MOST INVESTORS ARE MISSING 2 FLIPPING FLAGS
4 VALUE INDICATORS HIDDEN IN PLAIN SIGHT
CARRINGTON HOLDINGS’ RICK SHARGA IS THE VOICE OF CHANGE IN REAL ESTATE PAGE 18 Keeping Housing Simple
PANAMA CITY A-FRAME: A CUSTOM-BUILT BEACH HOUSE GETS A GORGEOUS FACELIFT EVERYTHING YOU EVER WANTED TO KNOW ABOUT COMMERCIAL REAL ESTATE SPECIAL FOCUS
3 BLUEPRINT SECRETS THAT WILL SAVE YOUR FLIP DESIGN POINT THE CREATIVE PROCESS BEHIND AN AWARD-WINNING COMPANY CAMPUS COMMERCIAL CONVERSION
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TABLE OF CONTENTS
INSIDE THIS ISSUE
THINK REALTY 8 News & Events
HOUSING NEWS REPORT 38 Tech and Big Data Disrupt the Real Estate Investing Status Quo My Take article from Housing News Report by ATTOM Data Solutions. by Ross Hamilton 40 The Best Counties for Buying Single Family Rentals Data in action article by ATTOM Data Solutions. 43 Home Affordability in Top Departure and Arrival Markets [ Infographic ] by ATTOM Data Solutions 44 2 Flipping Indicators Most Investors Miss ATTOM Data’s Daren Blomquist breaks down the “fine print” in housing analysis. INDUSTRYVOICES 48 Mice, Cabbage, and Other Tenant Photos I Can Never Unsee When your maintenance-request photos are more than you bargained for. by Jenna Heneghan 50 3Ways to Use Contingency Clauses to Safely Make a Good Offer Removing contingencies can make your offer attractive, but safety is vital. by Kristin Weekley NUTS & BOLTS 88 5 Success Factors for Residential Assisted Living Investments Effective management is just the beginning. Part two of a two-part series. by Gene Guarino
NOMINATIONS CLOSING Learn more on pg. 8
10 Don’t Let Travel Deter Your Long-Distance Investments Visiting long-distance investment properties should never hurt your bottom line. by Sarah Soenke
DESIGN POINT 12 Renovation Rockstar: Panama City A-Frame A custom-built beach house gets a gorgeous facelift. Featured investors: Troy and Angela Schuberg, Bliss and Brick COMMERCIAL INVESTING 24 Commercial Real Estate Value Factors You See Every Day There is a gold mine of data available just by driving by. by Pamela J. Goodwin 28 When Two Worlds Collide [ Case Study ] Making the move from single- family to self-storage investments. by Christina Alvino In highly fragmented residential markets, commercial movements provide insight. by Eddie Wilson 32 A Unique Master-Planned Subdivision Investment [Case Study] Transforming foreclosed commercial properties into stunning, desirable developments. by Kathy Fettke 34 Investor Spotlight: Stephen Rosenberg, Founder & CEO, Greystone Capital Logic and philanthropy make a potent combination. by Carole VanSickle Ellis 30 3 Crucial Questions to Ask Before Investing in Hyper-Localized Housing Markets
Carrington Holdings’ RICK SHARGA is the voice of change in real estate.
KEEPING COMPLEX HOUSING ISSUES SIMPLE
by Carole VanSickle Ellis :: photos by Jon Endow
NUTS & BOLTS
ASERIESOFUNFORTUNATE EVENTS INNOTE INVESTING A true-life look at a “note gone bad” and the lessons learned.
BEHINDTHESCENES: COMMERCIALCONVERSION Two Memphis investors support restoration of a local corridor.
REGIONALSPOTLIGHT: SOUTHERNCALIFORNIA SoCal market chemistry creates unique markets, opportunity.
INFORMATION MANAGEMENT NETWORK SUPPLEMENT 67 IMN's 19th Annual U.S. Real Estate Opportunity & Private Fund Investing Forum in Newport, Rhode Island
Keep it simple and maintain your focus to succeed with leads.
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FROM THE EDI TOR- IN-CHI EF
PUBLISHER R. Michael Wrenn
PRESIDENT, AFFINITY WORLDWIDE Eddie Wilson | EWilson@AffinityWorldwide.com
Summer Forecast: Change in the Air
EDITOR-IN-CHIEF Carole VanSickle Ellis CEllis@ThinkRealty.com
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 CONTENT DIRECTOR Abby Tillman ATillman@ThinkRealty.com DESIGN CONSULTANTS Rivet | www.WeAreRivet.com
ith summer in full swing, these days we’re all amateur mete-
in our housing markets are indicative of “the end” simply because we, as real estate investors, have enjoyed a solid decade of unprecedented opportunity. Many active investors in today’s real estate market have never experienced a downturn from an invest- ment standpoint even if they experienced the pain of the last housing crash firsthand. As this month’s cover feature, Rick Sharga, who served as a primary narrator for the housing crash in the mid-2000s, reminds us, “A normal mar- ket adjusts downward sometimes. Prices get to a certain point; people stop buying the homes, and then prices start to adjust downward and people eventually start buying again. It’s just scary because it has been so long since we have seen what a nor- mal market looks like.” To help you navigate today’s housing market, our June issue is full of insight from expert inves- tors making the most of volatile market condi- tions, changing legislative and lending policies, and decades of experience in the opportunity that shifting market trends bring. Whether you have been in real estate 60 years or six days, Think Realty comes alongside you this summer with the market analysis, strategic insight, and time-tested tactics you need to look forward to your future in real estate investing instead of fearing it. Real estate investing can and should be positive and life-changing. This month, let us partner with you to envision that future clearly and with confidence. •
orologists. Whether we’re charting the likelihood of a summer storm wrecking the weekly neighborhood swim team faceoff, estimating how much it will cost to move the annual family camping trip to the indoor water-
park if the campsite floods, or just doing a little advance planning in the event the rides at our favorite animated-mouse-themed attraction are shut down by lightning, we all look a little closer at the sky when summer rolls around. And when that sky turns just a little bit threatening, even for a moment, we switch into “disaster mode,” pulling up the tent stakes, dragging kids out of the surf, and checking into our refund options on those pricey park tickets. This summer, real estate investors are doing a fair amount of amateur forecasting of their own. The air is tense in the housing market. Most ana- lysts agree “the center cannot hold,” as Irish poet William Butler Yeats might say were he a flipper in today’s hot markets. Change is coming. As real estate investors, it is our job to accurately forecast that change whenever possible and pre- pare for the storm (and the opportunity) to come. However, unlike the upheaval in Yeats’ apoca- lyptic poetry, real estate upheaval is not the end of the world – especially not for a real estate investor. It may be tempting to believe that future changes
DESIGNER Emily Bowers
SUPPLY AND DEMAND - MORE!
CONTRIBUTING WRITERS Christina Alvino, Jennifer Jo Cobb, Jason DeLong, Lawrence Fassler, Kathy Fettke, Samuel K. Freshman, Pamela J. Goodwin, William Griesmer, Gene Guarino, Ross Hamilton, Jenna Heneghan, Julie Ziglar Norman, Douglas Skipworth,
Sweet Deals for Think Realty Members Economics 101 taught us the law of supply and demand. In REI, savvy investors (you) demand cost-cutting deals on products—Think Realty supplies them. We’re introducing three new suppliers to our ever- growing list of retailers and service providers, each offering discounts to Think Realty members. ApplyConnect No-cost tenant screening for landlords and 25% off other services Junk King $40 off quoted price for Eco-friendly & reliable junk removal for businesses & properties
Sarah Soenke, Kristin Weekley, Eddie Wilson, and Ingo Winzer.
COVER PHOTOGRAPHY Jon Endow
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:
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CAROLE J. VANSICKLE ELLIS, EDITOR-IN-CHIEF
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NEWS & EVENTS
The 2018 Think Realty Honors nominations are open, and the submissions are pouring in. Don’t miss the opportunity to recognize the best in the industry, no matter how big or small the real estate business. Our honors recipients are nominated by their peers (that's you!) and evaluated by an independent panel of former winners and industry leaders. Finalists and winners receive recognition in Think Realty Magazine , on the Think Realty website, and at the Think Realty Honors banquet in Atlanta, Georgia. Don't wait: Nominations close on June 30.
Think Realty Honors Catchup WHAT FORMER FINALISTS & WINNERS ARE DOING TODAY.
KEVIN ORTNER Renters Warehouse 2017 Service Provider of the Year 2018 Think Realty Honors judges panelist
REALWEALTHNETWORK Rich & Kathy Fettke
2016 Investment Support Organizer of the Year 2017 Think Realty Honors judges panelist (Kathy)
IRVINE July 14-15, 2018 | The Marriott Irvine Spectrum | Think Resources
Kevin Ortner is the president and CEO of Renters Warehouse and author of the book Rent Estate™ Revolution . Last year, in addition to being recognized by Think Realty as its 2017 Service Provider of the Year, Renters Warehouse was included on the Inc. 500 | 5000 list of fastest-growing privately held companies in America for the eighth consecutive year. “I was thrilled to have been honored with Think Realty’s
Kathy and Rich Fettke are co-founders of Real Wealth Net- work, a California-based real estate investment club offering af-
fordable education, a network of “tried- and-true” professionals, and personal mentorship and coaching. Last year, Kathy served on the Think Realty Hon- ors second-round judges’ panel, which consists of former honors recipients and participates in the peer-reviewed process of awarding recognitions. Since receiving Think Realty’s Investor Support Organization recognition in 2016, Real Wealth Network has raised more than $100 million in capital for
Hundreds of Think Realty conference attendees dedicated a full weekend to “Thinking Wealth” at the Baltimore conference & expo in April. In July, hundreds more will Think Resources in a prime location for the brainstorming process: Irvine, California. “Having access to the best, most comprehensive resources in the business is a huge competitive advantage for real estate in- vestors. Trying to find trusted, relevant tools can be time-con- suming and expensive,” observed Think Realty senior program manager Colleen Bay. “We’re bringing together the best industry tools and the best industry professionals, exhibitors, and educators to help our mem- bers and attendees leverage every resource available toward their real estate investing success,” said Eddie Wilson, CEO of Think Realty parent company Affinity Worldwide. Kathy Fettke, founder and CEO of California-based Real Wealth Network, will emcee the event. The Irvine event will
open with Carrie Cook, president of Ignite Funding. Saturday will also feature The Norris Group founder and CEO, Bruce Norris, who will be taking main stage for a working lunch presentation, Linda Liberatore, founder and CEO of Secure Pay One, discuss- ing how to integrate technology into your investing in order to improve your bottom line, and Aaron Norris, vice president of The Norris Group, moderating a local market panel. “It is an honor to emcee the Think Realty Irvine event and hear some of the most sophisticated investors in the industry share their strategies,” said Fettke, emphasizing the networking oppor- tunities available at the conference. “If I could start over again, I would not have attended the School of Hard Knocks! I would have surrounded myself with people who had successfully done what I hoped to achieve.”
Service Provider of the Year award,” said Ortner, adding, “What an absolute honor, and the event itself was fantastic!” He credited his Renters Warehouse team “for con- tinuing to be recognized for raising the bar in single-fam- ily rental (SFR) property management and our con- tinued innovations to serve both investors and tenants at
syndications and helped members acquire more than $400 million in property. The company has also spent two years on the Inc. 5000 list of America’s fastest-growing privately held companies. “Our podcasts have over 1 million downloads, and we also started an SFR rental fund last year that is out-performing pro- jections,” Kathy said. “We are building homes in Reno, Park City, Tampa, San Antonio, Mountain View, and Costa Rica as well.” Real Wealth Network recently started a mastermind for what the Fettkes term “the best turnkey providers in real estate” to “raise the bar in this somewhat unregulated segment of the industry" and opened two new divisions in wholesaling and commercial real estate.
a higher level.” Earlier this year, Renters Warehouse reached two substantial milestones: The company now manages more than 22,000 properties for more than 14,000 investors. “We believe if you have the right partners in place to educate, assist, and guide you [in real estate investing], then you make acquisitions the right way and you build a real estate portfolio that creates financial security,” Ortner said.
ATLANTA September 22-23, 2018 | The Westin Buckhead Atlanta | Think Purpose
Andy Williams is the founder and CEO of Recon Realty, a veteran-focused private real estate investment firm specializing in analyzing markets, identifying op- portunities, and acquiring properties in growth markets. Since receiving the Humanitarian of the Year award in 2016, Williams and his wife, Ashley, have gone on to host HGTV’s Flip or Flop Fort Worth series. 2017 Service Provider finalist Blake Johnson, founder and president of Finishing Touches Remodeling, is also featured in the series. • ANDYWILLIAMS Recon Realty 2016 Humanitarian of the Year
Real estate investors drive change and build their businesses with a greater purpose in mind. Think Realty will recognize in- dustry leaders in all sectors who truly Think Purpose in Atlanta, Georgia, on September 22-23, 2018. Join Think Realty as we celebrate Think Realty Honors finalists and winners, hear from in-
dustry leaders, and learn from premier educators in the industry. The two-day event will feature aThink Realty Expo with more than 40 exhibitors, keynote sessions from experts in the industry, a local market insights panel, educational training fromThink Realty coaches, and workshop intensives fromThink Realty sponsors. •
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THINKREALTY MEMBER BENEFITS
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Don’t Let Travel Deter Your Long-Distance Investments
Attorney & Best-Selling Real Estate Author William Bronchick presents...
VISITING LONG-DISTANCE INVESTMENT PROPERTIES SHOULD NEVER HURT YOUR BOTTOM LINE.
by Sarah Soenke
here are real estate opportunities in nearly every corner of the world today. Luckily, you’re no longer confined to your local area as you might have been 15 or 20 years ago. Online resources and real-time technologies now connect buyers, sellers, landlords, and tenants from hundreds or even thousands of miles away. According to the National Association of Realtors (NAR)’s 2017 Commercial Member Profile, around 38 percent of U.S. real estate firms now handle out-of-state properties. Real estate investors are taking advantage of long-distance investing options as well. It is one of the best ways to diversify your portfolio and go after more afford- able markets with more favorable real estate laws and tax rates. Still, travel is an unavoidable requirement for long- distance investing. You’ll have to spend time on the ground in new markets to check out several properties before making a final decision. You’ll also need to check back on any rehab projects to fix any- thing that comes up once you own the property. With or without the help of a local property manager, acquiring a far-away prop-
erty requires at least a handful of out-of-town trips. Fortunately, travel no longer has to be such a financial strain. The same technological advancements that connect buyers and sellers today can also connect you to deeply discounted deals on hotels, airfare, and car rentals. For example, hotel booking plat- forms like Hotel Engine now specialize in connecting businesses, organizations, and their affiliates to wholesale hotel rates around the world. For example, with Hotel Engine, members save an average of 26 percent off public rates at more than 150,000 hotels across more than 185 countries. Long-distance investing requires the occasional trip to visit the asset up close and in person. Investors who fail to personally follow up on properties or who never visit a service provider’s of- fice are more likely to suffer from operational inefficiencies and, as a result, lower returns. You wouldn’t think twice about buying your rehab, maintenance, and repair supplies at a discount to improve your investment. You can do the same for your travel. • With no contracts, annual fees, or minimums, Hotel Engine saves businesses and traveling professionals an average 26 percent off public hotel rates worldwide. Plus, the private hotel booking plat- form offers a full suite of management tools to track tax-deductible lodging expenses for property research, management, and profes- sional development trips. Start leveraging its desktop platform and app to minimize your financial strains. Learn more about how to access these benefits at www.thinkrealty.com/supplier-discounts . •
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The Schubergs purchased the property in early 2017, and the renovation took about a year to complete. “We wanted to center this property around entertaining and beach life, so we really played up the huge great room, which had previously been paneled in dark wood and sustained some pretty serious wear-and-tear, and used bright, clean colors everywhere,” Angela said. The couple also added a fourth bedroom and installed bright tile accents in both bathrooms, a custom rail system with barn doors in the previously cramped loft space, and a laminate floor to replace the dated and worn turquoise carpet running throughout the house. Note the slight angle visible on the roof
FRONT ENTRANCE AFTER
WET BAR AREA AFTER
Renovation Rockstar: PanamaCity A-Frame A CUSTOM-BUILT BEACH HOUSE GETS A GORGEOUS FACELIFT.
in the “after” photo. “The original structure had a flat roof, a design negative and fear-factor for homeowners due to in- herent water leaks,” said Angela. “We worked with engineers to design a low-pitch hip roof, the best design for high-wind zones, that would extend on the side to tie into a two-story dormer” (visible in the after photo on opposite page). The move netted enough additional square footage that the inves- tors added a second bedroom and a wet bar area (upper left) adjacent to the converted screen porch by dividing up the space from the original back room.
Final Details: 4 bed/2 bath, 1,920 square feet
* The original purchase included an adjoining lot with a garage on it. Upon request, the Panama City Beach tax collector’s office separated the two parcels, and the investors sold the second lot for $79,500. ** The investors received five offers in the first month on the market (time of publication) and declined three contingency offers. *** The investors noted that one of the bathrooms was nonfunctional at time of purchase “due to the slope of the wall and the size of the bathroom.”
Numbers & Details
DORMERWINDOW: A window that projects beyond the plane of a pitched roof. They create more usable space and bring in natural light. EGRESSWINDOWS: Windows that may be used to exit a building in case of emergency. These windows must meet certain size, shape, and accessibility code requirements.
Featured investors: Troy and Angela Schuberg, Bliss and Brick
Purchase Price: $125,300* List Price: $294,700 Parcel 2 sale price: $79,500 ARV: $299,000 Timeframe: ~13 months** Original Details: 3 bed/2 bath***
hen Troy and Angela Schuberg, real estate investors based in South Walton, Florida, first encountered the 1974 custom-built A-frame home, they knew it was something special. “I love A-frame houses, and this one was designed and built by a local, which made it especially attractive to us,” said Angela. “However, it had suffered a lot of neglect, so we knew that the rehab project was going to be a major effort. The results, however, were stunning, and we were able to add so much value to the property in the process.”
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BEDROOM 2 AFTER
The Schubergs consulted with a local engineer and several mechanical contractors with Angela’s goal of a “clean, contemporary finish” in mind. Here, two of the four final bedrooms show how the investors ultimately opted to bring in more natural light via new dormer windows (bedroom 2) and larger egress windows (bedroom 1).
BEDROOM 2 BEFORE
BEDROOM 1 BEFORE
BEDROOM 1 AFTER
GREAT ROOM AFTER
WE’VE RENOVATED OUR NAME. SGF Contracting is now Radius Renovation Group. But no worries, our commitment to providing top-quality, renovation project management is still as strong as ever.
LOFT AREA AFTER
GREAT ROOM & LOFT OVERLOOK BEFORE
SGF Contracting has built a reputation as one of the nation’s premier full-circle investor renovation services. We deliver peace of mind to REIs across the country with our all-encompassing project management processes. We understand (and address) the pain points of renovating properties for flip or cash flow. You can rely on our years of experience and industry insight to renovate your properties at a fast pace, with high-quality, and within a budget to optimize your bottom line.
“Transforming this home from something that appeared to belong in the mountains to a contemporary coastal cottage was not easy,” said Angela. The investors worked hard to “embrace the angles of the A-frame structure” while bringing in more light and a contemporary feel.”
JOIN OUR CIRCLE TODAY! Visit RadiusRenovationGroup.com, or give us a call at 417.730.9777.
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BEHIND THE SCENES
The Summer Avenue corridor hosts an eclectic mix of big- box stores, mom-and-pop eateries, and national chains, such as an assortment of fast food restaurants and a Planet Fitness. “When we bought our buildings, they were big, outdated show- rooms with no real character,” said Skipworth. “We knew we were headed for a total retrofit, including plumbing, electrical, HVAC, interior and exterior. We knew when we were done, we would have something that would really stand out visually from the surrounding area.” On the exterior of the building (lower left), the investors added LED lights, landscaping, and the first permanent surveil- lance system in the area, a SkyCop camera. “We also removed Summer Avenue parking spaces to limit potential accidents,” Skipworth said. They painted both buildings, matched the sig- nage, and created new parking lots. “Our interior is light, airy, industrial, and accented with CrestCore colors,” he added. “The exterior was adjusted to create a clear campus feel.”
Above: A hallway with reclaimed brick columns.
THE BREAK ROOM AFTER RENOVATION
Behind the Scenes: Commercial Conversion
HOW TWO MEMPHIS INVESTORS SUPPORTED RESTORATION OF A LOCAL COMMERCIAL CORRIDOR.
Featured investors: Douglas Skipworth and Dan Butler, CrestCore Realty LLC Photos: Anne Turner
This sign shows the building as it was when CrestCore Realty purchased it.
Purchased: July 2015 Opening Date: January 2017 Investment: Just under $2 million
ouglas Skipworth and Dan Butler had been watching Memphis, Tennessee’s Summer Avenue commercial corridor with interest for some time before they decided to move their real estate investment company’s campus to that location in 2015. “We put two buildings under contract in Spring 2015 and purchased both properties in July of that year to create a campus for our companies, CrestCore Real- ty LLC and CityLight Commer- cial Services LLC,” recalled Skipworth. “We knew
EXTERIOR AFTER RENOVATION
Payoff: + Corporate campus bringing 65 full-time jobs from ZIP code 38117 to 38122 + Host location for small businesses, church plants, and job trainings + Local area beautification
The investors and their team of architects, engineers, and contractors designed an open office floor plan with plenty of meeting space (see above). Since CrestCore manages large portfolios of properties for investors throughout the United States in addition to hosting several international clients, it was important the building be vibrant, welcoming, and easily incor- porated into the community. “We host outside groups in our meeting spaces each month, including other small businesses, industry-wide training sessions, and even a church plant! We are also active members of the Summer Avenue Merchants’ As- sociation and believe our campus both beautifies the area and promotes economic development,” observed Skipworth. •
Difficulties encountered: - Upgrading all major systems - Obtaining parking lot variances
from the beginning that we wanted to renovate an existing building and bring our 65 full- time office workers to the area, which would add our support to the restoration efforts going on in an underinvested area of Memphis.”
The company opted to install LED fixtures inside the property and use motion detectors and timers to manage lighting. “We installed low-flow toilets and energy-efficient appliances, repur- posed our concrete floors and exposed rafters instead of bring- ing in new materials, and reclaimed brick walls and columns,” Skipworth said. “Remember, managing assets for others is our day job, so we have a special place in our hearts for stewarding the resources entrusted to us.”
CrestCore Realty received a 2018 Memphis Business Journal “Building Memphis” recognition for this renovation in the category of Renovation/Conversion- Medium Category.
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Keeping Housing Simple
Carrington Holdings’ Rick Sharga is the Voice of Change in Real Estate
ITWASALIGHTNING-IN- A-BOTTLEMOMENTAND I BECAMEASUBJECT- MATTEREXPERT INFORECLOSURES EVENBEFORE IWAS ASUBJECT-MATTER EXPERT INBROADER REALESTATE ISSUES.”
BY CAROLE VANSICKLE ELLIS PHOTOS BY JON ENDOW
RICK SHARGA VICE PRESIDENT CARRINGTON MORTGAGE HOLDINGS
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“We thought technology companies would be our safety net because they were not new, like the internet startups, which had so much risk. That prediction was wrong,” Sharga recalled ruefully. “The tech companies cut their marketing budgets to just about zero when everything collapsed. There were literally no marketing jobs across the country.” Sharga struck out on his own as a consultant with “four or five people from the company,” he said. “RealtyTrac became one of my clients in that practice.” RealtyTrac (today’s ATTOM Data Solutions) was, at that time, a regional company selling REO leads to local realtors. Later, when RealtyTrac’s CEO
wanted to take the company national and, as Sharga described it, “democratize foreclosure data for anyone who was interested in buying those types of properties,” the consultant was clearly a good fit for RealtyTrac’s new vice president of marketing position. Sharga intended to remain with the new company just long enough to build
a marketing department and launch the brand before returning to his consulting practice. Instead, he remained with RealtyTrac and became its primary public voice for the next eight-and-a- half years. During that time, he would become the public’s primary narrator for the mid-2000s housing crash as well. THE HOUSING CONVERSATION MUST BE SIMPLE When the foreclosure crisis overwhelmed the housing market in 2007 and 2008, Sharga found himself squarely in the limelight. His relatively abbreviated background in real estate represented a huge advantage for him professionally. A branding expert with access to housing data and the ability to put that data and its context into simple terms was just what the entire country needed during the housing meltdown. “I spoke to reporters in terms that I could understand. As it turned out, that made a complicated process somewhat simple,” Sharga said. In conjunction with his exclusive access to RealtyTrac’s database of foreclosures and the absence of any need for damage control, his profile in the industry and in industry news coverage skyrocketed. “No one else wanted to talk about the foreclosures that were already hap- pening or the wave that was coming,” Sharga said. “Other parties that might have had similar data to ours, such as lenders and some policy-makers, would not really have benefited from that discussion.” He began receiving high
FOR MORE THAN 10 YEARS, Rick Sharga has been the voice of change in the real estate industry. That is not something the now-renowned housing and foreclosure expert will ever tell you he saw coming. When Sharga, now executive vice president at Carrington Mortgage Holdings, joined the real estate space in 2004, the national housing market was still going full throttle. Sharga had spent two decades in marketing before entering the real estate industry: first as a branding expert for technology companies during the dot-com era and then, when that market “imploded,” as he describes it, as an independent consultant.
DATA DEMOCRATIZATION: Making information in a digital format accessible to the average end user. The goal of this process is to enable non- specialists to gather and analyze data without outside help.
Sharga proudly participates in Carrington Charitable Foundation's support of more than 100 charities, including signature program Veterans Airlift Command, which provides free air transport to post 9/11 combat veterans and their families.
volumes of what he terms “4 a.m. calls” in his California office from East Coast analysts and reporters wanting to know when RealtyTrac data would be released for the day. “It was a lightning-in-a-bottle moment, and I became a subject-matter expert in foreclosures even before I was a subject-matter expert in broader real estate issues. Analyzing that foreclosure data and the housing crash really was my accidental entry into the world of real estate,” Sharga explained. He remained at RealtyTrac until 2011, when he took a job with Carrington Holding Company. He helped bring the company’s multiple real estate- and mortgage-related services businesses under one banner and build awareness for the company’s charitable foundation, which supports numerous local and national
nonprofits and focuses on assisting wounded veterans and their families. Sharga departed Carrington in 2013 to work with online auction giant Auction.com and later, its parent company Ten-X. “The idea of being at the leading edge of a technology wave with a company aspiring to become as ubiquitous as eBay in the real estate market was, frankly, very appealing,” he admitted. “It was a very interesting time.” However, when Ten-X opted to exit the retail side of the housing market, Sharga knew the time had come to return to Carrington. Fortunately for the company, he arrived just in time for one of the most controversial lending announcements to be made since the housing recovery began, when Carrington debuted its “nonprime loan” earlier this year.
Carrington was founded in 2003 as Carrington Capital Management and grew to manage more than $1 billion in assets in just three years. Today, Carrington companies work in sync to provide nationwide real estate services encompassing nearly all aspects of single-family residential real estate transactions.
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Although critics accuse the lender of renaming subprime loans “nonprime” because the former term carries such stigma, Sharga is adamant that the loans are named something different but similar because they are designed for would-be homebuyers who need a different take on lending but this time are being served responsibly rather than haphazardly. “To call these subprime would not do these loans justice,” he declared. “These are very good borrowers and very good customers who need their loans to be managed responsibly and respectfully.” These days, Sharga continues to shape the narrative on lending and real estate from his position at Carrington. Still clearly a media favorite, he makes regular appearances on television and in other media to comment on current events and make predictions about the future. One thing he made particular note of for 2018 in his interview with Think Realty Magazine was issues with pricing and affordability in most major metro housing markets, how these factors are affecting builder mentality and, interestingly, commercial real estate growth in these areas. “In a lot of these hot markets you will see something of a mini-boom in construction in any area where there is room to expand or grow in a way that a developer believes will both create in-demand housing and allow a margin for profit,” he said. “Look just outside the hottest areas of the country, and you will see what are, essentially, bedroom communities going up and, in conjunction with that, commercial construction. I find that positive, because it implies there will be a STRAIGHTFORWARD PREDICTIONS FOR THE 2018MARKET
Here are Sharga’s three must-dos:
growing job market in the area around the residential construction. That is different from the last housing boom.” Sharga recommended real estate investors look for opportunity where others may have given up: in some of those “hottest markets.” “Whether you are buying a home to rent or flipping it, there are opportunities in these high-demand, low-inventory markets. For example, there is not a lot of construction activity in San Diego or Los Angeles because it is not an option. People still want to live there, however, and investors who can find those ‘hidden’ deals are doing very good business.” He also recommended investors look to areas with commercial construction activity, particularly building warehouses, for future growth. “As online retailers continue to command a higher and higher share of retail sales, they need somewhere to warehouse and distribute those goods. Places near hot markets become valuable distribution hubs. As employees move into the area, you will see restaurants, hotels, and office buildings pop up as well to support that population,” he said. “Multifamily construction and senior living offer opportunities in nearly every market. “By and large, most people believe this is still a good time to buy a house,” Sharga concluded. “Furthermore, most economic indicators show we should be selling more houses than we are. The only reason we are not is because there are not more to sell, so if you have a good source of product (houses) to sell, then you’re probably going to do pretty well.” •
One, you need to carefully un- derwrite the loans. That was the biggest thing missing during the housing boom. Common sense in underwriting tells you if one part of an application looks risky, you do not make a loan unless you offset that risk somewhere else. A bor- rower with a low FICO score needs a larger amount of cash reserves and probably a higher down payment, for example. Carefully underwriting to us means manually underwrit- ing, so we have a live human being trained and skilled in looking at borrowers making these decisions.” Two, you have to service those loans properly. That means a real relationship with the customer. Nonprime lending requires high- touch servicing enabled by high- tech in the background all while training staff to anticipate issues and help customers work though them. Most servicing operations are only set to efficiently process high volumes of perfect, on-time pay- ments from borrowers. When that doesn’t happen for some reason, people fall through the cracks and the system crashes and burns as we saw during the foreclosure crisis.” Three, you must provide real, ac- tionable education. We developed an app that explains monthly pay- ments, tax payments, insurance payments, homeowners’ associ- ation payments, and everything else so that the borrower has to repeatedly confirm what they told us about their finances is true and verify they understand what they are signing up for.”
Rick Sharga (L) talks market conditions and the lending environment with John Alkire (R), Executive Vice President of Servicing Support at Carrington.
BACK INTHE HEADLINES, STILL
“We are experts in working with what you might call less-than-perfect borrowers. To a great extent, these are people who would have qualified for a mortgage before the foreclosure crisis. They have traditionally been viewed as creditworthy and would, by and large, have paid their mortgages on time. The difference between today’s loans and what was happening during the early 2000s is simple but vast: We are carefully underwriting every loan and we offset risk. We don’t throw our loans or our borrowers into an app somewhere that is crunching out loans for people who cannot afford them.” Sharga cited a recent Urban Institute report indicating about 6.3 million borrowers who historically would have qualified for a loan have been denied since 2009 because lenders are, understandably, refusing to take on any
perceived risk in their mortgages. “We view this as an opportunity to provide a chance for homeownership and for home investments that otherwise would not exist,” he said, noting Carrington’s highly personalized underwriting process also enables real estate investors to purchase additional properties in many instances. Carrington’s activities during the downturn also contribute to its confidence in the nonprime lending process today. The company was one of the country’s largest purchasers of non- performing loans during that period “and we managed to get many of those loans re-performing, keeping thousands of borrowers in their homes,” Sharga said proudly. “We believe if you focus on doing three specific things very well, there is very little extra risk in a nonprime loan.”
KEEPING THINGS SIMPLE Readers will probably not find it surprising that Carrington’s debut of a “nonprime” mortgage loan has been met with mixed responses. The program “looks an awful lot like pre- crisis subprime lending,” snarked one industry publication, while another warned, “[Subprime mortgages] were blamed for the biggest financial disaster in a century.” Sharga, true to form, keeps his responses to these criticisms simple and on-point, carefully and patiently explaining the difference between Carrington Mortgage’s nonprime loans and the subprime loans issued prior to the housing crash. “We are not lending to borrowers who have no ‘skin in the game,’ so to speak,” he began.
Carole VanSickle Ellis is the editor of Think Realty Magazine. She can be reached at email@example.com.
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Left: A "drive-by" analysis of a strip mall's tenants will tell you a lot about how that property is managed and performing.
Below: If the business "out front" in a strip mall location has multiple open drive- through lanes that are clearly operational, that is a good indicator that the traffic through an area is good.
at a retail location for Chili’s, a wildly successful, national franchise. You can be reasonably confident that a Chili’s in Dallas, Texas, and a Chili’s in Frisco, Texas, will both do pretty well for the area. However, the Chili’s in Dallas will likely be worth more to its land- lord than the one in Frisco because the population in Dallas is larger. On the other hand, if the Chili’s in Frisco is located on a corner with a stoplight in the center of a high-traffic area and the Chili’s in Dallas is on a divided highway outside the city limits and requires a U-turn two miles up the road just to access the restaurant from the opposite side of the highway, that Frisco Chili’s just might beat the Dallas restaurant. IT’S ALL ABOUT HOW MANY PEOPLE ARE GOING BY AND IF THEY ARE ABLE TO GET TO YOUR BUILDING AND SPEND MONEY. THINKING BIGGER IS OFTEN BETTER When it comes to the cold, heartless facts of commercial real estate, you must
accept that national chains are usual- ly more valuable than mom-and-pop stores. Don’t hate me for saying that! There is definitely a market and a place for individually owned businesses and buying local, but when it comes to your average strip mall, a location with na- tional tenants like Starbucks or Mattress Firm (probably the ones you are most likely to recognize right off the bat) will usually offer higher values than those with smaller chains or mom-and-pop operations. This is due, in large part, to national chains’ ability to sign long-term leases and assist landlords with mainte- nance, property taxes, and other types of upkeep. They usually also have higher credit ratings, which means if you are not planning on keeping the building for yourself it will be easier to sell it. You also should take note of free- standing buildings in front of the retail space (see example above). Is there a 24-hour Walgreens? How about a fast- food restaurant? Not only can these ten- ants make your property more attrac- tive; they can also tell you a lot about how things are going in your potential investment right now. For example,
Commercial Real Estate Value Factors You See EveryDay THERE IS A GOLD MINE OF DATA AVAILABLE JUST BY DRIVING BY.
LOOKINGAT LOCATION INANEWLIGHT We have all heard it thousands of times: “In real estate, it’s all about location.” When you are looking at a commercial property, that is also true. However, the value of the location as a commercial investment is measured differently than when you think about residential invest- ments. With commercial investments, it’s all about the traffic. This means the size of the population in the area, the amount of foot and automotive traffic that passes by, and the type of traffic guidance and control (traffic lights, street signs, street design, etc.) all play a huge role in the value of a property. Say, for example, that you are looking
by Pamela J. Goodwin
particularly like out front, or maybe you remember you had been meaning to stop by that big-box arts-and-crafts or DIY store. Every single one of those thoughts
hen you drive by a strip mall, you probably notice it in an absent- minded sort of way. Maybe you get a little hungry if there is a popular restaurant you
is a gold mine of information to a com- mercial real estate investor, and each retail outlet can tell you dozens of facts about that commercial property.
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does the store have one or two drive- through windows available? If two, then that is a good indication that there is a very solid flow of traffic through the area. That is a positive indicator about the value of the asset. If one, then that is not necessarily a negative sign, but if that one is boarded up, you might want to do a little more investigating! DOES THE PROPERTYHOUSE ADESTINATION LOCATION? A commercial property with a desti- nation tenant, a store or venue to which people deliberately drive rather than simply swinging through as they pass by, is definitely a solid bet for a commercial
investment. Examples of destination tenants include gyms, grocery stores, arts-and-craft stores, and other specialty stores. Drive-by stores, on the other hand, might include quick-service sandwich shops or clothing retailers who do not offer an exclusive brand. PRACTICE LIKEAPRO As you drive around your local area, start paying attention to how you interact with the commercial real estate around you. Do you usually go to the nail salon on purpose, or is that a drive-by for you? How about the dry cleaner? For you, is a grocery stop pre-planned or spur-of- the-moment? Always, monitor how easy
it was to make a stop at a commercial location and at what point (I guarantee this happens) you gave up trying to go to that store because things got too difficult or time-consuming. You might find that some of your habits are surprising, and all of these behaviors will give you clues about how valuable any given location in town might be. •
Pamela J. Goodwin is the founder and CEO of Goodwin Commercial, a commercial real estate firmspecializing in retail/restaurant development, brokerage and consulting
in Dallas, Texas, and aThink Realty coach. Learnmore about her commercial real estate courses at ThinkRealty. com/Pamela or reach her at firstname.lastname@example.org.
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Curb appeal plays a big role in profitability for self-storage facilities since many customers find the location driving by. New landscaping, fresh paint, and a bright banner (below) added serious curb appeal to this Houston property.
AFTER: Fresh paint, updated security systems, and tenant insurance played a major role in increasing the value of a Houston facility by about $1.3 million in the year after purchase.
MAKING THE MOVE FROM SINGLE-FAMILY TO SELF-STORAGE INVESTMENTS. Case Study: When Two Worlds Collide
Retail offerings like boxes and other storage-related supplies can add substantially to a self-storage facility’s bottom line.
by Christina Alvino
ong before John Manes and Robby Dunn launched Pinnacle Stor- age Properties and eventually partnered with Erik Osterhus, they both owned single-family and multi-unit real estate investments. Like many novice investors, they spent a great deal of time fixing toilets, rehabbing units, cleaning carpets, and investing time, energy and effort into L
working in their business. The work was rewarding, but all three found the hours long and hard. Eventually, Manes, Dunn, and Osterhus all made their way into self-storage. Manes entered the sector as an employee with Uncle Bob’s Self Storage (now Life Storage), a top publicly-traded REIT within the industry. He progressed from a district
manager responsible for a handful of stores to regional vice president responsible for more than 120 properties. Dunn started out in single-family and multi-unit invest- ing, then added self-storage to his portfolio and, by 2015, had sold his first facility on a large enough margin to purchase four more. Two years later, he had exited all but one of his single-family investments
completely. Osterhus, who first became interested in self-storage in 2013 when he was looking for a place to store his boat, leveraged his background in land purchas- ing and pre-production construction for the oil and gas industry to develop several facilities from the ground up. Together, the three founded their self-storage company, Pinnacle Storage Properties, in 2016. “We wanted to handle all aspects of self-storage, from acquisition to develop- ment to management of these valuable assets,” said Manes. Since its inception, the company has purchased nine prop-
erties, expanded three existing facilities, and opened a ground-up development in Round Rock, Texas.
management, increasing rental rates after completely rehabbing the facility and up- dating security and gate systems, reducing expenses by 5.6 percent thanks to econo- mies of scale, adding retail merchandise and tenant insurance, and overhauling marketing programs and curb appeal. •
BY THE NUMBERS
CASE STUDY: HOUSTONTEXAS
PURCHASE PRICE: $1.85 MILLION CAPITAL IMPROVEMENTS: $165,000
SOFT COSTS & FEES: $175,000 GROSS INCOME AT PURCHASE: $225,549
2018 GROSS INCOME TREND: $359,556 2018 PROJECTED VALUE: $3.5 MILLION
The key to a successful self-storage investment is an effective comprehen- sive plan for the facility. For this facility, the team used a five-pronged approach that included implementing top-notch management programs focused on positive customer service and efficient property
Christina Alvino is a digital marketing expert with Fine View Marketing. Learn more about self-storage investments by emailing email@example.com or calling John Manes at 210-818-1496.
28 | think realty magazine :: june 2018
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