TR_December_2021

TM I N FORM . I NS P I R E . E DUCAT E . EMPOWE R .

Mid-Market Stars Where are your odds for better returns? MARKETS & TRENDS

Bursting the Real Estate Bubble Concerns

What Is a GRC? What this group does and why it matters for the entire REI industry

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PUBLISHER & CEO Eddie Wilson

EDITOR-IN-CHIEF Kelli White

SALES MANAGER Rodney Halford RHalford@ThinkRealty.com

FULFILLMENT COORDINATOR Blair Pierce

DESIGNER David Rodriguez

CONTRIBUTORS Katie Bean Lorraine Beato Sonia Booker Evie Brooks Clint Coons Jason Engelman Richard Hart Danny Johnson

HEY! LET’S BE FRIENDS! GET SOCIAL. STAY CONNECTED.

Pamela Knudsen Sherman Ragland Polina Ryshakov Steve Streetman Michele Van der Veen Ingo Winzer

Like, Follow & Share for the Latest Real Estate News, Trends and Insights from Think Realty

Are you following Think Realty on social media? Things move pretty fast in real estate. Don’t miss out on the latest trends, tips, insights and news from your trusted resource for all things real estate investing! Follow. Like. Love. Share. Comment. You can do it all with Think Realty’s social media channels. Join the conversations in Think Realty social communities and connect with like-minded members who range from first-time to seasoned investors. Check out all of our social media channels and connect with us - and other investors - today!

SUBSCRIPTIONS :: The annual subscription for Think Realty Magazine is $39.99 in the U.S. Order online at www.ThinkRealty.com or call 816-398-4130. Provide your full name, address and telephone number. DISCLAIMER :: Think Realty Magazine , its owners, contractors, distributors and their respective representatives do not provide tax, accounting, investment or legal advice and make no guarantee as to the effectiveness or success of any investment or tax strategies discussed herein. Please consult your own independent adviser as to any questions you have or decision you are contemplating. ABOUT THIS MAGAZINE :: Think Realty Magazine is a publication of Affinity Real Estate Media LLC. Reproduction or use of any editorial or graphic, without permission, is prohibited. We are not responsible for the content of any paid advertisements. For reprint rights; to ob- tain a detailed statement of our privacy policy; and for all single-copy requests, address changes and other subscription inquiries:

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4 | think realty magazine :: december 2021

FROM THE EDI TOR- IN-CHI EF

That’s a Wrap

cannot believe it’s that time again. We’ve come to the end of another year! I

investor audience for nearly three years, but the time has come for me wrap up this life chapter and try something new. Nearly 14 years ago, I segued from teaching college English classes and embarked on a journey as a freelance writer for local and regional publications. That leap led me to becoming Editor-in-Chief of multiple publications. But now my journey is leading me out of the magazine world, and I am excited for the change. Thank you to all Think Realty read- ers and valued contributors I have connected with along the way. I hope your year comes to an end filled with gratitude, hope, and anticipa- tion for powerful possibilities. •

If you’re like me, I think an end of something marks the beginning of another. And while

we are in a time of reflection as the year is almost over, I can’t help but think what the next year will bring. For me personally, big changes are ahead, which means it’s time to turn the page and announce that this is my final editor letter for Think Realty. Moving on can often be a double- edged sword, but as savvy real estate investors, you realize when it’s time to exercise your exit strategy and let go of certain investment properties. I have journeyed with Think Realty contributors and our real estate

Keep Going!

KELLI WHITE, EDITOR-IN-CHIEF

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CONTENTS

INSIDE THIS ISSUE

COVER FEATURE

What this group does and why it matters for the entire REI industry

THE NEWTHINK REALTY GOVERNMENT RELATIONS COMMITTEE

by Editorial Staff

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THINK REALTY

STRATEGY

56 Why Advocacy in Real Estate Investing Is Imperative

8 News & Events

Using your voice to level the playing field by Sonia Booker, a Think Realty Resident Expert

INVESTOR STORIES

10 Titan Talk Garrett Sutton: The Titan of Real Estate Law

60 The Abstract Side of Real Estate

Different methods of documenting ownership explained by Steve Streetman

by Katie Bean

24 Presidents’ Circle

Featured Member: Marco Santarelli

62 Buying Real Estate Using Real Property How cash alternatives can get you properties by Bruce Kellogg

FUNDAMENTALS

DESIGN POINT

26 The Social Impact of Real Estate Attention please! Will the real estate investor please stand up? by Jason Engelman 28 Tax Benefits with Short-Term Rentals No REPS Needed! by Clint Coons, A Think Realty Resident Expert

68 A California Craftsman Sprucing up with welcoming curb appeal by Michele Van der Veen

MARKETS & TRENDS

71 Global Real Estate Investing Why investing in Panama is a great way to diversify now by Evie Brooks 74 Mid-Market Stars Where are your odds for better returns? by Ingo Winzer 75 Political Advocacy in the REI Industry Why real estate is at risk under proposed legislation by Sherman Ragland 78 Bursting the Real Estate Bubble Concerns Bubbles are unavoidable, but it’s not happening yet by Polina Ryshakov

32 5 Factors for Real REI Success

How does your business stack up? by Danny Johnson

35 Commercial Review A special Think Realty publication for CRE, vol. 4

52 How to Buy or Sell a Property Management Company Are you ready for the fast track to growth? by Richard Hart 54 Short-term Rental Regulations How owners can prepare for and manage regulatory changes by Pamela Knudsen

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THINK REALTY

NEWS & EVENTS

Think Realty and AAPL’s Virtual Day on Capitol Hill

embers of the American Asso- ciation of Private Lenders and

“to simplify existing rules and regulations to facilitate capital formation, particularly for small businesses, consistent with the protection of investors.” AAPL and Think Realty’s position is to strike Section 138312 and 138314 from the federal tax bill, which if passed, would force self-directed IRA accountholders to move from private to public offerings. Beyond this urgent matter, ongoing topics discussed included Affordable Hous- ing, Opportunity Zones, the Home Mortgage Disclosure Act, Bankrupt- cy, and more. AAPL and Think Realty are owned by Eddie Wilson, an experienced real estate investor and private lender with a track record of successful

business ventures and nonprof- it organizations worldwide. “It is important to establish who we are and how we can be of service to legislators. We take a consultative approach, and our methodology is one of advocacy,” he said. Policymakers were responsive to concerns and the event’s 11 meet- ings with legislators on both sides of the political aisle helped raise awareness for the real estate invest- ing and private lending industries. Staff requested additional informa- tion that would help them better understand these issues and the plight of their constituents. For more on what Think Realty is doing in this endeavor, read the cov- er story on page 16. •

Think Realty gathered virtually for a day of meetings with staffers in Washington, D.C. to discuss proposed legislation that would impact housing providers and private lenders. In 2019, each company organized an in-person Day on the Hill event and members were excited to contin- ue the discussion that successfully began two years ago. The purpose of Day on the Hill is to explain what housing providers and private lenders do for the real estate industry and to voice the impacts proposed legislation would impose. The specific mission this year was to Save Regulation D, which Congress adopted in 1982

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More Think Realty Content is on theWay!

Next year, we will deliver six larger bi-monthly issues starting in January. Instead of one smaller issue each month, each of the six issues will be packed with even MORE pages of real estate industry trends, investing strategies, business tips, success stories, market updates, entrepreneurial insights, and more! In addition to the bi-monthly Think Realty Magazine, we will deliver several supplemental publications throughout the year. Targeted toward specific niches within the REI space, these will be hyper- focused publications packed with market analyses, lending advice, multifamily strategies, and so much more. This change means you will receive MORE content over the course of the year! Think Realty will continue to provide trusted resources to help you, the savvy real estate investor, grow your REI business and learn how to create generational wealth through real estate.

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INVESTOR STORIES

TITAN TALK

Titan Talk TITAN OF REAL ESTATE LAW: GARRETT SUTTON

by Katie Bean

he beauty of real estate investing, Garrett Sutton says, is that there is something for

everyone’s interests. “Some people want to get in there and develop. Some people want to get in there and manage and raise rents and do all that. And then others, like myself, I’m busy with a law practice—I don’t have time to do that,” he said. “There’s kind of a spectrum for people who want different levels of involvement.” Sutton is the owner and operator of Sutton Law Cen - ter and Corporate Direct Inc., both based in Reno, Nev. Ever since attending UC Hastings Law in San Francisco, he’s been interested in corporations and has built both businesses around that core—helping business owners incorporate to protect themselves and their assets. In addition to his day job, Sutton and his wife, Jenny, are real estate investors. After law school, he said, “I realized that real estate was a good way to provide for my family’s future.” In the beginning, he invested in apartment buildings. Though they worked with a management company, Jenny, a radiation oncologist, felt she spent too much time man- aging the management, he said. The couple transitioned to triple net leases, which suit them as a far more passive investment. For the uninitiated, a triple net lease agree- ment is one in which the tenant agrees to pay all property expenses, including real estate taxes, building insurance and maintenance, in addition to rent. In many cases, a franchisor sells its building and lot to an investor who becomes the landlord. Sutton has parlayed his breadth of experience into an elite advisory role: He serves as a “Rich Dad Advisor” for bestselling author Robert Kiyosaki.

BECOMINGA “RICH DAD” EXPERT Kiyosaki is the author of “Rich Dad Poor Dad,” the all- time No. 1 personal finance book. He’s built an entire network on the book’s popularity, including a team of

10 | think realty magazine :: december 2021

Ted Sutton (son), Robert Kiyosaki (author, “Rich Dad Poor Dad”) and Garrett Sutton

seasoned experts who comprise the Rich Dad Advisors. Sutton said he connected with Kiyosaki around 2000, when the author was looking for an attorney to join his advisory group. Sutton’s corporate expertise was appeal- ing, but he also shared a mutual interest with Kiyosaki: rugby. Kiyosaki is a big fan of the sport and played for the Hawaii Harlequins; Sutton had played during law school. Their love of the game has taken them to a number of rugby World Cup games around the globe, Sutton said. Off the pitch, Sutton became the Rich Dad Advisor on entities and asset protection, and soon he was asked to write a book for the brand, “Start Your Own Corporation.” “I always wanted to write a book anyway,” Sutton said. “I just put myself in a room and got it done in three weeks.” His first book dealt with the basics of incorporating and became one of the top 10 best-selling business books in 2000. Since then, he’s written six additional titles for the Rich Dad brand, including “Loopholes of Real Estate,” which covers legal and some tax aspects of investing in real estate.

“You know, they don’t teach any of this in school, unfortunately, so you have to get the information on your own,” he said. Sutton has another book coming out in March 2022, “Veil Not Fail,” that discusses the corporate veil of pro- tection and how to keep it intact. The book features tips as well as horror stories about instances where the veil was pierced. “Too many of these books are written in legalese. It’s hard to take in,” he said. “My preference is to tell stories about situations and then apply the law to the story.” Lawsuits succeed in piercing the corporate veil in almost half of all cases, Sutton said, which means many business owners aren’t taking the right steps to protect their assets: “We don’t want the veil to fail.” In addition to writing, Sutton serves as a speaker at Rich Dad seminars. He said he’s also a student when he attends, learning from the other experts. He’s even brought his son, Ted, to the events—allowing him to absorb lessons in business that will serve him well

thinkrealty . com | 11

once he graduates from law school in Wyoming and joins Sutton’s practice.

Know that you are going to make some mistakes at the start. Everyone does! You are creating future war stories and learning by doing to be a better investor.”

CAUTION FOR CORPORATIONS Currently, Sutton is educating his clients on a new law that goes into effect in January 2022. The Corporate Transparency Act is recognized as an amendment to the Anti-Money Laundering Act. Though lawmakers may have had good intentions, Sutton said, the reality is that the new rule will create a huge filing burden for nearly all corporations and LLCs in the country. The CTA requires all companies to report on an annual basis the beneficial owner, owner’s date of birth, business address and an identifying number from a state-issued ID, such as a passport or driver’s license. The information will be stored in a database maintained by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network. Sutton said penalties for not filing or filing false information will be severe, includ - ing fines up to $10,000 or two years in jail. Complicating matters, the Treasury has been slow to release guidance on how to file the required information, Sutton said. To help his clients, Sutton’s firm will offer a new service to help businesses file this information and remain in compliance. He’s well-suited to help companies nation- wide: The firm already offers a resident agent service in all 50 states. That offering “aids in the efficiency of justice,” Sutton said, by making it easy for someone suing a company to make contact. Some business owners mistakenly think that if they can’t be found, they can’t be sued. In fact, Sut- ton said, that scenario makes it more likely that the entity suing will receive a default judgment and win the case. “Hiding is not a good idea,” he said. REFLECTING ON SUCCESS Though he’s gained Titan status in his industry, Sutton said the real measure of success is the satisfaction he’s found through writing books and educating clients. “If you provide a good service, the money takes care of itself. So I’ve never really worried about that part of it,” he said. He also says he’s satisfied in life, being able to travel and provide opportunities for his son and twin daughters, Emily and Sarah. Sutton also has been able to invest his time in causes that resonate with him. He’s on the exec-

GARRETT SUTTON OWNER AND OPERATOR OF SUTTON LAW CENTER AND CORPORATE DIRECT INC.

utive committee of the Nevada Museum of Art in Reno, the only accredited art museum in Nevada. He’s on the boards of Sierra Kids Foundation as well as the American Baseball Foundation, which he has worked with for more than 25 years. His love of the game has spurred another project: a baseball documentary that will be released in the spring. ADVICE FROMATITAN Sutton looks to titans of history for inspiration, saying he particularly admires George Washington’s leadership and character that played a pivotal role in defining the U.S. and the role of president. For those who may look to him for advice, Sutton rec- ommends starting small to anyone interested in real estate investing. “You don’t need to—and probably shouldn’t—do a big deal at the start,” he said. “Learn about real estate and your market by starting with smaller properties. Avoid the paralysis of analysis. Too many potential investors focus just on the numbers and let the opportunities to learn and grow pass them by. “Know that you are going to make some mistakes at the start. Everyone does! You are creating future war stories and learning by doing to be a better investor.” •

12 | think realty magazine :: december 2021

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COVER STORY

GOVERNMENT RELATIONS

What this group does and why it matters for the entire REI industry The NewThink RealtyGovernment Relations Committee

BY EDITORIAL STAFF

He also pointed out that real estate investors are small business owners, a point Think Realty strives to be an advocate for and educator of across all channels. “As an industry of small businesses, we need to capital- ize our cumulative power to encourage government policy that supports and fosters creative solutions in the private sector,” Wojcik said. And that is what a Government Relations Committee sets out to do. WHAT ISAGRC? Texas-based real estate investor and industry advocate Chris Ragland with Ragland Realty and Management, LLC, signed on to be First Chair of the Think Realty Gov - ernment Relations Committee (TR-GRC). He is also heav- ily involved with the GRC of Think Realty’s sister company, The American Association of Private Lenders. “The Think Realty Government Relations Committee is an organized voice for the Think Realty membership base and beyond. Advocacy in the real estate space has long been a passion of mine. Having been the first chair for the American Association of Private Lenders sister

Earlier this year, Think Realty started its own Government Relations Committee (GRC) to help spur REI-friendly legislation in state legislatures and Congress.

THEWHYBEHIND THE MOVEMENT Tackling issues like these often starts with semantics. In Think Realty’s Realty Matters article series last year, contributor Brian Wojcik spoke about the need to change the derogatory term “landlord” to “housing provider.” His articles covered the why behind industry advocacy and offered solutions to problems like affordable housing. Wojcik writes: “As majority and primary suppliers for low-cost housing, independent investors can elevate the industry and add much-needed supply for low-cost affordable housing. The strength of your collective voice will serve as a catalyst to transform systemic causes of poverty and housing-cost burdens. Advocating for self, for renters, and for common sense supply-side policy for small-unit properties will propel change that is needed to improve the marketplace and provide added supply of low-cost rental units.”

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THE THINK REALTY GOVERNMENT RELATIONS COMMITTEE ISAN ORGANIZEDVOICE FOR THE THINK REALTYMEMBERSHIP BASEAND BEYOND.”

CHRIS RAGLAND

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TR-GRC and there are nine regions. The group holds a monthly call to discuss current hot topics and devise necessary discussions with their respective regional constituents, potential ally organizations, and policy- maker contacts in Congress and state legislatures.

committee, it made perfect sense for me to volunteer with Think Realty. The TR-GRC works to advocate on behalf of real estate investors on key issues such as the federal eviction ban, which gave no consideration whatsoever to the real estate investor when it came to protecting tenants. Other important issues such as potential housing stimulus and opportunities zones are also key items of interest for the TR-GRC. Or the proposed changes to the 1031 exchange, a long-standing vehicle used to delay property taxes until more advantageous timing for the investor. While these are all issues that the TR-GRC will take up on behalf of the real estate investment community, we are also moni- toring proposed legislation at the State and Federal level, ready to spring into action should an informed opinion be needed by legislators,” Ragland said. When advocating for certain legislation, TR-GRC mem- bers are appointed to specific regions. For example, Chris Ragland has West North Central and West South Central (see map). Currently, there are seven members in the

GOALSAND LEGISLATIVE INITIATIVES

Proposed tax changes at the federal level will impact real estate investors (e.g., capital gains) and current laws like The SAFE Act prohibit investors from doing the most they can to help communities and provide housing for more families. For example, in some states, if a housing provider owns a certain number of doors, they are not allowed to self-manage their portfolio and are supposed to enlist property manage- ment companies. Some states require investors to be licensed loan originators if they own more than a cer- tain number of properties.

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Other issues on the TR-GRC agenda include protecting the interests of housing providers by supporting clearer mandates on how tenants or landlords get housing sup- port and retaining 1031 Exchanges. Anything that hurts housing providers’ bottom line in turn either passes on to tenants or contributes to smaller housing providers (small businesses) leaving the business. DAYONTHE HILL: THE FIRST STEPOFTHE GRC In October, members of the American Association of Private Lenders and Think Realty gathered virtually for a day of meetings with staffers in Washington, D.C. to discuss proposed legislation that would impact housing providers and private lenders. In 2019, each company organized an in-person Day on the Hill event and members were excited to continue the discussion that successfully began two years ago. The purpose of Day on the Hill is to explain what hous- ing providers and private lenders do for the real estate industry and to voice the effect of barriers that proposed legislation would impose. AAPL and Think Realty are owned by Eddie Wilson. “It is important to establish who we are and how we can be of service to legislators. We take a consultative approach, and our methodology is one of advocacy,” he said. Policymakers were responsive to concerns and the event’s 11 meetings with legislators on both sides of the political aisle helped raise awareness for the real estate investing and private lending industries. Staff requested additional information that would help them better understand these issues and the plight of their constituents. Kat Hungerford, secretary for both the AAPL and Think Realty Government Relations Committees said, “Throughout our advocacy efforts, we’ve found that our largest hurdle is that legislators do not see private lend- ers and real estate investors as small business owners who support communities and help homeowners into properties they would never have had access to other- wise. Instead, they hold a view popularized by reality TV, where the money is easy, and the underlying stories of blighted property recovery remain untold. Day on the Hill is our chance to tell the real story of what we do and why we matter.” The main talking point at the 2021 Day on the Hill was Regulation D. Congress adopted Regulation D in 1982 to “to simplify existing rules and regulations to facilitate capital formation, particularly for small businesses, con- sistent with the protection of investors.”

“Throughout our advocacy efforts, we’ve found that our largest hurdle is that legislators do not see private lenders and real estate investors as small business owners who support communities and help homeowners into properties theywould never have had access to otherwise.”

KATHUNGERFORD, AAPL

“Protection” occurs by limiting private placements, in large part, to “accredited investors.” Accredited investors are defined by income or asset tests and/or credentials (CPA, attorney, broker dealer, etc.). will prohibit almost all self-directed IRA investments into private offerings and require IRA accountholders who have invested in these assets to liquidate their positions within two years. SECTION 138312 SECTION 138314 will prohibit an IRA accountholder from investing in a business if they or a family member is an officer of the business, or they own >10% of the company. Current rules only have the ownership threshold at 50 percent and require prohibited accountholders who have invested in these assets to liquidate within two years. These provisions appear to be motivated by the highly publicized story about Peter Theil by Publica where the Pay- Pal founder “turned a retirement account worth less than $2,000 in 1999 into a $5 billion tax-exempt piggy bank.” AAPL and Think Realty’s position is to strike Section 138312 and 138314 from the federal tax bill, which if passed, would force self-directed IRA accountholders to move from private to public offerings; private lenders and private funds would face significant hardship to find new sources of capital; and small businesses would continue to struggle with recovery after already enduring economic

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MEET THE THINK REALTY GRC

AARON CHAPMAN

ARIANNE LEMIRE

Aaron Chapman is a veteran in the finance industry. Since 1997, his clientele has ranged from those purchasing their first home, building their dream home, or investing in multiple properties for long-term cashflow. Presently ranked #14 in an industry of over

Arianne Lemire has rehabbed and wholesaled over 500 single-family properties and has ownership in over 2,000 multifamily

300,000 licensed loan originators for transactions closed annually, Aaron is that battle-worn partner every real estate entrepreneur needs to walk through the tough parts of building a real estate business.

rental units in the southeast with partner investors. They took everything they learned and launched WealthGym, a community where they help others create time and financial freedom and retire in less than seven years. Arianne spends her free time at her Ask Arianne YouTube channel where she creates free educational videos on money, investing and real estate to inspire others to achieve financial freedom early.

ABHI GOLHAR

Abhi Golhar is a media host, educator, and sought-after speaker with a large national following and wealth of resources to share in the RE investment industry. He has built and manages a sizeable, profitable investment portfolio across the Southeast U.S., with

expertise in benchmark markets.

CHRIS RAGLAND

Chris Ragland has managed real estate- related businesses for the past 20 years. From brokerage, disposition and insurance to

TIM HAWKINS

Timothy (Tim) Hawkins II attended Indiana University Robert H. McKinney School of Law, where he graduated in May 2018. Tim worked as a Government Relations Administrator with the State of Indiana Office of Medicaid Policy and Planning, as well as District

management, finance, and development, Chris has exposure to all aspects of real estate, but his favorite role to play is investment mentor. An active investor and principal in several real estate-related ventures, Chris continues his mentoring mission through his investment firm, Ragland. In addition to real estate, Chris serves on several boards for nonprofits and is also active in the start-up community in Austin, Texas.

Administration Director for U.S. Representative Luke Messer. In addition, he has extensive political, governmental, and healthcare experience and serves as the Vice-Chair of the Indiana Physician Assistant Committee as appointed by the Governor. Tim is currently the Government Relations Director for Jeff Jinks Law and in that role has helped the Indiana State Real Estate Investors Association pass multiple state statues supporting housing providers.

18 | think realty magazine :: december 2021

effects of the pandemic. Small businesses depend on this universally popular provision, which since 2009 has raised more than $13.5 billion while only seeing a miniscule 221 SEC complaints. Within the industry, private lenders and private funds that use IRA investments to deploy capital would face significant hardship to locate new sources and divest all current IRA investments within two years. This would in turn decrease the funds available to housing providers and local economies already strug- gling in the aftermath of the COVID-19 pandemic. Beyond this urgent matter, ongoing topics dis- cussed included Affordable Housing, Opportunity Zones, the Home Mortgage Disclosure Act, Bankrupt- cy, 1031 Exchange, and more. FACTUAL IMPACTS Regulation D investments drive the success of small business. The median size of these offerings was $2.25 million and years since corporate inception was two. More than 60 percent of small businesses rely on private placements to raise capital and a significant share has unmet credit needs and are underrepresented minorities faced significantly higher hurdles in obtaining external financing. An annual report from the SEC Office of Advocate for Small Business Capital Formation determined that the number of U.S. small businesses decreased 27 percent from January 2020 to September 2020, but that Americans started new businesses at the fastest rate in more than a decade. According to the American Association of Private Lenders and what their members have learned from Day on the Hill discussions with policymakers, bill sections 138312 and 138314 originated under the fol- lowing premises: Preventing high-net-worth individuals from “abus- ing” the tax-deferred nature of self-directed IRAs by forcing divestment (“Peter Thiel Effect”). While other forced-divestment sections of the tax bill WOULD have this result, sections 138312 and 138314 simply force self-directed IRA accountholders to move their money from one type of investment to another. IRA accountholders affected by the bill should not be investing in private offerings; they need more pro- tection and do not have the investment knowledge to complete due diligence and make informed decisions about these offerings. According to the SEC, more than 5.9 million investors participated in Reg D offer-

KAPIL SINGLA

Kapil Singla has been in real estate for three years. He started his first company in 2018 and flipped houses in the South Bend, Indiana area. He operates three different companies in different

areas but mostly connected with real estate. He has expertise in marketing and in acquiring real estate strategically.

GLENN STROMBERG Glenn began his career in real estate in 1982, quickly rising to the top owning and managing a Clayton Home franchise as

well as owning and operating 13 independently owned manufactured home dealerships and running a successful fix-and-flip business. Over his 38 years in the industry, he developed mobile home subdivisions, owned a mobile home park, owned and operated mobile home sales centers and bought, sold, and leased single-family homes. In 2006, Stromberg Investment Group was formed, which allows investors a safer option to invest and to receive higher returns without the high risk that Wall Street or the “flipping game” yields. With over 400 homes under management spanning four states, SIG deploys over $2 million dollars in investment capital each month and closes on average 12 properties each month. Stromberg Investments offers investors lucrative passive turnkey options and long-term lending opportunities.

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CENSUS REGIONSAND DIVISIONS OFTHE UNITED STATES

WEST

MIDWEST

NORTHEAST

M E

NEW ENGLAND

WEST NORTH CENTRAL

PACIFIC

MIDDLE ATLANTIC

EAST NORTH CENTRAL

MOUNTAIN

WV VA

SOUTH ATLANTIC

EAST SOUTH CENTRAL

PACIFIC

WEST SOUTH CENTRAL

REGIONS

SOUTH

DIVISIONS STATES

ings from 2009–2019, raising $13.576 billion for small businesses across 242,070 investments and with only 221 related civil complaints (a complaint rate of .001%). Between 93-97 percent of Reg D offerings included accredited investors, who according to Congress and the SEC, DO have the wherewithal to properly vet the risks of such investments. The reward for the nation’s small busi- nesses universally outweighs the risk. These sections will raise tax money to fund the bill’s spend. The provisions the GRC specifically objects to raise no new tax revenue, which will be further proven if/when the Congressional Budget Office scores these sections. The House Ways and Means Committee has approved a comprehensive tax bill that, among other tax-gener- ating proposals, includes numerous restrictions on IRA investments. The proposals have far-ranging impacts, but certain provisions will upend businesses that use self-di- rected IRA funds. If passed as proposed, effective January 1, 2022: The tax bill will prohibit almost all self-directed IRA investments in private real estate debt and equity while creating no new tax revenue. Current self-directed IRA investors in mortgage funds or private trust deed investments will be forced

to liquidate their positions within two years. The law has no carve-outs for redemption requirements of the offering documents. IRA accounts will be prohibited from investing in any assets the account holder or any family of the account holder owns, meaning private lenders and fund managers will be limited in avenues to demonstrate that they have “skin in the game” to their investors. Many high-income earners will be forced to take distri- butions from their IRA accounts well before retirement, dissuading the use of IRA investments altogether. CALLTOACTION If you’re interested in becoming involved in this endeavor, please reach out to info@thinkrealty.com to start the conversation. By exercising your voice as a housing provider and advocating for the real estate investing industry, you can do your part to invoke change for thousands of small business owners in the REI space. Informing legislators of all the good that real estate investors do is the first step in changing the narrative and shattering the stereotypes that plague the real estate investing industry. •

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thinkrealty . com | 21

JUMBO LOANS, JUMBO PROFITS GET THE UNTRADITIONAL SKINNY ON FINANCING BIG

by William J. Tessar, CIVIC Financial Services

A jumbo loan, simply put, is a type of mortgage used to finance properties that are too expensive for a conventional conforming loan. It might seem pretty straightforward, but this type of financing is not exactly ideal for real estate investors. So, what does this mean for investors looking to finance luxury homes or properties in highly competitive markets? Surprisingly, it’s nothing to worry about – and here’s why. ONE SIZE DOES NOT FIT ALL While the value of a jumbo loan varies by state (and even by county), it simply exceeds the limits set by the Federal Housing Finance Agency and can’t be purchased, guaranteed, or securitized by Freddie Mac or Fannie Mae – making it much riskier for lenders. With more money involved and no guarantee, the qualification and underwriting requirements are much more rigorous than applying for a conventional loan. To get approved, you can expect requirements that include a 700+ credit score, a very low debt-to-income (DTI) ratio, a hefty down payment, and two years’ employment history. For a primary homeowner, the jumbo loan process can be challenging; but when a jumbo loan is taken out for an investment property, it can be even more daunting. Let’s jump in and break down the concept of a jumbo loan, and how to get the financing you need without all of the hoops.

22 | think realty magazine :: december 2021

NEW ROAD, SAME DESTINATION When it comes to financing high-dollar investment properties, taking the unbeaten path will reveal a whole new world to discover. Jumbo private money loans are in demand now in today’s market, more than ever, and this type of loan offsets the major pain points of a true non-conforming conventional mortgage. Easy Qualification: Lower FICOs, stated income and stated assets make the approval process a breeze. Debt-to-income (DTI) is not an issue, and yes, this means no W-2s are needed! Higher Leverage: Expect up to 80% loan-to-value (LTV), compared to conventional lenders’ 65% max LTV for jumbo loans. Equity Options: With healthy equity, cross-collateralization is a great opportunity to recapitalize and continue to grow your real estate wealth. Private lenders such as CIVIC Financial Services can cross up to 10 properties under one single loan (with no limit of loans). Portfolio Growth: With DTI not an issue, investors can take out multiple loans – extending leverage without tying up cash. Faster Turn-Times: A jumbo loan takes much longer than the average conventional mortgage. With a jumbo private money loan calling for less documentation and less stringent requirements, investors can expect a much faster process. Hybrid Appraisals: Getting a full appraisal on a jumbo loan can be complex, time consuming, and expensive (over $3,000!). Hybrid appraisals, offered by lenders such as CIVIC, start at just $399 for up to a $3 million loan amount – resulting in faster value, and a faster process.

WHEN REAL ESTATE INVESTORS Go Big, Lender Spotlight:

Jumbo CIVIC THINKS

Whether it’s acquisition, recapitalization, or lowering costs – it’s no secret that hard money can be a true and valued source for real estate investors’ goals. High-priced homes require jumbo loans, and CIVIC Financial Services has its clients covered. Dive into the details of an actual CIVIC jumbo loan and take a peek inside this one-of-a-kind property!

LOAN AMOUNT: $9,000,000 LOAN TYPE: CASH OUT REFINANCE

OTHER TERMS: 12 MONTHS OF INTEREST PAYMENT RESERVES Newly constructed for today’s modern living, this property, along with its sweeping ocean views up the coastline is a true one-of- a-kind home of luxury. Upon its completion, the borrower and talented developer was in need of capital. While prepping to get this stunning 8,900 sq ft. contemporary estate on the market, he was looking to use the capital to reimburse his investors. Without requiring all of the documentation and time that a traditional jumbo loan would take, CIVIC was able to provide this savvy investor with a fast and simplified process to get the deal done within his timeline!

THINK BIG, GO JUMBO Jumbo private money loans are secured by real estate , and this, in and of itself, opens the door for investors to grow their real estate investment portfolios without tying up assets. This funding source allows you to tap into luxury and competitive markets, only without all of the steep criteria and slow timelines. So when a high-dollar opportunity presents itself, make sure you’re jumbo private money loan is teed up and ready to go.

CIVIC Financial Services, LLC is a leading institutional private money lender specializing in financing non-owner-occupied investment properties. CIVIC helps investors leverage opportunities to grow their real estate portfolios and build wealth through real estate. For more information, please visit www.civicfs.com. ©2021 CIVIC Financial Services, LLC. All Rights Reserved. This is not a commitment to lend. All offers of credit are subject to approval. Restrictions may apply. CIVIC Financial Services, LLC reserves the right to amend rates and guidelines. NMLS ID 1099109. Loans made or arranged pursuant to a California Finance Lenders Law License 603L321. AZ Mortgage Broker License 0928633. OR Mortgage Lending License ML-5282. See www.civicfs.com/Licensing.

thinkrealty . com | 23

INVESTOR STORIES

PRESIDENTS’ CIRCLE

ALike-Minded Circle MEMBERS WHO INFORM, INSPIRE, EDUCATE, AND EMPOWER

The Think Realty and AAPL Presidents’ Circle is a select group of top-performing executives and entrepreneurs from both the private lending and real estate investing industries who gather several times a year at exclusive events to network, learn, and encourage each other in a confidential setting.

e asked one of our original members, Marco Santarelli, what he has gained from the Presidents’ Circle and

why it is important to advocate for the REI industry.

“Being a founding member of Presidents’ Circle has provided me the opportunity to create new relationships that I might not have had otherwise. It has also allowed me to strengthen the bond in some existing relationships—one of the many benefits being a member of a solid mastermind group.” As an advocate for the real estate industry, Santarelli has realized the significant importance of why investors need to do what they can to continue the dialogue with legislators. “It is important because politicians don’t see how large the ‘mom and pop’ real estate investor community is. They think in terms of Wall Street institutional investors. Smaller investors have a major impact on the housing market and improving communities nationwide,” he said.

24 | think realty magazine :: december 2021

Where will your network take you?

The top echelon of the real estate investment and private lending industries meet in one place: the Presidents’ Circle. Circle members build deep connections across the REI landscape, learn tomorrow’s trends from leaders driving the industries, and step into the spotlight via Think Realty and the American Association of Private Lenders’ powerful media outlets. Will you be there? aaplonline.com/presidents-circle

thinkrealty . com | 25

FUNDAMENTALS

AWARENESS

ATTENTION PLEASE! WILL THE REAL ESTATE INVESTOR PLEASE STAND UP? The Social Impact of Real Estate

by Jason Engelman

fter the 2020 election I was so exhausted I did a major detox from the news and everything happen- ing in Washington. I felt better and seemed to enjoy my preverbal bubble. It felt kind of nice to unplug and forget about it all. However, I quickly realized pretending to be an ostrich and sticking my head in the sand would be more fatal to me, my family, and my business. How can I be a good steward with what God has given me if I’m clueless to what’s going on around me. The answer is I can’t, and neither can you. Why pay attention to the government and all the crazi- ness that takes place on The Hill? Politicians and lawmakers who know very little about A

real estate investing are proposing bills that will affect us investors greatly. From raising capital gains taxes, to eliminating 1031 exchanges, to preventing you from making certain investments out of your IRA, our govern- ment is working to make it difficult on you, the investor. Sadly, many of us have learned that the lawmakers in Washington are clueless about real estate investing and the effects these laws could have on our economy long term. Flipping a house or owning a rental is much more than what is seen on an HGTV episode. What some may see as an entertaining show of a dumpster house being turned into a forever dream home, others see opportuni- ties to make their communities a better place.

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Here our three ways flipping a house impacts society, which could be affected if certain laws are passed: 1. Real estate investors create jobs.

This might seem obvious, but you would be surprised how many actually forget this. When I started rehabbing homes in Columbus, Ga, I immediately employed more than 50 people. For some it was a second job to work after hours, for others it was a stay-at-home parent who took pictures of our properties to make extra cash and for others, it was a full-time job. This does not include all the companies who supplied the materials that we needed. Just by rehabbing homes, a surplus of money was being stimulated in this small town’s economy. It was rewarding to see the impact my once big dream and now small company was making on many lives. 2. Real estate investors revitalize neighborhoods. When distressed homes sit in your neighborhood, not only are they not pleasant to look at, but they affect the city’s economy. They hurt the value of the neighborhood, which prevents the city from generating the best price for property taxes; they become hotbeds for crime, vandalism, and homelessness, which trickles down to schools, businesses, and government offices. It’s amazing how turning the worst homes and neighborhoods benefits more than just the people that move into the home. 3. Real estate investors help charities. With the success of my business, I have had more to give back. From helping veterans, sponsoring mission trips and feeding orphans, to paying for student tutoring and providing groceries to families in need, I have been able to make a small difference in others’ lives by just simply flipping a house. I don’t mention this to brag but to bring attention to the fact that communities all over the world are being impacted by the generous gifts of real estate investors.

Howwill you make an impact?

thinkrealty . com | 27

FUNDAMENTALS

TAXES

Tax Benefits with Short-Term Rentals

used – trade or business? If you rent a property with an average stay of 30 days or less, the IRS does not consider it rental activity; it’s a trade or business, kind of like running a hotel. In addition to the short rental period, you must also materially par- ticipate in the STR activity. Generally, this is established by spending 100 hours on your STR activities, i.e., self-managing your STR. Here is a breakdown of what is required: 1 The STR property is placed in services (you are renting or attempting to rent.) 2 The average rental period is seven days or less than 30, with substantial services provided to the guests. Substantial services are typically defined as con - cierge-type amenities. You satisfy one of the seven mate - rial participation tests under Temp. Reg. 1.469-5T. The quickest route is test three. Just spend 100 hours on your short-term rental activity and make sure it is more than anyone else, i.e., manage your properties. SHORT-TERMRENTALTAX PLAN INACTION - EXAMPLE Dr. Sadhil is a physician earn- ing $500,000 working for a medi- cal group. Dr. Sadhil and his wife

NO REPS NEEDED!

by Clint Coons, A Think Realty Resident Expert

they work full time in a non-re- al estate-related field or fail the material participation requirement is how real estate can create tax deductions for them. The solution for these investors is easier than you might think. The highway to harvesting the tax benefits from real estate runs through short-term rentals (STR). SHORT-TERMRENTALTAX ADVANTAGE Unlike long-term rental activ- ity, which is passive, STR activity is defined as a trade or business activity. STR is considered a trade or business if the average customer use of the property is for seven days or fewer—or 30 days or fewer if the owner (or someone on the owner’s behalf) provides significant personal services. Did you notice the phrase

any investors struggle with cap- italizing on the tax benefits of

owning real estate. Yes, you can write off your expenses and depreciation against your real estate income, but the real target for many is reducing their non-passive income with real estate losses (passive). For example, a physician earning $500,000 a year listens to a podcast on the benefits of cost segregation, i.e., accelerat- ed depreciation, coupled with 100 percent bonus depreciation through 2022 to create tax shelters out of his four rental properties. After speak- ing to his CPA, the physician learns the depreciation deductions he heard about are only available to offset his non-passive income if he is a real estate professional. The physician does not qualify—or does he? The dilemma for those investors who cannot meet real estate pro- fessional status (“REPS”) because

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