campus). Given its location, I expected the property to be full year-round. Unfortunately the property experienced a highly unlikely and unpredictable challenge that resulted in the temporary reduction of its occupancy rate to 65%. Even though this challenge was temporary in that it would have resolved itself within 1 year, it happened to occur when the loan was due and needed to be refinanced. In the end the combination of the highly unlikely and unfortunate event and the very unfortunate timing of the loan refinance led to the property being foreclosed on after only several years of ownership. Under the circumstances, the manager could have easily told investors that they were all of the victims of very bad luck and timing that couldn’t have been foreseen and moved on, leaving investors with significant but completely understandable losses. But, luckily for investors, the manager felt horrible about investors’ potential losses and voluntarily (without anyone asking) decided to give investors similar ownership in another property they owned in a practically identical location (first student housing property across the street from a state university campus) in a different state. Note that they gave up their existing interest in the new property, out of their own pocket, to mitigate any potential losses for investors. Regardless of how many times I recount this story, I am still highly appreciative and impressed that the manager did this for their investors without any legal requirement to do so. This taught me a very important lesson that I continue to keep in mind every time I consider a new passive real estate opportunity: Wealthy managers can sometimes afford to fix major challenges that non-wealthy managers can’t afford to fix but only if they choose to do so. And only managers who are truly concerned about their investors’ capital would choose to do so, further highlighting the importance of making a bet on the right managers.

In closing, while it’s critical to review all aspects of a passive real estate investment, don’t forget the most important thing to consider as a passive real estate investor: Who you’re making a bet on! Good luck with all of your passive investments!

 

About Jeremy Roll

Jeremy has been an active real estate and business investor for over 14 years who left the corporate world in 2007 to become a full-time passive cash flow investor. He is currently an investor in more than 50 opportunities across more than $500 Million worth of real estate and business assets. As President of Roll Investment Group, Jeremy manages a group of over 950 investors in the US and Canada who seek passive/managed investments in real estate and businesses. Jeremy co-Founded public investor meetings under the name FIBI (For Investors By Investors) in 2007 with the goal of networking with, learning from, and helping other investors. FIBI is now the largest group of public investor meetings in Southern California, with 13 active monthly chapters and over 18,000 members. Jeremy is originally from Montreal, is a licensed California Real Estate Broker (for investing purposes only), has an MBA from The Wharton School, and is an Advisor for Realty Mogul, the largest online crowdfunding marketplace for real estate investors to invest in managed real estate opportunities. Jeremy has a diverse investor and fundraising network for real estate and business opportunities and has a large network of real estate and business contacts. He welcomes e-mails (jroll@rollinvestments.com) to network with or help other investors and to discuss real estate or business investments of any size.

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Avoid evictions with excellent tenant selection:

Filed under: Buy-and-Hold,California,Due Diligence,Economy,Memphis,News,Out-of-State,Property Management,Real Estate,Real Estate Development,Real Estate Investment admin @ 1:33 pm

by Mike Miller

The best way to avoid evictions is rigorous tenant screening.  You should have a predetermined strategy in place that you always follow when you screen applicants.  This will help you select good tenants and help you avoid discrimination accusations. You will also be able to avoid those awkward situations trying to explain to an applicant why you did not choose them.

I prefer to have a two sided application.  The front side contains detailed instructions on how to apply, what criteria will be used in your decision and what will automatically disqualify an applicant.  The back side is your application.  First of all, if the application is not fully completed, it will be rejected. Also, the instructions should list what types of income verification you will consider such as pay stubs, 1st page of tax return or 3 months of bank statements.  If the applicant cannot provide sufficient monthly gross income equal to 3 times the monthly rent, their application will be rejected. Prior eviction? Rejected.  FICO below 650? Rejected.  Won’t provide contact info for 2 previous landlords? Rejected.

There’s also the psychological side to tenant screening. Look for red flags.  Problem tenants often get caught up in their own lies. Talk to the applicants in person or on the phone.  Ask why they are moving, how soon do they need to move and did you get along with your last landlord.

Google the applicant. It is amazing how many people leave their Facebook profiles unlocked. The two college students applying for a unit in a quiet building say they are professionals and “don’t party”, but every picture on their facebook profiles show them with a drink in hand. Or the applicant who applies for a non-smoking unit, but has a cigarette in their hand in multiple pictures.

About Mike Miller

Realtor, Licensed Real Estate Broker and General Contractor specializing in property management with a background in real estate sales and property development.

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Flipping in Any Kind of Market:

Filed under: California,Due Diligence,Economy,Flipping,Mindset,Real Estate,Real Estate Investment,Self Direct IRA,Self directed IRA,Taxes admin March 22, 2016@ 10:56 am

by Kristi Cirtwill

In the last couple years, investors who have bought properties, fixed them up and sold them for a profit (otherwise known as “flippers” or “rehabbers”) have had a great opportunity.  Even if the project took more time than anticipated, the flipper had an appreciating market to work with.  In many cases, multiple offers would come in on the property, sometimes resulting in bids over list price.  If you were a flipper in the last couple years, you almost couldn’t go wrong!

However, as we all know, markets do change.  We have entered a period where there is stabilization in the real estate market but uncertainty in the economy.  The questions we ask ourselves are, will we see appreciation again this year?  If so, how much?  Should I still flip with the same margins? Should I scale back or go full steam ahead?  How do world markets affect my local economy?  Has the job market recovered and what is the affordability?  These are all questions that affect a flipper’s business, which is why it is important to continually be educating ourselves.

I believe that anyone can make money in real estate investing in an appreciating market.  The true investors will prove themselves in ANY kind of market.  One of the main reasons I believe flipping is one of the BEST strategies to make money in real estate is because of the quick turn around time, which means risk can be minimized.  Of course the goal is always to make money on every flip, but even if the market adjusts slightly, an experienced investor should recognize the signs and be able to finish the rehab and sell the property quickly even if it means making less money.

Here are a few flipping tips I’ve learned along the way:

  • BUY RIGHT!  It is true when they say you make your money when you buy.  Well, this is CRITICAL in this market.  When you are determining what your house will sell for after you rehab it, look at pending comparables as well as sold comps.  This will tell you where the market is trending.  Also, don’t try to adjust your purchase price based on where a realtor tells you you need to be to get the deal.  Stick with what number works for you, and stick with the formula you use to determine what to offer.
  • GET IN AND GET OUT – The rehab should be quick – i.e., 4-6 weeks max, depending on the size of the project.   The faster you can rehab, the faster you can unload your property.  If you can, get your bids in while you’re in escrow to buy so you can start the project as soon as you close.
  • DON’T OVER LEVERAGE – I will be the first one to tell you I have 100% fully financed many flips using private or hard money.  However, there has always been enough cash in the bank to make monthly overhead, lender payments and put food on my table.  Know what that amount of cash needed is for you, and don’t dip below.
  • LIST WITH A REALTOR – Budget in realtor fees and have a realtor sell the property for you.  Sometimes giving a realtor the “back end” listing serves as an incentive for them to bring you another deal.

I believe flippers can make money in any kind of market, as long as you stick to your numbers and systems.

 

About Kristi Cirtwill

www.facebook.com/CirtwillInvestmentsInc

The first house Kristi bought was a single family home with a basement apartment that needed major remodeling. Within 4 days of owning the property, she had the basement gutted. Then she called her dad and said, “Help! How do I put this back together?!” And that began her interest in the rehabbing business.

In 2006, after reading Rich Dad Poor Dad, Kristi moved from Toronto, Canada to California to start a full time “fix and flip” business. She has purchased over 125 houses and she continues to buy in Los Angeles and Orange Counties to rehab and re-sell.

Kristi currently lives in Cerritos, CA. In her spare time she enjoys the outdoors, playing her guitar, attending happy hours and taking vacations with her family in Canada.

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