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

 

Using The Right Mailing Lists to Locate Motivated Sellers (Part 1)

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By Kathy Kennebrook “The Marketing Magic Lady”

Implementing the right list and using the right letter when creating your direct mail campaigns to locate motivated sellers is crucial to your success as a Real Estate Investor. There are lots of different ways to find these lists and lots of different types of lists to choose from.

The easiest way I suggest to locate a list to use for mailings is to simply go to your property appraiser’s office or auditor’s office and have them create it for you. There are many different parameters you can use to create these lists.

Some of the lists you could create might be directed at out of town owners, deed transfers, zip codes ranges, sale dates, estates, evictions, delinquent taxes or pre-foreclosures. These can all be good lead sources for you to use to find motivated sellers and these are lists that I use in my business on a daily basis in addition to several others.

Sometimes these records are available on CD and sometimes they are available as a paper copy. Every county differs in how they distribute this information. I suggest going down to the property appraiser’s office and speaking with someone there directly. Do not call. You may get someone on the phone who doesn’t understand what it is you need and you will not get the lists you need. Since you will be using this list for several months to do repeat mailings, it would behoove you to get the right list the first time.

There are also mailing list services that provide this service for you and usually you can locate them online by searching mailing lists or mailing services. Just be sure that whatever list source you are using has a list that has current information. Otherwise you are wasting your time and money on list that will net you zero results. I suggest getting a small list of around 100 pieces to send a sample mailing in order to test the list before spending a lot of money on this resource.

There are a lot of good internet resources to use to find excellent lists for finding motivated sellers using specific parameters. Once again, make sure you check the age of the list and the reliability of the company before making a long-term commitment.

Another way to find lists of motivated sellers is to go to the courthouse and check property records. One of the lists you can create is notices of default or lis pendens. These are people who are in pre-foreclosure. There are also probate and bankruptcy filings you can find at the courthouse that will provide a resource for leads.

When you invest in my Marketing Magic System I provide the letters for you to use along with resources for all the mailing lists you will ever need to create successful direct mail campaigns.

For more information on mailing lists to use in you Real Estate Investing Business check out part 2 of this article. In the meantime, check out my website at Marketingmagiclady.com for all the tools you need for you Real Estate Investing business including all the resources and letters you need to create successful direct mail campaigns for your real estate investing business.

Kathy Kennebrook

Kathy Kennebrook is the ultimate success story. She spent over 20 years in the banking industry before discovering the world of real estate. After attending some real estate seminars this 4 foot 11 mother of two got really excited and before you know it she’d bought and sold hundreds of properties using none of her own money or credit.

Kathy holds a degree in finance and has co-authored the books- The Venus Approach to Real Estate Investing, Walking With the Wise Real Estate Investor, and Walking With the Wise Entrepreneur which also includes real estate experts Suze Orman, Robert Kiyosaki, and Dr. Wayne Dyer.

She is the nation’s leading expert at finding highly qualified, motivated sellers, buyers and lenders using many types of direct mail marketing. She is known throughout the United States and Canada as the Marketing Magic Lady. She has put together a simple step-by-step system that anyone can follow to duplicate her success.

Kathy has been speaking throughout the country and across Canada for over 14 years and has shared the stage with Ron LeGrand, Dr. Phil, Dan Kennedy, Mark Victor Hansen, Ted Thomas and Suze Orman to name a few.

Kathy is going to share with you how she generates a seven figure income by mailing a handful of letters throughout the year to highly selected targets by knowing exactly what to send them, who to send them to and exactly how to deliver her message. She will teach you the secrets of pre-screening and automating your marketing and follow up systems to put your entire Real Estate business on auto-pilot.

 

The Rise of Private Capital Lenders and Why It Matters for Fix and Flip Investing

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By Ryan Roberts

Things have changed dramatically since the crisis of 2008. Spurred by a collapse of the housing market, the most financially tumultuous time in recent history drove large-scale, well-known banks to pull the e-brake on real estate lending. While the jury is still out, there’s no denying that the crash of the late-2000s was exacerbated by banks handing out mortgages to risky borrowers who, frankly, couldn’t afford them.

So, suffice to say that, even to this day, those latter-mentioned banks are still quite hesitant to give out speculative loans. It’s like selling the same jug of milk within the same financial bounding box. You either fit within the parameters of that box, or not. However, it’s this exact hole in the market that’s allowed private lenders to enjoy a massive second wind of popularity.

Lending from Non-bank Intermediaries

Private lending has turned the tables on the traditional banking industry’s foremost product: Loans. Ten years since our nation’s most recent economic downfall, investors, from all industries and niches, having poured literally billions into companies and business that have been deemed by “Big Banks” to be too trivial or volatile to lend against.

Well, it’s turning out that this is an incredibly lucrative, healthy, growing market. Money flowing in is feeding the ten-year-long trend of private lending. In fact, its valued at $500 billion, according to figures recently published by Bloomberg. The numbers are only growing, quarter after quarter; by 2020, it’s estimated that private lending could top $1 trillion. Much of which is within a completely unregulated financial market.

Tech-savvy Entrepreneurs are jumping on the proverbial train to, quite literally, capitalize on this boom, all while making it easier for small-scale borrowers to find applicable lenders. Jordan Selleck, for example, created DebtMaven, which is like a financial Tinder of sorts, is matching borrowers with lenders. These types of tools are yet to exist at scale in the real estate investment sphere.

Now after just two years, almost 500 lenders are signed up on the platform, ready to match with a growing amount of private lenders on the hunt for lending opportunities. “They’re hooked on deal flow and willing to pay,” Selleck told Bloomberg in regards to his lenders. “It’s grown at a crazy pace.” It’s not the same type of lending were used to, but a great analogy of the overall market trend.

What this Means for Fix and Flip

Since the financial crisis of ‘08, non-bank intermediaries—i.e private equity firms, hedge funds, and other private capital lenders—are continuing to flourish, making up a greater proportion of all global real estate assets. For private real estate lenders, this surge of private capital is amazing news.

So, just why is private credit so intriguing to the lenders? Well, it all boils down to yield and regulation (or lack thereof). Ten years ago when the central bank, essentially, came to a standstill, profits from loans all but disappeared. To this day, those large-scale banks are still struggling to pull yields from those same-era loans.

To the contrary, those who are in the business of private lending can see incredibly lucrative returns. All-in yields of around 8 percent are normal with these loans, sometimes accruing even higher profit percentage rates (spread, interest, junk fees). When you compare that to the dismal 4 percent regularly touted by investment-grade firms and corporate bonds, it’s no wonder why private collateralized lending is enjoying its current hay day.

For outsiders, e.g. borrowers who are looking for loans collateralized by real estate assets, the benefits of these private lenders are nearly endless. For one, credit ratings are often not nearly as important in underwriting, due to the collateral and high-security nature of those loans. It’s obviously not the borrower that’s anchored to the loan. It’s the asset. Rates are also typically higher on these financial products. A caveat to the risk vs. reward profile.

Also, unlike bonds, private loans aren’t generally traded in the open market, meaning their interest rates and financial fragility will stay intact over the duration of that loan. These loans, too, aren’t commonly held on the books of a private lender. It’s common to see heavy paper trading of these debt instruments between private financial institutions the second they are funded. It’s a capability that lenders with lower capital costs can enjoy the luxury of profiting from.

Why is this important? Well, in a very compact nutshell, it means this: Your loan (or loans) aren’t bunched together with other financial assets associated with a said private lender. So, heaven forbid that private entity goes under, your loan is associated with company quotas, revenues, etc. when they do inevitably file and fold — the assets still stand.

It just so happens the larger banks are also noticing a favorable risk vs. reward profile — and investing heavily. Prior Blackstone, KKR and Goldman Sachs employees have created young startups and are amongst industry veterans that have amassed $9.5 billion in private assets over the past few years.

The Future of Fix & Flip Collateralized Lending
is ripe for the picking

Private lending is booming and likely on the cusp of a major market shift. The unregulated nature of our industry probably won’t last, however it’s favorable to lenders and even real estate investors who don’t check the normal financial product (QM) lending boxes. Big financial institutions rarely touch these funding scenarios or our financial products, but are clearly interested in the upside.

There are ~1.3m realtors in the US. The profound industry question is, how do you find those individuals sourcing investment opportunities in the real estate market? They self identify as investors, yet in most cases have little to no capital.

Upwards of 60% of these “real estate investors” (purchase decision makers) are realtors themselves, or hold a real estate license. They defer to private lenders to save deals falling out of escrow or even to poach an investment opportunity with their advantageous position in finding that property first.

Deal flow isn’t about the borrower. Given that private lending is anchored to a physical asset makes lending an entirely different game. It’s no longer about the credentials, income, credit or liquidity of an individual – but their aptitude and ability to hunt and gather strong investment opportunities on behalf of a private lender. Contrary to industry standards these individuals are your sales team. In the coming months or even years, keep your eyes peeled and stay fully focused on this market opportunity.

 

 

Ryan Roberts

Ryan Roberts is the Sr. Director of Marketing @ Triumph Capital Partners, Triumph recently formed a Joint Venture with Brixton Capital, a San Diego based real estate investor and operator. The firm’s principals have a combined 40+ years experience in property development and real estate finance. Brixton’s portfolio totals 10M+ square feet and is valued in excess of $1.4 billion. Reach Roberts at (616) 635-9732 or [email protected]

 

The Best Inheritance You Can Leave Your Kids

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By Fuquan Bilal

What inheritance are you leaving your children?

I know you would probably expect me to say “mortgage notes,” or “passive income properties.” Those are great investments. They might be some of the best types of assets to pass on in an estate. Yet, there are some things which are far more important!

Financial Independence

We all know school has become all but worthless. With the exception of those schools and colleges the big funds and local governments which have turned into cash flow centers and real estate investments. You can do 13 years at school and walk out not even knowing how to use a debit card.

Savvy parents are working harder than ever to teach their kids about money. About how to budget, save, invest, make sure they understand the benefits of financial stability. Some are even teaching them about self-directed IRAs.

Those things are all important. I do all of those things.

Yet, I believe there is something even MORE important. That is teaching them how to be independent.

After all, that’s our one main job as parents. It is to teach them how to survive and thrive on their own.

Instilling Independence in the Next Generation

I rented some units to some college kids. It was amazing to see how they were still clinging to their parents for support at 19 and 20 years old. I don’t know about you, but I was far more independent and had to do a lot more for myself since I was 15. Maybe even 11.

I learned the value of work and hustle at a very young age. I did my own laundry and learned how to cook at 11, and handle personal hygiene.

My kids are now 10 and 16. We used to play mental math games on the way to school. I’ve had them plan meals, go to the grocery store and hunt for deals, and now figure out how to do it all online. I teach them real estate and how to get out in the field.

I’m pretty sure they can stand on their own two feet if they had to.

I want to be sure they won’t have to depend on others for the rest of their lives. Even on me. Knowing how to invest is a big part of that, but mindset is even more important.

Take the Lead

As I reveal in my new book, you can, and should pump positivity into them as possible. Build their minds and spirit. Let them know they can do anything they want. BUT – you’ve got to live it too. Practice what you preach. You can rock their world and shake their mindset big time. Do it well, and consistently and they can also become some of your best accountability partners! They’ll keep you in check.

Lead by example. Do what you want them to do, and explain it. That means budgeting, investing, following your dreams, and stepping up to do difficult things. Teach them to embrace adversity and challenges in order to get stronger in all these areas, so they can get more of what they want and are capable of.

Teach them smart investing and money management and how to stand on their own, who they can get help from and learn from, and to problem solve. With these, they’ll be able turn the smallest monetary inheritance or property portfolio into even greater multigenerational wealth. Failing to do this, and ignoring these conversations while you have the chance, your heirs can blow your multi billion dollar inheritance, property empire and lifetime of discipline and sacrifice in a matter of months.

What inheritance are you leaving your kids? I’d love to know what do you do to build these things into them.

Investment Opportunities

Find out more about investing in secured debt and real estate, go to NNG Capital Fund

Fuquan Bilal

Fuquan Bilal founded NNG in 2012 with the principal mission of capitalizing on the growing supply of mortgage notes in the interbank marketplace. Mr .Bilal utilizes his 17 years of residential and commercial real estate success to identify real estate opportunities and capitalize on them. To date, he has successfully managed three private mortgage note funds that primarily invest in singlefamily performing and non­performing mortgage notes. His financial acumen and proprietary set of investment criteria enable him to purchase underperforming real estate assets at a deep discount of face and market values, thereby increasing the value of the assets. This, coupled with his ability to maximize the use of leverage, enables him to build strong, secured portfolios with solid passive income flows.

“T” Is for “Time”

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By Jeffery Watson

Time can be the investor’s greatest ally or the procrastinator’s worst enemy.  Across America, thousands of baby boomers are waking up and realizing they have not used time to their advantage in building wealth and saving for retirement.  In my Roth Theorem, the Enhanced Rate of Interest (EROI) over a long period of Time (T) is a tool that works to build wealth for you.

I often speak to investors who have what I refer to as “one-hit wonders.”  They have been able to put some money to work for a time making a 15-18% rate of return on it, but the length of time the money was out working was measured in months rather than in years.  Compare that to another client of mine who very deliberately and calculatingly worked on an investment to have his self-directed retirement funds earning approximately a 15% rate of return for the next dozen years.  The amount of money he put to work in that transaction was sizeable, nearly a 6-figure sum.  That client understood the importance of getting time to work in conjunction with the enhanced rate of return to generate the type of wealth building he was seeking.

Time has been written about in many different ways in literature, in both negative and positive contexts.  When it comes to investing, I want you to think about how to make time an ally, something that works for you, by using it to put money to work in good investments earning an enhanced rate of interest (EROI), and then letting those investments move forward with earning you more capital to deploy into new deals.  You may want to stagger the dates of maturity of your various investments so you always have most of your money out working.

One of the best time management techniques I’ve seen is from an investor who has a “waiting list” of good opportunities and investments.  As his money comes back from his deals, he puts it back to work relatively quickly in deals that are working for 18-24 months at a time.  This allows that investor to consistently work his money while keeping it diversified and actively working.

Think about how you can make time an ally in your overall investing strategies.  If you feel you are short of time and retirement is rapidly approaching, or you may need to work beyond age 65 or 67 to accumulate more wealth to be able to retire, please remember not to sacrifice the quality of your investments in an attempt to get an unusually high rate of return.

Jeffery S. Watson

Attorney

Jeffery S. Watson is an attorney who has had an active trial and hearing practice for more than 27 years. As a trial lawyer, he has a unique perspective on real estate investing, wealth building and asset protection. He has tried over 20 civil jury trials and has handled thousands of contested hearings. Jeff has changed the law in Ohio 5 times via litigation or legislation:

Smith v. Rudler – 70 Ohio St.3d 397
In re Hugley – 629 N.E.2d 1136
Bahr v. Progressive Insurance – 2009-Ohio-6641
Snyder v. Snyder – 865 N.E.2d 944
H.B. 463 amending the Ohio Civil Rights Act

Jeff has also been a real estate investor since 1994, investing in both residential and commercial properties. He currently represents established real estate investors in commercial and residential matters when the transactions involve self-directed retirement accounts. As a frequent and popular guest speaker and teacher on stages and webinars, he is a recognized thought leader and innovator in the field of real estate investing, wealth building and self-directed retirement account transactions.

He is a nationally-recognized authority regarding regulatory concerns with wholesaling. He was the co-creator of the Option Contract method that revolutionized the short-sale flipping process. Thousands of investors have used documents created by Jeff to flip properties.

Jeff is general counsel to the National Real Estate Investors Association. Jeff is general counsel to and a cofounder of Realeflow, LLC, which made the Inc 500 list in 2011. He currently advises six different national organizations with a combined membership of over 250,000 investors.

From 2010 to present, Jeff has led lobbying efforts in Washington, DC on behalf of real estate investors which has brought about several changes in both government regulation and policy on distressed property purchases and resales. In 2014 and 2015, his efforts on Capitol Hill helped bring about change in the U.S. tax code and helped reinstate the Mortgage Debt Forgiveness Act. Since 2015, Jeff has worked to secure passage of the Seller Finance Enhancement Act.

Jeff’s efforts to secure reform in the real estate arena aren’t just on Capitol Hill. In his home state of Ohio, he has worked with the Ohio Division of Real Estate teaching on the legality of wholesaling.

He is a part owner of Venture Land Title II, LLC, and his law firm prepares deeds and other documents for two title companies. He is also legal counsel to a number of other organizations including Eagleville Bible Church, Inc.

Jeff is the author or co-author of 6 digital books:

  • “Understanding Self-directed Individual Retirement Accounts”
  • “A Guide to Private Lending”
  • “Short Sales Done Right – How to Profitably and Legally Navigate the Short Sale Jungle”
  • “Death of the Land Trust … in Short Sales”
  • “How to Hire Your ‘Dream Team’ ”
  • “Understanding the Foreclosure Process”

In addition to his digital books, Jeff authors an email newsletter twice a week and maintains a blog at WatsonInvested.com on investing, business and entrepreneurship which are read by thousands of successful investors.

Warning to All Renters: Renting a House Could Cost You A Million Dollars

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By Lex Levinrad

The Distressed Real Estate Institute has a report called “Warning to All Renters: Renting a House Could Cost You a Million Dollars!”

The report was based on the findings of a Distressed Real Estate Institute study that looked at data on thousands of single family homes in South Florida. “We looked at historical price data for these houses and completed a market analysis of how a typical first time home buyer could benefit by purchasing one of these houses today instead of renting the same house” said Lex Levinrad Founder of the Distressed Real Estate Institute.

“What we found is that prices have actually declined so much in South Florida over the past few years that in many cases it could actually be cheaper to purchase the house than to rent it” said Levinrad. “Even after accounting for property taxes and insurance in many instances it could still be cheaper to purchase a home than to rent it”. “This is a great time to buy real estate – especially if you are a first time home buyer and you can qualify for an FHA loan” said Levinrad.

The basis of the study was a comparison of the costs of a typical 3 bedroom 2 bathroom South Florida house which would appraise for approximately $100,000. There are houses in this price point in many South Florida Cities especially in Broward County cities like Fort Lauderdale, Pompano Beach, Margate and Deerfield Beach. These houses would typically rent for approximately $1,100 per month and would cost about the same in monthly mortgage payments if they were purchased with an FHA Mortgage Loan. “Our specialty is low priced single family starter homes which are most attractive for renters and first time home buyers” said Levinrad. “We know this market well because we purchase these houses directly from the bank and we often fix them up and then sell them to first time home buyers or renters that are looking for a rent to own home”.

“Many people that are currently renting in this price point have decent credit and could get approved for an FHA Mortgage” said Levinrad. “They simply do not know that they can afford to own their own home and in most cases there is no one that is marketing to them and informing them of this fact”.

The findings of the study indicate that a typical $100,000 house could be worth as much as $1,000,000 by the year 2041. This is when the 30 year FHA mortgage would be paid off assuming that they purchased in 2011. “Owning real estate always pays off in the long term” said Levinrad. “People have very short term memories and ten or twenty years from now they will wish they had purchased a home.  Making the decision to buy a home versus continuing to rent will result in a substantially better retirement” said Levinrad.

“In many cases this will be the only opportunity in their lifetime to purchase South Florida Real Estate at an affordable price where the monthly payment could be the same amount or even less than the equivalent rent. This market crash and foreclosure crisis has created a unique situation where for the first time in many years housing is actually affordable. It is a great time to buy real estate – especially for first time home buyers” said Levinrad.

 

Choosing the Road to Wealth

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By Kathy Kennebrook (The Marketing Magic Lady)

More people are becoming millionaires today than ever before in the real estate business. So what makes these wealthy entrepreneurs so different? They chose the road to wealth and real estate as the vehicle to get there.

When choosing the road to wealth, there are some important distinctions that set the truly successful folks apart from everyone else. Some of those include the ability to visualize a specific outcome, pursuit of a dream, constant motion and a relentless determination to reach the goal. Giving up is not an option. Like the saying goes, “Quitters never win; winners never quit!”

I have found in the real estate business that there are two kinds of people, the “doers” and the “wannabes”.  There are truly focused folks who get up every morning with a clear and defined direction who want to make their business work no matter what it takes. They pursue their dream relentlessly and continue to grow on a daily basis, garnering all the education they can along the way to take them even further along in their business.

Then there are the people who go to seminars or buy books and tapes and do absolutely nothing with them once they get them home. I have personally witnessed this over and over again.  They have one excuse after another why they can’t do this business.  For them, the status quo is the easy way in any situation.

I used to be one of those people who did absolutely nothing. I continued to work day after day at a job I hated, and I had every excuse there was for not getting started in the real estate business.  So I can relate. You could say, “I’ve been there, done that.”

There were three main things that held me back:

  1. Lack of focus.
  2. A true desire.
  3. Abundance of fear.

You can absolutely tame all three. I am living proof that you can. The biggest change that occurred for me finally was the desire to succeed.  An even greater desire was to get back all the money I had spent on courses and seminars.  As I always say, “Whatever it takes to make you move forward!”

I discovered there were some very easy ways to get focused and get on track.  One was to define the specific reason I wanted to succeed.  For me it was to get back the money I had already spent on educational materials and to get rid of a job I hated.  At the time, my job entailed being on the road for long periods each week which resulted in my not being home much, something I very much wanted to change.  I spent many years in a “dead-end job” making a lot of money for other people.

For you, it may be putting money away for your kid’s education, taking a trip you’ve always wanted to take or maybe becoming involved in charities you want to support. Whatever that reason is for you, commit it to paper and out loud to those around you. There is nothing I know that will force you to take action more than committing to a goal out loud. Become persistent in the realization of your dream. Use the knowledge you already have and move forward from that point.

Visualize your success!  Every extraordinary, successful person has visualized their success in their mind and then on paper first.  Their dreams were put into action, resulting in a reality of success.  Bottom line, this is the outline of the road to wealth.  Unfortunately, most people get stuck in the “dreams” part of that road to wealth.

Enlist the help of your local real estate club or a mentor to stay on track. If there isn’t a real estate club where you live, contact other investors in your area and form your own group. This is a great way to network and get the support you need. I had a mentor early on in my business and I attended meetings of our local real estate club on a regular basis. I found this to be a great way to stay focused and excited about the real estate business.  I continued to work with other investors in my area who were already doing the business.

If people around you are telling you it won’t work, don’t let them “steal your dreams”. Only you can make the decision to be financially free. I know that lots of my friends and family members thought I was crazy to want to do this business. I’m glad I didn’t listen! Hang around with like-minded people, wherever you can find them. Learn from people more successful than you.  Hang around with people who make more money than you do. Decide what it is you want to do for your business on a daily basis and implement a plan of attack.

Enlist the help and support of your spouse and children or a partner while growing your real estate business. There are lots of things they can do to help and you’ll achieve a feeling of team work which will keep you moving forward. Write a specific list of goals you want to achieve, no matter how small. Set goals for tomorrow, next week, next month, next year. This is one way to create a road map you can follow toward attaining your goals and growing your real estate business.

Do whatever it is you need to do to keep moving in a positive, forward direction. Don’t let the “naysayers” get you down. They just want to keep you where they are. Don’t take advice from anyone who makes less money than you do. You have a right to live the kind of life you want, so be willing to do what it takes to attain it.

Real estate is one of the best ways I know to grow wealth quickly. If you believe you can’t change your attitude about the opportunity to create wealth through real estate, I assure you that you can. You just have to make the decision to choose the road to wealth.

That road to wealth is to stay focused and to never give up.  Success can be yours…today!

For more information on Kathy Kennebrook’s systems for the Real Estate Investor be sure and visit her website at www.marketingmagiclady.com. While you are there be sure and sign up for Kathy’s FREE monthly newsletter and received $149.00 of real estate tools absolutely FREE!!

Risk Associated with Selecting Third Party Vendors

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By Dan Harkey

Where does risks begin in commercial real estate lending business?  It begins with your process of hiring highly competent third-party vendors.  Your job is to assemble the most qualified real estate support professionals to eliminate costly mistakes and to ensure the best quality closing.

This includes service providers who originate new loans, process, underwrite, appraise, and eventually close the transaction. This sounds like a broad statement since the process also requires your participation in marketing, to procure the transaction.   Your competency is displayed throughout the process by understanding the borrower’s wants and needs, the loan programs and requirements, property types and characteristics, underwriting skills, geographic locational differences, government regulations, and then hiring professional service providers to match.

  1. Appraiser(s)

It is your responsibility is to identify a well-qualified, licensed, and insured appraiser who is familiar with the geographic location and property type, and various methods of valuation. Hire someone who follows the requirements of Uniform Standards of Professional Appraisal Practice (USPAP). USPAP can be considered to be the quality control standards applicable for analysis and reports for appraisal of real property, personal property, intangible assets and business valuations in the United States and its territories.  A state licensed appraiser must adhere to USPAP standards.  USPAP provides the body of knowledge and performance standards for the appraisal process as authorized by the US Congress (this was part of FIRREA in the early 1990’s and arose from the Bernard Amendment). As noted above, this legislation contains standards for all types of appraisal services, including real and personal property, business enterprises.  It is reviewed annually and revised and updated every two years.  The Real Estate Broker/Mortgage Loan Broker must establish that the appraiser is qualified by license and specific certification to accept the assignment and must be sure the appraiser is state licensed for the type of required appraisal.   This is a mandate by the Bureau of Real Estate Appraisers in California and their equivalent in all states and required in California pursuant to Business and Professions Code Section 10232.6.  In most cases the appraiser must also be approved by or acceptable to the lending source.

The first document you will use is an “order form”, which will document the type of appraisal, by whom and when the appraisal will be paid and “what parties rely on the appraisal”.  If you, as a mortgage broker/lender, are acting as an agent on behalf of private investors/lenders who intend to fund the loan, or you intend to sell or assign the loan following funding the loan with our own capital, then the appraiser needs to be informed that the private investors/lenders have a right to rely on the appraisal report.

You must identify all intended users of the appraisal report or you need to specifically direct the appraiser as to whom the report should be addressed.  To comply with appraisal standards and requirements, and depending on property type, the appraiser will typically conduct a rent survey and an absorption study and will additionally research various market rates for additional indicators such as capitalization rates and discount rates to establish market conditions applicable to a subject property.  In appraising the property, the appraiser typically will research market rents for the property type, research market rent trends in general and analyze historical lease-up or absorption rates for the subject property type.  Depending on the type of subject being appraised the appraiser may also need to include personal property value or may find that the appraisal requires a going concern valuation for an operating business wherein there may be additional value elements such as FF&E, good will or intellectual property.

Choosing an appraiser for a federally insured home loan differs.  It is important to note that neither mortgage brokers, loan officers nor homeowners may select the appraiser for the property on which they want to lend/borrow such funds.  At the current time all such appraiser selections and appraisal orders are handled by Appraisal Management Companies (AMC’s).

“Assumptions and Limiting Conditions” are sometimes thought of as the “legalese” or “boilerplate” of appraisal reports. The “assumptions” relate to the concept of scope of work identified in the appraisal process. The appraiser will lay out in writing assumptions such as the correct legal description, that the zoning is correct for the property use and that the information furnished is true and correct. A “limiting condition” is one that limits the use of the appraisal, primarily by specifying the use and intended users of the appraisal report. That is, who may rely on the contents of the report. However, each assumption or condition must be reasonable and supportable in the context of the appraisal, and not conflict with the “Extraordinary Assumptions or Hypothetical Conditions.”

It is important to review the appraisal section, “Extraordinary Assumptions and Hypothetical Conditions”. This means the appraiser has taken some action or used a method that departs from USPAP standards. The appraiser may have made assumptions that could render the appraisal of little or no value by following outside standards. You may find this when the property is zoned incorrectly for the neighborhood or the property’s intended use, or when comparable are extremely difficult to locate. Some examples of extraordinary assumptions may be: whether all entitlements are complete for a construction project, there is adequate absorption for lease up, that the building conforms to zoning and usage ordinances, that the property construction will be completed timely and on budget, and that there are no environmental concerns.  The appraiser may need to invoke certain hypothetical conditions under some directives by the client.

Extraordinary Assumptions are specific assumptions made and utilized in the development of the estimate of value and which, if found to be false, could alter the resulting opinion or conclusion.  Hypothetical Conditions are assumptions made which are known to be contrary to fact, but which are assumed for discussion, analysis or formulation of opinions.

As a final comment, it is important that you read the entire appraisal. There are issues such as the amount of area vacancy, the applicable capitalization rate, and a discussion regarding verification of zoning or permits that you may want to personally verify. These are not always clear in the first reading. For example, the area vacancy and the application of a capitalization approach may be different in Riverside, CA. than in Newport Beach, CA.

  1. Documentation/ Legal Counsel

I have combined these two together for this reason, some lenders farm out their legal documentation preparation to a third party. Since it is the lender who is responsible for state and federally required documentation, a third party legal counsel or knowledgeable consultant is advised.

Commercial lending is sometimes characterized by loaning to entities such as trusts, corporations, limited partnerships, and limited liability companies. There is a required technical understanding of the laws relating to these entity types, and the documentation differences that each will require. There is another matter of the issue of lien priority. Documentation complexity can be compounded when the issues of lien priority and tenancy are added to the mix. Your borrower may own a property in a family limited partnership, occupy the same property as an operating business which is a corporation, and have other unrelated tenants, who may also own their businesses in different forms of entities.

  1. Escrow Companies

All escrow officers are not alike. A competent, experienced, and highly technical escrow officer is a must. Escrow acts as an intermediary and dual agent, between the principal parties to ensure that instructions and agreements are carried out correctly. The lender’s final closing instructions to the escrow officer should summarize all the conditions that have been met and under what conditions he/she may close the transaction, using the correct title insurance policy and endorsements in place at the recording to ensure lien priority.

  1. Commercial Real Estate Broker(s)

In metropolitan areas, finding a real estate professional who has the background, knowledge and experience of the product type and geographic area is a matter a good referral or inquiry. If the subject property is in a sub market or a rural market, the time should be taken to locate a broker on the front end while the loan transaction is being processed. Brokers in these areas tend to be generalists who list and sell whatever kind of real estate is available. Your job is to locate that one broker who has the specialized skills you may need.

  1. Environmental Engineer

As a lender you have the option of a quick public records search to identify any properties around the subject that may have used contaminants which could affect the property or that would call attention to the need for further inquiry. An example, a data base in California is the State Water Resource Control Board is known as a “Geotracker”. The lender also has an option for a limited phase I, or full phase I to determine whether the property contains or has ever contained identifiable contaminants. The environmental engineer will report that information and will comment on how it may affect the desirability and salability of the property. For properties built before 1978 the issue of asbestos arises. Also lead based paints were commonly used in construction before 1978. Today, the common approach is to do nothing about asbestos or lead based paint if it appears that they are contained or sealed. Adverse findings by the environmental engineer may lead to the need for soils borings, a phase II, or a phase III. Some properties are purchased with the knowledge there is known environmental issues, and that the purpose of the loan may be for mitigation.

  1. Credit report and credit reporting agency

Very little needs to be said about credit reporting agencies. They all use the same data bases to accumulate the historical credit background of a borrower. However, Real Estate Brokers who make or arrange loan transactions in California are subject to 10232.5 of the Business and Professions Code which consists of a summary of disclosures and requirements to investors who may purchase a portion or all the trust deed investment. Section 10232.5 subsection (4) states that the Real Estate Broker must provide the “identity, occupation, employment, income, and credit data about the prospective borrower or borrowers as represented to the broker by the prospective borrower or borrowers”. This is easy to comply with when the borrower is either an individual or a seasoned entity with years of financials, history, and credit. A standard credit report should provide all the information you need. However, loaning to an entity newly formed for the sole purpose of purchasing or holding a property creates an additional question. Do you need to run a credit report on the entity knowing that nothing will show up? The answer is “yes”, and as an abundance of caution, you should also run a credit report on the individuals who created the entity.

  1. Property Inspection/Property Condition Assessment

Some lenders will require a property inspection by a third party who is trained in that field. The Property Condition Report (PCR) is used by purchasers and lenders who take property back in foreclosure, as part of the assessment of value for resale and limiting liability on resale. These reports tend to be very detailed and may require several specialists to evaluate the various components of the property, both real and personal. The process can be expensive costing from $20,000 to $100,000. This form of third party assessment is rarely used in private money loan transactions because of the nature and purpose of the loan request. Limited condition assessments may be available for much less expense.

There are many risks associated with commercial real estate lending, many of which will be written about in subsequent articles. None, however, quite rise to the level of the need to use highly competent and highly skilled third-party vendors. You are the one who has the option to search and hire the most professional vendors. You, your company, and of course your investors, will also be stuck with the results if substandard vendors are used.

Yield Hungry Investors Discover New Real Estate Opportunities Online

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High yield seeking investors are finding exciting new investment opportunities in a $200B online landscape

JP Maroney and his investors have found a new form of real estate online. So, far this new frontier has been delivering strong double-digit returns, with no signs of slowing any time soon.

While the massed has been desperately searching for yield, a few has discovered high returns in the new digital economy. Bonds and CDs may be paying negative net yields, and the stock market as a whole may be so over bloated that price to earnings ratios are a joke. Yet, there are opportunities out there. At least for those willing to adapt to the fast-changing world we live in now.

From Aging Technology to Albert Einstein-Like Epiphanies

JP Maroney started his first company at 19 years old. In the 90s, he was running successful magazine companies, which he successfully exited in 1999. He and his wife went on to launch a video training company for franchises and trade associations. In 2004, Maroney upgraded to the arena of online coaching, and began generating leads online. Out for a walk one evening, JP was thinking over a recent news show on MSNBC or CNBC, in which a top fund manager was talking about the importance of embracing alternative investments, providing they could put a dollar in, and get a reasonable yield out.

This was JP Maroney’s “Eureka!” moment. He gained a new perspective, which has paid off handsomely. He realized he was already investing in online real estate, with great success. He was investing in online lead generation to the tune of around $2.50 per lead, and was easily able to sell those leads at $3-$5, and flip his money for outsized returns and a big IRR every 30 days.

The $200B Online Investment Landscape

The importance of the internet, and the ability to effectively and efficiently get in front of, and connect with consumers, with measurable results verifiable for every dollar spent in marketing is obvious. At least 19 of the biggest and best-established retailers in America are either going bankrupt, or are at least slashing stores and staff, and are cashing out their brick and mortar real estate. They just started marketing online too late. Then we have Amazon, who is leveraging its online prowess to dive into brick and mortar assets, becoming the largest landowner in Seattle, and taking over Whole Foods with a $14B bid.

Digital marketing is already a $200B business and growing. It’s already bigger than TV advertising, including the Super Bowl. Most entrepreneurs and VCs look for at least $1B to $2B markets as a measure of a good industry to be in. This is already 100x that.

43% of respondents in the State of Digital Advertising 2017 survey and report said they increased paid search advertising between 2015 and 2016 alone. eMarketer estimates growth in US digital ad spending to accelerate at 9.9% to 28.4% per year between 2015 and 2020.

Getting Responzive

From realizing he was doubling his money every 30 to 90 days in digital advertising, and realizing he could do it for investors too, JP has delivered double digit returns for others for 4 years straight. His biggest problem has been having to under-promise, as the returns on digital marketing make current bond, stock, and fund yields look like a joke.

Maroney’s B2B facing portal, Responzive, eliminates the need for ‘hope and pray advertising’, and enables businesses from real estate to insurance companies to obtain ready to buy consumer leads, on-demand. JP says that the service is for serious businesses and those serious about scaling quickly, and have an appetite for 5k+ leads per month.

The New Frontier

JP Maroney’s investment firm Harbor City Capital has appeared in Inc. Magazine, and many other major news sites. Harbor City Capital is the investment engine which fuels Responzive, and other digital marketing arbitrage ventures, as well as branching into acquiring and monetizing big data and data centers.

Via an exclusivee phone interview with Realty 411, JP broke the news that the firm is currently acquiring a high profile $100M retail domain, complete with its trademarks, and data on 15M active users. As of July 2017, the firm already had in excess of 1.2B data records in-house, and is generating 4/5M leads per day in different niches and verticals.

Opportunities for Accredited Investors

Harbor City Capital continues to grow quickly, and has just announced a unique opportunity for accredited investors to participate in its success. This is via a 506c filing and seeding funding round. Investors receive preferred shares via a convertible note, with a 5 year redemption period, offering a minimum of 17% returns. However, an IPO could be quite likely within the next 12 to 18 months.

Accredited investors are able to diversify their portfolios into this industry with a minimum of a $50k investment. Though the opportunity closes once the funding round hits $25M.

Summary

Investors are still hungry for yield, and there aren’t many places to find it these days. Digital marketing is one of the biggest and most vital industries today. Those that do it well stand to gain sizable market share, while others fade out. Digital marketing arbitrage and big data offer an exciting apex where these trends meet. One which could dwarf the returns and performance of many other business and investment models.

For more information about online leads for your business visit Responzive.com. Visit HarborCity.com and fill out the contact form for more details on the investment opportunity.

Following Up with Motivated Sellers Can Make You Millions

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By Kathy Kennebrook (The Marketing Magic Lady)

Let me ask you a question; are you properly managing your prospects? Are you taking the time to follow up with the sellers who didn’t initially accept your offers, or the sellers you still need to make offers to? Did you know that you are leaving thousands of dollars in potential income behind if you aren’t following up with sellers? One of the easiest ways to make a fortune in the real estate business and gain the advantage over your competition is to take the time to follow up with motivated and semi-motivated sellers. You’ve already got the seller in your pipeline, you’ve already done the marketing and spent the money to find this person, now all you need to do is to follow up with them until they either sell you their property or tell you to go away. How much simpler could it be?

There are two types of sellers we are going to follow up with, those we’ve already made offers to who haven’t accepted our offer and those who have not made any decision after our initial contact with them. Quite often, you will need to make multiple contacts with sellers before their situation changes and dictates that they sell their property to you. If you stay in touch with these sellers, you build credibility with them and when it comes time to sell they will contact you first, even if they have been contacted by someone else in the meantime.

There are a lot of investors in the market these days, and most of them have a very limited knowledge of how the whole follow-up process works, not to mention the inability to create successful deals. What they don’t realize is that many of the sellers you will be dealing with have a variety of problems they aren’t sure how to solve until they are contacted by you.

Some of those may include divorce situations, estates or health issues where there may be emotions tied to the property. With these sellers it may take a little longer before they make that final decision to sell. Most of your competitors will simply throw these potential deals in the trash when they don’t get the property under contract after the initial contact or offer is made. I have made deals many months after the initial contact with the seller was made simply because I took the time to follow up. Not only did I build credibility with the seller, but now they like me better and trust me more than the next investor who may come along.

These are the types of sellers I will place in my follow-up system and follow up with at least every thirty to sixty days if not more often. I have made thousands of dollars on deals other investors would simply have thrown in the trash because I took the time to follow up with a semi-motivated seller. Probably half of the deals I do in a typical year come from following up with these sellers.

In addition, with the help of a fellow investor who is also a software developer, I now have an incredible software system that does all the work for me. It reminds me when I need to do my direct mail campaigns, it reminds me when to follow up with sellers, it has a section to track potential buyers and build a buyer’s list, and it keeps all the information on the properties stored including a photo.

In fact, once I have followed up and purchased the property, my system will match the property with one of the buyers on my buyer’s list, so now; even that part of my business is automated. And once again, isn’t that the whole point to this business, to automate as many things as you can so you can work with the sellers and make the deals happen. You don’t need software to get started with this type of a system. You can simply use an auto-responder and a folder system to begin following up with motivated sellers.

Here is a recent example from my files- I contacted a seller who had inherited a property in Florida where I live and he lived in Michigan. The home belonged to his aunt who had pretty much raised him his whole life. When she passed away the home was left to him and he just couldn’t bring himself to sell it right away. I actually met with the seller and made an offer on the property. He had initially accepted my offer, and then he decided to hold onto the property for awhile and use it as a vacation home. After a year and a half, he got tired of having to deal with all the maintenance issues on the property and ended up selling the property to me for the initial offer I made because I took the time to follow up with him every thirty days or so.

I actually ended up making even more money on this deal than I would have in the first place because the house had appreciated in value during the period of time that he kept it and he had made improvements to the home. Most investors would have thrown this deal in the trash as soon as the seller said no to their initial offer, but because I took the time to follow up, I purchased the property and made a significant amount of money on this deal. I still get holiday cards from that seller.

I’m sure you’re already aware of how important it is to follow up with sellers. It only takes a few minutes each week to follow up with these sellers if you have a good follow-up system in place. I use my follow-up system to follow up with sellers I have made offers to but who haven’t said yes or no to my offer, and with sellers who own homes in areas where I want to buy. I do this by using both direct mail and e-mail to follow up with these sellers. Sometimes if the situation warrants it, I will call them. My system even reminds me to do the follow up. How much simpler can it be? AND…since the seller has already been getting contact from me for a few weeks, if their situation has changed they are ready to sell to me. This is a pretty typical scenario.

With sellers who specifically have properties in areas where I want to buy, I do repeat mailings to a specific list with specific parameters in mind such as out of state owners, quit claim deeds or old sale dates. Each time I do the mailings I continue to clean the list I am using by taking out bad addresses, deals I have purchased or folks who tell me not to mail to them again. The more I mail to these folks, the more credibility I build with them. If you are using a follow up system in your business it is very easy to track these mailings. This is an absolute marketing machine because not only are you doing deals day after day, you are constantly planting seeds for future deals.

If you take the time to follow up with motivated and semi-motivated sellers, you will make more deals and buy more properties with absolutely no competition for these properties whatsoever. It’s a win-win situation for you and the sellers.

For more information on following up with sellers, check out my website at www.marketingmagiclady.com. While you are there be sure and sign up for our free newsletter and get $149.00 in bonuses absolutely FREE.