Rental Housing Journal Arizona November 2015

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2. 9 Tips for Getting Started in Real Estate Investing

3. Keeping Cool if the Heating System Fails

Rental Housing Journal Arizona November 2015 - Vol. 7 Issue 11

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Long-term Hold InvestingFor Owner/Managers

Th e rental property investing strat-egy for a hold time of 15+ years is sig-nifi cantly diff erent, than a short term real estate investment strategy. Th is is even more critical for owners who plan to do their own property management. Owning and managing a property for 15-20 years is similar to raising a child, from birth through high school. Price is always important when buying any property. If you are planning to own a property for decades, do not consider purchasing a potential “problem child”, because it is cheap. Bad purchases are of-

ten made when investors feel they must purchase quickly. Adapt the motto that “I can always spend my money” and keep shopping to you fi nd the “right” deal. Investors need to seriously consider the location, quality of construction, tar-get tenants and fi nancing for a long term hold rental property:

Location: Properties should be located within 30

minutes of where you reside. Anything longer than an hour round trip drive will become cumbersome over time. It is

always a wise idea to geographically di-versify your rental portfolio. Th erefore, owning properties in diff erent neighbor-hoods. Within 30 minutes of your home, is preferable to owning all your proper-ties, in one neighborhood.

Target property purchases in desir-able residential neighborhoods with a low percentage of rental properties. Ini-tially, the annual cash and cash return will probably be less, than what could be bought in less desirable locations. Rent-al properties in more desirable locations usually are priced at a lower capitaliza-tion rate, than rental properties in less desirable areas. Over time, the quality of tenant, ease of leasing, and appreciation potential will compensate for the ini-tial lower return. Buying in a neighbor-hood, that you feel may decline, is a big mistake. You can change many things about a property, but you cannot change its location.

continued on page 6

continued on page 4continued on page 5

Are You Leaving Money on the Table?

By Cliff Hockley CCIMPresident, Bluestone & Hockley Real Estate Services

Most real estate investors tend to operate their properties with a simple rule in mind: If

money appears in their checking account by the end of the month, their property is healthy. As long as they see the same amount every month they’re happy.

However this rule inevitably leaves money on the table. Sophisticated inves-tors know that they need to plan for their properties to be successfully operated. Th ey need to buy the right property and operate it with a vision in mind. Th at vi-sion should include an annual focus on rent increases and tenant relations.

Rent IncreasesResidential: Multifamily or single

family investors have the opportunity

to increase rental income at least once a year through the annual budgeting process. Th is process starts with an an-nual inspection, followed by a local area renewal rate review (rental comparison survey). Keeping your property well maintained is the key to managing long term rental increases. Tenants will not be as hesitant to pay more if you treat them with respect and keep the property

looking well maintained. A clean prop-erty with great looking landscaping, a current paint job without any mold or a refi nished roof will net you more rent. Yes, it will cost more to maintain, but in my opinion the payback will be in the form of higher rent, longer tenancies and lower turnover costs. Don’t forget,

One of my favorite movie mo-ments is when Ernest Borgnine, portraying the legendary foot-

ball coach Vince Lombardi, stood in front of the world champion Green Bay Packers at the beginning of training camp and held aloft an oblong object proclaiming, “Gentlemen, this is a foot-ball.” What Vince Lombardi taught the Green Bay Packers then applies to real estate investing today.

Master The BasicsPractice them over and over again.

Consistently do the fundamental things that make you a successful real estate investor.

Repeat Your Successes And Keep Repeating Them

Th e vast majority of “investors” to-day suff er from what I call “squirrel or shiny-object syndrome.” Th ey have a lit-tle success in one area, but then they are suddenly distracted by something else and go to another area, and then anoth-er, and then another. Th e bottom line is they lose their focus and intensity, and they don’t continue to practice the same thing over and over again. Let me re-mind you, slow and steady wins the race!

Establish Your ParametersIn addition to becoming good at the

basics, I urge real estate investors to es-tablish their investment parameters.

• What kind of investments or deals do you want to do? Are you going to do loans? Are you going to use options? Are you going to buy rent-als or tax liens? Are you going to invest in commercial properties? Pick two or three (no more than that) of these things and get very good at doing them. Do them over and over again.

• Determine what you are look-ing for in each of your potential investments.

Five Real Estate

Investing Fundamentals

7. Will Your Retirement Hit Rock Bottom if the Markets Plummet?

10. Property Managers Seek Cues on Economy and Local Real Estate Valuations

11. Americans Think Homeownership is a Sound Investment

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Rental Housing Journal Arizona

Rental Housing Journal Arizona · November 2015

9 Tips for Getting Started in Real Estate InvestingBy: JC Underwood, Crown Properties

Treat Th is As A BusinessOne of the biggest mistakes I

see new investors make is to treat real estate investing as a hobby instead of a profession. If you’re counting on real estate investing to provide income now and retirement income later you must treat it like a business. Real estate in-vesting is now your profession. Treat it like one.

By that I mean you have to advertise, devote time to it, show up for appoint-ments on time, act professionally, do your paperwork properly and treat your clients professionally.

Most real estate investing isn’t passive. Unless you are a private lender most in-vesting takes real work. Even a landlord using a property manager has work at the outset and should continue to re-main active in oversight.

Th is is not a get-rich-quick scheme. It takes time to build client lists, cred-ibility, partnerships and associations. A well-grounded business is built over time unlike “overnight sensations.” It will take you 3 to 5 years to become a real success in this fi eld.

Learn About The Business and Stay Informed

“If you think education is expensive, try ignorance.” Derek Bok

You can lose more money with a mis-take than you can learning how to avoid

one. Even if you have been at this busi-ness for years, you need to keep up with current trends and laws. You never get to the point where you know it all or even know “enough”. Some investors honestly believe that there is nothing else that they really need to know to be successful, then a law changes, the mar-ket turns, or a new strategy begins to be used. Th ey either miss changes coming in their community that will majorly eff ect their profi ts, put themselves in a position of huge liability, or miss out on time and money saving tips because they just didn’t take time to stay informed.

In the real estate business, like every-where else, knowledge is power and for investors it’s profi t too.

There Are Many Profi table Strate-gies In Real Estate

Most new investors get into real estate investing aft er hearing about one specif-ic strategy. Th ey have a friend or family member that has participated in real es-tate, they saw a TV show or infomercial or they went to their fi rst REIA meeting and heard a charismatic speaker that made them want to pursue a specifi c in-vesting strategy. Th ey begin to invest us-ing that strategy because they are drawn to the certainty and proven success of the individual that is in front of them. Aft er the new investor has any success with one strategy they oft en develop the idea that other strategies are less profi t-

able, more diffi cult to execute, and gen-erally inferior to the one they are using. Suddenly they develop a certainty that their particular strategy is the supreme strategy so there is no earthly reason to even consider anything else.

Following a one particular strategy as a beginning investor can be extremely valuable for the overwhelmed new in-vestor since it allows him to really, really learn how a particular technique works. Th e downside of being so narrowly fo-cused is that it limits the new investor’s opportunities. If you believe that your investing strategy is the only strategy worth pursing, to the exclusion of all others, you will have a narrow viewpoint of what a “good” deal is, and pass up a lot of opportunities to profi t with anoth-er strategy.

Don’t get so stuck in a mindset that you can’t even see good deals if they are out of your comfort zone. Th at being said. You can’t try to participate in a doz-en strategies at once…see number 4.

Have A PlanAll businesses need a game plan. You

can’t just wander aimlessly hoping to fi nd a deal. You also can’t rent an of-fi ce, decorate it and then sit behind your desk waiting for the phone to ring. It just doesn’t happen that way. You need to de-cide upon a strategy, learn what you need to do, set your goals and make it happen! Have a plan. Pass out 50 business card

a week (or whatever goal you decide is appropriate for the amount of business you want to generate). Talk to 50 people by phone. Make 10 off ers a week, spend $100 a month on advertising – whatever your goal is, make it happen every sin-gle week – day in and day out – work the market. Eventually you will start to see results.

Surround Yourself With Like-Mind-ed People

Real estate investing can be “creative” and a bit non-traditional, which means that this profession won’t appear on the Forbes top 100 professions. Because those participating in real estate oft en do so by working for a corporation or as a realtor, investing as an independent isn’t a main stream career choice. Th us, most people you speak with will tell you it won’t work. Some of your friends might even ask if you bought a course from a late-night television “guru.” Th ey may even laugh and call you “gullible.” Attorneys and other professionals may denounce it because it sounds unusual. Keep in mind that these people are either threatened by their own lack of success or are looking to protect their own butts.

Th e fi rst thing you should do is join a local real estate association connected to National REIA. Th ese associations will help you keep your thoughts in the

continued on page 6

3



Keeping Cool if the Heating System FailsAs winter fast approaches, a land-

lord must keep in mind that even though we live in the desert, it

is important to be prepared for the cool desert nights and know the rights and obligations of both tenant and landlord.

Landlord ObligationsA.R.S. § 33-1324 states that the land-

lord shall:

1. Comply with the requirements of applicable building codes materi-ally affecting health and safety as prescribed in section 9-1303.

2. Make all repairs and do whatever is necessary to put and keep the premises in a fit and habitable condition.

3. Keep all common areas of the premises in a clean and safe condition.

4. Maintain in good and safe work-ing order and condition all elec-trical, plumbing, sanitary, heating, ventilating, air-conditioning and other facilities and appliances, in-cluding elevators, supplied or re-quired to be supplied by him.

5. Provide and maintain appropri-ate receptacles and conveniences for the removal of ashes, gar-bage, rubbish and other waste incidental to the occupancy of the dwelling unit and arrange for their removal.

6. Supply running water and rea-sonable amounts of hot water at all times, reasonable heat and reasonable air-conditioning or cooling where such units are in-stalled and offered, when required by seasonal weather conditions, except where the building that includes the dwelling unit is not required by law to be equipped for that purpose or the dwelling unit is so constructed that heat, air-conditioning, cooling or hot water is generated by an installa-tion within the exclusive control of the tenant and supplied by a di-rect public utility connection.

If the heating system goes down, the landlord should take all reasonable steps

to fix the problem in as timely a manner as possible. Keep in mind, A.R.S. § 33-1324 does not say the landlord shall pre-vent the heating system from breaking down, but only that the landlord must do normal maintenance and fix problems as they arise. A.R.S. § 33-1364(c) allows the landlord to disconnect utilities without penalty to make needed repairs.

Invariably when the heating system fails, residents’ tempers rise. One thing a resident should never do is withhold or refuse to pay rent.

A.R.S. § 33-1368 specifically says a resident may not withhold rent unless he or she complies first with the limit-ed provisions of the Arizona Residential Landlord and Tenant Act. There also is no provision in the law for a resident to put the rent money in an escrow account while resolving the heating dispute.

Residents’ RemediesThe resident has three remedies avail-

able under landlord-tenant law. One is to give a noncompliance notice under A.R.S. § 33-1361, then terminate the lease and move if the problem is not fixed in time allowed (five or ten days). However, if the landlord is doing everything pos-sible to fix the problem, but the repairs cannot be made in the appropriate time, the resident may not be able to termi-nate the lease. A.R.S. § 33-1361 allows the landlord to “adequately” remedy the problem, which is ultimately a question for a court to decide.

Second, under A.R.S. § 33-1363, the resident can notify the landlord of the problem, and if he or she does not at-tempt to fix it, the resident can us self-help. Self-help requires hiring a licensed and bonded contractor, having the re-pairs done and then presenting the bill to the landlord for payment. If the land-lord fails to reimburse the resident, he or she can deduct $300 or one half of the monthly rent from the next rent pay-ment. Again, the landlord must receive notice in writing and have a reasonable opportunity to fix the problem and re-ceive a lien waiver from the contractor.

The third and final option is under A.R.S. § 33-1364. The resident must first prove the landlord deliberately or negligently is failing to fix the problem. Again, if the landlord is taking steps, such as waiting for a part to arrive from out of state, or the repairman is unable to schedule the work until a few days later, there is no negligent or deliberate con-duct by the landlord.

If the resident can prove deliberate or negligent failure to repair, he or she can:

Obtain substitute heating (buy a space heater) and deduct the actual but reason-able cost from the rent.

Sue for diminished rental value of the apartment. Heating is only one-forth of the essential services listed in A.R.S. § 33-1364, so the resident would only re-cover one-fourth of the daily rent for the number of days without heating.

Obtain substitute housing (hotel/mo-tel) and deduct the daily rent and twen-ty-five percent of the daily rent.

Andrew M. HullHull, Holliday & Holliday, PLCwww.doctorevictor.com602.230.0088

[email protected]

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tenants want to be appreciated just like you do. If you have a property manager you work with, have them help you draft an annual budget and forecast the annu-al increases. Think into the future; plan your rent increases and capital expenses two to three years ahead so you can bet-ter control your long term destiny.

Commercial: Owners of office, retail or industrial buildings need to think through the same process. They need to develop a plan that lasts through the initial lease term and includes details regarding the tenant’s options to renew, (since commercial tenants tends to stay for 3-10 years, even more planning is in-volved in controlling the costs and the rental increases). Annually, property owners need to review the comparative position of their property. They need to be realistic regarding the value of their real estate. Just as with residential in-vestments, they must consider the con-dition and location of their investment. Commercial landlords need to have a long term plan in place that keeps rent increasing on an annual basis

If you make a concession regarding a starting rent to get a tenant in, plan to step it up to market value within three years. Aim for a minimum of 21/2 % to 3% in annual increases based off the pre-negotiated step increase or per-centages that increase on the basis of a business’ success (typically used by re-tail businesses). I am not a huge fan of CPI (consumer price index) increases because the government has too much control of those numbers. Don’t permit expense caps unless you can stay ahead of the expenses, regardless of the caps.

Landlords and their property manag-ers should not automatically cave into very low or zero rent increases at lease renewal time, even if the tenant threat-ens to move out. Run realistic scenarios regarding the cost of re-tenanting. In-clude vacancy rates, leasing commis-sions and tenant improvements in these calculated scenarios. Consider also, the moving costs an existing tenant will face. Understand their business and business goals, their staffing and their success at your location.

Most importantly while they are rent-ing from you, fix repairs that are required by your lease, and fix them quickly. Show your tenants you appreciate them by treating them how you would want to be treated, otherwise they will blame you and possibly hold back rental payments, do the repairs themselves or, worse yet, move out.

We once had a client who took two months to repair the air conditioning units on a newly leased space. It was win-tertime and it was raining; the tenant was livid and hired an attorney to pre-serve their rights under their lease. The landlord wanted absolutely the lowest price for the repairs and getting the low-est price took over 30 days of negotiating with vendors. The tenant almost moved out because it took so long, and alterna-tive cooling systems needed to be pro-vided. The experience drove them to be-come a hostile tenant. These bad feelings could have been prevented and we could have agreed on rent increases and lease renewals with this tenant if the landlord would have allowed the property manag-

Leaving Money on the Table ...continued from page 1

er to be more proactive. Note: Typically property managers have vendors they work with that are reasonably priced who respond quickly, but they may not be the absolute – lowest, period.

ConclusionInevitably, attention to detail, future

planning, a current understanding of the marketplace, and a fair and realistic approach to taking care of your proper-ties will yield higher returns for real es-tate investors. A key component to prof-itability is a focus on current and future rental incomes. Sticking to the basics with an annual planning process and taking care of your tenants will increase your annual yield and keep reliable ten-ants in your properties.

5



Five Real Estate Investing Fundamentals ...continued from page 1

• How much capital per investment are you willing to put at risk?

• How much time will you put into this investment?

• What is the length of time you want your capital to be out working?

• What is the projected rate of return you are seeking?

• What is the minimum rate of return you want from your cash and/or time in each of your investments? When I say “rate of return,” I’m not just talking about an interest rate.

• Do you want your investments to result in your receiving monthly in-come payments, either interest only or something else, so each invest-ment is generating a monthly cash flow to you?

These are just some of the parameters you need to establish for yourself. There is no one book, manual or class where you can learn all this information. No, it requires your spending some time work-ing on what you think is best for you. That means you may have to do one of those activities in which investors should engage on a regular basis but often don’t – think and plan. As you think and plan, you will be able to clearly define your in-vestment parameters in a way that you can clearly communicate with others who may want to do business with you.

Do Your Essential Due DiligenceAnother key component of real estate

investing involves your due diligence

process. There are two very crucial ques-tions to be asked at the beginning:

• Who is involved?

• How are they involved?

Allow me to explain why these ques-tions are so important. It doesn’t mat-ter how papered-up or how careful your lawyer is when drafting the agreements. If the person on the other side is a per-son of weak or poor character whom you know has a tendency not to honor their word, it will not be a good deal.

You want to be in a situation where someone you know who has very high character and is a capable investor is involved in the transaction. You still need to know HOW they are involved. Are they going to be involved in a way that will make sure the deal goes well, or are they just on the periphery and their name is just being “borrowed” for mar-keting or window-dressing purposes?

Once those key questions have been answered and you understand who is involved and how, and you have done some basic due diligence on them, then you are able to determine if you want to proceed with further due diligence on the deal or investment.

Even though you may have a long, suc-cessful track record of doing multiple deals with individuals, it never hurts to check up on them again to see if things have been going well in other aspects of their lives. Allow me to share a brief sto-ry to illustrate this point.

A client of mine indicated that he had made a series of large-dollar, hard-mon-ey loans to a rehabber who always got

the properties finished in great condi-tion, and they sold for top dollar. After doing several of these deals, he began to feel very comfortable with this borrower.

Unbeknownst to him, this borrow-er was having marital problems. Once those problems grew to the point where domestic relations court and lawyers be-came involved, this individual’s rehab-bing business fell apart, and one of my client’s loans was put in a great deal of jeopardy. Fortunately, things worked out and full payment was made, but it was late and destroyed my client’s belief that this rehabber could be counted on to perform and pay on time.

Make sure you develop the type of relationship with the individual with whom you are doing business that allows you to look them in the eye and ask them how they are doing and what else is go-ing on in their life so you can pick up on what issues may be on the horizon that could affect the way you are doing busi-ness with them.

Organize Your Deal PaperworkThere is one last fundamental prin-

ciple that investors need to understand that I want to share with you. You need to organize your paperwork. You need to have all your baseline transactional documents saved in Word format so you can easily do your own word processing and create nearly-completed drafts of your documents to be reviewed by the appropriate outside professionals and other parties to the transaction (yes, get a professional review each time).

By always working from a baseline document, you have a template in place

so you aren’t reinventing the wheel ev-ery time. You are also able to maintain a greater degree of privacy and security over what you’ve done with other deals. I often see individuals who grab the last document they used (last lease, last trust agreement, last operating agreement, etc.), and they begin making edits to that one for the next deal, not realizing that there may be holdovers, both digitally and facially, in that document. Has that ever happened to me? Embarrassingly, yes. I have taken steps, however, to pre-vent it from happening again in the fu-ture. That’s why I’m sharing this concept with you.

Whatever the type of document, whether promissory note, mortgage, deed of trust, option agreement, due dil-igence checklist, or borrower question-naire and loan application, have them saved in a baseline format that you can quickly modify it for the particular deal on which you are working. This will al-low you to be much more organized as you prepare these documents on your own to be sent to your lawyer or other licensed professional for review and then used in the transaction.

Remember, it’s all about getting good at the basics. Make sure you master the basics of real estate investing, establish your parameters, do thorough due dil-igence regarding those with whom you are working, and work from the same, consistent set of documents so you can continue to repeat your successes.

6



Quality of Construction:Properties that are built in quality

materials and workmanship tolerate the abuse of tenants, time and the elements much better, than marginally construct-ed properties. Tile, metal or shingle roofs last longer and require less main-tenance than flat roofs. Copper plumb-ing is preferred to galvanized plumbing. Tenants damage themselves, rather than interior walls, when they punch a plas-ter wall. Solid wood cabinets will last decades longer than press-board or ve-neer cabinets. Even if you intend to re-model a property, choose one that has good “bones”.

Target Tenant:When you preview properties, form a

realistic mental picture of who would be a potential tenant(s) for that property. Is it located near a college or a senior cen-ter? Is there a major employer or a hos-pital nearby? Does the rental have a pri-vate outdoor patio? Covered or enclosed parking for a newer car?

With the number and size of bed-rooms, how many people could realisti-cally live in the space long term? What does the property lack, that the potential tenant might desire?

Now that you have formulated a men-tal picture of your tenant(s), think how it would be interacting with that tenant(s), or a succession or variation of that ten-ant(s), for the next 18 years. If the mental picture you are formulating is not pleas-ant, keep shopping for the right property.

Financing:Investor loans are fixed rate amor-

tized loans, up to 30 years, for 1-4 family properties. When you purchase 5 unit or larger properties, it is considered a com-mercial loan. Institutional lenders fix the interest rate for 3-10 years, and then it is variable or renegotiable, on commercial loans. Sometimes you can find a fixed 15 year fully amortized commercial loan. If you are going to hold a property long term with a commercial loan, de-velop a game plan for dealing with in-terest rate adjustments or renegotiation, before purchasing.

Formulating a long term rental prop-erty real estate investment strategy in-volves more than analyzing the numbers on paper. Location will be a huge factor in future appreciation and convenience of management. Quality of construction will determine long term maintenance and capital expenditures. If you self manage your properties, the tenants you choose and your relationship with those tenants, will contribute or detract from your quality of life, for decades. Securing stable long term financing, while inter-est rates are historically low, will insure strong cash flows until the properties are paid off. Incorporate the importance of location, quality of construction, target tenants and financing strategy into your long term invest portfolio strategy.

Jade Bossert is a licensed Real Estate Bro-ker in Tucson, Arizona that specializes in multifamily property sales. She has been successfully selling real estate in Arizona for over 35 years. She can be contacted at 520-797-6900 or [email protected].

Long-term Hold Investing ...continued from page 1 9 Tips for Getting Started ...continued from page 2

right place and prove to you that invest-ing with a plan really does work. You will be connected to investors that have had great successes, those that can share what they learned from their not so suc-cessful deals, and to those who are just starting in the business just like you.

Be PersistentAnyone who’s ever been in sales will

tell you that being persistent is the key to success. Just because a person says “No” to an offer the first time doesn’t mean that’s the final answer. Waiting a couple of weeks and checking back to see if the situation has changed can make all the difference, or changing the terms of the offer slightly to accommodate the seller can jump start negotiations.

Have a good follow-up system for tracking contacts, leads and conversa-tions you’ve had with both buyers and sellers. You’ll get to the point where you’re so busy you can’t possibly remem-ber all the conversations you’ve had with everyone – it’s important to be able to pull up that information so you know where you are in the negotiation process. Anyone who has ever been in sales will tell you that few deals are ever made on the first try. Use a system that allows you to schedule follow ups and keep a run-ning history of calls and conversations. One of the National REIA benefits is a huge discount on Realeflow, but you could also use ACT by Sage, an Outlook or Gmail plug-in or one of hundreds of apps for your phone or iPad. It doesn’t matter what software you use as long as you actually use it.

Have a Team On Your SideDon’t wait until you have a big deal

pending and need to ask questions be-fore assembling a team you can turn to. You need to go out and cultivate rela-tionships with reliable professionals you can depend on. Here’s who you need on your team:

• Attorney – preferably someone who’s familiar with the needs of a real estate professional. Make sure they understand the specific real es-tate strategy that you are using and that they’ve had some experience in that specific strategy. You don’t need to know all of the real estate laws that will affect your business but you need an advisor who does.

• Insurance Agent – you need one that also understands your strategy and investors in general. Make sure the insurance products they sell are right for investors. We have needs that are far different than your aver-age home owner.

• CPA or Accountant – find one that’s a real estate investor – they’ll know the ins and outs of the busi-ness and when to be aggressive. You can lose $1,000s in deductions and tax breaks without a profession-al that knows the most up to date tax law as it applies specifically for investors.

• Contractor – you need a reliable professional that shows up on time, completes the job within budget

continued on page 8

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A Portfolio Done Right Should Shield Retirees From Tumultuous Ups And Downs, Financial Planner Says

Will Your Retirement Hit Bottomif the Markets Plummet?

Wall Street hasn’t been for the faint of heart lately.

Jittery investors saw the volatile market play havoc with invest-ment portfolios. But while the ups and downs may have created anguish for some, fi nancial planner Bryan S. Slovon says he fi elded few if any calls from ner-vous clients.

And that’s the way it should be when your clients are retirees or people near-ing retirement, he says.

“Retirees really shouldn’t be seeing major changes in the values of their portfolios every time the market takes a huge dip,” says Slovon, founder and CEO of Stuart Financial Group (www.Stuart-fg.com). “A well-constructed portfolio for a retiree should shield them from much of the volatility that happens with the stock market.”

If their portfolio changed as much as the market did, he says, they need to re-visit their allocation plan before some-thing really signifi cant happens.

He says portfolios that have an appro-priate level of risk – with a percentage of the money in such areas as real estate or fi xed annuities – allow retirees to avoid signifi cant losses when the stock market takes a drastic turn for the worse.

“It defi nitely relieves stress for people when they know they have an invest-ment strategy that matches their stage of life,” he says.

Any retirees who felt queasy over the recent swings in the market prob-ably have their money invested in the wrong areas, Slovon says. He suggests options that retirees, or those nearing retirement, should look for as they try to fi gure out how much investment risk is right for them:

• Rule of 100. In trying to ascertain an acceptable level of risk, people should look at the rule of 100, Slo-von says. For those unfamiliar with this rule, here is how it works: Start with 100 and subtract your age (or, in the case of married couples, the average of both your ages). Th e re-sult is the approximate percentage of your investments that you should have in riskier investments, such as stocks.

• “Th e rule of 100 is not the end all, but it’s a good long-term fi nancial planning tool that’s stood the test of time,” Slovon says. For example, if you are 60, 100 minus 60 comes to 40 percent risk. “Th at can vary de-pending on each person’s situation, but it’s a good place to start,” Slo-

von says. “Unfortunately, one of the things that can happen is you work with people who off er nothing but risk. Th ey off er only risk because they are part of Wall Street.”

• Annuities. If you want a steady stream of income during retire-ment, an annuity can be a good choice, Slovon says. Essentially, an annuity is an insurance product that pays income. You buy the an-nuity, and then it pays money to you on a regular basis for life. You can have either a fi xed annuity or a variable annuity.

• Th e fi xed version pays a set amount, so market performance isn’t a fac-tor, Slovon says. With the variable version, though, you choose from a list of investments and the payout depends on how well those invest-ments do.

• Bond alternatives. Bonds can be a handy part of your portfolio, shield-ing you somewhat when the stock market takes a dramatic tumble. Bonds tend to lose their value when interest rates rise, though, so it’s not a bad idea to consider some alter-natives, Slovon says. One possibility is mutual funds because with a mu-

tual fund you are investing in a col-lection of stocks, bonds or other se-curities. Th at gives instant diversity to your portfolio. Another alterna-tive is real estate investment trusts, which are companies that own and usually operate income-producing real estate. Th ese could be offi ce buildings, apartment buildings, shopping centers or other types of property.

“Whether you are a few years away from retirement, or already retired,” Slo-von says, “you want to make sure your money is properly situated for steady cash fl ow, for health care costs or for that proverbial rainy day. It should look very diff erent from when you were still saving for retirement.”

About Bryan SlovonBryan Slovon is the founder and CEO of Stuart Financial Group (www.Stuartfg.com), a bou-tique � nancial planning � rm exclusively serv-ing retirees and soon-to-be retirees in the Dis-trict of Columbia metro area. He is a � nancial planner specializing in retirement planning and wealth preservation to a select group of clients. He currently holds his Series 65 license and is a Registered Financial Consultant as well as a Comprehensive Wealth Manager of-fering investment advisory services through Global Financial Private Capital, an SEC regis-tered investment advisor.

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9 Tips for Getting Started ...continued from page 6

and knows how to make sugges-tions that will save you money. Free estimates don’t hurt either.

• Mortgage broker, private mon-ey lender, hard money lender or other money professional – find one that’s experienced with inves-tors, knowledgeable and creative. You can never have too many people who are willing to fund your deals.

• Mentor – someone who’s been there and done that.

• Title or Escrow Company – find one that caters to investors. Make sure they understand double clos-ings, land contracts, etc.

Your local REIA group has local and national providers to use to build your team. These professionals work dai-

ly with investors and understand their special needs and requirements. It is a beautiful day when you realize that you can find people to add to your team that can do all of the things in your busi-ness that you hate.

Don’t Waste Time With Unmotivated Sellers

This is possibly the most common mistake new investors make. Some be-ginning investors waste time talking to sellers who are only marginally motivat-ed. Even worse, they drive by the house and look for comps without even talking to the seller first. There’s a difference be-tween being persistent with a seller or buyer who hasn’t yet made up their mind about what they want to do and dealing with a seller who really has no intention of selling anytime in the near future. Don’t waste your time if the seller falls

into the latter group.

Never Forget That Real Estate Is Re-ally About People

In the end real estate isn’t about the land, the house, or even the money. On a practical note and an altruistic note, it really is all about the people.

Many people go through their first years of real estate investing making all their offers based on the properties. This is a huge mistake. These investors worry about making really low offers because they are concerned that it will make them a “bad” person to “take advantage” of a seller, especially one in a tough situa-tion. What they don’t understand is that many people will happily forgo profits if other benefits are more important to them. Some people need speed, some need ease of exit, some need someone else to blame. I’ve heard more than one

investor tell a story about a seller who happily sold below market because their son, sister, nephew – pick a relation – wouldn’t pay rent or move and they hon-estly just wanted to sell the house and let you deal with the situation!

There is a scale of client motivations, the Hustead Scale, that concisely de-scribes the level of motivation a seller has. The most motivated sellers will pay to get out of a house. Something in their life makes being out of that property so important that they will pay you to take the property.

Many investors make offer after of-fer, receiving rejection after rejection, never bothering to ask the seller what they want, assuming they already know. Making offers on the properties because you think you understand the value is far less effective and far less profitable than making an offer that provides the seller an option they didn’t know exist-ed, a solution to their problem.

The moral of the story here is that if you listen, and I mean REALLY listen, and try to solve the seller’s problem you will always make more money than if you try to just apply your cookie cutter approach. Zig Ziglar used to say “You will get all you want in life, if you help enough other people get what they want.” He’s right. This business, at its core, is about people. We provide housing, we provide solutions, and sometimes most importantly, we provide options they didn’t know were available.

There you have it. Follow these nine simple steps and before you know it, you’ll be an outstanding real estate investor.

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10



Property Managers Seek Clues on Economy and Local Real Estate Valuations

By Marc Courtenay

Knowledge is power, especially in the fi eld of property manage-ment. Behind the scenes insights

about the direction of interest rates, the national economy and housing values can make a lucrative diff erence.

Recent news that home prices relative to personal income are soaring again is a good example. When the price of buying a condo or house goes ballistic compared to renting, smart managers take note. Also the direction of mortgage interest rates which are determined by the yield on the 10-Year U.S. Treasury bond is a vital economic tipping point. So is the direction of short-term interest rates. Don’t just parrot the popular main-stream media. Do like the independent reporters do and gather your own anec-dotal clues and real world data.

As an example, the Federal Reserve and the Department of Labor keep tabs on the unemployment rate. Offi cially they claim it’s hovering at about a 5.5% level. Is that the way it really is in the “real world”?

Back in 1994, the discouraged long-term unemployed — meaning those who haven’t had a job for more than two years and are no longer collecting unemployment benefi ts — were defi ned out of existence. In other words, since 1994 when the government tabulates the number of American adults who aren’t working, they pretend that the long-term

unemployed who have stopped looking don’t count.

According to my research, when these disenfranchised unemployed are fac-tored into the equation, the real unem-ployment number is more like 22%. Sav-vy property managers know why that’s important! When screening rental appli-cations you’ll want to know the sources of income and employment history of potential residents. Most local, state and federal laws permit landlords to ask.

So if more than one out of every four people who should be employed isn’t, do we really have a healthy, vibrant econ-omy? Th is is a big reason why the Fed-eral Reserve is reluctant to raise interest rates. It also explains why 47 million

people depend on government assistance programs like food stamps … a rate that is increasing at an alarming rate. Are you aware of how this impacts your work region?

As a property manager your economic IQ will become more critically vital as clients rely on you to gauge the condi-tion of your local economy. Now may be an opportune time to create an aware-ness campaign. If you’ve been a prop-erty for 15 years or more you remember the challenges your clients faced in the economic recessions of 2001-2003 and 2008-2011. Your owners and residents also remember. Contingency plans for the eventuality of another possible fi -nancial crisis during the next 24 months

are both timely and instructive. Ask your clients for their thoughts, feedback and questions.

If real estate values are reaching a crescendo and your property values are “toppy,” now may be the right time to discuss 1031 exchanges or other tax-friendly strategies. Th e current eco-nomic cycle is approaching its 8th year. Zero interest rate policy (ZIRP) and Quantitative Easing (QE) programs still haven’t had enough positive results to fi x all the problems.

You’re one of the key people your cli-ents and residents will be looking at to help them deal with the economic chal-lenges that lie ahead. Remember the les-sons of history. Looking back over the past 30 years we’d be wise to remember what the fi nal year of a 2-term presiden-cy and the fi rst year of a new presidency feels like fi nancially.

From 1981 all the way to 2008-2009 we fi nd important clues on the potential for major economic hurdles we’re likely to face sometime during 2016-2017. We can hope for the best, plan for the worst. In the meantime I’ll be interviewing top trend spotters, real estate analysts, and long-time veterans of the proper-ty management business. Expect more articles to help hone your economic IQ and expertise.

Published courtesy ofwww.propertymanager.com

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11



Americans Th ink Homeownershipis a Sound Investment

A vast majority of Americans be-lieve that buying a home is a sol-id fi nancial decision, and most

believe they could sell their home for at least its initial purchase price, according to a new survey from the National Asso-ciation of Realtors®. Th e 2015 National Housing Pulse Survey also found that a preponderance of Americans think that now is a good time to buy a home.

Th e survey, which measures consum-ers’ attitudes and concerns about hous-ing issues in the nation’s 50 largest met-ropolitan statistical areas, found that more than eight in 10 Americans believe that purchasing a home is a good fi nan-cial decision, and 68 percent believe that now is a good time to buy a home. Sev-enty-one percent believe they could sell their house for what they paid for it, a jump of 16 percentage points from 2013.

When asked for reasons about why homeownership matters to them, re-spondents’ answers did not change sig-nifi cantly from past years. Building equity, wanting a stable and safe envi-ronment, and having the freedom to choose their neighborhood remain the top three reasons to own a home.

“Homeownership is part of the American Dream, and this survey proves that dream is alive and thriv-ing in our communities,”

said NAR President Chris Polychron, executive broker with 1st Choice Realty in Hot Springs, Ark. “Realtors® believe that anyone who is able and willing to assume the responsibilities of owning a home should have the opportunity to pursue that dream in a safe, responsible way, which is why NAR advocates home-ownership issues and educating poten-tial buyers about achieving their proper-ty investment goals.”

Th e number of renters who are now thinking about purchasing a home has increased since the last survey in 2013, up from 36 percent to 39 percent. Six-ty-one percent of renters stated that

Circulated to over 10,000 apartment owners, on-site and maintenance personnel monthly.


owning a home is a priority for their future. According to the survey, 80 per-cent of respondents believe that pre-pur-chase counseling programs and classes are very or somewhat important. For-ty-fi ve percent of homeowners who said they did not take a counseling program, reported they would have taken part in one had it been easily available to them.

Attitudes about the housing market have improved in recent years. For-ty-nine percent of respondents indicated that they feel activity in the housing mar-ket has increased in the past year, com-pared to 44 percent in 2013 and 12 per-cent in 2011. Eight-nine percent expect home sales in their area to either increase or remain the same. Concern about fore-closures has also declined, with only 15 percent of respondents indicating that foreclosure is a major concern.

In addition to improved attitudes about the housing market, survey partic-ipants also showed an improved outlook regarding the economy. Only 36 percent think that job layoff s and unemployment are a big problem, a substantial drop from 45 percent in 2013.

Perceived obstacles to homeowner-ship have remained mostly unchanged compared to recent years; 78 percent of respondents point to college debt and student loans as the main obstacle to

making a home purchase aff ordable. Seventy-six percent of participants said they have a full-time job but still did not make enough money to purchase a home. Seventy-four percent believe they do not have enough money for a down payment and closing costs.

As the market has improved, concern about the cost of housing has increased. Two-thirds of survey participants said that home prices are more expensive than they were a year ago. Th ere is ad-ditional concern over the lack of avail-able housing; 41 percent said the lack of aff ordable homes is either a very big or fairly big problem in their area, an in-crease of 9 percent points from 2013.

For adult millennials under the age of 35, the burden of student debt is their

chief concern, with 86 percent of respon-dents naming college debt as an obstacle to homeownership. Over half reported that their housing costs are a fi nancial strain on their budget, 65 percent are concerned about high rental prices, and 60 percent are concerned about high home prices. However, millennials tend to have a more upbeat and positive view about the future of the nation than older Americans, with 42 percent of millenni-als saying that the country is headed in the right direction compared to only 20 percent among those aged 50 and older.

Th e 2015 National Housing Pulse Sur-vey is conducted by American Strategies and Myers Research & Strategic Ser-vices for NAR’s Housing Opportunity Program. Th e telephone survey polled 1,000 adults nationwide in the 50 most populous metropolitan statistical areas. An additional 250 interviews were con-ducted with millennial adults (born af-ter 1981) from the same geography. Th e study has a margin of error of plus or minus 3.1 percentage points.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.1 million members involved in all aspects of the residential and commercial real estate industries.

Call 503-221-1260 for more informationw w w . r e n t a l h o u s i n g j o u r n a l . c o m

12



Rental Housing Journal Arizona November 2015

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Transcript of Rental Housing Journal Arizona November 2015