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CONTENTS
INSIDE THIS ISSUE
THINK REALTY 9 News & Events 11 Think Realty Supplier
Anderson Business Advisors
INVESTOR STORIES 15 Investor Voices ENGAGEMENT 24 Realty Matters: Influencers in Real Estate Emerging industry trends are coming from the future by Brian Wojcik Be savvy to scammers and find credible private lenders for your deals by Kat Hungerford 31 Talking Loudly: Listen to the Lenders Stay conservative but jump on opportunities by Nathan Trunfio 35 Sponsored Content: Investor Review 54 Tips on ADA Compliance for Your Website How property managers can avoid complaints and possible lawsuits by Lisa G. Noon, CAE RCE FUNDAMENTALS 28 Scale Safely with Private Money STRATEGY 56 What Is the Right Real Estate Investment for You? Part I in a new article series on how to find the right niche by W. J. Mencarow
16
COVER FEATURE
ON TREND
23
12
61 Institutional Funds
Can investors compete with multi-billion-dollar funds? by Ellis Hammond
INVESTOR STORIES
ENGAGEMENT
PRESIDENT’S CIRCLE
EASY ANSWERS
64 Funding Your First Investment Using your IRA to finance a real estate purchase by Michael Jordan
Featured Member: Robert Knight
Tips to protect yourself — and your investments
4 | think realty magazine :: august 2020
DESIGN POINT 66 Design Like a Pro
Pairing cabinets and counters is the secret to a stunning kitchen by Samantha Johnson
68 Design Guide: Mid-Century Modern Bath Featured Designer: Michele Van der Veen
MARKET & TRENDS 72 A Full Recovery? Ten mighty markets that are candidates to come out in the best shape by Ingo Winzer 74 Worth the Wait In Kansas City, slow and steady wins the race by Fred Heigold III 78 Midwest Market Garners Global Attention Kansas City is gaining wide-spread attention as a great place to invest by Nathan Brooks
81 Housing Still Outpaces Income How builders and investors can respond to this trend by Bruce McNeilage
85 Flipping Rentals
When transition becomes a timeless investing strategy by Michael Zuber
Roofstock CEO Gary Beasley brings e-commerce to the real estate industry by Joe Dyton
88 The Sandwich Effect
Major changes are predicted before 2021, regardless of “second wave” by Tom Olson
58
96
MINDSET 92 7 Steps to Financial Freedom
STRATEGY
MINDSET
Step Two: Dream, Visualize, and Commit by Gene Powers
THE FUTURE OF CO-LIVING
TWO TRENDS TO WATCH
94 Identifying a Great Rental Property Investment A back-to-basics approach for finding your next rental by Abhi Golhar
Will this effective solution to affordable housing survive long term?
When there is turbulence, there is opportunity for wins—and losses
thinkrealty . com | 5
PUBLISHER & CEO Eddie Wilson
EDITOR-IN-CHIEF Kelli White
SALES MANAGER Rodney Halford RHalford@ThinkRealty.com
FULFILLMENT COORDINATOR Blair Pierce
DESIGNER David Allen Rodriguez
CONTRIBUTERS Nathan Brooks Clint Coons Joe Dyton Abhi Golhar
Ellis Hammond Fred Heigold III Samantha Johnson Michael Jordan Bruce McNeilage WJ Mencarow Tom Olson Gene Powers Peter Stuart Nathan Trunfio Michele Van der Veen
HEY! LET’S BE FRIENDS! GET SOCIAL. STAY CONNECTED.
Eddie Wilson Ingo Winzer Brian Wojcik Michael Zuber
Like, Follow & Share for the Latest Real Estate News, Trends and Insights from Think Realty
COVER PHOTOGRAPHY Sarah Beasley
Are you following Think Realty on social media? Things move pretty fast in real estate. Don’t miss out on the latest trends, tips, insights and news from your trusted resource for all things real estate investing! Follow. Like. Love. Share. Comment. You can do it all with Think Realty’s social media channels. Join the conversations in Think Realty social communities and connect with like-minded members who range from first-time to seasoned investors. Check out all of our social media channels and connect with us - and other investors - today!
Think Realty 12200 N. Ambassador Dr. Suite 301 (Office A) Kansas City, Missouri 64163 816-398-4130 ThinkRealty.com Copyright ©2020 Think Realty ABOUT THIS MAGAZINE :: Think Realty Magazine is a publication of Affinity Real Estate Media LLC. Reproduction or use of any editorial or graphic, without permission, is prohibited. We are not responsible for the content of any paid advertisements. For reprint rights; to ob - tain a detailed statement of our privacy policy; and for all single-copy requests, address changes and other subscription inquiries: SUBSCRIPTIONS :: The annual subscription for Think Realty Magazine is $36.00 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.
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6 | think realty magazine :: august 2020
FROM THE EDI TOR- IN-CHI EF
Timeless Trends
sellers together, has brought transparency and technology to
elcome to the August issue of Think Realty
W
Magazine! We always aim to bring you real estate investing news, education, ideas, and
real estate investing. Beasley isn’t following
trends; he’s setting them. Read his story on page 16. And, Think Realty CEO Eddie Wilson shares
insights that are anything but archaic. And this issue is not any different. We’ve devoted these pages to industry
his thoughts on two trends he’s seeing a lot of. But are these good trends to follow? Find out which opportunities might lead to investment wins (or losses) in his Mindset column on page 96. Speaking of trends, the Think Realty team is setting industry trends with our first hybrid event next month in Atlanta! We hope to see many of you there, and if you’d rather take in all the real estate education from the comfort of your home, you can do that too! Stay tuned for more details about what we’re doing to bring the best REI education to you! •
trends — to the timely and timeless real estate investing strategies and business practices that you might want to try, if you haven’t already. After all, “trendy” is not a four-letter word; when it comes to real estate investing, being trendy is about knowledge and awareness. And knowledge is power for your portfolio. Our cover person, Gary Beasley, knows a thing or two about trends in real estate and raising the roof. The co-founder and CEO of Roofstock, an online company that brings buyers and
Keep Going!
KELLI WHITE, EDITOR-IN-CHIEF
thinkrealty . com | 7
Calling all REI stars into the spotlight. Now through August 21, vote for the leaders and change- makers who represent the best the industry has to offer. We’ll announce the honorees on September 19 at the Think Realty Conference & Expo in Atlanta. They’ll also be featured in Think Realty Magazine and interviewed on our podcast. 2020 Think Realty Honors Categories: Single-Family Investing • Multifamily Investing • Real Estate Investing Services • Linda’s Legacy: Industry Impact Award
Vote today at thinkrealty.com/honors.
8 | think realty magazine :: august 2020
THINK REALTY
NEWS & EVENTS
SPEAKERS
or once in the real estate world, it’s not about location! Held twice per year — this year in Baltimore and At- lanta — Think Realty events are conference- and expo-style learning experiences designed for real estate investors of all levels. Knowledgeable speakers at the top of their fields and more than 40 vendors share their expertise and help investors with the education, services, and products neces - sary to help build their real estate businesses. This year, we are holding on-site events as usual PLUS offering a virtual option to accommodate COVID-19 restrictions and for those not wishing to travel. Whether you stay where you are and learn virtually or experience the event in-person, you will gain knowledge to help you kick off your REI journey or to scale your already-growing business. There’s something for every real estate investor at Think Realty events! • F
Doug Duncan Fannie Mae
Brent Kesler The Money Multiplier
To learn more about upcoming Think Realty events and to buy tickets, visit ThinkRealty.com/TR-Events.
thinkrealty . com | 9
COMPREHENSIVE BUSINESS PLANNING • TAX STRATEGIES • ASSET PROTECTION • BUSINESS PLANNING
OUR STRATEGIES ARE AS UNIQUE AS YOUR INVESTING
We offer investors a one-stop-shop for tax planning, asset protection, and business planning, but never take a one-size-fits-all approach. We aren’t going to fit you into a box. Your investing situation and goals are unique, so your business plan should be, too. We look at each client’s situation individually and formulate the best plan to fit their needs. Implementing the correct structure for your specific situation is essential to protecting your assets and minimizing your tax burden. Whether you invest on the side or as your full-time job, you must treat your investing as a business to increase your financing options and take full advantage of the tax and asset protection strategies available to you.
BUY-&-HOLD
INVESTING WITH A QRP
FIX-&-FLIP
WHOLESALE
10 | think realty magazine :: august 2020
THINKREALTY SUPPLIERS
MEMBER PERKS!
More Savings for Think RealtyMembers
FEATURED SUPPLIER: ANDERSON BUSINESS ADVISORS
T he Think Realty Supplier Program is bringing benefits and discounts to its
“I AM CONSTANTLY LEARNING ABOUT NEWAND CREATIVE STRATEGIES FROMMY CLIENTS SURROUNDING HOWTHEY FIND SUCCESSWITH THEIR INVESTING. PEOPLE ARE SUPER CREATIVE, AND I GET TO BE PART OF THE PROCESS IN PLANNING HOWTO MINIMIZE THEIR TAXES AND PROTECT THEIR ASSETS.”
members through partnerships with companies like Anderson Business Advisors. Maybe you’ve seen this company’s managing partner, Clint Coons, speak at Think Realty events, or maybe you saw him on our April cover, or maybe you’ve read his monthly Q&A (on page 23). Coons is a Think Realty Resident Expert for a reason! He knows his niche and loves sharing his expertise with you—real estate investors— helping you to protect what you are working for.
CLINT COONS ANDERSON BUSINESS ADVISORS
Think Realty members receive a free strategy session from Anderson Business Advisors (a $750 value)! Look for more suppliers featured throughout this issue of Think Realty Magazine and in every month to come! If you haven’t yet reaped the full benefits of being a Think Realty member, visit thinkrealty.com/supplier-discounts today and see how much money you can save!
thinkrealty . com | 11
INVESTOR STORIES
PRESIDENTS' CIRCLE
Presidents’ Circle
Featured Member: Robert Knight
residents’ Circle member, missionary, real estate investor, and business owner Robert Knight has
One of the unique things about Cape Coral is that it has 119 square miles and 50 percent of the city is still unbuilt with an almost endless supply of affordable lots. In 2016, with this idea in mind, we started White Stone Develop- ments to begin building single-family homes and duplex- es for investors and first- time home buyers. Our long-term vision is to help investors take advantage of this amazing location and hold rental properties that have strong cashflow and potential for capital apprecia- tion. Our preferred niche is new construction rentals and build to rent. We believe there is huge potential to create differentiation for investors. Below are a few reasons why: • Location. Location. Location. Great locations perform better! • Land prices are still historically low. • Rental revenue is higher because it is quality new construction. • Scalability/deal flow is endless for the foreseeable future. • There are fewer expense surprises than in rehab deals. I am excited by the multitude of opportunities all around me in this paradise called Cape Coral. Not many places can you get gorgeous waterfront canals for as low as $10,000! Investors can own rentals in an amazing area with solid cashflow, builder warranties, historically low interest rates and strong potential for capital apprecia- tion. What concerns me is helping as many investors as possible get started before interest rates get higher. What really fires me up is helping people move toward financial freedom with new construction rentals. Each new property goes to work for investors to give their fami - ly more freedom and options that make life amazing.”
P
been purchasing and rehabbing buy-and-hold single-fam- ily rentals since 2009. In 2016 he pivoted to new construc- tion in the sunshine state. He shared his real estate story and a few other fun facts with Think Realty, including business tips for beginners. Read on for Rob’s story: “In 2015 my wife and I returned from 20 years overseas as missionaries and purchased a HomeVestors franchise. We rehabbed or wholesaled 17 properties our first year but noticed our marketing spend and the competition for distressed properties in our area was increasing. I chose to move our family to Cape Coral, Fla., because I was so impressed with the vision of the city as a pre-plotted, master-planned community with over 400 miles of gulf access and freshwater canals.
Aerial View of Cape Coral, Fl
12 | think realty magazine :: august 2020
TR What advice do you have for beginners in the real estate industry? RK 1. Read books: Find the authors that have been successful in real estate and model the author’s philosophy and way of thinking. Change your thinking and you will change your life. 2. Masterminds and real estate investment groups: Start building friendships with people already succeeding in real estate. 3. Deal analysis: Start by learning how to analyze deals. The best way to get good at recognizing
3 FAVORITE BOOKS
great deals is to look at a ton of deals including the really bad ones. I use www.rehabvaluator.com both for rehab deals and for new construction deals.
Cashflow Quadrant Robert Kiyosaki
TR Do you have a guilty pleasure?
RK That would have to be a glass of chardonnay white wine, sashimi salmon, accompanied with some Pine Island clams and Gulf oysters. TR How have you evolved as an investor? RK I started off just chasing high cap rates and even held a few Section 8 rentals, but I have realized over the years that there are many other key factors that are not always apparent on the surface of the numbers. I prefer owning assets that are A and B class assets and in nice locations and don’t mind a slightly lower cap rate on the surface if I am able to own in great locations with strong tenants that take care of my property. TR In response to the COVID-19 pandemic, how have you adapted in your business practices and in your investing choices? RK Initially buyers were all hitting the pause button on new construction but as the economy opened back up buyers/investors have snapped right back with enthusi- asm pointing to a V-shaped curve recovery. I am still waiting to see a flood of distressed property hitting the market. The distressed deals I am current-
Zig Ziglar’s Leadership and Success Series Zig Ziglar
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ly seeing are mostly in C-class neighborhoods with cap rates below 10 percent. We are keeping our eyes open for deals but optimistic about our Cape Coral location and the affordability of new construction homes that investors can build for rent. For example, we can build new construction duplexes in nice, working-class neighborhoods at an eight percent cap rate. TR What makes you laugh, no matter what mood you’re in?
RK Kevin Hart or Eddie Murphy •
thinkrealty . com | 13
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14 | think realty magazine :: august 2020
INVESTOR STORIES
VOICES
Investor Voices T his year, Think Realty expos will look a bit different. Right along with you, we have been adapting and navigating new ways of getting things done. But one thing that has not changed is our commitment to bring quality real estate education to YOU! Participants of Think Realty events, whether virtual or in-person, will still walk away with a wealth of information that will help them operate their business and expand their real estate investment portfolios and scale their businesses. We asked a couple experienced real estate entrepreneurs:
QUESTION
WHY IS IT BENEFICIAL FOR REAL ESTATE INVESTORS OFANY LEVEL TOATTENDATHINK REALTY EVENT?
“Think Realty is a ‘one-stop shop’ for all your real estate investing needs. You get introduced to different niches of real estate, acquisition methods, business coaching, and even private lending.“ ANSWER
“I would say because of networking opportunities with the quality and caliber of the people who attend Think Reality events. The best real estate investors from all over the country attend, and I truly believe your network will eventually become your net worth!” ANSWER
Gary Harper CO-FOUNDER OF SHARPER BUSINESS SOLUTIONS
Glenn Stromberg STROMBERG INVESTMENT GROUP
thinkrealty . com | 15
COVER STORY
GARY BEASLEY
Roofstock CEO Gary Beasley brings e-commerce to the real estate industry ONTREND
BYJOE DYTON
16 | think realty magazine :: august 2020
THE BEAUTY OF REAL ESTATE IS THERE’S GENERALLY ABUYER FOR EVERYTYPE OF PROPERTY.”
GARYBEASLEY CEO ROOFSTOCK
thinkrealty . com | 17
Gregor Watson and Gary Beasley, co-founders of Roofstock
T he real estate industry has been somewhat slow to embrace technology when it comes to trans - actions, but for the past five years, Roofstock has been there for those who have been ahead of the game. Oakland, CA-based Roofstock specializes in bringing real estate buyers and sellers together. Inves- tors can use the company’s online platform and purchase occupied properties without doing any of the standard legwork. Roofstock handles the inspections, does the valuation reports and reviews the titles. Inves- tors can use Roofstock to purchase homes in more than 70 markets around the United States. Plus, the recently introduced Roofstock One offers the ability to buy fractions of homes in certain markets if they are looking for diversification with a smaller investment. “I tell people [Roofstock] is a lot like Amazon for houses,” company co-founder and CEO Gary Beasley said. “You can go on our website and
Phoenix without leaving your couch.” Beasley and Gregor Watson co-founded Roofstock because they noticed it was not efficient to sell a home with a tenant in it. Beasley said Watson tried to sell leased homes in Dallas but could not find a broker to take the listings. “One [broker] didn’t have 500 signs and the other said, ‘You need to kick the people out first so I can sell it’,” Beasley said. “So it was originally Gregor’s insight that said, ‘Hey, if there was a marketplace that could sell homes that had tenants in them already—wouldn’t that be better for the seller and the buyer?’” Rich Ford, who was the leading investment banker in the emerging single-family rental sector, joined Watson and Beasley as a Roofstock co-founder. They shared a com- mon vision — that with Roofstock’s platform, the seller wouldn’t lose several months of income (due to the home being vacant) or have to hire an agent and pay a large commis- sion. Instead, they could pay Roof-
instead of seeing books or shoes, you see houses that you can buy on our site in an e-commerce environment.” Roofstock’s approach to real estate transactions is what sets the company apart. Typically, an in- vestor will see a home on the MLS and perhaps make an offer. When the property is under contract and goes through inspection, however, negotiation may ensue based on what is found. Roofstock tackles the diligence ahead of time. This allows investors to go from bid to contract to closing without much trouble. “It’s a much more transparent way to buy because you know exactly what you’re bidding on,” Beasley said. “It’s also very convenient for renters because they’re only dis- turbed once. Because you come in, do the inspections and say, ‘thank you very much.’ You don’t have people coming by touring the home, which is one of the challenges with rentals. Since we do all of that once, you could be in New Jersey buy- ing homes in Memphis, Atlanta, or
18 | think realty magazine :: august 2020
it for free. “If we have to sell it for less, we’ll make up the difference,” Beasley said. “It’s this idea of getting a mar- ketplace going—you have to stand behind your product and we’ve done that since our very early days.” Beasley pointed to three critical areas that will help Roofstock continue to grow: • Deliver outstanding customer service to buyers and sellers; • Continue to improve underwriting
so investors who visit the company site can see well-
presented listings with data that they can use to make investing decisions; and • Attract a diverse inventory from multiple sellers and different types of homes in numerous areas. “The beauty of real estate is there’s generally a buyer for every type of property,” Beasley said. “You have to match those buyers and sellers and the Internet’s fantastic at doing that because we know what the buy box is of everyone who’s searching on our system. These insights allow us to know what kind of supply we should go out and try to secure.” It only takes a quick look at Bea- sley’s background to realize it is no surprise he ended up co-founding a real estate company. His father had his own real estate brokerage firm and his first job out of college was with corporate real estate services firm LaSalle Partners (now Jones Lang LaSalle) as a financial analyst. REAL ESTATE IS IN BEASLEY’S BLOOD
ahead of time, ensuring the home had a rentable layout, taking and sharing pictures and 3-D animat- ed tours of the property so people would feel comfortable buying the homes from anywhere in the world without actually seeing it in person. The process also taught Roof- stock’s founders the importance of building trust. The company has a 30-day money back guarantee on homes that investors buy through its program to add a layer of com- fort. If an investor isn’t happy with their purchase, Roofstock will resell
stock a low fee and wouldn’t have to worry about fixing up the property to sell it because it was already occu- pied, and therefore livable. The last piece of the puzzle for the founders was to figure out how to make people confident enough to buy homes off of their website, not just list them. They realized the answer was addressing buyers’ pain points—mainly the headaches that came with the traditional acquisition process. That’s where they got the idea to do all of the upfront work. This included inspecting homes
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people,” Beasley said. “Why would I leave this cool job where I’m flying around buying resorts to go to some startup that’s probably going to run out of money? But in my mind, I did the calculations and thought if this works, which fortunately it did, it could be a transformational event personally and professionally to take a company like this, figure it out and maybe take it public someday. We were able to take it public and it was a great life experience.” Beasley has spent his career in various roles, incrementally build- ing skills and experience which has culminated with having been CEO of four different companies. As Beasley gained experience, he always was looking for innovative models within real estate to take part in—putting
to people coming out of undergrad or business school is do those first couple of jobs for the experience and don’t worry about an extra amount of
“I learned a lot and found I really enjoyed real estate,” Beasley said. Beasley eventually went to busi- ness school and expected he’d come out and do something else. He worked for the chairman of Security Capital Group, Bill Sanders, who had also been a prior founder of LaSalle Partners, but was starting another company in Santa Fe. He paid Beasley about half as much as he was offered from other companies, but he accept - ed because he got to work directly with his boss. “I essentially carried his brief- case, but got to sit really close to the sun and learn how he founded that business, how he raised capital and managed his business,” Beasley said. “To me, that was a continuation of my MBA. A big piece of advice I give
salary that you’re foregoing.” Wisely, Beasley took his own
advice. That initial, lower-paying job out of business school helped put him in a position where he could advance faster than if he had taken a more traditional career path after gradu- ation. The knowledge he amassed gave him the confidence to take calculated risks with his job choices going forward. Before Beasley got into the single-family rental space, he was running acquisitions for a resort company for six years. He then became CFO of a new Internet-based brokerage called ZipRealty. “It didn’t make sense to a lot of
20 | think realty magazine :: august 2020
TRENDS POINTTO ADEMAND FOR RENTALHOMES— BOTH FROMAN OWNERSHIP STANDPOINTAND FROMARENTER’S VIEW.
GARYBEASLEY CEO ROOFSTOCK
him in the perfect position to help create and run Roofstock. “I’ve been at this intersection of operationally intensive real estate and technology for the majority of my career,” he said. “Roofstock is the culmination of a number of things that I’ve done. It brings together my passion for real estate, technology, growth businesses, and innovative business models. Having been an investor and an operator, I think like an investor, but I can operate like an entrepreneur or manager as situa - tions dictate.” When one has worked in an indus - try as long as Beasley has in real es- tate, it becomes easier to see what is changing and lies ahead. Fortunately for Roofstock, major investments in property technology, or proptech, have become more common than they were in the past. In 2019, $20 billion was invested in proptech, which would have been unheard of just five years ago when Roofstock was getting started. WHAT’S TRENDING TODAY INREI?
their credit up and put them on a program to buy. There’s a lot of cool stuff happening that is ultimate- ly giving consumers more choice, and I think ultimately giving people different ways to get exposure to real estate.” Another reason proptech is seeing more funding? People in the real estate industry are seeing other industries benefit from moving from analog to digital with positive results. “This happened to travel and all these other verticals, so why isn’t real estate moving online? It seems to make more sense.” There is also more pricing trans- parency today in the real estate industry, according to Beasley. That’s partly because any data related to a transaction is more readily available. Pre-Internet, there was an asym-
There’s currently more innovation around real estate financing—that’s one reason investments in proptech have increased so dramatically. There are now rent-to-own and fractional equity models available as well as trade-in models that allow homeowners to trade in their house and companies will help them buy their next one. Additionally, there are models with both short- and long- term rental income components available. “You have a lot of innovation around how people can purchase homes and finance them,” Beasley said. “[Financial Technology] is very good at coming up with innovative ways for transactions to happen as well as innovative ownership structures—things like rent-to-own models that are helping people get
thinkrealty . com | 21
subsides, but there’s a shortage of inventory in terms of hous - es. That means there’s a good chance that there will be more demand for single-family homes, but it is unlikely construction of new homes will keep pace. “You’re seeing people moving from some of the largest cities in America to these suburban and ex-urban areas, searching for more space, no shared amenities or hall- ways and less expensive living,” Bea- sley said. “All of these things bode well for the sector of single-family rental homes to perform well.” Meanwhile big, institutional inves- tors are going to have to reconsider putting money into office buildings if more people are going to be working from home. The same reconsider - ation will go toward investing in real estate like hotels, restaurants, and retail stores. “You check through all of these traditional asset classes in real es- tate and there are significant risks to them either during or post-COVID because there could be some struc- tural changes in the way people behave,” Beasley said. “Everybody needs a place to live. And even with apartments, we are seeing a num - ber of people moving out of multi- family into single-family because they want a little more privacy and to just be with their family and avoid the contact. “All of those trends point to a demand for rental homes—both from an ownership standpoint and from a renter’s view because you’re going to have more people who are renting and want a home in their area. It’s a perfect storm lining up, and over the next number of years these rental homes will continue to attract more interest.” •
metry of information—it was difficult to understand what was going on in the markets and buyers had an advantage because sellers didn’t have the benefit of comparison informa- tion and data. The information is not perfect, but it’s much more improved, which has led to tighter and more efficient pric- ing. The improvements have attracted more venture capital investments to the real estate industry—that and the fact that real estate is the world’s largest asset class. “I think it’s a combination of the market size, the fact that it hasn’t been penetrated really, fees have been generally pretty high and there’s a lot of inefficiencies in the processes for real estate closings and transac- tions broadly,” Beasley said. “When you look at all of those things togeth- er—big market, lots of inefficiencies and fees—it’s a perfect storm for ven- ture capital investment into a sector.” AWORDTOTHEWISE If you needed advice about real estate, you might have to talk to a few different people depending on what aspect you wanted to discuss—invest- ing, running a company, or industry insights. Or you could talk to some- one like Beasley who has garnered expertise in all of these subsets of the industry, and more. For example, when it comes to investing, Beasley always advises people to know their investment horizon because it’s going to inform the types of properties they may want to invest in. For example, if you want to own something for a year or two, you’d look at something different than you would if you wanted to hold on to something for 20 years.
Investors should also have a grasp on their risk tolerance and understand that they have to gener - ally accept more risk to get a higher return. Purchasing a high yielding rental property for example could lead to more volatility of cashflow— there could be some vacancy periods and wide valuation swings, but also disproportionate returns. “Like with any other investment, I would say investing in rental homes or any other investment, there’s a correlation between risk and return,” Beasley said. “You need to know what your tolerance is for that.” Speaking of rental properties, Beasley advises not to put all of your proverbial investment eggs in one basket. Owning a primary residence and having a rental property or two in the same area isn’t advised because then everything is correlated. “A lot of people on Roofstock can achieve diversification,” he said. “Maybe they sell one or two of those properties near where they live. I think to the extent you can achieve some diversification in your real estate portfolio, using a platform like Roofstock, or however you do it is generally positive.” Finally, Beasley remains bullish on the sector of single-family rental homes—especially in the COVID-19 pandemic. There are likely to be more structural renters as the pandemic
22 | think realty magazine :: august 2020
ENGAGEMENT
EASY ANSWERS
EasyAnswers
TIPS FROM AN ATTORNEY TO PROTECT YOURSELF — AND YOUR INVESTMENT.
When it comes to your real estate investing business, asking questions is part of the job. Think Realty Resident Expert, real estate financial advisor, and attorney Clint Coons offers his advice to questions he hears from clients every day.
Q: Is using Anonymity in real estate investing mainly for people with large real estate property or should newbie investors start with this set up from the beginning? This set up sounds pricey and difficult to start for a newbie investor.
A: What you should consider is do you value the benefit of anonymity? If you see its benefit, then this is the foundation of all your planning. If you later decide you do not want your tenants knowing where you live, what you own, etc. then you should set it up. If you don’t see yourself ever wanting this type of protection, then you would not need it. However, there are many other reasons beyond anonymity to use a holding LLC; e.g., tax return consolidation, charging order protection, and increased borrowing power.
Have a legal, finance, or tax question that might affect your REI? Send questions to Think Realty’s editor at kwhite@thinkrealty.com.
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ENGAGEMENT
REALTY MATTERS
Realty Matters: Influencers in Real Estate EMERGING INDUSTRY TRENDS ARE COMING FROM THE FUTURE
by BrianWojcik
er than simply as an inventory of available amenities and services. Adopting existing technology in creative ways to improve margin in low-cost real estate sectors will be the most significant industry trend in the coming years. From how we attract and evaluate renters to how we process evictions, real estate investors will come to rely on these emerging trends in technology to change their business processes. This sub-market segment will drive demand for interoperability and the
rends are not easy to predict in any industry. To understand in -
The real estate industry is hesitant to identify and incorporate trends. This can be a result of comfortable inertia — Why change if you do not have to? Or practicality — Who can afford to follow every fad, and who has the time/space to? APREDICTION Emerging trends in real estate are more predictable and actionable if you view them through the lens of expectations of future users, rath -
T
dustry trends, you must first under- stand who influences trends and why trends change. Is it simply fashion- able? Has a new technology usurped an existing popular system? Maybe a rising ethos toppled an old stereo- type? Looking at existing trends to identify what will be popular in the future seems oxymoronic, but it can be a useful exercise to identify who and what will influence the trends of tomorrow.
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supply chain; stakeholders clinging to outmoded systems, like print doc- umentation that provides safeguards against obsolete compliance re- quirements; individual interests like self-preservation and job security; or vendors lobbying to impede progress to maintain market share. As we have seen though in recent months, caused by the COVID-19 pandemic, rapid and jolting chang- es in trends are possible when a compelling reason exists for involved parties: renters, landlords, inves- tors, lenders, regulators, and even elected officials. Additionally, tragic occurrences have demonstrated how trends can be created by an imme - diate groundswell caused by the “voice of the people” wanting a say in how our elected officials implement public safety policies. HISTORY IS INTHE MAKING We are in a sea of change. Old trends are disappearing with new ones taking root, with these com - pelling causes pushing us in the direction of favorable change, which will endure. We are adapting. Surely, 2020 will be remembered as a “year of change” because of the impact of national and global events. Some will undoubtedly have trouble accepting these new ideas and ways of life as the “new reality.” Others think nothing of it — the simple act of wearing a face mask to prevent the spread of disease is now routine behavior. “Zooming” is now to video calls what “Kleenex” is to tissues or “Google” is to internet searches. But what about our industry? What can real estate investors and property managers foresee from not just the current upheaval, but also
the ongoing trends that began before 2020? Let’s first look at who will be driving these trends. Just as the Baby Boomers—those born in the post-World War II era between 1946 and 1964—influenced societal and industry changes for decades, the two upcoming generations, Millenni- als (born in 1981 through 1996) and the subsequent Generation Z (born 1997 through 2012), will play large roles in not just changing trends but in dictating the pace at which those trends change. OUTWITHTHE OLDAND IN WITHTHE NEW You’ve already likely seen their impact: they’ve challenged the “old ways” of thinking, not only of them- selves, but of others. And they have increasing economic and electoral power, which will have increasing influence in the real estate sector. According to Pew Research, Cen - sus data in the United States reveals 71.6 million Baby Boomers. As of 2019, the number of Millennials, 72.1 million of them, is larger than the Baby Boomer generation. What is more? Generation Z outnumbers them both with a population of 90.6 million, which represents ~25 per- cent of the population in America. Of course, with numbers comes influence. Boomers made a lasting mark on our lifestyle, culture and politics, as Millennials are starting to do now. As they age, Millennials are increasingly taking leadership roles in business, government, and public service. While the little-discussed GenX (1965-1981) leads in disposable income, Millennials are coming into their prime earning period.
subsequent ubiquity combined with ease of use will aid adoption in the consumer market. Prospective renters will also change the trends on what they de - mand from the property. Remember: this is a generation that grew up with smartphones in their pockets, giving them 24/7 access to the internet through Wi-Fi or over-the-air data. In decades past, renters may have wanted multiple cable TV access, phone jacks in every room, or (God forbid!) ISDN wiring. Some of us can even remember the days of rotary phones, cell phones the size of shoe boxes, and then “high-speed” 2,400 baud dial-up modems. Within our industry, companies adopt technology slowly for many reasons: a complex, multi-organiza- tional, self-interested and fractured
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With the first waves of Generation Z now entering adulthood, their im- pact on trends will be even larger as they are entering the workforce and have more disposable income than the Boomers did. They stand to be the largest voting block and econom- ic influencer due to their sheer pop- ulation, more than the previous three generations as well as their digital and social organizational acumen. Having gained some understand - ing of the general differences of the trend influencers, let us look at some of the trends our industry can expect from our forthcoming clients. In my opinion, “smart-home” branding as it currently exists is flawed: it is a misnomer that misdirects consumer understanding as non-essential. It appears as a solution in search of a problem. MULTI-MARKETADOPTION WILL BE NECESSARY FORA TIPPING-POINT The tipping point for technology adoption in homes at-large will occur when the casual consumer re- alizes they can solve a problem (that they perhaps just discovered) with an obvious (and relatively low-tech) solution that they can understand and therefore are comfortable with it (purchase decisions are largely emotional, but rationalized by eco- nomics). They will see the solution as easy to adopt and feel confident it will work without requiring them to purchase a monthly subscription service. An investor in the real estate industry (whether flipping, lending, or holding as a rental) needs the economics to work, and understands value. Interestingly the drivers are inverted: In business, purchase de - cisions are driven by economics, but rationalized by emotion. As technolo-
"WE ARE INA SEAOF CHANGE. OLD TRENDS ARE DISAPPEARINGWITH NEW ONES TAKING ROOT.” - BRIAN WOJCIK
gy costs drop due to mass consumer adoption and reduced manufacturing costs, an opportunity arises to utilize older, less expensive technology in creative and meaningful ways to deliver value to the bottom line for independent housing providers and investors. Technology previously only available for large management companies will become common (and essential) for the small busi- ness real estate investor, providing them with greater confidence to improve operations and procedures, reduce risk, and better manage com - pliance requirements. When value is apparent and obvious, adoption will move from natural to necessary. TRENDSARE SHAPED BY YOUNGER GENERATIONS While Millennials have been mischaracterized as a generation without direction, they are passion - ate about correcting injustices, and their influence will largely shape the trends impacting real estate in the future. Being raised in the digital era, they have an ethos for immedi - ate gratification with intuitive sense of how technology can be used as a solution to pre-existing problems, Generation Z can overcome the inertia of long-standing problems
due to complacency and apathy of bureaucracy. The size and econom - ic impact of these two generations will influence the trends in the real estate market—from a shared econ- omy to gig employment—for decades to come. •
PLEASE TELLUS WHATYOUTHINK
Tell us. Write to us. We really want to know. Go to RealtyMatters.online and post a note. For Column Notes, Resources and Lan- guage Translation for this Column, go to: RealtyMatters.Online/Column/July-2020
BrianWojcik is a housing industry advocate who transitioned into real estate, both as an investor and property manager, after more than two decades of experience in
engineering, sales, executive management, and operational/business process reengineering consulting. He resides in Howard County, MD, where he volunteers to teach a “Tenant Success” program he created for Bridges to Housing Stability, and where he created Landlord411 to assist rental housing providers. His expertise of the independent- ly owned rental-housing market has been sought after for local and state level legislation/policy development. Mr. Wojcik has been published in national publications about legislative issues, affordable housing matters, and rental housing advocacy. He holds a Bachelor of Science degree in Manufacturing Management from Clarkson University and a Master of Science degree in Real Estate from The Johns Hopkins University. He is founder of diyRealty.co.
26 | think realty magazine :: august 2020
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FUNDAMENTALS
PRIVATE LENDING
Scale Safelywith Private Money
BE SAVVY TO SCAMMERS AND FIND CREDIBLE PRIVATE LENDERS FOR YOUR DEALS
By Kat Hungerford
everage. OPM. Financing. Capital. Funding. For a real estate investor, the ability to scale comes down
doing. There are also no government institutions or licensing through which to verify that a private lender is legitimate. Anyone can put up a website, publicize attention-grabbing rates, and watch the applications roll in—complete with sensitive personal information and application fees. While the Federal Trade Commission and other federal agencies, state attorneys-general, and local law enforce- ment will investigate lending fraud, they are largely over- worked, understaffed, and faced with pursuing a moving target. For an experienced fraudster, escaping justice can be nearly as simple as moving to a new website and phone number, making borrower restitution rare. While the potential risks to private lending can feel
L
to money. Banks and credit unions will only complete so many transactions with an investor before closing the door—if they will fund an REI deal at all. So, most inves- tors looking to scale beyond using their own capital will quickly find themselves hunting for private money. While the advantages are many, the underlying difficulty in working with a private lender is in the name: private. Like banks, private lenders each set their own underwrit- ing guidelines, fees, rates, terms, and conditions. Unlike banks, there are few government reporting requirements, so there is no place to ascertain whether rates and con- tract terms are in line with what other private lenders are
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legitimate private lender has already earned a positive reputation. • Foreclosure rescue services or other mortgage relief services that, in exchange for a fee and sensitive personal information, promise to lower payments or change loan terms.
insurmountable, the industry’s reputation for speedy closings, flexible loan terms, increased negotiating op- portunity, and the ability to form close working relation- ships are powerful draws when compared to traditional financing. So how does an investor go about limiting risk while max- imizing reward?
FIND LENDERS THROUGH TRUSTED THIRD PARTIES. Asking other investors for referrals to private
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lenders with whom they have had a good experience is a great place to start. Even if that specific lender cannot underwrite your deal, they will often know of another lender who can. Beyond your immediate network, the American Asso - ciation of Private Lenders offers a public online member directory at aaplonline.com/directory. These lenders have all pledged to follow the association’s Code of Ethics. There is also some recourse against a member lender via AAPL’s code- violation process. Finally, there are companies that specialize in lead generation for private lenders, including Private Lender Link, Scotsman Guide, and Connected Investors. When using one of these platforms, be sure to research how lenders get listed. Platforms that let anyone advertise are more likely to attract scammers.
KNOWTHE COMMON PRIVATE LENDING SCAMS. According to a 2019 joint research effort called
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Exposed to Scams from the Better Business Bureau and Stanford Center on Longevity, knowing about a scam method makes you 49 percent less likely to be victimized by it. Some of the most common scams in the private lending industry are: • Pretending to be a private lender and asking for large application fees, other up-front fees, and/or large down payments. These “lenders” do not actually make any loans and may also use sensitive information from the application to commit identity theft. • Stealing the identities of legitimate private lenders, including spoofing their websites. These “lenders” may pass rudimentary due diligence because the
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FIND THE BEST DEAL. After you have found a short list of legitimate lenders, your best scenario is to complete an
COMPLETE DUE DILIGENCE. After you have found a few private lenders that advertise the kind of loan parameters you need,
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application with each of them. You won’t necessarily need to do this for every deal after you’ve narrowed down a few lenders that check all the boxes, but for the first few deals—or when your deal has marked changes from previous transactions—it can give you an idea of what the range is. When evaluating the loan terms, decide what factors are most important to you. While interest rates, fees, down payment, and days to close are likely at the top, there are other factors that you should consider, includ- ing (but not limited to): • What are the processes and costs if you need an extension or increase? • How and when will you make payments? What are the penalties and processes if you are unable to make them? • Is there a draw request process? What does the lender evaluate to approve them? • Does the lender have requirements for how you protect the property (type of insurance, on-site security, etc.)? • What reporting or updates does the lender require? • Does the lender allow a junior lienholder, and what are the notification/approval processes? • Are there conditions that allow the lender to renegotiate or revise the loan terms, and what are they? Not all lenders will have requirements in these areas. Some may have other covenants not mentioned here. While not necessarily red flags, these details determine how easy it will be to hold up your end of the loan in best- and worst-case scenarios. Outside of the contract, think about what working with each lender is like. Are they easy to get ahold of? Are they willing to explain things to you? What does your gut tell you the working relationship will be like? While this process may seem time consuming, it not only ensures the safety of your identity and hard-earned cash, it shows you care about the details, which can be reassuring to experienced lenders. Think of this not as going through the effort just to close one loan, but to find a partner, or group of partners, that will help you scale your business. •
take a mental step back. It can be tempting to jump right in or get attached to the idea that if you do not apply right away, the money might disappear. Those are feelings that fraudulent lenders capitalize on. Watch out for the follow- ing red flags as you investigate the company.
Red flags prior to completing an application: • The lender pressures you to act quickly.
• The lender charges an unusually large application fee. • An internet search of the company name turns up a different website address or contact information than provided. • You are unable to verify the company’s status in a Secretary of State business search in the state the lender is doing business. You should also reach out to the company via the official contact information and see if you reach the same lender. • The lender advertises licensing that you are unable to verify with the applicable licensing board. • The lender advertises being a member of the American Association of Private Lenders, but AAPL is unable to verify membership or shows different contact information for the lender. Red flags after completing an application: • Excessive or unexplained fees, interest rates, down payment and/or points. • Loan terms that seem too good to be true, which can be a sign of bait-and-switch. • Requests to submit money through PayPal (or, absent a verifiable title company, wire transfer). • The absence of common loan closing documents. From the lender this may be disclosures and sales contract/settlement statement, or the lender may seem unconcerned with collecting insurance binders, construction permits, operating agreement, or IRS EIN. • The absence of an appraiser or verifiable titling company in the closing process. If at any point you find that you have been working with a scammer and have provided sensitive personal infor- mation, treat it as identity theft. Report it to local law enforcement, your district attorney, your state Attorney General, and the Federal Trade Commission. While there are very few scammers compared to legit- imate private lenders, it is still best to be cautious and thorough.
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