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WOMAN TO WATCH Isabelle Guarino-Smith
Avoiding Costly Errors INVESTMENT STRATEGY
Building a Strong Foundation for Your Partnership
PAGE 16
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2 | think realty magazine :: january – february 2023 Dominion Financial Services LLC. NMLS ID # 898795, 1029 N Calvert St Baltimore MD 21202. Dominion Financial Services LLC is not currently licensed in NV. Dominion Financial Services, LLC is licensed or exempt from licensing in all other states. Dominion Financial Services, LLC is licensed in Minnesota as a Mortgage Originator (License No. MN-MO-898795). Dominion Financial Services, LLC is licensed in Arizona as a Mortgage Banker (License No. 0950308). Dominion Financial Services, LLC is licensed as a California Finance Lender and Broker under Department of Business Oversight (License No. 60DBO 91679). Dominion Financial Services, LLC is licensed in South Dakota as a Mortgage Lender (License No. ML-05220). Dominion Financial Services, LLC is licensed in North Dakota as a Money Broker (License No. MB103364). Dominion Financial Services, LLC is licensed in Vermont as a Commercial Lender (License No. 898795 CLL). Dominion Financial Services, LLC is licensed in Oregon as a Mortgage Lender (License No. ML-5763). Dominion Financial Services, LLC is licensed in Idaho as a Mortgage Broker/Lender (License No. MBL-2080898795).
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PUBLISHER & CEO Eddie Wilson
MANAGING DIRECTOR Linda Hyde
MANAGING EDITOR Carmen Fields
SALES MANAGER Kurt Power kpower@thinkrealty.com
FULFILLMENT COORDINATOR Blair Pierce
DESIGNER David Rodriguez
CONTRIBUTORS Jorge Abreu Luke Babich Lorraine Beato Daren Blomquist Jenifer Calandra Kurt Coleman Gary Harper Bruce Kellogg Taylor Miller Chris Ragland Damon Riehl
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4 | think realty magazine :: january – february 2023
FROM THE EDITOR
Partnerships
“Alone we can do so little; together we can do so much.” —Helen Keller
Inflation has impacted everyday operations and has shifted mindsets and processes for many. Still, one fact remains: There is money to be made no matter what
eveloping a partnership with
D
someone is simply working together to achieve results for a shared success. How many times in your investing career, or life in general, have you
the real estate cycle is. In fact, now is when those who stay the course tend to achieve the most success. On March 23-24, Think Realty will be in Houston and offering educational sessions focused on “recession-resistant” investing. Think Realty and the AAPL Governmental Relations Committee are continuing to partner to represent the real estate investing space and move forward with conversations with those in positions of influence and power. See our update on page 46 for more information. Regardless of where you are in your investing career, I challenge you to meet more people and consider what goals may mutually align. Develop a relationship that could turn into a partnership, and watch how that partnership can be a catalyst for your business. •
said, “I wished I had known that” or “If I just knew someone who could help me with this”? In my years of traveling and meeting investors all over the country, the one commonality I’ve found is those who partner together achieve the most success. Now, there are some caveats to this approach, and there are best practices and skills you should practice to create and develop lasting partnerships. See page 16, to hear from our CEO, Eddie Wilson, on what partnerships mean to him and how he has achieved his level of success by fostering relationships that turned into partnerships. This year is shaping up to be an interesting one for real estate investing, and many investors are closely following market trends that may influence their investing.
CARMEN FIELDS, MANAGING EDITOR
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CONTENTS
INSIDE THIS ISSUE
16
COVER FEATURE
BUILDING A STRONG FOUNDATION FOR YOUR RELATIONSHIPS Consider these four tips for getting your partnership off to a good start and lasting success. by Eddie Wilson
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WOMAN TO WATCH 8 Revolutionizing the Assisted Living Industry Isabelle Guarino-Smith is in the business of changing lives—for investors in the senior housing industry and for seniors and their families. by Kurt Coleman THINK REALTY HONORS 10 2022 Winners OPERATIONS 20 3 Ways to Reduce Capital Gains Tax on Rental Properties Understanding how to reduce capital gains tax when you sell your rental properties can help you save a good chunk of cash. by Luke Babich
34 A Collaboration Making an Impact on the Private Lending Industry AAPL and Geraci Law work together to advocate on behalf of private lenders, uphold high standards for the industry, and provide educational opportunities. by Anthony Geraci
50 Rising Rates? Try Seller Financing!
Seller financing can afford the buyer and the seller several benefits, especially in a high-interest-rate environment. by Bruce Kellogg
52 How to Maximize ROI on Your Next Fix and Flip
36 Building a Partnership That Thrives
As an investor in today’s volatile real estate climate, you must understand the details behind each and every cost associated with a pending loan. by John Santilli 54 Structuring Sponsor-Syndicated Investments Understanding potential returns can help you make strategic investing decisions. by Jorge Abreu 56 Needed: Women Real Estate Investors Women must get a seat at the table—even if it means bringing their own chair! by Lorraine Beato
To benefit from a business partnership, adhere to a written contract that outlines expectations, deliverables, and how proprietary information will—or won’t—be shared. by Taylor Miller
MARKET & TRENDS
38 The Party’s Over
These 12 markets could see substantial home price drops. by Ingo Winzer
22 Metrics Matter!
40 Three New Real Estate Trends to Look for in 2023 This year is shaping up to be a remarkable year for real estate owners and investors. by Ryan Zomorodi
Identify and track KPIs that align with your business objectives to understand whether you are on target to achieve them. by Gary Harper
FUNDING
58 Should You Consider Partnering with a Commercial Mortgage Broker?
26 Faster Alone, Further Together
42 The Possibilities and Perils of Investing in a Downshifting Housing Market
This is a lesson you should try to learn as early as possible. by Jim Tannehill
An Article Series on Navigating the Private Lending World by Damon Riehl
There will be buying opportunities in 2023, but educate yourself about the potential risks of buying when the housing market is down. by Daren Blomquist
28 6 Tips for Finding the Perfect Marketing Partner
DESIGN
A knowledgeable agency delivers results that grow your business. by Jenifer Calandra
LEGISLATION
62 Cultivating Your Creative Ability
Getting comfortable with creative design options can keep your renovation project on budget and produce a more unique “look” that is attractive to buyers by Michele Van Der Veen
46 Government Relations Committee News by Chris Ragland INVESTOR REVIEW
30 Key Considerations for a Commercial Real Estate Partnership
Be sure to objectively evaluate these five critical areas. by Neil Timmins
INVESTMENT STRATEGY
48 6 Mistakes That Can Kill Potential Real Estate Deals
Here’s how to avoid the costly errors that turn your once-promising investment into a losing proposition. by Luke Babich
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SPECIAL FEATURE
WOMAN TO WATCH
Revolutionizing the Assisted Living Industry ISABELLE GUARINO-SMITH IS IN THE BUSINESS OF CHANGING LIVES—FOR INVESTORS IN THE SENIOR HOUSING INDUSTRY AND FOR SENIORS AND THEIR FAMILIES.
by Kurt Coleman
ISABELLE GUARINO-SMITH is the chief operating officer of the largest residential assisted living training organization in the country, Resi- dential Assisted Living Academy. In her role, she teaches thousands of real estate investors, medical professionals, and entrepreneurs how to build successful and sus- tainable businesses in the assisted living industry. Using the RALAcadamy’s methods, investors turn single-family homes
into assisted living homes for the elderly, creating significant cash flow and offering the preferred environment for seniors to thrive in their golden years. FAMILY NEED LEADS TO NEW VENTURE Gene Guarino, Guarino-Smith’s father, was on a quest to provide qual- ity assisted living for his mother. After conducting an exhaustive search, the
family realized there was a widespread lack of quality assisted living facilities locally and across the nation. Looking at population projections, it was also evident the senior housing industry was about to face a major surge. With those in the massive baby boomer demographic nearing their elder years, there would be even more demand for assisted living facilities. This influx of seniors presented a potential crisis—and a huge opportunity.
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The Guarino family set to work to create a new paradigm and business model. They conducted years of research, endured trial and error, and partnered with industry experts. Throughout the process, they designed systems and procedures and catalogued countless business and real estate tips from their experi- ences, all culminating in what would become their RAL business model.
leadership style, and passion for the industry. She is a leader who genuinely cares and seeks opportunities daily to make those around her better. Guarino-Smith is motivated by a passion to serve those in need. Whether seniors, the housing insecure, or entrepreneurs looking for a better life for their families, she seeks to recognize and understand the needs and goals of those around her—and then looks for the best ways to assist them. For Isabelle, her work is not a job. It is a chance to make a real difference in the lives of others and build a lasting legacy that would make any father proud. In her latest book “Living Legacy,” available Jan. 10, she eloquently describes the journey that brought her family into the senior living business, how they were personally affected by it, the passion it forged, and the incredible solutions they came up with to address the inadequacies in the senior housing industry. “It’s all about honoring my father and carrying on his legacy,” she writes. A sought-after coach and instructor, Guarino-Smith desires to put her experience and ideas to work with as many people as possible. She speaks at seminars and conventions across the country and has been featured in numerous magazines and articles nationally. She was named both Future Leader in the senior housing industry and Top Senior Housing Influencer under 30. Before turning her focus to the senior living industry, Guarino-Smith honed her skills at Disney and American Airlines. She has extensive experience building brands and launching companies that have achieved national recognition, including the creation and success
PUTTING THE MODEL TO WORK
Following this replicable model for building successful, quality residential assisted living businesses, the Guarinos built three successful residential assisted living homes in the Phoenix metropolitan area. But, they knew the problem wasn’t isolated to Phoenix and that it wasn’t enough to build a handful of RAL homes in their community. So, they set out to teach entrepreneurs from all walks of life how to replicate their success in other communities. As they branched out across the country, the RALAcademy mission of “Do Good and Do Well” was born. It has been more than a decade since its inception, and the RAL organization is thriving under Guarino-Smith’s leadership. There have been many bumps along the way, including the unfortunate passing of her father, a true pioneer in the field of residential assisted living. She draws inspiration from the life lessons that he taught, his passion for serving the elderly, and the desire to help improve the quality of senior housing for the millions who depend on it.
of RAL National Convention, RAL National Association, Recovery Housing Academy, Pitch Masters Academy, and many companies from the Impact Housing Group. Guarino-Smith might be best known for her impact in the residential assisted living industry, but she’s really in the business of changing lives—the lives of the investors who pour their hearts and resources into senior housing and the lives of the seniors and their families who benefit from the comfort and safety the RAL model provides. You can find more about Guarino‑Smith and her organization at RALAcademy.com.
Kurt Coleman is the lead copywriter for RALAcademy, a company that corners the market in the residential assisted living niche. A graduate of Arizona State
University with years of experience as a team leader, systems developer, and writer, Coleman loves writing and sharing with investors how to translate their skills, know-how, and expertise in the real estate industry to the senior housing market.
ENTREPRENEURIAL DRIVE What sets Guarino-Smith apart as an entrepreneur is her drive,
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2022 AWARD WINNERS Think Realty honors the real estate leaders and
change‑makers who represent the best the industry has to offer. These individuals are nominated by their peers, like you, and the finalists are determined by voting via public ballot.
10 | think realty magazine :: january – february 2023
MULTIFAMILY INVESTOR OF THE YEAR The honoree for this award is an investor excelling in multifamily real estate, including but not limited to, new construction and development, community master planning and development, apartments, condominiums, co-housing, duplexes and larger multiunit investments, and other multifamily communities.
WINNER
generational wealth for my family. I want to build something larger than myself that will continue way after my time has expired. Spending quality time with my family is important to me. By investing in real estate and creating passive income, I am able to buy this quality time to spend with family and friends. My purpose in life is to make a large impact in the community and on my family and friends. I am able to do all of this by improving the quality of life of residents who live in the apartments we acquire. I’m also passionate about being able to share the benefits of alternative investments (e.g., multifamily syndications managed by experienced operators) and the impact they have on someone’s financial future. My vision for the future is to become one of the top multifamily owners in the nation by creating strategic partnerships, building a strong team, and implementing the proper systems for scalability. My goal is to acquire 100,000+ multifamily units and build a strong real estate portfolio. I also plan to be vertically integrated in all aspects of managing and operating multifamily real estate inhouse. We currently have in-house construction and JNT Construction, and we
just rolled out our property management arm—Elevate Real Estate Management. I personally have trouble
JORGE ABREU | MANAGING PARTNER ELEVATE COMMERCIAL INVESTMENT GROUP
celebrating my wins as I quickly move on from one goal to the next. This award allows me to take in what I’ve accomplished so far in the multifamily real estate space. I wouldn’t have been able to do this without my partners and amazing team, so this award is also a reflection of all their hard work and dedication to making the vision a reality. ABOUT ELEVATE COMMERCIAL INVESTMENT GROUPS Elevate Commercial Investment Group is a Dallas-based multifamily investment firm with $400 million in assets under management. The company specializes in value-add multifamily real estate and focuses on capital preservation while striving to deliver strong, risk‑adjusted returns to investors. Elevate CIG provides busy professionals with the opportunity to invest in real estate without having to analyze properties, manage tenants, or deal with any repairs. Since its inception in 2017, Elevate CIG has acquired more than 6,000 multifamily units in more than six states.
JORGE ABREU is the managing partner of Elevate Commercial Investment Group. He has been investing in real estate for more than 15 years, starting in single-family, small multifamily properties, and eventually working his way up to large 100+-unit multifamily properties. Before entering into large multifamily acquisitions, Abreu had wholesaled more than 200 single-family properties and fixed-and-flipped more than 150 single-family properties. He also developed and completed several new development projects, over $20 million in ground-up construction. In addition, Abreu started and has built a construction company that brought in more than $30 million in annual revenue. He is now an active and passive full-time multifamily real estate investor. Abreu and his company Elevate currently have 6,849 doors and $500 million under management. The assets are located throughout Texas, South Carolina, Oklahoma, and South Dakota. PURPOSE, VISION, AND WHAT THE AWARD MEANS My primary purpose for investing in real estate is to create
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Linda’s Legacy INDUSTRY IMPACT AWARD This award is named in honor of Linda Liberatore, a champion of the REI industry who pioneered industry innovations and paved the way to success for the many investors she mentored along the way. In tribute to Linda, this award is presented to a real estate investor who exemplifies creativity, integrity, and financial success and is changing or shaping the conversation about real estate and real estate investing.
WINNER
me to reach a much larger audience than I could have on my own. I feel professionally fulfilled when I hear from investors nationwide, from all walks of life, new and experienced, who share their gratitude for the impact my content has provided. I am humbled and grateful to have been given this award, and I want to sincerely thank every investor I have spoken to over the past decade. I owe this to you. ABOUT ASHCROFT CAPITAL Ashcroft Capital focuses on capital preservation while striving to return strong, risk-adjusted cash-on-cash returns to investors. The firm specializes in value-add multifamily apartments and offers accredited investors the opportunity to partner in 506(c) private placements. With more than $2 billion in assets under management and 12,000 units acquired, Ashcroft Capital has a track record of creating value through renovating, rebranding, and reposi- tioning apartment communities. Ashcroft Capital is vertically integrated, meaning they manage all their properties after acquisition via Birchstone Residential and Birchstone Construction, in-house and wholly-owned subsidiaries of Ashcroft Capital.
and avoiding “kekjheping up with the Joneses.” Those habits proved to be helpful in my early years, during college, and the two years that followed. I was living on $8,000 a year and had accumulated no debt. Another book followed—though I think only my family and friends read that one. It was at this time in my life that I discovered the power of investing, specifically passive income investing. With a combination of frugality, and real estate cash flow, I was able to leave my W2 job in the oil and gas industry by 2016 when I was still in my twenties. Though I had the ability to sustain my lifestyle purely off passive income, I wasn’t ready for a life on the beach nor did I want to play endless rounds of golf for the next 50 years. So, I decided to dedicate my time to helping others learn about real estate and investing. The Linda’s Legacy: Industry Impact Award is a great honor. I’ve spent been roughly eight years professionally educating, podcasting, writing, speak- ing, and mentoring investors—and I’m only getting started on my mission to give back my time and serve others. Joe Fairless, the co-founder of Ashcroft Capital, took note of my passion early on and provided an opportunity for me to reach out and share my passion with the industry by giving me the title of director of investor education. This has allowed
TRAVIS WATTS DIRECTOR OF INVESTOR EDUCATION ASHCROFT CAPITAL
TRAVIS WATTS is a full-time investor, passive income advocate, and public speaker. He dedicates his time to educating investors who want to enhance their lifestyle by earning passive income through real estate. During the past 13 years, Travis has mentored thousands of investors from beginners to experienced high-net- worth individuals. PURPOSE, VISION, AND WHAT THE AWARD MEANS As far back as I can remember, I’ve wanted to help others achieve their goals. I remember writing a 60-page book in high school to help students who were struggling with their GPA. I didn’t write it for profit or popularity but simply because I felt I had discov- ered a few tips and strategies other students could benefit from. I wanted to share those tips in hopes of making an impact on someone else’s journey. From childhood, I was taught a lot about frugality saving money, staying out of debt, buying the off-brand,
12 | think realty magazine :: january – february 2023
Award: REAL ESTATE INVESTMENT SERVICES The honoree for this award is a company or association that excels in providing real estate-related services, including, but not limited to, property management, private lending, real estate education, remodeling, contracting, investment management, software development, data management, web-based investing platforms, social media, and crowdfunding platforms and communities.
WINNER
often said, “If you’re in the business of lending money, don’t run out of it”—and that statement is more important today than ever before. I am proud of how CIVIC has carved out its place in the business-purpose lending space and the positive impact we continue to make on the entire lending community. For CIVIC to be recognized by Think Realty with this recognition is an incredible honor. The CIVIC team is extremely proud to be an integral part of the real estate investment process and an ally for investors. The real estate investment financing solutions we lend to investors are simple and reliable, and it is a true privilege to be named as an honoree. I have always believed that quality, quantity, and consistency should be main drivers in what you deliver to your customer base. As CIVIC continues to lend uninterrupted, we are privileged to do just that. ABOUT CIVIC FINANCIAL SERVICES CIVIC Financial Services is a leading institutional private lender specializing in financing non‑owner‑occupied investment properties. CIVIC helps investors leverage opportunities to grow their real estate portfolios and build wealth. The company offers an array of residential and multifamily financing solutions for retail, wholesale, and correspondent channels.
partner for the investing community under the realm of CIVIC’s Core Values, which means serving investors with the honesty and integrity they deserve. The relationships we create and the successes we get to share in are monumentally more valuable than anything else we can do. Looking back at the beginning of 2022, what was clear to me was interest rates would rise, real estate values would ease their meteoric appreciation, supply chains would improve, access to quality contractors would get better, and opportunities in real estate would continue. As I sit here today with 2022 behind me, the one feeling/prediction that adjusted more radically than the other was interest rates. In four decades of lending, I have never seen interest rates move as quickly as they did in such a short period of time. There have been incredible ebbs and flows going in and coming out of these dynamic times, yet for the near future, I remain very bullish about real estate. I anticipate improved rates by mid to end 2023. I also see continued improvement in supply chains and access to quality contrac- tors, which will assist in the rehab and flipping of properties. With these current times often being compared to some of the more serious financial pullbacks in the last 40 years, relationships with your lending partners should be your No. 1 focus. We look forward to expanding our partnerships and capitalizing on the opportunities in front of us. I’ve
WILLIAM TESSAR CIVIC FINANCIAL SERVICES
PURPOSE, VISION, AND WHAT THE AWARD MEANS Investing in real estate can easily be categorized as “transactional,” but my purpose and passion for spending almost 40 years in this industry has everything to do with impact—making an impact on the residence that some- one will consider their shelter, their safety, and their “home sweet home.” That purpose is powerful. At CIVIC, we are fortunate to get to play a role in paving the financial path that makes dreams and goals possible. We have the privilege to serve the real estate investment community and create opportunities that may not have been otherwise afforded. Further, we’re passionate about being a lending WILLIAM J. TESSAR has more than 35 years of real estate and lending industry experience. Before joining CIVIC in 2017, he founded and was president of three mortgage companies, resulting in residential funding volume exceeding $40 billion. Tessar was honored to be named 2021 AAPL Member Lender of the Year and is a leading voice in the private lending industry.
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HOW TO GET RELIABLE FINANCING WHEN YOU NEED IT by Hannah Perrine, CIVIC Financial Services
I nflation, interest rates, and recession are pedaling through the headlines. It’s clear that the economy is facing a difficult reality and we’ve seen the direct effect of that over the last year as the Federal Reserve increases interest rates. As this trend looks set to continue, real estate investors are naturally unsure of where the market is heading. Today, many savvy investors are making this uncertainty their greatest asset and diving in headfirst to the opportunities being presented. However, great opportunities require a require a sound and stable financing strategy. Having a consistent, reliable capital partner is perhaps the most important element to building a solid business model. Often overlooked, reliability should be a high priority for any investor. What if your contractor doesn’t show up? Maybe your real estate agent stops finding you deals? What happens if your lender shuts their doors? If you don’t consider reliability in every aspect of your business, one shaky domino can topple the whole foundation. When it comes to selecting the right lender, be sure to plan ahead and
look at the entire financing package – their access to capital, experience, and financing options. To put it simply – you’re taking on debt, so do your due diligence to ensure you’re building your financing structure on a solid foundation.
PLAN AHEAD
The most important aspect of success in real estate investing is having ready access to financing when you need it, so you can seize opportunities in today’s dynamic real estate market. In fact, many investors will wait for the right opportunity to roll along only to see it vanish because they didn’t plan ahead and have capital partners with different financing options all lined up and ready to go. If you’re only looking for capital when you need it, 99 times out of 100 you’re not going to make the best decision—only the fastest. The better strategy is to cultivate your real estate financing sources first, beginning with understanding the different options that are available, knowing what lenders are looking for, and assessing the reliability of the lenders you choose to partner with.
14 | think realty magazine :: january – february 2023
CONSIDER YOUR LENDER’S ACCESS TO CAPITAL
UNDERSTAND YOUR OPTIONS
What do we mean when we say “Access to Capital”?
It may sound obvious, but know what financing options your lender provides. Rates continue to rise and when it comes to choosing the right lender, one of the biggest mistakes you can make is focusing solely on the lowest rate. Keep your perspective on the entire financing package, your investment goal and exit strategy. Points, fees, leverage, and prepayment premiums are all part of that package. Credible lenders understand each unique scenario and offer loan options to help in meeting those individual needs. True capital partners are problem solvers.
Capital (i.e. the money) is the lifeblood of any business, but especially for lenders. Without it, your lender can’t provide the financing you need when an opportunity is present. So why should you care? Answer = to ensure your lender shows up to the closing table. Being aware of this will help to Being aware of this will help to ensure that the lender you choose will continue to serve you financing uninterrupted. What you’ll find, specifically in the private lending space, are non-bank lenders. According to Inside Mortgage Finance, banks have seen their share of the market shrink since 2016 from nearly half to now about a third. Why does that matter? Many new players have entered the industry and they often depend on credit lines as their source of capital in order to continue lending. But what about when times get tough? Banks come out unscathed as a result of emergency programs and/or stable deposit funding. Since many non-bank lenders depend on credit lines, they risk being faced with margin calls. So, if funding volume decreases, they could find themselves potentially going under. CIVIC Financial Services, however, is backed by a bank which means not only do we hold the lowest cost of capital but also the most reliable. This allows us to serve our clients with competitive pricing along with financing that goes uninterrupted.
LET UNCERTAINTY BE YOUR ASSET
It is natural to be apprehensive in these uncertain times. It is often in the most uncomfortable times when the greatest opportunities are born. As an investor, by preparing yourself to be in the best possible liquidity position to exploit these opportunities, you will be poised for optimal business growth.
DON’T OVERLOOK EXPERIENCE
There is simply no substitute for experience. Your sales associate, broker or lender needs to possess a broad perspective and know how to deal with challenging scenarios, unique market or property nuances, and fluctuations in the market. The industry has been feast or famine over the past decade, with improved quality and performance since going through the financial crisis. The pros who have weathered the ups and downs can bring that expertise to benefit you and your business which makes experience paramount.
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. ©2022 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. civicfs.com/ThinkRealty | (844) 725-4488 YOUR TRUSTED LENDING PARTNER
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COVER STORY
PARTNERSHIPS
BUILDING A STRONG FOUNDATION FOR YOUR RELATIONSHIPS
Consider these four tips for getting your partnership off to a good start and lasting success.
BY EDDIE WILSON
16 | think realty magazine :: january – february 2023
PARTNERSHIPS ARE AS POWERFUL AS MULTIPLICATION AND ADDITION. WHEN YOU FIND THE RIGHT PARTNER — WHETHER IN YOUR BUSINESS EFFORTS OR A LIFE RELATIONSHIP — YOU CAN ACCOMPLISH MORE
THAN YOU WOULD GOING IT ALONE."
EDDIE WILSON
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COVER STORY
PARTNERSHIPS
HERE ARE FOUR TIPS FOR FORGING SUCCESSFUL PARTNERSHIPS:
PARTNERSHIPS are as powerful as multiplication and addition. When you find the right partner—whether in your business efforts or a life relationship—you can accomplish more than you would going it alone. As wonderful as partnerships can be, however, they can equally be as detrimental. After being involved in more than 100 companies in my career, I’ve had my fair share of amazing partnerships as well as partnerships that have been so bad they’ve nearly drained my soul and made me quit.
After years of partnerships with dozens of people, I can say that the thing that “will never happen” often does. It is not because either party is intentionally trying to hurt the other; rather, it is just differing opinions and unmet expectations that lead to it. GET WRITTEN AGREEMENTS Put all the contingencies in a contract. Once you have a list of things that could potentially go wrong, it is important to address them contractually. Whether it is in
COMMUNICATE Make sure to have the hard con- versations before they are needed. When you begin a partnership, it is easy to look at all the upside and ignore the potential dangers the partnership can bring. It is important for each partner to make a list of the ways the partnership can go wrong and then come together to discuss them.
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Start by giving the partnership the permission to be completely honest. Then start practicing it yourself first. After coaching many businesses, I find this to be the most difficult thing to deal with. I would highly recommend that you and any potential partners read reading Kerry Patterson’s book “Crucial Conversations: Tools for Talking When Stakes Are High.” Reading the book and adhering to the code of conduct it presents will give you a great advantage over others who struggle with having honest conversations. There are so many benefits to a partnership. They are evident in the legendary partnerships we’ve seen between John Lennon and Paul McCartney, Steve Jobs and Steve Wozniak, and Michael Jordan and Scottie Pippen, just to name a few. These partnerships and others demonstrate that partnerships can often multiply the opportunity as each person sees, understands, and executes their role. If they are set up properly, partnerships can create massive success. But, start the partnership correctly. Slow down long enough to create the correct structure, and both parties will benefit down the road! •
your operating agreement, bylaws, purchase agreement, or a simple contract, it is important to have these agreements in writing and signed by the parties involved. HAVE A CLEAR EXIT PLAN Although starting a partnership can be exhilarating, we often never talk about the end strategy. Early on, you must answer these two questions: • If everything goes the way we plan, how do we see the partnership ending? • If everything goes wrong, how do we see the partnership ending?
If you can answer these in har- mony, then you are well on your way to visualizing a clear end strategy, which will be helpful for when that time comes. You must know how long you think the partnership will last and the benefits it brings to each party. HONESTY IS EVERYTHING Most people are not willing to be brutally honest, which leads to breakdowns in communication. People hide their feelings, allowing concerns and emotions to build up. They hold back important information because they may be ashamed or hesitate to bring up hard topics.
Eddie Wilson is an entrepreneur and visionary by nature. His widespread interests have led to successful ventures across the globe, from operating
nonprofits and owning an ad agency that worked with well-known household brands, to investing in hundreds of real estate projects and building a nationally syndicated radio show. Today, he guides AAPL and Think Realty with his marketing, funding, and real estate investing knowledge to ensure their establishment as the premier organizations in their sectors. Wilson graduated from The Ohio State University with a degree in broadcast sales and marketing. He also studied marketing at Georgia Tech and business management at Emory University.
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OPERATIONS
CAPITAL GAINS
3 Ways to Reduce Capital Gains Tax on Rental Properties UNDERSTANDING HOW TO REDUCE CAPITAL GAINS TAX WHEN YOU SELL YOUR RENTAL PROPERTIES CAN HELP YOU SAVE A GOOD CHUNK OF CASH.
by Luke Babich
a loophole that allows you to avoid paying capital gains on a property you sold for a profit if you purchase a new “like-kind” property within 180 days of the sale. For rental property investors, this means that after selling a single-family rental home, you can avoid taxation on the profits if you buy a new rental property that’s around the same price (or even more expensive). A less expensive property or one that’s not considered similar
imilar to stocks, rental properties are viewed as
spent $100,000 on upgrades and repairs. You then sell it for $550,000. Your profit would be $150,000. This is the amount that’s subject to capital gains tax. Here are three strategies investors can try out to delay, reduce, or even avoid capital gains taxes.
S
capital assets. So, when you sell them and earn a profit, you must pay capital gains tax on the money you’ve earned. You can calculate your profit by subtracting the amount you paid for the property (plus any costs for renovations or improvements) from the price you sold the property for. For instance, let’s say you bought a rental property for $300,000 and
1. CONSIDER A 1031 EXCHANGE Also known as a “like-kind” exchange, a 1031 exchange offers
20 | think realty magazine :: january – february 2023
There are some caveats though. First, you can only claim this exclu- sion once every two years. Second, if you claimed depreciation on the rental home on a previous tax return, you’ll need to pay a depreciation recapture tax of 25% before claiming it as a primary residence. So, if you deducted $8,000 in depreciation, you would owe $2,000 in taxes, which is still much less than you could end up owing in capital gains taxes. Of course, the major downside to this strategy is that you delay the sale of your home—and you just want to live in the property for a couple of years to avoid capital gains taxes. It’s lucrative, but not a strategy that will work for everyone. Capital gains tax is sometimes avoidable, but not always. The three strategies presented here can help you offset, avoid, or minimize capital gains tax requirements, but they’re not ideal for all real estate investors. In cases where you’ll need to pay capital gains taxes when selling your rental property, proper tax planning can help you get ahead. Talking to a certified professional accountant or real estate lawyer can help you better understand your tax liability as a real estate investor. A tax professional can also help you understand the tax deductions and exclusions available to you and help you can find the best method to lower your tax bill. •
2. REPORT YOUR CAPITAL LOSSES TO OFFSET YOUR CAPITAL GAINS If you don’t want to buy a new property right away, you can still minimize the capital gains taxes from the sale of your rental prop- erty by reporting all your capital losses as well. Also known as tax loss harvesting, you can opt to sell properties or other assets at a loss to help offset any gains you make from selling a rental home. For example, if you have stocks that have depleted in value—and you don’t expect to recuperate your money—selling them at a loss can help lower your tax burden on your property sale. You can also carry over capital losses by one tax year. So, if you have major losses this year and anticipate a large profit next year, carrying over your losses can help minimize the amount you’ll pay in taxes. And, if your losses are greater than your gains, you can deduct $1,500 from your taxable income ($3,000 if you’re married, filing jointly). 3. MAKE ONE OF YOUR RENTAL PROPERTIES YOUR PRIMARY RESIDENCE There are capital gains exclusions for primary residences that don’t exist for rental properties. When you sell your primary residence, you can exclude the first $250,000 in profit from capital gains tax (and up to $500,000 if you’re married, filing jointly). So, if you have a rental property that has increased substantially in value, you could potentially avoid capital gains taxes altogether by moving into it and making it your primary residence. To receive the capital gains exclusion, you must live in the property for two years.
to the building you sold would not be eligible for a 1031 exchange. There are a few other require- ments to qualify for a 1031 exchange. First, you must identify the property you wish to buy within 45 days of your rental property sale. That means you should already have a few properties in mind, so you can move quickly. Since you have to close within 180 days, it’s best to identify a property that you can buy quickly. And, until you close on the new property, you’re not allowed to touch the profits from the first sale. If you do, you’re no longer able to do a 1031 exchange. It’s recommended you leave your profits with an intermediary or third party, like an escrow company, to avoid complications. Keep in mind, this strategy doesn’t completely wipe away capital gains taxes from your plate, but it pushes them down the line until you no longer want to keep buying new “like-kind” properties.
Luke Babich is the co-founder of Clever Real Estate, a real estate education platform committed to helping home buyers, sellers, and investors make
smarter financial decisions. Babich is a licensed real estate agent in the state of Missouri. His research and insights have been featured on BiggerPockets, Inman, the LA Times, and other online and media outlets. Babich earned a bachelor’s degree in political science, with honors, from Stanford University.
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OPERATIONS
KPIs
Metrics Matter! IDENTIFY AND TRACK KPIs THAT ALIGN WITH YOUR BUSINESS OBJECTIVES TO UNDERSTAND WHETHER YOU ARE ON TARGET TO ACHIEVE THEM.
by Gary Harper
red and Tom were two young entrepreneurs who had just
lately. But I’m not sure what we can do about it. Our numbers just aren’t turning out the way we want them to.” The two men sat in silence for a few moments, contemplating their next move. Finally, Fred spoke up again. “Maybe we need to get some more education on how to run a business,” he said. “If we can learn how to adjust our strategies based on our numbers, maybe then we’ll start seeing some improvement.”
Tom nodded in agreement. “You’re right—that might be our best bet. We can go talk to some of the other investors and see what they have to say.” Eventually, they met a wise old man who taught them the importance of knowing “the numbers” and how to use them to make smart business decisions.
F
partnered to start a business. Unfortunately, they were struggling because they didn’t know their numbers, and they weren’t adjusting their business accordingly. “I don’t know what’s wrong,” said Fred, looking despondently at Tom. “We’ve been working hard to make this business a success, but it just seems like things are getting worse and worse.” Tom scratched his head. “It does seem like things have been tough
WHAT ARE KPIs? Don’t wait until your business is struggling like Tom’s and Fred’s
22 | think realty magazine :: january – february 2023
Indicators help track weekly performance. • Key Profit Indicators help track strategy progress. By tracking all three types of metrics, you can get a well- rounded view of your business and identify areas that need attention. Do you have a process for tracking your KPIs? If not, now is the time to start. Having KPIs in place will help ensure your success. •
to start tracking your KPIs. KPIs are a tool business owners use to measure their company’s progress and identify areas of improvement. KPIs can be financial, measuring revenue or profit growth. Or, they can be operational, focusing on customer satisfaction levels or employee retention rates. KPIs can also be used to measure progress toward strategic goals, such as market share growth or new product development timelines. The important thing is to choose KPIs that are aligned with your business’s overall objectives; otherwise, you risk measuring success in a way that doesn’t matter to your bottom line. Once you’ve selected KPIs that make sense for your business, establish baseline measurements and track progress over time. This will allow you to see whether
your KPIs are moving in the right direction and identify any areas of concern. By regularly monitoring KPIs, you can ensure your business is on track for success. THREE MAIN METRICS Metrics are important. They give you a way to measure your progress and identify areas that need improvement. The three main types of metrics you should track are: 1 Key Process Indicators 2 Key Performance Indicators 3 Key Profit Indicators Each type of metric serves a different purpose: • Key Process Indicators help track daily processes. • Key Performance
Gary Harper is the CEO of Sharper Business Solutions. He spent 13 years as an executive in a Fortune 500 company evaluating operation expenses and
helping the company reach new levels of efficiencies. Harper began investing in real estate in 2004 and has used his expertise in business systems and process management to develop a program designed to help real estate investors position themselves to scale their business to new levels.
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Real ROI
The real difference in using Real Property Management—optimizing your ROI.
Using the right professional property management firm can help you earn more, not less. As the largest single-family residence management franchise in North America REAL Property Management has more than 30 years of experience doing just that for clients. There are many ways REAL Property Management can help maximize your investment and even help you with ways to monitor financial goals for your real estate. That’s the Real Difference.
Visit www.realpropertymgt.com to learn how Real Property Management can put our experience to work for you, giving you real commitment, real ROI and real peace of mind.
Each office is independently owned and operated. © 2020 Property Management Business Solutions, LLC.
Real Property Management is the trusted leader in reliable, cost-effective management of residential properties. With local expertise, highly-trained and responsive teams, independently owned and operated Real Property Management franchisees collectively manage tens of thousands of properties for individuals, investors, and institutions throughout North America.
We Offer:
Comprehensive Marketing and Advertising For each day a property is vacant, that’s
Online Reporting Owners maintain control of their property and keep tabs from afar using their own online account, with easy access to updates on property activity, including vacancies, leasing, maintenance, property evaluations and financial reports. Cost-Effective, Reliable Maintenance Relationships with preferred vendors result in discounted equipment and services. Maintenance staff is available 24/7 to handle emergencies and to make sure maintenance is timely, cost-effective and done in a professional manner. Timely Rent Collection Nothing affects cash flow more than late or missing rent payments. In addition to offering incentives for paying rent on time, our collection processes are professional but tough, and we are extremely diligent in collecting rent through a systematic, timely process. Strict and Compliant Evictions Even with careful placement there is occasionally a tenant who needs to be evicted. Our offices are knowledgeable in state and local landlord and tenant laws. If rents are not paid on time, we strive to minimize costs by following the legal steps quickly and efficiently to get the property leased again.
money lost. Professional management costs are easily offset by shorter vacancy. Our advanced planning and heavy advertising gets vacancies filled fast.
Thorough Tenant Screening and Selection
Placing the wrong tenant can quickly cost you more than professional management fees. We make every effort to find tenants who will pay rent on time and take care of the property with the use of criminal, credit, and employment checks. Full-Service Leasing In addition to advertising properties and screening tenants, our full-service leasing process also includes rent-ready guidance, market rent analysis, professional showings, move-in property assessments, and professional tenant education at lease signing. Routine Property Evaluations Regular assessments of both the inside and outside of your rental property ensure tenant compliance with the lease and identifies maintenance needs to preserve your property.
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