SCORING A PERFECT ‘10’ IN ORLANDO
REGIONAL SPOTLIGHT
JAN/FEB 2017
TRENDS & ISSUES EVERYBODY WANTS TO BE A TV STAR
ONE-TO-ONE: GREG RAND TRANSFORMATIVE IMPACT OF TECH
NUTS & BOLTS TIPS ON SECURING QUALITY RENTERS
Best to Invest inYourself
MARCO SANTARELLI BELIEVES KNOWLEDGE IS KEY TO SUCCESS
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$5.95U.S. ::$6.95CAN JAN/FEB2017
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TABLE OF CONTENTS
INSIDE THIS ISSUE
THE BIG PICTURE 12 TV Star-Struck
NUTS & BOLTS 68 Win-Win-Win Marrying standard retail real estate practices with those of an investment brokerage can pay big dividends. by Peter Vekselman 72 Closing the Gap Mezzanine finance with preferred equity offers dis- tinct advantages for discerning investors. by Lawrence Fassler 80 Securing Quality Renters Finding qualified tenants doesn’t happen by chance. Here’s some expert advice to help. by Kevin Ortner Single-family rental market report for Q3 2016 pro- vides five investing options, depending on prefer- ences and risk tolerance. by Daren Blomquist 91 Local Market Monitor These 10 markets may not be ‘flashy,’ but each has a balanced economy with steady growth. by Ingo Winzer 92 The Senior Advantage Successful age-restricted, or ‘active-adult lifestyle’ apartments achieve higher rents. by Jeff Kottmeier BYTHE NUMBERS 88 Investors’ Choice
How hard could it be to launch your own home-rehab show? by Susan Thomas Springer
26 Market Update San Diego revisited: Still expensive, still strong. by Carole VanSickle Ellis 28 How Secure Are You? Smart businesses are taking steps to reduce vulnerability to cyber-attack. by Robert Springer 30 An Intriguing Alternative The Internet is simplifying alt-financial investing opportunities. by Allen Shayanfekr 38 A Matter of Timing With correct market-cycle watching, you could double your cash flow and equity growth. by Kathy Fettke UP CLOSE & PERSONAL 46 Tech Titan Greg Rand discusses the continuing, transformative impact of technology on real estate investing. by Robert Springer 50 May the Fores Be With You New venture locating extended-stay lodging next to golf courses hits the sweet spot with everyone. by James Hart 56 Community Investor Our Regional Spotlight focuses on Orlando, Florida—and its numbers are looking pretty hot. by Carole VanSickle Ellis
ON THE COVER KNOWLEDGE + POWER = FREEDOM
Norada Real Estate Investment’s MARCO SANTARELLI says acquiring knowledge is Step No. 1. by Carole VanSickle Ellis :: photos by Christopher Orrett
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48
64
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THE BIG PICTURE
COMPANY PROFILE
SEVEN THINGS
NUTS & BOLTS
GIVING BACK Philanthropic efforts improving communities.
BULLISH ON DETROIT Michael Jordan sees opportunity and growth.
BUSINESS SENSE Treat investments like a business.
MYTHS DEBUNKED Is your property properly covered?
ENTREPRENEUR’S CORNER 96 Are There Holes in Your Boat? How to tell whether your business will sink or swim. by Ben Rao
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FROM THE EDI TOR- IN-CHI EF
PUBLISHER R. Michael Wrenn
Take the time to step back, reflect and plan for success
PRESIDENT, AFFINITY ENTERPRISE GROUP Eddie Wilson | EWilson@AffinityEG.com
EDITOR-IN-CHIEF Linda Wienandt LWienandt@ThinkRealty.com
VICE PRESIDENT OF MEDIA SALES Robert Rakowski RRakowski@AffinityMediaServices.com 913-599-2020
ne of the best things about attending a Think Realty Expo
The messages carry common, familiar themes—that real estate is the best wealth-building tool available to us, and that we all have it within ourselves to succeed. Sure, you can read it in a book (and you probably have). But there’s magic
SENIOR STAFF WRITER James Hart EDITORIAL ASSISTANT Heather Elwing-Dixon
is the “recharge” it provides. It offers a chance to step back from the day-to-day, often-nonstop hustle of the real estate investing world and really think about long- range goals—the big picture.
DESIGN CONSULTANTS Rivet | www.WeAreRivet.com
GRAPHIC DESIGNER Emily Bowers
in hearing it in person, among like-minded individuals, and from people who are living proof of the impact that smart investing can have on our lives. You’ll come away re-energized and excited, eager to share ideas and put them into action. Be sure to check our website—www.thinkrealty.com— regularly for news on upcoming expos and conferences. Next up is a San Diego group event (in conjunction with the San Diego Investment Club) on Feb. 18, followed by Think Realty’s National Conference and Expo in Dallas on April 29, and a conference in Balti- more on June 24. Our team is regularly updating the site with new details. I like the way Chris Bedgood put it in his talk during our 2016 Atlanta event: Real estate lets you do what you want, whenever you want and with whomever you want. That doesn’t mean you won’t still work hard, but work takes on new meaning when it becomes your pas- sion. And these events remind us why we were drawn to real estate investing in the first place and how to keep our eyes on the prize. •
Planning may be top-of-mind for many of us now as we head into 2017, but it really should be a year- round exercise. (I can visualize so many of you nod- ding your heads, saying, “Yes, we know that. Tell us something we don’t know.”) But how many of us really engage in strategic thought—and action—as a regular part of our routine? Often, there just don’t seem to be enough hours in the day. Even the best-intentioned—those of us who think we are organized—can quickly become so focused on the matters that “can’t wait” that this essential task gets at first postponed, then later forgotten. That’s why I encourage you to take advantage of the education, networking and thought-provoking presentations that a Think Realty Expo offers. Com- mitting a day to attending one of these is more than worth your time, I promise. A recent event featured compelling commentary from speakers like well-known real estate investor and author Sonia Booker and Chris Bedgood, star of A&E’s “Flipping San Diego” TV series, among others.
PRODUCTION & TRAFFIC MANAGER Carolyn Addington
CONTRIBUTING WRITERS Teresa Bitler, Daren Blomquist, Ali Boone, Jeff Conway, Eric Dean, Carole VanSickle Ellis, Lawrence Fassler, Kathy Fettke, Carter Froelich, Kevin Guz, Patty Hartley, Steven Hickox, Danny Johnson, Jeff Kottmeier, John Matthewson, Eric Odum, Kevin Ortner, Ben Rao, Allen Shayanfekr, Robert Springer, Susan Thomas Springer, BreAnn Stephenson, John & Corinne Tesh, Peter Vekselman, Seth Williams, Ingo Winzer, and Shawn Woedl 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 for six issues in the U.S. Order online at www. ThinkRealty.com or call 816-398-4130. Provide your full name, address and telephone number. DISCLAIMER :: Think Realty Magazine , its owners, contractors, distributors and their respective representatives do not provide tax, accounting, investment or legal advice and make no guarantee as to the effectiveness or success of any investment or tax strategies discussed herein. Please consult your own independent adviser as to any questions you have or decision you are contemplating. ABOUT THIS MAGAZINE :: ThinkRealtyMagazine isapublicationof AffinityRealEstateMediaLLC.Reproductionoruseofanyeditorial orgraphic,withoutpermission, isprohibited.Wearenotresponsible for thecontentofanypaidadvertisements.Forreprintrights; toob- tainadetailedstatementofourprivacypolicy;and forallsingle-copy requests,addresschangesandothersubscription inquiries: COVER PHOTOGRAPHY Christopher Orrett
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NEWS BRIEFS
NATIONAL UPDATES
to be independent contractors, the National Association of Realtors (NAR) noted that it would affect office staff, sala- ried employees working for brokerages and state and local real estate associations. While the ruling has been blocked for now, should the Department of Labor opt to fight the injunction, employers could owe back-overtime to eligible employees starting from the original date of implementation. This means that real estate investors with salaried employees eligible for overtime under this ruling will not only need to track activity related to the case but also track overtime hours carefully to ensure that they have the means to pay, should the Department of Labor triumph in its pursuit. About 4.2 million workers not presently eligible for overtime pay could become eligible if the ruling eventually goes through. •
noted that the hospitality industry is one that “cannot afford to be stagnant. …That is why innovators in all areas of the industry—de- sign, technology, operations and finance— are so vital to hotels. (These) movers and shakers … have proven themselves to be hospitality’s brightest stars.” Lodging mag- azine recognized Loeffler for his strategic decision to fuel company growth and build cli- ent wealth using accredited investor funding (versus institutional funding) in acquiring a handful of hotels in recent years. SOURCE :: CaliberCo.com ELIE RIEDER, founder and CEO of Castle Lanterra Proper- ties, is on Real Estate Forummagazine’s “50 Under 40” list for 2016. The publication describes the 2016 winners as the “cream of the crop” frommore than 300 nominees representing the best and brightest young professionals in commercial ducing multifamily properties within strategic growth markets throughout the United States. The firm owns and manages a portfolio in excess of 7,300 multifamily units valued at more than $1 billion. Rieder is directly involved in all of the company’s investment and prop- erty management activities, drawing on nearly two decades of experience as a real estate investor, owner and manager. SOURCE :: CastleLanterra.com PHILIP ROMNEY recently was promoted to chief finan- cial officer at Property Management Business Solutions (PMBS), the franchisor of Real Property Manage- Real Property Management franchise support team in accounting and finance functions, including revenue and billing. He has more than 35 years of accounting and finance experience in a variety of in- dustries, beginning his career in the Seattle office of KPMG. Romney has since held senior leadership positions in companies in the utilities, biotech, insurance and online retail industries, most recent- real estate. Formed in 2009, Castle Lanterra Properties is a privately held, New York- based real estate investment company that acquires and manages quality income-pro- ment. Romney joined PMBS in June 2015 as vice president of accounting, leading the
COLDWEATHER BRINGS OUT THE BARGAINS If you’re willing to buy when the weather is frightful, your real estate investment deals could be quite delightful. So delightful, in fact, that you might save as much as $50,000 or nearly $100,000 in certain locales. According to online real estate management and investment firm HomeUnion, the national square-footage price for sin- gle-family rental properties falls by about 7.2 percent during the winter from spring and summer levels. However, if you look at this seasonal trend on a city-by-city basis, the numbers get far more exciting. HomeUnion evaluated cities across the country to identify which housing markets offered the best seasonal bargains on purchase prices of single-family rental properties. Greenville, South Carolina, offered spreads of $50,000 while Chicago rental buyers could save almost $100,000 if they purchased during winter months. While these deals are certainly exciting, it’s important to note that winter rental rates also tend to be lower in “seasonal cities.” Chicago rents are about $100 per month lower for leases initiated during the winter, for example. In cities with smaller temperature shifts, the rental ranges tend to be smaller as well. • If your real estate investing business has any salaried em- ployees, you could find yourself paying them some serious back-overtime in 2017 if a recently blocked Labor Depart- ment ruling is overturned in the New Year. The Labor Department ruling would have expanded the number of workers eligible for overtime pay and begun automatically hiking those same workers’ salaries every three years moving forward. The ruling was supposed to go into effect Dec. 1, 2016. But the U.S. District Court for the Eastern District of Texas issued an injunction blocking its implementation. The Labor Department ruling would have required all salaried employees designated as executive, administrative or professional staff to be paid time-and-a-half for any hours worked over 40 hours a week if they earned less than $47,476 annually and, in some cases, if they earned less than $134,004 annually. While this might not seem particularly relevant to real estate investors at first since many parties in the sector tend SOURCE :: HomeUnion BACK-OVERTIME ISSUE COULD PROVE COSTLY
ABS UPDATES ITS MORTGAGE OFFICE SOFTWARE Applied Business Software Inc. recently announced a major update to its signature loan servicing software The Mortgage Office. The Long Beach, California-based software company, which also developed The Loan Office software, is an industry leader in loan servicing software with a worldwide customer base. Some of the highlights in version 2.1.7.60 include: • Text messaging between customers and their borrowers and lenders. • Geomapping and interactive-map generation for all or selected loans via a partnership with MapQuest. • Multiple options for real-time credit card and EFT pay- ment processing, made possible by a partnership with Payment Data Systems. • A new prepayment penalty feature that calculates guar- anteed interest through the expiration date for payoffs. • User-defined notes on line of credit, commercial and construction billing statements.
SOURCE :: Carole VanSickle Ellis
MODEST ECONOMIC GROWTH EXPECTED INTO 2017
The forthcoming change in the U.S. administration poses new uncertainties about the economy, but mod- est growth is still expected for 2016 and 2017, according to the Fannie Mae Economic & Strategic Research Group’s November 2016 Economic and Housing Outlook.
• Addition of seven U.S. military and state abbreviations.
• Lender/purchaser disclosure statement updates.
• Auto-pay email notification to borrowers.
The slowdown in job growth and business investment suggests the economic expansion has transitioned to a late-cycle phase, in which growth tends to moderate and, in turn, makes the economy more vulnerable to shocks. Although increased market volatility may occur in the medium term as policy developments take shape, the ESR Group expected economic growth would pick up in the second half of the year just ended, averaging 2.4 percent, following 1.1 percent growth during the first half of 2016. ESR kept the full-year 2016 growth forecast at 1.8 percent, with a similar pace of growth expected for 2017. •
• Updated IRS forms 1098, 1099INT and 1099MISC to comply with IRS changes for tax year 2016. •
SOURCE :: ABS, Inc. (www.themortgageoffice.com)
PEOPLE IN THE NEWS CHRIS LOEFFLER, CEO and co-founder of Scottsdale, Ar- izona-based Caliber—The Wealth Development Company, is listed as a Top 10 Up-and-Comer on Lodging magazine’s 2016 Top 50 Hotel Innovators list. The list features Top 10 innovators each in five categories: up-and comers, finance and real estate, design, operations and tech. The magazine
SOURCE :: Fannie Mae
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NEWS BRIEFS
NATIONAL UPDATES
ly working for Amazon.com. With more than 30 years of industry expertise, Real Property Management offices provide full-service residential property man- agement for thousands of investors and rental home owners from more than 280 independently owned and operated locations throughout the United States and Canada. SOURCE :: RealPropertyMgt.com BILL LANTING is the new vice presi- dent of commercial debt originations at RealtyShares, a leading online marketplace for real estate crowdfunding. A former executive with Radisson Hotels andWyn- dhamHotels, Lanting has recently been responsible for bridge loan originations, underwrit- the platform’s commercial debt product. While the company had previously offered commercial debt options on a smaller scale, Lanting’s hiring signals a major commit- ment to providing real estate developers and operators a one-stop shop for raising capital for their projects. To date, the Real- tyShares network of investors has funded upward of $200 million across more than 400 investment opportunities on the plat- form, funding residential and commercial projects in 31 states. SOURCE :: RealtyShares.com EDWARD KIM has joined the national sales department at Applied Busi- ness Software Inc., developer of The Mortgage Office and The Loan Office software for the lending industry. Kim’s ing and raising large, multimillion-dollar investment funds from institution- al investors for Thorofare Capital and Partners Capital. At RealtyShares, he will head the expansion of
sale experience spans the past 15 years at various Fortune 500 companies. At ABS, he will focus on expanding the footprint for The Loan Office during “a time where our business is booming and our company is reaching unprec- edented high sales volume,” according to Jerry Delgado, ABS president and co-founder. The company, based in Long Beach, California, is a global pro- vider of software systems and solutions for the lending industry, with a suite of products designed specifically for those who originate and service loans. SOURCE :: TheMortgageOffice.com GEORGE W. HAYWOOD has been elected to Fannie Mae’s board of directors and has been appointed to the compensation committee and the strategic initiatives and technology committee. Haywood has been a self-employed private inves- tor since 1998 and has significant expe- rience as a financial entrepreneur. From 1994 to 1998, Haywood was the director of corporate and high yield bond invest- ments for Moore Capital Management, a hedge fund management firm. Prior to joining Moore Capital Management, from 1982 to 1994, Haywood worked at Lehman Brothers, initially as a corpo- rate bond trader, then as a managing director, head of corporate bond trading and then as managing director and pro- prietary trader. “Throughout his career, (Haywood) has demonstrated clear fi- nancial prowess, diverse entrepreneurial talents and strong leadership qualities, complementing those of his peers on the Board,” said Timothy J. Mayopou- los, Fannie Mae’s president and chief executive officer. “We are excited to leverage George’s passion for helping companies to grow and succeed as we fulfill our commitment to be America’s most valued housing partner.” SOURCE :: FannieMae.com
UPCOMING EVENTS
JANUARY 18-20 Winter Forum on Real Estate Opportunity & Private Fund Investing Sponsored by IMN Laguna Beach, California www.imn.org/real-estate/conference/ Winter-Forum-On-Real-Estate-Oppor- tunity-Private-Fund-Investing-17/ JANUARY 25-28 27th Annual Getaway Conference Landlord Retreat Sponsored by MrLandlord.com Puerto Vallarta, Mexico www.landlordretreat.wordpress.com FEBRUARY 18 Group Event - San Diego Co-sponsored by San Diego Investment Club and Think Realty San Diego, California www.thinkrealty.com/events/ san-diego APRIL 29 Think Realty National Conference & Expo Presented by Think Realty Dallas, Texas www.thinkrealty.com/events/dallas
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THE BIG PICTURE
TRENDS & ISSUES
believes he’ll succeed by continuing to knock on doors. “It might take five years, but I will get the show because we’re going to be in front of someone at the right time, at the right place, and they will like my character and pull the trigger on my reality TV show,” says Rumora. LEARN FAST Chris and Kelly Edwards founded The Edwards Companies, a full-ser- vice real estate investment, manage- ment, maintenance and brokerage firm located in Raleigh, North Caro- lina. Also, they own Orange Elephant, a property turnover company that provides painting and repair services for rentals. In addition, they stay busy with a large investment trust and an insurance agency with five locations. Since the Edward brothers al- ready ran successful businesses, they weren’t looking to expand into televi- sion. However, in 2014, a tenant who worked in the industry thought they’d be natural hosts so she connected them with a production company. That resulted in a 15-hour-long day shooting renovations around Raleigh. It was stressful, with hot lights in their faces,
who is co-founder and managing principal along with his twin broth- er, Chris. The excitement continued with the production company pitching them to networks as the Southern version of the Property Brothers, a show hosted by identical Canadian twins, with the title “The Flippin’ South.” There were rave reviews, talk of getting an agent and “let’s do lunch.” Then, nothing. It turns out, one exec wasn’t sold on the concept. “We were disappointed, but we got over it,” says Kelly. “We still have to earn a living, so we’re going to keep doing what we’re good at.” Recently, L.A. started calling them after seeing news articles about the brothers. This time, Kelly and Chris were prepared to take charge of how they were portrayed. lights, the Edwards brothers commu- nicated their own vision for the show. They specialize in revitalizing older homes that Millennials and hipsters love to buy. True to their roots, they restore fireplaces and use reclaimed materials rather than tearing down and building new, cookie-cut- ter houses. This time, it looks like a TV career might just work out. And while Kelly says it’s “kind of like trying to tell an airline captain how to fly his plane,” the key is taking charge and defining what makes you unique. “Be true to yourself and who you are,” he says. Rumora agrees to embrace what’s quirky or different about yourself to leave an impression. “Do YouTube videos, write a blog, CONTROL YOUR BRAND No longer blinded by the bright
Kelly and Chris Edwards get ready for the filming of their “sizzle” in 2014.
So YouWant to Be a Star? SHOWS ABOUT HOME REHAB AND FLIPPING ABOUND ON THE AIRWAVES THESE DAYS, SO IT COULDN’T BE THAT HARD, RIGHT? WELL …
He’s working toward hosting his own house flipping show. Rumora began expanding his brand with YouTube and now has more than 350 videos. He has a video team that shoots five to seven videos one day each week, whether it’s in the office or touring houses. That visibility has generated “a ton of production com- panies” to call him, but he’s skeptical about those who push potential hosts through interviews yet haven’t raised production funds. “They will fish for talent before they even have any money to actually put the show into production, and that is not— it’s wasting people’s time,” says Rumora. Now he is shopping a demo reel, called a “sizzle” in the business, presenting his concept where he gives newbie house flippers advice while showing off his Aussie side with language like “g’day mate.” Rumora
and a crew who kept asking them to repeat their lines. To ease their on-camera experience, the crew handed the brothers
by Susan Thomas Springer
hen “This Old House” launched in 1979, it was one of the first home improvement shows. Today, there are hundreds of television shows, ranging in topic from budget décor to historic home renovations. In addition, millions of subscribers enjoy the home improvement channels on live-streaming sites such as YouTube. So, what does it take to be the next HGTV star? And is five minutes and an iPhone all you need to launch your own YouTube channel? W
Real estate investors who have tasted fame share their experiences and how to navigate through the land of infotainment.
$50 million. Rumora has founded five businesses in Ohio including
List’n Sell Realty, a real estate brokerage, and Ohio Cash- flow, which specializes in providing turnkey prop- erties. Not a shy guy and born in Sydney, Austra- lia, he’s been dubbed The
something they hadn’t had since
college—Bud Light at 7 in the morning. “Chris and I both cracked them open like good
START STREAMING Engelo Rumora is a property investor, motivational speaker and
Real Estate Dingo. “I’m very loud and proud,” says Rumora. “You just have to put yourself out there, right?”
serial entrepreneur who has been involved in more than 400 real estate deals worth more than
Southern boys do, and it did help loosen us up,” laughs Kelly Edwards,
12 | think realty magazine january :: february 2017
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FOUR FAB RENO/REHAB SHOWS
THIS OLD HOUSE This granddaddy of renovation shows is still growing strong after 36 seasons. Its sister show, Ask This Old House, answers viewers’ questions with guest experts. These informative shows are on PBS.
PROPERTY BROTHERS Twin brothers
FIXER UPPER Chip and Joanna Gaines burst to stardom three years ago, thanks to the couple’s charisma and complementary design and con- struction talents. Watch homes in Waco, Texas, trans- formed on HGTV.
REHAB ADDICT Nicole Curtis shows the sweat equity required to restore neglected histor- ic homes to their former glory. You can see this do-it- yourselfer salvage and restore on DIY and HGTV.
Jonathan and Drew Scott have amassed an empire of remod- eling shows featuring their real estate and contracting knowl- edge along with their handsome looks. They turn fixer-up- pers into dream homes on HGTV.
attend speaking engagements, speak in public, go to conferences and throw yourself out there to be seen by as many people as you can,” says Rumora. Also, follow new technolo-
estimate the time commitment, to weigh if the investment will truly be returned and to beware of noncom- plete clauses. “Treat it like a business, because if you sign some-
your smartphone and upload a video. While Facebook-sponsored posts and YouTube ads have tracking mecha- nisms, Rumora doesn’t have a solid way to calculate the return on his YouTube videos, but he still thinks it’s worth it. “You’ve got to be in it to win it,” says Rumora. “The more content you can submit to the world, the more eyes that see who you are, will enable you to grow your brand and your business.” •
gy so you know where the opportunities are to show you’re a thought leader. For example, Facebook Live and Periscope are fairly new live-streaming platforms. The question remains whether the time and
thing, you’re hooked to a production company for 12 months, and if another agency or TV show comes after you, you can’t do anything,” says Edwards. Rumora recommends starting small with min- imal costs—no need to hire
effort spent pursuing a plat- form online or on screen will produce a return on that investment. Edwards advises not to under-
Susan Thomas Springer is a regular freelance contributor to Think Realty Magazine. Contact her at susan@susantspringer.com.
a production crew or marketing person. Simply use the camera on
14 | think realty magazine january :: february 2017
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FEATURED STORY
Master Investor
Norada Real Estate Investments Founder Marco Santarelli Preaches a Market-Agnostic Message. BYCAROLEVANSICKLE ELLIS PHOTOS BY CHRISTOPHER ORRETT KNOWLEDGE + POWER = FREEDOM
I HAVEALWAYS HADAN INTEREST IN REAL ESTATE, BUT I KNEWTHAT THE REAL FIRST STEP FORME WAS NOT BUYING PROPERTIES, BUTACQUIRING KNOWLEDGE” MARCO SANTARELLI FOUNDER, NORADA REAL ESTATE INVESTMENTS
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FEATURED STORY
Master Investor
market at any time. “We are fully market-agnostic,” Santarelli said, explaining that this means Norada is not “married to any market, any property manager, lender, inspector or title company. We are completely unbiased.” He described this philosophy as an enormous benefit to both himself and his clients because as soon as the numbers fail to “make sense” in his proprietary “grader” for markets and deals, the company already has the next “green light” market in its sights and is moving on solid investment purchases in the area. “Never handcuff yourself to a particular market just because you are familiar with it or you live there. Pick the markets that offer the best opportunities and put your investment capital to work in the best way possible,” he advised. BORING, ‘IN A LOVINGWAY’ While any real estate investor will tell you that a cash-flow generating, value-building property can never be a truly boring addition to a portfolio, Santarelli happily described his “favor- ite” markets as “boring markets” with absolutely “no sexy or sizzle” at all. Norada is looking for jobs, logistical hubs, diverse economies and a broad economic sector when the team is in evaluation mode, not places where “you pay $1 million for a tiny condo,” he said. “Now would I live in those markets? Probably not,” Santarelli admitted. “Live where you want, but invest where it makes sense. I like the ocean, the weather and the greenery where I live, but I just can’t justify investing here at this time,” he said. Furthermore, by truly living the market-agnostic approach, he pointed out, an investor can usually afford to live anywhere he or she wishes. The Norada team looks at “favorite” markets as moving targets. “They can and should change over time,” Santarelli said. He cited Dallas, still a hot housing market by any standard, as a market in poten- tial transition. In 2012 and 2013, “there were tons of deals,” he said, noting that
SANTARELLI’S RULES FOR REAL ESTATE
When a company not only weathers a huge economic disaster like the housing crash but does it in style, the founder and president tends to learn a few things. Marco Santarelli is not unique in that regard but, in his own signature style, he took the things he learned and refined them down to a road map for his company and his real estate investors to follow. “We have a well-defined, written process. It’s quite literally a checklist,” he said. “Whether an investor is a multimillionaire or a complete newbie, we walk through that list to find them the deals that are right for them, and we use the same successful process every single time.” While Santarelli’s road map is, not surprisingly, extensive, here are a few of the overarching principles that govern it: KNOWLEDGE IS CURRENCY Educate yourself. Whether you use that education to actively handle your own deals or to accurately vet your investment providers, “knowledge is the key to providing a passive stream of income for you and your family,” Santarelli said. NEVER SPECULATE Norada’s numbers must make sense, and the company refuses to “chase after appreciation” or speculate on short-term gains. “You usually find out a market has peaked six to nine months after the fact, and that’s too
late,” Santarelli believes.
INVEST FOR CASH-FLOW One of Norada’s main mottos is “Cash flow is the glue that keeps a real estate investment together.” The team picks markets and deals based on how cash flow from transactions will help investors meet specific goals and emphasizes the importance of using geographic diversification to shore up cash-flow reliability. WORK WITH PROFESSIONAL, AND BE PROFESSIONAL Santarelli strongly recommends against managing your own properties unless you are a professional property manager, but that doesn’t mean you should step away from your investments entirely. “Property management is a thankless job that requires a solid understanding of tenant-landlord laws, good marketing skills and solid people skills,” he said. “Your time is valuable and should be spent on your family, your career and building your financial future.” However, he said, this does not mean you leave “the game” entirely. “Be a direct investor and maintain control of your investments,” he advised, noting that truly great investors are always informed about their money. These principles are part of Marco Santarelli’s “10 Rules of Successful Real Estate Investing,” a key component of the Norada Real Estate Investments road map for investing success.
Santarelli uses every opportunity to educate himself.
far away as Australia, the United King- dom and Canada. “I remember when the lightbulb went off,” he recalled. “In 2003, I attended a real estate investing boot camp that involved traveling to multiple cities and buying a lot of properties. By the end of 2004, I owned 82 rental units, and I’d met a lot of people.” What intrigued Santarelli as much as his own personal wealth-building potential in real estate was the number of would-be investors who were also attending the same train- ings as he was—but never “pulling the trigger.” He described as a “lightbulb moment” his realization of just how many attendees would never invest. “It’s like going to a restaurant and ordering from a menu,” he said. “You really just want food you enjoy so you can eat and keep going with the rest of your day. So many investors want to invest but don’t want to be active real estate investors.
They do not have the time, and of- ten they do not have a true interest. I realized that if I picked the markets, picked the properties, picked the teams and assembled it all in a package that I could present on a silver platter, I could help these people change their lives.”
WHEN MARCO SANTARELLI, found- er of Norada Real Estate Investments, bought his first property at the age of 18, his gut told him the transaction held the key to his eventual financial freedom. What he did not realize at the time was just howmany other investors would find financial freedom thanks to his initial purchase as well. “I have always had an interest in real es- tate, but I knew that the real first step for me was not buying properties, but acquir- ing knowledge,” Santarelli said. He added, “The most important place to invest is in your mind and in yourself. At Norada, we are constantly sharing information and knowledge as we guide investors toward their financial freedom.” Santarelli is an effective guide. Today, instead of handling just his own portfo- lio, he handles portfolios for investors with as many as 2,000 properties under their control and works with clients as
BOOMING THROUGH THE BUST
Santarelli’s personal motto, “educate yourself,” has never varied from his earliest days in real estate, and he calls it the first of his “10 rules for successful real estate investing”—whether an inves- tor plans to invest actively or passively. Today, as he sits in his office surrounded by nearly 1,000 books, looking out over lush greenery, he recalls how this motto enabled him not only to weather the housing crash in the mid-2000s but even thrive—and take his clients with him.
manage our business effectively,” but even then, the Norada teamwas learning, eval- uating and adding to the vast reservoir of knowledge that enabled it to eventually establish an effective “litmus test” for any
“We never forgot about cash flow. It’s the glue that holds everything together,” he said. During the worst of the crisis, Santarelli said, his company, like most, “scaled back and cut costs in order to
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So what should any investor, at any level do to create that time capital, ac- cording to Santarelli? Simple, he said: the Seven-Minute Rule. Spend just seven minutes a day educating your-
self about real estate investing, but be selective in how you are conducting that education. “Maybe you should spend that time actually picking up the phone and speaking with a real
estate investment counselor,” Santarel- li suggested, noting that in most cases his clients handle 10 percent or less of the actual real estate investing and management processes. Instead, they
ing to drop. “It’s still a good market to invest in, but it’s slowly going from that green light to yellow light—a caution status,” he said. Because Norada loves the “boring” markets, however, clients will likely not experience any delay in the flow or availability of additions for their portfolios. That’s because the team has long since spotted the indicators that markets like Dallas might be verging on too exciting and have begun cultivating options in other green-light regions. NOT PROPERTIES—PEOPLE At first take (and second, for that matter) Santarelli comes off as all business. He clearly takes the market-ag- nostic philosophy to heart, and he is an intensely private individual. However, the longer one listens to him, whether via his popular podcast, “The Passive Real Estate Investing Show,” or in person, it becomes very apparent that the very heart of his business, his Norada team, and his own personal philosophy is not actually num- bers and properties, but people. “I didn’t realize it at the beginning, but this business has enabled me to reach out and touch a lot of people’s lives,” he said. Adding that although “at first it was all about the properties,” Santarelli said he soon realized that real estate itself is, at the heart, all about people. “Norada affects people all around the world and will have a very significant impact on their lives,” Santarelli ex- plained. “When I speak to an investor on the phone he’s not just ‘Mark’ or whatever his name happens to be, he’s Mark who has a wife and kids, a family and a future. He’s Mark building that family’s financial future and financial freedom.” Not surprisingly, Santarelli’s thoughts on his own legacy hinge largely on his own family: a wife and 9-year-old daughter. “I’m always thinking about my daughter’s future,” he said. “It’s no different from anyone else asking, ‘What am I leaving my kids?’ or ‘What am I
teaching them?’” Add to that the vast number of clients whose portfolios Nora- da is constantly expanding, managing and optimizing, and that legacy takes on impressive proportions. From 18-year- olds finding new directions (much as Santarelli himself did) to parents and grandparents imparting legacies of their own, Santarelli keeps every success story in a private folder. “It is so touching and meaningful, and it helps me remember that I and my company are changing other people’s lives,” he said. “The biggest thing that every one of our investors has in common is time,” Santarelli said, and he doesn’t mean that they have it to spare. “Time is the com- mon denominator. Our investors value their families, their kids’ soccer games and their life obligations, but they know that they need to invest in real estate and that we (Norada) are the logical next step.” Santarelli describes the Norada buying and management processes as a “done- with-you” strategy rather than “done- for-you” because his clients tend to place a heavy emphasis on the Norada team’s level of knowledge. “Knowledge paired with action is the key combination to success,” San- tarelli said, noting that in many cases clients have spent a great deal of mon- ey gathering knowledge about real estate investing but end up looking to his team to help them pull the trigger. “It can be fear or a lack of confidence, but a lot of the time it is simply a lack of time,” he said. “Working with Norada is the logical action to take as your next step if you have the knowl- edge but you simply have not taken the action.” He added that in many cases, even seasoned investors may give up on real estate because they simply do not have the time capital to make it work on their own and meet their other priorities. BUILDING YOUR CLOCK CAPITAL
NORADA REAL ESTATE INVESTMENTS: ATAGLANCE WEB: noradarealestate.com
PHONE: (949) 218-6668
Norada routinely identified great deals on cash-flowing rentals in the city during those years and investors purchased hun- dreds of properties. “Now, we’re seeing deals like that show up far less frequently, and the same properties are priced $50,000 or more higher than they were just a few years ago,” he said, adding that rent is “keeping up” at present but the rental growth rate is slowing, so the rent-to-value ratio is start- • Currently actively monitoring more than 400 U.S. markets • Serves investors at all levels, including servicing portfolios containing more than 2,000 properties • Clients hail from the United States, Australia, Europe and Canada • “Market agnosticism” means that all markets are selected based on local economic and housing factors • Specialized knowledge regarding real estate investing within IRAs and 401(k)s • Founded in 2003, making it the second nationwide provider of turnkey real estate and one of the only providers to survive the housing crash • Provides investors with quality new and refurbished investment properties in growth markets throughout the United States
Santarelli at the podcast mic.
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PICKING ‘BORING’ MARKETS FOR EXCITING RETURNS
Because Norada is, on principle, market-agnostic, founder Marco Santarelli refuses to play or name favorites when it comes to regional housing markets. He does, however, have some criteria that he uses to narrow the field when directing his investment team in new directions:
Santarelli is market-agnostic.
PROPERTY VALUES
rely on the Norada team’s expertise to build their portfolios because those clients choose to educate themselves about Norada’s real estate experience rather than take on a new venture entirely on their own. “I’ve got a dream team of people,” Santarelli said, noting proudly that the Norada team is made up entirely of individ- uals who have come to his company with great experience and knowledge, hoping to work with the Norada “brain trust.” The team operates throughout the country and is fully “flexible, scalable and virtual,” he added, making it the ideal group to constantly monitor and consistently stay ahead of the curve when it comes to spotting the next markets and identifying bellwether signals in present locations. In the end, the group keeps it simple: “Be honest, create value and never stop learning,” Santarelli said, and he’s honest about what motivates him with every investment he makes. “I create financial freedom for our investor clients and my family,” he said. “It’s not about the properties; it’s about the people.” •
“I like to be able to buy three-bedroom, two-bath houses between $100,000 and $150,000,” he said, calling those deals “the sweet spot” and “the middle of the bell curve.”
JOB AND POPULATION GROWTH
A boring market doesn’t necessarily make headlines, but it does demonstrate steady population growth and an expanding jobs market that meets the employment needs of that incoming population.
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ECONOMIC DIVERSITY
Boring markets do not tend to experience explosive economic growth in one individual sector, but instead offer multiple avenues of economic growth on a regional scale within multiple industries and at multiple skill levels. “An investor can probably figure out where I’ll be investing based on these criteria,” Santarelli laughed, adding that these factors and several others serve as Norada’s “litmus test” for housing markets.
Carole VanSickle Ellis serves as vice president of research and analysis at the Self-Directed Investor Society, helping investors “declare independence fromWall Street.” Contact her at editor@bryanellis.com or visit sdiradio.com.
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THE BIG PICTURE
UPDATE: SAN DIEGO
THINK REALTY IS COMING TO SAN DIEGO! + GROUP EVENT FEBRUARY 18, 2017 Co-hosted by The San Diego Investment Club & Think Realty
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Market Update
affordability by putting their homes on the market en masse in hopes of cashing out while they still can. Analysts considered San Diego a relatively low risk for this at the time despite looming affordability issues. Since the beginning of 2016, “low-tier” homes (under $469,000) in San Diego have appreciated 8.5 percent and “mid-tier” homes (roughly between $469,000 and $662,000) have increased by 6.1 percent in value. Svenja Gudell, Zillow’s chief economist, warned recently that the market will “need to begin seeing a big comeback in inventory (in these tiers)” in order to “rebalance.” Corrections (rebalancing) can lead to market volatility, so investors should continue to monitor their specific sectors to identify in advance how affordability – or lack thereof – is affecting pricing, value and sales and rental trends. LOWER MEDIAN PRICES Finally, when it comes to median-home-price compari- sons to historic norms, our third indicator, San Diego also continues to read “sound.” In May, median home prices hovered around 19 percent over historic median prices, a far cry from the 75 percent margin the area posted in November 2005 shortly before the
housing crash. September median home prices posted at $495,000 for the area, meaning that median home prices are still below 20 percent over historic median levels, so that indicator is still in the “green zone” for most investors. In May, Think Realty predicted that housing affordability would be the San Diego market’s biggest challenge in 2016, and we had good company. At the begin- ning of the year, the San Diego Associa- tion of Governments (SANDAG) warned that the area had only 4 percent of mod- erate-income housing units and only 6 percent of low-income housing units needed in the area by 2020. The pace of rising prices in these sectors today indi- cates that there is still a strong imbalance in favor of sellers in these price ranges. In the upper tiers, we expect the market will likely continue to soften as these homes sit on the market longer and are appreciating far more slowly than their lower-tier counterparts. Affordability is the main issue for and represents a primary opportunity in the San Diego market, but it also could create market volatility in the coming year. Investors looking to get involved in the San Diego market should seek opportuni- ties in development of low- and mid-tier homes or seize the moment when one
arises to snag off-market deals on existing properties that can be rehabbed or reno- vated, then flipped for a profit or held for long-term rental cash flow. At the time of our initial analysis, monthly rental rates were hovering just under $2,000 a month, and we predict- ed they would continue to rise. Average rents in the area have risen more than 8 percent since the start of 2016, and Gudell recently released projections from Zillow indicating that the area is likely to experience another 4.7 percent increase in average rents over 2017. Add to that U.S. Census statistics indicating nearly one in every two residents in San Diego is a renter and you have an area rife with opportunity despite the rela- tively high expense of procuring rental properties in the area. At this point in time, San Diego’s real estate market is still hot, and still not too hot to handle if investors leverage both education and care. •
SAN DIEGO MARKET IS STILL EXPENSIVE, STILL STRONG.
by Carole VanSickle Ellis
entrance into the market via multiple avenues, including limited wholesaling, renovating and flipping, and assembling a rental portfolio. Six months later, our prediction is holding up: the market remains sound but investors should continue to watch it closely. Let’s look at our previously estab- lished “caution signals.” APPRECIATION In May, projected annual appreciation in the San Diego area was fairly low: between 2 percent and 3 percent. We called those numbers “staid” and stated that there was a low likeli- hood of “mass overpricing” in the next 12 months. Per numbers released in late October by the S&P CoreLogic Case-Shiller Indices, the San Diego market is on schedule for an annual, adjusted appreciation rate of 2.5 percent, continuing the slow, steady growth trending in May and staying well outside
the parameters of that troublesome “monster growth” by any definition. Note, however, that monthly year- over-year comparisons (2015 vs. 2016) present a slightly different story as some months do show a wider span and are not necessarily adjusted like the CoreLogic/Case-Shiller numbers. Investors should consider evaluating growth by market sector since certain part of the market, such as “upper tier” and luxury homes, are showing some signs of softening while lower tiers continue to heat up. AFFORDABILITY When it comes to affordability, our second bellwether, segmenting appreciation out becomes even more important for investors. In May, we noted that affordability issues can, over time, cause home values to fall, particularly if homeowners react to a market softening brought on by a lack of
n May 2016, San Diego, Califor- nia, was the “eighth-hottest” home market in the United States according to Realtor.com. That had the media, ana- lysts and even some economists starting to whisper the word “bubble.” At that time, Think Realty Magazine took a hard look at the San Diego hous- ing market (“San Diego: Too Hot to Han- dle?” – March/April 2016 issue) and con- cluded that “any serious market tremors” were at least 12 months away, citing some easy indicators for investors to use to raise caution flags in the future. Those indicators included the appearance of “monster growth” in housing prices, an increasingly severe lack of affordable housing in the area and median home prices stratospherically higher than historic median levels. We also noted that San Diego real estate, unlike the real estate markets in many other popular areas of California, still allowed investors I
Carole VanSickle Ellis serves as vice president of research and analysis at the Self-Directed Investor Society, helping investors “declare independence from Wall Street.” Contact her at editor@bryanellis.com or visit sdiradio.com.
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