Think-Realty-Magazine-May-June-2017

THINK REALTY EVENT BRINGS POLICY & REAL ESTATE INVESTORS TOGETHER

SPECIAL REPORT

MAY/JUNE 2017

ONE-TO-ONE: DAREN BLOMQUIST: MAKING SENSE OF THE STATISTICS THE BIG PICTURE SOCIAL MEDIA STRATEGIES THAT WORK NUTS & BOLTS ‘PAY PER CLICK’ CAN GENERATE MOTIVATED LEADS STRATEGIES UNDERSTANDING THE POWER OF MILLENNIALS

Suited for Success AREI’S JOHN LARSON FOCUSES ON INVESTORS’ INTERESTS

PAGE 18

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TABLE OF CONTENTS

INSIDE THIS ISSUE

THE BIG PICTURE 12 Basic Training

NUTS & BOLTS 76 Hold ‘Em or Fold ‘Em?

Service veterans carry on a mission to help returning personnel transition and succeed

Here are seven signs it could be time for an investor to cut his or her losses. by Teresa Bitler

through real estate. by Susan Thomas Springer

80 More Insurance Myths Debunked Make sure you have the proper coverages in place before disaster strikes your investment property. by Shawn Woedl

14 Forcing the Economy How tech corridors, robotics and real estate are helping shore up economies at risk. by Carole VanSickle Ellis 26 The Right Recipe Investors who are copycatting ill-conceived recipes for note-financing are headed for a rude awakening. by Eddie Speed 32 Market Update Oklahoma City cooling but stable after blazing start a year ago. by Carole VanSickle Ellis Acquiring stats is only one step in understanding what those housing numbers mean. by Robert Springer 57 Company Profile Think Realty Real Estate Services is a brokerage with investors’ success and interests in mind. by James Hart 58 Knowing Profitable When You See It Here are nine numbers to help identify a successful rental investment. by Kevin Guz 66 Rookie Investor With renters in place in their first rehabbed property, one couple’s path in real estate investing is set. by Abby Tillman UP CLOSE & PERSONAL 54 One-to-One: Daren Blomquist

92 Misconceptions Unmasked The 1031 exchange is not exactly new, but misunderstandings remain. Here are seven myths refuted. by Steven Hickox

BYTHE NUMBERS 104 Get—and Stay—Ahead

The key value of active asset management is the ability to be proactive instead of reactive when it comes to your portfolio. by Cara Hogan

ON THE COVER KNOW THYSELF

JOHN LARSON (right, with colleague Marcus Reynolds) keeps himself and his company on track by concentrating on his area of expertise.

106 Flips Hit 10-Year High

Home flipping was hot in 2016, fueled by low inventory of homes in sellable or rentable condition along with a flood of capital searching for returns and stability. by RealtyTrac 109 Local Market Monitor Good company: In an uncertain economy, play it safe and choose markets with abundant renters. by Ingo Winzer

by Robert Springer :: photos by Lina Perment

THE BIG PICTURE

UP CLOSE & PERSONAL

REGIONAL SPOTLIGHT

NUTS & BOLTS

SPECIAL REPORT 42 Think Realty’s upcoming Baltimore conference shines a spotlight on policy and legislation affecting investors.

MANUAL OR AUTO PILOT?

TAKING A NEW IDENTITY Finance of America Commercial unveiled.

PHOENIX-TUCSON COMING TOGETHER

WHAT CHANGE LIES AHEAD? Politics’ effect on lending environment.

Can automated trades “beat” real estate ROI?

100-mile gap is quickly closing.

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FROM THE EDI TOR- IN-CHI EF

PUBLISHER R. Michael Wrenn

World of real estate investing fits like a ‘forever home’

PRESIDENT, AFFINITY ENTERPRISE GROUP Eddie Wilson | EWilson@AffinityEG.com

EDITOR-IN-CHIEF Linda Wienandt LWienandt@ThinkRealty.com VICE PRESIDENT OF MEDIA SALES Rodney Halford RHalford@ThinkRealty.com 816-398-6122

or the past seven years, I have had the privilege of watching

always been a generalist rather than specialist in the topics I covered. That required getting up to speed quickly on whatever I was assigned, immersing

SENIOR STAFF WRITER James Hart

this magazine, along with the indus- try it covers, grow and mature, even enter the “mainstream” of the investing world. It’s been a wild ride—challeng- ing, exhilarating, motivational, anything but

EDITORIAL ASSISTANT Heather Elwing-Dixon

myself in that subject so that I could interview the experts confidently and then relay their technical, complex stories in

DESIGN CONSULTANTS Rivet | www.WeAreRivet.com

GRAPHIC DESIGNER Emily Bowers

boring. And it has sparked an interest in the subject at hand—wealth-building through real estate—that I will continue to nurture even as I hand off the editor’s mantle to someone new. With this issue, I have chosen to step out of the editor-in-chief ’s role at Think Realty Magazine, but make no mistake: I am not retiring from the business of exploring, learning and working in this fascinating subject area. As most everyone involved in real estate investing will no doubt agree, there is something to learn from everyone you meet and any aspect of this business you investigate. Market needs and condi- tions change, technology evolves, and new challenges present themselves. I joined the publication in 2010, when it was known as Personal Real Estate Investor Magazine, with admittedly little more than a rudimentary un- derstanding of the world of individual or “mom and pop” residential real estate investing. Coming of age as a journalist in the days when newspapers dominated the media landscape, I had

such a way that the average reader could clearly—and accurately—understand it. Tackle one topic; master it; then move on to the next. I was constantly learning new things and gaining expertise in a wide variety of subject areas I might not otherwise have explored. Having been an editor in the business-news de- partment as well as a managing editor in newspapers and other media after that, I had more understanding of real estate investing than the average person on the street. But what an education it has been since coming to a publication with such a singular focus! As the editor-in-chief of this specialty magazine since 2012, I have gotten to delve deeply into the varied interconnecting layers that form this niche. It’s challenging. It’s exhilarating. It’s captivating. And there is seemingly endless opportunity for anyone who wants to profit and succeed in its many aspects, as long as they have passion, a willingness to work hard and unquenchable desire to learn. Welcome to the wide and wonderful world of real estate investing. May it also be your “forever home.” •

PRODUCTION & TRAFFIC MANAGER Carolyn Addington

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: CONTRIBUTING WRITERS Teresa Bitler, Sonia Booker, Carole VanSickle Ellis, Carter Froelich, CPA, Abhi Golhar, Kevin Guz, Chris Hanson, Steven Hickox, Cara Hogan, Danny Johnson, Michael Jordan, Mike Kalis, Linda Liberatore, Leon McKenzie, Robert “Bobby” Montagne, Kevin Ortner, Ben Rao, RealtyTrac, Elie Rieder, Eddie Speed, Robert Springer, Susan Thomas Springer, Mitch Stephen, BreAnn Stephenson, John and Corinne Tesh, Abby Tillman, John Trautman, Peter Vekselman, Ingo Winzer, Shawn Woedl and Brian Wojcik COVER PHOTOGRAPHY Lina Perment

MORE MEMBERSHIP CHOICES

WHAT'S NEW AT THINKREALTY.COM

Find the level that works best for you!

Think Realty now offers three levels of membership for real estate investors. Our Intro Level is designed for those just getting started. The Investor-Level Membership gives investors exclusive access to content, education, events and more! Have a large group and want to save? Check out our Corporate Group Membership option.

Learn more today at ThinkRealty.com.

LINDA WIENANDT, EDITOR-IN-CHIEF

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NEWS BRIEFS

NATIONAL UPDATES

PATCH OF LANDADDS VETERAN EXECUTIVES TO MANAGEMENT TEAM Leading online real estate lending marketplace PATCH OF LAND has rounded out its management team, adding Chief Financial Officer MIN LEE and Chief Investment Product Of- ficer MATTHEW ZALL , along with previously announced Chief Marketing Officer ROBERT GREENBERG . Lee joins the company from Credit Suisse, where he was a director in the Real Estate, Gaming and Lodging team responsi- ble for the execution of advisory and financing transactions. Lee assisted clients with over 25 financing and M&A advisory transactions, which have raised in excess of $15 billion of debt and equity financings for public and private companies. Lee’s expertise in financing strategies will allow the company to grow and manage its credit lines and will add to the company’s strategic planning by applying sophisticated statistical and predictive processes. Zall brings to Patch of Land Prior to joining B2R, he was a commercial real estate (CRE) trader at J.P. Morgan and Bear Stearns. He joins Patch of Land as the firmprepares to expand into the single-family rental market with longer term, permanent financing products. With the addition of Lee, Zall and Greenberg, a 25-year marketing and advertising veteran who led marketing and lead generation at B2R Finance, Patch of Land founders Jason Fritton and Brian Fritton have assembled a veteran management team with deep experience in growing lending and investment businesses. Other 2016 executive team hires include CEO Paul Deitch, who joined from Oaktree Capital Management, where he scaled the company’s technology, operations and investor relations functions to empower the firm’s growth from $50 billion to $100 billion in assets under management; SVP of Operations and Underwriting Gina Donato- ni, a 30-year veteran of several billion-dollar mort- gage companies, who most recently scaled a team at PennyMac MATTHEW ZALL more than 12 years of real estate and mortgage experience, as well as ex- pertise in financing and product develop- ment. He pioneered three of the industry’s first-ever multi-borrower single-family rental securitizations, helping build Blackstone Group subsidiary B2R Finance (now known as Finance of America Holdings, LLC) from start-up to a multibillion-dollar lender in only a few years.

SHARESTATES HITS $275 MILLION IN LOAN ORIGINATIONS After only two years in operation, real estate investment SHARESTATES has originated $275 million in loans, the company announced. December 2016 was the most prolific month in the company’s history, as it surpassed $42 million in loans, nearly doubling total loan volume in just over three months. Using its extensive due diligence process and real estate expertise, Sharestates performs a 34-point underwriting process for each project, focusing on the borrower’s experience and the project’s economics and fundamentals. All loans originated by Sharestates are secured by the property and the personal guarantee of the borrower. “A key to our growth has been our ability to identify safe and profitable investments that will generate higher yields than the industry average,” said Allen Shayanfekr, co-founder and CEO of Sharestates. “As the crowdfunding industry expands, we are confident in our model’s ability to maintain outstanding results for investors and generate competitive returns.” As of December 30, 2016, the company funded over 323 individual loans, returned more than $151 million to its inves- tors with no loss of principal, and yielded a net average annual return of 11percent to investors. • SOURCE :: www.sharestates.com In what co-president David Hicks called a fitting end to the company’s 20th year in business, HOMEVESTORS closed out 2016 with the purchase of its 75,000th “ugly house.” The home was purchased by Don Cameron, of West Palm Beach, Florida, a longtime franchisee for the “We Buy Ugly Houses”- branded homebuying network. “This is a very exciting, special achievement earned in our 20th year of business. We couldn’t have asked for a better way to end the year,” Hicks said. “Don is a loyal, hardworking franchisee who has well represented our national brand and best practices values in this industry …we can’t wait for what 2017 will bring.” Cameron has been a HomeVestors franchisee for more than 10 years. His company, Hi-Land Properties LLC, won franchise of the year for 2016, with 133 house purchases and revenue surpassing $24 million. Cameron’s sale volume was highest of any franchisee in the HomeVestors network. • HOMEVESTORS PURCHASES 75,000 TH UGLY HOUSE

NAR Q1 ‘17 HOUSING SURVEY REFLECTS UPTICK IN CONSUMER CONFIDENCE The National Association of Realtors’ Q1 2017 Housing Oppor- tunities and Market Experience (HOME) survey shows growing consumer confidence about the U.S. economy and housing sector. In the first three months of 2017, 62 percent of households believe the economy is improving, soaring to the highest share in the survey’s five-quarter history, up from 54 percent the previous quarter and 48 percent in March 2016. Con- sumer confidence is especially strong in rural and middle America, according to the survey.

RENTRANGE DATA SHOWS INCREASING STABILITY IN SINGLE-FAMILY RENTAL MARKET

Good news for investors of single-family rentals: Market stability appears to be gaining steam, as RENTRANGE ’s Q4 2016 data shows a lessening percentage change between quarters while rent rates continue to increase. This year “continues to look bright for single-family rental investors,” saidWally Charnoff, chief executive officer, Rent- Range Data Services. “Compared to the Q3 2016 change in rent, we are seeing the percentage change begin to lessen while rents continue to increase, which should ultimately stabilize demand, keeping vacancy rates down. It remains important for investors to look at stability within a market, focusing on the market’s activity over time to ensure there is a good balance — low historical volatility with a current upswing.” RentRange is one of the nation’s premier providers of information for the single-family residential sector, delivering address and market-level rental data, analytics and rent-based valuation solutions for a diverse customer base. 1 McAllen-Edinburg - Mission, Texas 2 Cape Coral - Fort Myers, Florida 3 Portland-Vancouver - Hillsboro, Oregon-Washington 4 Denver-Aurora, Colorado 5 Seattle-Tacoma - Bellevue, Washington 6 Boston-Cambridge-Quincy, Massachusetts - New Hampshire 7 San Francisco-Oakland - Fremont, California 8 San Jose-Sunnyvale - Santa Clara, California 9 Barnstable Town, Massachusetts Deltona-Daytona Beach - Ormond Beach, Florida THE TOP-RANKED REGIONS (AMONG 25 LISTED) IN THE Q4 2016 DATA ARE:

“Confidence levels generally rise after a presidential election as the nation hopes for the best. Even though it is a highly polarized country, consumers for the most part have upbeat feelings about the econ- omy right now,” NAR Chief Economist Lawrence Yun said. “Stronger business and consumer morale typically lead to even more hiring and spending, which in turn encourages more households to make big decisions like buying a home. These positive developments would be especially good news for prospective homebuyers in the more affordable Midwest region.”

MIN LEE

The survey additionally found a growing disparity among renters who think it’s a good time to buy and homeowners who think it’s a good time to sell. On the cusp of the busy spring season, most households believe now is a good time to buy a home. However, confi- dence continues to trickle backward among renters. Fifty-six percent of renters said now is a good time to buy, which is down both from Q4 2016 by 57 percent, and a year ago by 62 percent. Eighty percent of homeowners, 78 percent in December 2016 and 82 percent in March 2016, think now is a good time to make a home purchase. Younger households, renters and those living in the costlier West region – where prices continue to spike – are the least optimistic. “Inventory conditions are even worse than a year ago. Home prices and mortgage rates are on an uphill climb,” Yun noted. “These factors are giving many renter households a pause about it being a good time to buy, even as their job prospects improve and wages grow. Unless there’s a significant boost in supply lev- els this spring, these constraints will unfortunately slow or delay some prospective buyers’ pursuit of purchasing a home.” •

ROBERT GREENBERG

SOURCE :: www.rentrange.com

SOURCE :: www.nar.realtor

SOURCE :: www.homevestors.com

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NEWS BRIEFS

NATIONAL UPDATES

that processed 800 mortgages per month, and SVP of Loan Production Ben Shaevitz, whose sales team leadership helped grow PennyMac into the eighth-largest mort- gage loan originator and servicer in the United States. •

$5 MILLION PRICE TAG ON BLIGHTED TWO-STORY DETROIT HOME Looking to pay millions for a ramshack- le, partially burned, two-story home with peeling paint and an “unofficial” resident who says he’s living there rent-free in exchange for guarding the property? The owners and their agent insist you’d be getting the deal of a lifetime. The property is located near Detroit’s new Little Caesars Arena, which will soon be home to the Detroit Red Wings and Detroit Pistons when it opens its doors in September of this year. residential, but could likely be rezoned for commercial uses like parking, dining or entertainment due to its close proximity to the new stadium. Although the arena was not even a rumor in 2002 when the property was last purchased, the current owners likely con- sidered its presence on the historic Cass Corridor, which has been the pet project of the Cass Avenue Development construc- tion company since the early 2000s, an indication that its value would likely rise. The Metropolitan Center for High Tech- nology had taken over a nearby structure a few years before (that building would eventually be purchased again by Wayne State University), bringing an influx of students to the new training center and the surrounding area. Now, the owners are clearly hoping to cash in on their long view and patience. Since September of 2015, the building has been listed, remove, and relisted four times, starting at $3.5 million and, so far, ending at its current and highest price tag yet, $4.9 million. • The property—which sold to its current owners in 2002 for $25,0000—is zoned

UPCOMING EVENTS

MAY 18-19 Middle Market Multifamily ForumWest Huntington Beach, California https://www.imn.org/real-estate/con- ference/Middle-Market-Multifamily-Fo- rum-West-2017/ 212-224-3511

SOURCE :: www.patchofland.com

5 ARCH FUNDING ADDS WHOLE NOTE TRADING 5 ARCH FUNDING has expanded its service offerings, including acquisition and trading of non-performing loans, re-performing loans and perform- ing loans.

May 21-24 RECon—The Global Retail Real

Estate Convention Las Vegas, Nevada http://www.icsc.org/recon/ 646-728-3800

The expansion follows the hiring of Edward Gonzalez, vice president, Capital Mar- kets Whole Loan Trading/ Finance, at 5 Arch Funding Corp. and its parent com- pany, 5 Arches LLC. Gonzalez is responsible for launching the

June 24 Think Realty National Conference&Expo Baltimore, Maryland https://thinkrealty.com/events/think-re- alty-expo-baltimore-dc/ 816-398-4053

company’s whole loan trading practice. He will focus his efforts on trading whole loans with strategic criteria to meet clients’ buying and selling demands. He will also facilitate the purchase and sale of REO to rental portfolios and ensure the rapid resolutions of assets, according to the company. Gonzalez’ “deep industry knowledge and extensive experience in delivering these sources of trading notes rep- resents an exceptional value add for our family of investors,” said Shawn Miller, CEO, 5 Arch Funding. In his 31-plus years of delivering rapid resolutions for major financial institutions, Gonzalez was directly responsible for han- dling code compliance, and formulating the best exit strategies in heavily regulated environments spanning mortgage loan trading and analysis, including all asset

September 11 Captivate 2017 Conference Las Vegas, Nevada http://geracicon.com/captivate/ 949-298-8050

October 14 Think Realty National Conference&Expo Atlanta, Georgia www.thinkrealty.com/events/atlanta 816-398-4053

October 18-20 29th Annual NARPM Convention & Trade Show Orlando, Florida www.narpmconvention.com 800-782-3452

classes and credit qualities. • SOURCE :: www.5archfunding.com

SOURCE :: Carole VanSickle Ellis

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THE BIG PICTURE

TRENDS & ISSUES

Basic Training SERVICE VETERANS CARRY ON A MISSION TO HELP RETURNING PERSONNEL TRANSITION AND SUCCEED THROUGH REAL ESTATE.

by Susan Thomas Springer

HELPING VETS ONE BASKET AT A TIME V eterans returning home to Citrus County, Florida, are welcomed with appreciation parties and gift baskets, thanks to one warm-hearted Realtor and a generous community. RE/MAX Realtor Barbara Mills in rural Inverness, Florida, loves helping veterans, so she initiated the parties and the gift baskets, which are worth about $1,000. Mills gathers gift cards from local busi- nesses such as restaurants, movie theaters and the car wash and packages them with T-shirts and other goodies. She even adds a bottle of Jack Daniels, except for the few baskets given to veterans under age 21. It adds up to about $500. At the party, community groups such as the Veterans of Foreign Wars, Operation Welcome Home and Rolling Thunder give thanks and plaques to the veterans and add another $500 in gift cards. Mills estimates they have given about 400 baskets since she started the “thank you” events in 2007. Mills was inspired by her son, a career Navy man, when she learned the hard- ships of military life. In addition to the parties, Mills has connected a single father with a job when he returned, serves on the boards of veterans organizations and helped rehab a female vet’s house. “The satisfaction is very rewarding,” says Mills. “My heart just goes out to these veterans, and I do whatever I can.”

ransitioning back into civilian life after military service comes with many challenges for veterans – the most practical one being how they’ll earn a living. The real estate industry is helping in many ways, from both organized and grassroots efforts. It’s an industry that has some natural similari- ties to being in survival mode. “In real estate, it’s feast or famine. You eat what you kill,” says Andy Williams, a Marine and founder of Recon Realty in Texas. “There’s always a hunt, and there’s always a way to scale. And if you get really good at fishing or hunting, you’ll never starve.” BRAVO ZULU Veterans hoping to hear “well done” again can find that praise in real estate. When Williams returned from mis- sions, he bought investment property as a way to “stay relevant.” By the time he left active duty, he had amassed a portfolio. He soon realized he wouldn’t fit into a corporate structure so he earned his master’s in industrial and organizational psychology to add to his bachelor’s in entrepreneurship. In 2015, he founded Recon Realty in Fort Worth, Texas, which is part of his mission to “empower the veteran community while navigating entrepreneurial ventures.” Williams has tried several business models to help veterans, from hiring them for construction and cleaning jobs, to helping them invest, to showing

them that real estate includes a breadth of employment options beyond agent, including appraiser, finance, title com- pany and marketing. Marine veteran Tom Brain began buying properties around Phoenix, Arizona, in 2010 while educating him- self on smart acquisition strategies and financing options. His military back- ground, along with corporate experi- ence at Honeywell Aerospace, helped him automate processes and assemble an effective team. Brain shares his success through military networking groups and by mentoring vets. A couple of his mentees now run their own real estate investment companies. Brain has distilled his real estate experience into a workbook that he shares with other vets. Rather than learn through the school of hard knocks or invest in expensive mentors, Brain wants to pave their road to success with his standardized processes and advice. He coaches students with full-time jobs to allocate time each week to finding real estate deals as part of their exit strategy. “Over time, it can replace their cur- rent income so they can be financially free and able to live life as an entre- preneur and not be tied down to a job anymore,” says Brain, senior managing partner at Peak Realty Solutions.

Andy Williams, foreground, along with Recon Realty team members Richard Mack and Ryan Leonard.

carrying out roles within a team, are of- ten one step ahead in the world of work. “The comradeship that you have in the military can be carried over into de- veloping a community in this field,” says Brain. “What I learned early in my real estate investing career is that the larger your network, the larger your net worth.” Another skill that makes veterans well-suited to real estate? The ability to follow a uniform process rather than winging it. “Being in the military, you’re very used to following a certain documented process and system,” says Brain. “Why not use something that’s already proven and that works versus trying to reinvent the wheel?” Also, both the military and business

can be battlegrounds. “Military veterans who are transition- ing back from conflict or combat have a unique set of skills that fit perfectly into the entrepreneur environment simply because it’s all about winning,” says Williams. FUTURE MISSIONS Brain is writing a book teaching investors how to locate tax-delinquent properties, a strategy with which he’s been successful. He’s also coaching students on the step-by-step process of flipping properties. “I’m trying to be of value and service to people,” says Brain. “I want to help other people learn what I’ve learned.”

Williams recently added televi- sion host to his resume. He and wife, Ashley Williams, also a veteran, star in HGTV’s “Flipping Texas.” Williams wants to be a change agent who shows veterans this is an industry where they can win. “My mission is to expose this in- dustry and empower other veterans so that they have the opportunity to own a piece of America and at the same time go into a community and add a lot of value,” says Williams. •

GOTYOUR BACK Military life is big on teamwork. Veter- ans, who are experienced at successfully

Susan Thomas Springer is a regular freelance contributor to Think Realty Magazine. Contact her at susan@susantspringer.com.

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THE BIG PICTURE

TECH CORRIDORS

Think More Choices Think Realty now offers three levels of membership for real estate investors. Whether just getting started or part of a corporate group, we have a lineup of benefits and resources designed to to help you succeed.

Forcing the Economy HOW TECHNOLOGY CORRIDORS, ROBOTICS AND REAL ESTATE ARE HELPING SHORE UP ECONOMIES AT RISK.

Intro Level - Free

Investor Level - $30/month

Content Articles, videos, webinars, and podcasts on the latest industry info, tips, and emerging trends. Resources Constantly evolving set of lender, wholesaler, and real estate investment group lists so you’re always connected to the network you need.

Events Free or discounted access to national and regional networking, learning, and deal-making events. Magazine Insight, strategies, and best practices from industry leaders, delivered right to your doorstep.

by Carole VanSickle Ellis

ccording to U.S. economists and labor analysts, the country could be heading toward “the biggest jobs-related crisis since the Great Depression.” This time around, however, simple and massive job creation might not be a viable solution. According to the U.S. Bureau of Labor Statistics (BLS), nearly half (47 percent) of “all existing jobs will eventually be eliminated by automation and artifi- cial intelligence.” To put it bluntly, the jobs lost during the Great Recession to other countries and simple econom- ic forces aren’t coming back, so the country had better prepare. In fact, Ball State University’s Center for Business and Economic Research estimates that 85 percent of the manufacturing jobs commonly believed to have been lost to overseas employers between 2000 and 2010 were actually lost to something far more irreversible than low pay rates and less labor regulation: technology. Although there are plenty of dooms- day-sayers out there warning that this latest evolution of the labor market heralds such

dire events as the end of the United States, worldwide recession and the Apocalypse, the bureaucracy is, for once, making itself useful in a looming crisis. We’re not referring to the current administration, either, not because we stand for or against President Trump’s jobs policies, but because the real, relevant work going on in the United States to shore up our economy and our jobs market is being done on a different plane in a way that is highly relevant to real estate investors. We are referring to the cre- ation, development, expansion and, above all, promotion, of the “high tech corridor.” As it becomes increasingly apparent that the economy cannot rely on manufacturing jobs, cannot rely on “bringing jobs back” from elsewhere and cannot rely on artificial stimulus forever, just about every municipal government, large or small, is focusing on establishing itself as a “high-tech” park, hub or, for the most ambitious, corridor. A high-tech corridor or, depending on the size of the community, a high-tech park or hub, when successfully developed, brings great things to the local real estate market and

broader economy, including:

A STRONG JOBS MARKET High-tech jobs have a jobs-multiplier number around nine, with some actually going as high as 12 to 15. A jobs multi- plier number is the number of jobs that the act of creating one job in a particular sector creates in total. So, for example, the creation of one aerospace engineer position at Honeywell International Inc.’s aeronautical division at its Phoenix facility will ultimately create the need for multiple other jobs in the Phoenix area. That engineer will likely move into a nice neighborhood and require landscaping care. She or he will probably need pool mainte- nance since the home will probably have a private pool, and the extended family will also need child care, entertainment, options for eating out and day-to-day services like hairstyling. For all those things to happen, local businesses will end up expanding their footprint and creating more jobs as a result

Think More Connections

Think Realty Coaches are hand-on pros who represent the best and brightest Real Estate Investors from across the country - and they are sharing their insights with Think Realty Members. With online videos, chat sessions, and event presentations, Think Realty Coaches are here to help members with valuable lessons and tips to help you up your game. Featured coaches include:

Tameka Bryant President, Think Realty Real Estate Services

Sonia Booker CEO, Sonia Booker Enterprises

Eddie Wilson President, Think Realty

> Continued on :: PG 16

Learn more and get more . Sign up for membership today at ThinkRealty.com

14 | think realty magazine may :: june 2017

THE BIG PICTURE

TECH CORRIDORS

of that engineering position.

to own or rent a single-family residence to call their own. Furthermore, remember all those jobs that aerospace engineer’s job created? Many of those new employees will end up either “upgrading” from a multi- family rental residence to a single-family rental or to homeownership, and a number of them will also likely move into the area from elsewhere, attracted by the growing jobs market. In every case, those individ- uals will need places to live, and many will want a traditional setting in which to raise their families. REAL ESTATE APPRECIATION Real estate tends to appreciate when three things happen: the job market grows, local population enlarges and public planning and policy result in community expansion. This is particularly noticeable if a community is attempting a high-tech corridor, which, by definition, extends along a physical stretch of land that usually has been undeveloped prior to the planned corridor. In these cases, a real estate investor with a little bit of patience who is willing to read the “fine print” on commu- nity planning and department of trans- portation files can often spot areas where currently vacant and undeveloped land could soon be worth a great deal either to new employers hoping to build on the high-tech corridor or to the state or city as they install the infrastructure necessary to bring those businesses into the area. While just about every town, city and metropolitan area in the country purports to be “high-tech central” these days, some of these developments have certainly fared better than others. For example, fewer than 10 years ago, Cin- cinnati, Ohio’s Over The Rhine (OTR) neighborhood was struggling as the city implemented “emergency demolitions” and politician after politician made promises and then wasted time and fed- eral funds rather than actually improv- ing the area. Today, however, the OTR development is a model of a successful high-tech transition: It boasts a streetcar

for easy access, and the area has plenty of fully leased residential and commercial space. Property values that have skyrock- eted since the mid-2000s. Austin, Texas, has accomplished similarly impressive feats on a much, much larger scale. The hometown of Dell has managed to ex- pand tech-related employment by more than 40 percent since 2001 and attract a number of West Coast giants like IBM, Hewlett-Packard and Intel. Austin not only attracts the big players in the tech game, but startups as well, to create a dynamic tech community. No state taxes, relatively affordable housing, fantastic municipal support from the local Cham- ber of Commerce and a thriving base of creative local talent serve to keep Austin at the forefront of the tech conversation. Finally, the Phoenix-Tucson Corridor, which is expected to completely fill in the space between Phoenix and Tucson, Ari- zona, within the next 10 to 15 years, stands not only as a successful and still-expand- ing high-tech corridor, but also as a great example of what reading state department of transportation documents in conjunc- tion with local foreclosure trends can tell you about the future of an area. Several years ago, the Arizona Department of Transportation (ADOT) released extensive documentation about how transit options ranging from buses to heavy rail could be extended into a number of small towns off I-10, the highway that now serves as the backbone of the corridor. Shortly thereaf- ter, lenders began foreclosing on delin- quent properties in the area at an accelerat- ed pace, which is usually an indication that they believe positive movement is pending in an area. Now, the corridor is thriving

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INFRASTRUCTURE THAT IS A MAGNET FOR FEDERAL FUNDING AND PR-FRIENDLY High-tech developments need high-tech methods of access, meaning, in most cases, light rail and rapid transit options. To put it bluntly, the federal government (and most state legislatures as well) are very “friendly” to transit-related projects, especially when those projects involve light rail (trams or trolleys that travel along tracks installed on existing roadways) or heavy rail (subways or other trains that can carry high volumes of passengers and have their own dedicated tracks). Because these transit options are environmentally friendly, enable users to avoid driving to work and tend to support community growth in areas where cars are less affordable and accessible, federal and state governments often have dedicated subsidies for these types of projects. Thus, a high-tech hub of any sort is a good magnet for forgivable loans or grants for developers or the city supporting the project. NEW DEVELOPMENTS IN AFFORDABLE HOUSING One of the most notable hallmarks of a high-tech development tends to be associat- ed mixed-use development that is intended to house, entertain and otherwise cater to high-tech employees who wish to live close to their place of work. With more and more Millennials entering this business sector, walkable mixed-use developments that offer residential options, dining, entertainment, child care and retail space are becoming an inherent addition to any high-tech develop- ment. Mixed-use housing tends to be more affordable than traditional single-family residences and, as a result, is more accessible to homeowners. EXPANSION OF BOTH THE RENTAL AND RESIDENTIAL MARKETS While trendy mixed-use developments will attract a number of residents, there will also be high-tech employees who wish

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> Continued on :: PG 110

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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 selfdirected.org.

16 | think realty magazine may :: june 2017

FEATURED STORY

Master Investor

John Larson Keeps Himself, AREI on Path to Success by Concentrating on Area of Expertise. BYROBERT SPRINGER PHOTOS BY LINA PERMENT KNOW THYSELF

FORYOUTO SUCCEED IN REAL ESTATE, YOU CAN’T JUST BEA HANDYMAN. YOU’VE GOTTO BEAVERYGOOD PEOPLE PERSON ASWELL.” JOHN LARSON CO-OWNER & MANAGING PARTNER, AMERICAN REAL ESTATE INVESTMENTS

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FEATURED STORY

Master Investor

aging partner and one of the owners of the 50-employee firm. It’s in four markets now and looking to expand. Larson’s story shows that real estate in- vestment success can be found by relent- lessly focusing on doing one thing well. WEANED ON REAL ESTATE Sometimes it seems like someone was born to be in a certain profession. Larson may be one of those people. His late teen years were spent helping his uncles rehab houses in Detroit. He says the “cheap labor” he provided his uncles after school and during summer vacations gave him an opportunity to learn the real estate business at an age when most of his peers weren’t getting a “career preview.”

Diving into the industry headfirst, Lar- son obtained his real estate license in his early 20s and, with his father, started buy- ing and flipping houses. “Being an agent, I would help him find the deals and write the offers,” he says. “I really got to learn how a real estate transaction worked. Then he and I would go in and do the renovation for the homes, and I would list the house on the MLS to a retail buyer.” Larson quickly discovered that he en- joyed two aspects of his budding real es- tate career: working with investors and the fact real estate was different from other assets. “I looked at it as a better option than the traditional investments that are out there like stocks and bonds and mutual funds and things of that nature,” Larson says. “I felt like with real estate you could control it more. It was an insured asset. It was tangible.” He and his family started buying houses when the market soured, reasoning that it couldn’t “continue to plummet,” Larson says. They’d buy the houses for $5,000 to $20,000, put $20,000 into a renovation and rent them out for between $700 and $900 month. This was how Larson became experienced with Class C inventory. The experience wasn’t entirely positive. “At the time, it made sense because we were able to buy properties so cheaply, and we were able to rent them out at a very attractive rate where we were seeing some really solid cash flow,” he says. “But I learned quickly how tough it was to manage that type of inventory.” The “headaches” of dealing with the Sec- tion 8 program and managing properties in areas where he didn’t feel physically safe told him it was time to exit the market. He made a nice profit on the homes when he sold them in 2011.

SOMETIMES SUCCESSFUL real estate investors stretch themselves too thin by trying to be involved in too many types of investments. This “jack of all trades, master of none” approach may work for some investors, but it can also bring stress and poor returns. Other investors stick to one asset class and become experts. John Larson, Think Realty’s May/June 2017 Master Investor, has found success by sticking to the investment classes he knows will provide solid returns for clients of his company, American Real Estate Invest- ments (AREI). Dallas-based AREI provides turnkey rental portfolios for investors looking to build cash flow. The company purchases houses, rehabs them, finds tenants and manages the properties. Larson is a man-

WELL-SUITED FOR REAL ESTATE INVESTING Larson says that several of his per- sonality traits make him ideally suited

Above: Larson and members of the AREI team confer. At right, Marcus Reynolds, senior investment coordinator, greets a client.

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FEATURED STORY

Master Investor

was very affordable and had good jobs and a growing population. “People were moving here in droves, and you know with rental properties, and everybody should know, that they don’t perform unless you have somebody living in the home, right?” he says. AREI has three investment models – Class A, Class B and Class C. Dallas was the ideal market to set up Class A investments, as the 2012 median home price was just under $200,000 versus the national median of $220,000. AREI was able to “buy properties in good neigh- borhoods at a very affordable value,” Larson says. AREI acquires property in many ways, including tag sales, foreclosures and short sales. Then the company does a full renovation of the property. The company saves money by doing the rehabs itself. “All of our renovations are standard,” Larson says. “We use the same materials on every home. It’s our own in-house employees and crews who work on all of our properties. They’re trained to renovate homes to our speci- fications.” Once tenants have been placed, AREI’s sister company, American Real Proper- ty Management (ARPM), manages the properties. ARPM thoroughly vets the tenants, according to Larson. “They have to make at least three times the month- ly rent to qualify to live in one of our homes,” says Larson. “They also have to have no prior evictions, and based on credit scores, we’ll take additional money for security deposits to kind of protect our owners.” Average rents in Dallas are about $1,600 per month, and applicants with a 650 or higher credit score need to put down a one-month security deposit. Credit scores below 650 mean higher security deposits for the tenants. “And then from there, once we get the property fully turnkey — and when I say turnkey, I mean renovated, tenant in place and cash flowing — we transfer ownership to our investors,” Larson says.

to succeed in real estate investing. “For you to succeed in real estate, you can’t just be a handyman,” says Larson. “You’ve got to be a very good people person as well.” Being consistent and a good people person helped him break into the hot Dallas-Fort Worth real estate market in 2012. He says that those traits helped AREI get its “fair share” of available inventory in the tight DFW market. The marketing degree with a minor in entrepreneurship that the now 30-year- old Larson obtained from Central Mich- igan University helps him market homes better than his competitors, he says. “I know how to make my marketing more appealing than the other turnkey pro- viders down the road or someone else in another state trying to do the same type thing. I think that’s part of what’s made me successful in business,” he says. ‘ALMOST RECESSION-PROOF’ Larson had an epiphany of sorts when he obtained his real estate license after receiving his marketing degree. The market had recovered, and although he realized it would always fluctuate, “these rental properties are almost re- cession-proof.” He knew that real estate would be a great tool to build a success- ful business as people will still need a place to live as the market teeter-totters between boom and bust. “If the market does tank again — and it probably will; I mean, everything is cyclical — you still have a rental port- folio of properties that are filled with people,” Larson says. Instead of selling million-dollar homes, Larson decided that renting out properties in good neighborhoods was a better business model. The values of the rentals might drop, but he’d still be receiving rent checks.

PERSONNEL FILE MASTER INVESTOR: John Larson COMPANY: American Real Estate Investments (AREI)

WEBSITE: www.areiusa.com

EMAIL: jlarson@areiusa.com

OFFICE PHONE: 888-323-2734

HOMETOWN: Detroit, MI

EDUCATION: Central Michigan University

FIRST REAL ESTATE DEAL: The first deal I did on my own (outside of a wholesale or retail transaction) was in 2009. It was a fix-and-flip. I purchased the home during the recession for $25,000, put about $30,000 into it. I did all the work on my own with my father’s help. We sold the house for $86,000 cash. GUIDING PRINCIPLES: “AREI does not put our clients in bad positions” – My whole team comes to work every day with that mindset. If we keep that in our minds and in our hearts, we cannot fail. WHAT MAKES YOU GET UP EVERY MORNING: My family and my desire to always put 100 percent into anything I do. WHEN YOU’RE NOT WORKING: I am a big sports fan. I also enjoy listening to podcasts and reading. FAVORITE QUOTE: “It is so much easier to be nice, to be respectful, to put yourself in your customers’ shoes and try to understand how youmight help them before they ask for help, than it is to try to mend a broken customer relationship.” – Mark Cuban

Larson credits the entire AREI team for the company’s success.

Currently, AREI won’t put forward properties for investment with rents less than $950. Larson still isn’t a fan of Class C real estate as an investment, but AREI will source those properties because some clients like the high-risk, high-reward nature of that asset class. Since he’s not comfortable owning them himself, Larson won’t offer an investment with low rents. “I don’t want to own that type of inventory, so I don’t produce any invest- ments that I would not invest in myself,” he says. THE PERSONALTOUCH Larson’s people skills are evident in the way AREI treats its customers. The company backs each of its investments with a warranty, “so you know that you’re really getting a turnkey invest- ment from us,” he says. Also, AREI

assigns each investor an “after-care rep- resentative,” essentially a customer ser- vice representative, to ensure investors’ needs are being met. Larson calls this program a “white glove tech service.” AREI believes that the management team’s responsibility is to find qual- ity investments, place good tenants and take care of maintenance issues, and that’s where the focus should be. Customer service should be handled by a different group that is solely focused on after-sale support. The dedicated rep calls investors monthly to review the status of their properties, go over property management statements and answer questions or concerns. “That one person will know what’s going on with any one of your homes, no matter if you own one with us or 10, you have that kind of one-on-one con- nection with somebody at my company that’s always in contact with you. I think

if anything, that’s what really sets us apart from other groups,” says Larson.

INVESTORS USUALLY START SMALL Larson says investors in AREI’s Class A market usually start out with one property (“To see how it works”), then buy another one three or four months later. He understands, as investors want proof that AREI’s investment model works. Investors in Class B markets, however, tend to buy two or three homes initially, as the homes cost less than Class A properties. “I’ve had investors come to me and ask if they should buy five properties in St. Louis, a couple in Texas – ‘What should I do?’ I just tell them, ‘Hey let’s just start with one. Give me the oppor- tunity to prove to you that this works. Let me earn your trust and then from

INVESTMENT PHILOSOPHY: MOVINGUPTO CLASSA Larson chose Dallas, as the market

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