Commercial Real Estate Pro Network

J Darrin Gross Podcasts

J Darrin Gross Podcasts

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PACE Financing for Real Estate with Scott Krone – CREPN #235

PACE (Property Assessed Clean Energy) Financing is a finance tool every real estate investor needs to know about to help acquire or renovate your property.

Scott Krone, principal at CODA Management Group, a real estate design & design firm.  CODA as designed & built single family, multifamily, commercial property convert to mixed use, and churches. Most recently, CODA has focused on re-adaptive use, converting empty warehouses into self storage facilities.  

PACE Financing 

Property Assessed Clean Energy (PACE) is accessed through the US Department of Energy, but not widely available throughout the country.  To access PACE Financing, the state where the property for which the funds will be utilized must be located in a state that has adopted the PACE program.  

The purpose of PACE is to encourage and improve the energy performance of a structure or building.  The money provides financing of these improvements through real estate taxes instead of traditional debt.  This structure changes the picture of debt for lending, as lenders look at the obligation as equity versus a liened debt position against the property.  Your payments are now operational, property taxes. Banks love it!

There are two forms of PACE financing; public and private.  Public is run through the Port Authority. Private 

PACE Structure

The structure of Pace financing is similar to traditional debt financing in that the principal & interest which is spread out over the life of the improvement.  For instance if the HVAC system has a life expectancy of 20 years, they will amortize the payments over 19 years.  

Like any construction project with financing, the monthly draws are submitted to the bank after the work has been completed.  For those elements that are recognized as energy related and included under the PACE financing, a separate draw is requested.  

Your PACE payments are an additional tax assessment usually split into two annual payments.

Tax Structure with PACE

The tax structure for PACE provides multiple benefits.  

  • Funding for your qualifying project needs is provided as a loan through PACE.  
  • Repayment is spread out over the life expectancy of the improvements.
  • PACE financing is considered equity, not debt.
  • Lower capital raise from investors.
  • Property taxes are frozen for the duration of the repayment schedule.
  • PACE financing and property tax lock is transferable.

PACE Eligible Components

The list of qualifying building components look to three areas for improvement; water, energy and renewal energy.  Structural components are generally excluded, however a new roof with additional energy saving insulation is included.  An easy way to think of what is qualified, is to think of LEED certified buildings and the components.

Capital Stack with PACE

In a typical property purchase with debt, the borrower brings the down payment, equity and borrows the balance from a lender.  For PACE qualified projects, your down payment can be lowered because the PACE financing is recognized as equity in the project.  For instance:

Project Total $1,000,000

Down Payment: $   150,000

PACE Financing: $   150,000

Debt Financing: $   700,000 

Typically PACE can provide up to 20% of the appraised value of the property after construction.  

While you have 30% equity in the project, your investors only had to raise 15% of the equity, which dramatically increases the return on the project to your investors.

PACE Lender

To qualify for PACE, you first have to establish a baseline for the existing building systems in place.  Once the baseline is established, the systems to be replaced are evaluated for the estimated savings. CODA has worked with Petros PACE Financing, a lender that specializes in PACE.  

BIGGEST RISK 

Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?”  

BIGGEST RISK:

Well, you know, people ask me about this in terms of real estate, what’s going to happen with the economy, as you know, with political elections, what is it going to go up or down a recession or continue in this? You know, We’re in one of the longest expansion periods in a long time. And for me, on a national level, I don’t see that there’s going to be a lot of risk within real estate as a whole. 

Based upon the interest rates, I think if the market does begin to slow, you know, the Fed is going to lower the prime. We wait. We may get down to two or even zero interest rates just to keep the economy going. So from that perspective, I think that real estate is still a solid play. 

But if I’m looking for us. What we have determined internally is that there’s too much political instability here where we are in Illinois. And so what you were saying in terms of like, can we can we avoid it? You know. 

Illinois is having a decrease in population of 6 percent over the past 10 years, which is putting a greater burden on the people that are remaining. And we have the pension problems. And, you know, historically, you know, people say, well, you know, they just did a bunch of things to approve legislation which are basically sin taxes. 

But my concern is the money is not actually going to pay off those pensions. It’s just going to be used to spend in other areas, which is historically have happened in Illinois for the past 20, 30 years. So why is it going to be different? 

What we have done is we’ve stopped buying in Illinois. And for us, that’s how we are mitigating or perhaps even transferring because we’re looking at states that are more tax progressive and where we’re seeing growth. 

And so that is what we’re trying to do is and that’s why we’ve expanded throughout the Midwest. That’s why we have the properties in Ohio. We’re looking in Louisville or we’re looking in Kentucky. We’re looking in North Carolina. We’re looking at Michigan. 

We’re looking at places that are trying to encourage economic development. So either through PACE the Opportunity Zones or the tax benefits for it so that we have greater stability and less risk.

For more go to:

Website: www.codamg.com

Multifamily Syndication 2020 Outlook with Vinney Chopra – CREPN # 234

Multifamily Syndication 2020 Outlook, Vinney Chopra provides his thoughts for the coming year, 2020 and beyond.  

Vinney Chopra purchased his first multifamily property, a 14 unit property for $180,000 in 2008.  Today he has grown his portfolio through syndication to 4,100 units worth over $300 million.

Before 2020

It took eleven months for Vinney to raise the money he needed to purchase his first 14 units in 2008.  At the time, the financial world was in complete melt down. Banks were not lending, and investors were fearful that losses would continue.  Don’t forget, Vinney had never done a multifamily syndication before. But that did not stop him from talking daily with investors and real estate brokers. 

Vinney’s concentrated efforts during the 11 months created momentum.  Immediately following his 14 unit purchase, he closed on a second property with 109 units.  He was constantly talking with investors and brokers. Instead of getting discouraged, he kept in touch and underwrote the properties and made numerous offers.  Eventually, sellers and investors were ready to make deals, and because Vinney stayed with it he and his investors benefited.  

Mindset

Scarcity versus abundance.  Looking backwards is helpful for where we have been, but not so useful for drawing a clear picture of where we are going.  Ask any economist or investor, “what does the future hold for multifamily?” Most will reflect on the incredible period of recent growth and encourage you to sell or accumulate cash and wait for the crash that is overdue.  

If you believe in scarcity, and you are expecting a crash, it’s hard to instill confidence in your potential investors that now is a good time to invest.  Scarcity yells, WAIT! We should wait until prices cool and deals are more like they were in 2008.  

If you believe in abundance like Vinney, you remain active in the market looking to land deals.  

From 2008 to 2014, Vinney and his partner did 14 syndications valued at $100 million.  Since November 2014, Vinney and his wife have done $230 million, more than double what he did at the beginning of the recovery.  

The key to his success is that he stayed in the market.  Even when he did not buy a deal in 2018, he stayed in touch with brokers and investors.  He studied different markets looking for growth indicators and emerging markets.  

Emerging Markets

To make a sound investment, you need an emerging market.  A healthy market for multifamily includes job growth, and inflow of residents that need housing. When demand for housing exceeds supply, you have found a market worth pursuing.  The growth of potential renters is made up of three distinct groups, millennials, baby boomers, and immigrants. 

Combine this growing demand with the lack of affordable single family homes compared to wages and the demand for rental housing looks strong for the next 20 to 30 years. 

Vinney has successfully invested and exited from multiple deals in markets like Texas and Georgia where the demand is super strong.  In one case, he invested in 2017 and sold in 2019 for a 50% gain!

Calculated Risk

There are no guarantees, but if you do your homework, and understand the market dynamics, you can hedge your bet, minimize your downside and take a calculated risk.  Housing is a primary need, and apartments are more affordable than single family homes.

The market is dynamic.  In 2018, the surge of new investors flooded the market, so much so that Vinney did not buy one property.  He believes that the demand was so great, that investors were overpaying for properties. In 2019, he found the over paying buyers were not as numerous, interest rates were lower, which increased cash flow.  The combination of these circumstances provided better investment options and he purchased two large newer properties.

Life is full of risk.  If you put your money under your pillow, or in the bank, you will make next to nothing.  When you leverage into real estate, the bank provides up to 80 percent of the capital needed to buy your property which is in high demand.

Year over year, rents increase, net operating income increases, values in crease, and so too does your equity.

Value Add 

Value add is the best way for a buyer to create equity in his new purchase.  An experienced buyer can recognize opportunities the seller is blind to. Value add opportunities range from minimal efforts from raising the rent to market to a heavy lift investing millions into capital improvements.  

The key to a successful value add strategy is to recognize the opportunity, and properly underwrite for the cost to implement the changes quickly.  You want to hit the ground running as soon as you acquire so that you can benefit from the improved cash flow and increased valuation.  

When approaching potential investors, it is important to have a sound strong business plan that assures the investor there is a plan to take care of and return their investment.  

Underwriting is key in any market.  A good deal is always a good deal.

Multifamily Syndication in 2020

Multifamily Syndication is full of opportunity in 2020.  Investors are looking for greater returns than what they are getting in the stock market.  For syndicators who recognize this, and understand how investors can invest their retirement funds, 2020 can be a great opportunity for both syndicators and investors.

The national commercial real estate brokers, CBRE, Berkadia, Marcus Millichap have published their market forecast and in all cases, the next 20 years look bright.  

Relationships

Relationships are key to be successful in multifamily syndication.  If you have not yet syndicated a deal, Vinney suggest you work with seasoned syndicator to learn how to do it properly.  Once you have some experience, you have multiple options available to you. You can raise money or be the key principal leading your own syndication.

BIGGEST RISK 

Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?”  

BIGGEST RISK:  

Wow, I’m so glad you shared that because I settled three lawsuits. You know, just in the last quarter of 2019. So it’s very fresh in my mind. And actually, one lawsuit was going on for about two and a half years. Nothing major, but it was major in the sense that something happened with one of my contractors on one of my property. And I’m so glad that I have had full coverage, you know. And they said you settle the issue for almost like seven hundred some thousand dollars. And I didn’t have to pay a penny. 

Another thing, you know, Darrin, my fire happened, you know. Right there in Atlanta property and that was a fire. I had a twenty thousand dollar deductible only, and that settled for two point three million dollars just to let you all know. But it was only possible because of people like Darrin, you know, who were able to sit down with me and make sure that we get the proper insurance. 

I got hacked also in 2017 lost $250,000. And guess what? I did not have the Cyber Insurance. And that got me hurt. And, you know, I never looked back. I always look forward and say, what can I do today to make myself better? And that’s OK. But now I’m fully taken care of by my I.T., Cyber Security and Insurance and everything. So the key thing is I think insurance plays a very important role. 

I had another lawsuit with the, you know, firing somebody and they said it’s racial discrimination firing. So these are very important issues. You’ve got to make sure you’ve got great attorneys, first of all, who are with you, dealing with you, looking at your contracts and everything. I’m very happy to say I didn’t have to pay much again. You know, it could have been millions of dollars of lawsuit. But by hiring the right people and having the right insurance companies and all that, it helps a lot.

For more go to:

Website: www.vinneychopra.com

Book: Apartment Syndication Made Easy

Text: Learn to 474747

Email: jon@vinneychopra.com

Financial Independence Through Real Estate with Kaylee Mcmahon – CREPN #233

Financial Independence through Real Estate is available to you.  

Kaylee Mcmahon is proof that if you are willing to hustle, you can create financial freedom through real estate.  She is based in Texas and has tried a lot of different things, learned a lot and grown an impressive portfolio in a short amount of time.  

Single Family Real Estate

In the beginning, Kaylee got her real estate license and worked as an agent and broker listing and selling single family properties.  This availed her to do flips and learn how to manage projects. Flipping houses taught her that she has little patience for babysitting grown men, contractors, who cannot perform as they have promised.  But the experience taught her what is involved in renovating a property. 

Marketing 

Regardless of what you do, in order for others to know what you do, you have to market yourself.  Kaylee was featured on Ryan Harper’s Propelio TV, YouTube channel, which created a video resource for real estate investors.  Here, she met and networked with real estate professionals with many different skill sets while growing her sphere of influence in real estate.  

The Apartment Queen

At one of Propelio’s large networking events, she heard Will Crozier talk about the $780 Million  portfolio of multifamily properties he acquired in just eight years. He explained how the economies of scale multiply with multifamily.  At that moment, she knew the path to her future and true financial freedom through real estate. The Apartment Queen was born.  

She connected with Will, and other investors and learned all she could.  

Multifamily Syndication

To date Kaylee has syndicated six apartment properties in just under three years.  The first two deals happened almost simultaneously. Kaylee raised all the money herself, and leveraged the experience of her partners.  The experience of her partners provided Kaylee with a sounding board for her to solve the problems and issues that go with syndicating multifamily properties.   

Her partners also provided the networth required with the banks to qualify for the loans.  Lenders require your net worth be greater than the value of the property you are acquiring.  When you are just starting out, this is a great opportunity to find and work with a high net worth investor. 

Raising Money

Raising money in the beginning is tough.  You have no track record, everything is new.  The key she has learned is to continuously be raising capital.  When she meets with her investors, she qualifies what her investor is looking for and how much they have to invest.  Then she stays in touch with her investors.  

Her efforts have paid off.  Now her deals are getting oversubscribed, and she is able to raise millions in hours.  

Financial Independence

Real estate has provided financial independence for Kaylee.  As an agent, she made enough money so that she could afford to live on her own.  Her success has allowed her additional opportunities for networking and travel so that she can get away from work and recharge.  Being alone provides her the time to evaluate what she is doing and how it is working for her.  

BIGGEST RISK 

Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?”  

BIGGEST RISK:

I think the BIGGEST RISK in what I do, multi-family investing, is making sure that the deal the way that you buy it. If you don’t buy it, right. Sorry, sucker! 

The point is, is you want to buy it at the right price to where there’s a margin of error. There’s a margin. So, for example, if you screw something up, it’s like, OK, well, we have enough cash sitting over here, we can fix that problem. Or you want to be as far away from foreclosure point as possible. 

You know, everyone’s everyone’s freaking out honestly about, you know, these the cycle changing and coming.  I think people are freaking out and that’s going to cause an issue. I don’t think that there really is going to be an issue probably for another three years. But I think because people are preemptively freaking out. You know, so you have to mitigate the risk.

So one thing I build in to the underwriting on a deal is you want to look at the market vacancy. So for me, I go ahead and say, OK, let’s look at the deal. If we have to drop the rents or if we have to increase vacancy 10 percent. So I do that and then I take the rent number or the rent amounts we think we can get. And when I reduce rent and take the actuals. What it’s doing today, not what we think we can, which is twelve. But on an actual worth doing today, I take that down 10 percent. 

Let’s decrease rents 10 percent because we have nonrecourse debt on these loans. Right. I check out the expenses and I use the expenses at the same rate of growth. So like if to expense growth every year. Expenses are going to increase. And so I say, OK, we’re gonna grow 2 percent every year. 

I could talk on this forever, but there’s there’s several stress tests that we put our deals through to make sure that we can ride out a recession, which I think is the biggest risk.

For more go to:

Email: admin@theapartmentqueen.com

Website: theapartmentqueen.com

Podcast: #1 Leading Ladies

How to Leverage Social Media for Commercial Real Estate with Matthew Laborde – CREPN #232

Do you know how to leverage Social Media for Commercial Real Estate?

Matthew Laborde, principal of Elifin Realty, a commercial real estate brokerage in Baton Rouge, LA, is successfully leveraging social media to create a recognizable brand and attract clients.  He worked hard and in just three years he was the 2nd largest producer in the firm! On his 27th birthday, he started his own firm, Elifin Realty. 

How to Start with Social Media

How do you start to use social media?  You start. When Matthew started in commercial real estate at nineteen years old, Matthew had sworn off social media.  Prior to 2018, he used social media to connect with others, and rally for a cause. He did not use social media for business.  

Why use Social Media for Business?

If people don’t know you are in business, how are they going to find you?  The first time you post for business is awkward. It will continue to be until you find your way.  Your goal in the beginning is to connect with people and find the people who are your fans or potential clients.  

Start by connecting with others and commenting on their posts.  Get comfortable being uncomfortable. Your connections, will become your audience.  They will choose to engage with you if your post provides value for them.  

Be Vulnerable Make Deeper Connections 

Your audience will be compelled to pay attention if they find you are willing to be vulnerable and show more than just a highlight reel.  Matthew jumped off the vulnerable pier and into the deep end of uncomfortable when he made the decision to document his journey towards starring in a musical.  That may not sound like much unless you don’t sing, dance or act.

Matthew posted pictures of him in tights, and singing in public.  To deepen his connection with his contacts and further his progression of performing in front of others, he posted a challenge for anyone, anytime to request him to sing a song in public.   

What to Post

Learning what to post can take time.  Just remember you are trying to connect with your contacts and provide value.  This does not have to be just information about your business. You can comment on activities in your community or comment on other people’s page if you have something that is relevant.  

Matthew and Elifin utilize the different platforms to post a sample of the original post found on their website.  This is an excellent way to gain SEO ranking on your website by linking to your website utilizing your keywords.

Answer questions that your customers have asked you.  Elifin has created a list of questions that clients ask, where members of the firm provide video answers.  

Where to Post on Social Media

How many social media platforms do you need to be on?  Matthew has limited his posting to two: Facebook and Linkedin.  If it is anything related to business, Matthew post, the post the exact same information on each Facebook & Linkedin.  Find where your clients and prospects engage on social media and post there. 

Traction on Social Media

How long does it take to create traction on Social Media?  When you commit to utilizing social media and you are posting regularly.  

  • Authentic
  • Provide value to client
  • Keep posting
  • Post more often

You are probably thinking, “one more thing to do”, “every day”, right?  Matthew has figured out how to continue to post regularly without a lot of extra effort.  

To do this, he recommends that you find a part of your day that you can create a small nugget of content you can post.  Think of the questions your clients or colleagues asked during the day and take a minute to provide an answer on video speaking to your audience.  If you read a trade journal, or something of local importance, take a minute and comment online. Over time, you will develop an identity, and people will recognize you as an expert.   

Do I need to Spend Money

You do NOT need to spend money to establish yourself on social media.  If you connect with others, post valuable content regularly that speaks to your audience, you do not need to spend money on ads.  Organic, original content will 

BIGGEST RISK 

Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?”  

BIGGEST RISK: Matthew Laborde, what is the BIGGEST RISK? 

Matthew: The BIGGEST RISK, so I’m going to stay on topic for this one and I’ll speak to the biggest risk for business owners and agents, right. In general, especially for the, I would say the veteran agent, the more mature agent and older agent.  

The older business owners not engaging in social media is a huge risk.  It’s this wide open field that you might, as the veteran, you might have the capital to invest, to have to hire people to do this for you.  But if you don’t believe that it can help your business, and if you don’t take the time to understand it, then you’re going to miss a huge opportunity and open it up for a younger generation, like myself, to come in and take market share. So I’d say that’s a huge risk that you need to consider.

For more go to:

Website: https://elifinrealty.com/

Facebook: Matthew Laborde

Linkedin: Matthew Laborde

Women Investing in Commercial Real Estate with Beth Azor – CREPN #231

Women investing in Commercial Real Estate are rare.  Why is that?

Beth Azor, “The Canvassing Queen”,principal at Azor Advisory Services, is a rare bird in commercial real estate.  She is a full time Commercial Real Estate Broker, Developer & Investor.  

Residential Real Estate

Beth grew up with two residential real estate agents for parents.  As soon as she turned 18, she got her real estate license and dabbled in real estate.  After college, she worked for a non profit that paid very little. To make additional income, she worked as a real estate agent on weekends.  

In two years her non profit salary doubled, but she still made more money working weekends in residential real estate, but real estate was so boring. 

The residential developer she worked for had Beth hold an open house in a luxury home development.  She spent most of her time reading People Magazine while waiting for prospects to show up for a tour of the model home.  

When a friend suggested she consider commercial real estate, she thought why?  How much more boring could raw land be than residential housing?

Then she learned about the possibilities in commercial real estate.  She could help developers and investors solve problems, create wealth and achieve the American Dream.

Commercial Real Estate 

Beth thrived in commercial real estate.  The commercial real estate firm she started with provided a rich environment where she could grow and become a commercial real estate professional.  In eighteen years, the firm grew from 11 to 125 people and she became the president of the firm.  

During her time with this firm, she found a passion, teaching agents how to lease vacant spaces.  She also invested in multiple commercial real estate properties as a passive investor with her partner.

At the end of run, she was a single mom of a 4 year old and recognized that the demands of running a large firm did not match her desire to be active in her kid’s lives.  

In  2004, Beth started Azor Advisory Services where she took the lead on investing in commercial real estate.  Also, because she was recognized as an expert in leasing, other commercial real estate firms reached out to her to teach their agents how to become experts in leasing.  

Retail Leasing

Beth is known by her fellow CRE professionals as the “Canvassing Queen”, referring to her constant canvassing for prospective tenants in her retail centers.  She regularly teaches courses on how to lease space, and has written two books on the subject. 

Don’t Say No for the Prospect – how-to manual on overcoming fear and negative self talk. 

The Retail Leasing Playbook – step-by-step guide book offers clear instructions that every aspiring retail leasing agent can adapt to jumpstart their own career.

Retail real estate has changed dramatically since the invention of the internet and Amazon.  

The Amazon effect has disrupted retail businesses and their need for a brick and mortar location.  The days of going to the mall to find your pair of shoes have mostly been replaced by shoppers scrolling their computer screen, 

Retail is Not Dead

Beth assures us that Retail is not dead.  Instead, shoppers are going to the mall for an experience, looking for something they cannot buy online.  Retail product sales has gone on line. Amazon’s biggest seller is shoes since they purchased Zappos. People are short on time and looking for a friction free solutions.  Retail is now made up of the five “F” words.

  • Food; restaurants.  For the first time in history, restaurant sales exceed grocery sales!  Beyond the eat in, carry out, Uber Eats, GrubHub, food delivery is dominate.  Many restaurants now have multiple parking spaces in front of their restaurant for delivery vehicles to pick up their order for delivery.
  • Fun: Competitive socializing.  Barcade; this is the combination of arcade with the bar, ie: ax throwing.  Kids gaming, ie: bounce houses, trampolines, escape games, i-Fly.
  • Fitness: Fitness boutique; gyms, martial arts studios, pilates studios, etc.
  • Physicians: Urgent care, Physical Therapy, Podiatrist, Chiropractor, Drug stores
  • Furniture: Specialty furniture sales.  

Women Investing in Commercial Real Estate

Where are women investing in commercial real estate?  Commercial real estate has provided Beth with substantial growth opportunities.  She invested passively in multiple properties while at the firm she started with.  When she started Azor Advisory Services she was the lead investor/ sponsor responsible for finding the deal and the investor capital. 

Over time, Beth has acquired a portfolio worth over $80 million of cash flow producing real estate.  When she talks with other women, she asks them, why are you not investing in real estate?

Sadly, she finds that women have numerous excuses for not investing in commercial real estate, from “I’m not smart enough” to “I’m not good with numbers”.  When she travels to conferences, she finds that less than 10 % of attendees are women, and that most female attendees are the spouse of an investor. Even in the deals that Beth raises money for, most investors tend to be male. 

To combat this, Beth has created The Commercial Real Estate Investment Symposium for Women.  There will be multiple successful women real estate investors speaking on topics including how they: 

  • Have invested
  • Found the deal
  • Raised the money
  • Overcame limiting beliefs

Tips for Women 

Women have to grab hold of the opportunity in real estate.  If they lack education, get educated. Are you are scared? Then find someone who has invested and get their help.  

Don’t follow the herd.  When Beth ask women how does the stock market work, they don’t know, yet they defer to investing in their 401k.  They do not understand that they will have to sell their stock in order to get their money.

Cash flowing real estate produces cash and appreciates in value.  So get educated and get in real estate.

BIGGEST RISK 

Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?”  

BIGGEST RISK: I think the BIGGEST RISK is lack of knowledge. And we luckily live in a world where we can mitigate that, but that does take time and effort and work to do so. So and you don’t know what you don’t know.

So when I was building my when I developed my first shopping center, which was about five years ago, I bought I bought a strip club and knocked it down and built a strip center. The municipality loved me. But I had never built anything before, and I was very nervous. I had one partner in that deal and I kept telling him, you know, I don’t know what I’m doing. He said, don’t worry, you’ll figure it out. 

Risk Management

But I hired people that didn’t know what they were doing to consult with me and teach me. And I read a lot of books. I listen to podcasts. So the biggest risk is the lack of education. But particularly you don’t know what you don’t know. And being wise and astute and I’m just a big believer in continually learning. I probably listened to three or four podcasts a day and I’m constantly reading. 

So that’s how I mitigate that potential lack of knowledge. And that helps. But there’s things, you know, our retail industry is going to be just lambasted by self-driving cars. I’m fascinated and I’m reading all about that because if I I’m fifty nine. So if in the next ten years the self-driving car thing happens, our industry is going to shift again. I’m trying to stay on top of it, but I don’t know what I don’t know. And so that’s how I mitigate it. So that’s the biggest risk, not knowing what you don’t know.

Market Cycle Opportunities in Real Estate with Lee Kearney – CREPN #230

Market cycles in real estate create opportunities for investors to recognize value and make a profit when you buy.

Lee Kearney has flipped over 7,000 homes in the past decade.  In the crash of 2008, he lost everything, but at the bottom of the market he recognized the opportunity, and was able to make up for his loss.

Market Cycle

The market cycle is easier to identify in the past.  It has lows and highs which reflect when money is not trading hands to when money is effortless.  When you look back in time, you can see the point where buyers are spooked and are no longer willing to buy.  This marks the high point and the start of a down market. It is the point where buyers believe there is no more upside left in the market.  When this happens, it causes sellers to lower the price to attract buyers.

If sellers are unable to attract buyers quickly with a minor price adjustment, the risk of a crash increases.  When this period of uncertainty lingers on, the belief that things are bad spreads, and further reduces the number of potential buyers who are willing to part with their cash.  

Sellers who are not property capitalized to hold their property through the slow market cycle, can potentially lose their property.  Only when buyers recognize the opportunity and start buying again does the momentum of the market cycle change from downward to upward.  

At this point, the market begins to build support as buyers re-enter the market.  Buyers are able to pick up deals from sellers who are desperate, or exhausted and fearful that they will not be able to sell their property.  As the market continues, sellers continue to raise their price. This will continue for as long as buyers believe there is potential for additional value to be recognized. When the buyers no longer believe there is value in the market, the cycle starts all over again.

Interest Rate Affects Real Estate Market Cycle

There are multiple real estate market cycle drivers.  In the single family residential market, interest rates are a primary driver of price, affordability, buyers and sellers behavior.  

Most residential buyers are payment sensitive.  They can afford a certain amount each month for their housing budget, which is determined by the lenders debt to income ratio.  

When you borrow money to buy a house, if interest rates are lower, their payment will buy a more expensive home.  The reverse is true when interest rates increase. Instead of a more expensive home, the same payment can only buy a less expensive home.    

To help stimulate or extend the market cycle, the Federal Reserve can raise and lower the interest rate charged to commercial banks.  This directly affects the interest rates individuals can get for a mortgage, which affects home prices, all the while the buyer payment never changes.  

However, as prices continue to increase, regardless of interest rate, eventually, the cost of housing becomes unaffordable.  This causes the flow of money to stop, and a potential for a crash increases. 

Warning Signs

The warning signs were everywhere, in 2005, but few took notice.  Money was easy to get. Rates were low, and if you could fog a mirror, you could qualify for a loan.  

The Federal Reserve kept interest rates low, which artificially increased drove home prices up.  As the prices continued to go up, and lending standards lessened, buyers were counting on the market to continue pushing the values upward.  

Because buyers were stretching to get into homes, they had nothing left to save for a rainy day.  They were paying all they could to stay in their homes. If anything broke or they had an emergency, 

Buyers had no savings.  They were living hand to mouth.  When the banks failed, money stopped moving.  Most of the loans were interest only, or had balloons that came due when no banks were lending.  The buyers had loans they could not afford, homes they could not sell and mortgages for more than their homes were worth.  

Wages vs Home Price

Wages versus Home Price.  In order for prices to continue to increase, wages have to catch up.  If wages fail to increase, the demand for home owners will eventually go down.  These potential home owners will become renters. More demand for rental units will continue to push rents up.

When demand outpaces supply, prices go up.  More renters will push rents up. If wages do not go up with rents, renters will no longer be able to afford their apartment.  When renters cannot rent, landlords end up with vacancies.  

A vacant property can ruin an investor.  When a landlord does not have the capital needed to pay their mortgage, the bank will foreclose.  The bank is not in business to be a landlord, so it will elect to sell the property quickly for as much as they can get.  

These distressed properties provide a good opportunity for a buyer because now they can buy low and have a  cushion between their potential income and their expenses. 

In order to extend the market, wages eventually will need to increase.  

Investing vs Speculation

Investing versus speculating, the difference is one is following the herd while the other is not.  Investing is when you buy at the bottom of the market. This is when others are afraid to invest. The market can only go one way, and that is up.  

Speculating is when you follow the herd.  You are buying when everyone else is buying, at the top, and you hope that the property will go up in value.  

Long Term Wealth

Long term wealth is not determined by the number of doors you own.  Many investors think the number of doors measures wealth.

Real wealth is measured by equity.  When you buy low, and the market rises like it has for the past ten years, you end up with a lot of equity.  If you buy at the high, and prices go down, you have negative equity and a mortgage you can not refinance out of.

In addition to equity, you want positive cash flow.  This allows you to maintain the property, service your mortgage, accumulate reserves and potentially distribute profits to investors.    

When you buy low and have positive cash flow, you are on your way to creating wealth.

BIGGEST RISK 

Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?”  

BIGGEST RISK: 

Darrin:I’ve been asking my guests on CREPN Radio if they could take a look at their, you know, investing strategies and how they basically see the market and if they can identify what they consider to be the BIGGEST RISK. 

Lee: Sure. 

Darrin: And with that, I’d like to ask you, Lee Kearney, what is the BIGGEST RISK? 

Lee: If you’re buying an asset today at market value, your BIGGEST RISK is the market risk. Is the risk of that asset going down in value? Now, if you’re buying it wholesale, you don’t bear the same risk. But if you’re buying at a market price today in any primary market, I would say your biggest risk is that that assets gonna go down in value. 

For more go to:

www.realadvisors.com

Credit is Key to Financial Freedom with Debbie Bloyd – CREPN #229

Credit is key to your financial freedom.

Debbie Bloyd is the principal at DLBmortgageservices.com where she provides mortgage and insurance service for her clients.  In order to qualify for the best lender rate or insurance product, good credit is key.

Your Credit

Your credit score is the measuring stick for all potential creditors to determine your ability to pay back your obligations.  Sadly, Debbie finds there are two types of borrowers. Those who are well educated about credit, with excellent credit, and those who are uneducated and have horrible credit.

Too many people do not understand the basics when it comes to personal finances.  While it is true, you have to use credit to establish credit, you have to use it wisely.  Maxing out all of your available credit cards negatively affects your credit rating. The algorithm used to determine your score will negatively reduce your score if you have no available credit.  So, to maintain a good credit score, don’t max out your credit.  

Additionally, many people suffer a trauma or event that they are unable to pay for.  If this happens to you, ignoring it and hoping it will go away is not a solution. When you don’t pay your debt, your creditor will report to the credit agencies that you have not paid your account as agreed, and your credit score will suffer badly.  If something happens to you, engage your creditors for a payment plan and make the payments as agreed. Or get help to rebuild your credit.

Building Your Credit

You have to use your credit in order to build it.  Where can you get credit? Student loans, car loans, credit cards, and professionally managed apartments will all report to the credit bureaus.  If you have too many open accounts, it will negatively affect your credit.  

Remember, buying stuff to impress people you do not know is not the way to build your credit.  

Decisions

Making good decisions is key to building your credit and creating financial freedom.   Debbie finds that many millennials make good income, but they are unwilling to make tough decisions that will provide long term financial freedom.  

Instead of renting a less expensive property and saving money for a down payment, they would rather rent the expensive new apartment and live the good life now.  Renting will not help them build equity.  

If you can’t afford a down payment, you have to make a decision.  You can either increase your income and lower your expenses. It is likely that it will be easier for you to lower your expenses right away.  Over time your savings will add up and provide you the nest egg needed to start building your financial freedom.  

Financial Freedom 

If you want financial freedom, you have to make the tough decisions that will provide you the path to ownership.  Leasing the newest most expensive car will not help you build your financial freedom. To build your financial freedom, you have to have ownership.  

Home loan interest rates are the lowest they have been.  There is not a better time to get in the ownership market.  Current rates are for owner occupied properties are in the low 3% and non owner occupied are in the low 4’s.

A great way to get started is to buy a fixer upper.  Buy low, improve the property and your sweat equity gives you the opportunity to grow wealth.  Now you have options. If you want to move into a larger property, you can use your equity for the down payment on a larger home and end up with an affordable mortgage.  Or if you want to add a rental property, you can borrow the equity from your primary home to buy a rental home.  

This is the path to your financial freedom.  

BIGGEST RISK 

Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?”  

BIGGEST RISK: 

I think the BIGGEST RISK is that we’re going to be running out of money and we’re growing too old. So what I see happening to families, either with money or without money, is they’re outliving their money. People say, how much do you need to have to retire? And I said, more than you think. And they’re like, well, how much is enough? I don’t know. It depends on how you want to live. 

And so I have most of my seniors either out living their money. And that’s a huge concern for them. And they don’t start worrying about that until it’s too late to do anything about it. You and I both know long term care policies. You can buy those at a young age. You can buy the middle aged. You can buy them when you’re 60. But after about 65, they become unaffordable. 

People are thinking too late because we don’t know how old you are. Fifty five. I feel like I’m 35. I probably look like more like I’m 45. But I still mentally, I don’t feel old at all. And so I think a lot of people that are baby boomers much older than us are in their 70s and they don’t feel old at all. 

But what happens is things are going to start going wrong with them and they’re not protected. They never thought they’d, number one, get to be this old or no to have anything happen to them. And they’re not prepared and wipes out entire families.

For more go to:

Website:http://www.moneystrategieswithdebbie.com

Facebook: Debbie Bloyd

Start Young Go Big in Real Estate with Angad Guglani – CREPN #228

Start young and go BIG in real estate is a rare investor story.

So many prospective real estate investors think about investing, yet so few actually pull the trigger and invest.  Angad Guglani is the rare exception. He has accumulated 84 doors by 25yrs of age. 

He got the bug for real estate when a classmate at NYU told him he earned $300,000 a year as a real estate broker.  

Fast Success

Find the solution for the problem.  Angad recognized his need for clients to be successful.  He also knew that his fellow students were always searching for apartments off campus in the city.  

Angad launched Off Campus Apartments NYC, an apartment leasing brokerage website and Facebook page, marketing himself as the students real estate broker.  The formula was simple; approach landlords with vacancies to list their apartments and market their listings to the NYC students looking to live off campus.  

His brand became recognized as the go to resource for students looking off campus housing.  In no time, Angad had more business than he could handle, so he started hiring his friends. During the summer, they would hustle to find listings from landlords.  

Apartments in New York, rent for $3,000 to $7,000 per month and the average commission paid to an apartment leasing agent is 1 to 1.8 times the monthly rent.  

Angad and his friends were able to help more than 300 students lease apartments in that first year of business.  Their reward was several hundred thousand dollars in real estate leasing commissions for working a summer job.  

Real Estate Investor

The money from leasing apartments was great, and it allowed Angad to save a lot of money.   More effort equals more income. But, after the lease is signed, you have to start all over.  Where will the next deal come from?  

Angad recognized that leasing was a treadmill.  How could he get a more stable, predictable source of income?  Become the investor.  

Investing provides a residual income.  It may be slow, but it builds wealth. So, before Angad graduated from NYU, he purchased his first rental house with his savings from his summer job.  

Benefits of Starting Young

When you start young investing in real estate, the benefits are many.  Namely, your stakes are low, you have nothing to lose.  After making a lot of money and saving most of it, he had the ability to invest his savings in his first rental home.  

It takes time to build equity in real estate, and because Angad started early, he now has substantial equity that is his.  Most of his real estate investing peers have gotten into real estate through syndication, where they have to give away most of the equity in order to do the deal. 

When you have no investors, you have complete control.  You do not have to answer to investors, nor share the cash flow nor equity. 

Real Estate Investment Challenges

There are numerous ways to lose money in real estate.  If you pick the wrong market, you can get stuck. The key to rapid success is picking a market on the fringe of a vibrant market that is in the process of gentrifying. 

You want to have a neighborhood where business and government are attracting jobs, which necessitate housing for the workers.  

When you buy property before the prices increase, you can create a lot of equity.  Angad incorporates the BRRRR method, buy low, rehab, rent, refinance and repeat. Because he got in early, he has accumulated multiple cash flowing properties in short amount of time.  

Investment Strategy

Angad’s investment strategy is go buy distressed single family and multifamily houses in Camden, NJ.  Sellers range from bank owned, short sales, estate sales, broker relationships and auction websites. The numbers on a typical deal look like this:

  • Purchase Price:   $30,000
  • Repairs budget: +$20,000
  • Total invested:   $50,000
  • Monthly rent:   $1,100
  • All expenses including mortgage: – $   850
  • Net monthly cash flow:   $   250/ month / property 

Long Term Goal

Cooper Square Acquisitions is Angad’s real estate acquisition firm.  Acquisition is the key to making money in real estate, you make your money on the buy.  

By focusing on a specific market, Angad has been able to nurture relations with real estate brokers.  The brokers recognize him as a closer, and bring him deals before taking them to market. Infact, Angad sees the real estate brokers as his client.  This is because they make him money. 

In 2019, Cooper Square acquired 65 new properties.  For 2020, they plan to do 200 additional properties.  The long term goal for Cooper Square is to replicate the model of scaling distressed single family properties in a market that is gentrifying.  If they can acquire hundreds of doors in a market, they can operate with additional efficiencies similar to a multifamily property. 

Exit Strategy

Single family properties provide multiple exit strategies.  They can be sold to investors or homeowners. This is not lost on Angad.  He recognizes that a strong market has good jobs, and eventually, his renters will want to own.  His hope is that he is able to create future buyers, and sell his portfolio to his current tenants. 

BIGGEST RISK 

Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?”  

BIGGEST RISK: 

I would say the biggest risk being very concentrated in one market and one to expand will be concentrated in the other markets. Right? Well, we’ll have heavy concentration in a handful of markets. Is something systemic like a major flood or ice storm like that was the example you gave. And something like that where, you know, I don’t frankly, I don’t read the policies as well as I should.

We have a master insurance policy, and I’m sure there’s some sort of cataclysmic event that might happen that probably voids the policies. And if that were to happen, that would be very dangerous. Number one.

Number two, or, you know, like you said, if you have a major, you know, act of God event and your policy doesn’t pay out and you have fixed expenses like mortgage and taxes and stuff and you fall behind on those, that’s another big expense. Big risk. So, yeah, basically anything that comes of concentration, I would say is this is the BIGGEST RISK. 

For more go to: 

Email: ag@cooperacq.com

Passive Income in Real Estate with Kathy Fetke – CREPN #227

Passive income through real estate is an attractive option for investors with a good job, or would rather rely on an experienced operator rather than take on the risk of investing on their own.

Kathy Fetke, Co-Founder of Real Wealth Network, and returning guest to CREPN Radio identifies the risk investors face when investing passively.  Real Wealth Network works to educate investors on the investment options available so they can prepare for a secure financial future.  In this episode, Kathy explains the steps you can take to protect investment to minimize your risk when investing.

Passive Income 

Passive Income Opportunities in Real Estate can be very lucrative.  Ideally, passive income is truly passive that does not require you the need to tend to the day to day operational concerns.  Instead, you place your investment with a deal sponsor, then receive handsome monthly or quarterly returns.  

In addition to the positive cash flow, you receive the multiple benefits real estate provides.  These include, depreciation, appreciation, and principal reduction. Together, these benefits combined with positive cash flow make real estate a tough investment to beat.

Sponsor Due Diligence

Sponsor due diligence is critical to save guarding your investment.  The recent recovery from the 2008 market crash has provided handsome returns for anyone who invested post crash.  Some deal sponsors have only experienced the upside of this recent market. If your only experience is from a once in a lifetime market, where everything increased in value, it’s doubtful you have a true understanding of the risk posed by real estate.  

Unfortunately, the recent profits that have been made in real estate have attracted interest, and some less that stand up characters who appeal to the unwise potential passive investor.  The digital, social media world makes it easy for anyone to market themselves as an expert.  

Real Wealth Network performs background screens on all of the deal sponsors they invest with.  Ideally, the sponsor or a member of the team will have more than 10 years experience, and has survived multiple market cycles.

Market Due Diligence

Market due diligence is critical to safeguard your investment.  It is easy to isolate any property and identify its upside. However, if you do not understand the market the property is located in, you can easily lose your investment principal or be stuck with a property that has no possibility to sell.

The real estate market is not singular.  Real estate is local. It requires that you understand the local state of  jobs, population growth, and the supply of housing. Is the housing affordability in the area?  

What is the local government’s attitude towards development and landlord laws.  Your understanding of the local market is fundamental to your success.

Market Cycle

The current market cycle has little room for error.  Prices are up, interest rates are down, and affordability is stretched in most primary and secondary markets.  This is a very different market than the last ten years where the market has risen from historic lows. 

Given this change, Kathy and her team have moved into single family starter home development.  Interest rates are low, and qualified buyers can get affordable rates. The demand for first time home buyer homes is significantly greater than the supply.  This is a great opportunity to invest with a developer for handsome returns.

BIGGEST RISK 

Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?”  

BIGGEST RISK: 

Darrin: Kathy Fetke, What is the BIGGEST RISK?

Kathy: There are so many, but I would say the BIGGEST RISK is not being educated, which is why it is my mission to help people. Like I said at the beginning, the show to raise the wealth consciousness of the average person and definitely of the average investor because there are so many landmines. Whether you’re investing in the stock market or in real estate or in Bitcoin or whatever you’re investing in. You’ve got to really take a deep dive and understand it. We’ve been sort of trained over the years to not really understand it, but hopefully our financial planner understands it and we hand over our money and hope they do well with it. So we haven’t really been taught that it was important for us to understand it. We don’t we’re not educated and in high school and probably not in college for most people. 

So first and foremost, the biggest risk is not understanding what you’re investing in. From there, I would say what I’m seeing is a lot of gurus. We’re at that stage in the market where people have maybe done fairly well, then maybe they did one deal and it went well because we’ve been in the market and now they are a guru. I’ve seen this. They can very easily start a podcast or it’s so easy to become sort of a well-known person. Thanks to all social media and the Internet and so forth. So these people now don’t have a lot of experience, but they’ve kind of become this guru, so to speak.

For more go to:

Real Wealth Network

Blockchain Provides Liquidity for Real Estate Syndication with Yael Tamar – CREPN #226

Blockchain is the technology disruptor that provides liquidity for real estate syndication deals.

Yael Tamar, Chief Marketing Officer with Solidblock, explains what blockchain is and how it can be used beyond Bitcoin and applied for real estate syndication. 

Blockchain Technology

Blockchain technology was introduced in a 2009 white paper written by the founders of Bitcoin.  Since that time, Bitcoin and blockchain have become synonymous.  However, the truth is that Bitcoin is one of many digital currencies that utilize blockchain technology.  

By definition, blockchain is a decentralized ledger that provides transparency to all its token users.  All transactions are viewable to the token holders. The ledger is immutable, meaning you cannot edit past transactions without certain permissions. 

You are able to trade amongst token holders.  Transfers between members are instant! Computers in the network approve transactions and adjust the participants balance.  

Blockchain Applications

The applications for blockchain are numerous beyond digital currencies.  Food suppliers are implementing blockchain to trace food from the raw product through processing to consumer.  The ability to trace every step allows you to pinpoint where contamination occurs. Banks are utilizing the technology for inter bank transfers.

The stock exchange is similar to blockchain.  In the marketplace, every day, multiple buyers and sellers are able to acquire and dispose of stocks for a market set price.   This is not the case in real estate. For this reason, real estate has always been considered illiquid.  

Blockchain can change that.

Liquidity for Real Estate Syndication

Real Estate syndication has characteristics that make it ideal for blockchain.  You have multiple owners who are tied to a single investment. In a traditional syndication, all investors must buy and sell at the same time.  This lack of mobility could be solved by the use of blockchain.  

Blockchain gives all investors the ability to instantly sell their interest, or buy additional shares from willing sellers.  Sponsors can sell shares to raise additional funds for renovation, or limited partners can sell some of their shares to raise cash, or get out of the investment. 

An example of Blockchain in Real Estate Syndication is the St Regis Hotel in Aspen, CO, which  utilized Solidblock to provide the blockchain platform for its offering.  

There is a cost to implement blockchain, and ideally, a syndication should raise over $3 million before considering the use of blockchain.  

Digital representation of the asset provided at the issuance of the property. 

Security

Blockchain has more security than traditional banking.  This is because there is no personally identifiable information stored on the network.  Your personal information is stored in your digital wallet.  

A digital wallet is a sequence of numbers.  For any trades you make, there will be a record of your transactions attached to your digital wallet.  

Smart contract is imbedded in the blockchain.  This governs who can invest in your offering and who can join the offer and who can trade.  Once you are invested, no one can take this away from you. If you find someone that is on the system, you are able to sell your interest direct without the involvement of any additional intermediaries nor cost.  You can sell a part of or your whole investment. This has never been available to real estate investors before. 

Traditional vs Digital Currency

Unlike traditional currency markets, digital can trace any action on the platform.  This includes actions from bad actors. If someone were to hack the system, and steal another members tokens, it would be easy to trace who received the money, and correct.  

Digital currencies are not country specific, and are independent from the currency of your country.  This allows investors from anywhere in the world to participate in the offering.  

BIGGEST RISK

Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?”  

BIGGEST RISK: There are many risks in real estate. I guess the top ones are market risk, then picking the wrong asset. And I would say liquidity risk because of the impending crisis or recession that’s going to happen. Now, on the asset level and the market level, you can mitigate these risks with information. 

Number one is your due diligence. How much do you know about the asset owners, asset managers, developers and so on? 

Number two is basically if they’re doing the right. If there is a right fit from the asset to the market.

The third type of risk is liquidity risk.  This is much more problematic because you have forces that are beyond your control.

For more go to:

Webpage: https://www.solidblock.co/

Linkedin: https://www.linkedin.com/in/yaeltamar/