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TABLE OF CONTENTS
INSIDE THIS ISSUE
THINK REALTY 8 News & Events
HOUSING NEWS REPORT 60 Changing Seasons of Opportunity
Updates from around the industry.
"My Take" article from ATTOM Data Solutions. by Jeff Tennyson, CEO, Lima One Capital 63 Neighborhood Monopoly [Infographic] A guide to real estate investing by neighbhood. by ATTOM Data Solutions 64 Top Markets for Movers in Q3 2018 "Data in Action" article by ATTOM Data Solutions. 66 How to Recession-Proof Your Real Estate Business Industry experts share practical steps they’re taking. by Daren Blomquist
10 Insight and Assistance on All Things Rental-Related ApplyConnect provides information for real estate professionals, rental housing legislative updates, industry news, and free resources. 12 Think Realty’s Newest Coach: Clint Coons, Esq. Protecting investors, investments, & capital at every stage. SPECIAL SECTION: POLICY& LEGISLATION 26 Institutional Class-Action Lawsuits Spell Trouble for Individual Landlords Key, consistent landlord practices to protect your portfolio. by Linda Liberatore 30 3 Real Estate-Related Factors that Will Play a Role in the 2018 Midterm Elections On or off the ballot, housing policies change after November. by Carole VanSickle Ellis 34 Did You Thank Your Government Today? [Industry Opinion] Before you write off government as unnecessary, think about the housing market. by Greg Rand 36 A Much-Needed Change in Mortgage Lending Practices [Industry Opinion] It’s time to change or remove the 10-mortgage limit for qualified investors. by Marco Santarelli 28 Our Responsibility to Speak Up for Real Estate [Industry Opinion] Our government wants and needs to hear from investors. by Eddie Wilson
MINDSET 84 Redefine Your Leadership Style Without Losing Your Vision
Difficult changes don’t have to mean leaving your team behind. by Jennifer Jo Cobb
MARKETING 87 5 Details that Will Make or Break Your Postcard Marketing Campaign It’s the little things that make the biggest difference. 93 Breaking Down the Networking Process to Meet “Big Players” in Real Estate 3 tips for creating productive connections. by Samuel K. Freshman
Clearmark Partners’ CEO, GEORGE KOO identifies opportunities deep in the details.
FORENSIC INVESTING, RISK MANAGEMENT& REAL ESTATE
by Carole VanSickle Ellis :: photos by Rob Tannenbaum
NUTS & BOLTS
INVESTOR REVIEW: FINANCIAL EDITION 67 Expert Strategies for Portfolio Profits and Protections Diversify your portfolio like never before.
MARKETSPOTLIGHT: GRANDRAPIDS, MICHIGAN Breaking down the data behind "top 10" list praise.
INNOVATIVEREALESTATE INVESTING An early adopter on staying ahead of the curve.
Using creativity to create returns with HGTV's Anita Cosini.
An incredible backstory built this project.
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FROM THE EDI TOR- IN-CHI EF
PUBLISHER Eddie Wilson
Investors Cannot Afford a Blind Eye
CEO, AFFINITY WORLDWIDE Eddie Wilson | EWilson@AffinityWorldwide.com
EDITOR-IN-CHIEF Carole VanSickle Ellis CEllis@ThinkRealty.com SALES MANAGER Rodney Halford RHalford@ThinkRealty.com 816-398-4111 x86122 NATIONAL SALES MANAGER Teresa Stanton TStanton@ThinkRealty.com 816-398-4111 x86224 CONTENT DIRECTOR Abby Tillman ATillman@ThinkRealty.com FULFILLMENT COORDINATOR Blair Pierce BPierce@ThinkRealty.com DESIGN CONSULTANTS Rivet | www.WeAreRivet.com
s our country continues to be bitterly divided in the political
deep into how his multimillion-dollar wealth-management firm is analyzing the effects of tariffs, trade wars, and other economic policies on real estate investments. His transparency pulls back the curtain on how huge financial advisors and managers make decisions about real estate, technology, and other investment factors and how that process can be applied in any real estate business. Our team broached additional difficult topics, including: • Investors’ role in national and local legislation and policy formation • Top policy issues affecting real estate investors today government more than they prefer to think This month, perhaps even more than any other, we have worked hard and long to retain objectivity while presenting all the information and as many perspec- tives as possible. It has not been easy. I do not expect reading everything in this issue will be easy, either. Of course, real estate investors know better than anyone that “easy” is not usually part of the success equation. Thank you for allowing this magazine to play a part on your team. We hope this month, as every month, this content makes your real estate business stronger, more profitable, and increas- ingly sustainable. Now, take a deep breath and dive in. You’re in friendly waters. We’re all investors here. • • Much-needed changes in the mortgage • Why investors might need the federal
arena, it is tempting to simply “turn off” the vitriol. On both sides of the political aisle, we struggle with intense acrimony over policies and perspectives that seem impossible to reconcile. As a real estate investor, the allure of tuning it all out
becomes nearly impossible to resist as the rhetoric escalates. After all, everyone needs somewhere to live. We place our faith in the market and the numbers, not in people and politics, right? Wrong. In today’s increasingly connected world, real estate investors cannot afford to turn a blind eye to politics and policy. What happens in one market sets precedent in another. The economic policies set at a national level will affect certain markets more than others, some with incredible positivity and some, potentially, with catastrophe. Make no mistake: Real estate investors will be the source of stability in housing in both scenarios. You must be paying attention. Think Realty Magazine strives to remain ob- jective on all fronts, particularly in the political arena. I would argue as editor-in-chief that the magazine team’s only bias, such as it is, is a passion for the real estate investing population. You, as real estate investors, deserve someone exclusively on your side, providing you with the education and information you need to make strategic decisions in your business. Think Realty Magazine is that team member. Because of this ideal, it is our responsibility this month to take a difficult look at how this Novem- ber’s mid-term elections and also longer-term policy decisions may affect national, regional, and local housing markets. We do so in this month’s special section on policy and legislation. This month, our cover feature, George Koo, dives
ART DIRECTOR Emily Bowers
CONTRIBUTING WRITERS Daniela Andreevska, Jennifer Jo Cobb, Anita Corsini, Rich Fettke, Samuel K. Freshman, Gene Guarino, Ken Lacy, Linda Liberatore, Tammy Phelps, Greg Rand, Marco Santarelli, BreAnn Stephenson, Eddie Wilson and Ingo Winzer.
COVER PHOTOGRAPHY Rob Tannenbaum
FOR ARTICLE REPRINTS :: Contact Jeremy Ellis at Reprint Pros, 949-702-5390. www.reprintpros.com. SUBSCRIPTIONS :: The annual subscription for Think Realty Magazine is $28.95 in the U.S. Order online at www.ThinkRealty.com or call 816-398-4085. 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 :: ThinkRealtyMagazine isapublicationof AffinityRealEstateMediaLLC.Reproductionoruseofanyeditorial orgraphic,withoutpermission, isprohibited.Wearenotresponsible for thecontentofanypaidadvertisements.Forreprintrights; toob- tainadetailedstatementofourprivacypolicy;and forallsingle-copy requests,addresschangesandothersubscription inquiries:
One click away from smarter investing. Check out our new online calculators at ThinkRealty.com where the advantages for investors really add up! Calculate and compare ROI, evaluate potential investments, determine a budget, and so much more with these new tools.
Visit thinkrealty.com/calculators/ to run your numbers today!
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CAROLE J. VANSICKLE ELLIS, EDITOR-IN-CHIEF
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Think Realty is a part of the Affinity Worldwide family of companies. Here, find exciting news about Think Realty and its sister companies, as well as other noteworthy industry news.
NEWS & EVENTS
Come See Think Realty at These Upcoming Industry Events! Think Realty will be busy this November at four different industry events. Don’t miss Think Realty booths and speakers at:
“We Buy Houses” Declared Ineligible for Trademark Washington, D.C. – 14 months of litigation between Express Homebuyers USA (EHB) and WBH Marketing Inc. (WBH) ended this fall with a court declaring the trademarks “we buy houses” and “webuyhouses.com” to be generic and adding they should be canceled. The litigation began when WBH brought claims for false advertising, trade libel, and conspiracy against EHB, a Virginia-based real
Think Realty- Sponsored NASCAR Driver Jennifer Jo Cobb Featured in New Video Game Jennifer Jo Cobb , American NASCAR Camping World Truck Series driver, is represented in “NASCAR Heat 3,” the third game in Monster Games’ popular NASCAR Heat series published by 704Games. “NASCAR Heat 3” features an all-new dirt racing circuit, daily and weekly real-time tournaments, two females featured in a NASCAR video game. This year’s inclusion in “NASCAR Heat 3” makes Cobb one of several female drivers to make an appearance in the game. Her vehicle’s Cobb holds records in NASCAR’s Camping World Truck Series for the female driver with the most starts, the highest series finish and the highest finish by a woman in any of NASCAR’s top series at Daytona International Speedway, with her sixth place NCWTS finish in 2011. She is one of NASCAR’s few driver- owned teams and is the only female driver-owned team. Cobb launched Driven2Honor in 2011, to honor America’s female military members. paint scheme featured in this release includes the Think Realty logo. eight new dirt tracks and gameplay improvements. In 2011, Cobb (left), along with Danica Patrick, became one of the first
Think Realty Opens New Forum Topics Just in Time for November Mid-Terms
NOVEMBER 1-4, 2018 OREIA’s National Real Estate Summit Great Wolf Lodge - Cincinnati, Ohio
This event is one of the country’s longest-running and largest conferences for real estate investors and landlords. The 2018 summit will focus on finding more deals in inventory-tight markets, diverse strategies for making money with small, residential income properties, finding funding for deals, and connecting with fellow investors, experts, and service providers from around the country. Learn more at OREIAconvention.com. NOVEMBER 4-6, 2018 American Association of Private Lenders (AAPL) 2018 Annual Conference Sponsored by Alphaflow Caesars Palace - Las Vegas, Nevada “Not your average real estate lending conference!” This event brings speakers, business- es, and real estate entrepreneurs from around the country together to learn new things and expand their networks. AAPL’s annual conference provides the ideal venue for private real estate lending professionals to expand revenue and scale their businesses. Learn more and register at AAPLconference.com.
Think Realty members members can now exchange ideas and learn from each other on the Think Realty forums. While the forums cover a wide variety of topics, including strategies, private money, property management, tax topics, turnkey investing, and marketplace tips and analysis, the “Industry & Events” and “General” sections are currently host to article-specific threads dealing with the legislative and policy-related topics covered in this issue of the magazine. To comment on your own experiences and perspectives on these issues, simply join Think Realty as an intro-level member by clicking “Join” on the main page at ThinkRealty.com and providing your email address and a few other details. Then, access the forums under the “Resources” page in your new member profile and let us hear your voice! Intro-level members can also activate huge discounts on a variety of real estate-related products and services, including up to 50 percent off
estate company that has purchased and rehabbed more than 2,500 homes. Like many wholesalers,
the company had used the term “we buy houses” in its advertising. Before this decision, WBH
held the trademark on this term and, at times, claimed infringement when
NOVEMBER 10-11, 2018 Intelligent Investors Real Estate Conference 2018 Marina Del Rey Marriott – Marina Del Rey, California Presented by FIBI and CashFlow Connections
Ohio Legislator Introduces First Income Tax Credit for Investing Just over two months ago, Ohio state representative, Kirk Schuring (R), quietly introduced what would emerge as the first state-led legislation to link state tax credits and the federal Tax Cuts and Jobs Act of 2017. Schuring’s legislation proposed a 10 percent tax credit for investors placing at least $250,000 in an Ohio “Opportunity Zone,” a zone designation created under the 2017 tax reform as eligible for incentives to encourage long-term investments in low-income urban and rural communities. If the bill (House Bill 727) passes, it may make investing in these zones in Ohio more attractive to investors.
other real estate companies used it. The judge in the case concluded both “we buy houses” and “webuyhouses.com” were too generic to warrant a trademark, comparing the situation to permitting a single NFL team to trademark “we play football.” Because the trademark was ruled generic, WHB may no longer direct third parties to stop using the “we buy houses” in online advertisements and physical signs.
Network with some of the highest-level investors in real estate and hear from leading professionals in the private real estate investing space at the For Investors By Investors (FIBI) two-day conference. Additional topics and speakers are being added daily. At pres- ent, topics include real estate economics and outlook for 2019, investing in mobile home parks, apartments, self-storage, retail, and other commercial assets, tax laws investors need to be cautious about, hard money, raising capital, and self-directed retirement. Learn more at IntelligentInvestors2018.com.
Sherwin- Williams paint products.
NOVEMBER 15-16, 2018 Think Realty Global Destination Investment Summit Swissotel Grand Shanghai - Shanghai, China
Affinity Investments bridges the gap between stateside opportunities and overseas finances. With a track record of bringing Chinese investors with widely varied investing motivations and strategies together with U.S. real estate investment op- portunities and professional service providers, Affinity Investments has a long track record of making it top priority to advise and execute the best deals for its partners. Learn more at AffinityInvest.com.
EHB is represented by a team based at Duane Morris LLP. Inquiries about the case should go to Ugo Colella at email@example.com.
Register for a free intro-level membership with Think Realty at ThinkRealty.com/join or access the forums directly at ThinkRealty.com/tr-forums.
Learn more about Jennifer Jo Cobb by contacting Dell Hamilton at firstname.lastname@example.org.
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More Leads. More Time. More Money. Your Freedom. WHY Realeflow? We give you the tools you need to enjoy the freedom you deserve.
Insight and Assistance on All Things Rental-Related APPLYCONNECT PROVIDES INFORMATION FOR REAL ESTATE PROFESSIONALS, RENTAL HOUSING LEGISLATIVE UPDATES, INDUSTRY NEWS, AND FREE RESOURCES.
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Motivated Seller, Buyer, Private Lender Leads Available for instant download 24/7 Direct Mail Engine Automated single-step and multi-touch campaigns Lead Generation Websites Custom high converting websites in under 3 minutes Comparables and Deal Analysis Free real estate comps and easy analysis Repair Estimates and Rehab Plans Accurate repair estimates and rehab plans (no contracting experience necessary!)
eal estate investors working in the rental housing industry know there are a plethora of things to keep track of. While tenants probably take up the biggest portion of your bandwidth, it’s important to stay informed. It’s vital that you monitor changes in policies affecting your portfolio and practices, stay alert for market shifts, review your advertising and promotional activities, and perform consistent checkups on your platform providers to ensure they are free from Fair Housing issues (more on that below). Think Realty supplier ApplyConnect, Think Realty's latest addition to its Discount program and best known for its no-cost tenant-screening services, also provides customized information of this nature for their clients. “We know that for landlords, agents, and real estate investors and professionals, Fair Housing is not just a piece of legislation. Credit hacks are not just headlines. We help our clients actively monitor and maintain their compliance across the industry,” explained Ryan Green, the company’s director of marketing. This month, ApplyConnect provided Think Realty Magazine readers with a cross section of its latest information and education:
target, not showing ads to those in- terested in terms like “assistance dog,” and allowing ZIP code targeting.
ON FAIR HOUSING LAW: “If you’re working in the rental housing industry, there is no doubt you have heard of the Fair Housing Act (FHA). While you may think it’s just a piece of legislation…there’s much more to it than that,” wrote author Olivia Creighton. She went on in the piece to detail three strategies for keeping your rentals Fair Housing-compliant, including information on construct- ing a code of ethics for your business. “Many agencies have a code of ethics in place, which typically includes not discriminating against anyone in the seven protected classes.” ON FACEBOOKADVERTISING AND HUD COMPLAINTS: “The U.S. Department of Housing and Urban Development (HUD) has filed a complaint against social media giant Facebook [for] allegedly allowing advertisers on their site to be discrim- inatory,” Creighton wrote. She con- tinued, describing the ways in which the platform and its users might have inadvertently discriminated against protected classes, including selecting which gender advertisements would
ON THIS YEAR’S ISSUES WITH LAST YEAR’S EQUIFAX DATA BREACH:
“Most consumers have long forgot- ten about the Equifax hack,” observed author Becky Bower. “Data criminals might find that one year later is the per- fect time to wreak some havoc.” Bower went on to warn landlords and tenants alike that a social security number may be exploited at any time, not just imme- diately after it has been stolen. She rec- ommended several options for ongoing vigilance in the wake of a credit hack. • Think Realty Members receive access to timely and industry-targeted information, no-cost tenant screening, and 25 percent off select screening services from CIC through Apply Connect. Visit ThinkRealty.com/ ApplyConnect to sign up (for free!) and get started today.
Get A Special Free 30-Day Trial PLUS Realeflow’s Entrepreneurial Speed Training Course at www.rfleads.com/tr
Realeflow. Supporting Freedom Chasers (Like YOU!) Everywhere.
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Introducing OurNewest Coach: Clint Coons, Esq. PROTECTING INVESTORS, INVESTMENTS, & CAPITAL AT EVERY STAGE.
greatest wealth generators of all time, but that wealth becomes a target if you do not put the right business structures in place for the right reasons.”
the investor wants five properties. Maybe they want 500. For both goals, you still have to set things up right. “In my courses, I teach the impor- tance of business entities, why you
Title and affiliations: Founding partner at Anderson Busi- ness Advisors & Law Group, author, real estate asset protection expert, active real estate investor. Courses: • Intro to Asset Protection • LLCs for Real Estate Investing • Intro to Land Trusts Experience: Clint Coons graduated from the University of
should set certain entities up in certain situations, and how to maximize the benefits once you have set them up. We also cover where to create those entities and how to ensure they’re effective and fully operational.” The Biggest Mistake New Investors Make: “Most of the investors I speak with who are in an untenable situation, be that a breach of contract or a lawsuit from a tenant or contractor, are new investors who did not ap- preciate the risk associated
FORTHENEWINVESTOR, I THINK ASSETPROTECTION IS EVENMORE IMPORTANTBECAUSEYOUARE STARTINGONANEWVENTURE ANDYOUDON’THAVEALOTOF EXPERIENCEYET. IFSOMETHING GOESWRONG, YOUMUSTNOTBE LEFT HOLDINGTHEBAG. YOUWANTTOBE SUREYOUAREPROTECTINGYOURSELF, YOURFAMILY, ANDYOURBUSINESS."
Washington with a business degree and began a career in construction. “My dad was a real estate investor, and I had a lot of experience working with him on his properties,” Coons said. “I was a framer and planned
What You'll Learn from Clint: “Look at structuring your real estate business as a three-legged stool. You have asset protection, tax plan- ning, and, maybe most importantly, the actual business of real estate. In- vestors must not just focus on one of the three legs because they don’t want the stool to topple. It’s my goal to help every investor create a well-balanced plan that looks at all aspects of what they are doing to create wealth and put something in place that will help them accomplish their goals. Maybe
to become a contractor, but ultimately I traded my hammer for a gavel, got my law degree in 1997, and started practic- ing. I love real estate because the market may go up and down, but investment properties generate income for the investor no matter what.” WHY HE’S HERE: “This is true for everyone, but for real estate investors in particular it is so important to have asset protection in- formation available to you and in place at the outset. Real estate is one of the
with real estate investing. They were inexperienced and did not necessarily understand where the ‘traps’ in the process are. It’s my goal to make sure new and experienced investors alike are prepared to defend against and avoid these traps.” •
Learn more about Clint and view his courses at ThinkRealty.com/Clint.
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When Hatley and her partner and husband, Jason, walked inside for the first time, they discovered that the house had been heavily soiled by pets, neglect, and general age. During the cleanout process, they also discovered a mysterious hole in the basement (neighbors later speculated it might be a “mob tunnel” once leading to the base- ment of another nearby residence), false ceilings covered in “gold, sparkling popcorn” that, when removed, revealed a second layer of kitchen cabinets extending upward into the (newly revealed) 12-foot ceilings, and a family treasure trove of archives that descendants of the owner returned to collect with gratitude. “It was definitely an adventure,” Hatley said. “And that was before we even started the renovation.” Although the investors had originally intended to renovate the property as a small multifamily rental, Hatley soon discov- ered her plans would have to change. “We found the house had multiple additions. This meant the exterior walls of the house were 12-inch brick walls and, in some cases, interior walls were
the same. “There was no good way to reconfigure the rooms, which had been used as multifamily previously but were very awkward as they were,” she said. There were also some historic elements that led to Hatley to believe that the home would be better suited to either a single-family residence or, as she ultimately decided, an Airbnb rental that the investors may, at some point, sell at retail. “The house had this gorgeous staircase and that incredible kitchen. We were going to lose them if we made the property multifamily,” Hatley said. “The area is definitely a good rental neighborhood, but we felt like keeping the history, the story, and the residence intact was ultimately our best option. This is a neighborhood where people don’t leave. They live here forever. We knew it was an emotional gamble, but it was the right deci- sion for us and the property. We are now stewards of a piece of historic Kansas City." The former owner had paved the backyard, but Hatley knew resi-
Layers of History “MOB” TUNNELS, FALSE CEILINGS & AN INCREDIBLE BACKSTORY BUILT THIS PROJECT.
Featured Investors: Malia and Jason Hatley, Hatley RE Investments
hen Malia Hatley bought a 130-year-old brick house in downtown Kansas City, Missouri, she was defi- nitely interested in the property for the location. “That area, Columbus Park, is really close to the downtown area. It’s full of restaurants and entertainment, a vibrant community, and, I admit, I already had one project that I’d bought about four months previously that was right behind it. We were reno- vating it as a duplex, and it was chugging along just fine,” she recalled. Then, she laughed. “I thought it would be so conve- nient. Instead, it just meant any given tool someone needed was at the other property every single time!” Despite her wry sense of humor about the project, Hatley had a passion for the property from the very beginning. “I had done an extensive amount of research about the house before the auction, including talking to all the neighbors and learning about the previous owner, who had died,” she said. “We had a pretty good idea of the history, but we hadn’t yet been inside when we started bidding.” This is not particularly unusual in this type of circumstance, so, Hatley noted, “We assumed we would have to replace everything.” It was a good thing she did. W
Built in 1890 4 bedrooms/4 bathrooms 3,010 square feet
Original floors and staircase Kitchen with 12-foot ceilings Purchase Price: $ 122,000 Rehab & Carrying Costs: $ 200,000 Appraised Value After Rehab: $ 468,000*
*Because the neighborhood is dominated by multigenerational households and rentals, comps for Hatley’s property were nonexistent. This is one reason the Airbnb strategy is a good one, as it enables her to wait for other, truly similar properties in the area to change hands before she sells.
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historic thin-plank hard- wood floors, which are truly irreplaceable. “I could write a book about wood-strip- ping products at this point,” Hatley laughed, “but those floors were not coming out on my watch. They are beautiful. You will never be able to replace them with anything like them because no one makes that flooring anymore.” The floors are featured throughout the house, including in the bed- rooms (opposite page) and kitchen (opposite page).
Of all the surprises the house held for the Hatleys, however, the kitchen probably was the most exciting adventure of all. “We knew going in that gold popcorn was coming down. What we didn’t know, however, was that in the kitchen, above that false ceiling, there was a second layer of cabinets, original to the house, that went all the way up to the ceiling,” Hatley recalled. She noted this is not an uncommon find in historic houses. “With 12 feet to work with, a lot of people will just slap up a new ceiling instead of repairing plaster or signs of water damage.” Ultimately, Hatley opted to keep all of the cabinets, “even though you need a ladder to get to the top ones,” and replaced all the doors, drawers, and fixtures. The investors also commissioned a custom island standing on repurposed porch columns (pictured right), which Hatley opted to leave unpainted. “I wanted to keep some of the character from the old kitchen,” she explained. The bedrooms, like the rest of the living areas on the main level, feature the thin-plank hardwood floors Hatley's flooring team worked so hard to restore. The bathrooms are fully updated, and the investors added one more bath during the renovation. “The
Kitchen details: Farmhouse sink and new fixtures
bathrooms have new tile,” Hatley admitted. “We scavenged their hardwood for the rest of the house!” They pulled the planks from closets as well. Wondering where the pictures of the “mob” tunnel are hidden? Turns out, there aren’t any. “In all honesty, I think they had plumbing problems or needed to replace a sewer line and jackhammered the floor. Then, they hid it under shag carpet,” Hatley said ruefully. During the renovation, she had not yet learned about that tidbit of the house’s “legend,” so the crew simply replaced the entire
concrete floor and turned the area into a game room. “I wish I had known,” she said. “If I’d dug the whole thing up, I could have found Jimmy Hoffa!” Instead, she’ll have to content herself with the satisfaction of a challenging restoration project completed and producing in her property portfolio. •
dents in the area would prefer a "little green" instead. “We put down sod, watered it forever, and now it has a little yard,” Hatley said. One of the home’s unique attributes that ultimately convinced Hatley to keep the property as a single-family residence, the his- toric staircase, was certainly a well-hidden gem at the start. “It was covered layers of paint and disgusting, red, soiled carpet, but you could tell even then that underneath, there was a beautiful stair- case. Under the trash, there was something really lovely,” she said. Above, the finished staircase graces the entryway along with the
Malia and Jason Hatley are co-owners of Hatley RE Investments. Learn more about this and other projects by emailing HatleyREInvestments@gmail.com.
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Forensic Investing, Risk Management & Real Estate.
MY INVESTMENT STYLE IS TOMAKE SURETHAT I INVESTIGATEALL THESE INVESTMENT OPPORTUNITIES ONBEHALFOFMY INVESTORSAND MAKE SURETHAT I DOALLOFMY DUE DILIGENCEAS THOROUGHLYAS POSSIBLE"
Clearmark Partners’ George Koo Identifies Opportunities Deep in the Details
BY CAROLE VANSICKLE ELLIS PHOTOS BY ROB TANNENBAUM
GEORGE KOO CEO/CIO, CLEARMARK PARTNERS
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YOU MIGHT EXPECT GEORGE KOO, CEO/CIO of specialized investment manager Clearmark Partners, to spend a lot of his time looking at the “big picture” when he evaluates investments. After all, his company manages hundreds of millions of dollars for individual and institutional “ultra-high net worth” investors, which means, by definition, these entities may be investing at least $30 million outside of their personal assets and property. Spend a few minutes talking investment strategy with Koo, however, and you will soon find his attention is definitely on the details. Those details include those that only show up under the lens of what Koo refers to as his “forensic work,” which extends far beyond forensic accounting, a fairly traditional concept, and into the concepts of machine learning, artificial intelligence, groundbreaking technology, and a deep understanding of the intricate ways in which politics, policy, and real estate interact on a micro- and macro scale. “My investment style is to make sure that I investigate all these investment opportunities on behalf of my investors and make sure that I do all of my due diligence as thoroughly as possible,” Koo said. “Most importantly, I want to help them manage their risk and make sure they are not risking themselves or their principal investment dollars.” Interestingly, Koo places importance on investors’ principles as well as their principal, which has created a unique place for him in the industry and also places him in a unique analytic position when it comes to the practical effects of politics and policy on an investment portfolio. This principled approach to investing is focused on client needs and prudent risk-management, he noted. Thanks to a diverse background (see right for a partial list of Koo's credentials) in finance, international relations, and accounting alonside his current pursuit of a PhD in Quantitative Finance and Technology, Koo is well placed to advise and strategize in all investment sectors, including real estate.
PROFESSIONALPROFILE: GEORGE KOO
PhD in Quantitative Finance & Technology : Virginia Tech (in process) Master of Liberal Arts in International Realations : Harvard University
Certified Public Accountant
MBA and BS in Finance and Accounting, respectively: St. John’s University
Chartered Financial Analyst
Professional Positions & Experience:
CEO & Chief Investment Officer (CIO), Clearmark Partners LLC 2009-PRESENT Clearmark Partners specializes in investment management for institutions and wealth-management services for ultra-high net worth individuals. The company currently manages around $500 million. Managing Partner, Hillcrest Capital Advisors, LLC 2000-2009 Provided investment consulting services specializing in distressed securities, turnarounds, and restructuring at the height of the financial crisis. Head of Research, Investment Banker & CFO, Dalman Rose & Co. 2003-2007 Structured more than $3 billion in initial public offerings, secondary offerings, and private placements for the marine shipping and energy industries.
CEO & President, Digital Systems Group 2000-2002
Successful turnaround of a bank- foreclosed information technology services company between 2000 and 2002.
Investment Banker, Burnham Securities, Inc. 1993-2000 Specialized in turnarounds,
restructurings, bankruptcies, and distressed situations and conducted special situations research. Vice President & Portfolio Manager, Chase Manhattan Bank 1985-1992 Managed $3 billion in fixed-income/ mortgage-backed securities portfolios. Played a role in pioneering the process of investing in mortgage- backed securities, including developing algorithms for distribution of cash flow to investors.
Learn more about George Koo and Clearmark Partners at ClearmarkPartners.com
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This approach is particularly relevant to real estate investing, a sector which has proved much harder to automate than the more mechanical processes of buying and selling stocks or bonds. For Koo, this is a good thing. “I don’t want the AI engine to trade without intervention ever, in any investment category, because human judgement should always still prevail,” he explained. To Koo, rather than being enamored with any one cryptocurrency or algorithmic process in investing, the bigger story (incidentally, hidden in the details) is the opportunity represented by blockchain technology (see sidebar at right). “Blockchain itself, not Bitcoin, will likely have an enormous impact on the future of the financial industry and the real estate industry,” he said. “Blockchain is fast, transparent, and low-cost. It can authenticate transactions and secure them as it crisscrosses the internet, which could have significant implications for everything from credit to leasing to chains of title.” Koo noted many companies will likely not refer to their version of the technology as blockchain. “The code itself is open source, so a lot of companies will download it and then employ the technology within their security frameworks. I would say by next year, you will see more secure systems thanks to derivative blockchain integration. They may not even refer to it as blockchain because the name is getting a negative connotation from its public association with cryptocurrencies.” This increased security will benefit real estate investors in a number of ways ranging from increased transactional security to better privacy and control over Internet of Things tools, such as electronic locks, used in rental management processes. “One good thing to come out of this technological evolution is a really, really robust authenticating system and a more secure internet for many types of document transactions,” Koo said. Blockchain also stands to reduce the timing of closing for
real estate transactions, synchronize cash- flow streams from leases, and even create unprecedented levels of privacy and control on the profiles of individual consumers as well as commercial entities, he added. “All the parties in a transaction, commercial or residential, could effectively look at an entire chain of verified, validated transactions and
complete a closing, for example, in a matter of minutes,” Koo explained. If such technology evolves successfully, investors at every level could save a great deal in time and, additionally, in transactional fees that affect everyone in the process. “The possibilities are endless when it comes to the blockchain,” he said.
BREAKING DOWN THE BLOCKCHAIN PROCESS
Thanks to Koo's fascination with the details, he is also well-positioned to comment on investment and economic trends that affect all investors operating on all levels of scale. For this issue of Think Realty Magazine , Koo divulged the details of his ultra-high net worth process, from identifying the long-lasting ramifications of cryptocurrency on the real estate industry to evaluating how this November’s elections could affect your real estate strategies on a regional basis. IMPLICATIONS FOR EVERYTHING FROM CREDITTOLEASING TOCHAINSOFTITLE." BLOCKCHAIN ITSELF, NOTBITCOIN,WILL LIKELYHAVEAN ENORMOUS IMPACT ONTHE FUTURE OFTHE FINANCIAL INDUSTRYAND THEREALESTATE INDUSTRY... [INCLUDING] SIGNIFICANT
G eorge Koo is an expert on the unique combination of real estate, finance, machine learning, and blockchain technology. He dedicates a great deal of his time to instructing, advising, and consulting for the business community and academia on these topics and, as a result, has a finely tuned breakdown he uses to illustrate what blockchain really is and how it works: “Blockchain is simply a technology for authenticating transactions. In fact, it was originally developed for use on the dark web so various ‘bad actors,’ like money launderers and drug dealers (who certainly wouldn’t trust each other), could operate in a wholly trustless system. For every party in a transaction, the blockchain technology provides a cumulative security mechanism and distributed ledger that can be validated across an entire
AI and Cryptocurrency Bring Endless Opportunity to Real Estate
Artificial intelligence (AI) and cryptocurrency have certainly been two of the most prevalent topics in the headlines across many industries in 2018. The intensely complicated subject matter in both areas not only positions them for great advances; it also creates a perilous situation for investors seeking to take advantage of early adoption without full knowledge of what the future holds. “Investors at every level absolutely must recognize that cryptocurrencies are, at this point, a totally digital asset,” Koo stated. “It is nothing more than a digital file, not much more different than an encrypted email message file. And that makes its perceived value extremely volatile. Most importantly, cryptocurrencies cannot be easily spent. It’s very difficult to figure out the true value of a bitcoin (or any
cryptocurrency), for example, at any given point in time.” He feels similarly cautious about many of the more advanced machine-learning technologies beginning to appear in the market and noted that although he might use a computer to help identify investment opportunities, he would never sacrifice the human element of control in any aspect of investing, be that stocks, bonds, or real estate investments. “Sure, my goal is to be able to take my brain and put it inside a computer so it can evaluate investments similarly to the way I would,” he laughed, but continued, “I would never let a computer operate a trading mechanism. You have to make sure you have some level of human intervention between the mathematical models the machines are learning and the implementation.”
community. That validation creates a series of pending transactions, all chained together, in a digital file. “The secret sauce is the distributed ledger process that provides blockchain with the authenticating mechanism over the system itself. It is a unique signature, and whenever a transaction ‘goes through,’ so to speak, it creates a ‘block’ that is, at the end of the transaction, validated by the entire population involved in the transaction. These blocks are essentially chained together, distributed to everyone involved, and problematic blocks, those that have been altered or rejected, are rejected by the community.
Because of the unique nature of the signature capability of the blockchain process, this verification is probably the strongest technology to emerge from cryptocurrency’s evolution.”
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Tariffs, Trade Wars, Tax Policy, and Real Estate
Risk-Resistant Strategies for Beating the "Amazon Effect" on Real Estate
descriptions may well represent solid potential gains for an insightful, Amazon- effect-averse investor. “Jeff Bezos is the 800-pound gorilla in the world, and you will find in the future that he will demonstrate increased intelligence and influence over how real estate is being used,” Koo said. •
Koo brings an interesting approach to the topic of online retail behemoth Amazon thanks to his multifaceted concept of risk management. “My preferred types of real estate, usually commercial, are properties insensitive to what I like to call the ‘Amazon Effect,’” he explained. Koo’s Amazon Effect manifests when retailers fail to reinvent themselves sufficiently or quickly enough to effectively react to risk manage the overwhelming industry shift that has emerged in the wake of Amazon’s
environment continues to support more spending and eating out more often, this category may also include entertainment venues. “For example, Dave & Buster’s or any type of video-gaming emporium or lifestyle offerings, such as a gym or health-related business,” andmixed-use locations offering a variety of walkable dining, shopping, and entertainment options, Koo said. For a residential investor, this information may be useful as well. Investment properties in proximity to developments matching these
As the November elections approach, Koo, like many other U.S. citizens on both sides of the political aisle, views the outcome as a potential referendum on controversial international policies that have been implemented since the current presidential administration took office. In April of this year during an earlier interview with Think Realty Magazine , Koo predicted that certain taxes and tariffs placed on international goods could have a direct effect on regional U.S. economies and, by extension, on their real estate markets. At that time, one of his analysts, James Zhang, had recently noticed a pattern of proposed, potentially retaliatory tariffs emerging in Chinese policy that appeared to directly correspond to areas of the U.S. led by congressional leaders who endorsed current U.S. trade policies, including areas heavily reliant on soybeans, beef, and chemicals. “It appears that the Chinese were quite surgical in their process of identifying regions where retaliatory policies could hurt specific U.S. districts and regions,” Koo said at the time. Now, with the elections looming, Koo said he expects current U.S. trade practices focusing on the formation of bilateral trade agreements, those made via one-on-one relationships with other countries, to continue. As a result, he said, investors considering investing in areas of the country that might be particularly affected by international response to U.S. trade policy must continue to monitor these bilateral agreements closely. “I think [bilateral agreements are] an inefficient way of doing business,” Koo observed. However, for real estate investors, an awareness of the increasingly localized and regional sides of international policy resulting from these bilateral agreements could represent an edge when it comes to predicting market movements in their
Carole VanSickle Ellis is the editor of Think Realty Magazine. She can be reached at email@example.com.
tendency to sell nearly everything and deliver it in two days or fewer in the majority of cases, essentially for free. “Since more and more people are buying from Amazon all the time, this shift in consumer preference happens at the expense of many retailers,” Koo explained. “The retailer is still one of the largest consumers of commercial properties, so any investment relying on a retailer to support a commercial property’s success is at risk if that retailer is sensitive to the Amazon Effect. I look for wide, diverse consumer bases focused primarily on lifestyle, entertainment, or destination locations.” Using Koo’s strategy involves investing in properties that support lifestyle, such as exercise, entertainment, and food consumption. Since the current economic
Koo (above left) works closely with a large team of analysts, including James Zhang (above right) to identify emerging trends in real estate and other sectors and respond
specific areas of the country. “For different regions of the country, there will be winners and losers,” he said. “I think that the coastal big cities will be largely unaffected, but inland areas of the country, especially those reliant on those trades that are being affected directly by the negotiations, will be very vulnerable to changes in trade agreements. A glimpse
at what those changes might look like will likely emerge in the wake of the November elections,” Koo said. Individual investors could have an advantage over the institutional funds during this period of uncertainty since they have the ability to respond to changes and implement strategies faster, albeit on a smaller scale, than institutional funds.
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SPECIAL SECTION: POLICYAND LEGISLATION
understand when, how, and under what circumstances they will be charged late fees.
lightbulbs, if tenants are expected to perform these basic duties
that a resident must address and an equally clear, consistent procedure for bringing those issues and action items to the resident’s attention.
Specific delineation of appliance responsibilities
NO. 2 Incorporate Discussion of the Maintenance Process into Your Leasing Procedures One of the biggest issues Invitation Homes is facing right now is an onslaught of allegations that it simply does not respond to maintenance requests in an ef- fective or timely manner. To make matters worse, residents’ accounts of issues and the company’s written documentation of the same issues simply do not match up. As more residents go to the press, the corpo- rate landlord’s public perception worsens. How to protect yourself: Establish the process for reporting maintenance requests at the earliest possible point in your relationship with a resident. You may list individual processes in the lease or distribute a handbook to the tenant when they sign. Either way, address the following:
You must note if appliances will be repaired at tenant’s or own- er’s expense.
Our Preferred Documentation Process:
Use a resident portal and/or texting system where images may be upload- ed and interactions documented. Tenant-provided images will also help you gauge the severity of maintenance requests and protect you in the event that residents wish to litigate, alleging ignored maintenance. Setting com- munication expectations about how and when a visit will be scheduled also keeps residents and maintenance teams in the loop so that if something does slip, it is addressed quickly. For example, if a resident describes an urgent leak in the home but documents that the leak does not fill a standard water glass in a 24-hour period, you will be able to priori- tize maintenance on that leak based on that information. Of course, it is imperative to contain the leak as quickly as possible in order to prevent damage, but this information and documentation will enable you to share a timeline with your resident that will set expectations for when and how maintenance will address the problem.
AWORD OFWARNING Making repairs as a favor or “on the fly” may well come back to haunt you. Asking tenants to follow your processes for making maintenance requests protects you and them. Making exceptions can expose you to fair housing complaints and increases your risk of facing litigation. Our Preferred Maintenance Request Process at Secure Pay One: Fill out an online request through the tenant portal. All progress on the request is tracked online and in real time, and every tenant uses an identical process to file requests and have them addressed. Documentation Document everything. No exceptions. For example, if your pest control com- pany or your service team goes out to a property and identifies housekeeping issues contributing to a maintenance problem, you cannot afford to be shy about documenting tenant contributions to the issue. Once the issue is document- ed, you have a responsibility to share that information with your tenant for your Develop a system to document and communicate these issues in writing. Housekeeping issues are a sensitive topic, and most team members will shy away from anything that feels like criticizing a tenant. You must have clear documentation of the specific issues own protection and theirs. How to protect yourself: NO. 3 Do Not Fail in Your
Institutional Class-Action Lawsuits Spell Trouble for Individual Landlords KEY, CONSISTENT LANDLORD PRACTICES TO PROTECT YOUR PORTFOLIO.
How to report a maintenance request, including different protocols for emergency and non-emergency issues Tenant responsibilities once an issue is reported, including permitting a maintenance team to access the property to address the problem A detailed list of common maintenance issues and associated protocols Information on municipal issues like pet clean-up or yard clean-up fines Instructions for proper maintenance and care for appliances and fixtures, including how to change filters and
by Linda Liberatore
ecently, industrial single-fami- ly home companies are getting some very bad press and facing some pretty nasty class-action accusations. For example, Invitation Homes, a Blackstone vehicle that began buying distressed single-family properties and rehabbing them for rent in 2012, faces a potential class-action suit in California that claims the company’s late fees violate the law in each of the dozen states in which the company does business. The suit hinges on alleged “fee-stacking” of $95 late fees that compound over time even, plain- tiffs say, if the late rent is due to mal- functioning company payment portals. The same company has been swamped with negative publicity as tenants come forward to local press to complain of R
for late rent payments. To be clear: At present, there is no public evidence to this effect, so this is not a statement about whether or not the accusations are true. What you can learn from these accusa- tions, however, could save you a great deal of time and money if one of your residents ever accuses you of the same. How to protect yourself: Establish a formal fee-assessment process and explain it in detail to tenants via a recorded video that they must affirm they viewed either via their signature on the lease or via a cloud-based confirmation that goes in their electronic record. This not only keeps your process entirely consistent across every tenant’s experience, but it creates a clear, indisputable record that your tenants
terrible property neglect and under- and unperformed maintenance. As you read this, you might be tempt- ed to think simply, “At least it’s them, not me,” but don’t forget this topic so quickly. The same issues that insti- tutional landlords face are issues for individual landlords as well. No matter the size of your portfolio, establishing certain key, consistent practices will help protect you from allegations and lawsuits like the ones currently trou- bling corporate landlords. Assessments at Lease-Signing One “black mark” many media outlets are reporting against Invitation Homes is that residents say they are unfairly charged NO. 1 Establish the Process for Fee
BIG LANDLORDS’ TROUBLES WILL BEYOURSASWELL This article is not intended to pass judgment on Invitation Homes or
> Continued on :: PG 96
Linda Liberatore is the founder and CEO of Secure Pay One and a Think Realty Coach. She may be reached at firstname.lastname@example.org, and her coaching materials may be viewed online at ThinkRealty.com/Linda.
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