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TABLE OF CONTENTS
INSIDE THIS ISSUE
THINK REALTY 8 News & Events
MARKETING 42 3 Steps to Creating A Highly Effective Birddog Network Use your "eyes and ears" to find properties anywhere you like. by Carter Froelich 44 Taming the Social Media Monster Success strategies from racing to real estate. by Jennifer Jo Cobb MULTIFAMILY FOCUS 46 3 Ways to Use Artificial Intelligence to Ramp Up Your Multifamily Game A little creativity can send your portfolio volume and value soaring. by Linda Liberatore 52 Four Unique Ways to Source Off-Market Apartment Deals Reduce competition by locating overlooked opportunities. by Joe Fairless 56 5 Important Factors for Success in Residential Assisted Living Investments Effective management is just the beginning. by Gene Guarino
Think Realty Radio offers investing insight beyond expectations. by host Abhi Golhar 9 Member Benefits America's changing paint perspective: Cracking the code on 2018's hot colors. by Sherwin-Williams company
COACHES CORNER 10 Panel in Print Think Realty Coaches discuss multifamily strategy. 12 Letting Go Without Losing Control Success is determined by what happens when you're not at work. by Gary Harper
Clockwise from left, Samuel K. Freshman, Steven Cohen, Mark Wittcoff, Damnn Saltzburg, and Sonia Carillo.
DESIGN POINT 14 Renovation Rock Star: Multifamily Edition Smart changes triple a triplex's value. 18 3 Listing & Renovation Mistakes Costing
SAMUEL K. FRESHMAN (above left) discusses 2018 buying strategy with a team of advisors at his Standard Management Company.
You Money and Time on the Market A realtor-investor cracks the code to spending too long on the market. by Lorraine Beato
BUILDING BIG ANDBUYING RIGHT
NUTS & BOLTS 64 Is that Home Inspection Worth it?
by Carole VanSickle Ellis :: photos by Jon Endow Photography
Investor-turned-inspector weighs both sides. by Adam Pontier
HOUSING NEWS REPORT 30 Detroit's Rocky Housing Rebound Housing News Report article by ATTOM Data Solutions. by Peter Miller 60 2018 and Beyond "My Take" article from ATTOM Data Solutions. by Ingo Winzer 63 The 2017 Homebuyer Name Game Big data analysis of 4 million single family home sales. by ATTOM Data Solutions
86 Maximize Your Rental Portfolio with Note Investing Strategies When "opposites" attract, the returns get very interesting.
THE BIG PICTURE
NUTS & BOLTS
INVESTOR REVIEW 67 Expanding Your View of Multifamily Investing Time-sensitive tactics for fast implementation and long-term cash-flow.
3 REASONS TO INVEST IN SMALL TOWNS Small-town investing could be the perfect fit for you.
THE MOXIE TO INVEST Julie Ziglar Norman on knowing when to take the leap.
REGIONAL SPOTLIGHT: BOSTON, MA The "City on a Hill" leads the way in 2018.
IT'S NOT COVERED PART 3 4 risks involving people at your property.
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FROM THE EDI TOR- IN-CHI EF
PUBLISHER R. Michael Wrenn
Building Good Things
PRESIDENT, AFFINITY WORLDWIDE Eddie Wilson | EWilson@AffinityWorldwide.com
EDITOR-IN-CHIEF Carole VanSickle Ellis CEllis@ThinkRealty.com
eal estate investors often do their best work during the worst
lem-solving in your real estate business:
VICE PRESIDENT OF MEDIA SALES Rodney Halford RHalford@ThinkRealty.com 816-398-4111 x86122 NATIONAL SALES MANAGER Teresa Stanton TStanton@ThinkRealty.com 816-398-4111 x86224
times. We’ve all met investors who turned their fortunes and family lives around on their last dime or helped create hope and economic revival in des- perately struggling communities, and every one of us can relate when it comes to picking up the pieces of a seemingly irreparable transaction and making the deal work despite the odds. Frequently, an investor’s willingness to broaden their conception of the real estate sector leads to the greatest achievements of all. A simple shift in perspective, making an insurmountable height seem, say, more like a long, steep, heart-racing-but-acces- sible flight of stairs, is usually the predecessor to this type of conceptual expansion. If you’re seeking that shift right now, then consider this: “Whatever good things we build end up building us.” The author of these words, famed motivational speaker and entrepreneur Jim Rohn, was a passionate entrepreneur and savvy businessman considered by many real estate investors to be a primary source of inspiration and motivation. After departing not one, but two, successful di- rect-sales positions where he was both thoughtfully mentored and financially rewarded, Rohn dove into motivational speaking and personal development. He flourished, teaching business strategy and personal devel- opment for the remainder of his life. A voluntary shift in perspective took things from good to otherworldly, both in terms of Rohn’s personal success and his lasting, extensive legacy, which includes mentoring famed moti- vational speaker Tony Robbins early in his career. It is no less than appropriate, then, that Rohn’s commentary on building introduces this issue of Think Realty Magazine . Throughout our March issue, we offer you a variety of perspectives on growth, expansion, profitability, and prob-
• Our cover feature, specially expanded for this edition, reveals the methods used and insights gained by one of the best in the business when it comes to making really big investments happen repeatedly for more than six decades, Samuel K. Freshman.
CONTENT DIRECTOR CariAnn Steward CSteward@ThinkRealty.com
• This month's Special Section, focused on mul- tifamily investing, tackles a vast array of means and methods for getting started in multifamily as well as maintaining and growing your existing multifamily portfolio. What better way to expand your investing perspective than to literally think bigger in your investments? • Our contributors, writing from an expanse of viewpoints and experience in the active indus- try, unswervingly identify, analyze, and resolve strategic difficulties with investment vehicles and broader, sector-related social and economic crises looming on the horizon – all through the lens of productive, ethical, profitable real estate investing. It’s clear at this point that 2018 is going to be an unusual year, with the likelihood high for banner triumphs and failures on many different fronts across housing markets around the country. Thinking bigger, broader, and better will be crucial to not just weathering any storm, but thriving through it. At Think Realty, we are dedicated to providing you with the resources you need at every point in your real estate investing journey, and we are proud to be part of an industry that sits squarely among your ave- nues toward financial success and security at every given time. Build good things with us. Start now. •
ASSISTANT EDITOR Heather Elwing
DESIGN CONSULTANTS Rivet | www.WeAreRivet.com
GRAPHIC DESIGNER Emily Bowers
FOR ARTICLE REPRINTS :: Contact Jeremy Ellis at Reprint Pros, 949-702-5390. www.reprintpros.com. SUBSCRIPTIONS :: The annual subscription for Think Realty Magazine is $28.95 in the U.S. Order online at www.ThinkRealty.com or call 816-398-4085. Provide your full name, address and telephone number. DISCLAIMER :: Think Realty Magazine , its owners, contractors, distributors and their respective representatives do not provide tax, accounting, investment or legal advice and make no guarantee as to the effectiveness or success of any investment or tax strategies discussed herein. Please consult your own independent adviser as to any questions you have or decision you are contemplating. ABOUT THIS MAGAZINE :: ThinkRealtyMagazine isapublicationof AffinityRealEstateMediaLLC.Reproductionoruseofanyeditorial orgraphic,withoutpermission, isprohibited.Wearenotresponsible for thecontentofanypaidadvertisements.Forreprintrights; toob- tainadetailedstatementofourprivacypolicy;and forallsingle-copy requests,addresschangesandothersubscription inquiries: CONTRIBUTING WRITERS Lorraine Beato, Sean Carpenter, Jennifer Jo Cobb, Kimberly Dooley, Joe Fairless, Lawrence Fassler, Carter Froelich, William Griesmer, Gene Guarino, Gary Harper, Jenna Heneghan, Mike Kalis, Mary Laipple, Linda Liberatore, Bruce McNeilage, Michael Miller, Peter Miller, Julie Ziglar Norman, Aaron Norris, Charles Sells, Douglas Skipworth, Kimberly Smith, BreAnn Stephenson, Mike Ventry, and Ingo Winzer. COVER PHOTOGRAPHY Jon Endow Photography
LISTEN AT YOUR LEISURE!
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Now it’s easier than ever to listen to Think Realty Radio whenever you want, wherever you want! Our radio shows are available for free, 24/7 as podcasts online. Tune in as our host, Abhi Golhar, covers topics like wealth building, investment mindsets, fix and flips, lead generation, scaling your business, goal setting, and more! Featured guests include Sonia Booker, Bruce Norris, John Helmick, Greg Rand, Noel Christopher, and other successful investors.
Subscribe now and listen at BlogTalkRadio.com/ThinkRealty
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CAROLE J. VANSICKLE ELLIS, EDITOR-IN-CHIEF
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THINK REALTY BENEFITS SHERWIN- WILLIAMS
THINK REALTY RADIO
Photo courtesy of Sherwin-Williams
Abhi Golhar, full-time real estate investor, Think Realty coach, and host of Think Realty Radio
Think Realty Radio Offers Investing Insight Beyond Expectations
by Abhi Golhar
America’s Changing Paint Perspective
W hen I found out I was going to get to host Think Realty Radio, I was beyond excited. Being part of broadcasting Think Realty’s “real estate of mind” (Time, Wealth, and Purpose), is not only a huge honor; it’s an incredible learning opportunity for me as well as my listeners! We had some incredible guests just in our first few weeks on the air, and two conversations stood out, in particular, to me after we’d finished broadcasting. First, my conversation with Bobby Montagne, CEO of Walnut Street Finance, was extremely eye-opening. I knew that Bobby had flipped properties before he started his private lending company, but I had no idea he spent more than two decades in fixing, flipping, and property development! He talked about the unique mindset of being on that side of the equation, then transitioning to a private lending position. It was a huge shift, and a lot of his success as a lender comes from his unique position of being able to under- stand buying and investment criteria as a developer. With about $15 million in action mainly in the Northeast, Bobby is a force to be reckoned with. I was honored to “pick his brain” to my heart’s content for my own education and that of our listeners. Second, I was really intrigued with some of the insights Marco Santarelli, CEO of Norada Real Estate, provided during his most recent interview on Think Realty Radio. Marco is not just an investor; he’s also an author and podcast host himself, so just for starters, he’s a great communicator. I must admit, that interview actually brought to light a few things in my own portfolio I might need to review! Marco has a way of pointing out how you could be managing your investments more profitably or strat- egizing about going from active, hands-on investing to passive investing that is both highly actionable (goes back to what I said
FIND OUTWHAT YOU'RE MISSING! Check out our official coverage of the Dallas Think Realty National Conference & Expo in February. Don't miss future events in your area. https://thinkrealty.com/think-realty-events/ about changing up my own strategies) and really approachable. After that interview, we had dozens of listeners email us to say how he had completely changed their outlook on rental property ownership (for the better, by the way). We’re on the air nationwide, so don’t miss more interviews like these. Let’s talk about real estate at www.thinkrealtyradio.com . •
THINK REALTY BENEFIT PROVIDER SHERWIN-WILLIAMS CRACKS THE CODE ON 2018 COLORS.
C onventional wisdom states that real estate investors should stick with neutral paint colors when rehabbing properties to rent out or sell at retail, but it may be time to re- visit that time-honored axiom. According to a study released by Think Realty benefit provider Sherwin-Williams, a little more vibrancy in your color spectrum could increase your property’s appeal. According to the study, several “vibrant” colors can elicit positive reactions from residents and buyers. Nearly two-thirds of respondents selected blue as a color they like most, with those responses spread consistently across genders, regions, and age. Interestingly, nearly half also said they associate the color “with calmness.” As an additional benefit for real estate investors, soft blues, while not traditionally considered truly neutral, are not usually considered a deal-breaker for home- buyers, likely because it is not particularly difficult to change the color later if the homeowner wishes to do so. Sally Augustin, Psy.D and a principal at Design with Science, a cognitive, science-based design consultation firm, said of the results, “In the case of blue, it’s often subconsciously linked to trust, dependability, and competence, and can also be associat- ed with rest and provide a cooling sensation.” She added blue is a “great choice for a bedroom or office.”
The study also revealed some interesting information for real estate investors targeting certain age demographics with their prop- erties. For example, Millennials are more likely to associate green with energy, while Baby Boomers tend to associate the color with calmness. Furthermore, the research indicated some regional pref- erences and trends that investors might find useful. For example, the decision to use an “unusual” color like pink or red might not be so unusual in the southwest, where these color choices are far more prevalent than elsewhere. In the southern region of the U.S., blue was “highly indexed,” although it was popular in all regions. Sherwin-Williams released its study in conjunction with National Painting Week last year, but the company does far more in honor of that week than just releasing useful research analyses on paint and color trends. The company’s employees also spend the week refreshing the paint at community centers, parks, and historic landmarks around the country. Sherwin-Williams also donates paint and project supplies, as well as creating a series of longer-term project plans throughout communities. •
April 14-15, 2018 | The Marriott Inner Harbor at Camden Yards
July 14-15, 2018 | The Marriott Irvine Spectrum
Sherwin-Williams is the largest specialty retailer of paint and painting supplies in the United States. Learn more about how Think Realty members can access Sherwin Williams’ research, paint and painting supply products, and inves- tor-specific insights at https://thinkrealty.com/benefits.
September 22-23, 2018 | The Westin Buckhead Atlanta
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Panel in Print
LEARN MORE ABOUT THINK REALTY COACHES AT WWW.THINKREALTY.COM/COACHES
LINDA LIBERATORE Courses: Knowing Your Lease, Buy-and-Hold Strategies With any multi-unit property, it’s vitally important to the success of your investment that you keep a good calendar. Honestly, that is
true for single-family rentals as well, but the issue is magnified in a multifamily investment. I see so many investors who cannot figure out why they are not cash-flowing on these fantastic mul- tifamily properties any better than they are. After all, the units are all full, the tenants are paying market rents, and the financing is advantageous. So where is the money? I’ll tell you: It’s slipping away because the property managers are not keeping a good, reliable calendar. Here are just a few things that failing to keep that calendar and, by extension, failing to track workflow on projects, can cause in terms of monetary losses:
Panel in Print: Multifamily Madness ultifamily real estate can get complicated, in large part because the term covers so many different types of prop-
• Major property damage • Huge maintenance bills • Lawsuits and litigation • Entire months lost while a unit sits vacant
Investing in multifamily prop- erties can be difficult if you have an interest in relatively smaller Courses: Marketing on a Tight Budget, Inbound Marketing, The Importance of Finding Money
In my opinion, probably the biggest perk of accepting these subsidies is the fact that a substantial part of the rent money you are owed will show up reliably and on time each and every month. The portion of rent that the government will pay is dependent on a few different factors, but is usually between 40 percent and 70 percent of the total. The move also opens you up to a whole new market of potential tenants, and, contrary to popular belief, you can screen these tenants just as you would any other applicant. When you’re considering accepting Section 8 in a duplex, triplex, or quadplex, you must consider two important factors: First, how will a housing-authority-determined rental rate affect your cash flow? Once you are approved for the pro- gram, your local housing authority will look at your property and set a monthly rental rate. They will also determine if and when that rate increases. If your investment strategy relies on being able to raise rents on a regular basis or being able to charge retail rental rates in all of your units, then Section 8 may not be for you. Second, how will you deal with maintenance and damage issues? Many (but not all) Section 8 programs do require tenants to address damages that they, themselves, inflicted on a property. However, many of these programs do not permit you to collect a security deposit for damages that might not fall un- der the tenant’s responsibility. Can your budget accommodate this type of maintenance without the safety net of a security deposit? If not, then again, Section 8 may not be right for your multifamily property.
erty and investment strategies. In this month’s “Panel in Print,” our Think Realty coaches discuss their experiences in multi- family investing and what they learned while doing those deals.
The root of the problem, in a lot of cases, is simply that things are not getting done in terms of preventative mainte- nance and fast responses to unpredictable problems. For example, say that you own a single-family rental (SFR). You do your own property management and you do pretty well, although you are always forgetting to replace the filters on the HVAC unit and just about every winter the pipes freeze at least once. But still, you’re doing pretty well with it in terms of cash flow. You want to expand, so you buy a triplex, and suddenly, things go off the rails. Not only are you stressed out by all the maintenance calls (now you’re answering to four households instead of one), but it seems like everyone’s heat is constantly going out and you’re singlehandedly keeping the local plumber in business with all these burst pipes. What’s going on? Well, you magnified your properties by four, and you mag- nified your organizational issues (not remembering to replace filters, failing to get your tenants to leave the faucets dripping when temperatures fall) fourfold as well. It sounds too simple to be true, but those issues can and should be automated. You can do a lot with a basic calendar app, and even more with some cloud-based spreadsheets and a workflow chart. Take a few hours to put calendar reminders in place for things like air filters and automate some text alerts to send out next time the weather gets bad. It may not solve all your problems overnight, but it definitely will save you significant time and trouble! •
properties, such as those between three and twelve units. I was recently considering an investment in an eight-unit property in my hometown of Atlanta, Georgia, and I found it very difficult to get good, expert insight on that property from local inves- tors, agents, or even appraisers. The problem is simple: These properties usually tend to cash flow pretty well because of their size, but there are not always a lot of properties that are com- parable to them in any given area. As a result, it’s hard to get a firm grasp on the after-repair value because there are not a lot of points for comparison. I was really torn because I really liked the numbers on the property and had a good feeling about it. However, good feel- ings alone are not enough! I finally spent a little time looking at local building trends, demographic and household income shifts, economic movements, and even the local bus routes and plans for future transit expansion in the area, before I made a decision. This type of property can create a bit of extra work early in the process, but I’ve always found that a solid invest- ment in a multifamily unit of this size is a reliable vehicle if you’re willing to do the due diligence necessary up front.
Courses: Hard Money Lenders, Executing the Wholesale Deal, Building Your Dream Team, Navigating Wholesale Paperwork, Finding Wholesale Deals, Finding Buyers, Wholesaling
I think that one of the things a lot of landlords of both single- and multifamily properties end up considering at one point or another is whether they should start accept- ing Section 8 housing subsidies. Section 8 is a program for low-income tenants who have qualified for a municipal gov- ernment’s Housing Voucher Program. Every city’s standards are based on the average income, average housing price, etc. The program helps these individuals afford local housing by paying a portion of the rent.
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Business & Expansion
however. Your business needs processes in place so the company and employees can depend on those systems and not solely on you. You will burn out if you do not use systems as leverage to do more. IMAGINE THE POSSIBILITIES Can you envision a business that runs effectively whether you are physically present or not? You’re free to take time off because you know the work will get done the way you would have done it. Sounds great. But what about a bad, even a worst- case scenario: your best employee leaves? Today, that event might be a nightmare. With the right systems in place, however, it can be a sad event rather than a disaster. Here’s how the best-case version of this negative scenario might go, thanks to your business systems: Your best employee tells you they are leaving. You’re sad. You’re going to miss him. Thank goodness, the business won’t suffer! Thanks to your training systems, you are able to hire someone else who shares your vision for the company and plugs right into the process and system your company built. Training new employees is nearly stress-free because you have documented processes and procedures that can be used for training. You make the hire, then get back to work “on" the business and vision instead of “in" the business putting out fires and fixing problems. If that scenario sounds good to you but you cannot imagine how to make it happen, then don’t give up. The solution is as simple as asking yourself some simple, albeit tough, questions: • If you were to take time away, would your business run smoothly? • Are you constantly interrupted by calls and emails all about daily issues? • Do your employees seem to lack direc- tions and resources? How do you know for sure?
The answers to these questions will help you identify where to start imple- menting systems.
2 Get help. There are lots of ways to get help and one of those ways is you can hire a business consultant. I wish I could tell you that every business owner trying to do this on their own is successful, but most of the time companies simply do not have the in-house expertise that is needed. So, if you lack the expertise, time or resources then hiring someone could be the most important decision you make to effecting change in your business. NEXT STEP: TAKE ACTION Act now. Procrastinating will just make your situation worse, and your to- tal reliance on yourself to manage your 8 OUT OF 10 BUSINESSES FAIL A ccording to Bloomberg, eight out of 10 entrepreneurs who start businesses fail within the first 18 months; a whopping 80 percent crash and burn. I would guess the 20 percent that have succeeded did so thanks to strong business systems and processes that allow the leaders to work “on” the business and not “in” the business. Remember: The next step you take does not just affect you. It affects your employees and customers as well!
SYSTEMS ARE A CREATIVE PROCESS You might think a system is the least creative thing in the world, but creating a system is truly an art, and, like all art, it can be difficult to get started. Creating sound business processes is hard work but still needs to get done. There are a ton of things that must get documented with high level process maps and work charts. Then you need to define roles and responsibilities and accountability charts.
W here do you find the time to create these systems? You barely have enough resources to get all the work done daily. Stop! This line of thinking is dangerous, and it leads to this result: You continue to do what you have done: nothing. This is part of the problem. You need to make this a priority and be a part of the solution and not the problem.
Letting Go Without Losing Control SUCCESS IS DETERMINED BY WHAT HAPPENS WHEN YOU’RE NOT AT WORK.
by Gary Harper
It’s true. However, many real estate in- vestors run businesses that cannot operate without them or, more likely, that they cannot release to run without them. Every business needs structure and organization, and that need grows as the business grows. In order for your company to grow, you have to add more people to your structure. These people depend on your business for their livelihood, as do you. Think about it: When you first started out, the entire burden was on you. You were the system. That is not a realistic model for growth,
f you were to step away from your business completely, what would happen? If that question just gave you the chills, then I have a few more for you: • Do you feel your business owns you instead of you owning the business? • Do you see poor communication between your departments? • Do you feel compelled to be involved in every business-related decision?
• Do you have a problem getting the results you desire from your staff? • Are you an entrepreneur looking to scale your business, but you don’t know how you’ll manage any more than you’re already doing? I was once told (while struggling with some of these very questions myself) your business is not measured on the success when you are there, but on the success when you’re not there.
YOU HAVE 2 TOUGH OPTIONS Now that you are ready to get started, you have two options: 1 Dig in and just get it done. Ask your employees to work harder or pay overtime and add one more ball to your juggling act and hope you don’t drop one. If you can accom- plish this, then you will see a great return on the time you invest.
> Continued on :: PG 112
Gary Harper is the owner of Sharper Busi- ness Solutions and a Think Realty Coach. Watch his latest coaching courses and learn more about setting effective goals at
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DOWNSTAIRS KITCHEN BEFORE
UPSTAIRS KITCHEN BEFORE
DOWNSTAIRS KITCHEN AFTER
The house required extensive updates in order to bring it up to retail condition, which is what renters in this market demand. Remember, this had to happen on each level of the property, so Seymour had to renovate three kitchens with stainless appliances and other modern updates. Here you can see two of three updated kitchens, including the one on the top floor with the sloping roof (right).
Renovation Rock Star: Multifamily Edition
UPSTAIRS KITCHEN AFTER
is just not that different, so people who are looking to move here also look to buy. That means that you can fix-and-flip to a retail buyer, but you probably won’t have a lot of success with flipping-to-rent, because the rent payment won’t generate an acceptable rate of return (ROI),” he explained. However, the numbers change dramatically for small multifamily units, where an investor can bring in two or three families, all of which will pay mar- ket rents to live in the same building. Seymour used that strategy on this three-family property, also called a three-decker, because it has three full rental units inside so that the property supports one full household on each floor.
ave Seymour, a partner at Boston’s Garmour Group, spent four seasons on A&E’s Flipping Boston, so you’d expect him to turn out incredible renovations in his sleep. However, this three-family prop- erty was a challenge, even for him. “The property was in pretty rough shape to begin with, so I planned on a $200,000 rehab,” Seymour said. The Garmour Group, which renovates sin- gle-family residences in the Boston area and multifamily developments in Maine, is always on the lookout for multifamily opportunities in the expensive metro and commuter regions around Boston. “With single-family units in Boston, the monthly cost of renting vs. owning
Three-family properties like this one do not have elevators, so investors must be very certain that the stairs are navigable and reasonably attractive. Seymour opted to carpet two flights and leave one bare hardwoods.
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Sliding barn doors (upper right) are not just trendy. They are a great way to maximize space in relatively small rental units like these. Here, you can see how the sliding door prevents the bathroom door from blocking access between the kitchen and an adjacent bedroom.
SLIDING BARN DOOR ADDITION
Lender Larry doesn’t do“relationships.”
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Seymour had been planning on an extensive interior and exterior renovation, including installing a new deck (above) and cleaning up the landscaping. However, he discovered after making his purchase he would also have to reframe the entire building on all three floors, which he had not planned for in his initial budget. The city also required the investor to install a residential sprinkler system on all three floors, which added another $30,000 to the renovation costs. “I used to be a firefighter,” Seymour noted. “Investing is, in some ways, very similar. When you do a renovation, if you’re really invested in the project, you are the first one in and the last one out. You can’t do half measures, because something will always come up to surprise you.”
5 Arch Funding Corp./NMLS ID # 103918. Arizona Mortgage Broker License # 933148; Oregon Mortgage Lending License Number ML-5475. In California, loans are made under the California Real Estate Law, BRE Corporation License # 01928500. 10.779% APR is based on a $250,000 loan with a term of one year at an interest rate of 7.99% and an origination fee of 1.5%. 6.344% APR is based on a $250,000 loan with a term of three years at an interest rate of 5.35% and an origination fee of 1.5%. Terms may vary based on your particular situation. 5 Arch Funding Corp. makes first lien mortgage loans.
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the changes, and in fewer than 60 days the home was under contract for $18,000 more than the previous list price. Too bad the property had to sit on the market for six months during the peak season before he made those changes. That extra time cost him more than $3,000 per month. 3. UNREALISTIC DESIGN DECISIONS This one is a little bit harder to fix, but if you have a home sitting on the mar- ket and you cannot figure out why, an impractical design decision or renovation might be the reason. Sometimes, a home is just not practical when it comes to daily use of an important room, like the bath- room. This may be due to the initial design decisions. Then, you will have to decide if you are going to fix the problem or let it be, but other times the impracticality is due to renovations. I cannot tell you how many times I have gone through a home being renovated and found situations where
This is a beautiful home. Sadly, the exposed wires that didn’t seem like that big of a deal to the investor probably were a big contributor to how long it sat on the market.
3 Listing & Renovation Mistakes CostingYou Time onMarket A REALTOR-INVESTOR CRACKS THE CODE TO SPENDING TOO LONG ON MARKET.
by Lorraine Beato
“updates” had rendered the bathroom, in particular, unusable or awkward. Bathrooms are already small spaces, so you have to think about how a homeown- er will navigate through them. If you cannot open a vanity door completely because the enormous spa tub is in the way, maybe you should let the tub go and just have a large, stand-up shower. A good rule of thumb could be: If the door to a cabinet, cupboard, or room won’t open completely after your renovation, maybe you should make a different decision! See my images at right to illustrate this point. The next time you are ready to put a property on the market, keep these things in mind. You could save yourself a lot of money and get your property sold much more quickly. •
cutting corners, then discovered too late that they cost themselves money be- cause they had to hold the property an extra few weeks or even a few months! Here are three of the most common design mistakes I see costing investors time on market: because most people do not have time to waste and won’t take the time to go see something in person that is not appealing online. Put your best foot forward! If a potential buyer likes what they see online, they will want to see the home in person. Also, if your home has a quirky feature, either embrace and explain it with good pictures and enthusiastic descriptions, or do not show it at all. Don’t just include a 1. DIY LISTING PHOTOGRAPHY Professional photography is crucial
am a full-time Realtor as well as a full-time investor with my
strange, confusing picture with no expla- nation and expect people to understand. 2. CLEAN UP TO YOUR PRICE POINT Sometimes, investors get so caught up in investing that they forget they need to clean up after themselves. This is an espe- cially big issue in homes at higher price points. I recently took over a listing that had been on the market in peak season for six months with another realtor. I walked in, called the investor and explained to them why the home had not sold. I took a video, sent it to him and made recom- mendations: You cannot have a $300,000+ home on the market with wires hanging from the ceiling where there are no light fixtures (see image above), no vent hood, dead bugs, cobwebs, tall grass and no curb appeal! He sent me $1,500 to make
husband. While that particular combi- nation is not for everyone, it definitely works for me. It also means I see things from a different perspective from a lot of investors and many agents and brokers. I know that sometimes a small change costing pennies on the dollar for an investor can make a big difference to a buyer. One of my biggest pet peeves is when I see a property sitting on the market for far too long and eventually selling for a lot less than it should because of a few minor design and listing issues that made the property look less attrac- tive than it really is. All too often, the source of the mistakes is an owner who thought they could save a few bucks by
Notice how the cupboard will not open all the way because it is blocked by the wall in the before image. We replaced the closed cupboard with an open vanity to remove this issue, and the entire bathroom looks larger and brighter even though we did not expand the room’s footprint.
Lorraine Beato is an Atlanta, Georgia, Realtor specializing in single-family residential homes, investment acquisitions, and upscale renovations. She is also a former appraiser. She may be reached at
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SAMUEL K. FRESHMAN
Building Big & Buying Right
Samuel K. Freshman Has Been Making the Right Choices for 60 Years.
BY CAROLE VANSICKLE ELLIS PHOTOS BY JON ENDOW PHOTOGRAPHY
THE BIGGEST MISTAKE I MADE WAS NOT BUYING ENOUGH. SECOND- BIGGEST MISTAKE WAS SELLING TOO SOON.” SAMUEL K. FRESHMAN AUTHOR OF TODAY'S "BIBLE" ON REAL ESTATE SYNDICATION, PRINCIPLES OF REAL ESTATE SYNDICATION, AND FOUNDER OF PRIVATE REAL ESTATE INVESTMENT FIRM STANDARD MANAGEMENT COMPANY
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SAMUEL K. FRESHMAN
Freshman recalled. “My father hated lawyers, but he wanted one in the family, so he told me to go to law school. I did. “When I graduated, I didn’t know what kind of law to practice, so I asked my dad: court law? tax law? litigation? He said, ‘Go into real estate law. Real estate is where all the money is made in California.’ So, I did. I practiced law and invested every penny I made into real estate, and the rest is history.” Of course, there is a little more to the history than that. In 1956, Freshman started out practicing law with a company that owned a great deal of
real estate in Hollywood, California, at the time. “They actually had developed that land in the 1890s and 1900s, but when I started working for them, they were liquidating the company. I spent about a year learning everything there was to know about the history and development of Southern California, then I went out and opened my own law office,” he said. “Networking is one of my hobbies, you could say, so I joined a lot of organizations, met a lot of people, and the whole time I was practicing law I was putting every penny I could get into real estate.”
"WHY BIGGER IS BETTER" S amuel Freshman is known for buying big, but he insists that hard numbers nearly always back up the decision to go for larger proper- ties over smaller when investing: “If you buy a 50-unit building, you have to have a manager. You are probably going to pay that manager about $50,000 a year to manage that property. Say you buy a 200-unit building. You still only need one manager, and you pay that manager about $15,000 more a year, $65,000, but you are generat- ing four times as much revenue. “Of course, that is a very simpli- fied example, but the math almost always works out. You can make a lot more money by putting a lot of people together and buying something big than you can buying [something smaller] by yourself. “There is great savings in volume. That is why someone who gets rich in real estate usually will have gone after the larger properties. You get successful investors who are very patient and buy a lot of individual properties, but I believe the most success is in large properties.”
Real Estate Syndication: A partnership between two or more investors. In most real estate syndications, the sponsor puts the deal together and the other investor or investors provide most of the financial equity. The result is that all involved parties are able to do deals together that they could not transact alone.
Professionals in Real Estate (SPIRE), professor emeritus of real estate at the University of Southern California (USC) Marshall School of Business, and graduate of Stanford Law School says he “hates risk” so much that he has dedicated himself “to the only business I know of where you can’t lose if you have patience and don’t take on too much debt: real estate.” PICKING THE RIGHT DOOR IS SIMPLE IF YOU’REWILLING TO LISTEN Perhaps the crucial point for Freshman’s success occurred when Freshman decided in his early adulthood to listen to people who knew more than he did. Specifically, he listened to his father. “When I started out at Stanford, I was pre-med. I hated it, so I asked my father, ‘What should I do here? Half my friends are going to business school, and the other half are going to law school,’”
intellectual gift, but that’s just not true,” he said modestly. “My life has been the story of the lady and the tiger, and I’ve been lucky enough to walk through the door where the lady is every time I had to make a choice.” Sixty years into a highly successful real estate investing career during which he has transacted hundreds of deals, taught thousands of investors, and leveraged millions of dollars in successful investments, Freshman seems to have a gift for making the right choices. However, it is inaccurate to say he has left everything up to chance. The author of multiple books, chairman emeritus of the Stanford
SAMUEL K. FRESHMAN, author of Principles of Real Estate Syndication , the industry-acknowledged "bible" on the topic, and founder of private real estate investment firm Standard Management Company, describes his life as “the story of the lady or the tiger.” The narrative, a short story written in the early 1880s by Frank R. Stockton, relates the tale of a fictional kingdom in which men facing punishment must choose between two identical doors, one hiding a lovely woman to be the man’s future wife and the other hiding a ferocious tiger who will eat him alive. “People always think I’ve gotten where I have because of some kind of
Freshman founded Standard Management Company in 1961 while he was still a managing partner at a Beverly Hills law firm. Today, SMC actively seeks acquisition properties in multifamily and retail, as well as land investments in the western U.S.
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Samuel Freshman (R) has worked with his grandson, William "Billy" Schumann (L), since Schumann was in high school. He is now a full-time acquisitions associate with SMC.
SAMUEL K. FRESHMAN
A REPUTATION AS "STRAIGHT SHOOTER" E arly in his career, Samuel Freshman made some decisions that he refers to as “lucky.” In reality, they might be better characterized as “honest, forthright, and reliable,” with possibly a small hint of “I told you so.” Freshman dedicated himself to honest dealing with his early partners, and he also dedicated himself to making sure they knew when they had missed an opportunity – and, whenever possible, giving them a second chance. “For 30 years, I was partners with Northwestern Mutual Life Insur- ance Company. In a lot of the deals I did, 90 or 95 percent of the money in the deal was theirs. I started out with them; it was another instance of choosing the right door,” he said. When Freshman took his first deal to Northwestern, the two parties formed a successful partnership that served as a foundation for a long- term relationship. However, North- western did not always “bite” on Freshman’s opportunities. When that happened, he used a unique method to demonstrate his dedication to their relationship while highlighting the opportunity they had passed up. “I wanted to show that I was really on their side, so of course I always took things to them first. If they passed, though, and then later I was in a position to buy something else in close proximity to the deal they’d passed up, I would take it to them first again. If they passed on that, then I would go ahead and either raise mon- ey elsewhere or use my own money to tie up the deal so that I could move forward and make money on that investment. But I always gave them
the chance to get involved even when I could get anyone to partner with me that I wanted. “After I did that two or three times, they knew that they could trust me. They were pretty likely to invest in any- thing I thought was a good opportunity because they knew that I was a straight shooter and loyal. They couldn’t believe someone would give them a chance to come back in after the deal was all set up. If you treat people right, they’ll treat you right,” he said. Freshman concluded with an an- ecdote from his father, whose advice started him off on the path to real estate syndication decades ago. “My father said that the most important thing to protect is your reputation. I wouldn’t fight a partner for the last penny, and I always treated my part- ners fairly.” Sometimes, he was more than fair. In one deal that did not do as well as expected, a group of retired inves- tors lost a great deal of money in the process. “I paid them all back, even though I had no legal obligation to do so,” Freshman recalled. “When that went around, it ended up opening a lot of doors for me,” he said pragmatically.
SOMETIMES, YOU CAN’T AFFORD NOT TO CHOOSE
Freshman describes his exit from the legal sector as something he could not afford not to do. “After about 25 years of acquiring property, I could not afford to keep practicing law instead of investing in real estate full-time,” he explained. After leaving the firm he had founded and managed since shortly after graduating from law school, he started buying 1920s high-rise office buildings, adding value to the properties, and then selling them. Along the way, he discovered an axiom that would propel him into the largely undocumented territory of real estate syndication. “I realized that I needed to stop buying and selling. I had to start buying and keeping. When I first started in real estate, I was buying a building for $1 million and selling it for $2 million, thinking I was doing great. Today, they’re worth $100 million, but unfortunately, I didn’t keep them,” Freshman said. He went on to say that he had to start syndicating his deals of necessity, “because no developer ever has enough money.” He immediately began rectifying the situation by
THE SUCCESSES I’VE HAD AND STANDARD MANAGEMENT COMPANY HAS HAD OVER THE YEARS IS A DIRECT RESULT OF THE AMAZING PEOPLEWITH WHOMWE HAVE PARTNERED AND WHO HAVEWORKEDWITH US. MOST OF THE PEOPLE IN THIS OFFICE TODAY HAVE BEENWITH ME MORE THAN 20 YEARS. MANY OF OUR INVESTORS HAVE KNOWN US ANDWORKEDWITH US DECADES LONGER THAN THAT. AT THE END OF THE DAY, NO ONE CAN BE SUCCESSFUL ON THEIR OWN. I AM SURROUNDED BY THE BEST IN THE BUSINESS EVERY DAY. I COULD NEVER HAVE DONE IT ALONE.”
bringing on investors, partners, and sponsors to do increasingly large and profitable real estate deals. In 1971, Freshman wrote the first of three editions of Principles of Real Estate Syndication, which summarized Freshman’s experiences successfully syndicating real estate deals using real- life examples, simple illustrations, and step-by-step instructions for syndicating any type of business enterprise, including, he said, “entertainment, oil and gas, timber, agriculture, manufacturing, restaurants, venture capital, and import and export.” In addition to real estate, Freshman also had invested in a small chain of theaters, owned a bank, and worked with his first employer, Jacob Stern & Sons, in a variety of other industry sectors. “I liked banking,” he said fondly. “I figured out pretty quickly, though, that I could make more money at a bank as a customer than as a banker.” In another
SAMUEL K. FRESHMAN
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