Is Austin The Wrong Place to Invest In 2021?

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By Adiel Gorel

I get many calls from people interested in buying in various cities and want my opinion.
One of the popular markets right now is the Austin metro area (people get excited about the overall thriving of the local high-tech scene, Elon Musk publicly decamping to Austin, and others moving there from California). It is tempting to think of Austin as a good destination to buy in 2021. However, in my opinion, it is not! Austin, in fact, is a good city to be a SELLER in 2021. Austin prices have climbed rapidly in the past six years, while rents went up much more slowly. As a result, the rents are too low to cover all expenses. One expense in Austin (and in the state of Texas overall) is the very high property taxes. The property taxes in the Austin metro can get to almost 3% of the home value per year (depending on county and town). That is over 2.5 TIMES the property tax rate in Oklahoma (or California). Together, the high prices, relatively low rents (relative to the prices, that is), and the high property taxes, as well as high insurance costs, create an untenable cash flow.
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Here is a partial headline of a Business Insider article “Elon Musk and other tech powerhouses are flocking to Texas, pushing an already bonkers real-estate market to new heights”. Just logically, do you want to be a buyer in a market that is “already bonkers” and now is being pushed up even more? They have a name for such a market in the real estate world: “A strong Seller’s’ Market”.
Do you want to be the BUYER in that strong Sellers’ market? You will be the one paying “bonkers” price to the savvy sellers, fending off multiple offers higher than list price.
It is very tempting for a California resident to say, “What? I can buy a new home in Austin for “only” $320,000? That is so cheap! Yes, it is. “Cheap” relative to San Francisco prices. However, it is not cheap to buy as a sound rental home, and has bad cash flow. Austin is a place where many of our savvy investors are now SELLING, as the selling market is strong. It is not uncommon to see an investor selling one Austin home and buying 3 brand new homes in a 1031 tax-deferred exchange in Oklahoma City, or Tulsa, or Baton Rouge, or Central Florida. This move creates much more quality real estate owned, more 30-year fixed loans at todays’ super low rates, and brand-new properties with brand new roofs, ACs and all other parts of the homes.
Similar logic applies to the Dallas Ft Worth metro area (DFW), Houston, Phoenix, Las Vegas, Nashville, Denver, Salt Lake City, Boise, and others. I even get some investor talking about Seattle and Portland, which make no sense at all. Some misguided reporters (who in many cases have no actual experience in real estate investing themselves) confuse high prices and growth with an attractive place to invest in. The two are not necessarily linked. An example of another very popular destination for Silicon Valley people leaving to other states, is Miami. Miami is popular, large (much larger than Austin, for example), has an international airport, great weather, beautiful beaches, and proximity to great vacation spots. Miami also has a thriving tech sector. Sounds perfect, right? We should invest in Miami, right? No! Miami prices are way too high to make sense at this time. While the property tax is “only” about 160% of that in Oklahoma or California, the price/rent ratio makes it an unattractive place to invest. Miami has been a magnet for the wealthier set of tech and finance people as of late. The prices reflect it. There is an interesting article in Business Insider written by a tech person who had moved from San Diego to Austin and regrets it. It’s titled: “I moved my family from California to Austin, Texas, and regretted it. Here are 10 key points every person should consider before relocating.” The author mentions the harsh Texas heat, coupled with humidity, which, in the summer keeps you indoors and runs your AC 24/7, while also bringing scorpions and the like, and being hard on the houses. Of course, he mentions the super-high property taxes and high insurance costs. He talks about the very high cost of power and water, much higher than he had in California. Overall, he was surprised by the cost of living being much higher than he had anticipated. He mentions the travel difficulty, as Austin doesn’t have a large airport, requiring an extra “hop”. He laments the relative lack of public parks and spaces, to which he was used in California. While this is only the account of one high tech family who moved to Austin, and may not reflect everyone’s experience, some of the points are absolute.
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We have investors who actually LIVE in Austin. They are absolutely not interested in investing in Austin. They live there. They know how little sense it makes to buy in Austin in 2021. They seek investments in saner markets where the prices, rents, and property taxes, are in much better balance. We also have investor who live in Miami, Phoenix, AND Las Vegas, as well as Portland and Seattle, among many other places. All these investors wouldn’t dream of buying rental homes in the market they live in at this time. They know the insane sellers’ market that exists there, and the way-too-high prices.
This phenomenon is not new. Investors declare they want to “Buy Low, Sell High”. However, in reality, many investors end up “Buying High and Selling Low”. Right now, Austin is the darling market touted for its growth and Elon Musk. The people who are buying super-high in a “bonkers” market, pumped by the media hype, will be the first ones to sell frantically when a recession hits, or even lose those homes to foreclosure. We have seen these scenarios throughout history, time and time again. You see the same phenomena in the stock market. People secretly love to “Buy High”.
The reason is usually “But this market will appreciate a lot!” Really? You mean you know the future? No one else does. Just because a market behaves a certain way, and even booms, it is not necessarily a guarantee of everlasting constant appreciation. We have seen it in many areas of the country.
One other factor that is important to discuss is, again, the heart and soul of single-family home investing in the United States. The reason single family rental homes change futures so effectively and powerfully: The 30-year fixed-rate loan. I talk a lot about the wonder of this loan. A very quick recap for new readers: The monthly PI payment never changes, while everything else in the US economy constantly changes with the cost of living. Same is true for the mortgage balance, which goes down due to amortization, but also never keeps up with the cost of living. This creates incredible futures for people, as inflation constantly erodes the real value of the loan balance and monthly PI payment. No need to wait for 30 years. Typically, after 12, 14, 16 years, the loan balances are very small relative to the home price. The monthly payment is very small relative to the rent. It is not uncommon for a person to find, after 14 years, that the loan balance (even though the loan still has 16 years to go), is merely 20%-25% or so of the home price. Many sell a couple of homes at this point, and use the after-tax proceeds to pay off several other small loans, and leaving several free and clear homes, enabling them to retire. People also see how this can send kids to college (even costly colleges), and achieve many other long-term financial life goals.
The reason I hark back to this point in this article, is to remind you that the most important point is to buy a good new single family rental home, put a down payment, and then get the constant power of inflation and the payments by the tenant, to pay off and erode the loan balance, building equity for your future wealth. With today’s astoundingly low rates, strong results may be seen even sooner, perhaps 10, 11 years.
The single-family home is the VEHICLE to let inflation work its magic on the 30-year fixed-rate loan. The location of where you buy the home (as long as it’s large metro areas in the Sun Belt states, where the numbers make sense), is of secondary importance. It would behoove the smart investor to buy in a market where the prices are not “bonkers” and where the rents measure up to the price well, preferably in an environment where property tax and insurance costs are low. This enables the owner to enjoy cash flow (especially with today’s low rates), which building their wealth for the future with the help of inflation.
ICG (International Capital Group) Real Estate Investments was established in the 1980’s. Adiel Gorel, founder and CEO, has been helping people achieve financial security for over three decades, and in that time worked with investors to purchase over 10,000 homes. Gorel is a real estate broker in several states in the U.S., an international keynote speaker, and notable author of three books: Remote Controlled Retirement Riches – The Busy Person’s Guild to Real Estate Investing, Invest Then Rest – How to Buy Single­Family Rental Properties and Remote Control Retirement Riches – How to Change Your Future with Rental Homes. He has been featured on major television and radio networks across the country and in Fortune Magazine. He has also been featured on Public Television with his show, “Remote Control Retirement Riches with Adiel Gorel.” To invite Adiel Gorel to speak for your group, email [email protected] and visit AdielSpeaks.com. For more information on ICG Real Estate Investments visit icgre.com.

The Great Exodus Of Our Time

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By Sensei Gilliland

Investors Are Leaving The Golden State & Big Apple In A Stampede. Here’s What’s Driving Them And Where They Are Going…

We’re seeing a macro shift in migration, capital flows and investor relocation at incredible new levels. Keep reading to learn how wise investors are adapting to this incredible event.

The One Thing You Can Count On Is Change

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As much as you might like it to sometimes, nothing ever stays the same forever. Change is the one thing we can bank on. There are mini cycles and economic rotations which go around every 7 to 15 years. Then there are macro shifts. There are evolving eras, which we’ve seen go from hunter gatherer to agricultural societies, to the industrial era, and now the internet. We are currently experiencing one of those mega shifts which only comes around every 100 years or longer. The dinosaurs couldn’t adapt to it. All that is left of the great Egyption civilization is crumbling pyramids. Ancient civilizations that once thrived in Machu Picchu and Tulum have left only ruins. Detroit has literally become an urban waste land since the end of the industrial era too. If you haven’t been lately, there are real ruins, weeds and vines taking over once vibrant neighborhoods, and a few urban farmers trying to stick it out among the remnants of a once economic powerhouse.
According to a new report from the Pacific Research Institute and many others, not only is San Francisco, but also Los Angeles, California is checking off all of the boxes on the way to becoming the next Detroit.
This includes increasing taxes, regulation, harassment of businesses, rising crime and riots, and distrust of leaders are some of these signals that lead up to these massive shifts, and the downfall of once great cities. Perhaps some of these things sound familiar to you?

This Exodus Is Far More Significant Than You Think

This isn’t just a few low wage workers who are teachers or restaurant workers leaving high cost states for somewhere they can afford to live.
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Almost 700,000 people moved out of California in 2019, before COVID hit. A Berkley study reports that half of registered voters in California have been considering moving out of state. 44% of New Yorkers making $100k a year or more (not even a living wage there) say they plan to move out of their state. We are talking about millions and tens of millions of people leaving these states. If you thought it was bad before they left, wait until the remaining few realize they have to pick up the tax bills to cover the void by the other half who left. If many are leaving for safety, then crime rates will also be expected to dramatically rise, with the per capita risk of you being a victim of a crime at least doubling. It’s not just the amount of people leaving either. It is who is leaving that is also making a huge difference. We are talking about the wealthiest and smartest individuals and their companies that employ millions of people. It is a massive wealth and brain drain.
We’re talking about people like Elon Musk and Peter Thiel. Even the New York Stock Exchange has said it will leave NY if newly proposed taxes are implemented.
Those who are left are at least sending their money out of state for safety and better returns.

What’s Driving Them?

There are now many factors driving people and their cash out of coastal states and other major cities, and pulling them to other destinations. These are just some of them.

Affordability

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Sheer lack of affordability is one of the top factors driving out residents and capital. Even in Florida, which seemed cheap in comparison to NY and LA at the beginning of 2020, the massive surge in migration has driven up property prices by at least 1,000% in some areas. In Miami some builders are finding excuses to kick out pre-construction investors to be able to resell those same units at top of the market prices. Even in the most rural and cheap areas it has become so expensive that investors are buying distressed homes, and are renting them out at top of the market rents, while leaving tenants to make the homes livable. It’s not just housing prices either, it is overall cost and quality of living.
When it comes to investing, affordability is the number one factor that analysts look at to gauge where a market is in the cycle, real value, and future potential growth or decline.

Profits & Returns

In addition to these coastal cities, even international investors are looking for smarter places to invest with more value and better returns. Even in Denver investors have been resorting to negative cash flow properties due to such high prices.
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It is true rents and house prices may float down in California and New York as millions leave. Yet, they have long been too high to make sense for investors. You should never invest for negative cash flow. If you are just going to gamble, it is probably a lot more fun to go to Vegas and play the games, than go through all of the work to invest, and in something which may have less odds of going up in the short term. Real estate has taken off in a big way over the last year, not only due to the huge amount of moving activity, but also as people see the stock market and things like Bitcoin just go crazy with no real fundamentals to support them. They are running on vapors and speculation. They offer no downside protection, and rarely reliable passive income.

Anti-Investor & Anti-Business Climate Change

An extremely litigious climate, lack of physical protections for businesses, and a regulatory pattern of trying to crush businesses, entrepreneurship and investors is forcing capital flight and the movement of talent.
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These are beautiful places, dear to our hearts, but just make no sense to live and invest in anymore. At best they just want to bleed us and our children dry financially. Why not go somewhere you are wanted, and that wants you and your family to prosper? You can always go back home on vacation if you can stomach it.

Safety

Personal safety, property protection, and wealth preservation are all compounding this trend.

Freedom

While many have been working from home and running fully remote businesses, even in real estate for at least 16 years, many are just walking up to the fact that they can live in the Midwest, and get a three bedroom house with a yard for a quarter of the cost in California, while still making NYC and San Fran level wages. They also no longer have to put up with lockdowns and restrictions if they choose not to.

Where Are They Going?

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Cleveland, Ohio stands out as one of the top places for people to move and invest in 2021. Here are just some of the reasons it stands out and it drawing savvy investors:
  • Ranked one of the top 2 most affordable cities in America for 2021
  • Ranked one of top 10 markets to watch this year by Forbes
  • $1B in stimulus being invested in infrastructure and attracting new residents
  • Low volatility
  • Rental property investors can still achieve the 1% rule
It just makes sense. There is positive cash flow to be had, with plenty of room for assets to appreciate over the long term, and low downside risk.

How To Do It

One of the best ways to invest in Cleveland, OH today is in turnkey rental properties. Handsfree investments, producing passive income, with professional management and boots on the ground to support your assets.
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In addition to market rate, cash tenants, there are also strong local Section 8 and other housing programs through which the government pays your rent and profits. No worrying about another pandemic.
With prices so cheap, many real estate investors will find they can sell a single unit in California, and buy 7 houses with yards in Cleveland’s suburbs for the same price. Only with a whole lot more cash flow and much better returns and growth prospects. Within an IRA or through a 1031 exchange this can even be done without any tax hit on your capital gains. It’s the chance to exit mature investments, and diversify for consistent returns. Or more importantly, the ability to sleep well at night, knowing you are set financially. You can buy a second home to Airbnb while not there, and start spending some vacation time exploring the city, and acquiring more deals. Or go turnkey and handsfree and spend your time in Mexico, traveling the country in your RV, on your own private ranch, while your rentals put money in the bank.
Black Belt Investors is a real estate firm offering education, coaching and turnkey rentals. Get started now by visiting www.BlackBeltInvestors.com or call us at (951) 280-1900.

Eviction Moratorium

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By Stephanie Mojica

Property owners can now take steps to evict delinquent renters, according to a U.S. Supreme Court decision that blocked President Joe Biden’s recent moratorium on evictions.

Over objections from three sitting Justices, the Supreme Court ruled on August 26th that the Centers for Diseases Control (CDC) did not have the authorization to enact a moratorium on evictions, according to USA Today.
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The court’s majority wrote the following in an eight-page, unsigned opinion:
“It would be one thing if Congress had specifically authorized the action that the CDC has taken. But that has not happened. Instead, the CDC has imposed a nationwide moratorium on evictions in reliance on a decades-old statute that authorizes it to implement measures like fumigation and pest extermination. It strains credulity to believe that this statute grants the CDC the sweeping authority that it asserts.”
The majority further added:
“Congress was on notice that a further extension would almost surely require new legislation, yet it failed to act in the several weeks leading up to the moratorium’s expiration.”
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The CDC’s original moratorium had lasted from September 2020 to the end of July 2021 and was designed to quell the spread of COVID-19, according to CNN Business. On August 3rd, 2021, the CDC issued a new moratorium on evictions that protected about 90% of the country’s renters and drew the ire of many landlords and real estate companies. The new moratorium applied to areas of the country where COVID-19 infection rates are once again spiking due to the Delta variant. Critics of the eviction moratoriums state that these allow unscrupulous renters to spend money on other things while shafting their rent obligations and causing undue financial distress to landlords. Supporters of the moratoriums claim that dissenting landlords are acting on greed and do not care that innocent people will be left homeless.
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According to a recent U.S. Census Bureau survey, more than 3 million renters will become homeless in the next two months if alternative solutions are not offered. Fortunately, there is $46 billion of federal rental relief aid funding available, according to CNN Business. Only about $5 billion had been distributed through the Treasury Department as of July. Another blow to renters with financial struggles is that three unemployment programs — Pandemic Unemployment Assistance (PUA), Federal Pandemic Unemployment Compensation (FPUC), and Pandemic Emergency Unemployment Compensation (PEUC) — end on September 4th, according to 13 WREX.

Hands Off My IRA! Important Legislative Insight Every Investor Should Know

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Special Contribution by Kaaren Hall, CEO | uDirect IRA Services

In this article I’m going to discuss a few reasons why Sections 138312 and 138314 of the House reconciliation bill (released September 13th) threatens the investment choices of an approximate 3 Million Self-Directed IRA investors in America. It’s time to tell your Congressional Representatives, “Hands Off My IRA”!

Firstly, the proposal could make it so that you could no longer purchase private equity or use the IRA-Owned LLC. Secondly, what’s worse is that the proposal offers no “grandfather clause” and says you would have to remove those existing assets from your IRA by 2023. As a result, the implications are wide-reaching and would cause a lot of damage to IRA savers who may be forced to pay taxes on the value of those assets. Thirdly, it could wreak havoc on asset sponsors who could be forced to look for new sources of capital. Specifically, the proposal addresses:
  • Private Placements (e.g. hedge funds, real estate funds, private equity funds, etc.)
  • Checkbook Control IRA LLCs and Trusts
  • Minority interests in LLCs that are 10% owned by the IRA or account-holder
  • Investments requiring the IRA owner to be an accredited investor
Steven Rosenthal, senior fellow at the Tax Policy Center, is quoted in MarketWatch, saying that non-public investments do not belong in retirement accounts. In his view, it’s a matter of fairness, tax compliance and investor protection when it comes to retirement tax rules that for too long, have already favored rich households. What Rosenthal fails to see is how the proposal would impact Self-Directed IRA investors’ choices and prevent them from providing access to working capital for businesses. This then deters job creation. Self-Directed IRA investors as a group hold some $118 Billion is retirement assets. These assets are crucial to our economy because these assets are to be used for expenses in retirement. The proposal could decimate the nest egg of many middle-class savers. Removing the choice to invest in certain assets removes the ability for many to access the same start-up opportunities offered to the uber rich.

What Can You Do To Stop This?

Make your voice heard. Contact your elected officials in the United States House of Representatives and Senate. Tell your story. Let your Representatives and Senators know how this proposal could impact you personally. Not sure how to contact your U.S. Congressional Representative?

Go to: https://www.house.gov/representatives/find-your-representative

Not sure how to contact your U.S. Senators?

Go to: https://www.senate.gov/senators/senators-contact.htm

__________________________________________________________________________

What This Proposal Does Not Affect

  • Brick & Mortar Real Estate
  • Raw Land
  • Precious Metals
  • Lending from IRAs
  • Mobile Home Parks
  • Investing in performing and non-performing debt

When Could This Take Effect?

Congress seems eager to have this and other matters resolved before the session adjourns December 10th. Take action now. Call, write, email or visit the offices of your representatives in the House and Senate.

TEMPLATE LETTER FOUND HERE – https://udirectira.com/template-letter/

How to Benefit from a Private Money Loan

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By Stratton Equities

Banks used to be the only option for real estate investors trying to take out loans. Nowadays, private money lenders are allowing investors to borrow money under more flexible conditions. Banks and traditional financial institutions can reject your loan application for multiple reasons—your credit score, your debt-to-income ratio, employment status, etc.— What private money lenders do is implement a framework that makes it easier and more conducive to be a real estate investor.

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The real estate market moves fast, and it is often crucial to act quickly. But the process of getting a traditional loan through a bank can often be lengthy and complicated. Many of the solutions and loan programs from private money lenders are easier and quicker to get than through banks, which is why private money loans are often better options for real estate investors.

Making investing easier

What private money lenders like Stratton Equities do is accommodate real estate investors.
“Real estate investors, as we all know, don’t have the greatest of tax returns,” Stratton Equities’ CEO Michael Mikhail said. “They move money around, have different trusts, and have different accounts. Banks absolutely frown upon that and they actually hate it. Good luck getting a loan through a bank or mortgage company if you’re a hardcore real estate investor.”
The programs offered by private money lenders are designed for investors, who oftentimes can’t show their income and make a lot of monetary transactions. Companies like Stratton Equities have put in place certain standards that make it easier to take out a real estate investment property mortgage. These include no tax returns, no upfront fees, and no junk fees.
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The closing time for loans from private money lenders is much faster. This element can be crucial for investors, as sometimes the faster you close, the better chance you have at securing a transaction. Also, the LTV (loan to value) ratio is higher with private money lenders. Loans from traditional institutions on investment properties usually max out at 70% LTV, while those from private money lender Stratton Equities can go up to 85%. You’ll likely be spending less through private money lenders too. “If you go to a bank, you’re going to have PMI (private mortgage insurance) with those loans, a few extra hundred dollars per month,” Mikhail explained.

The Loan Process

The first thing you’ll want to do to get a private money or NON-QM loan, for example a hard money loan is to contact a private money lender. As the borrower, you should be ready to provide the lender with information like the location of the property, purchase price, and estimated appraised value. The lender will ask questions to get to know you and your borrowing history. After this, the lender will appraise the property and come up with a loan offer for you. The lender will review the documentation and complete the underwriting process for the loan. This process is usually speedy, but it varies from lender to lender.
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After the loan is completed with underwriting it gets moved to the closing department. As a borrower, you’ll have to sign a variety of documents during this phase, but it is relatively straightforward. The lender will then send the funds to the title company so the deal can be completed. Many real estate investors have found that getting loans from private money lenders is their best option for achieving their investment goals. Be it a hard money or a soft money loan, private money lenders are faster, more understanding, and more lenient than mortgage companies and banks. You have to consider that these companies’ sole purpose is to give loans to real estate investors, so naturally, they’ve found ways to make the process smoother. If you’re thinking of getting into real estate investing, you should definitely take these factors into account.
Contact Stratton Equities, the leading hard money and NON-QM lender, to speak with one of their talented and experienced loan officers at 800-962-6613, email us, or apply for loan pre-qualification today!

Partnering For Profits in High-Priced Markets

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By Bruce Kellogg

The Situation Today

A large number of real estate investors and would-be investors live in high-priced markets. Large cash downpayments are necessary to make a purchase, and even more cash is required to achieve a positive cashflow. This can be discouraging.

One alternative that many in this position consider is “Turnkey Investing”, usually in rental houses in distant locations with local real estate support. This involves locations, companies, persons, and properties that are not well-known or familiar, and which might, or might not, work out. For sure, the investor has only limited control over their investing fate. Then, if a problem arises, the investor has to jump in to right the situation to protect their investment. “Passive investing” this is not.

Investing Locally With Partners

It is not necessary for an investor to send their money thousands of miles to unfamiliar people to invest for them in unfamiliar neighborhoods with properties of uncertain condition and rental prospects. It is definitely possible to invest locally in high-priced properties with a high degree of control by the use of partners.

Three Kinds of Partners

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There are three kinds of partners: 1) a “money partner”, 2) the seller as a partner, and 3) the tenant as a partner. In each case, the approach is to set up the transaction so that the partner contributes in such a way that the investor profits, and the partner receives their benefit from the arrangement.

Partnering With a “Money Partner”

The principle here is for the “money partner” to bring in the funds necessary to make the purchase and set up a reserve to ensure success. There are four investing structures that are attractive based on the interests of the parties: 1) Limited Partnership (LP) 2) Joint Venture (JV) 3) Tenants-in-Common (TIC) 4) Limited Liability Corporation (LLC) The partnership should be designed so that the “money partner” receives about an 8% annual cash return plus an “equity kicker” upon liquidation of the investment. The investor needs to provide for themselves, as well, even if it means profiting only at the end. Obviously, the better the deal, the more the investor will profit and be able to compensate the “money partner”. Investors are encouraged to use a real estate attorney to draw up customized documents for the partnership rather than doing it themselves “on the cheap” with internet “pdf. documents”. This is not a place to economize! (Hint: You can draw up internet documents, then have an attorney review them. That should save some money.)
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As an example, three brothers pooled their funds to purchase a 3-bedroom, 2-bath rental house in Hayward, near Oakland, in March, for an LLC that they had created. They put down $178,750 (25%) on a purchase price of $715,000, with a new 30-year first loan of $536,250 (75%) at 3.1%. They paid “market price”, but the house was being sold by a retiring corporate facilities manager for a national company who had maintained and upgraded it impeccably. They rented it out for $3,500/month in the Bay Area’s ultra-tight housing market. Their overall return is 2.7% on their downpayment, but since all three brothers are in the top federal and California income tax brackets, and “starter homes” in the Bay Area appreciate strongly, and will for the long term, the brothers will see a nice after-tax return.

Partnering With The Seller

There are two major occasions of partnering with sellers. The first is when builder/developers or sophisticated investors enter into a joint venture with the owner of developable land. Typically, the owner contributes the land while the investor obtains the necessary financing, performs the construction, and does the marketing. Then the parties split the profit according to their joint-venture agreement. This is a sophisticated partnering method. The more accessible partnering method with an owner/seller of a property is to use a lease-option. Here, the buyer/”lessee” leases the property on agreed terms and simultaneously negotiates an option to purchase the property in the future at an agreed price and terms. Usually, the buyer/”optionee” pays some “option consideration” for the right to purchase during the term of the lease. This is paid either up-front or on top of the lease payment. It is important to keep the lease and the option separate but attached because judges in disputes have been known to interpret the documentation unfavorably to the investor. Advice from local real estate counsel is important initially when employing your first lease-option. On-line and Realtor® forms can be used, but an attorney should review the first one.
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Another accessible partnering method is to negotiate a “shared-appreciation mortgage” to be carried back by the seller as “owner financing”. The idea here is to structure the note such that positive cashflow to the investor is the result. The seller is usually given some cash flow, but not a lot. Then the seller participates in the profit when the property is eventually sold. This works well with motivated sellers in high-priced areas. Again, legal advice is recommended for the first time.

Partnering With The Tenant

The first method where the tenant is essentially a partner is to use a lease-option, to sell this time, rather than to buy. The idea here is to use the lessee/optionee’s “option consideration” to help pay for the purchase of the property. It can be used as part of the monthly loan payment, or as part of the downpayment. Either way, since it is not a rental security deposit, it will never need to be refunded.
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A second method of partnering with a “tenant” is known as “Equity-Sharing”. Here, the parties purchase the property together on the market. One party, the “resident co-owner”, resides in the property, maintains it, usually makes the entire loan payment, pays taxes and insurance, and might get the income tax benefits. Those are negotiable, as are the percentage of ownership. The IRS allows taxes to be allocated as the parties decide, as long as they are deducted only once. The “investor co-owner” typically makes the downpayment and pays the purchase closing costs. This is all done with extensive documentation, but it is particularly useful for helping first-time buyers get started while allowing investors a high-yield, relatively-passive investment. The author represented one unmarried engineer who set up seven of these to help his relatives get started in homeownership while he grew his retirement plan.

Getting Started

This article presents nine different methods for investing with partners in high-priced markets. It is not necessary to wire funds out-of-state in order to make a profit! Find an expert in the application of these, and get started. Good luck!
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Bruce Kellogg

Bruce Kellogg has been a Realtor® and investor for 40 years. He has transacted about 800 properties in 12 California counties. These include 1-4 units, 5+ apartments, offices, mixed-use buildings, land, lots, mobile homes, cabins, and churches. He writes and edits copy for Realty411 and REI Wealth Monthly magazines. Mr. Kellogg is a recipient of an Albert Nelson Marquis Lifetime Achievement Award, listed in Who’s Who in America – 2019. Mr. Kellogg is available for consulting about syndication, “turnkey” investments, joint-ventures, and other property purchases nationally, and other consulting assignments. Reach him at [email protected], or (408) 489-0131.

Limited Home Inventories & Soaring Prices

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By Rick Tobin

Nationwide during the first quarter of 2021, homeowners with mortgages saw their home equity jump by a staggering 20% as compared to one year earlier. The dollar amount gains for the first quarter (January 1st – March 31st) alone for homeowners across the nation amounted to a whopping $2 trillion in total homeowner value gains, according to CoreLogic.

The average US homeowner gained $26,300 in additional home equity over the past year. According to Experian and CNBC, the average Generation X consumer had $32,878 in non-mortgage related debt such as credit cards, student loans, and car loans. When equity growth exceeds debt in just a few months or within one year, this is usually a positive for homeowners.
In California, the average homeowner gained $11,000 per month in equity during the first quarter of 2021 ($33,000 in three months) as the average statewide home appreciated 39% in just 12 months ending in May 2021 to reach $818,000 per California home. In April 2021, the top three metropolitan regions for year-over-year home price gains were Phoenix, San Diego, and Seattle. The median sales price for the Southern California region in the same April month reportedly appreciated at a pace of $1 every two minutes, according to DQ News/CoreLogic. Each day has 1,440 minutes (24 hours x 60 minutes), so this would be equivalent to a price gain of $720 per day and approximately $21,600 per month over 30 days.

Declining Home Listings and Rising Demand

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Values for products or services usually fluctuate up or down based upon supply and demand. When demand is strong and home listing supplies are low, then home prices rise. Let’s take a look next at some of the primary factors for these suppressed listing supplies and why there’s so much demand in spite of an ongoing pandemic designation: 1. Near record low mortgage rates: Most buyers need mortgages from third-party lenders or mortgage brokers. The lower the interest rate, the more affordable that the monthly mortgage payment is for the borrower. Many younger Generation Z or Millennial buyers or tenants have seen incredibly low mortgage rates for the past 10 years, so they may not remember that mortgage rates in the 2% to 3% rate ranges are shockingly low as compared with previous decades. To better understand how low mortgage rates have become in recent times, let’s review the average 30-year fixed mortgage rate by decade dating back to the 1980s: ● 12.7% in the 1980s ● 8.12% in the 1990s ● 6.29% in the 2000s ● 4.09% in the 2010s ● Near 3% in 2020 and the first half of 2021 2. The CARES Act and foreclosure and tenant eviction moratorium: The CARES (Coronavirus Aid, Relief, and Economic Security) Act was passed on March 27, 2020 by Congress as an attempt to minimize the economic hardship for homeowners and tenants nationwide. These moratoriums or legal postponements included within CARES prevented lenders from foreclosing on delinquent borrowers and stopped landlords from evicting tenants for missed rent payments. In addition, the CDC (Center for Disease Control) also issued their own guidelines which prevented landlords from evicting tenants or landlords would face both significant civil fines and criminal prosecution. As a result, the foreclosure inventory dried up as well because there were so few foreclosure auction sales or tenant evictions which would’ve allowed investors to sell their properties to new buyers and the overall supply of distressed homes for sale plummeted.
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3. Declining home construction numbers: Freddie Mac, one of the largest national secondary market investors along with Fannie Mae, had claimed last year that there was a new home supply shortage of 2.5 million units as compared with the estimated buyer demand. Yet, the US hasn’t surpassed more than 1 million units, or 40% of this 2.5 million unit number, since 2007 when 1.046 million new single-family home units were built. During the depths of the Credit Crisis meltdown, new housing units declined to 430,600 in 2011. The Mortgage Bankers Association (MBA) did forecast that 2021 might finally break 1 million units again nationwide by reaching a projected 1.134 million unit number. California’s new housing start numbers, however, are not as positive as the rest of the nation. Back during the peak of the previous housing market boom in 2005, there were 150,000 new single-family home units built. In 2020, there were only 59,000 new single-family homes developed for a state with a population trending towards 40 million residents.
Some key factors why there are so few new homes being built in California are related to rising and unaffordable prices for land, lumber, steel, appliances, building permits, and environmental-impact or “sustainable living” fees. If a home builder can’t make a profit, they aren’t very likely to take a risk to develop a new housing community.

Multiple Bids and Quick Sales

As per the May 2021 Zillow Market Report, the average time that a listing took to sell, or days on market (DOM), was just six days in spite of home prices reaching all-time record highs in most US regions. The National Association of Realtors defines days on market (DOM) as the number of days the property is listed for sale on the local multiple listing service (MLS) up until the day that the buyer and seller have mutually agreed to the terms signed in the sales contract.
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Because it’s very likely that a listed home for sale will probably have multiple offers, sellers can pick and choose between the best offers that may include all cash offers, 7 to 14 day closings, waiver of all third-party reports such as appraisals and home inspections, and even the option for the seller to remain in the home for another 30 to 60 days rent-free so that the seller has enough time to find a new place.
Most buyers usually need a mortgage to purchase a property. In today’s hot housing market world, buyers and their advising buyer’s agents don’t have much time to get pre-approved from their local bank or mortgage broker. Some lenders may need a few days to a few weeks to formally pre-approve a borrower, depending upon how complete the original loan application package is at time of the loan submission.
Fewer sellers in multiple bid situations will even consider accepting a purchase offer from a buyer who is not formally qualified before the buyer writes up the offer. This is why it’s so important to get pre-approved first before going out with a knowledgeable real estate licensee who understands the local housing trends and searching for properties. If so, you’re much more likely to be successful as a buyer, seller, tenant, landlord, or advising real estate licensee.

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Rick Tobin

Rick Tobin has a diversified background in both the real estate and securities fields for the past 30+ years. He has held seven (7) different real estate and securities brokerage licenses to date, and is a graduate of the University of Southern California. Rick has an extensive background in the financing of residential and commercial properties around the U.S with debt, equity, and mezzanine money. His funding sources have included banks, life insurance companies, REITs (Real Estate Investment Trusts), equity funds, and foreign money sources. You can visit Rick Tobin at RealLoans.com for more details.

EVERYTHING YOU SHOULD KNOW ABOUT THE TRIPLE NET (NNN) LEASE

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By Rachel Maisen

Today we will discuss everything you should know about the triple net (NNN) lease. Gross and net lease arrangements are the two most common types of commercial real estate leases. In a gross lease, the tenant is responsible for paying the base rental sum, but the property owner is responsible for all running expenses.

As a result, the rental rate is usually greater for the owner to recoup some of their contribution to operational costs. A Full-Service Gross Lease or a Modified Gross Lease are two of the most frequent Gross lease structures.
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The net lease is the opposite of a traditional lease. Depending on the parameters of the net lease arrangement, the tenant is responsible for a base rental payment as well as a share of the property’s running expenses.
The renter pays rent and property taxes under a single-net lease. The renter is responsible for the base rent, property taxes, and insurance in a double-net lease. Then there’s the triple-net lease, which is popular with a certain type of investor.

Triple Net Lease

The tenant is responsible for paying their base rent, as well as property taxes, building insurance, and common area maintenance, in a triple net lease. Absolute net leases shift all duties to the tenant, including structural building maintenance, leaving the landlord with nothing save the responsibility of cashing the checks. Triple net leases are significantly more appealing to landlords because they will have fewer duties and will be able to pass all costs on to the tenant. That implies a renter can negotiate down from a triple net lease to a single or double net lease, however, these forms of net leases are more frequent among landlords and tenants with little experience.

How You Can Invest in Triple Net Lease?

There are many steps to invest in Triple Net Lease. Here are some basic and important steps to start investing in Triple Net Lease: 1. Figure out what kind of investment returns you want Depending on the tenant, location, remaining lease term, landlord duties, year of construction, and other factors, triple net lease investments can and will yield a wide range of returns. As a result, two ventures with the same tenant and guarantor could have drastically different cap rates.
You should do your market study to discover where cap rates are landing before calling a specialist to assist you in finding an investment.
2. Find an Advisor of Triple Net Lease Once you have a broad concept of what you want, talk to triple net leasing experts to discover who would be the greatest fit for you and your team. A triple net lease advisor is a commercial real estate broker or firm with NNN investing experience.
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3. Fix your tenant and terms criteria Not all triple net leases or renters are made equal. Some NNN investment prospects may appear to have a very good cap rate, but as you dive deeper into the property, you discover the existing lease only has three years left. Every tenant has a different credit rating based on their financial health, the number of locations they have, the sort of business or industry they are in, and other factors. You must specify your tenant and term criteria upfront so that you can focus your search. 4. Find the Right lending Partner While triple net investments might be enticing all-cash bargains, it’s a good idea to start talking to lenders as soon as possible to assess where your loan terms will wind up.
Because you can discover equally appealing investments in Nevada and Georgia, you’ll need a lender that can go with you across the country. If your local bank is willing to help, it could be a nice option.
5. Examine your options and make a proposal It’s a good idea to keep a Google Drive or Dropbox folder with information on the many sites you’re underwriting once you’ve begun receiving prospective investment opportunities. You won’t be able to keep up with every property, especially since you won’t be touring them in person, but having everything in one spot where you can quickly examine it if you’re discussing a project with your team, partners, or investment advisor is helpful. 6. Conduct a thorough due diligence investigation on the asset and the tenant It’s time to do your due diligence on the asset and the renter after your offer has been accepted. You’ll want to find a good local inspector to assess the property and create a report for your evaluation because you won’t be physically present (unless, of course, you opt to travel out and see the property). 7. Take a seat and wait for the checks to come in The most effort you’ll have to do after you’ve closed on the property is to cash those cheques. The advantage of NNN investing is that you have little to no obligation aside from collecting rent and projecting tenant vacancies. Your tenant will continue to make monthly payments toward your mortgage, increasing your equity in the property, while you pocket the profits.
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Advantages of Triple Net Lease

  • Landlord responsibilities are limited: Apart from the structural components, landlords are often not obligated to maintain or care for the property.
  • Lower likelihood of turnover: Many renters who lease these types of residences aim to stay for an extended period.
  • Potentially perfect location: These tenants want to be where their customers will find them, therefore it may be easier for you to discover them.
  • Because they are frequently leased by investment-grade tenants, they are a low-risk investment. Rent and expenditures are paid every month, ensuring a consistent cash stream.
  • Long-term tenancy: NNN tenants frequently sign seven- to ten-year leases.
  • Due to the extended period of the leases and the landlord’s modest financial responsibility, there is the potential to generate equity.

Disadvantages of Triple Net Lease

  • Returns on investment are capped: Because there is usually no room to increase value in some shape or manner during the initial term, your returns are set by the lease.
  • Higher vacancy risk: Because these buildings are sometimes built with a single tenant in mind or a certain location, re-leasing them can be difficult or costly.

Conclusion

The greatest triple-net investments are those that meet your requirements. That’s why it’s crucial to do your homework on the various tenants and lease agreements available so you know what you’re getting yourself into. Note: click the link below to find how to deal with bad tenants https://www.webuycaliforniahousesforcash.com/blog/bad-tenants-your-ultimate-guide-to-dealing-with-them/
About Author A good writer is known for his or her work so is Rachel Maisen. Rachel Maisen is an author, known for her amazing articles regarding Real Estate World. She outreaches information on Real Estate Investment, methods, business and many more. She wrote many articles for a better understanding of beginners as well as investors. Her main focus is to provide information to the readers about Real Estate Investment in the simplest way even a beginner can understand very well. By reading her articles one can understand how to invest, where to invest and when to invest in Real Estate.

Buying Property in a Less-Dense City? What You Need to Know

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As a realty investor or developer, urban properties probably comprise a significant portion of your bread and butter. Why was urban development so lucrative for so long? Big cities were magnets for people looking for more work opportunities and higher incomes. As a result, large city populations have been steadily increasing for the past 70 years, making them a good bet for investment dollars until the recent pandemic changed the landscape.

Population trends were expected to continue rising steadily until at least 2050. However, the past two years have brought unprecedented change to the real estate market. With so many disruptions, it may be time to rethink your real estate investment strategies. In fact, according to the latest trends, you should probably consider putting your money to work in smaller, less populated cities. If you’re considering a switch to smaller cities, keep reading for the three top reasons why the landscape is changing the way we invest in real estate, where to invest, and expert advice on completing a cross-country move.

Getting Personal Space

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Social distancing mandates brought a new awareness to the concept of personal space. However, in a densely packed city, personal space has always been hard to come by. No matter how you slice it, city life means smaller spaces for living, working, shopping and even walking. It isn’t easy to maintain a six-foot distance in a city like New York or Los Angeles. In addition to social distancing, it is harder to quarantine in a small apartment than in a large house with a yard. Although a family in the city would typically have access to the outdoors, city spaces remain congested and may negate social distancing precautions. One example of this is the widespread outbreak in New York City early in the pandemic. Although the pandemic wasn’t cited as the primary reason that influenced people to move, the experience was an opportunity to re-evaluate their needs. For many who have lived in a densely populated area during these times, making a move to a less populated city has become an enormously attractive idea.

The Allure of Outdoor Space

Sure, city dwellers have parks and sidewalks for outdoor living. But, as recent times have demonstrated, nothing beats having a yard of your own. The pandemic has highlighted this need. Many of today’s movers are looking for some space to stretch out and maybe even visit friends without risking infection. For young families and retirees alike, the backyard is a haven for outdoor activities. They can build a pool, install a trampoline, do some gardening or have a barbeque. Whatever their interests, having a backyard means that they can quickly and safely access the activities they love without worrying about social distancing or virus outbreaks.

Less Money, Better Life

Less densely populated cities have much to offer. Smaller cities often have many of the same advantages as larger ones, with less congestion and more open spaces. For families, the benefits can include less crowded schools, less competition for extracurricular activities and the chance to be a part of a close-knit community. For retirees or singles, many of these cities still have great restaurants, a plethora of outdoor activities and exciting nightlife. Living in a less-populated city can also improve health markers due to less stress, less pollution and more access to recreational activities. For many, the additional land means a chance to grow an organic garden for food or set up an outdoor fitness area.

Making the Switch

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So, where are people moving to when they decide that big-city life isn’t a good fit anymore? The top areas in the United States are:
  1. Naples, Florida
  2. Myrtle Beach, South Carolina
  3. Venice, Florida
  4. Hilton Head Island, South Carolina
  5. Avon Park, Florida
  6. Bluffton, South Carolina
  7. Prescott, Arizona
  8. Shelbyville, Tennessee
Although on the surface, it may seem like some of these cities have little in common, they all offer a relaxed and friendly vibe in beautiful natural surroundings.

Expert Advice for Cross-Country Moves

Moving cross-country to a smaller locale is no easy feat. Eugene Tolk, CEO of Verified Movers, a review site designed to help families and businesses find reputable cross-country moving services, said there are several things those eyeing a cross-country move should keep in mind.
“Shopping around for the best prices is the key element to making a cross-country move go smoothly,” he said. “It’s inevitable that there are going to be unexpected costs when moving, so keeping your known prices low is essential.”
Getting creative when packing – using towels for padding to save on bubble wrap and using suitcases instead of cardboard boxes – is another pro tip, Tolk said. And when hiring movers, be prepared to do the one thing you might not want to do.
“When hiring professional movers, the best thing to do is get out of their way,” said Tolk. “I know it’s in a lot of people’s nature to hover and try to manage, but cross-country movers know what they’re doing and how to do it best. You’ll only slow down the process, so kick back, relax, let them do their job, and get on your way to your new home.”

About Verified Movers:

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Verified Movers is a trusted review platform that publishes reviews, customer testimonials and experiences with moving companies. Verified Movers is dedicated to helping people find the best moving services solutions for their needs. Whether people plan to move down the street or across the globe, Verified Movers is here to provide them with the best choice of professional moving companies to get them there. The platform offers the option to both research and share reviews for different professional movers country-wide. In addition to this, it also provides the options for those same moving companies to create their own profiles and promote the services they offer to clients. To learn more, please visit: https://verifiedmovers.com/.

Why Are Bridge Loans A Great Choice For Real Estate Investors?

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Image from Pixabay

By Stratton Equities

In the world of private lending, real estate entrepreneurs are building strong careers investing in real estate utilizing asset-based loans.

An asset-based loan product is based on the value of the available equity in the property, it closes faster than a traditional mortgage, and requires less paperwork. One of the most common asset-based loan products are bridge loans and they are quickly becoming a perfect solution for real estate investors who are looking to grow their investment portfolio.

What are bridge loans?

A bridge loan is defined as a short-term (12-24 months) real estate loan that closes faster than term loans or conventional loans. Real Estate Investors work with lenders who offer bridge loans, because not only do they close quickly, the guidelines are more lax, therefore there is less underwriting and documentation needed.
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​Real Estate Bridge loans are temporary loans, secured by the asset (real estate), the typical property bridge loan has a term of 12-24 months, although many bridge loan lenders will grant the owner the option to extend his loan for six months to one year.

Why should you get a bridge loan?

There are more benefits than you can count for with bridge loans. The greatest benefit is the speedy approval process. As a real estate investor, with a simplified approval process, it becomes quick, which is key to getting a great real estate property before someone else does. However, as a result of the faster process, they have higher interest rates. If you are a real estate investor that does not have a stable cash flow or if you are self-employed, this is perfect for you. The private lender does not look at your salary or tax returns so you don’t need to worry if you do not have a stable income. Another benefit is how the loan is utilized. It doesn’t need to be solely purchasing a specific property but can be used for a variety of purposes. For example, it can be used for Cashout or Rate & Term programs. Since it’s a bridge loan, it can give you the flexibility you need to stay afloat and let your real estate business thrive.
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Why Should You Use a Bridge Loan?

  • It’s Straightforward & Easy : This type of loan has short-term financing (12-24 months) for real estate investors, who prefer to finance the purchase and/or rehab of their investment property, with a Fix and Flip loan (also a Bridge Loan) or a Cash Out Refinance loan.
  • ​Quick Access to Funds: With conventional loans, there are qualifications that restrict you from getting access to those funds. With a Bridge Loan, there are less guidelines, underwriting, and restrictions that will provide you with quick access to financing.
  • ​For Every Type of Real Estate Investor: A Bridge Loan is a great solution for any real estate investor – at all experience levels.
  • ​Options for all types of Properties: At Stratton Equities, we have Bridge Loans that are tailored to your investment needs. Here are some of our Bridge Loan options for Real Estate Investors; Fix and Flip, Cash Out Refinance, or Purchase Money.

​BRIDGE Loan Summary

  • ​​Investment Properties Only: Single-Family, Condos, Townhomes, Multi-Family, Commercial, Mixed Use, Office, Retail, Industrial, Warehouse
  • Rates Starting at 7.25%
  • $100K – $5M
  • Up to 75% LTV
  • Blanket Loan Options Available
  • Fixed rates/Adjustable
  • 9-24 Month Terms
  • Interest Only Payments
  • Purchase, Refinance, or Cash Out
  • Foreign Nationals Eligible
  • No Prepayment Penalty Option Available

How do you apply for a bridge loan?

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If you need a quick streamlined process with a repayment phase of 12-24 months, with less underwriting and documentation, these loans can be approved quickly and even extended if you wish. There is also no minimum FICO requirement. These are great loans for real estate investors with any experience level. They also work for the majority of investment properties. Call us at 800-962-6613 or contact us at [email protected] and apply now at https://www.strattonequities.com/loan-pre-qualification to find out whether you are eligible for loan pre-qualification!