INSIDE THE WORLD OF PRIVATE LENDING
TRENDS BEWARE THE SIREN SONG OF MIXED-USE INVESTMENTS
TWIN CITIES AREA IS MIDWEST ‘SWEET SPOT’
MASTER INVESTORS EQUISTREAM FOUNDERS ARE TURNING AROUND LIVES AND NEIGHBORHOODS
E! SPECIALEVENT OFFER INSID
Inspirational Leader HUMANITARIAN OF THE YEAR ANDY WILLIAMS, RECON REALTY
$5.95U.S. ::$6.95CAN JULY/AUGUST2016
thinkrealty . com / mag | 1
TABLE OF CONTENTS
INSIDE THIS ISSUE
THE BIG PICTURE 18 Turnaround Specialists Equistream business model enables Kent Davis
and Chuck Bates to “do good” while doing well. by Susan Thomas Springer
38 Conversion is the Key
Getting leads is only the first step in a successful flipping strategy. by Danny Johnson
42 Alive and Well Slowdown in commercial sector is part of the natural market evolution. by Harmel Rayat 48 Moving Up the ‘Risk Curve’ A strong lender relationship helps make portfolio expansion a little easier. by Steve Belleville, MBA Becoming a licensed agent could turbo-charge your investing business, couple say. by James Hart 78 One-to-One with Lukas Krause CEO of Property Management Business Solutions looks for ways to elevate industry standards. 82 Street-Smart: Evaluating Online Lenders Experts weigh in on how to select the best online marketplace lending platform for your needs. 84 The Weekend Investor: React? Or Respond? The way you deal with challenges will determine your level of success in real estate investing. by Kevin Guz UP CLOSE & PERSONAL 76 Got Your License Yet?
ON THE COVER THINKREALTYAWARDS OFDISTINCTION
THE BIG PICTURE
LOOKING FOR THE RIGHT MIX Mixed-use developments require careful study.
THE MIDWEST’S ‘SWEET SPOT’ Twin Cities area ready for real estate action.
4 | think realty magazine july :: august 2016
NUTS & BOLTS 104 Our ‘Secret Sauce’
Creative marketing techniques are as important to successfully flipping a property as the rehab process. by John and Corinne Tesh
106 It Pays to Know NOI
Net operating income is at the heart of calculations vital to determining investment profitability. by Carter Froelich, CPA
110 Success by Design
Savvy investors understand the behaviors that are essential to a winning construction project. by Kelly Edwards and Chris Edwards 112 What Property Managers Need to Know Now Property management is a business that is shaped by larger trends in the economy, society and government. by James Hart 118 Indispensable Tools A vibrant website is a must for successful landlords. Here are 10 tips to make the most of it. by Susan Thomas Springer
Humanitarian of the Year award winner ANDY WILLIAMS , right, is on a mission to lift communities and fellow veterans.
BYTHE NUMBERS 122 From the Ashes
by Carole J. Ellis :: photos by Mark Matson
The Phoenix housing market recovery is well underway, say analysts at John Burns Consulting. by Ken Perlman and Sean Fergus 126 Local Market Monitor Top 10 A list of markets where property demand isn’t great yet—but will be. Expect above-average returns for years. by Ingo Winzer
NUTS & BOLTS
INSIDE 51 Investor Review A Real Estate Investor’s Guide to Private Lending, with commentary by experts in the industry.
LOST & FOUND
ON FURTHER INSPECTION 7 ways to think like a property inspector.
Crowdfunding addresses ‘missing dividends’ issue.
thinkrealty . com / mag | 5
PUBLISHER R. Michael Wrenn
PRESIDENT, AFFINITY ENTERPRISE GROUP Eddie Wilson | EWilson@AffinityEG.com
EDITOR-IN-CHIEF Linda Wienandt LWienandt@ThinkRealty.com
VICE PRESIDENT OF MEDIA SALES Robert Rakowski RRakowski@AffinityMediaServices.com 913-599-2020 NATIONAL SALES COORDINATOR Jackie Grawe JGrawe@ThinkRealty.com | 816-448-5587
SENIOR STAFF WRITER James Hart
DESIGN CONSULTANTS Rivet | www.WeAreRivet.com
GRAPHIC DESIGNER Emily Bowers
PRODUCTION & TRAFFIC MANAGER Carolyn Addington
CONTRIBUTING WRITERS Steve Belleville, Teresa Bitler, Clint Coons, Chris Edwards, Kelly Edwards, Carole J. Ellis, Lawrence Fassler, Sean Fergus, Carter Froelich, Kevin Guz, Danny Johnson, Leon McKenzie, Mike Kalis, Ken Perlman, Harmel Rayat, RealtyTrac, Engelo Rumora, Susan Thomas Springer, BreAnn Stephenson, Corinne Tesh, John Tesh, Ingo Winzer FOUNDING PUBLISHER, PERSONAL REAL ESTATE INVESTOR MAGAZINE Andrew Waite FOR ARTICLE REPRINTS :: Contact Jeremy Ellis at Reprint Pros, 949-702-5390. www.reprintpros.com. SUBSCRIPTIONS :: The annual subscription for Think Realty Magazine is $28.95 for six issues in the U.S. Order online at www. ThinkRealty.com or call 816-398-4130. Provide your full name, address and telephone number. DISCLAIMER :: Think Realty Magazine , its owners, contractors, distributors and their respective representatives do not provide tax, accounting, investment or legal advice and make no guarantee as to the effectiveness or success of any investment or tax strategies discussed herein. Please consult your own independent adviser as to any questions you have or decision you are contemplating. ABOUT THIS MAGAZINE :: ThinkRealtyMagazine isapublicationof AffinityRealEstateMediaLLC.Reproductionoruseofanyeditorial orgraphic,withoutpermission, isprohibited.Wearenotresponsible for thecontentofanypaidadvertisements.Forreprintrights; toob- tainadetailedstatementofourprivacypolicy;and forallsingle-copy requests,addresschangesandothersubscription inquiries: COVER PHOTOGRAPHY Mark Matson
THINKREALTY.COM A WEALTH OF RESOURCES ONE CLICK AWAY
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Think Realty is dedicated to staying ahead of the curve to give our Members a competitive advantage. Since launching earlier this year, we’ve been busy building a stockpile of resources for real estate investors on ThinkRealty.com - and we’re just getting started.
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6 | think realty magazine july :: august 2016
FROM THE EDI TOR- IN-CHI EF
Our ‘Awards of Distinction’ Winners Have Inspiring Stories to Share
ehind the scenes here at the magazine and our parent com-
personal mission to reach, train and employ as many veterans as possible in his business, Recon Realty. “There is a huge problem in Amer- ica: There are too many veterans who are underemployed and unemployed,” Williams says. “All I’m doing, with a very, very passionate approach, is impacting my community one veteran at a time. If I teach one, they teach one who will teach one.” You can read more of his story by contributing writer Carole J. Ellis beginning on Page 24. Our special awards package also includes a look at the 18 other winners and milestones that have shaped their business success. Categories range from property man- ager to private lender, turnkey provider to commercial investor, educator to master investor—and others. As with any attempt to single out “the elite” in an industry or interest area, there are many more indi- viduals and companies worthy of recognition, and we will continue to highlight them in the pages of Think Realty Magazine in upcoming issues as well as on our website, www.ThinkRealty.com. Our mission is to be the voice of this industry and to educate you, our readers, on best practices and high ethical standards that can help propel your businesses to ever-greater success. •
pany’s related entities, we’re gearing up for Think Realty’s Global Conference in San Francisco Aug. 11-13, 2016. Among the kickoff events will be pre- sentation of the 2016 Think Realty Awards of
Distinction to those in our industry who are leaders in the effort to help residential real estate investing gain acceptance as a respected wealth-building strategy. The Awards of Distinction is a magazine-led project that builds on the foundation established with Person- al Real Estate Investor Magazine’s Top 50 Real Estate Investment Opinion Makers & Market Leaders. In the inaugural year of these restyled awards, we are recognizing a number of individuals and compa- nies—some longtime industry stalwarts and others more recently established—who in our eyes have shown commitment to excellence, integrity and a pas- sion for growing the industry. We want to help share the stories of their success to inspire more people to embrace real estate investing and enjoy its benefits. This issue’s cover subject is Andy Williams, winner of the Think Realty Humanitarian of the Year. And what a story he has to share. Williams is a Marine veteran whose pledge to serve is a lifelong commitment. He has made it his
LINDA WIENANDT, EDITOR-IN-CHIEF
thinkrealty . com / mag | 7
cent of homes flipped were purchased by the home flipper with cash — compared to only 37 percent who purchased with cash at the height of the flipping boom,” Blomquist said. “Spending their own money rather than other people’s money is keeping flippers conservative. On average they are buying the homes they flip at a 27 percent discount below full market value and selling them at a 6 percent premium above full market value, helping to deliver strong flipping returns on average.” The share of home flipping reached new all-time highs in Q1 2016 in nine of 126 metropolitan statistical areas analyzed (7 percent) including:
HOME FLIPPING INCREASES 20 PERCENT IN Q1 2016 TOA 2-YEAR HIGH Home flipping activity increased 20 percent to a two-year high in Q1 2016, according to RealtyTrac’s recently released Q1 2016 U.S. Home Flipping Report. The report, released in early June, shows that 6.6 percent (43,740) of all single-fam- ily home and condo sales in the first quarter of 2016 were flips, a 20 percent increase from the previous quarter and up 3 percent from a year ago, to the highest rate of home flips since the first quarter of 2014. Home flipping has been on the increase for more than a year and a half, helped by falling interest rates and declin- ing inventory against which flippers had to compete, noted Daren Blomquist, senior vice president at RealtyTrac. “While responsible home flipping is helpful for a housing market, excessive and irresponsible flipping activity can contribute to a home price pressure cooker that overheats a housing market, and we are starting to see evidence of that pressure cooker environment in a handful of markets,” Blomquist added. “The good news is that — despite the 20 percent jump in the first quarter — home flipping nationally is not far above its historic norm, and home flippers in most markets appear to be behaving rationally and responsibly.” For the report, a home flip was defined as a property that was sold in an arm’s-length sale for the second time within a 12-month period based on publicly recorded sales deed data collected by RealtyTrac in more than 950 counties accounting for more than 80 percent of the U.S. population. The 6.6 percent share of total
• Baltimore, Maryland • Buffalo, New York • Huntsville, Alabama • New Orleans, Louisiana • York-Hanover, Pennsylvania • Seattle, Washington • Virginia Beach, Virginia • Bakersfield, California • San Diego, California
SOURCE :: RealtyTrac
REPORT LOOKS AT CHINESE INVESTMENT IN U.S. REAL ESTATE A new report from the ASIA SOCIETY , “Breaking Ground: Chinese Investment in U.S. Real Estate,” aims to address state-side anxieties and paint a clearer picture of the impact on the U.S. economy and jobs numbers from the increasing amount of capital coming in from China. It is the fourth in a series of reports beginning in 2011 exploring the implications of Chinese real estate investment in the United States and attempting to “ground the debate in an authoritative and comprehensive analysis of the in- vestment trends and motivations.” According to the Asia Society, the reports have found that “while some of the misgivings about Chinese invest- ment were warranted, Chinese investment in the United States has and will continue to be an overall benefit for the economy.” The report notes a rapid and widespread entry of Chinese investors, both firms and individual, into the U.S. real estate market. Chinese direct investment in U.S. real estate was negligible until 2010 but has since grown drastically and visibly, according to the report’s authors.
home sales that were flips in Q1 2016 was still 26 percent below the 9.0 percent share at the peak of home flipping in Q1 2006, but was 55 percent above the recent trough in home flipping — 4.3 percent of total home sales in Q3 2014. “In the first quarter, 71 per-
8 | think realty magazine july :: august 2016
The report, produced in collaboration with Rosen Con- sulting Group, notes the importance of looking beyond direct investment. “More than any foreign investor other than Canada, China stands out for the breadth, depth and speed of its participation in the U.S. real estate market,” the executive summary states. For more information: http://asiasociety.org/files/uploads/ 66files/Asia Society Breaking Ground ES Final.pdf •
ONLINE LENDER DEBUTS 30-YEAR LOANS FOR REAL ESTATE INVESTORS Online lender ASSETAVENUE has launched a new loan product to finance the purchase of rental properties including single-family homes, two- to four-unit multifamily properties, condos and townhomes, in response to customers’ requests for a product that would expand their investment portfolios and enable them to collect income from rental properties. The new 30-year rental loan, currently available in 44 states, is designed to be more commercial in nature than a traditional residential loan, with emphasis placed on an individual’s Debt-Service Coverage Ratio (DSCR), as op- posed to the Debt-to-Income Ratio (DIR). DETAILS OF THE PROGRAM INCLUDE: • Loan Amount: $75,000 to $1 million • Loan-to-Value Ratio: Up to 75 percent • Markets: Primary and secondary • Lien Position: First lien • Interest Rates: 6.5 percent to 7.5 percent • Broker Fees: Protected • Prepayment Penalties: Expire after three years • Other Terms: Will consider borrowers with special situa- tions and foreign nationals NEWBOOK PROVIDES TAX TIPS FOR REAL ESTATE INVESTORS “The Book on Tax Strategies for the Savvy Real Estate In- vestor,” from BIGGERPOCKETS , is now available in paperback and digital format. This valuable guide to help real estate investors manage their finances beneficially and legally, was co-written by Amanda Han and Matthew McFarland, who are both certified public accoun- tants and real estate investors SOURCE :: www.assetavenue.com/borrow
Though showing a dip in prices from the previous month, San Francisco and New York City claim the two top spots in Zumper’s National Rent Report for May 2016, with one-bedroom median rent prices of $3,560 and $3,290, respectively. SAN FRANCISCO, NYC TOP LIST OF MARKETSWITH HIGHEST RENTS
Boston and San Jose tied as the third most-expensive rental market in the country, with a median price of $2,290 for a one-bedroom property. The Zumper National Rent Report analyzes rental data from over 1 million active listings across the United States. Data is aggregated on a monthly basis to calculate median asking rents for the top 50 metro areas by pop- ulation, providing a comprehensive view of the current state of the market.
OTHERMARKETS IN THE TOP 10:
5 Oakland, California: $2,280 6 Washington, D.C.: $2,220 7 Los Angeles, California: $1,990 8 Miami, Florida: $1,890 9 Seattle, Washington: $1,770 Chicago, Illinois: $1,760
themselves. They are the husband and wife team behind Keystone CPA, a certified public accountant practice that specializes in craft- ing tax strategies that will help real estate investors grow their business quickly while staying on the right side of the law. The book is available from Bigger Pockets or at Amazon.com. •
For a look at the complete report results, go to: https://www.zumper.com/blog/2016/05/zumper-nation- al-rent-report-may-2016/ •
thinkrealty . com / mag | 9
August 11-13, 2016 Parc 55 San Francisco,A Hilton Hotel
THINK REALTY GLOBAL CONFERENCEWILL EDUCATE & INSPIRE INVESTORS
JULY 13-14 AltLend Summit 2016: Investors Forum on Innovative Small Business and Real Estate Lending Sponsored by Financial Research Associates New York City, New York www.frallc.com/conference.aspx?- ccode=B1026 JULY 14 Cap Intro: Real Estate Fund Investing Sponsored by Catalyst Financial Partners New York City, New York www.catalystforum.com/events/real- estate-fund-investing/ AUGUST 11-13 Think Realty Global Conference and Expo Sponsored by Think Realty San Francisco, California www.thinkrealty.com/events/think- realty-global-conference/ SEPTEMBER 14-15 15th Global Real Estate Private Equity Summit/West Sponsored by iGlobal Forum Los Angeles, California www.iglobalforum.com/repe15.html OCTOBER 19-21 NARPM 28th Annual Convention and Trade Show Sponsored by National Association of Residential Property Managers Wailea, Maui, Hawaii www.narpmconvention.com/ To list your upcoming event in our September/October issue, please email the details, along with your contact information, to email@example.com by July 25.
We’re heading to beautiful San Francisco for theThink Realty Global Conference, and you’re invited to join us at this world-class event. Enjoy all the City by the Bay has to offer while you connect with industry leaders and market trailblazers to take your business –and ROI—to the next level. TheThink Realty Global Conference features world-class speakers and educational sessions that will inform and inspire.
KEVIN O’LEARY Chairman of O’Leary Funds & star of ABC’s “Shark Tank”.
ROB VANWINKLE, AKA VANILLA ICE Star of DIY’s “Vanilla Ice Project” and accomplished real estate investor. DEL WALMSLEY Founder of Lifestyles Unlimited, host of “The Del Walmsley Radio Show” and multimillion-dollar investor who has dedicated his life to teaching others how to invest in real estate.
KATHY FETTKE Frequent guest real estate expert on such media as CNN, CNBC, Fox News, NPR, CBS MarketWatch and the Wall Street Journal and author of the best-selling book, “Retire Rich with Rentals.”
HIGH-LEVEL NETWORKING Connect with lenders with unlimited capital, property wholesalers ready to make deals, and top-tier vendors to help you streamline your business in an international environment. EDUCATION SESSIONS FOR FOREIGN & EB5 INVESTING Educational sessions will span a wide breadth of real estate, including topics on residential, commercial and foreign investing. The global flair of our foreign and EB5 investing track will attract global investors looking for ways to invest their capital in U.S. properties. CEREMONIES AND COCKTAIL RECEPTIONS At the Think Realty Global Conference, we’ll be honoring the winners of the Think Realty Awards of Distinction. Join us for a special ceremony as we recognize the trailblazers leading our industry.
TO LEARN MORE, OR TO REGISTER, VISIT THINKREALTY.COM/EVENTS
$ Enjoy a special 20% discount on a Global Conference ticket using promo code TRMAG20 . Tickets are regularly $399 for this three-day event.
10 | think realty magazine july :: august 2016
thinkrealty . com / mag | 11
THE BIG PICTURE
TRENDS & ISSUES
Looking for the Right Mix MIXED-USE DEVELOPMENTS ARE GAINING IN POPULARITY AND INVESTOR INTEREST—BUT PRESENT UNIQUE CHALLENGES.
by Teresa Bitler
ixed-use developments are com- munities within the community, a mix of residential units over retail, including restaurants, convenience stores and medical offices. Residents can social- ize and sometimes work in the building as well as live there, and if they need to venture to other parts of the city, nearby public transportation can get them there. These increasingly popular develop- ments typically demand higher residential and retail rates, making them attractive to investors. But don’t rush in, just yet— mixed-use developments are much more complicated than an apartment complex or even a strictly commercial proper- ty. If you don’t understand what you’re investing in or what it takes to develop a successful project, you stand to lose big. MILLENNIALS, BOOMERS AND BEYOND Understanding what it takes for a successful mixed-use development begins with understanding the demographic that wants to move into one. For the most part, these projects appeal to Millennials, young adults in their 20s and 30s. “They have their first job and want to live near that job, which is probably in the city,” explained architect Scott Johnson, a partner with Johnson Fain, which develops mixed-use projects throughout the world. “They’re working eight or more hours a day and want to be able to get home quick- ly to maximize their social life.” Mixed-use properties, especially those located near public transporta- tion, allow them to do that as well as to M
can serve as its own community, its suc- cess depends on that age-old adage: lo- cation, location, location. These projects usually work best in an urban (versus suburban) setting where there are restau- rants and entertainment options nearby, in addition to those in the building. Also, the local economy needs to be strong for a successful project. Em- ployment, population and disposable income should be growing in the area for a mixed-use development to be successful, according to “Mixed-Use Development and Financial Feasibility,”
meet interesting people and be close to cultural activities like the theater. On the other end of the spectrum, mixed-use properties appeal to Baby Boomers looking to simplify. (Johnson calls this the “dumbbell phenomenon” because there are significantly fewer people belonging to the generations in between who are interested in this lifestyle.) Boomers are tired of mowing the lawn and shoveling snow but want to remain active. According to Richard Munger, vice president of development with North American Properties, interest extends
IF YOU DON’T UNDERSTAND WHAT YOU’RE INVESTING IN OR WHAT IT TAKES TO DEVELOP A SUCCESSFUL PROJECT, YOU STAND TO LOSE BIG.
a report issued by the Counselors of Real Estate (CRE). Proximity to public transportation is another key element, said Colline Hernan- dez-Ayala, a partner with GTM Architects in Bethesda, Md. In fact, it’s so important that mixed-use developments are often referred to as “transit-oriented develop- ments” (TOD) because they are designed with the idea that residents will walk to where they can and use public transporta- tion to wherever they can’t walk. Some cities have embraced this lifestyle
beyond Boomers to seniors who want more than what their retirement com- munities can offer. “We have residents in their 80s and a couple in their 90s,” he said of Avalon, a massive 90-acre project outside of Atlanta. “They were bored, and they wanted to feel alive again.”
LOCATION, LOCATION, LOCATION Even though a mixed-use development
12 | think realty magazine july :: august 2016
for years. It’s common to live in downtown Boston, New York City, Chicago or Miami and take public transportation, said John- son, but it’s a new concept in Phoenix, Las Vegas and parts of California. These areas are playing catch-up, which could spell opportunity for investors. THE RIGHT MIX Most mixed-use developments have several stories of residential above a retail-based ground floor. Getting the right mix of retail, which can range from chef-driven restaurants to barbershops and medical office space, can be tricky. John Kelley, a partner with North American Properties, said that with Avalon, they wanted to bring in retail that was unique—the first of its kind in the area—and experiential. For exam- ple, Whole Foods Market has a wine bar and cooking school, Lululemon conducts on-site yoga classes, and Orvis holds on-site demonstrations of fly-fishing equipment.
Those qualifications are important for two reasons. First, people will drive from other parts of Atlanta to have din- ner at a unique chef-driven restaurant or to shop at a retailer’s only store in the state. Second, the experiences provided by the development’s retail tenants help enhance the social life of its residents. Kelley said streetscape was para- mount when they were trying to find the right mix of retail for Avalon. They wanted the sidewalks to be busy 18 hours a day, seven days a week, filled with residents, office and retail work- ers, shoppers and diners. His associ- ate, Munger, added that what sells the residential units isn’t necessarily the floor plan or high-end finishes; it’s the lifestyle and streetscape.
amenities, amenities,” said Rosana Tor- res, an architect with GTM Architects. It isn’t enough to have a fitness center for residents, she added. Now, to be com- petitive, you might offer yoga classes or massages. You might have a business cen- ter so Millennials can work from home. And that’s just the tip of the iceberg. Millennials and Boomers both want open areas where they can entertain, in- cluding interior spaces that are more like social lounges and outdoor spaces where they can barbecue. Some upscale devel- opments will have music rooms, bicycle storage and repair areas, and wine cellars. Johnson said pets, especially dogs, are big with single Millennials, so it’s not uncommon for units to have outdoor spaces to walk your dog and shampoo- ing areas inside. Some developments even bring in professionals to wash and clip residents’ dogs on-site. The features in the actual units are less important. Most have high-end fin- ishes, sometimes coupled with exposed brick and ductwork, depending on
AMENITIES, AMENITIES, AMENITIES
“Where you used to say it’s about loca- tion, location, location, with mixed-use, I think you could also say it’s amenities,
thinkrealty . com / mag | 13
JOHNSON FAIN www.johnsonfain.com - NORTH AMERICAN PROPERTIES www.naproperties.com - GTM ARCHITECTS www.gtmarchitects.com 240-333-2000
the neighborhood. (The exposed look might work well near a historic district or industrial but not in newer urban area, explained Hernandez-Ayala.)
INVESTING OPPORTUNITIES Most mixed-use developments have apartments with strict anti-subletting policies, so you probably won’t be able to purchase a unit in a mixed-use develop- ment as a rental. At the moment, there aren’t very many opportunities to invest in projects like those that GTM Architects and North American Properties handle. If you want to invest in a mixed-use development, your best bet is to partner with someone who has a successful track record. Don’t try to jump in on your own because mixed-use develop- ments can be extremely complicated. “There are a lot more examples of projects that didn’t work than those that did work,” Kelley said. He added that it’s not enough to have extensive residential or commercial ex- perience or separate experience in both. When you put the two together, you face complex challenges, even if the develop- ment is small. For example, if you have restaurants on the ground floor, you have to provide a route for the ventilation through the residential floors. That’s just the beginning. You have
to provide a space for retail loading and unloading, parking for both retail customers and residents and an area for trash collection. Plus, you’ll have to comply with the National Building code, local codes and often LEED codes. Because they can be so complicated, Hernandez-Ayala said, these projects can be three or four years in the making, which means you need to be able to fore- cast what Millennials and Boomers will want that far in advance. It’s a big risk. Not to mention an expensive one. Unless you have a stack of cash to invest,
you’ll need to get a commercial loan, and that could be tricky, especially if yours is a smaller development, because the work involved may not justify the 1 to 2 points of interest commercial loan brokers typically charge. You may be able to get incentives, though, if the local govern- ment is trying to attract development. •
Teresa Bitler is a regular freelance contributor to Think Realty Magazine. Contact her at firstname.lastname@example.org.
14 | think realty magazine july :: august 2016
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16 | think realty magazine july :: august 2016
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Equistream aims at lower-cost, often-rundown properties, but delivers a high measure of satisfaction to investors, buyers and its founders.
BYSUSANTHOMAS SPRINGER PHOTOS BY CARVER MOSTARDI & SUSAN BATES
18 | think realty magazine july :: august 2016
WE’RE HELPING REVITALIZE COMMUNITIES THATHAVE BEEN GIVENUPONAND
RETURNING HOUSES THATWERE HURTING NEIGHBORHOODS”
KENT DAVIS (PICTURED) AND CHUCK BATES , CO-FOUNDERS OF EQUISTREAM
thinkrealty . com / mag | 19
happened to fit his life mission. “Not only can I make money, but I can continue doing what I spent my whole adult life doing—helping people—by taking buyers who wouldn’t qualify traditionally for a loan and dealing with properties that wouldn’t traditionally pass for a mortgage,” he said. Through his mentor’s guidance and
ing and selling assets that banks want- ed to liquidate, and he became Davis’ mentor. In 2006, Davis began investing in “toxic low-end properties”—homes under $5,000, which came with issues his mentor helped him solve. To Davis’ surprise, these investments turned a profit at a time when other investors were floundering—and they
WHO COULD HAVE PREDICTED that experience trading stock options, starting ministries and hunting elk would combine to form a successful real estate investment company? That’s the interesting path Kent Davis and Chuck Bates have traveled as co-founders of Equistream, formerly Kingdom First Holdings, based in Tampa, Fla. Today, Equistream buys large pools of residential properties from banks and mortgage companies in more than 34 states, at large discounts. The company has $30 million under investment. Its purchased properties are sold to other smaller investors, to flippers or to homeowners through its Buy Here Pay Here program, which offers nonbank financing. The end result is solid profit for investors, revitalized neighborhoods and new homeowners who, otherwise, would most likely have remained renters. FROM MINISTRY TO MILLIONAIRE As a pastor and missionary, Kent Davis spent 35 years in the nonprofit field. He founded a world mission organization that was in 38 countries, built churches and a drug rehabili- tation center and provided for food pantries. Davis even built a 31-acre campus with an “aging in place” vi- sion with everything from a preschool to an assisted living facility. He had certainly improved others’ lives. But one day, when acute stress made him feel like he was having a heart attack, he worried about his financial worth and ability to provide for his family. “Much of my adult life was serv- ing others, and I really didn’t worry much about my future,” Davis said. “I realized I’d opted out of Social Security and had very little retirement savings.” Through a hunting club, Davis met a man with 40 years’ experience in buy-
Success in investing has given Chuck Bates time for other passions.
20 | think realty magazine july :: august 2016
Kent Davis talks business with Samuel Soto, left, and Christian Glye.
I’VE MET PEOPLE WHO’VE SPENT $70,000 IN MENTORING, SOFTWARE PROGRAMS, REAL ESTATE SCHOOL, BUT THEY’VE NEVER BOUGHT REAL ESTATE. WE CAN BUY A PROPERTY AND SELL IT TO OUR CLIENT AND HELP THEM FIND AN END BUYER FOR LESS THAN PEOPLE SPEND ON MENTORING.
friendship, Davis grew the family of companies that exist today. He recom- mends learning through an experi- enced mentor rather than spending thousands on get-rich-quick events. “I’ve met people who’ve spent $70,000 in mentoring, software programs, real estate school, but they’ve never bought real estate,” Davis said. “We can buy a property and sell it to our client and help them find an end buyer for less than some people spend on mentoring.” HUNTING FOR A BETTER BUSINESS Chuck Bates began his career in sales. Through the years, Bates earned stock options and exposed fraud through a whistle-blower lawsuit, which left him with money to invest.
So he retired early and traded stock options for two years from home. But despite his knowledge of the market, he grew frustrated because a lot of ups and downs were beyond his control. So he opened a mobile home park and offered owner financing for peo- ple who would probably not qualify for a bank loan. Then, thanks to an elk hunting trip, he met a man who connected him to Davis. Before deciding to invest more than $200,000 in 30 properties with someone he had only spoken with over the phone, Bates flew to Tampa to meet Davis. Bates can laugh now that he was a little skeptical at his first meeting when he had to walk down an alley to a metal door to find his future partner. But Davis’ honesty and willingness to answer questions soon
overcame the lack of a fancy office.
A PARTNERSHIP MADE IN HEAVEN Bates was a customer first. That first purchase was “one of the worst pools I ever bought and sold a client,” Davis said. But the two simply rolled up their sleeves and worked through the issues together, which resulted in a very good return. The two wanted to work togeth- er on future deals, with Bates bringing his skills in streamlining structural and administrative processes. The partnership works because they share a lot in common. Both are Christians involved in their churches and passionate about hunting, wildlife management and real estate. They liken their business relationship to a marriage.
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Noah B. Garcia, left, Danette Davis and Christian Glye review numbers with Kent Davis.
“You don’t partner up with just any- body,” Davis said. “There needs to be compatibility beyond the financial model, and that’s been a real key to our success.” Bates adds that, while they are both “really good salespeople,” he’s likely to be on the run when people want to talk, whereas Davis is a natural listener. “Kent, being a pastor, is with you. You just feel his undivided attention,” Bates said. “He is so good at focusing on people.” AWIN-WIN BUSINESS MODEL Equistream is the “ultimate wholesal- er,” bidding on lots of distressed prop- erties offered by banks from Hawaii to Puerto Rico. Davis and Bates buy more in warm weather—giving themselves more marketing time during a typical calendar year—bidding on as many as 6,000 homes in a month and winning
10 to 20 percent of those. First, they present the properties to around 200 in-house clients who buy wholesale, offering the properties at steep discounts for a modest markup. The rest of the properties go into the Buy Here Pay Here program, where about 20 to 30 percent are sold to local flippers and another portion go to clients who use the turnkey real estate solution. The rest are sold to families who will make the house their home through Equist- ream’s seller financing program. While Equistream is a servicing company, with deeds for sold properties going into the seller’s name, they con- tinue their support through marketing to buyers and offering owner financing. They service the note and make remind- er calls if anyone is late on a payment. The model includes risk because the homebuyer—whether buying directly
from Equistream or from an investor to whom Equistream sold the proper- ty—is from the lower income bracket, usually with a credit score below 600. But the end result benefits everybody. For example, for just over $5,000, Bates was able to buy a house in Louisville, Miss., with a caved-in floor, a bad roof and 6-foot-tall grass in the front yard. Where some saw a teardown, Bates saw opportunity. He found a buyer who worked in construction but had no money for a down payment. So Bates traded major clean-up for the down payment. “He got three boys and went there one weekend and cut ridiculously tall weeds that should have been cut with a chainsaw,” Bates said. “You should see what he’s done with that house now.” The buyer and his family, who were paying $350 in rent for a broken
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“Everybody needs housing,” Davis said. “We have this wonderful commodity to advance well-being across the country.” The partners travel weekly and often revisit communities where Equistream actively bought properties in 2006 “in the worst markets, in the worst parts of those markets and on the worst streets in those markets” and now are reward- ed with revitalized neighborhoods. For example, in cities like Detroit and Philadelphia, where Equistream purchased large packages of housing, it’s paved the way for locals to contrib- ute to the transformation. Hipsters are moving into neighborhoods, fixing up houses, starting coffee and art stores, turning vacant lots into community gardens and opening ethnic restaurants. “It’s exciting that we actually have a big hand in helping turn those neigh- borhoods around,” said Davis. The partners are happy to turn new investors into seasoned ones, resur- rect sad properties, enhance com- munities, turn renters into unlikely homeowners and make a profit for themselves and their families at the same time. It has all been possible by embracing properties where some investors fear to tread. “Focus on the profit and not the product,” Davis said. “Too many people are looking for the pretty deal —and pretty can make you money—but the new pretty is these little ugly houses that have been discarded by everybody.” Davis adds that with the right family, a so-called ugly house can provide a lifetime of help to a family and still bring double-digit returns to an investor. “I would encourage readers to think out of the box of what’s traditionally done in real estate and stop following real estate trends and start offering people the opportunity to do well financially by buying low and selling high and offering seller terms to peo- ple who otherwise would never be able to do anything but rent,” Davis said. • MAKING A PROFITWHILE MAKING A DIFFERENCE
house his landlord wouldn’t fix, have made big improvements while paying less per month on owner financing. The house—which Bates sold him for $11,000—is
PERSONNEL FILE NAMES: Chuck Bates and Kent Davis
now worth more than $70,000 thanks to the owner’s hard work. “He would never have had that oppor- tunity if Kent hadn’t started doing what he does,” Bates said.
FIRST REAL ESTATE DEAL: Chuck: Mobile home purchased for $11,000 cash and sold for
$18,000 with $2,000 down, 10 percent in- terest and 72 months. ROI of 37.4 percent. Kent: I purchased my first property with my older brother when I was 20. Our intent was to capitalize on the boom that Southern California was experi- encing. We were able to
TURNING AROUND COMMUNITIES Although Equistream began buying pools of property for in- vestment, Davis and Bates realized over the years that they could help season small investors and increase homeownership. Their five-year goal is to place 10,000 renters in homes as homeowners. The partners are enjoying both the double-digit returns and the ability to offer “the wonderful gift of home- ownership at an affordable price.” “We’re helping revitalize com- munities that have been given up on and returning houses that were hurting neighborhoods,” Davis said. “We’re converting them. The lights are back on. Taxes are being paid.” Equistream is able to run a profitable business and serve others because its founders focus on non- traditional properties that otherwise wouldn’t perform, wouldn’t appraise or qualify for HUD. And the buyers, who most likely wouldn’t qualify for traditional financing, can pay less a month for homeownership than they were paying in rent. “Our heart is to be able to help nonprofit organizations,” Davis said. So the team volunteers in the Tampa community and in other areas where they do business. They rehab homes, set up soup kitchens, get single moms in hous- es and even give away homes.
resell the property in short order, making us a handsome profit. Thanks to the timing and property location, we were able to capital- ize on the opportunity with
GUIDING PRINCIPLES: Chuck: The tortoise won the race. Be pa- tient and trust your system. It worked for the tortoise. It will work for you—if you have a good system. Kent: From an early age, I have lived by the commitment to treat others as I wished to be treated without reciprocity. When business opportunities provide the possibility of helping others while making money, I’m most gratified. WHAT MOST PEOPLE DON’T KNOW ABOUT YOU: Chuck: I can catch 40 quarters off my elbow into one hand. Kent: I love to design and make cakes as a hobby.
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Recognizing support of the real estate investing industry through adherence to high standards, collaboration and long-range vision.
Continuing to Serve
Real estate business is helping Marine veteran fulfill a personal mission to help other returning soldiers.
BY CAROLE J. ELLIS PHOTOS BY MARK MATSON
W hen Andy Williams returned from four years in the U.S. Marine Corps, he faced a tough transition. “I was in an anti-terrorism team,” he recalls. When he returned to civilian life, he managed and expanded the real estate portfolio he had begun to build from overseas while he was in service. It helped keep him from “going crazy,” he said. Ultimately, that portfolio led to a lot more than that. Williams’ continued desire to serve his country and assist his fellow veterans upon their return to
his personal mission to reach, train and employ as many veterans as possible in his business. In fact, whether a vet is best suited to contract work, rehabbing, landlording or working in plumb- ing or electricity, Williams and his company strive not only to provide a venue in which that veteran can work and thrive, but also to provide the training for veterans and their own businesses to expand and grow in the real estate community. “I learned very fast that there is a reason (real estate and construction trades) are called ‘skilled trades,’” he laughs, adding, “Just because a Marine can shoot a rifle doesn’t mean he can lay electricity. Just because he can run a patrol doesn’t Williams to the realization that, in his words, “Real estate is probably the great- est industry where the largest impact for the veteran community can be made because there are so many touchpoints on the transaction.” With this in mind, Williams continued to work with existing veteran-owned businesses and to employ fellow veterans. He also started eyeing his own network of veterans for individuals who were struggling. “I had a veteran that was working on one of my companies that we had to let go, but it wasn’t mean he is the best plumber.” However, that knowledge led
the States has led to the creation of a real estate investing business that is simulta- neously selfless yet highly profitable. In recognition, Think Realty maga- zine salutes him as Humanitarian of the Year for 2016. He is one of 19 winners of the Think Realty Awards of Distinction that will be presented Aug. 11 at the Think Realty Global Conference in San Francisco. Williams describes his motivation for his
company, Recon Realty, this way: “I’ve always felt that it was important that if I were to invest, I’d invest into an asset that solves a problem or meets a need for an underserved community.” Recon Realty is a self-described “elite veter- an-founded, veteran-led real estate brokerage firm,” but the reality behind the business is much more far-reaching than that. Williams has made it
24 | think realty magazine july :: august 2016
thinkrealty . com / mag | 25
because he was a veteran or didn’t fit,” Williams says. “He couldn’t focus; he couldn’t stay ‘on station’ long enough.” Instead of simply letting the man go, Williams decided to teach him to be a landlord, a sector of the indus- try in which things are constantly changing, and the veteran was highly successful in that position. After that, “I said, ‘Let me see if I can help veterans become landlords,’” Wil- liams says, adding that whenever possible, his company also works to bring business and industry into neighborhoods that can benefit in meaningful ways from the added value that a solid, well-managed rehab- and rental presence can bring. “I find a little city. I sit down with the mayor. I follow highway movements,”
Williams says, noting that when the veteran took on a 10-house package, Williams coached him through it from planning improvements to the proper- ties to implementing the changes and managing the properties. “He made a few mistakes, but he got through it, (and) I ended up increasing my rent (and) getting a little more cash flow,” he recalls. That project led to another, larger project, and pretty soon Williams’ mis- sion was taking on a distinct shape. “I’m teaching veterans to become landlords,” he says, pointing out that every facet of his business is guided by a Marine Corp tenet: “Serve, and when you leave, continue to serve.” Williams is helping restore one of
the most underserved communities in America through Recon Realty and his other endeavors. “There is a huge problem in America: There are too many veterans who are un- deremployed and unemployed,” he says. “All I’m doing, with a very, very passion- ate approach, is impacting my commu- nity one veteran at a time. If I teach one, they teach one who will teach one.” By any standard, that mission is already a success. •
Carole J. Ellis is the host of Real Estate Investing Today, a daily nine-minute investing podcast, and the editor of the Bryan Ellis Investing Letter.
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Humanitarian of the Year ANDY WILLIAMS, Recon Realty
An individual of highest integrity, standards and
principle who not only excels in the real estate investing industry but selflessly contributes to the betterment of the world at large.
successful acquisition of 40+ proper- ties in target market, with more than $1 million of private capital deployed Leadership has 15+ years of real estate investing and finance experience More than 500 real estate transac- tions completed (flips, rentals, private investments) $250 million-plus private loans origi- nated and underwritten Active with investors nationwide Positive impact within veteran small business community by utilizing skilled trades in the market www.teamreconrealty.com 214-306-4598
R econ Realty is a veteran- focused private real estate investment firm specializing in analyzing markets, identifying opportunities and acquiring properties in growth markets. Wil- liams calls Team Recon Realty a social venture that focuses on empowering the
elite military veteran passionate about real estate to transition into a career within the industry. OF NOTE: Founded in 2014, followed by first veteran team selection, training and
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NoteSchool ALTERNATIVE-ASSET INVESTOR OF THE YEAR Eddie Speed, Founder and President 800-969-1200 | www.colonialfundinggroup.com COMPANY DESCRIPTION:
Specialist in investing in notes, liens, vacation rentals, resort communities, mobile homes, storage facilities or some other nontraditional residential rental asset.
Colonial Funding Group buys and sells performing and non-performing assets to individual investors. The compa- ny focuses on bringing pools of performing and non-per- forming assets to market and also offers single assets for sale through its proprietary trading platform. OF NOTE: In the past year, Eddie Speed and the NoteSchool team have spoken at more than 50 real estate investor clubs or expos. Speed has been featured in many business and real estate media, including MarketWatch, REI Voice, DS News, Think Realty Magazine and RealtyTrac’s Monthly Housing News Report. Speed is growing and protecting the note industry through his efforts to help forge legislation to reduce regulatory burdens facing the industry. The Seller Finance Enhancement Act - HR 5301 was recently introduced by a bipartisan team to the House Financial Services Committee.
The Dominion Group INVESTMENT PORTFOLIO MANAGER OF THE YEAR Fred Lewis, Owner and Founder 410-727-0908 | www.dominionprivatelending.com COMPANY DESCRIPTION: Dominion Financial Services is one of the nation’s largest private lenders for real estate investors. Dominion started lending in 2002. OF NOTE:
Demonstrates exceptional value to clients through effective strategic planning, efficient use of capital, measurement of performance, accessibility, communication and transparency.
Dominion Financial Services is a $45 million per year lender, nationally recognized as one of the fastest, most competitive and most reliable lenders for investors. It is expected to grow to $100 million over the next 12 months. Dominion Properties purchases 100-150 houses per year, rehabs 60-75 and owns a portfolio of 550 single-family houses in Baltimore. Dominion Management manages over 750 houses with an astounding 95 percent occupancy rate. The newly launched Dominion School of Real Estate works with select students (in Maryland only) and gives them direct experience by partnering on deals with each student.
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