Commercial Real Estate Pro Network

J Darrin Gross Podcasts

J Darrin Gross Podcasts

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CREPN #135 – Tax Plan Impact on Real Estate Investment Strategies with Jonathan McGuire

The new Tax Plan will affect Real Estate Investment Strategies mostly for the better.

President Trump signed the revised Tax Plan into law effective for tax year 2018.  There has been a lot of speculation up till now about how it will affect real estate investors.  I spoke with Jonathan McGuire, CPA from the Real Estate team at Aldrich Advisors to sort out the changes, good & bad.

Tax Plan Summary Highlights

1031 Exchange:

1031 Exchange remains unchanged for real estate investors.  The deferral of gain on like-kind exchanges is only allowed with respect to real property that is not held primarily for sale.  

Tax Pass Through:

Owners of certain pass-through businesses, S Corps, partnerships, & sole proprietorships,  will be allowed to deduct up to 20 percent of qualified business income for tax years beginning after December 31, 2017.

Carried Interest:

The new tax law requires that in order to qualify for Capital Gains, the investment must be held for more than 3 years, compared to the prior 1 year standard.  This could affect your plans if you originally planned to get out after one year.  

Section 179

Equipment purchased to operate & maintain a property can be expensed at 100% of the purchase price up to $1,000,000.  This does not include real property; land & buildings.

Changes to Individual Itemized Deductions

Previously, individuals could write off all mortgage interest and local property taxes against income to lower the federal tax obligation.  This is no longer the case.

Mortgage Interest:

Now, the portion of mortgage interest attributable to the first $750,000 is all that will be allowed.  These buyers already are treated differently with jumbo loan rates and terms.  

Additionally, deduction for home equity loans has been repealed.  This could reduce the pool of investors looking to deploy equity held in their residence.

State & Local taxes

The new tax caps the state and local tax write off to a maximum of $10,000.  Unless you live in one of the six states without a state income tax, you will pay between 2.9% (ND) to 13.3 (CA) of your income in state tax.  When you add property tax to this, it is not difficult to breach the $10,000 cap.  

IE: If you live in Portland, OR where the state tax rate is 9.9% and the Median household income is $58,423, your State Income Tax will be: $5,784.  If in addition, you own a median priced home in Portland, $319,400 you can expect to pay roughly 1% of the retail value or $3,194 in property tax.  

This may not affect a first time buyer if they are able to purchase a home.  However, it may cause potential buyers of larger properties to rethink their purchase.  

Any additional reduction in demand for single family homes to be built, will likely push the demand for more lifestyle rental options.

Pass Through Deduction:

Owners of certain passive income businesses will be allowed to deduct 20 percent of passive income.  Limitations apply.

For more go to:

https://aldrichadvisors.com/2017-tax-reform/

jmcguire@aldrichadvisors.com

CREPN # 134 – Real Estate Investors Cash in Buying Tax Liens with Ted Thomas

Real Estate Investors buying government backed tax liens take little risk and can make great returns.

Every property in the United States has a property tax owed against it to support local government and services provided.  An estimated 2% of all property tax bills are in default and go unpaid every year.  Meaning, every year, there are more opportunities  for real estate investors to buy tax liens.   

Ted Thomas is a former commercial  airline pilot and apartment investor.  After he lost big in the crash in 1986, Ted got into tax liens, deeds and certificates and has never looked back.

What are Tax Liens

Every property, residential, bare land, and commercial has a property tax assessed against it.  

The taxes go to support the local government and services provided by the local government; schools, roads, police, fire, etc.  In some jurisdictions, they are liens and others they are certificates.  In both cases, they represent tax that is owed.

The tax rate and percentage of value varies by municipality.  At a minimum, for residential property, the property tax represents 1% of the value of the property.  

When a property is sold, or a change is made on title, the tax lien is the first lien that must be satisfied.  Tax liens have priority over any first mortgage, second mortgage, or lien.  

When the property tax does not get paid, the government sells the tax bill to willing investors.  If after a determined amount of time the property owner does not pay the taxes due, you, the investor, become the owner of the property.  

How do Tax Liens Work?

The local municipality has the authority to tax and sell the unpaid tax liens to a willing buyer.  If the property owner does not pay the tax owed, the tax liens are sold at an auction.  In many cases, the opening bid is for just the tax owed.  

The annual interest rate charged against a tax lien can be as much as 18%.  When the property owner elects to pay the tax, refinance, or sell the property, you get paid the tax plus accrued interest direct from the local municipality you purchased the tax lien from.  

For more go to:

www.tedthomas.com

CREPN #133 – Problem Properties are the Answer with Tyler Sheff

Problem properties are the answer when looking for true opportunities in commercial real estate.

The marketplace is full of buyers chasing large properties with compressed cap rates and thin margins.  To compete and win, you need to become an expert in identifying problems.

Sellers with problems want to be rid of their problems.  These property owners are the focus of Tyler Sheff’s commercial real estate investment strategy.  He has found there are multiple opportunities in every market, if you recognize the problem and can offer a solution.

What Problems

Tyler’s team has identified multiple problems that are clues that the property owner wants out of the property.   The following are some treasures of opportunities:

  • Properties owned by an LLC: Most buyers assume that because a property is held in an LLC, that the owner is a professional firm that knows what they are doing.  Tyler has found this is not the case, especially with smaller properties.  Look for LLC’s that missed their renewal registration.  It is a clue that someone is not paying attention.
  • Properties owned by a Trust: If the property is held in a trust that includes the name of the individual, this is a clue the ownership is not a professional group.  The first rule of a trust is to hide the owners name.  Look for trust in the name of an individual.
  • Properties with larger than average water bills:  This screams problem!  Contact the local water utility and ask for a list of properties with a higher than average water bill.  This is your list of prospects with problems waiting for you.
  • Properties with tenant complaints in the property forum:  The internet is the place where unhappy tenants go to scream to the world how unhappy they are.  Fortunately for you, small owners are not looking online for the problems under their nose.  If the tenants are unhappy, there are likely other issues like deferred maintenance problems waiting for you.
  • Tired owners: If the owners are self managing, and have been for a long time, there is a good chance they are tired and looking for a solution.  You are it.

The Answer is Right in Front of You

Find out what the tenants want and need.  Remember, if they are upset and telling the internet about it,  they probably have not been asked by the owner or management what they want.  

Spend a little time getting to know what the tenants want can go a long way to making the property more enjoyable for them.  This is an excellent opportunity to establish good will with the tenants and make certain your efforts get the reception you want.

For more to to:

http://www.cashflowguys.com/

CREPN # 132 – Multifamily Real Estate Success with Jake & Gino

Multifamily success is the dream for many real estate investors.  

Jake Stenziano & Gino Barbaro, the drug rep & restaurateur,  better known as Jake & Gino are proof that hard work and the right mindset can propel you to amazing success in multifamily real estate.

Multifamily Mastery with Jake & Gino 2018

In 2013, the investor team had almost given up the dream of owning a multifamily property.  Then their persistence paid off.  They landed their first 25 unit multifamily property.  It was rough, but they were finally in the game.  

In just a little over 4 years, Jake & Gino’s real estate investment strategy of mom & pop multifamily has led to an impressive 850 units in Knoxville, TN.  The following are some of the keys to their success.

Mindset: It all starts in your mind.  If you want your circumstances to change, the easiest thing to change is your mindset.  Once you change your mind, you need to find like minded people, because the herd will try and bring you back to the pack.

Education: Take some time and invest in yourself.  Learn the lingo, talk to people, and get to know how others are doing it.

Motivation: If you are comfortable, it is tough to find the motivation to change.  If you really want to change, you have to be uncomfortable

Market: You don’t have to be in a primary market to grow in real estate.  Real estate is everywhere.  What is important is to know the basics in the market.  Is there job growth?  Are there people moving to the area?  Is there more demand than supply in the housing market?  These are keys in any marketplace.

Hard work: If you are willing to work hard and go through some pain for a few years, you will reap the rewards that others only dream of.

From there it’s Buy Right, Finance Right, Manage Right and repeat!

For more go to: https://jakeandgino.com/

CREPN #131 – The Story is the Answer to Successful Real Estate Investing with Whitney Nicely

Know the Seller’s story and you have the keys win with any real estate investment strategy. 

Whitney Nicely is a real estate investor from East Tennessee.  Her real estate investing strategy focuses on connecting with sellers hearts and minds.  This takes time, but once connected, the sellers want to sell to Whitney because they know her and she knows them.

Instead of grinding through thousands of calls, this southern gal has fun getting to know the sellers and what they are about.  She also tells her story.  She leverages Facebook to let all her contacts know what she is doing and what she is about.  She is a real estate investors!  

Story is full of secrets

The story is where you will find the seller’s secrets.  The answers that don’t show up on a spreadsheet, what they want and what they need from the sale.  When you start with the answers to their problem, it’s a whole lot easier to reach a creative a solution that meets yours and the sellers goals.

Secrets like they:

  • Don’t need the cash and would consider owner financing.  secrets to all of the sellers wants and concerns.  
  • Need to get out of the debt load
  • Are health is poor, and they can no longer care for the property.
  • Inherited the property and want nothing to do with it.
  • Are sick and tired of toilets and tenants and they just want out NOW!
  • Get other offers, but they want to sell to you.
  • Are ready to retire and do something different

So remember, as you race around to find the property, don’t forget to take the time to get to know the story of the seller and share your story.  The more you connect, the more memorable you are to the seller.  And, you might just get a deal.

For more go to:

Whitneynicely.com

Getyourfirstdeal.com

CREPN #130 – Marketing to Sellers Who Don’t Know They are Selling with Tom Cafarella

Marketing is a part of any successful real estate investment strategy.  Whether you pass business cards, mail letters, make cold calls, network, or go cyber, marketing is key to long term success

Tom Cafarella is a CPA turned real estate investor.  What separates him from his competition is marketing.  

After he got fired from his CPA job because he was spending all of his time learning about real estate, he started selling single family homes.  He had some success, but realized he wanted to be an investor.  

He recognized to be a profitable investor, you have to start with a purchase price that allows you to rehab, rent and refinance to a number that is agreeable with the bank.  Meaning, you have to buy at a discount.

Marketing is the key to finding sellers

Marketing is the key to getting in front of owners who aren’t known to the marketplace.  They don’t realize they want to sell.  Then something happens, and because of your marketing, you are top of mind to solve their need to sell.  

Tom started a real estate brokerage that has 200 agents.  They use a marketing program that involves, mailers, calls and appointments.  The mailings are sent out monthly and go to specific property owners with properties fit their sweet spot.  This sweet spot includes: area of town, length of time they have owned the property, estimated remaining balance on their mortgage and age of the owner.

Mailings are followed with calls to cell phones.  Their system allows an agent to call as many as 500 – 700 names per day depending on how many conversations they have.  The purpose of the call is to set an appointment.

At the appointment, they have developed a set of questions that help identify if the seller is a prospect for selling at a discount for Tom’s investment team, or if they are a retail listing option for the agent.  Either way, the agent has a potential sale.  

For Tom, he has a team of 200 agents hunting for investment opportunities.  

For more go to:

http://www.tomcafarella.com/

The Real Estate Mogul Podcast

CREPN # 129 – Warren Buffett’s Approach to Real Estate Investing with Doug Marshall

Warren Buffett, the CEO of Berkshire Hathaway, made his considerable fortune investing in the stock market.  Last year Fortune magazine ranked him as the third wealthiest person on the planet with a net worth approaching $80 billion.  But unknown to most people are Mr. Buffett’s two small real estate investments that he made long ago that have amply rewarded him for his willingness to invest outside his area of expertise.  

And far more important than their profitability were the five common sense principles he learned from his real estate investments.  And before I get into what those were let me give you a brief explanation of his real estate investments.  

REAL ESTATE INVESTMENT #1

In 1986, he purchased a 400-acre farm located outside of Omaha, Nebraska.  He purchased the farm from the Federal Deposit Insurance Corporation (FDIC) who had inherited it from a bank that failed.  Mr. Buffett admits that he knows nothing about farming but he has a son who loves to farm so he turned the day-to-day operations over to him.

Although Mr. Buffett admits his lack of farming acumen he could easily recognize that purchasing the farm was a good investment decision.  As he said, “I needed no unusual knowledge or intelligence to conclude that the investment had no downside and potentially had substantial upside.”  Three decades later, the farm has tripled its earnings and is now worth five times what he paid for it.

REAL ESTATE INVESTMENT #2

In 1993, he purchased a retail property located adjacent to New York University that the Resolution Trust Corporation (RTC) was selling.   A real estate bubble had popped and the RTC had been created to dispose of assets of failed savings institutions.  His investment analysis was very rudimentary.  The property had been poorly managed by the previous owner and then by the RTC.  The vacancy at the property was well above the market’s vacancy rate for no apparent reason.  The largest tenant’s rent was $5.00 per square foot compared to all the other tenants’ rent averaging $70.00 per square foot.   He realized that when the current lease term expired for this tenant that the new rent on this space would improve the property’s cash flow dramatically.

And like the time he purchased the farm, he realized that he needed to turn the management of the property over to an experienced property manager, which he did.  Over a relatively short period of time, the new property manager was able to lease the vacant space and to raise to market the rent on building’s largest tenant.  As a result, the property’s net cash flow tripled and annual distributions currently exceed 35 percent of his original investment.

So those are Mr. Buffett’s two attempts at real estate investing.  Both were highly successful.  But as good as his results were the principles he learned were priceless.  

LESSONS WARREN BUFFETT LEARNED FROM INVESTING IN REAL ESTATE

So what did Mr. Buffett learn from his two real estate investments?  He learned five things that we as real estate investors should try to emulate.

  1. Notice that he bought both properties out of foreclosure when the real estate market was at the bottom of the cycle.  “I will tell you how to become wealthy,” Mr. Buffett once said. “Be fearful when others are greedy.  Be greedy when others are fearful.”  When he bought these two properties most investors were out of the market, fearful that real estate wasn’t ever going to turn around.  Mr. Buffett knew differently and acted upon it.  
  2. You don’t have to be a real estate expert to achieve satisfactory investment returns.  But you do need to turn over management of the property to someone who is well qualified to manage the property for you.  
  3. You don’t need to do a sophisticated investment analysis to determine whether to purchase a property.  Many times a common sense look at the property will do.  Ask yourself, “What is holding this property back from operating well?”  If you can answer this question and you’re confident that you can correct the problem, then buy the property.  
  4. Investing over the long term will eventually solve most problems.  Notice he still owns these two properties, one he bought in 1986 and the other he bought in 1993.  As he likes to say, “Our favorite holding period is forever.”
  5. He didn’t concern himself about their daily valuations.  He understood that he bought the properties at bargain prices and that overtime they would make good investments.  “Games are won by players who focus on the playing field,” he quipped, “not by those whose eyes are glued to the scoreboard.”

For more go to: http://marshallcf.com/

CREPN #128 – Violent Crime Prevention at Your Property with James Holman

Violent crime is a sad reality in America.  If you watch the news, you know it happens daily at work, nightclubs, homes and church.  

Regardless of the cause, guns, mental health, drugs, domestic or other, it can happen anytime, anywhere.  Denial of this will not prevent if from happening, but rather make you a potential victim.   

Real Estate investors nature is to look for an opportunity to make money.  They may consider rough properties in crime ridden neighborhoods and may not realize the potential danger to violent crime they or their representatives might encounter.

James Holman with 540 Tactical works with property owners and professionals to provide training on what they can do to keep themself and their tenants safe.

How to Prevent Violent Crime at Your Property

Violent crime prevention is key to making your property an unattractive option to crime.  The following are some basic proven steps that will encourage criminals to look elsewhere when plotting a crime:

  • Cameras: Video monitoring is a terrific tool to help catch any crime that does take place. With signs, they can inform criminals that someone is watching them.
  • Lighting: a well lite property is an easy way to help tenants and visitors be able to see their surrounds and make safe entry into your property.  A dark property is inviting to criminals.  
  • Landscaping: well trimmed bushes that prevent areas for criminals to hide and wait for an opportunity to attack a victim will encourage the criminal to move along.
  • People: Mandatory Background Checks of all management personnel and residents will help you keep from bringing potential criminals onto our property.  Criminals are more likely to look for the opportunity that will not reveal who they are.

Train your Staff

Awareness is the best tool available to avoid violent crime, and you can take with you everywhere.   In a survey of over 1000 criminals, the number one thing they look for is an unaware person.  If a criminal thinks you are aware of what is going on, they will move on to another potential victim.

Be intentionally aware of your surroundings.  Put down your phone, take out your earphones and be aware of your surroundings.  540 Tactical gets it name from 540 degrees of awareness: in front, to the sides, behind and above you is what James recommends.  This simple habit can keep you from being a victim of a crime.

When You Encounter an Anomaly

  1. Get yourself safe
  2. Call 911
  3. Avoid & retreat

Don’t wait until something happens to you, have a conversation and train your staff to keep everyone safe.

For more go to:

https://www.540tactical.com/

CREPN #127 – Social Media for Commercial Real Estate with Mark Leidlen

Social Media is where prospects go to find you and learn more about you and your offer.  In fact they are more likely to form an opinion about you based on your Social Media presence or lack of than your first face to face interaction.

Mark Leidlen and Rob Wellman work with real estate investors and professionals to establish a social media presence.  This marketing strategy helps create credibility and builds trust through regular informative posts to keep your network informed.

The Power of Social Media

It took radio 38 yrs, television 13 years, internet 4 years to reach 50 million users.  Social media behemoth Facebook took only 9 months to get 100 million users.  People go online to shop and share with their friends what they are doing.  And with each click, they leave a digital breadcrumb clue for advertisers and others to recognize their likes and interest.  These breadcrumbs allow people like you to put a very focused message in front of your ideal client for pennies.  

Social Media for Commercial Real Estate

Whether you are a Broker, Leder, Property Manager or Investor, your prospective clients are interacting on social media and looking online for who to call when they need help.  So where are you?

There is a plethora of options to choose from when choosing a social media platform to engage.  The most important for commercial real estate professionals are:

  • Facebook
  • LinkedIn
  • Twitter

And don’t forget to create and maintain a blog and an active email campaign.

The good news is that you can repurpose your material across the different platforms.  However, you still have to create new material to remain relevant.  Unless you are a gifted writer and have lots of free time to accomplish this, your options are don’t create a presence, or hire help.

Social Cuda has professional writers that work with its clients to tailor a content strategy to reach your intended audience.  They can create post with written text, pictures, video, or drone footage content that can help grow your presence and capture email along the way to build your email list.  The cost to create and maintain your professional presence is minimal when you consider the alternatives.

For more go to:

SocialCuda.com

Text: Cuda5 to 88588 to receive Mark’s business card.

CREPN #126 – Financial Freedom through Multifamily Investing with Michael Blank

Financial Freedom is a common goal of real estate investors.  Most start with a single family property, thinking that over time, they will grow their portfolio to provide enough income to give them freedom from working for others.

Michael Blank is an engineer turned real estate investor.  His experience from single flips and analysis on what it would take to reach his goal led him to the advantages of multifamily investing.  

Most new investors feel they are unable to pursue multifamily as a real estate investment strategy due to their lack of experience and lack of money.

How to Overcome Your Lack of Experience

  1. Get some education:  Some simple education will prepare you to speak intelligently with brokers and lenders.  You can do this for free, or take a course.  Without this, you are likely to be identified quickly as a newbie that will not get the help you need from commercial real estate brokers.
  2. Create a team:  Find the most experienced property manager in the market, a respected real estate attorney, etc, and get them on your team.  This will provide you instant credibility with local brokers and lenders when you are identified as working with locally known experts.

How to Find Money

You need money to acquire a large real estate investment.  The good news is there are lots of people with money to invest who are looking for opportunities to invest.  High networth individuals are not finding a consistent return on their money and they are paying too much taxes.

Real estate can help these investors looking for opportunities.  For this reason, it is important that you are not shy about what you are doing.   Let others know that you are doing multifamily investing.  Depending on how well you know them, ask if they might be interested in learning more about your opportunity.   

If you don’t have the network, but have a deal, there are those who are experienced at raising capital, ie mentors and other experienced investors and can help you.  This is an excellent opportunity to be an active participant in a large deal and get experience that you will need to find your next deal.

Financial Freedom

Financial freedom is available is available to you through Multifamily investing.  Michael’s experience shows that from the time an investor makes the decision to become an investor, the “law of the first deal” takes hold.  The first deal leads to multiple other deals, literally making the investor financially free as little as 3 – 5 years.  

For more go to:

http://www.themichaelblank.com/