Are You Ready To Live Overseas? Before You Move, Read This.

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-Special Submission by Matt Malouf-

The surge of Americans living full-time and seasonally abroad continues. Currently, The Association of Americans Resident Overseas (AAR) estimates that 8.7 million American reside oversees. Our editors have seen many real estate investors who read our publications make that transition.

Their reasons are varied, but have included: to retire early from a corporate job, to explore other cultures, as a way to stretch their monthly cash flow, to upgrade their standard of living, and of course, for the ever-so-popular amore.

If you’ve been considering moving to Coast Rica to escape that boring 9-to-5 or have always wanted to own a bed-and-breakfast in the Island of Santorini, read on to see if this option suits your lifestyle.

Starting a new life in a new country can be nerve-wracking. You have to understand the new culture and it is difficult when you get labeled as a “foreigner” or an “expat” on first sight. Here are a few tips that can help you adapt to a new life in a foreign county.

Trying New Things

As they say, you should always be willing to try new things, but, of course, you need to draw a line somewhere.

However, there are a lot of people out there who are afraid to eat new things, let alone experience extreme sports and adventure. This is the fear of the unknown and many research studies suggest we fear uncertainly more than a known bad outcome. Some of the questions that come to mind when people want to try new things are what if that country is dangerous, what if I drown and what if I don’t like the new dish.

It is natural for some level of fear to always be present when trying out new things; however, our overactive imagination makes it seem so much worse. Once a person makes up his mind to try new things at every possible turn, he or she will see a reduction in their fears and a thirst for new experiences.

Trying new things also makes us grow. Taking yourself out of your comfort zone and putting yourself where the action is will make us more empowered, open-minded and far from being bored. Afterall, you only live once.

Do As the Romans Do

A lot of people have trouble adapting to new places. Although living in an exotic new land may sound like a romantic notion, many people fail to make the transfer from expat to compatriots when they stick to their old lifestyles.

Most people experience culture shock after they witness a culture so vastly different from theirs. Culture shock slowly sets in and results in depression. This further alienates a person from the locals and makesthem feel lonely and homesick.

So, if you want to live abroad, make sure to open up your mind. Remember, this is not the country from where you came from and your old notions and concepts will no longer serve you. Since you will encounter different rules, observe how other people are acting in that situation so that you can understand what is expected of you.

One of the biggest concern of foreigners is that they are uncomfortable being a “visible minority.” A white person will stand out like a beacon in Nigeria or Japan and is bound to generate some odd looks. But if you adapt to the locals’ customs and follow their lead, you will see that your differences will look less marked.

Also, ask questions. If you feel lost, there is no shame in asking for help. You can always ask for explanation if you feel you have missed something. Also pay attention to not just the words but nonverbal communication to get a better idea of what is going on.

Once you accept change and adapt to your life in a new environment, you will find it has opened venues of opportunities for you and will lead to more thrilling and interesting stuff.

Don’t Wait For Anyone Else

Once you get to your new country, don’t wait for others to give you instructions on how to go about doing your business. Take the initiative and do it yourself. Ask lots if questions. Many Americans will experience a 180 degrees difference when they come to live in India or Egypt. The best way to cope with it is to go out and participate in what the locals are doing. You can learn a lot from actually experiencing things compared to what you are just told or what you read.

Speak the Language

Many English speakers are under the misapprehension that they can get by throwing random words of English and locals will understand them. Hence, they suffer quite a shock when they realize not many people in Asian or African countries speak English.

It is recommended that people who want to live in a new country must at least learn some key phrases in a foreign language so that they can order food or drink or find their way to a hotel. However, knowing the language extensively will enable you to have proper conversations with the locals, which can help you quickly learn about their customs and traditions. It will show how interested you are in knowing about your new country.

Pursue New Activities and Hobbies

In my understanding, if you are learning to live in a new country, you should also try and pursue some new hobbies. Try to explore where you are and what your place is in the greater scheme of things. This will help you look at the world from a different perspective.

One of the best things you can do is to look for a group that matches your interests. Even if you are from the other side of the world, there are always commonalities. Are you interested in cooking and is there a group offering local, exotic cuisine classes? Is there a local who likes to travel the world like you do and have many exciting stories to share? Join them.

If you are feeling isolated, look for a community of expats or start your own group. They will be native English speakers and will understand the norms of where you came from and can offer you words of advice.

Respect Different Cultures

Remember that unfortunate photo of Selene Gomez baring her leg in a mosque while she was on a visit to the United Arab Emirates? Don’t make that mistake. Be responsible and respect other people’s culture and religion.

The first thing you need to do is to accept the fact that there are many different cultures in the world other than just our own. Even if you do not agree with a custom or tradition, remember that it could encompass the country’s value and you need to honor your role as a visitor. An act that may seem simple or trivial to you may reflect something far more significant for a person from that culture. Being open-minded can fill your life with positivity and also encourage friendships with people from different race, culture and backgrounds.

If you follow these few simple rules, pretty soon you will be able to make a new home overseas. So, do you have what it takes?

-Special Submission by Matt Malouf-

Malouf is an International Real Estate Consultant.

For more information, please visit MyLifeWorldWide.com

Malouf has also published a book, please find more information @ https://www.amazon.com/Matt-Malouf/e/B07CGHV3XJ

Dealing With “Balloon” Payments

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By Bruce Kellogg

“Amortizing” Versus “Balloon” Notes

An “amortizing” note is one where the principal amount is paid off over the term of the loan. A “balloon” note is one where the payments are not sufficient to retire the debt, and an outstanding balance is due at maturity.

What Is The Problem?

The problem arises when the borrower does not have the funds necessary to pay the “balloon” amount when it comes due. Oh, oh! So, here are some ways to deal with that!

Refinance the Property

The first recourse for an owner who wants to keep the property is to refinance either the property itself, or another property in the portfolio. This is a good approach as long as financing conditions are favorable. If conditions are not favorable, other approaches will need to be considered.

Sell the Property

If the owner does not care to own the property any longer, they can sell it and have the sale pay off the loan. Or, they can sell another property to pay off the loan. If conditions are not favorable for selling, again, other approaches will need to be considered.

Renegotiate With the Lender

This is not an ideal approach because the borrower is negotiating from an inferior position. The lender “has the upper hand” because they can always foreclose. So, the borrower should offer the lender a monetary “inducement” for an extension, either a fee, an increase in interest, or payment amount, or both. But, it gets the job done! (Unless the lender says, “No”!)

Protective Note Terms

The best way for a borrower to protect themselves from becoming in an uncomfortable position is to negotiate protective terms in the note in the first place. One might be called a “rollover clause” or an “extension”. Here, for example, the borrower gets a time extension, say two years, for a 2% interest rate increase. This must be written in the note as one of its terms.

Another approach is to convert the note into an amortizing one when the balloon payment is due. Again, these terms need to be negotiated when the note is written and included with the other terms. In some cases, lenders do not need a cash payoff and enjoy receiving reliable note payments from a proven borrower.

Bring In A Cash Partner

If the above approaches aren’t working, the borrower can bring in a cash partner. This basically involves selling a partial interest in the property for cash to pay off the “balloon”. An escrow is recommended with title insurance, and an attorney should draw up an agreement between the parties, who might not be familiar with each-other.

Return the Property to the Lender

This is the least-desirable alternative in most cases. It involves giving up. If it’s going to be done, it needs to be done right, with an escrow, deed with a “Deed-in-Lieu-of-Foreclosure” recitation, title insurance, and transfer of any rents and deposits back to the lender. The lender should cancel the note, and return the original to the borrower. The lender should also record a “Full Reconveyance” in the escrow to clear the title.

File Bankruptcy

This is an alternative, but a risky one. The day a bankruptcy is filed, a 30-day “Automatic Stay” of all collection actions is established. After 30 days, the lender can file a “Relief from Stay” request to foreclose on the property. There is a hearing, and in the case of homeowners the bankruptcy judge will urge the parties to work something out. In the case of investors, the “sympathy factor” is usually low because investors are considered to have resources and several years to handle the “balloon”. The lender is due the money, the judge is likely to rule. (i.e., no relief!)

Conclusion

A “balloon” payment is one of those things that isn’t a problem, until it becomes a problem. It is best to deal with it up-front, in initial negotiations, when the note is originated. During the term of the note, keep working to pay it off. If the due date comes and the payoff funds are not in-hand, find expert help. You’re going to need it!

Good luck!

 

Bruce Kellogg

Bruce Kellogg has been a Realtor® and investor for 36 years. He has transacted about 800 properties in 12 California counties. These include 1-4 units, 5+ apartments, offices, mixed-use buildings, land, lots, mobile homes, cabins, and churches.

Mr. Kellogg is a contributor and copy editor for two national real estate wealth-building magazines: Realty411, and REI Wealth Mag.

He is available for listing, selling, consulting, mentoring, and partnering. Reach him at [email protected], or (408) 489-0131.

Yield Compression – Why are rates in California for alternative real estate financing declining in a rising interest rate market?

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By Edward Brown

 

The Prime Rate has been slowly increasing over the past six months, but real estate financing in the alternative sector in California has actually decreased. Why?

Competition between private lending companies in real estate [also known as hard money lenders] has increased over the past five years. This has led to brokers shopping around on behalf of their borrowers to get the lowest rates and points. Too many lenders have had a tremendous influx of capital from the private sector [investors] because of the low rates that banks pay on deposits as well as the volatility in the stock market that has spooked investors.

Prior to 2013, the difference in rates charged by private lenders and the Prime Rate was about 5%. Although the Prime Rate stayed stagnant up until 2018, the rate differential shrunk to about 3.5%. This yield compression was primarily due to the typical economics of supply and demand. There was too much of a supply of money pouring into California by investors, as these investors saw that real estate in California had not only stabilized [since The Great Recession], but had increased substantially, lowering the perceived risks of making private loans.

The default risk of making fairly conservative loans [less than 70% LTV of purchase] was minimized even further by an increasing real estate market. By the time the loan was eventually paid off due to refinance or sale of the underlying property, the LTV had gone down to as much as 40-50%. This was especially true in the fix and flip market for seasoned borrowers with good track records. Although real estate prices seem to have cooled off from the frenzy of buyers [especially those who continually paid over asking price], many of the larger lenders in the fix and flip market have gone as far as lending over 80% of purchase and up to 100% of the anticipated rehab. The amazing part is that these lenders are willing to lend their money out to these fix and flippers at rates as low as 7% and 1 point; this is unprecedented. Not only are these lenders taking more risk than in previous markets, but they are doing so at extremely favorable rates. One can only come to the conclusion that these lenders have a tremendous supply of capital that needs a home; especially those lenders who have investors who are promised a preferred return [usually in a Fund vehicle]. In these cases, idle money is a yield drag to the Fund and jeopardizes the payout to not only the investors but the profit to the manager as is typical in a mortgage pool Fund.

Idle money in a Fund is usually held in a low interest bearing account at a bank awaiting deployment. These deposits need to be liquid, as most private lenders market themselves as speedy – one of the advantages over a typical bank. In addition, their private placement memorandums dictate that idle funds be held in an FDIC insured account; thus, the low yield on these deposits to the Fund.

When borrowers shop around for California lenders, they may find two to five lenders willing to make them the loan they need at favorable terms. Most of the time, the borrowers enlist a mortgage broker who does the shopping for them. Although the mortgage broker may have favorite lenders he/she works with, the broker also knows that many sophisticated borrowers work with more than one broker, so it is the first one who can get the deal done who usually wins out. In addition, the broker realizes that some commission is better than none. Many times, these brokers quote lower than normal rates and points in order to secure the deal. What once might have been quoted as a 9.5% and 3 point deal is now hovering around 8.75% and 1.5 points. [As pointed out earlier, certain fix and flip lenders are charging even less.] The lender usually charges points, so both the broker and the lender are earning less on each transaction because of the lowering of the points that have to be shared between them. Most of the interest rate is earned by the lender’s Fund, but there is overhead that needs to be subtracted as well as the preferred return promised to the investors of the Fund. A 7% preferred return is not uncommon, but, the economics appear to dictate that a preferred return of closer to 6% may be on the horizon.

If interest rates paid by banks to depositors stay relatively low, then investors may not balk at a lower preferred yield; however, if the Prime Rate continues to rise, one might believe that interest rates on deposits at banks will follow. At some point, in order to attract investors, private lenders will have to increase the rates paid to their investors. The only way to do that would be for these lenders to start increasing the rates they charge borrowers, as profit margins to the lenders have been squeezed to its lowest level in many years. It will be those lenders who can run their companies “lean and mean” who will have the advantage in this market and the one to come.

Outside of California, lenders have enjoyed higher yields, but that comes with the potential instability of the real estate market. Many investors have chosen to take the path of least resistance – location, location, location, and stay conservative by earning less than other states may provide, but potentially reducing the risk. Generally, stable California markets have severely reduced the risk of loss of principal and, consequently, produced lower yields to investors/lenders. However, since a loss of 20% of principal in one year means that one has to make 25% the following year just to breakeven over the two year period, the prudent investor/lender might be wiser to accept a lower yield and not balk too much at a lower yield; thus the quandary of investing in California.

Edward Brown

Edward Brown currently hosts two radio shows, The Best of Investing and Sports Econ 101. He is also in the Investor Relations department for Pacific Private Money, a private real estate lending company. Edward has published many articles in various financial magazines as well as been an expert on CNN, in addition to appearing as an expert witness and consultant in cases involving investments and analysis of financial statements and tax returns.

 

Texas Cash Cow Arrest — Beware of Real Estate Fraud

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By Kathy Fettke
The arrest of a Texas developer, who’s well-known in the real estate industry, is a big reminder to thoroughly vet the people and deals you are working with. Phillip Carter of Frisco is accused of taking $17.5 million dollars from investors for development projects in North Texas but authorities say he used much of that money for his own personal needs. His wife, Shelley, and alleged accomplice, Richard Tilford, also face charges.The Texas State Securities Board lists almost a hundred victims, many of whom are reportedly elderly and probably trying to boost their retirement portfolio. Now they face financial loss, and are likely wondering where they went wrong.

Who is Phillip Carter?

Carter is the owner of Texas Cash Cow Investments, Inc., although the website for that company no longer exists. He’s also the owner of North 40 Developments, LLC, which does have a website. It doesn’t mention Carter’s name anywhere, however, but it is located in Frisco.

According to Texas authorities, Carter and Tilford told investors their money would be used for the development of commercial and residential properties. The indictment says Carter used at least some of those funds for unrelated purposes, including personal expenses and the payment of an IRS tax lien.

It also says that Carter lied about his personal background — that he falsely claimed to have a chemical engineering degree from the University of Virginia and had worked as a project manager for Texas Instruments. It also says he made up the story about working and traveling with “Rich Dad, Poor Dad” author Robert Kiyosaki.


Trouble Begin in Early 2016

The indictment lists the names of all the people who invested with Carter in early 2016. Some contributed as little as $12,000 while others gave Carter as much as $700,000. It says that Carter held the money as a fiduciary for the purpose of funding investment opportunities that would result in a profit for investors. Instead, Carter is accused of using the money for personal reasons that have now put those funds at “substantial risk.”

Carter was apparently attempting to move forward with the projects but came up short on funds. Authorities say a $6 million check for labor and materials bounced in December of 2016. He reportedly borrowed $32 million from a Seattle-based private equity firm more recently to pay for construction costs on two properties. But, as one news story points out, the lender holds the first lien, which means that investors will only get paid if there’s any money left over.

His wife is accused of money laundering and the misuse of investor funds. Investigators say his alleged accomplice, Tilford, raised $6 million from investors, who are listed in his indictment. They say the funds raised by Carter and Tillman were mostly in the form of promissory notes.

Red Flags for Real Wealth Network



Investing in real estate is one of the most stable ways to build wealth, but it can also be one of the fastest ways to lose money if you have the wrong property, and worse, the wrong team. Unfortunately, these Texas investors are finding out the hard way, what they should have done differently.

If you were a Real Wealth Network member during the Great Recession, then you probably heard of Texas Cash Cow and Phil Carter. Back then, he was one of the largest turnkey operators in the country. He would buy large tapes of REO property from banks at highly discounted prices, renovate to like new condition, and offer on-going property management.

Many of Real Wealth Network members purchased property from Texas Cash Cow, and initially, we received rave reviews. But then something changed and we started to get complaints about property management. At that time Phil came to us and said he was no longer focusing on single family rentals but instead was creating a new model. I don’t remember the details but it had something to do with buying or building apartments or condos and selling the individual units to investors. I told him that was something we would not endorse, and that was the last I heard from him.

It just didn’t make sense that a bunch of investors who don’t know each other could successfully own their own units in an apartment or condo complex — plus, I didn’t think any legitimate bank would finance it.

There are many lessons here that I would like to share to make sure investors don’t make similar mistakes.

  1. If something doesn’t make sense, don’t do it. Just because you don’t understand it doesn’t mean you’re dumb. It might mean the deal just doesn’t make sense!
  2. If someone is trying to do something new, something they’ve never done before — don’t let them use your money to figure it out. 
  3. When you lend money to a developer, make sure your funds are recorded in first lien position. Do not sign a promissory note that is not tied to property.
  4. When someone is raising money from investors, they must file with the S.E.C. even if it’s for a promissory note. I recently saw an email go out from another turnkey company in Texas saying that they were now doing syndications. I called them to find out more, and they told me they had a new opportunity, where investors could earn a flat return by investing as a private lender on their commercial property in Houston. I asked if they had filed with the S.E.C. They said they had not because it was a note and therefore they didn’t have to. I told them that was illegal. Apparently they didn’t trust my opinion as I saw another email go out with the same message.
  5. When you buy rental property, you can get inspections and appraisals to verify that what you are buying is indeed what you thought you were getting. It’s pretty straight forward. When a turnkey company starts doing something different than normal real estate, question it. Just because someone is an expert at one thing does not make them an expert at another. I heard that some investors bought property from a turnkey company in Chicago and closed on the property before the repairs were done, and the seller gave them a promissory note. That note was never paid when the company folded. Now why would anyone do that? Why would you close on a property before the work is done? Never pay any contractor before the work is done!
  6. Finally, if you do invest in a syndication, make sure the Use of Funds section is spelled out clearly. 

Links:

https://www.ssb.texas.gov/news-publications/north-texas-developer-indicted-alleged-17-million-real-estate-fraud

https://www.ssb.texas.gov/documents-carters-tilford

https://smcorridornews.com/texas-developer-indicted-for-alleged-17-million-real-estate-fraud-from-elderly/

https://www.yelp.com/biz/texas-cash-cow-investments-frisco

http://www.northfortydevelopment.com/about/

 

Kathy Fettke

Kathy Fettke is Co-CEO of Real Wealth Network and best selling author of Retire Rich with Rentals. She is an active real estate investor, licensed real estate agent, and former mortgage broker, specializing in helping people build multi-million dollar real estate portfolios that generate passive monthly cash flow for life.

With a passion for researching real estate market cycles, Kathy is a frequent guest expert on CNN, CNBC, Fox, Bloomberg, NPR, CBS MarketWatch and the Wall Street Journal. She was also named among the “Top 100 Most Intriguing Entrepreneurs” by Goldman Sachs two years in a row.

Kathy hosts two podcasts, The Real Wealth Show and Real Estate News for Investors — both top ten podcasts on iTunes with listeners in 27 different countries. Her company, Real Wealth Network, offers free resources and cutting edge education for beginning and experienced real estate investors. Kathy is passionate about teaching others how to create “real wealth,” which she defines as having both the time and the money to live life on your terms.

 

 

The Secret Sauce to Managing Your Wealth…Do You Have One?

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By Anita Cooper

“To say that I was a failed investor is putting it mildly…”

Steve Rozenberg, founder of Empire Industries, LLC and full time commercial airline pilot, knows what it’s like to have your property investing aspirations crash and burn.

After 911, the airline industry was very shaky…he wasn’t sure he’d have a career or be able to enjoy a retirement, so he started looking for other ways to grow his wealth.

Enter real estate investing…

Like many new investors, he bought a lot of wrong properties…properties that management companies didn’t want to touch because they were low income.

Empire Industries, LLC was born out of the need to manage his own properties to keep his business intact.

Using the procedures and processes he’d learned as a pilot, Steve and his business partner – an IT whiz – created their property management company for their own preservation so that they could keep their properties afloat.

Self management vs property management

“I’m often asked if it’s smarter to self manage your properties instead of hiring a property manager and my answer is always that it depends on your end goal.

“So you know, many people focus so much on the acquisition of the deal they never think about how they’re going to get the return month after month, year after year. And normally, managing the asset is an afterthought, when it’s actually the most important part of the puzzle. This is because it’s what actually gets you the return.

“If you’re willing to commit and put the time in and learn the laws and regulations and create all of these procedures and structure, then yes, you can certainly self manage.

“But if it’s not something you want to commit to and if you don’t have a plan to succeed, then you’re planning to fail. That is why landlords are among the highest sued individuals in real estate, because they don’t go into this with a business plan of how to succeed year after year. They’re so focused on the purchase they never think about the month to month…they always look at the ROI and the cash on cash return and look at all of these big numbers, but what they never think about is how do I get those numbers in my pocket?”

Whether you have one or one hundred plus properties, Steve says it all boils down to one thing…treating your property investing efforts like a business.

“If you have one property or you have 50 properties, you own a business.”

“It has profit, loss, income, expenses, legal obligations…and you know the tenants that live in your property have rights. And as an owner, you are obligated to protect, to make sure that you’re working within the confines of the law. So yes, you could manage your own property as long as you’re willing to commit the time to educate yourself on the laws and regulations, fair housing , discrimination, etc.

“Here in Texas, we have Texas property code, so these are all the things you need to think about if you’re going to self manage one…50…100 properties, it doesn’t matter…a business is a business.”

What to look for in a property manager

Having a conversation with a prospective property manager is one of the best ways to zero in on the company that will be your partner in success.

“I would first make sure that your business model aligns with the property manager’s business model,” said Steve. “By that I mean, do they manage prices in the same price point that you own a property in?

“If you want to be a “hands-off” property owner, do they want you to be “hands-on?”

“I think it’s very important to have an initial meeting with the property management company and set the proper expectations with them, meaning what is it I can expect of you and what is it you expect of me?”

“A lot of times people go with the cheapest property management company and then they end up realizing that cheaper isn’t cheaper…it actually becomes more expensive because the company may be cutting corners, cutting costs, when for an extra dollar or two dollars a day you could of had a reputable property management company that is aligned with your business goals.”

Moving forward

Although Steve experienced great success managing his own properties, he and his business partner knew they could do even more to help other investors, so they sought the help of a business coach.

“We went to a business coach – Doug Winnie of Action Coach – five years ago, who told us that yes, we have a business because we have opportunity, scalability and marketability. However, based on what we’d done so far, we probably wouldn’t succeed as a business. So we hired him on the spot.

Then we attracted the founder of Action Coach, Brad Sugars and went from zero to about 850 properties in 5 years. In fact, we’ve won the North American Marketing Campaign Award from Business Excellence, with 1471% return for our efforts,” said Steve.

“Brad is the founder of the whole coaching franchise and he became a partner of ours in the business and he is now the one [who’s] helping us grow this nationally, with his guidance,” Steve continued. “So because of him we are now in Houston, Dallas and Ft. Worth…and now we’re starting to open up more cities this year; Austin and Ft. Hood/Killeen.

“We’re going to keep opening offices and continuing to grow under his mentorship and his strategy as we start the licensing model.”

What does this mean for you as a property investor?

As the fastest growing property management company in Texas, with offices in multiple cities, Steve and his team have proven that their property management process works…and works well.

That’s why they’ve decided to begin duplicating their process under a license or franchise model…so that other investors can do what they’ve done.

“We are spanning across Texas…we’ll be in almost every city in the next 5 years. This means we’ll be able to help even more investors succeed in growing their business.

“Our goal is to have your business succeed…for you to become wealthy through real estate. You need more than someone ringing the cash register and collecting the rent…you need someone on your team…like Empire to help ensure that success.”

Anita Cooper is the founder of Northwoods Writer, a marketing resource for real estate professionals. She lives with her family in the beautiful Northwoods of Wisconsin when they’re not cruising the highways and byways on the lookout for something new and interesting or at least calm and relaxing.

 

Kribbz: How Kent Clothier Is Reinventing Real Estate Now

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By Tim Houghten

Putting More Power, Speed & Money in the Hands of Home Sellers and Investors

This could be HUGE for you…

It is no secret that there has been LOTS of room and need for disruption and increased efficiency in the real estate world. Yet, despite all the hype about digital mortgages, crowdfunding, Zillow, and crypto, nothing has really changed.

Sure, it’s easier to find a property listing online with your phone today. Maybe you can even sign the contract on your laptop. That’s been about it.

There have been a lot of well meaning techies wanting to help, but who don’t get real estate. Then a lot of real estate players wanting to do things better, who don’t get the technology side.

Enter Kent Clothier…

If you’ve been in real estate investing for 5 minutes you should have heard of Kent. He’s the guy who with his family has built and managed 4 companies on the Inc. 500, at the same time. That alone may be a world record.

Kent’s family’s company, Memphis Invest, des somewhere around 900 real estate flips a year. In other words, he’s not one of those gurus who bought and sold a couple houses in the 80s or in 2008 and thought he could write a book and crown himself a ‘guru’.

He’s known for developing some great real estate investing software, real estate training programs, hosting live events alongside people like Grant Cardone (the 10x guy) and his mastermind groups. He has created the 1-800-SELL-NOW, The REWW Academy, Real Market Experts and The SMART Suite System.

If you know Kent, you know he has a real handle on his why, and he isn’t the type to just sit back on his laurels. When he does something new, he does it with great partners, solid funding, top notch tech teams and specialists, and he has people watching the details around the clock.

The bottom line is that he knows his stuff, he cares about helping people get traction, he understands what the community needs and how to package it for them using the best technology (and humans) available.

We caught up with Kent just as he landed in San Francisco to help raise a truckload of money for what is hands down the most innovative nonprofit yet – charity: water.

He was incredibly generous in giving us an exclusive interview and breaking the news on his latest venture. One which could really make a difference for home sellers and real estate investors.

Challenges in the Real Estate Space

No matter which side of the table you are on, there are probably some things you’d like to change about the real estate transaction process.

For Home Sellers

The process of selling real estate is still hyper inefficient, costly and frustrating for homeowners.

First off, there are those huge real estate broker commissions. And, despite it often not taking any more work to sell a fabulous looking million dollar home than a $350,000 home, the system means you pay a lot more in commission. Equally, if you have a property that’s too cheap, then agents will often tack on a bunch of fees to make up the difference anyway. All that to often just hand off your property address to an assistant to put it on the MLS.

Fair compensation for a job well done, greater speed and eliminating liability is one thing. Yet, for all that agents get paid (and a few good ones are worth it), worse is that locking yourself into a year long listing agreement with an agent doesn’t even guarantee you a single prospective buyer, offer, or sale. How do you plan your life and finances around that?

During this time you are accruing a gang of holding costs that could include: Property taxes, insurances, maintenance, association dues, utilities, interest, principal mortgage payments, and maybe more.

Add that all up and you can be throwing away tens of thousands of dollars of your home equity, years of hard labor paying down the mortgage every month, or the only inheritance your family left you. Sad, but true.

Savvy home sellers get this. They know how to do the math. Though few really factor all of this in. So, more would like to simply go right to a cash paying, professional investor, and just get a deal done and over in a few days. Yet, until now this market has mostly been flooded with endless cheap websites, and newbies who run local Google Ads for a few weeks, and then disappear right before you need them.

For Investors & Buyers

Real estate investors and buyers face a lot of the same frustrations. Even if they have all cash and want to buy fast.

The biggest standout challenge is connecting with serious sellers. Finding those who aren’t burned out on junk marketing, getting to make them an offer, and just getting to sign purchase contracts. Kent says the average experienced investor who does the real math on their lead generation knows they are probably easily spending $3,500 to $5,000 a deal once they finally get one to the closing table. That’s okay, if they are making $50,000 on that property. Though they can bleed a lot more in drag time and dealing with the stress of gaps between deals.

Even once they get one under contract, then they get the pleasure of navigating the hyper-inefficient due diligence process. They’ve got to find a lot home inspector, get photos, have title done, and access a variety of fragmented records systems to know what they are really buying and how much it will really cost them.

There are thousands of real estate investors hungry for properties, it’s just a matter of fixing this disconnect and streamlining things.

Kribbz: Crushing it for Buyers & Sellers

This is where Kent Clothier’s Kribbz comes in!

Kribbz for Home Sellers

At Kribbz.com home sellers get a fresh new experience. It is a platform where they can list their home absolutely FREE.

Better than free, Kribbz sends out a representative who takes awesome photos and video for them, for free too. Kribbz does a ton of due diligence like having a professional home inspector come out to determine what repairs if any will need to be made by the new buyer. Then all the private and public data is pooled together online for the buyers.

No real estate agents do this. Not even for $100,000 in commission.

Then, when the property is put up on Kribbz, it kickstarts a 24 hour auction. Within 24 hours the seller will absolutely know for certain what their home is worth for cash in an immediate sale to a qualified buyer.

The seller isn’t even required to take the offer. So, they get all this, find out for sure what they can get for their home in the market, without all the Realtor commissions or showings. Deal done. Get on with your life.

Kribbz for Buyers

Kribbz kicks all wasted time and speculative expense on due diligence and marketing to the curb for buyers.

You see a property online. Make a cash offer. Win bids. Close ASAP.

Better yet, you get all of this prime info upfront. You get legitimate photos and video, an inspection report, and know the value and rehab costs right away. No guessing. No waiting weeks to find out if this is even a deal while your capital is tied up and your time is going down the tubes.

Kent says this can save buyers 95% of the time they care currently spending. Imagine how many more deals you could do, and how much more you could make, if you had 95% more time!

Plus, behind the scenes of this technology, Kent’s team has built it from the ground up with blockchain. While local municipalities still need to catch up, this is engineering what’s next. Ultimately Kent sees this unique technology bringing all the privacy of crypto to real estate, with all the transparency buyers need to instantly be able to evaluate properties and purchase them as easy as anything else online.

That will be awesome when it kicks in. Yet, right now buyers can use Kribbz to gain more time and profitability, while sellers can get insane value help in really selling their homes fast.

Kribbz expects to be national within 3 years. So, vendors like home inspectors who are reputable and can handle a high volume of business should reach out to the platform to apply to be preferred providers in new destinations as it expands.

Try it out for yourself now at Kribbz.com

 

Kathy’s 2019 Housing Forecast

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By Kathy Fettke, Co-CEO of the Real Wealth Network

Welcome to my 2019 Housing Forecast! I’ve been doing these predictions for many years starting well before the housing crisis, when loans were easy and home prices only went “up.”

I was a mortgage broker back then, and knew something was very wrong in the lending world. I couldn’t understand how it made sense that I was able to give a loan to just about anyone… and I got my answer in2008 when the housing market crashed.

Since then, it’s become my passion to understand the politics behind economics, so that I’m never caught off guard again. Please note:these thoughts are my opinions only. and not to be construed as financial advice.

My theory on the housing market boils down to these three factors:

Real estate values are tied to jobs.

Jobs are tied to the economy.

The economy is tied to Federal Reserve policy and government regulations.

That’s a very simplified version of the housing market machine, but decisions by the Federal Reserve and the government can have a torpedo-like impact on real estate. So if you take a  close look at what’s happening with the central bank and government policy, you might get a clue as to what is coming.

The Federal Reserve

The Federal Reserve attempts to regulate the economy by controlling the money supply. When there’s more money flowing, prices tend to increase. When there’s less liquidity, less money circulating, prices tend to decline. One of the ways the Fed controls the circulation of money is by raising or lowering the overnight lending rates –basically what it costs banks to borrow money and lend it out.

The Fed lowered these short-term interest rates to near zero levels after the Great Recession, in an attempt to jumpstart a flat-lined economy. It also bought bonds to keep interest rates low, and launched quantitative easing programs that essentially created money “out of thin air” for circulation.

It worked! With trillions of new, freshly minted dollars circulating, the economy came back to life, and a decade later, is booming.

But, a boom can also lead to a bubble, and bubbles burst. So the Fed regulates booms by lowering interest rates. One sign of an overheated economy is runaway inflation, so the Federal Reserve set 2% inflation as a benchmark for raising rates. Inflation hit that 2% mark in 2015, so the Fed began to reverse it’s easy money policies by raising rates.  Since then, the Fed has raised rates nine times, including four rate hikes in 2018 alone.

This attempt to slow things down also worked!

It’s not surprising. Higher rates make everything more expensive, which can curb borrowing and spending. This effectively pulls the throttle on the economy and slows down inflation.

Plus, there may be another reason why the Fed has been steadily raising rates. The economy has been booming for a decade now, and many economists believe it’s now near its peak. Some are predicting a recession by 2020. One of the Federal Reserve’s arsenals for turning around a recession is to lower interest rates. But if rates are already low, the Fed has nowhere to go. It has to go up first so it can go down again in the future. Therefore, some say the Fed has been raising rates so that they can lower rates again next year.

Mortgage Rates

Higher short-term interest rates makes it more expensive to buy cars,take out equity loans, and use credit cards. They also make variable-rate mortgages higher, but they do not have a direct influence on long-term mortgage rates. In fact, in December when the Fed raised rates for the 4th time, long-term mortgage rates actually went down. Why?

Long-term rates follow the bond market more closely than the Fed Fund rate. When investors are confident, they invest in the stock market. When they are fearful, they seek the safety of bonds — specifically the 10-year Treasury note. Those same investors tend to flock to the safety of mortgage-backed securities. When more investors are buying, prices decline. So when there’s more fear in the market, long-term interest rates tend to soften.

The Fed’s December rate hike rattled the stock market, sending anxious investors to the safety of bonds. As a result, stocks took a sharp nose dive in December. More purchasers of bonds and mortgage-backed securities effectively lowered long-term mortgage rates. This could help boosts home sales in the Spring.

The Federal Government

When it comes to the federal government, we’ve seen major policy changes that are influencing the housing market. Several are contained in the massive tax reform package that cut taxes and changed the rules for deductions. By lowering the corporate tax rate to 21%, businesses have more money to reinvest and expand their workforce, which puts more people back to work.

One of the biggest benefits for real estate investors is the new pass-through rule that allows people with LLCs and similar business operations to take a 20% deduction. So there are big benefits for all those Mom and Pop landlords who operate as LLCs. The new rules also preserve the highly-prized 1031 exchange, which was at risk of being eliminated. The new Opportunity Zone tax break program is also part of that tax package.

Homeowners didn’t make out as well. They lost deductions for things like vacation homes and large mortgage payments, making homeownership, for some people, more expensive.

Low Unemployment

As I mentioned, those tax cuts were designed to lower the unemployment rate, which is now so low that it’s actually unhealthy for the economy. The data shows that we have more open positions than people looking for jobs. When there’s a shortage of workers, employers have to pay more. That extra expense is then passed on to consumers in the form of higher prices which contribute to inflation. If we start seeing higher prices, the Fed will be inclined to raise those short-term interest rates, which can also trigger other repercussions, like that stock market volatility.

What we need is workforce growth right now — not job growth. And this is a critical element for today’s economy because our workforce is actually shrinking. The U.S. birthrate has dropped to a 30-year low and continues to fall. Baby Boomers will be retiring in massive numbers, leaving more open positions in their wake. And there’s the debate over immigration, and the value of immigrants for jobs like farming and construction.

Economic and Housing Repercussions

So here are some of my predictions for 2019:

The GDP will slow down to around 2% from 3%, as the effects of those tax cuts wear off. High housing prices and interest rates could also help slow growth, along with trade tensions, domestic politics, and the current pullback by China. But, I don’t think we’ll see a recession, this year.

Unemployment will rise slightly due to a changing workforce that includes less corporate dollars for new jobs. An unemployment rate of4 to 6% is considered healthy, so a slightly higher jobless rate could be good for our economy.

Mortgage rates will remain relatively low. The Fed is expected to hold off on rate hikes during the first half of the year as it reassesses the economy. If we see another rate hike or two, it probably won’t take place until later this year.

Consumer debt will increase because it’s now more expensive to borrow money.

Demand for rentals will remain strong because homeownership has gotten more expensive.

Return to Normal Gains

We’ve been so spoiled over the last 10 years by double-digit gains. Investors need to start expecting more normal returns. Syndications will go back to 6% preferred returns, with an equity kicker on the back end that would bring the IRR to just over 10%. Unless you find that home run — like our development in Costa Rica, where we got the land cheap and received entitlements quickly such that we were able to get our glamping resort up and running, effectively lowering holding costs. We are expecting investors to receive an 18% return on that one. But these types of deals will be fewer and further between.

If you’re expecting another 2008 housing meltdown where you can pick up properties for pennies on the dollar, you may be waiting a long time.

There is No “One” Housing Market

We also have to remember that the national housing market isn’t just “one” housing market. Instead, it’s made up of thousands of diverse housing markets. The key to higher returns is finding emerging markets — those with job and population growth, but with real estate values still below their peak. These types of areas give investors both cash flow today and a strong chance of appreciation in the future — a win/win, whether a recession is coming or not.

What happens when we do get hit by another housing recession?

We have to remember, today’s housing scenario is very different than in 2008. Back then, loan underwriting was loose. Today, it’s still very tight. This time, most homeowners have equity in their home. Back then, they did not. Today, homeowners are locked into historically low interest rates. It would be much more expensive to sell or to rent, so they will hold onto their homes. Plus, Airbnb wasn’t prominent in 2008. Today, people can rent out rooms in order to make house payments.  That brings me to my 7th and final prediction:

The housing market will remain on solid ground although price growth will be slower.

The recent slide in mortgage rates is corresponding to more activity from home buyers. That’s an indication that by keeping interest rates about where they are now, the housing market will thrive. We may see some turmoil at the high end of the housing market due to things like the tax law and stock market gyrations, but the housing market as a whole will likely see growth in more affordable markets.

The trick is to find the right markets. Real estate investors want to be in growth markets. And there are several good markets where that makes sense. The Real Wealth Network has identified 15 markets that can provide a good return on your investment. Some are better for appreciation. Others are better for cash flow. We have more information about those markets at our website www.realwealthnetwork.com

 

Kathy Fettke

Kathy Fettke is Co-CEO of Real Wealth Network and best selling author of Retire Rich with Rentals. She is an active real estate investor, licensed real estate agent, and former mortgage broker, specializing in helping people build multi-million dollar real estate portfolios that generate passive monthly cash flow for life.

With a passion for researching real estate market cycles, Kathy is a frequent guest expert on CNN, CNBC, Fox, Bloomberg, NPR, CBS MarketWatch and the Wall Street Journal. She was also named among the “Top 100 Most Intriguing Entrepreneurs” by Goldman Sachs two years in a row.

Kathy hosts two podcasts, The Real Wealth Show and Real Estate News for Investors — both top ten podcasts on iTunes with listeners in 27 different countries. Her company, Real Wealth Network, offers free resources and cutting edge education for beginning and experienced real estate investors. Kathy is passionate about teaching others how to create “real wealth,” which she defines as having both the time and the money to live life on your terms.

 

 

TERICA KINDRED: This Girl is ON FIRE!

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By Karen A. Walker

For Terica Kindred it’s not about real estate. It’s not even about money.  For her, it’s all about freedom. Real freedom—the kind you can own…. and share.

Girl On Fire

She bought her first property, a four-plex, at age 20. By age 23, Terica Kindred owned 10 rental properties. By 24 she was a millionaire.

But it wasn’t smooth sailing from there.

At age 30, Terica lost 1.2 million, thanks to what she pithily refers to as “big drama.” Misplaced trust in a construction manager whom she realized, too late, was over his head in his responsibilities, triggered a serious loss of her own funds.

Yes, that was devastating.

But, ultimately, no worries. She’s got this. Terica has a broad view of living, and it includes ongoing learning, serving, growing and always improving.

For Terica, when you hit the wall, it’s a learning opportunity. Dust off your feet, learn from your mistakes, head in a new direction, and move on.

In a nutshell, Terica and Nike share the same motto: JUST DO IT.

Start

Born and raised in south central Los Angeles, Terica earned a computer science degree from the University of California, Irvine.

Entrepreneurial to the core, while in college she and more than 20 student colleagues developed an early computer game for mobile phones. They were going gangbusters, things were starting to take off and eventually the project needed Venture Capital (VC) funds to grow. It was an exhilarating journey… and then, suddenly, it died.  VC funders at the time just couldn’t imagine anyone playing games on their mobile phones. Yes, really!

The short-sightedness of deep-pocket investors was a significant learning moment for Terica. Lack of funding was a limitation.  Depending on someone else for funding could destabilize the trajectory of a project, or even of a life, her life.

 No Limits

Terica wanted no part of funding limitations in the future, so when the opportunity to work for Deloitte in Orange County, California, opened up, she took it. It was a good company and a good job in the field of tech solutions. But her dream was bigger than any corporation could hold.

That’s when real estate became a passion.

“I’m a landlord’s daughter,” says Kindred when asked what sparked her interest in real estate.

“I love freedom, and real estate was an easy way to get that. I quit my job before I turned 30 and earned enough residual income to cover my life using real estate. I love that!”

Although she grew up around real estate, she admits her father has a different approach from hers.  She focuses on flipping, and she’s become an expert at thoroughly having done and understanding every aspect of the business, including construction, managing costs and delivering what buyers want. Her father sighs. As she explains, “my father is a buy and hold guy. He thinks what I do is crazy!”

Most people, however, wouldn’t agree with her father. Instead, they might say she’s a positive force to be respected. No stopping her. Full steam ahead, getting wiser and better every day.

Her mother would agree on this last point, calling her daughter “unstoppable” and even becoming her first investor, with ongoing investing as she sees fit. The pursuit of freedom, it seems, is contagious.

Proof is in results

Terica’s acquired-by-doing expertise in identifying and flipping properties in more affordable locations than her native California, has paid off.  Big Time.

She first focused on building a strong passive income to replace and exceed her corporate income.  Flipping properties prudentially enabled her to cull profits to purchase rental properties that paid a monthly, residual income and provided significant tax breaks.

Terica also employed her computer science and internet marketing savvy to grow her business in ways most real estate entrepreneurs never consider, let alone master.

Moonlighting in real estate while holding down a steady job, Kindred was able to quit her job as soon as she was earning more in passive real estate income than in her corporate paycheck. It’s a strategy she advises to others.

No slowing down

In 2010 she relocated to Atlanta and hasn’t looked back since. Nor has she slowed down.

Amid increasing real estate deals and new ventures, Terica managed to convince her then-boyfriend, Jasen, who had lost his job at the time, to stop looking for a new job and to instead join her on the freedom path. He was stunned…at first. Then he took a deeper look and decided to test it out.

Turned out, Jasen liked the adventure and the profitable results. He became an integral part of the business, and of Terica’s life. They were married more than a year ago and welcomed their first child the end of last year.  Talk about adventures!

Full Circle, Giving Back

Now less than 10 years after quitting her corporate job, Terica’s third book, My Freedom Blueprint, is hot off the press.  She considers the book, and her system, a gift she’d like to share with others.

Not surprisingly, Terica penned the book while pregnant. For her it was fairly easy writing since she continues to follow and live what she advises to others.

MyFreedomBlueprint.com conveys the gist of Terica’s real estate investing strategy and options.  It includes strategies for buying, fixing and flipping properties, investing in high-yield, low-taxed income properties, lending funds to other investors for double-digit returns, wholesaling properties for quick cash and much more.

None of it evokes cheesy gimmicks or impossible promises.  Quite the opposite.

Terica’s newest venture – My Freedom Blueprint – aims to build a mutually profitable community of vetted, trusted investors who can and will help each other achieve their own freedom dreams.

For Terica, ultimately, it’s still all about freedom!

To learn more or to reach Terica, go to MyFreedomBlueprint.com.

 

Karen A. Walker is a seasoned, award-nominated journalist with a passion for real estate.

A Hidden Wealth-Building Tool Every Investor Should Know About

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If you already have a million dollars set aside for your retirement years – a figure most experts recommend as a goal – you’re not the norm.

According to 2013 data from the Economic Policy Institute (EPI),  individuals living on the cusp of retirement age (in their 50s and 60s) are well behind $1 million in savings. As of five years ago, soon to be retirees are coming in at $124,831 and $163,577 respectively.

A retirement savings crisis

More recently, an annual survey conducted by insurer Northwestern Mutual, found that one in three Americans has less than $5,000 set aside for retirement!

And while the data in Northwestern’s report is impacted by other age groups, the fact is that many Americans are well behind the one million dollar goal for their retirement portfolios.

In fact, a 2017 report from the Government Accountability Office (GAO) discovered that “about half of households age 55 and older have no retirement savings – and up to two-thirds of workers may not have saved enough to maintain their standard of living in retirement.”

Whether or not you’re behind in your retirement savings goals, as a savvy investor, you know why it’s smart to always be on the lookout for a great opportunity to grow your portfolio.

A self-directed IRA (SDIRA) is one such opportunity. And while it’s an investment tool that’s been around a while – since the 70s, actually – the truth is that it’s often “hidden” in plain sight.

Why?

Because banks and brokerage firms are, by and large, the custodians who offer traditional IRAs, which invest in stocks, bonds, mutual funds, etc.

Alternative investments, then, aren’t on their radar so of course, they’re not going to advertise SDIRAs.

Investment choices

While there are many things you can choose to invest in, the following investment choices are among the most common.:

Stock market

Many individuals – perhaps even you – have made a lot of money on the stock market. But not everyone wants to invest in stocks, bonds, futures, commodities, etc.

Fortunately, for these individuals, there are always alternative investment options such as property investing.

Real estate investing

As you know, investing in real estate can be a very satisfying way to build wealth. It’s easy to understand and much of it is entirely within your control.

But, even if you choose to diversify your real estate holdings among a variety of real estate types; commercial, residential, multi-tenant, etc., at the end of the day you’re still investing in one asset class.

Pensions, 401k

Most employers offer some type of retirement funding option…and if it suits your retirement strategy these can be useful ways to build your nest egg.

However, you’re limited on how much you can contribute and you’re not in full control of the investments your plan makes.

Traditional and Roth IRAs, Self-Directed IRAs

With a self-directed IRA, you are in complete control of the investments you choose.  In fact, one of the best things about a self-directed IRA is that you can invest according to what you know and like.

Wine connoisseur?  Great! Your SDIRA can invest in a winery.

Want to lend money to a family member?

You may be able to do that (assuming they’re not a disqualified individual)

And then, of course, there’s real estate.

Following are just some of the types of real estate an IRA can invest in:

  • Raw land
  • Rental income properties
  • Manufactured homes
  • Public storage units
    Trust deeds
  • Secured notes
  • Parking lots, etc.
  • Timber rights
  • Mineral rights
  • Tree farms

Bottom line, with an SDIRA you have TOTAL CONTROL over your investment choices.

A quick overview of prohibited and acceptable transactions and parties when using a self-directed IRA:

  • You can’t buy from yourself or another prohibited person. (think “up and down” your family tree; parents, kids, spouses)
    • You can, however, go “left to right”, so siblings, uncles, aunts, cousins, etc. are not disqualified parties.
  • You can’t use your IRA as collateral for a personal loan.
  • Co-mingling is prohibited (e.g. if your IRA is the owner of record and you start paying for the roof leak, etc. with taxable dollars, the IRS considers it to be commingling your taxable money with your qualified money)
  • As you’re probably aware, expenses and cash flows would have to go through the IRA. Because it’s the owner, all the rent and income flow back into the IRA.
  • Obviously then, the same thing would apply if you had an expense in connection with the property (or other assets).

Self-directed IRA changes for 2019

If you already invest in an SDIRA or plan to, the following changes for self-directed IRAs will happen next year.:

New contribution limits for 2019

  • 2018 – $5,500
  • 2019 – $6,000

Individuals over 50

  • 2018 – $6,500
  • 2019 – $7,000

401(k) employee contributions

2018

  • under 50 – $18,500
  • 50+ – $24,500

2019

  • under 50 – $19,000
  • 50+ – $25,000

SEP IRAs

2018 – $55,000 Max Considered Compensation – $275,000

2019 – $56,000 Max Considered Compensation – $280,000

SIMPLE IRAs

2015-2018

  • Under 50 – $12,500
  • 50+ – $15,500

2019

  • Under 50 – $13,000
  • 50+ – $16,000

As of October 2018, the ability to recharacterize a Roth conversion has ended.

As of March, 2018, there was a reported $9.2 Trillion in IRAs in the U.S. (up from $8.7 trillion).

If you’re looking for an investment option outside of Wall Street, a self-directed IRA is a great investment choice.

Creating your SDIRA

Opening up your own self-directed IRA is easy, but it will require setting it up with a custodian who can handle the administrative work for you to make sure you get the tax breaks you’re eligible for and that the IRS requirements are met.

  1. Open and fund your IRA (using new deposit or move money from an existing IRA or another retirement vehicle)
    1. Fill out an application
    2. Provide proof of your identity (eg. Drivers’ license)
    3. Provide a method of payment
  2. Choose your investment
  3. Purchase the investment through your IRA (note: the asset will not be in your personal name, but will be held in the name of the IRA, for your benefit (your custodian will send the funds from your IRA to purchase the investment)
  4. Manage your investment
  5. Sell the investment – proceeds return to IRA tax-deferred or tax-free and can be used for future investments

Remember…the custodian you use is passive – they don’t give you advice, they’re just a holding entity, that’s all.

When you’re looking for a home for your SDIRA, go with an experienced company like UDirectIRA.

UDirectIRA provides administrative services for investors.

“We help people invest outside the stock market to improve their financial future,” said Kaaren Hall, CEO of UDirectIRA. Investors should know that self-directed IRAs are a great way to invest in asset classes that they understand.

“There is a retirement crisis in America. Ten thousand people are turning 65 every day. In fact, I read one article that said there are more older people than there are children in the world, which is a first time ever, so our population, on the whole, is aging, but people aren’t prepared to retire.

“Even if you have, for example, $100,000 in an IRA account. It seems like a lot of money, but I did the math one time and figured out that if you’re 59 1/2 and you’ve got $100,000, assuming no gain or loss, that means only $396.83 a month if you live till 86.5.  We have to get busy and build our nest eggs so we can have a quality retirement.  $400 a month is not going to cut it for anyone.”

“Know that if you take even, monthly distributions, that’s only going to give you just under $400 dollars a month!

“Everybody needs to retire at some point in time, and most people don’t have enough money saved. It’s a real crisis and we’re trying to help people avoid that through the use of Self-Directed IRAs.  A Self-Directed IRA, invested in asset classes our account holders understand,  means more control over their financial future”.

 

Kaaren Hall

Kaaren has helped hundreds of people self­direct their retirement savings. A native of California, she has a 17­year background in Real Estate, Property Management and Mortgage Lending. She has worked at such companies as Bank of America, Centex Homes, Pulte Homes and Indymac Bank. She’s held a real estate license in Washington, T exas and California and a Life & Health license in California.

Her company , uDirect IRA Services, LLC, offers self­directed education and services to investors, providing excellent customer service. Kaaren is a public speaker and master networker . A mother of two, she lives in Orange County.

 

Are Investments in Temporary Rentals a Good Investment?

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By Edward Brown

With the popularity in Air BNB [for discussion purposes, we are using Air BNB, but there are other similar companies that could be substituted in] gaining traction in the market place, many real estate investors have been looking at purchasing residential real estate for the specific purpose of renting the real estate on a short term basis similar to the hotel model.

Rather than attempting to garner a month to month tenant or a longer term lessee, some real estate investors have been looking at a model wherein they forgo the security of known monthly rent in exchange for the hope of higher income per month by renting to vacationers on a short term basis. This type of rental is especially the case in popular vacation destinations such as San Francisco and the Napa Valley as well as the outlining areas.

There are pros and cons to this model. From a pro standpoint, many times, renting to vacationers for less than half a month can earn more than a full month under a typical month to month tenant. In the Bay Area, monthly rental may be $3,000 on average, but the nightly rental of an Air BNB for the same house may average $300 per night. Also, eviction is not usually a factor in the vacation model. Most vacationers are not squatters by nature, and lessee evictions [especially in tenant friendly states such as California] can be expensive in time, aggravation, and money. Although there will always be the horror stories of the vacationer who does a fair amount of damage to the house, these instances are much less than the usual monthly renter.

On the con side of renting via Air BNB, there is no security of rental income surety. One never knows how many days the house will be rented. Also, some months may be more seasonal than others. For instance, attempting to rent your Napa Valley place out in February may rent for far fewer days than in August when the vineyards are more in bloom. Other cons include the movement by cities to either tax the income via a “transient” tax or to not allow rentals for shorter than 30 days. This has recently been a big issue as neighbors complain about noise, constant flow of traffic, and so many different renters coming and going as well as the belief that property values go down when living next to this type of rental. Since the number of renters using Air BNB for more than 30 days is much smaller, the odds of getting a renter for more than 30 days to make up for the lack of days being rented in totality as compared to the desired occupancy of the Air BNB rental are very slim. In addition, someone desiring to rent under these circumstances is usually not willing to pay the typical nightly rent for the whole 30 days. Either the “landlord” will advertise a bargain rate for 30 days, or the prospective renter will negotiate a lower rent. A typical $300 per night rental using Air BNB might go for $150 per night for a 30 day rental.

Security deposits are normal for both Air BNB and typical rental situations, but Air BNB will most likely have an additional cleaning fee that may or may not match the actual cost of cleanup. In addition, the Air BNB rental will need to be furnished including bedding, towels, and other necessities whereas most typical rentals usually come unfurnished. This adds to the cost of the set up and continuing maintenance of the Air BNB as well as having someone keep an eye on the rental to make sure the unit is in the same condition from tenant to tenant.

As with Uber, Air BNB has gained traction. With Uber, it took some time for the general public to see that this was similar to taking a taxi and, once people got the hang of it, it became the norm. With Air BNB many vacationers feel comfortable staying in someone’s house that they know has been prepared for them in the same way a hotel makes up a room. There is no room service with Air BNB, nor are the sheets changed on a daily basis, but the costs can be quite attractive to the renter as well as the usually much larger space they get by staying in a house versus a hotel room.

From a lending standpoint, most lenders will severely discount the anticipated rent expected from the borrower who wants to buy a house to place in the Air BNB system. In fact, many traditional lenders will not look at lending in these circumstances with unknown income. Traditional lenders may impute income if the rental is a typical leased situation [although usually discounted somewhat], but Air BNB income is not like a hotel that has many rooms. Either the Air BNB unit is 100% rented or 100% vacant. Hotels have the luxury [from a lenders point of view] that the hotel’s experience may show 60-80% occupancy.  Especially if the Air BNB owner is a first timer, most banks will be very wary of lending to borrowers looking to buy a house for Air BNB income. How does the new owner know how much to charge? These and other questions will make banks turn down more often than approve these types of loans.

If the buyer of an Air BNB house has experience and other rentals in their portfolio, the bank may be more inclined to take a closer look. Otherwise, the buyer of the Air BNB house will have to look for alternative lenders. If the buyer/borrower puts a significant down payment, the alternative lender may be able to be convinced to make the loan since this type of loan would be considered a non-owner occupied [no consumer] loan and not have as many restrictions in its lending practices due to Dodd Frank, TRID, ATR, and other regulations. The alternative lender is more willing to look at what can be done with the house upon a foreclosure. Can the property be sold easily to an owner/user? Can it be rented to a normal tenant lease? Most likely, the alternative lender will not look at keeping the house [upon foreclosure] as an Air BNB; that is a business rather than a rental and in need of more management.

The prospective buyer of an Air BNB should look at what a typical lease would look like should the Air BNB model not work for any number of reasons previously mentioned. If the typical lease income is too far below what is prudent from the standpoint of NOI, the buyer may decide to choose a different property to Air BNB if that model is so desired.

Edward Brown

Edward Brown currently hosts two radio shows, The Best of Investing and Sports Econ 101. He is also in the Investor Relations department for Pacific Private Money, a private real estate lending company. Edward has published many articles in various financial magazines as well as been an expert on CNN, in addition to appearing as an expert witness and consultant in cases involving investments and analysis of financial statements and tax returns