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REAL ESTATE SUMMER 2011 $5.95 INVESTOR 13 Problems with Retirement Accounts GET WHAT YOU WANT WITH PERSISTENCE Economic Growth Happens One Home at a Time PURCHASING FAILURE PLUS RETIREMENT A REAL ESTATE ND 3 EXCLUSIVE INTE RVIEWS The Most Common and Worst Performing Investment in America Real Estate Investor SUMMER 2011 | 1 It’s fun to make a lot of money in real estate…. Until you’re the one doing the work Get a team to do it with you. REIC Call 877-801-8040 to find out how 2 | SUMMER 2011 Real Estate Investor She knows that dumping money into 401K and IRAs routinely gets you nowhere fast… She turned hers into free and clear real estate. Call 877-801-8040 to begin your portfolio. Real Estate Investor SUMMER 2011 | 3 CONTENTS P14 14 FROM THE COVER Your Regular Investment in FAILURE Kevin Clayson has been around real estate for a while. What most people view as their greatest investment is really one of the worst investments in America. 07 Getting Real 20 Kge]H]ghd]OgflJ]laj] 26 Tons of Economy The issue is Retirement. The solution is real estate. P20 P26 4 | SUMMER 2011 Real Estate Investor Colorado sod farmer Ed Markham is too busy to retire. But real estate is his path to the open road. When founding his company, Real Estate Investment Companies (REIC), Kris Krohn didn’t realize he would have a direct effect on the economy of an entire nation. Home Loans for Smart People We look at the big picture – Not just your salary… and find a loan that will work for you today, tomorrow, and in twenty years. The right plan is about more than formulas and calculators. Call 877.801.8040 or go to www.StrategicLendingPresentation.com Real Estate Investor SUMMER 2011 | 5 CONTENTS 31 Members Only Area For the members of REIC only. Everyone else, pretend this section isn’t here. 34 O`YlkMhoal`l`]:::7 35 Those Pesky Retirement Accounts Retirement accounts come complete with a whole slew of restrictions. There is a way out. P34 42 Some Say Timing is Everything They’re right. But that means different things for different people. Shelley Pollock learned this by experience. 47 Market Report 50 The Perfect Investment A few years ago, real estate was a ticking time bomb. When the industry blew up, almost everyone felt it. However, now is the time to get back in. P42 54 C]]hGfC]]hafGf There are two simple keys to success: persistence and perseverance. With them, success is yours. DEPARTMENTS P42 6 | SUMMER 2011 Real Estate Investor 12 24 39 59 Real World The Industry Sponsor Spotlight DIY Focus FROM THE EDITOR GETTING REAL REAL ESTATE INVESTOR IS NOT JUST ANOTHER NICHE INVESTING MAGAZINE. It is a quarterly publication designed to uncover truths about real estate investing that fggl`]jhmZda[Ylagfakoaddaf_lghjafl&O]hgaflgmjj]Y\]jklgoYj\kl`]Z]kl afn]klaf_ghhgjlmfala]kYf\_an]l`]eY[d]Yjmf\]jklYf\af_gôà[àfn]kle]fl n]à[d]koadd_an]l`]el`]_j]Yl]klj]lmjfgfl`]ajegf]q&O]ogmd\dac]lgeYc] real estate investors out of everyone. This publication is sponsored and published by three affiliated corporate entities: Real Estate Investment Companies, The Property Management Company, and The Real Estate Firm based out of Orem, Utah. Each of these entities is changing the way Americans all over the country invest in real estate and prepare for retirement. Retirement, in word, in concept, and in execution, holds many different meanings to different people. To some, merely mentioning the word causes panic and fear. For others, excitement and enthusiasm for this season of life envelopes their whole being. What is the difference? The former likely feel that their preparation efforts are in some way or another inadequate, and they fear the future. They may feel that they have not planned, saved, and prepared well in advance, and they are probably right. Some members of that group have invested money in retirement accounts and watched helplessly as the market eroded and their savings shrank. The latter, on the other hand, have prepared. They created a game plan to guide them along their financial path. They were disciplined, discovered that investing in real estate right now is a wise decision, made other wise investment decisions, and made slight adjustments to their game plan over a number of years to fine-tune their planned outcome. In the end, these people could retire as millionaires. This is a very exciting time for investors of real estate all over the United States. Certain real estate markets are in perfect condition for investors. How long will this opportunity last? We examine this question, and many others, in this special issue of Real Estate Investor magazine. JOSH NUTTALL EDITOR IN CHIEF Real Estate Investor SUMMER 2011 | 7 REAL ESTATE INVESTOR STAFF EDITOR-IN-CHIEF Josh Nuttall Kevin Clayson, Senior Vice President Stephen Miller, Elite Program Director =<ALGJA9D:G9J< Kris Krohn Steve Earl Tyler Bennett The Real Estate Firm Tyler Bennett, Vice President of Sales and Acquisitions Brandon Grange, Director of Acquisitions – Outright Program Bryson Bennett, Director of Acquisitions – Accelerated Program Hailey Peterson, Transaction Coordinator Danny Bird, Inside Sales Coordinator Devin Bird, Inside Sales Coordinator Natalie Ige, Assistant to the Director of Acquisitions Amy Fielding, Outright Transaction Coordinator ;GFLJA:MLAF?OJAL=JK Kevin Clayson Stephen Miller Christine Graham Rob Weidmann Heidi Philipp John Sperry CREATIVE Terra Hughes Design; Greenwich, CT PHOTOGRAPHY Josh Nuttall HJAFLAF?9F<<AKLJA:MLAGF Design Publishing Media Group; Orem, Utah SPONSORS Real Estate Investment Companies Kris Krohn, Founder/President Steve Earl, CEO Ruben Mena, COO Ryan Jaten, CMO Mike Krohn, CFO INFORMATION TO BE CONSIDERED Real Estate Investor is published by its “sponsors,” Real Estate Investment Companies, The Property Management Company, and The Real Estate Firm. The REIC Global programs k^_^kk^]mhbgmablin[eb\ZmbhgZk^h__^k^][rbmlZ_ÛebZm^]^gmbmb^l' You are NOT required to use REIC, The Real Estate Firm, Strategic Lending, The Property Management Company, or The Financial Firm as a condition for your participation with ma^<hfiZgb^lhkZgrh_bmlZ_ÛebZm^]\hfiZgb^l'Ma^k^Zk^_k^jn^gmerhma^kk^Ze^lmZm^ or other service providers available with similar services. You are free to shop around to determine that your are receiving the best services and the best rate for these services. No investment, legal or tax advice is being given to you and you should consult your own eb\^gl^]mZq%e^`Zehkhma^kZ]oblhkl_hkln\aZ]ob\^[^_hk^rhnbfie^f^gmrhnkÛgZg\bZe decisions. No information that we give or provide to you shall be construed by you as a recommendation by us to invest the equity in your home or your interests in in any retirement or savings accounts. K>B<ikh`kZflZkînkêr^]n\ZmbhgZe'G^bma^kK>B<ghkZgrh_bmlh_Û\^kl%]bk^\mhkl% ^fiehr^^lhkkîk^l^gmZmbo^l%bgZgrpZrk^\hff^g]lhk^g]hkl^lZgrli^\bÛ\bgo^lmment or opportunity. The education and information provided by REIC is intended for Z`^g^kZeZn]b^g\^Zg]]h^lghminkihkmmh[^%ghklahne]bm[^\hglmkn^]Zl%li^\bÛ\ advice tailored to any individual. REIC has not and will not make any express or implied kîk^l^gmZmbhghkZllnkZg\^k^`Zk]bg`maîhm^gmbZeikhÛmZ[bebmr%\aZg\^lh__ng]bg` or likelihood of success of any transaction, investment, opportunity or strategy. Laws, regulations and customs regarding real estate transactions vary from state-to-state, from county-to-county and even from town-to-town All calculations and information that we present to you are for illustrative purposes to help you gauge the relative productivity of present and alternative plans and opportunities. The calculations are hypothetical illustrations. They are based upon the assumption that current products, tax and other laws, and annual cash outlays, all of which are subject to change, will continue unchanged for the stated periods of time. It is not likely you will achieve the exact results illustrated in any of these calculations, since it is impossible to predict the effect of possible changes of your individual situation 8 | SUMMER 2011 Real Estate Investor REIC Coaches Anthony Andelin, Director of Education Rodney Beacham Randy Davis Keven Walgamott Dan Sorensen Dan Lindsey Nathan Larsen Bryan Olson The Property Management Company Trent Rogers, Director of Property Management – Company-Owned Assets Camron Selby, Special Projects Manager/Assistant to the Director Edye Hahn, Rent Revenue Coordinator Corbin Beckstrand, Accountant Adrian Ruvalcaba, Client Support Specialist Dallin Earl, Special Projects Facilitator Noelle Filimoeatu, Special Projects Facilitator Real Estate Investor magazine (ISSN: 2160-8466) is published quarterly by REIC Press, 1070 East 800 North, Orem, UT 84097. Send “Letters to the Editor” to this address. POSTMASTER: Send address changes to Real Estate Investor Magazine, 51 West Center Street, Box #527, Orem, UT 84057. SUBSCRIPTIONS: U.S.A., 4 issues $12; Canada, 4 issues $20 USD; International, 4 issues $35 USD. To subscribe to Real Estate Investor magazine, send your name, address, telephone number and e-mail address, along with payment in USD, to Subscriptions, Real Estate Investor Magazine, 51 West Center Street, Box #527, Orem, UT 84057. CUSTOMER SERVICE: For service on your subscription, subscription renewal, change of address, or any other customer service issue, call 801-841-3300, send an e-mail to info@reicglobal.com, or write to Real Estate Investor Magazine, 51 West Center Street, Orem, UT 84057. Please include a copy of your mailing label. ARTICLE REPRINTS AND BACK ISSUES: Call 801-841-3300 for information. To request permission to republish an article, call 801-841-3300 or send an e-mail to info@reicglobal.com. ARTICLE PROPOSALS: Send unsolicited article proposals to info@reicglobal. com with “REI Proposal, Attn. Editor” in the subject line, or mail to Editor, Real Estate Investor Magazine, 51 West Center Street, Orem, UT 84057. Real Estate Investor magazine cannot process manuscripts or art material, and we assume no responsibility for their return. ©2011 REIC Press. All Rights Reserved. Material may not be reproduced in whole or in part in any form without prior written permission. Printed in the U.S.A. 9LTPUK`V\ VMHU`[OPUN& :[VW[OYV^PUN`V\YTVUL`[V[OL^PUK 3LHYUOV^[VWYLZLY]L`V\YRVY09( ZH]PUNZI`JHSSPUN[VKH` Real Estate Investor SUMMER 2011 | 9 - GEORGE FOREMAN; “ “ THE QUESTION ISN’T AT WHAT AGE I WANT TO RETIRE, IT’S AT WHAT INCOME. LOG%LAE=>GJE=JOGJD<@=9NQO=A?@L:GPAF?;@9EHAGF$GDQEHA;?GD<E=<9DAKL$ GJ<9AF=<:9HLAKLEAFAKL=J$9ML@GJ$9F<=FLJ=HJ=F=MJ 10 | SUMMER 2011 Real Estate Investor Bad Credit? Have Credit but no Capital? Learn the place that investors go to Round up both Call 877.801.8040 Real Estate Investor SUMMER 2011 | 11 REAL WORLD RATES ON RENTAL HOUSING AFH@G=FAP9J= HEATING UP By Josh Nuttall I f Y j][]fl j]hgjl ^jge CH@G ;:K -F]okafH`g]fap$9jar&$j]hgjl]j Lisa Leigh Kelly (“Rental Houses @]Y\af_MhafHja[]$EYj[`*)$*())! j]n]Ydkl`Ylj]flYdjYl]kafl`]H`g]fap Yj]YYj]af[j]Ykaf_&L`]j]Ykgfo`qak because rental housing is becoming egj]Yf\egj]k[Yj[]oàd]l`]f]]\ for rental housing keeps going up. The reason for this is simple: more than half of the homes for sale in the Phoenix area are considered distressed, meaning those homes are either short sale or foreclosure properties. The owners of those homes, however, are not moving out of the area and need a home to live in. Because former homeowners of distressed properties will be out of the homeownership game for the next three to five years, the need for housing is exploding. Kelly’s article cites the experience of a local real estate agent named Shar Rundio. “We listed a pretty basic three bedroom, two bath house,” Rundio said. “As soon as the property hit the market, we saw an enormous amount of activity, probably 50 calls and five applications within the week, and some of those people hadn’t even seen the 12 | SUMMER 2011 Real Estate Investor property … We’re seeing that if properties are priced well, about $1,200 a month is kind of the hot number, they’re moving very quickly.” Kelly states that rental rates are already up five percent this year over last year and recommends that renters lock their rental rate in for as long as they can to prevent their monthly rate from increasing for as long as possible. Landlords in the area, however, experienced the best year in fifteen years in 2010. The sponsors of Real Estate Investor are seeing the same trend. Real Estate In- vestment Companies and The Real Estate Firm find investment properties for their clients. One of the prime markets for their investment activity over the last six to twelve months is the Phoenix area. REIC and TREF find homes, fill them with a tenant, and sell them to their investors for a really sweet deal. Recent transactions prove that now is the time to invest in a Phoenix home—not simply because it’s a sweet investment, but also because thousands of families need a nice home to live in. Why not provide it for them and build a real estate retirement portfolio at the same time? T h e Re al E s t at e F i r m Find the best houses with the best prices, for the best investment in the country! 13042 West Cheery Lynn Road, Avondale AZ 85392 5206 West Paradise Dr, Glendale, AZ 85304 * Numbers taken from Zillow.com Property management and other fees not taken into account ?glgLJ=>hj]k]flYlagf&[ge 16909 N 159th Ave, Surprise, AZ 85374 615 N 167th Dr, Goodyear, AZ 85338 Photo © Trulia.com Photo © Zillow.com Photo © Zillow.com Photo © Trulia.com Previous High Value: $262,000 (Nov 2005)* Last Sold: $82,100 (Dec 2010) Leased for: $950 Monthly Cash Flow: $421 Previous High Value: $271,000 (Aug 2006)* Last Sold: $84,000 (Oct 2010) Leased for: $1,050 Monthly Cash Flow: $503 Previous High Value: $258,000 (Feb 2006)* Last Sold: $81,700 (Oct 2010) Leased for: $950 Monthly Cash Flow: $469 Previous High Value: $279,000 (Jan 2006)* Last Sold: $82,300 (Oct 2010) Leased for: $925 Monthly Cash Flow: $352 16157 North 171st Lane, Surprise AZ 85388 1045 S Cheshire Lane, Gilbert, AZ 85296 )+-(K?j]]fÚ]d\J\MFAL))--$E]kY$9R0-*(. )/-**O=m_]f]L]jjY[]$Kmjhjak]$9R0-+00 Photo © Trulia.com Photo © Zillow.com Photo © Zillow.com Previous High Sale: $299,741 (Apr 2006)* Last Sold: $102,000 (Jan 2011) Leased for: $1,100 Monthly Cash Flow: $477 Previous High Value: $241,000 (Nov 2008)* Last Sold: $107,500 (Nov 2010) Leased for: $1,100 Monthly Cash Flow: $506 Previous High Sale: $181,304 (Dec 2007)* Last Sold: $87,100 (Nov 2010) Leased for: $900 Monthly Cash Flow: $204 Previous High Value: $417,000 (Dec 2005)* Last Sold: $84,000 (Nov 2010) Leased for: $925 Monthly Cash Flow: $371 13797 West Caribbean Lane, Surprise AZ 85379 8105 South 73rd Drive, Laveen AZ 85339 12502 West Grant Street, Avondale AZ 85323 12888 W Virginia Ave, Avondale, AZ 85392 Photo © Trulia.com Photo © Trulia.com Photo © Trulia.com Photo © Trulia.com Previous High Value: $274,000 (Jun 2006)* Last Sold: $84,000 (Nov 2010) Leased for: $1,000 Monthly Cash Flow: $475 Previous High Sale: $245,681 (Sept 2007)* Last Sold: $86,000 (Nov 2010) Leased for: $1,000 Monthly Cash Flow: $425 Previous High Value: $263,000 (Jan 2006)* Last Sold: $83,000 (Nov 2010) Leased for: $900 Monthly Cash Flow: $404 Previous High Value: $321,000 (Mar 2006)* Last Sold: $84,500 (Nov 2010) Leased for: $1,050 Monthly Cash Flow: $530 16821 West Central Street, Surprise AZ 85388 )()(/O]klN]daYfYOYq$Lgdd]kgf9R0-+-+ 11650 West Mountain View Drive, Avondale AZ 85323 16100 West Williams Street, Goodyear AZ 85338 Photo © Trulia.com Photo © Trulia.com Photo © Trulia.com Photo © Trulia.com Previous High Sale: $223,836 (Aug 2007)* Last Sold: $76,000 (Dec 2010) Leased for: $895 Monthly Cash Flow: $375 Previous High Sale: $203,000 (Aug 2008)* Last Sold: $83,000 (Dec 2010) Leased for: $1,100 Monthly Cash Flow: $586 Previous High Value: $352,000 (Dec 2007)* Last Sold: $111,550 (Dec 2010) Leased for: $1,150 Monthly Cash Flow: $520 Previous High Value: $319,000 (Apr 2006)* Last Sold: $89,000 (Dec 2010) Leased for: $925 Monthly Cash Flow: $415 Photo © Zillow.com Real Estate Investor SUMMER 2011 | 13 G N I S A PURCH E R U L I A F 2 @ L F G E Q J = N = THE WORST PERFORMING By Kevin E. Clayson ICA R E M A N I T INVESTMEN ASK YOURSELF THE FOLLOWING QUESTIONS: @godgf_`Yn]AZ]]f Y^Yadmj]7@godgf_`Yn]AZ]]fZmqaf_aflgZjgc]fÚfYf[aYdhYjY\a_ek7@go eYfqlae]k`Yn]A^Ydd]fhj]qlg )*egfl`kkYe]%Yk[Yk`$gj r]jgh]j[]flafl]j]kl^gj.egfl`k$gj eYpgmlqgmj,()c[gfljaZmlagfkZ][Ymk]l`][gehYfq oadd\gY\gddYj%^gj%\gddYjeYl[`mhlgkaph]j[]fl7 H ere’s a fun little batch of numbers for you: if you began a 30-year working career making $65,000 a year, with a guaranteed 1-1/2 percent salary increase every year, compounding over your 30-year career, and if you contributed six percent of your annual income to your 401k, and the company matched your contribution dollarfor-dollar for the entire 30 years, and the market earned a guaranteed seven percent rate of return every year for the entire 30 years, guess what your retirement will look like at age 65? Well, after you account for inflation and taxes you will only have $35,000 a year to live on. But this is when it gets really scary: if you end up living 15 14 | SUMMER 2011 Real Estate Investor years past retirement age, you will only have $25,000 per year to live on. So let me ask again, how long have you been buying into broken financial paradigms? Recent discussions in the media, especially among financial experts, have focused on identifying the best investments in the current market. Everyone wants to know what the Holy Grail of investing is. Generally speaking, Americans want an answer to the following question: Where is the safest place to invest my money? If you have ever asked that question, consider the information you are really seeking. You want an investment that will perform beautifully regardless of market conditions, right? You want your investment to provide a predictable and consistent rate of return. You want to be able to have access to the funds if you need them, and when you want them. In other words, you want some degree of liquidity, and most importantly, you want to keep the money you invest. Sounds simple, right? All you really want boils down to three simple elements: safety, liquidity, and high rate of return. 9KC QGMJK=D> L@AK F=PL IM=KLAGF2 Do you purchase failure little by little like 67 percent of Americans do every month? Over 200,000,000 of us throw money at the kind of investment vehicle that is the antithesis of what we want for our money; and we do it every month. Let me list the features of this very popular investment vehicle, and as you read through the features, ask yourself if you are throwing money, every month, at an investment vehicle with the following features: 1. You, the investor, are required to make an initial contribution to the investment in order to set it up. The initial contribution required is typically between two to nine percent of the total, long-term investment amount. 2. You, the investor, have a very limited number of contribution options, but you ultimately retain the ability to choose the amount you would like to contribute on a monthly basis; however, once you have elected your monthly contribution amount you are locked in for the life of the investment. 3. You, the investor, have the freedom to contribute more than the elected monthly minimum investment, but you are never allowed to contribute less than the monthly minimum you elected upon set-up, even in the case of job loss, medical issues, or other hardship. 4. If you, the investor, elect to pay less than the minimum contribution amount in any given month, you risk losing the entire contribution amount to date. 5. In most cases, approximately $0.95 of every dollar contributed during the first five years, funds the investment company directly, leaving only $0.05 of every dollar to benefit the investor. Over a 30-year period, only 46% of the total investment contributions will be owned, and can be claimed by the investor. 6. You have no liquidity. The money is tied up and unavailable, with the exception of certain loan provisions that allow access to a small portion of the investment. The investor must meet rigorous standards for the investment company to even consider allowing the investor access to the liquid portion of the investment. 7. The money sitting in the investment is completely at the mercy of the market, and those dollars are not guaranteed or insured. In other words, they could go “poof ” at any given moment. 8. Every time you add principle to the investment, you put the entire principle at greater risk. Yet, at the same time, as your principle gets less safe, it further secures the investment company’s position with your money. Real Estate Investor SUMMER 2011 | 15 9. The money in the account, or the principle, will earn somewhere between a 0 and - 3.8 percent rate of return over the lifetime of the investment. There is a 75-year track record of these investments earning negative 3.8 percent, so the “0” is being generous and optimistic. 10. Once you have fully funded the investment, you are no longer allowed to contribute any additional dollars to the investment. 11. The fully funded investment pays no dividend or income of any kind at any point unless the investor sells off his or her interest in the investment. 12. The investor will be required to pay taxes on the fully funded investment as long as they hold onto it, even though the investment provides no income or dividend. So, who wants in? Does this sound like an exciting investment opportunity? Any takers? Your skin should be crawling with the absurdity that over 200,000,000 Americans invest in this thing every month. Most of you are likely thinking I’m knocking 401(k) and IRA accounts. The fact of the matter is, while 401(k) and IRA accounts have many of the same rigid features and absurd restrictions listed above (like no principle-protection feature, being dependent on the mercy of the market, and zero tax benefits), I’m not talking about 401(k)s or IRAs. The investment that hundreds of millions of Americans are unwisely investing in on a monthly basis is quite simply a home mortgage. QGMJ@GE=AKFL9F INVESTMENT Millions of Americans are willing to mortgage their lives away for a sense of security, believing that the equity building in their homes will somehow provide the level of retirement and security they seek after their entire lives. People work a lifetime to own a home “free and clear,” only to real16 | SUMMER 2011 Real Estate Investor “THE INVESTMENT THAT HUNDREDS OF MILLIONS OF AMERICANS ARE UNWISELY INVESTING IN ON A MONTHLY BASIS IS QUITE SIMPLY A HOME MORTGAGE.” ize they cannot retire once they reach retirement age. Their “free and clear” home no longer feels like an asset at retirement; it feels more like a consolation prize. To bring this point home, let’s look at the same twelve investment features described above and discuss them in terms of the mortgage on your primary residence: 1. The investor is required to make an initial contribution to the investment in the amount of two to nine percent of the total, long-term investment amount. Your initial down payment of 3-1/2 to 20 percent of the total purchase price of the home will, at the end of a 30-year note, equate to approximately two to nine percent of the total purchase price over the lifetime of the loan. 2. The investor has a very limited number of investment options, but ultimately retains the ability to choose the monthly investment amount. Once you have elected your contribution amount you are locked in for the life of the investment. You have the ability to shop around for the best interest rate on your mortgage, as well as the type of loan you want to accept. 3. The investor has the freedom to contribute more than the elected monthly minimum investment, but the investor is never allowed to contribute less than the monthly minimum, even in the case of job loss, medical issues, or other hardship. You are always welcome to pay more than your monthly payment, but if you ever pay less, or don’t pay at all, you may be considered in default and the foreclosure process will begin ultimately resulting in a lower credit rating and in the potential loss of your home. 4. If the investor elects to pay less than the minimum contribution amount in any given month, the investor risks losing the entire contribution amount to date. If your home slips into foreclosure, you will lose all of your principle payments, as well as all of the interest you’ve paid up to that point. There is no contractual provision in place to allow you to receive any of that money back if the bank forecloses. 5. In most cases, approximately $0.95 of every dollar contributed during the first five years of the investment funds the investment company directly, leaving only $0.05 of every dollar to benefit the investor. Over a 30-year period, only 46% of the total investment contribution can be claimed by the investor. When researching a typical 30-year amortization schedule, you find that, on average, only 5 percent of your monthly payment pays down your principle balance, while the rest is devoted to interest. As your amortization schedule matures, you will begin to contribute more to principle and less to interest. However, on a $225,000 loan, with a 6 percent interest rate, your fullyamortized payment would be around $1,350.00, not including taxes and insurance. If you make that payment for 360 months, or 30 years, the total amount you will have paid over the life of the loan is $486,000. Hence, only 46 percent of the total amount of the investment went towards paying down principle. 6. The investor has no liquidity. The money is tied up and unavailable, with the exception of certain investment provisions that allow access to a small portion of the investment. The investor must meet rigorous standards for the investment company to even consider allowing the investor access to the liquid portion of Real Estate Investor SUMMER 2011 | 17 the investment. Home equity, or the difference between the value of the home and the remaining principle balance, is tied up and not accessible. You have zero liquidity. The loan provisions referred to equate to a refinance or Home Equity Line of Credit (HELOC), but those require you to pass multiple rigorous qualifications before the bank will give you that money. The lending industry is an ever-changing monster that has caused multiple casualties over the years. An unforeseen change in the lending industry may in fact mean that the mortgage you once qualified for when you purchased the home may be the only home loan you ever qualify for. If lending guidelines shift, you may not even be able to qualify for a refinance on your primary residence leaving those dollars eternally unavailable, unless you sell your home. 7. The money sitting in the investment is completely at the mercy of the market, and the investment principle is not guaranteed or insured. Home owners have unlimited downside potential in their investment. This means that you could owe significantly more on your home than what it is actually worth — a problem that helped drive the U. S. housing industry, and U. S. economy in general, into the ground. 8. Every contribution made puts the principle at greater risk; yet it further secures the investment company’s position. As you pay your mortgage loan down, the loan-to-value on the home decreases, which means that the bank’s investment in you is even more secure than it was when you first started making payments. Mortgages with a low loan-to-value amount are the easiest and quickest to foreclose on if you ever miss a payment which puts your principle at greater risk. Think about this: you are a bank and you have ten homes you can potentially foreclose on. In deciding which homes to foreclose on first, you notice that one home is worth $225,000 but has a loan balance of $50,000, versus the other nine that are worth less than what is owed. 18 | SUMMER 2011 Real Estate Investor Which home are you likely to foreclose on first, in hopes of minimizing the negative impact that asset will have on your books? 9. The money in the account, or the principle, will earn somewhere between a 0 and -3.8 percent rate of return over the lifetime of the investment. Equity in your home earns you nothing. That money never produces more money for you. Equity is a fully theoretical concept until you access it with a HELOC (home equity line of credit), refinance, or sale, and the equity converts to real, physical dollars in your personal bank account. Not accessing the equity in your home is like having tens of thousands of dollars sitting in a bank I don’t know why you would want to anyway. Most long-term investments however, don’t cap the amount you are allowed to contribute. Most of us would never choose an investment that caps principle contribution; we would see it as too restrictive, yet most of us view our home as an investment and get excited that we don’t have to put any more money than necessary into it. 11. The fully funded investment pays no dividend or income of any kind at any point unless the investor sells off their interest in the investment. Once your home is paid off, it creates no residual income or dividend. The best way to put it is this: a free and clear home will never deposit a check in your bank ac- “ NOT ACCESSING THE EQUITY ON YOUR HOME IS LIKE HAVING TENS OF THOUSANDS OF DOLLARS SITTING IN A BANK ACCOUNT DOING ABSOLUTELY NOTHING.” account doing absolutely nothing. Putting money in a similarly-structured, non-interest-bearing savings or checking account would be like stashing money in a locked safe that you can’t open. Money sitting like that is subject to inflation, and the 75-year average on inflation, according to the United States Government, is 3.816 percent. Your home may increase in value, but the real estate market is not growing your money for you. The theoretical value of the home is growing, but that growth is wholly dependent on market conditions you cannot control. 10. Once the investment is fully funded, the investor is no longer allowed to contribute to the investment. When your home is paid off, you are no longer allowed to put any more money into your mortgage. count. Plainly and simply, if you put money into any investment vehicle that does not cut you a check every month, you are not properly investing. Even if you were to take the amount of money you paid every month towards your mortgage and began allocating it to another investment account once you have your home paid off, it would take you years before that money would begin providing any level of retirement income for you. 12. The investor will be required to pay taxes on the investment as long as they hold on to it, even though the investment provides no income or dividend. Once you own your home “free and clear,” you are only clear of the mortgage payment. The home does not become yours, and in no way is it “free.” You are required to continue paying property taxes on the home as long as you own that property. In most states, you may not know what your tax bill will be from year to year. Do not misunderstand. I do not advocate any of the following: s USING YOUR HOME AS AN !4- MACHINE s USING THE EQUITY IN YOUR HOME FOR DEBT consolidation s RESTRUCTURING YOUR LOAN THROUGH A mortgage refinance Those practices add to debt proliferation and will ultimately result in bankruptcy for many Americans. In fact, paying off your home is a noble and wise thing to do, but only if you have organized your financial house adequately enough to allow you to save for retirement by creating passive income. If you spend your entire adult life chasing that financial unicorn called retirement, please reflect long and hard on the actual, practical, and very real side of what many Americans call their biggest and best investment. Millions of Americans need a drastic financial paradigm shift. Paying off your home first is not the key to successful retirement. I do, however, suggest implementing “conservative” financial principles that may include using your home equity, and applying it to conservative and time-tested real estate investments. Dumping money into a 401(k) or IRA account, or paying off a home, doesn’t work as a way to retire. That last thought may go against everything you have ever been taught as a responsible citizen, but ask yourself a very important question: has practicing the traditional methods of saving, contributing to a 401(k) and IRA account, and paying off my home first put me on course for the exact retirement I need or want to have, or am I currently behind schedule, and worried about the future? Very simply, is your current plan working or not? Are you going to be able to retire if you maintain the current pace in this economy, or not? It is a widely known and well-documented fact, that 97 percent of all Americans are not financially independent by age 65, and you may currently count yourself as part of that group. So fix it! It is up to you to do so! Paying off your home certainly feels good, and is indeed wise, but the key question remains: is it the single best way to invest your hard-earned money? Is that “investment” putting you on track to earn the exact amount of residual income you need for your retirement? Now that you have the facts, is paying off your home your greatest investment, or is it indeed the single worst performing investment in America? It’s decision time. You can either continue to purchase failure every month or you can take control of your own financial destiny. The Terms & Conditions regarding participation in REIC Programs is set forth at www.reicglobal.com. You are urged to review this and understand that the disclaimers and policies for participation in REIC programs are relevant in your evaluation of the strategies contained in this article. No investment, legal or tax advice provided by REIC and you should consult your own licensed tax, legal or other advisors for such advice before you implement your financial decisions. Real Estate Investor SUMMER 2011 | 19 DIALOGUE RETIREMENT? Maybe, and Maybe Not By Josh Nuttall An interview with Ed Markham, sod farmer and member of Real Estate Investment Companies (REIC) W hen a new opportunity comes available, many people do not recognize it as such—especially an investment opportunity. And who can blame most people? It isn’t like the stock market has earned high consumer confidence ratings over the most recent decade. And the world-wide economic downturn hasn’t helped lift the spirits of most consumers. The problem with all of the doom and gloom associated with investing lately is that people will turn their backs on a viable opportunity without giving it a fair chance. For example, a common misconception in today’s economy pigeon-holes real estate as a generally bad investment. The reasons for this are obvious. Many home owners have lost a considerable amount of equity and value in their homes. Those homeowners who bought their home right before the market fell have seen reductions in value from $20,000 to over $200,000! Talk about a bubble bursting! To lose $20,000 of home value, or equity, in the space of just a few months is frustrating, but to lose $200,000 worth of equity in the same amount of time—especially if that dollar amount represents half or more of the value of your home—frustrating doesn’t begin to describe the feeling that reality brings. Imagine yourself as one of those who lost 20 | SUMMER 2011 Real Estate Investor all of that equity. From that perspective, the cynicism felt for the real estate market makes a lot of sense. However, people like Ed Markham have found a way to not only recoup those losses, but to also begin building something sustainable over a number of years. There are many ways to invest in real estate. Some are very safe. Others are very dangerous. And still others are just plain stupid. Many members of the Baby Boom generation have retired, and millions more are preparing to retire. Some of them can’t wait for the day they are finished working. But what if you are one of the few that don’t necessarily look forward to retirement because it sounds plain boring? I met Ed briefly a few times, and decided to interview him because, as it turns out, he fits into the latter group. As a sod farmer in Colorado, Ed likes to be busy. He has been sod farming for a long time, and he enjoys the work. If it’s enjoyable, why retire from it? Even though Ed doesn’t really want to retire, he and his wife really enjoy traveling. And extra income from investments will help them travel whenever and wherever they want. Using a revolutionary new real estate investing strategy that was made possible by the current economy, the Markham’s are building their version of retirement. Ed explains his vision in our interview. BGK@ FMLL9DD2 Thank you again for being willing to let me interview you about your REIC experience. =<E9JC@9E2 You’re welcome. FMLL9DD2 So, from what I understand, you have actually purchased quite a bit of real estate so far, and you have only been a member for about six months? E9JC@9E2 Yes. FMLL9DD2Tell me a little bit about what you have done. E9JC@9E2Well, my son works with an REIC company. Do you know Shane Markham? FMLL9DD2Yes, I know Shane. E9JC@9E2My wife and I were in Utah one weekend and Shane told me about REIC. We visited with Chris Wood, and I liked what I heard. To fill you in, I was very tired of having money in the Market. Around four years ago, I lost about 40 percent of what we had. So instead of putting more money into the market, I have been putting money into paying off real estate I own locally. In addition, I now have five REO homes (Real Estate Owned; homes formerly owned by banks that were purchased free and clear at a great price): three in Kansas City, Missouri, one in Indianapolis, Indiana, and one in Memphis, Tennessee. I also purchased three homes in the Phoenix, Arizona market. FMLL9DD2 Do the Phoenix homes have tenants in them? E9JC@9E2 All five of the REOs are rented, >HU[[V PU]LZ[PU YLHSLZ[H[L I\[MLLSSVZ[& Try the Strait Path Intensive. Three days of expert teaching, and get your first property under contract. It’s that easy. Learn more by calling 877-801-8040 Real Estate Investor SUMMER 2011 | 21 and starting tomorrow, I will have two of the Phoenix homes rented. We hope to have the last one rented by the first of May. FMLL9DD2 That has happened quickly. It’s amazing how fast the process can move. E9JC@9E2 I’ve visited with some of my friends about what I have done. They say, “Geez, Ed, you jumped in head first.” I guess I did. I pulled money out of the Market to do specific things. I rolled my IRA over to buy REO homes. I think I’m going to like real estate better than what the markets have done for me in the past. FMLL9DD2We advertise that our services are much better at helping people build a retirement than leaving your money in an IRA, or a 401(k), where they are exposed to the stock market. What kind of a return are you expecting on your money, now that you’ve moved it into real estate? E9JC@9E2After buying these REO homes, I had a few little problems that are normal when dealing with renters—you’ve got a few little expenses here and there—but after three or four months, all of those little things will be taken care of. I’ll turn anywhere from a ten to twelve percent profit on my money. FMLL9DD2 How high was your return on investment in the stock market? E9JC@9E2Four years ago, I lost 40 percent of my total account value. Over the years, I saw fifteen or twenty percent at times. But I saw many losses. For the last ten or fifteen years, the overall market average has been five, six percent, I think? FMLL9DD2Something like that, if you’re lucky. E9JC@9E2 Now, I control what I’m doing, not to mention what I’m creating, whether it’s net worth, or assets, because I have these homes. FMLL9DD2What level of control did you feel you had with your investments before you joined REIC? E9JC@9E2None. You had to turn it over to 22 | SUMMER 2011 Real Estate Investor your broker and go by what he [or she] said. The thing that I like about REIC is that you have everything under one roof, from teaching people how to do the programs, or finance, or coaching; you’ve got people that will help you to learn how to do the real estate. Right now, I feel I have control over whether I want to buy these homes at a particular price, whether I want to keep them for five years, or ten years. And if I keep them rented, I’m very pleased to pull a ten to fifteen percent return on a home, and that’s just the rental income. Hopefully, the values of these homes will appreciate, but that doesn’t factor into the overall return on investment (ROI). FMLL9DD2 When you first joined REIC, you were earning a negative ROI on your investments. E9JC@9E2Oh yes. It was up and down. I was one to put money in the Market and let it ride, but things have changed in the last five, six years. FMLL9DD2 I’m sure when you first came on there was a lot of talk about finding your life’s purpose and vision, and trying to figure out what it is you want to do with your life. What does your future look like for you and your wife now? E9JC@9E2Well, back when I was in my 30’s, I knew people that owned rentals that produced income. I always thought it would be nice, as I got older, to sit and have residual income coming in from real estate. But I wasn’t really sure about how to do it. After I hooked up with REIC, they helped me understand that we can do this. They did the foot work. Now, what’s the vision? I’ve got a plan that by the time I’m 60— I’m 54 right now—I want to see $10,000 in residual income a month. FMLL9DD2 From your rental income? E9JC@9E2 From my rental income, exactly. FMLL9DD2 Where, including all that you’ve done so far, do you stand right now? E9JC@9E2 Right now, I stand at about $4,000 a month. FMLL9DD2Wow! In six months, you’ve gone from just a few hundred a month to almost half of your goal? E9JC@9E2Exactly. FMLL9DD2 That’s a pretty accelerated program. E9JC@9E2Yeah, it is. I feel very good about what I’m doing, and I feel very good about the people that are helping me accomplish this goal. FMLL9DD2 What reservations have you had about the program? Did you experience any when you first listened to a seminar and talked to Shane about the work he is doing with REIC? E9JC@9E2 I have not felt any reservations about doing this at all, Josh. I just haven’t. I have felt good about the whole experience, not to mention all the people that I have met with in Utah. I have stopped in at REIC and I have met Kris Krohn, Chris Wood, Anthony Andelin; I attended a seminar in Phoenix, Arizona when we were there. My wife and I went to that meeting the evening Anthony presented. Awesome. Just awesome experiences. FMLL9DD2It sounds like it’s been very extensive, too. You didn’t jump in after seeing only one seminar. You’ve actually come into the office, talked to people, gone to multiple seminars, and sat through multiple presentations. E9JC@9E2 I jumped in head first. Three months from the time I started this program, I own eight homes. The reason is because I feel good about what people have told me. FMLL9DD2 I understand that you’re a sod farmer. Is that correct? E9JC@9E2Correct. FMLL9DD2 What does that entail? E9JC@9E2My dad owned the sod farm, and I grew up working on it, back in the mid1980s when I got out of school. I bought the farm from him. It’s been my livelihood for the last 30 years. We plant grass, grow the grass, and have to sell it. I also have people to manage, and I do it all. I mean, I pay the bills, I do the book work; my days get long this time of year. They start at 5:00 am and end at 9:00 or 10:00 pm. FMLL9DD2 We’re getting into your growing season right now. E9JC@9E2Yes, we are. But I’m my own boss, and I have good employees. When I want to leave for a week, I have the opportunity to do that. These are the opportunities that I’m setting myself up for as I get closer to retirement. I’ll never retire. I’ve got to be working, or doing something. And to be honest with you, Josh, this real estate thing has become my hobby. It’s a moneymaking hobby. I have needed a hobby for a while. I’m not a big fisherman; I’m not a golfer; I love to race cars once in a while. But I’m ready to go buy another three homes in Phoenix because that market is so hot. FMLL9DD2 It’s amazingly hot. I talked to Kevin Clayson about it recently, and I didn’t realize exactly how hot it was, and I’m not talking about the climate. The prices they’re getting these homes for are absolutely dirt cheap; they’re rock bottom prices. E9JC@9E2 Yes, exactly. When I was called and asked if I wanted to be on the waiting list for a Phoenix property, I said, “Guys, I would really like three to start with.” They found three for me and we closed on all three homes in one day. It wasn’t fun trying to go through all the paperwork to get the loans for them. But, you have great people there at REIC, and it went great. It is the time to buy real estate. FMLL9DD2As far as retirement is concerned, it sounds like real estate is simply something for you to do. It’s not necessarily a retirement vehicle; it’s a hobby. MARKHAM: Well, in a way, it is. My wife and I have joked about it. She has wanted me to find a hobby for a while, and I’ve said to her, “I think this is my hobby.” It will allow me—whether I’m 60, or 70, or 80—to keep working and keep going. FMLL9DD2 Do you see yourself sod farming for the rest of your life, whether you’ve “retired” or not? E9JC@9E2Yes. I always thought Shane was going to come back home and run the farm, and then I’d be his employee. But that won’t happen. He wanted to be in the real estate investment industry. That’s something I need to work out over the next six years. I’ve given myself ‘til the age of 60 to either set this operation up [sod farming] to have employees run it so I can leave and still have income from it. Or, if land development comes back, it might be time to sell the farm and develop it. FMLL9DD2You’re not exactly positive what retirement will look like at this point? E9JC@9E2I’m not. I don’t have a crystal ball CONTINUED ON PAGE 60 Real Estate Investor SUMMER 2011 | 23 THE INDUSTRY K J G L K = N F A < D G @ % < :MQ%9F E G J > L A > :=F= TIGHTER LENDING, NTERS E R G IN N R U RET By Peter G. Miller L`]IJEoaddkggfZ]`]j]Yf\aloadd[`Yf_]l`]oYqo]ÚfYf[]Yf\j]ÚfYf[] j]Yd]klYl]&Làk[gmd\Z]n]jq_gg\f]ok^gj^gj][dgkmj]Zmq]jk$]kh][aYddql`gk] o`ghmj[`Yk]Yf\`gd\& KGO@9LK9IJE7 The final definition of a QRM is now at the center of a major battle in Washington. Like Bigfoot, we have a general idea of what it looks like but remain fuzzy on the details. Unlike Bigfoot, we have proof of its existence. Go back to last summer and passage of the Dodd-Frank Wall Street Reform Act. One of the primary goals of the legislation was to assure that mortgage borrowers obtained a net tangible benefit every time they financed or refinanced. Another goal was to remove excess risk from the mortgage marketplace by creating lots of lender liability for “iffy” loans. You can already see the results. Speak with any real estate broker or lender and ask when they last saw a no-doc loan application. You’ll inevitably hear that such applications are now as common as elves and gnomes. You’ll also hear that lenders have become unbelievably picky and that mortgages are tough to get even for borrowers with great credit. portant reasons under the Wall Street reform legislation: First, you don’t have to set aside 5 percent of the loan amount in a reserve account. Second, with QRMs you remove most of the grounds for borrower suits against you. The final rules defining QRMs are now being debated in Washington, but from last summer’s reform legislation we already know some of the basics. s s 4HE LOAN CAN BE lXED OR ADJUSTABLE s 0IGGYBACK LOANS ARE OKAY 9OU CAN GET an 80 percent first mortgage and a second mortgage for some of the rest but the lender must qualify the borrower on the basis of both loans, not just the first mortgage. s THE RULES The initials “QRM” stand for qualified residential mortgage. If you’re a lender you want to originate QRMs for two im24 | SUMMER 2011 Real Estate Investor ,ENDERS MUST VERIFY EMPLOYMENT AND income claims. This means borrowers will need letters from employers, tax returns, W-2s, and other documentation. No more stated-income claims from borrowers with fuzzy and selective memories. 0REPAYMENT PENALTIES ARE ALLOWED WITH QRMs, however they cannot total more than 3 percent of the loan balance in the first year of the mortgage term, 2 percent in the second year, and 1 percent in the third year. s 0OINTS AND FEES ARE LIMITED TO PERCENT of the loan amount. NEW REQUIREMENTS If you look at the QRM standards you can see they’re entirely dull. We’ve essentially gone back to the good old days of the 1970s when mortgage options were limited and underwriting was by the book. Of course, that was also a time when failing banks did not imperil the entire financial system, an important consideration. The catch is that conventional QRMs are getting very difficult to get even though rates have been hovering around 5 percent, an exceptionally low level by historic standards. Lenders are seeking higher credit scores and increasing qualification standards for the very loans which represent the least possible risk. Jack Guttentag, Professor of Finance Emeritus at Wharton, says with “many lenders, borrowers with a credit score of 800 have to put 20 percent down, and borrowers who put 40 percent down still need a 700 score to qualify. Some lenders will go to 10 percent at 680, but limit the loan size. “Fannie Mae and Freddie Mac have tightened their requirements, but by much less than the strictly private sector. The agencies today will accept a credit score of 620 at 20 percent down, and 680 at 5 percent down. However, risk-based pricing is extensive, and many borrowers with mediocre credit, small down payments or both, opt out. The average down payment on new loans is about 35 percent and the average FICO is about 765.” At the same time that conventional standards are tightening to levels unseen in the past, there’s a pronounced effort to dump the competition, meaning FHA loans that can be had with 3.5 percent down and credit scores as low as 580. In fact, the FHA itself is opting to become less competitive. It recently raised the annual mortgage insurance premium for new FHA loans, even though reserves grew by $9.8 billion in fiscal 2010. But why raise costs when the FHA program is doing so well? It’s critical, says HUD, “that we pave the way toward a robust private mortgage market. To that end, the FHA will raise premiums pursuant to authority granted by Congress last year.” FORECLOSURE BUYERS What we’re seeing is a complete and total re-structuring of the mortgage marketplace. At a time when rates are low, loans are safe and foreclosures come with remarkable discounts — the average foreclosure sells at a 28 percent mark-down according to RealtyTrac — prospective buyers are being frozen out of the market by new and tougher loan standards. A major by-product of these new trends is that foreclosure buyers have an increasingly open field. One reason foreclosure discounts are so steep is simply because the pool of potential buyers is shrinking. Fewer people can get loans, therefore fewer people can bid for properties. The current circumstances very much favor those with cash and credit because not only is the new mortgage system less accessible to once-qualified borrowers, it’s also creating a new demand for renting. A new financial movement is gaining traction, one which says it’s better to own than to rent. One can debate the idea, but a byproduct of this new trend is that if more people want to rent then we’re likely to see higher rents and fewer vacancies — good news for those who want to use foreclosed properties for investment purposes. Research from Reis, Inc. shows that throughout 2010 vacancy rates for apartments fell to virtually zero while rents increased each quarter. “WHAT WE ARE SEEING IS A COMPLETE AND TOTAL RE-STRUCTURING OF THE MORTGAGE MARKETPLACE” “The fact that effective rent increases kept pace with asking rents implies that concession packages are likely no longer increasing,” said Reis in its January Apartment, Office, and Retail Sector Trends report. “Despite tepid economic growth and an anemic recovery in the labor market, households appear to be returning in droves to the rental market and signing leases.” But what about falling prices? The Federal Housing Finance Agency said US home prices in November were 14.9 percent below the April 2007 peak. “There’s no doubt that risk remains in the marketplace,” said Jim Saccacio, Chairman and CEO at RealtyTrac. “But there’s always risk in the marketplace and in every form of investing. After all, not all stock prices rise. The real question is whether the level of risk is tolerable. A local environment with rising rents and declining vacancy levels is certainly a plus for investors.” Peter G. Miller is syndicated in more than 100 newspapers and operates the consumer real estate site, OurBroker.com. Real Estate Investor SUMMER 2011 | 25 DIALOGUE ECONOMIC GROWTH Happens One Home at a Time By Josh Nuttall An interview with Kris Krohn I n March 2010, I was in the market for a job, and had been for over a year and a half. As I browsed through a local lob board late one night, I came across a posting for a company called Real Estate Investors Club, or REIC. The name was somewhat familiar; I had heard an REIC ad on the local radio station once or twice, but didn’t pay much attention. I read through the position description and found that I qualified. Their HR department only wanted a resume and a cover letter, so I added REIC to a long list of potential employers I’d contacted during the previous 12 months. Beginning my first day on the job, I read whatever I could get my hands on that explained REIC’s program. Before I sat down with Kris for my second interview, I spent at least five hours researching REIC via the company website at http://www.reicglobal.com. I watched an online seminar, read through a lot of content, listened to audio interviews, and generally filled my head with as much information as I could. I had two questions at the time: What I didn’t expect is that I would get a call for a phone interview. Then I was told Kris Krohn, the President and Founder of REIC, wanted a face-to-face interview with me. Then Kris wanted to talk to me and my wife about bringing me on to the company. In the fourth meeting, another phone conversation with Kris, I was extended an offer to join REIC as Kris’ Executive Assistant. Since that day in April 2010, I have driven a crash course through the real estate market, learning everything I can from Kris and my co-workers about real estate investing. After completing all of that research, I could answer yes to both questions. Admittedly, I went into my first day of work with a few reservations. I wondered if working for a real estate investment company during one of the worst real estate economies in recent history was a good idea. My level of understanding concerning the real estate market was quite low at the time, even though I’d seen one of Kris’ seminars and possessed all of the market insight my research had given me. I suspected a certain amount of that information was a combination of fluff and self-generated hype. 26 | SUMMER 2011 Real Estate Investor s )S THIS A COMPANY ) COULD WORK FOR AND more importantly, s 7OULD ) BECOME A MEMBER OF 2%)# Then I started to hear about the results our members were getting directly from those members. Their lives were changing right before their eyes! Their personal economy was improving, even as the global economy continued to sag. Okay, fast forward to the present. I am now Editor of this magazine and able to highlight REIC’s work in this publication. T here is still a lot of talk in the media about the state of the economy. Everyone questions how long the down economy will last. Everyone hopes for recovery sooner rather than later. The real estate market in general is still very depressed, which means 1) foreclosures are expected to increase in 2011, 2) more families will be displaced from their homes, 3) those families still want to live in a home, and 4) those foreclosed homes will sit empty until someone buys them and lives in them. Most people believe that you have to buy a home in order to live in a home. This is not true. In order to understand this more clearly, I sat down with Kris to pick his brain about the economy and about what REIC is doing to have a direct and positive impact on the economy. I received the answers I wanted. Along the way, I asked a few more questions I’d had without realizing it going into the conversation. As the reader, I encourage you to read this interview with an open mind. You may go into this with a few questions of your own, like: s 7HY ARE TRADITIONAL RETIREMENT ACCOUNTS a bad idea? s 7HAT ARE THE ALTERNATIVES s $O HIGHPERFORMANCE RETIREMENT ACcounts exist? s )S INVESTING IN REAL ESTATE A GOOD IDEA IN this economy? As you read through my conversation with Kris, these and many other questions will be answered, but not in a way you might expect. Remember when I suggested you keep an open mind? That starts right now. Believe it or not, the current economy is has created a real estate market designed specifically for investors. If you have thought at all about investing in real estate, now is the time. Kris Krohn and his company, Real Estate Investment Companies (REIC), are leading the way for investors and directly improving the economy in many depressed areas of the United States. I talked to him about his vision, where it came from, and what he’s doing with it every day. BGK@FMLL9DD2 Hi Kris. Thank you for sitting down with me for a few minutes. Tell me about your vision for REIC. CJAKCJG@F2 Real estate is one of the best investments for creating retirement. A lot of companies show people how to do it the wrong way. It’s just that simple. A number of years ago, I had the vision of having an impact, not on the economy—though things have turned out that way—but in creating a better opportunity for people. If someone wants to start a real estate investing business, rather than ordering books, CDs, and tapes, they can actually work hand-in-hand with not only one person, but a whole team of people that will help them define their game plan, know how much cash flow they need to generate to create a decent retirement, and then a plan that will define the markets to invest in. Our team finds the houses for them. Our team fills the home with a tenant. Our team aligns all of the necessary financing. So at the end of the day, we align with our philosophy of, If you want something done right, don’t do it yourself. Have a team of experts available to help you. Most of the people I meet are not experts in real estate. They’re not good at it at all. In fact, they stink at it! REIC is a collection of experts—now more than 80 strong—that come together every day to help people build and manage their own real estate portfolio. FMLL9DD2 There’s a lot of buzz in the news and other information outlets concerning retirement: throwing money into 401(k)s and stocks, mutual funds, and other more traditional investment vehicles. From what I’ve seen at REIC, we encourage people to actually remove money from their 401(k) s and IRAs and place it somewhere else. What does that process look like for people? CJG@F2That’s absolutely right; 401(k)s and IRAs are part of a totally broken system. We know that. I meet with people all the time that have spent a lifetime putting money into these types of investments. They followed the system. They’ve done what society has asked them to do. They’ve actually not been big spenders—they’ve been great savers. After a lifetime of contributing to a 401(k) or IRA, or both, they may have enough money to manage the first few years of retirement. But happily, and sadly at the same time, people are living a really long time. The amount of money they have saved doesn’t begin to scratch the surface of what real retirement needs actually are. Between a 401(k) and a little bit of Social Security income, people are living pretty close to the poverty level. And that’s how they’re enjoying the last thirty years of their life. It simply doesn’t work. However, we have found a way to assist people to take their 401(k)s and IRAs, without having to pay taxes and penalties, and transfer that money into an active investment—a piece Real Estate Investor SUMMER 2011 | 27 of property—that writes them a check every single month. enough to know that traditional retirement accounts don’t work. FMLL9DD2 Do they have the opportunity to build on these investments in the future? That was when I realized that I need to do something different. It was at that time that I began searching for mentors. Two notable individuals came into my life, both of which had made millions of dollars in real estate, and I felt inspired that real estate might be the vehicle for me as well. Sure enough, a few years later, I had amassed twenty five properties. I had a six-figure residual income, and I was able to quit corporate America. CJG@F2Absolutely. FMLL9DD2How do they do that? Do they put more money into a 401(k) or an IRA-type of an investment, or do they invest directly into a new investment form that actually allows them to buy more real estate? CJG@F2We actually transfer their money into a system called Bank on You. It’s a banking system that banks and insurance companies use to grow their investment portfolio. Rather than putting money into a 401(k) where the money becomes trapped—even if their account is administered by a current employer—I encourage people to stop putting money into their 401(k)s altogether. People are allowed very little access to certain amounts of that money when it enters a 401(k) account. Dumping money into a retirement account is a really good plan if you don’t have a plan. If you don’t have a retirement plan, use a 401(k), use an IRA, because it is better to save a little than nothing at all. But, like Warren Buffett said, diversification is for people that don’t know what they’re doing. Traditional 410(k)s, IRAs, Roths, and annuities are great investment vehicles for the financially ignorant and lost. FMLL9DD2In speaking of your personal vision, I’m guessing there was a point in your life that you had no vision as well, just like anyone else. Where did your vision come from? CJG@F2I remember feeling lost during a time in my life that I was going to school fulltime and working full-time. That is exactly like balancing two full-time jobs. The job that I worked at, fortunately, had me talking to people in their fifties and sixties—people that had been saving their money in a 401(k) their whole lives. That was my first real exposure to the problems I am talking to you about. As a telemarketer, I interviewed these people and began to understand the difficult position retirees are in today. I talked to thousands of people in that capacity— 28 | SUMMER 2011 Real Estate Investor My passion today is helping people take the exact same steps I took so they can live a life of passion. I’ve heard MSNBC say that 87 percent of Americans don’t like what they do for a living. That’s a guaranteed way to never have enough and never feel like you are enough. You have to give yourself permission to live. You have to give yourself permission to live your higher purpose. CJG@F2 Good question, Josh. The common denominator among the hundreds of people that work with REIC on a regular basis is real estate. They all leverage real estate for one purpose: to fund their own dreams and visions. I can’t tell you what your dream and vision is for your life. REIC is nothing more than a really good, sound vehicle for accelerating the retirement process to retirement. When most people retire, they retire from a job they don’t like doing. Retirement should be permission to stop working a job that you’ve done for too many years and that you’ve fallen out of love with. You have no more passion for it. Investing in real estate accelerates real choice so you can make those choices for yourself instead of selling yourself to a job that makes someone else a whole pile of money while you are left to flounder in your own visions and dreams. At REIC, we encourage people to seek out and find that dream. “BUT, LIKE WARREN BUFFETT SAID, DIVERSIFICATION IS FOR PEOPLE THAT DON’T KNOW WHAT THEY’RE DOING. TRADITIONAL 401(K)S, IRAS, ROTHS AND ANNUITIES ARE GREAT INVESTMENT VEHICLES FOR THE FINANCIALLY IGNORANT AND LOST. “ That only happens for people when they develop some kind of financial stability, or at least have a financial plan. When REIC steps in and says, “Here’s a 10-year path to help you create a six-figure retirement,” the process of gaining permission to make choices that will lead to a self-actualized, fulfilling life begins. FMLL9DD2Since I came to REIC about a year ago, I’ve watched a lot of people come in and out of these doors; a lot of different people. No two people have the same vision. Is it possible for anyone to get into this program and to find out how they can live their higher purpose? REIC simply becomes a team of experts that will help you manage your investments and get you to your goal. FMLL9DD2 So REIC’s position in these peoples’ lives moves from that of teacher, educator, or mentor to the means by which they have discovered their higher purpose in life? CJG@F2 Absolutely Josh. That’s how we are having an impact on the overall economy. By the end of the year, we forecast that we will help our clients purchase over 400 homes per month. FMLL9DD2 What do you mean, 400 homes per month? CJG@F2That means that we will be assisting our clients—the members of REIC—purchase over 400 homes a month that are discounted investment properties providing the highest cash flow we’ve seen since the Great Depression. The people buying one of the 400 homes will increase their net worth by tens of thousands of dollars; they’ll increase their personal cash flow by hundreds of thousands of dollars; and that money will allow them to take the next steps in fulfilling their game plan. If you want to look at the big economic picture, what we’re doing in real estate—the hundreds of millions of dollars of bad debt that we’re helping our clients buy up and turn into functional debt—is then personally and financially empowering them to start an entrepreneurial business, follow their dream, and follow their vision. We’re supporting the economy in a much bigger way than merely buying and selling a lot of real estate. Because we’re giving people that higher level of permission to do more of what they want with their lives, the economy increases a little. I can’t tell you how many people I’ve talked to that say, “Kris, I’m making this amount of money in real estate and I’m giving myself permission to start this business.” The resulting impact on the economy is huge; we haven’t even attempted to measure it. We just know it’s big. FMLL9DD2 In other words, we’re not only buying and selling real estate—we’re actually promoting small business at the same time? CJG@F2 Absolutely. Entrepreneurship; following your own dreams. People know it’s really hard to work full-time and start a full-time business if they want to have a family life. What we do is help them prime the pump, so to speak, for the first few years by setting up their real estate business and make sure that income is passive and residual. While my team builds their portfolio, the income begins to flow and they will be at a point that they can quit their corporate job, rely on the income from their real estate, and use that time to do as they please. REIC is a way to help people prime the pump. FMLL9DD2 Which real estate markets do we focus on? CJG@F2 We’re getting ready to expand into a number of other markets, but there are a number of states in the Mid-West that have worked out very well for us. In addition, we are purchasing in Phoenix and that market. Also in the Las Vegas market. Those are markets where real estate values, when the economy turned, did not course-correct— they bottomed out. And because they’ve bottomed out, we’re buying homes for two and three times lower than what their prices were five years ago. For example, we paid $83,000 for a home that previously sold for $250,000. It may be that that house shouldn’t have sold for $250,000; maybe $220,000 would have been more appropriate. Maybe, under normal circumstances, the price of that home would have corrected to $180,000. But we bought it for $83,000 when the replacement cost alone is more than double that price. Most people can’t afford not to look into real estate and do something to improve their finances while we live in this historic economy. That’s how we’re creating record-high cash flow. FMLL9DD2Are we looking at any other markets for expansion? CJG@F2 We are. I’m not going to disclose them at this time, but heavy research is under way in a number of markets that we plan on expanding into in 2012. FMLL9DD2 So, more information is forthcoming? CJG@F2 More to come. Josh Nuttall is the Editor-In-Chief of Real Estate Investor Magazine and is Kris Krohn’s Executive Assistant. He is a freelance writer, loves a thoughtful work of fiction, and smiles whenever he thinks about his wife and kids. The Terms & Conditions regarding participation in REIC Programs is set forth at www.reicglobal.com. You are urged to review this and understand that the disclaimers and policies for participation in REIC programs are relevant in your evaluation of the strategies contained in this article. No investment, legal, or tax advice is provided by REIC, and you should consult your own licensed tax, legal, or other advisors for such advice before you implement your financial decisions. Real Estate Investor SUMMER 2011 | 29 Is this what your retirement looks like? Time to trade up to a new model! Find out how 1-877-801-8040 30 | SUMMER 2011 Real Estate Investor REIC MEMBERS ONLY AREA Real Estate Investor SUMMER 2011 | 31 Sign UP for the Strait Path Intensive and Get Started NOW! • Take the fastest track to buying real estate • Complete the first six months of your 10-year game plan in just 3 days • All attendess receive hand-picked real estate inventory for purchase • Offered monthly by REIC Executives at REIC Corporate Headquarters in Orem, Utah TALK TO YOUR COACH TO REGISTER OR CALL THE COACHING HOTLINE AT 866-767-0398 32 | SUMMER 2011 Real Estate Investor REIC is breaking all the rules in real estate through our special O.P.S. Program* New to affiliate marketing? Need to accelerate your gameplan? Simply sign up and follow a few, quick steps. Find out how introducing your friends to REIC can earn you a paid off home each year. “Doing business development for REIC is great because I am passionate for what I am talking about. All I have to do is invite people to the seminar and my job is done. The best part of all is that I am still getting checks today from some of the work I did over a year ago!” – TONY PURCELL * Other People’s Success Call 877.801.8050 and ask for the Outside Sales Management Team When you invest in enough People’s success, REIC investes in you by giving you a free & clear home Real Estate Investor SUMMER 2011 | 33 O@9LKMH OAL@L@=:::7 I By Josh Nuttall n the real estate business, you have to be careful with the people and the companies you do business with. Watch dog groups are out there to help the public make better decisions about the people and companies they do business with. One such company is the Better Business Bureau (BBB). The Better Business Bureau rates companies— BBB accredited and non-accredited alike—on an A to F scale, with pluses (+) and minuses (-) in between, just like high school. Take one of the sponsors of this publication for example. Real Estate Investment Companies (REIC) offers their clients real estate education and coaching services based on the \eb^gmlbg]bob]nZebs^]*)&r^Zkbgo^lming game plan. They also help their clients locate, purchase, and maintain their real estate investments for life. REIC is not a BBB-accredited company. However, REIC boasts an A- rating from the BBB. The only ding on our record, or reason given for not having a higher rating, is that REIC has been in business for a short time. In the past nine months, REIC has added 406 new clients to their business. REIC has had no customer complaints and no government inquiries issued against it. That pretty much rocks! How many real estate coaching companies has a BBB record like that? Keep up the good work, REIC! 34 | SUMMER 2011 Real Estate Investor )+HJG:D=EK WITH RETIREMENT ACCOUNTS By Heidi Philipp, John Sperry, and Josh Nuttall R etirement accounts have been under a tremendous amount of scrutiny over the past few years. With market declines, a regressing economy, and legislative gridlock, many are wondering if they were foolish to put their hardearned money into traditional retirement accounts, such as 401(k)s and IRAs. As people take a closer look at these vehicles, many are learning that they are not all what they are cracked up to be. Thirteen problems with traditional retirement accounts are presented here, as well as a potential solution to get back on track. E^ml `^m lmZkm^] pbma ma^ nèr lb]^ of these accounts. PROBLEMS Lhf^mbf^lbmblg^\^llZkrmhpbmadraw money from your 401(k) early because of a divorce, job loss, or any number of other reasons. If you are under 59 ½ years old, you will be penalized for doing so. Any money taken out early will be hit with a 10 percent penalty. In other words, taking $20,000 out early, for example, will cost you $2,000. B_ rhn Zk^ rhng`^k maZg .2 years old and take money from a 401(k) account, the money will be treated as income. If you take $20,000 out of your 401(k) and you are in the 28-percent tax bracket, $5,600 will be taken out to pay income taxes. Rhn fZr mZd^ fhg^r _khf Z 401(k) account in the form of a loan, but it must be repaid within 5 years. Also, if you are terminated or leave your employer before repayment is complete, you may have to repay the loan bge^llmaZgÛo^r^Zkl' :_m^k k^Z\abg` ma^ Z`^ h_ 0) ½, you must withdraw a minimum amount of money from your 401(k) annually, whether you need it or not. The minimum amount is re-calculated annually, is based on the amount of money left in the account, and your life expectancy. Bgo^lmf^gm hiihkmngbmb^l Zllh\bated with 401(k) plans are limited to those your employer chooses. Your money is generally invested in relatively low-risk investments, such as large company stocks, government bonds, and mutual funds. So, if you want a high rate of return, your choices are extremely limited. Bgo^lmf^gmlng]^kZ-),!["ieZg are limited to variable annuities Zg] Ûq^] bg\hf^ bgo^lmf^gml' Annuities have other costs associated with them. If an investor wants to renounce an annuity investment, the investor must pay a “surrender charge” which could be as high as eight percent of the total annuity investment. B_ rhn \hgmkb[nm^ mhh fn\a fhgey to your individual retirement account (IRA) in a year, you are subject to penalties from the IRS. If you are under 50 years old, that maximum is $5,000. If you are over 50 years old, that maximum is $6,000. If you start saving at age 25, max the contribution out every year, and the bgo^lmf^gml bg rhnk BK: ]hgm do much for you, you will have saved a total of $215,000. Is that enough to retire on? Real Estate Investor SUMMER 2011 | 35 MkZ]bmbhgZeBK:lZk^ln[c^\mmhk^quired minimum distributions. At the age of 70 ½, owners of Traditional IRAs must make a minimum withdrawal each year, even if they do not need to money. If you miss the annual deadline for withdrawing your money, the IRS assesses a 50 percent excise tax on the amount not withdrawn. MZq ]^]n\mbhgl _hk Z MkZ]bmbhgZe IRA are subject to income limits. These income limits are adjusted each tax year (if adjustments need to be made). They are affected by income and depend on ahp rhn Ûe^ rhnk mZq^l' B_ rhnk income is near the upper end of your tax bracket, you may only get a partial tax deduction. Ma^ 0) &r^Zkl&h_&Z`^ fbgbfnf distribution rule prevents a Traditional IRA holder from keeping 36 | SUMMER 2011 Real Estate Investor all the money in their account. Therefore, if the owner wanted to keep money in the account to allow it to grow, they would not be able to. Also, they would be unable to keep this money in a Traditional IRA account and pass it on to their posterity. D^hà ieZgl Zk^ mZq ]^_^kk^] pension plans for self-employed persons or unincorporated businesses. This retirement plan is known to have higher maintenance costs and more adminismkZmbo^ [nk]^gl maZg LbfiebÛ^] Employee Pension (SEP) plans. Funds can be withdrawn after 59 ½ and minimum distribution must begin by 70 ½. Ma^k^Zk^k^lmkb\mbhglpa^g]^lb`gZmbg` [^g^Û\bZkb^l h_ rhnk mZq& deferred IRA account. You must li^\bÛ\Zeer ]^lb`gZm^ ikbfZkr Zg] \hgmbg`^gm [^g^Û\bZkb^l ikbor to your death. Because it is a tax-deferred account, your ben^Û\bZkb^lfZrZelh_Z\^ma^]blmkbbution requirements imposed by the IRS. Pa^gkheebg`fhg^rho^k_khfZg IRA, it is important to be aware of the 60-day rule. If you set up the IRA rollover before you have set up a self-directed IRA account, you could be subject to this 60-day penalty. If you receive a check for the full amount of your IRA and do not deposit it into your self-directed IRA account within 60 days, it will be as though you liquidated/cashedout those funds. Therefore, you will be subjected to a 10 percent penalty, and you will be subject to income taxes on those funds. SOLUTIONS People contribute to 401(k)s for at least one of two reasons: 1) contributions occur automatically each pay period, and 2) the contribution is a comfortable amount that is not robbing today to fund tomorrow. However, the 13 problems listed above provide legitimate arguments against contributing to those accounts. What exactly do Americans need from our savings accounts? The answer is obvious: :\\^ll LZ_^mr @nZkZgm^^]kZm^h_k^mnkg MZqZ]oZgmZ`^l <k^]bmhkikhm^\mbhg Ikhm^\mbhgZ`ZbglmbgÜZmbhg Nothing is more important than access to your capital. With access comes control and the ability to use your capital when a need or opportunity surfaces. Safety of principle is also crucial. When hard-earned cash is in a safe place, emotions associated with money will remain in check, allowing us to make betm^kÛgZg\bZe]^\blbhgl':lmkhg`Zg] consistent rate of return is crucial to limit eroding factors, such as taxes, bgÜZmbhg%Zg]ihm^gmbZeeZplnbml' Your 401(k) account will provide none of these features. It makes all of the sense in the world, then, to move the money you have worked so hard to save into assets that proob]^ ma^ _^Zmnk^l Zg] [^g^Ûml rhn desire. REIC offers Strait Path Banking, pab\a \hf[bg^l ma^ [^g^Ûml h_ Z 401(k) (automation and comfort) pbma ma^ [^g^Ûml h_ Z\\^ll% lZ_^mr% guaranteed rate of return, tax ad- vantages, creditor protection, and bgÜZmbhg ikhm^\mbhg' Ma^ ;Zgdbg` System acts as a holding tank for a sleep-well-at-night-account, as well as a place to stockpile cash that can be used to purchase true assets to be used to generate passive income. When paired with the Strait Path Real Estate program, the results are astounding. Rather than handing your money over to the latest and greatest “Wall Street Guru,” Strait Path Banking allows you to take \hgmkheh_rhnkÛgZg\bZe_nmnk^':\cess is constant, allowing immediate access when an opportunity comes around. Safety is guaranteed. Corporations and banks store their money in banking systems as well. Do you honestly believe their cash sits in a 401(k) or a cash account? Gh'Bm]h^lgm' Strait Path Banking also generates a constant, strong rate of return, regardless of market activity. The market can go up, down, or sideways, and the rate of return made in a Strait Path Banking account will remain unaffected. :k^ rhn bgm^k^lm^] bg Ûg]bg` hnm more? If so, stop putting your nest egg into the same broken investing system that has given you nothing. Make a change and join us. Discover the truths about money that hundreds have learned and implemented. There is a better way to save and protect your money. E-mail: info@reicglobal.com REIC and its affiliates are publishers of this magazine. You are reminded that financial and tax decisions should be undertaken with the assistance of tax and financial professionals who are familiar with your financial situation, risk tolerance, and financial goals. Real Estate Investor SUMMER 2011 | 37 Having trouble putting the pieces together? Speak with one of our certified coaches Phone: 866-767-0398 M-F 9:00 a.m. – 3:00 p.m. Mountain Time REIC Coaching Hotline 38 | SUMMER 2011 Real Estate Investor SPONSOR SPOTLIGHT THE PROPERTY MANAGEMENT COMPANY By Trent Rogers THE PROPERTY MANAGEMENT COMPANY WAS FOUNDED IN 2008 lgeYfY_]CjakCjg`fkh]jkgfYdafn]kle]flhjgh]jla]kdg[Yl]\afl`] klYl]g^MlY`&Af*()($J=A;hmlLHE;lgogjceYfY_af_Yddg^l`]hjgh]jla]k gof]\]al`]j ]p[dmkan]dq Zq J=A;$ gj af hYjlf]jkàhk Z]lo]]f J=A; Yf\ gl`]j investors. TPMC focuses on increasing the profitability and asset base of the real estate portfolios it manages. We supervise each property, and coordinate with professional property management companies in each market to ensure that our properties are in clean, safe, and rentable condition. We work with our property managers directly to maximize our occupancy and rent collection rates. We also identify properties that are less profitable, or may expose us to greater risk of loss, and work to sell them off and replace them with more desirable investment properties. STEVE EARL is TPMC’s real estate broker. Steve is also the CEO of Real Estate Investment Companies. One of Steve’s priorities is to stay closely involved with TPMC. He is highly committed to helping TPMC reach its goals and objectives. TRENT ROGERS is the Director of Property Management for TPMC. He has a degree in Construction Management and has more than 20 years of experience in the Construction Industry. He has worked with REIC in several capacities, including Business Development, Coaching, lease option sales, and real estate sales. EDYE HAHN is the Rent Revenue Coordinator for TPMC, and has many years of experience in remote site management. Her role is to work with each of our property managers to track and improve rent collection and leasing activities. Real Estate Investor SUMMER 2011 | 39 ;GJ:AF :=;CKLJ9F< manages the accounting for each of our portfolios. He has a Finance degree from Brigham Young University in Provo, Utah. DALLIN EARL is a Special Projects Facilitator. After working with The Real Estate Firm and TPMC for several years, Dallin has proven to be a great asset in our organization. Dallin works to dispose of our less desirable properties so we can generate funds to purchase desirable replacement properties. As TPMC’s Client Support Specialist, 9<JA9F JMN9D;9:9 is the most recent addition to our team. His focus is to provide support for our REO Outright investors. Even though these investors have been working with local property managers to care for their properties, we have found that many of them were in need of guidance and support as they worked to make decisions about how to handle different issues that arose with their properties. With extensive experience in the Construction Industry, Adrian focuses on sharing his knowledge with our investors so they will have a fulfilling experience with real estate investing. We are thrilled to have such an efficient and dedicated team working to40 | SUMMER 2011 Real Estate Investor gether in the management of our investment properties. TPMC has managed many types of properties in the past, using many different management strategies. The first group of properties we were given to manage were purchased in bulk from failing mortgage lenders. The purchase prices of these properties were generally very low. However, most of them required significant renovations to make them rent-ready. We worked to evaluate each property to decide which ones were worth repairing. Those that were worth repairing were assigned to property managers and were renovated in preparation for tenants. The remaining properties were sold. We still manage many of these original properties, but we will work to sell more of them off in order to purchase replacement properties in markets we have found to be more profitable. The next round of properties were purchased in “rent ready” condition. The purchase prices of these homes were higher than the properties purchased with the first group. We selected these properties in three different Mid-west markets, and carefully evaluated each property prior to purchase. Every one of these properties received an on-site physical inspected before they were purchased. In the summer of 2010, our REO Accelerated clients began purchasing properties in the Phoenix, Ariz. market. These properties were nearly new, and although their prices were significantly higher than the properties purchased in our other markets, their profitability has been very good with fewer challenges to overcome. Recently, we have been able to acquire Phoenix properties in a wider price range. This has helped to expand their appeal to more of our REIC clients and investors. The risk of loss due to repairs and vandalism has proven to be much lower with the properties in Phoenix, so the majority of our current purchases are in the Phoenix market. Soon, we will ramp up similar efforts in the Las Vegas market as well. TPMC is passionate about managing our properties to produce the most profitable investment experience possible. We always look for ways to improve our level of efficiency. We are very thankful for the opportunity to serve in a roll that directly affects the bottom line of REIC and its investors. 9j]qgmjf]kl]__k[jY[caf_7 <gfl oYal ^gj j]laj]e]fl% d]Yjf `go qgmjj]laj]e]flY[[gmfl[Yfojal]qgmY [`][c]n]jqegfl`fgo& 877-801-8040 Real Estate Investor SUMMER 2011 | 41 DIALOGUE WHEN IT’S TIME, it’s Time By Josh Nuttall An interview with Shelley Pollock, member of Real Estate Investment Companies (REIC), on her experience with the company and her retirement goals. : ad excuses aren’t the same as bad timing. An excuse looks like this: you see a good investment opportunity for what it is and make up excuses for not jumping in right now! An example of bad timing is seeing a good investment opportunity for what it is and being unable to jump in right now. The difference is subtle, but profound. Multiple emotional factors play into both aspects of missed investment opportunities. These include too much, or not enough, of fear, doubt, trust, knowledge, understanding, and vision. When Shelley Pollock was first introduced to REIC, she experienced a few of those emotions. The foundations of those emotions were laid when she was young, and are still being reinforced today. But as you will see in the following interview, she has successfully worked through them to become an REIC investor that is ready to expand her investment portfolio. Does real estate investing involve risk? YES! But should that stop people from investing in real estate? Um, no. That would be a huge mistake. There are too many awesome investing opportunities out there to let a little fear or doubt take the wheel. What did Shelley do to overcome 42 | SUMMER 2011 Real Estate Investor her reservations? She found a mentor that teaches with integrity; she received good, accurate information; and when she decided it was time to invest, she jumped in. BGK@FMLL9DD2 What was life like for you and your family before joining REIC? K@=DD=QHGDDG;C2We were doing okay at the time. In fact, I had a very good job working for a company out of Boston, but at that same time, real estate, and the economy in general, was tanking. I worked for a student loan company that started to go down hill about a year before real estate, and then that company actually went bankrupt. When we first came to REIC, I actually didn’t have a job. We had purchased a real estate investing education product from another company and had mentioned that to our mortgage agent. He actually introduced us to REIC. FMLL9DD2 Your mortgage agent introduced you to REIC? HGDDG;C2Yes. It was Scott Asbell with Rocky Mountain Mortgage. He’s done some work with REIC, too. FMLL9DD2The name is familiar. HGDDG;C2 We were looking for something to motivate us to move forward in our real estate investing, and when we came to the presentation at REIC, we really liked what we heard. We joined early on in the REIC world. FMLL9DD2 How long ago was that? HGDDG;C2 That was October of 2007, I think. FMLL9DD2Wow, that was very early on in the game. HGDDG;C2 We stalled on deciding what it was we wanted to do. I came from a background that is very security-oriented. To take a risk is really something that you just don’t do. My dad saved all of his money in government savings bonds and CDs. Even now, he’ll say, “I can’t believe you guys are doing this!” It’s just too scary for him. I was the one that held a really good, secure job, and maybe it wasn’t making me wealthy, but it was secure. I knew it was always going to be there. Working in student lending, we really, sincerely thought it would always be there. Then all of a sudden—it wasn’t. FMLL9DD2 It was gone. HGDDG;C2 It was gone, and now, student loans are only available through the government, and you know how well they work. So that world was totally crushed. We were looking for something else. And REIC seemed to be a good fit. We worked with Kevin Clayson to develop a few different scenarios and game plans. We came into REIC early enough that Kevin was our direct contact. FMLL9DD2He was your coach and everything? HGDDG;C2Yes. He and Ryan Clark set us up so we can be our own banker. And then, right when I lost my job, I also lost a chunk of money in my 401(k) account. I wanted to get the rest of that money into a safer investment, and they helped with that, too. REIC came out with the Shareholder Option in January 2009. We took everything we had in the 401(k), and what we could afford out of savings, and became Stockholders. FMLL9DD2 You actually became investors at that point? HGDDG;C2 Yes, we did. As far as purchasing homes—I have to be honest—we haven’t done much of that, simply because we chose a more long-term route. That was my security nature. My daughter, who joined REIC with me, is the risk-taker. We do have one home that is an investment home, but we purchased it to use as a rental home. The education we received from REIC about how to be lifelong investors was powerful, and we’re now at a stage in our lives where we’re looking into buying properties in Las Vegas, Nevada. FMLL9DD2When you decided to become investors, what was it that attracted you to that opportunity? HGDDG;C2 I have to be honest, it was the level of sincerity that Kris Krohn brings to the company. As you look around and you see Corporate America following by the wayside, CEOs and Presidents of companies are being indicted for dishonesty, running their companies into the ground. I honestly don’t believe that will ever happen with REIC; I have that much confidence in Kris and Steve Earl. Particularly Kris. I know Kris works from his heart, and because he does, I don’t see him ever doing anything that will hurt the students or the investors. FMLL9DD2You see there’s a great deal of integrity in the company? HGDDG;C2 Definitely. That’s what keeps us sending people to REIC. We have referred quite a few students. Any student that we meet from REIC seems to have that same confidence in the integrity of the company. As I was driving here today, I thought about all of really good things that are going on in our lives right now that are a direct result of working with REIC and with Kris. REIC provided us with our first tickets to the Prosperity Summit. As a result, we’re working in a Prosperity Tribe in association with Gerald Rogers, and doing some coaching with Heather Madder and with Leslie Householder. Those are all really, really good, exciting things. But again, they are a direct result of our involvement with REIC. FMLL9DD2 Wow, that’s awesome. I didn’t know that about you and your family before. There’s a common buzzword at Real Estate Investor SUMMER 2011 | 43 REIC, and out in the market place. That word is retirement. What is it about your experience with REIC that you feel will actually help you towards retirement? HGDDG;C2 Well, that’s why we’re investors. That, for me, is my retirement, because I took everything that I had in my 401(k) and become an investor. In addition, when that money starts coming back to us, we will follow the Strait Path to Real Estate Wealth system. It is a very successful and proven path to follow. Why wouldn’t we follow a process that is proven? The way we do it may look a little bit different; we’ll put our unique personalities into it, and that is what REIC encourages. I think that’s part of the integrity of the success that comes with REIC. They give you the path to success, but they allow you to put a little of your own personality into their product. FMLL9DD2 It’s interesting how everyone has a completely different 10-year game plan. Yet they all converge at about the same place at the retirement age. The reason why we’re here is to help people towards retirement, and it’s great that we have the opportunity to show people along the way. Though someone may take a left turn here and a right turn there, everyone ends up at the same place in the end. HGDDG;C2 As a member of the Baby Boom generation, a group that has lost a lot of value in their investments, so many people live in fear of what they’re going to do when their health no longer allows them to work and move forward. While I may live in a little fear right now as a person unemployed from what has traditionally been my work world, I don’t live in fear for my retirement because I trust REIC. I trust Kris to run things with integrity. FMLL9DD2Yes, I think all of us do. HGDDG;C2We all think of our dream as big, but if we don’t have a big dream, nothing will become reality. FMLL9DD2 Nothing happens if a dream isn’t worth shooting for, right? You mentioned earlier that you plan to buy homes in Phoenix, Arizona and Las Vegas, Nevada. 44 | SUMMER 2011 Real Estate Investor What is it about those programs that are attractive to you? HGDDG;C2 The warmth. The climate. Because those areas are depressed, part of the attraction is that they will not stay depressed. Right now, when you can move into a home that has built-in equity, get it for a reasonable price, and lease it with the rent-to-own option, it gives you the income needed to move forward, and to continue to move forward. If I retire in 15 years, I will be more secure. The economy may have rebounded by then, and housing prices may have increased. Real estate is one of those investments that can work to the benefit of the investor. I would feel great about that! I would benefit financially; the tenant will benefit because they have a home. They also benefit financially because they are able to build their own equity. FMLL9DD2It is now a great program. That real estate investment method was plagued with issues in the past. But once Kris put his spin on it—actually encouraging tenants to buy the house instead of plugging someone into a home that couldn’t buy it, recycling tenants to make money off of their misfortune—homeowners can now make a larger short-term profit, a better long-term profit, and help a family in the end. “IF I WAS ABLE TO TURN AROUND AND LEASE-OPTION A HOME TO SOMEONE IN A SIMILAR SITUATION, I WOULD FEEL GREAT ABOUT THAT! I WOULD BENEFIT FINANCIALLY; THE TENANT WILL BENEFIT BECAUSE THEY HAVE A HOME.” FMLL9DD2 Not only the individual investor, but also to the individual lease option holder. HGDDG;C2 I really like the concept of being able to help people. There was a time my life, as a single parent, that I thought, “I would really like to own my own home.” I worked for the State of Utah, and their salaries are not huge. So it seemed like I could never quite get to that point. If I would have had a lease option available to me, I could have gotten into a home back then. It wasn’t until I moved into a job where the money was better, and there were a few bonuses, that we actually had a home. If I was able to turn around and lease-option a home to someone in a similar situation, HGDDG;C2Otherwise, they’ll continue wishing they were in a home. The little bit of money they saved goes into their lease option, they never follow through, and lose it all. When REIC added the opportunity for tenants to come in and learn how to be home owners, I thought that was an exceptionally good idea. FMLL9DD2An extremely good idea. It’s been very helpful to a lot of people, and hopefully it’ll work that way for you—that you’ll be able to help people in the future. HGDDG;C2 Well, as Las Vegas and Phoenix revives, people will want to live there. They’ll never totally disappear. FMLL9DD2Yes, that goes back to the climate. up a little bit since your family joined. HGDDG;C2 I agree. I think it is climate, too. When you look at people my age, they’re going to want, at some point, to move to those climates, and they’ll want a home. Not everybody wants to live in an apartment or a condo. There are people who’d rather live in homes. HGDDG;C2 A little bit, but that’s only fair. In the beginning, I think they did it right. They brought us in at that rate, but the people we encourage to come to REIC are ready to pay the larger price. FMLL9DD2Not only to live in a home, but to also have an option to own that home at some future point. HGDDG;C2Yes. The homes that REIC students and investors buy are not extravagant. They’re regular homes for regular people. FMLL9DD2That works out very well for everyone involved. HGDDG;C2 I really like the full structure of REIC. I was just listening to Kevin’s recent Facebook post about the first Real Estate Intensive training he and Anthony Andelin just finished. I think the whole systematic structure of REIC makes it work because you have access to all of those elements right up front. FMLL9DD2What impact has REIC’s education had on you—not only the education, but also the mindset training? HGDDG;C2 Well, like I said, just about everything that’s good in our lives right now can be directly tied back to what we’ve learned through REIC. We’ve never ever felt that we couldn’t come and get the assistance that we needed, under whatever circumstance that we found ourselves in, while trying to purchase a property, or when we simply need information. It is really important to me to know that the company has grown, and they’ve grown fast, but they’re still willing to work with individuals. FMLL9DD2Are you part of the Business Developer Program? HGDDG;C2 I’m not, other than referring people to come and join. If we know people are looking for investment opportunities, and real estate investing in particular, REIC is the first company we refer them to. FMLL9DD2 Awesome! We appreciate it. It’s good to have members that are enthusiastic about the program. HGDDG;C2 There are many opportunities to invest thousands and thousands of dollars out there. I’ve seen other programs that cost $20,000 to $40,000. I doubt those programs have the success or the follow-through that REIC has. FMLL9DD2 Yes, those programs are common. In fact, that type of real estate investing program prompted Kris’ founding of the Strait Path System and REIC. He wanted to educate people concerning his investing method, but also back it up with fulfilment. That will allow people to learn about real estate and to actually do real estate. That’s the big difference between REIC and all of the other real estate investing programs out there. Fulfilment is a huge service. HGDDG;C2 It is. REIC seems to have been successful at keeping people engaged in working on their game plans. HGDDG;C2Yes. We bought a lifetime membership at a very cheap price. We paid $1,000 at the time and got $500 back because we brought a couple of other clients in, so it was an exceptionally good deal then. FMLL9DD2 Yes, we believe that’s what people spend their membership money on. A lot of effort goes into contacting members that have not been actively working on their game plans. If we haven’t heard from a member in a while, we call them to see if they have any questions, if they want to come in for a coaching session, or something along those lines. We like to help people succeed. Fulfilment is a very, very important aspect of REIC’s business. FMLL9DD2 Yes, membership prices have gone HGDDG;C2 When people can go out into the FMLL9DD2You bought a lifetime membership to the program, and actually receive the lifetime service. community and say, “REIC helped me buy my property,” it looks really good. We have friends that bought two properties in this area and they’re seeing success. They struggled a little bit in the beginning, trying to get people into one of their homes, but once the tenants were moved in, and my friends had the background and the knowledge concerning what to do and what not to do, things have gone smoothly for them. So far, it’s been a very good experience. I wouldn’t trade it at all. I have gone through a period of my life in which I experienced a lot of trust issues, but I can always look back and say, “I trust Kris Krohn,” and that’s a huge thing for me. FMLL9DD2That’s very huge. HGDDG;C2 It’s awesome to go out and talk to any person and say, “If you want to work with a high level executive that you can trust, you need to go talk to Kris.” I can do that, and I sincerely believe that it’s not just fluff—it’s not kissing up. Members get from REIC what they put into their experience. I trust Kris’ abilities and his integrity. It has been said on many occasions that timing is everything. There is a time to get into an investment and there is a time to get out. There is also a season for everything. It’s nice when the time and the season overlap. A great many investment opportunities come and go because people don’t know what to look for. They also don’t know when to look. When you have a game plan—an investing road map that gives specific steps to take over the next 10 years to reach your individualized goals—you are half way there. Fulfilling your game plan takes time, and you may require assistance along the way. No matter what your game plan dictates, when it’s time to invest in real estate, it’s time. And now is the best time ever! Shelley Pollack is an REIC Global student. Her results are personal and yours may vary. A survey of the “typical” results of REIC Global students can be found at www.reicglobal.com. Real Estate Investor SUMMER 2011 | 45 “ NOTHING IS MORE USUAL THAN THE SIGHT OF OLD PEOPLE WHO YEARN FOR RETIREMENT: AND NOTHING IS SO RARE THAN THOSE WHO HAVE RETIRED AND DO NOT REGRET IT. FRENCH ESSAYIST AND LITERARY CRITIC 46 | SUMMER 2011 Real Estate Investor “ - CHARLES DE SAINT-EVREMOND, MARKET REPORT By Christine Graham and Rob Weidmann THE REAL ESTATE AND MORTGAGE INDUSTRIES ARE EVER-CHANGING$Yf\kYnnqafn]klgjkoYfllgmf\]jklYf\`gol`]k][`Yf_]keYqY^^][ll`]ajhjgh]jla]kaee]\aYl]Yf\dgf_%l]jehjgÚlYZadalq&L`]j]Yj] eYfq^Y[lgjkl`Yl[YfY^^][l`ge]hja[]k$YnYadYZadalqgâfn]kle]flhjgh]jla]k$ egjl_Y_]jYl]k$imYdaÚ[Ylagfk^gjegjl_Y_]k$]l[&Fglgfdql`Yl$Zmll`]dYokYf\ regulations that govern retirement programs and the banking industry can af^][lYfafn]klgjk\][akagfeYcaf_Yf\l`]hjg[]kkgf]^gddgoklgeYpaear]Yfq investment game plan. This article reviews recent trends affecting the real estate market and discusses how they may impact investing decisions. A deeper understanding of the economy and the factors that affect your investment holdings can help to reduce risk and increase your potential returns. INCREASE IN LOCAL INVESTING. A 2011 Real Estate Investor Report by property wholesaler Econohomes found strong demand from smaller, part-time, local investors for distressed REO properties priced under $50,000. A survey of 17,000 investors across the country found that 85% were local investors pouring needed capital and resources into their communities, and reducing widespread vacancies plaguing some of the hardest hit neighborhoods. With the help of these investors, those displaced by foreclosure can now find rental properties where they work. Over time they will have a chance to rebuild their credit, and eventually buy their homes from their investors. Other interesting conclusions from this report include: s -OST INVESTORS ARE RENTING THEIR PROPERties out instead of flipping them. This could be because fewer people can now qualify for mortgages. s 4HE PROlLE OF A hTYPICALv INVESTOR IS years old, self-employed or works parttime, makes less than $100,000 in annual household income. s -OST INVESTORS BUY PROPERTIES ONE AT A time—only 11% are interested in buying bulk, especially across state lines. Investors can’t go wrong to put money into their local communities, providing they select properties with an adequate equity position. Since the economy is unlikely to produce rapid appreciation over the short term, this equity position allows for refinance that provides capital to make the next investment. A lease-option strategy is used to give tenants an incentive to remain in the home, improve their credit-rating, and take care of the property. Even out-of-state properties are a good investment if solid property management is in place to maintain the investment and ensure quality renters found and problems are addressed right away. EGJL?9?= AF<MKLJQ MH@=9N9D2 Even though mortgage interest rates are low, only highly qualified borrowers can get financing. According to the Federal Reserve, nearly a quarter of people who apply for loans are turned down, and even good borrowers with one or two blemishes on their credit are being denied credit. Not only that, but many people simply don’t apply for loans because they assume they can’t get one. These trends are demonstrated by the fact that the average credit score has risen from 720 a few years ago to 760 for loans financed with backing from Fannie Mae and Freddie Mac. Another factor that makes it more difficult to procure loans is that lenders are requiring more up-front cash. While it used to be possible to obtain financing with zero cash down, the median down payment for purchase now is about 15%. This is especially difficult for first-time homebuyers in areas where even entry-level homes are expensive, such as in New York City, where the median home price is $800,000. All of these factors have reduced the pool of buyers, lowering demand and hurting prices. This should make what is known as a buyer’s market, yet there isn’t as much activity as there should be because so few people can qualify. This is seen by the fact that sales of Real Estate Investor SUMMER 2011 | 47 existing homes in February, despite very affordable prices, were 30% off their peak, and home prices fell for the sixth consecutive month in January. the hardest hit foreclosure cities and have suffered outsized price declines, with Vegas values down 52% from their peak. Because of other factors; however, Las Vegas received a negative rating if you plan on buying and flipping properties there. This is because home prices are not expected to rise since so much of the Las Vegas economy revolves around manufacturing and construction, which are considered volatile. In fact, Vegas home prices are predicted to remain on the skids until 2032. Other variables that factor into what is considered the “equilibrium” value include economic and population growth, construction costs, vacancies, household income and interest rates. So what should an investor do? It is important to work on keeping your credit score as healthy as possible, and buy your investment homes properly in order to qualify for multiple mortgages. If your credit score makes it impossible to qualify for a loan, or if you do not have the cash necessary; consider partnering to leverage the assets of multiple partners and create the highest cash-flow potential possible. Today’s market truly is a buyer’s market, and now is the time to become creative and let us assist you in taking advantage of the opportunities of a lifetime. Akron, Ohio is the second most undervalued market at -22% followed by Cleveland and Warren, Michigan at -21%. The most overvalued cities in America include Long Island, NY, counties of Nassau and Suffolk (suburbs of New York City). The current average home value there of about $418,000 is 26% higher than the equilibrium value of $318,000. Other overpriced markets include Los Angeles, Portland Oregon, and Santa Ana, California. DG;9LAGF$ DG;9LAGF$ DG;9LAGF& Las Vegas is one of the most undervalued housing markets in the nation. Local Market Monitor, a North Carolina-based firm that provides investors with analysis on local conditions has recently designated eight markets as overpriced, and 15 as underpriced. Las Vegas is the most undervalued, because there is a glut of homes for sale, thanks to years of overbuilding during the housing bubble. Las Vegas and Orlando are two of Based on the current hot spots of opportunity, Las Vegas remains a strong area to in- $100,000 $80,000 20% $60,000 15% $40,000 10% 5% $20,000 0 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 LOAN AMOUNT 48 | SUMMER 2011 Real Estate Investor $400,000 $450,000 $500,000 vest in, providing you are in it for the long haul. Flipping in this market is not advisable since prices are unlikely to rise dramatically until the excess inventory is absorbed, and the economy recovers enough for people to be able to afford higher prices. A “buy and hold” strategy is optimal since the population displaced by foreclosure is forced to rent, and there is sufficient pressure in the rental market by this population to keep the prices constant or even rising. When will the market recover? Economists are evaluating real estate sales data along with other economic indicators from the 3rd and 4th quarters of 2010 to determine what the national real estate market will do once the effects of the Federal Tax credit are gone. The national housing market slumped in the 3rd quarter of 2010 following the end of the Federal tax credit. This pattern persisted in the 4th quarter, but the dynamics at the local level were different. A slim majority of the 152 markets monitored in the 4th quarter saw an increase in the median home price relative to the same period in 2009, but more important was a shift toward slower rates of price decline and toward modest growth. After a sharp slide in national housing market in the 3rd quarter of 2010, the 4th quarter may be the first insight into how local housing markets will behave without government stimulus. Sales, though down from a year ago, appeared to move toward a bottom, while prices improved in a slim majority of markets. Construction remained limited, but delinquency rates rose, which could weigh on prices in the future. Employment is on the mend with the majority of markets showing signs of growth. As the economy grows, job creation and income growth will help to extend the stabilization, but this pattern will take time as the construction sector sits on the sideline. The near future for investors remains promising, but the window of opportunity will begin to close. This somewhat technical information suggests that with the Federal tax credit finished, the market is slowly self-correcting. With more foreclosures expected in the next year, home sales prices will remain down. This is a good sign for investors, since good deals will be available for some time to come. With new construction remain- “THE INVESTMENT THAT HUNDREDS OF MILLIONS OF AMERICANS ARE UNWISELY INVESTING IN ON A MONTHLY BASIS IS QUITE SIMPLY A HOME MORTGAGE.” ing limited, the foreclosure inventory will be absorbed by renters. As the economy grows producing more jobs and income growth, people will begin repairing their credit and putting money aside to eventually be in a position to purchase homes again. If you’ve invested in properties in Phoenix, the future is bright. Metro Phoenix has long been known for its supply of affordable houses, easy to buy and resell. Now, the rental market is dominating the region’s housing sector, something many real-estate experts and agents didn’t expect. In Phoenix, many landlords are finding the rental market for houses is a great place to make money. As more and more families lose their homes to short sale and foreclosure, they have to go somewhere, and with the high demand, landlords are raising rents. For example, in the greater Phoenix metropolitan area, 55 percent of houses for sale are considered distressed properties. Due to the impact this has on the previous homeowners’ credit scores, they will be shut out of the buyer pool for 3-5 years, which means they will be renters for at least that long. In Phoenix, rates are up 5 percent over last year, and rental rates are expected to keep going up. This is good news for investors in the Phoenix area, if you can take advantage of the below market prices for many homes. Buyers may be able to find mortgages low enough to create significant cash flow with prevailing rental prices. Increases in the rental prices at the local level may create higher cash flows, and the continuing high demand for rentals will ensure minimal vacancy rates. WHEN COMPARING REAL ESTATE INVESTING VERSUS THE KLG;CE9JC=L$J=9D=KL9L=OAFK2As recent events have shown, the stock market is highly volatile, swinging wildly due to natural disasters, political unrest or just a change in the confidence of the market. Investing in real estate has proven to be more predictable an investment, avoiding the rollercoaster of the stock market. The following points are summarized from an interview with Dennis Ng, Director of Leverage Holdings who recently wrote the book “Secrets of Singapore Property Gurus.” s A family paying $3,000 a month for a mortgage on a four-bedroom house in a nice Peoria neighborhood can move next door and pay $2,000 in rent for the same house, according to Payam Raouf, owner of Glendalebased Arizona Property Management and Investments. “There are great renters out there now, the cream of the crop for landlords,” he said. “People who earn good money are losing homes to foreclosure, and they want to rent houses as nice as they ones they owned.” Nationwide, experts say 2010 was the best in 15 years for landlords, since many people are still skittish about buying and are waiting out vestment, or even all of it if the companies you have invested in go bankrupt. On the other hand, a real estate investment will always have value since it is a tangible asset. When purchased correctly, even if the value falls your real estate will always create a positive cash flow over time. the roller coaster market. Experts are advising renters to sign a lease as long as possible to lock in current prices. s 0ROPERTY INVESTING GIVES YOU MORE LEVERage than stocks. If you own stocks with a market value of $1 million, the maximum loan that financial institutions might be willing to grant to you, using your stocks as collateral, would be a maximum of 70% of the market value of the stocks. On the other hand, when you buy a property, Banks are willing to grant you loans up to a maximum of four times your equity. For instance, if you put down 20% of the property price as a down payment, the bank can grant you up to maximum of 80% financing, or 400% of your equity, to finance the property purchase. 9OU MAY LOSE EVERYTHING IN STOCK INVESTing. If you buy stocks, when the company runs into financial or cash flow problems, it is possible to lose 80-90% of your in- s 9OU CAN PAY LOWER THAN MARKET PRICE TO buy a house. Banks will sell below market value to get the property off their books. An individual owner may sell below market value for many reasons like divorce, ignorance or the need for cash right away. There is no such thing as “discounted” stocks. s 9OU CAN ENHANCE THE VALUE OF THE PROPerty. There is nothing you can do to enhance the value of your stocks, but there are many ways to increase the value of your property through minimal efforts that can pay off big. s 9OU CAN LET OTHERS HELP YOU PAY FOR YOUR property. A large percentage of your real estate investment is paid for by leveraging the property through a mortgage, then having renters make the payments for you over time. A stock investment on the other hand, must be paid for with capital in advance. Even though the argument is well made to invest your money in real estate instead of the stock market, the key to success is investing correctly in real estate. If done without a specific blueprint or of you select properties without adhering to strict criteria, you may create short-term deficits that will hurt your finances significantly. Sloppy real estate investing can be compensated for if you have sufficient capital reserves, but to create maximum return on your dollars and create positive cash flow quickly, your plan must be well-informed and properly executed. Do not yield to “get rich quick” schemes in any financial venture! Real Estate Investor SUMMER 2011 | 49 DIALOGUE INVEST IN REAL ESTATE before it’s Too Late! By Josh Nuttall An Interview with Kevin Clayson, Senior Vice President of Real Estate Investment Companies (REIC) M ost people don’t know this, but right now is one of the best times to buy real estate as an investor. You probably read that line and thought to yourself, Is this guy crazy? The real estate market where I live is in horrible shape! Why would I want to invest during one of the worst real estate economies in living history? I see you have been listening to the news. While it may be true that your local real estate economy looks pretty bad from an investor’s point-of-view, some real estate markets are in perfect condition for investors. Have you heard of real estate markets where homes are selling for less than half of their replacement cost? Have you heard of any real estate markets that have a huge pool of renters ready and willing to live in the homes you buy? Au contraire, mon ami. Over the past few months, I’ve heard a lot of buzz concerning certain real estate markets. Investors are buying homes that were worth more than $250,000 at the height of the real estate market for a lot less than $80,000. In order to get the facts straight, I talked to Kevin Clayson, Senior Vice President of Real Estate Investment Companies (REIC), who has first-hand knowledge of the program investors are using to reap huge cash-flow returns. Some investors are reaping fifteen to twenty percent cash- 50 | SUMMER 2011 Real Estate Investor on-cash returns on their real estate investments. When I was a kid, I was taught, If it sounds too good to be true, it probably is. Well, in this case, I was completely led astray. After I sat down with Kevin, I took a look for myself at some of the deals REIC investors have found in certain real estate markets. What’s more, REIC has set this program up to minimize the amount of work their investors and clients have to do themselves. Check this out: not only does REIC find the houses for their clients; they also find tenants for the houses and set the investor up with a local property management company. So, what does the investor have to do? Sign closing documents and collect money. That’s it. Does this still sound too good to be true? Yeah, I’m still pinching myself, too. Go ahead and read my interview with Kevin, and all of it will make sense. BGK@FMLL9DD2 All right Kevin, so we’re sitting down to talk about your recent trips to Phoenix. I understand you’ve been down there recently? one of our suppliers, Rick Coberna. He took me around, and we literally spent five hours driving around looking at houses— a whole slew of houses—that were in the middle of being finished for our clients. They were specific REIC properties. They were incredible! FMLL9DD2 The houses you looked at were already under contract? ;D9QKGF2 Yeah, they were either under contract, or they had just barely been acquired from the auction and no fix-up had been done. They were homes that were coming to REIC clients. If they weren’t already under contract, they will be shortly offered to our clients. FMLL9DD2 Clarify the process for me: Rick and his guys acquire properties for us from the auction? ;D9QKGF2 Yes, that’s one of the ways. FMLL9DD2And then we clean them up, make them rent-ready, and fill them with a tenant. Then we sell the house to one of our members, who actually makes money from the rent on the home, for whatever time period, depending on their game plan? FMLL9DD2Tell me about the trip. ;D9QKGF2 We work with a couple different suppliers in that market. Rick is one that we work with. There’s another group of people that we work with, actually a couple of different groups of people, and a few of them buy the homes at the auction. ;D9QKGF2I went down to do a seminar, but I made sure that my flight arrived a little early so I had time to drive around with Literally, the process works like this: let’s say there’s going to be an auction at the court house. The night before the auction, C=NAF ;D9QKGF2 Yeah, it was about three weeks ago. at midnight, a list of properties will be released. Our guys will dispatch a bunch of their people. They’ll break into the houses they need to, take pictures, get a feel for the neighborhoods, and what the homes look like, so they know ahead of time which properties they want to bid on. Then they’ll go to the auction. They’ll bid on the properties in our behalf, we’ll win the bids that we win, and after that, our auction group pays cash for those homes. We then buy them from our suppliers. You have to pay a fee to be able to bid, and you have to have liquid capital ready to go. You also need to know what you’re looking at and looking for in a neighborhood, and how much work is going to be required to fill the house with a tenant. I mean, there’s such an incredible level of expertise required to know which homes to bid on, and then to be able to win the bid, and then be able to front the money for the home. So that whole process is done by suppliers that we’ve developed relationships with. Then, the suppliers will go and complete the fix-up on the home. They have a twosided business. They go to the auction house using their capital to buy the homes for us, which is great. They won’t work with just anybody. You can’t call them up and say, “Hey, I hear you go to the auction, so I’m thinking about doing…” No. Absolutely not. They work with us because they know who we are, what we stand for, what we can do with our clients, and how many homes we can do for our clients, because they know our clients are looking to ultimately succeed at real estate. The other side is actually completing the fix-up. Most of these homes don’t need a lot. In fact, we won’t bid on homes that need $80,000 of repair work. FMLL9DD2 The homes that we’ve acquired so far—what have they needed as far as repair work is concerned? ;D9QKGF2 I did a YouTube walkthrough video for one of these homes. I didn’t know where it was. It was the first time I’d been in the Phoenix area. I stepped two feet inside the front door, looked around, and said, “I’m going to film this thing.” I hadn’t even walked around the whole house. I pulled out my iPhone and we filmed me walking through it so I could see what was being done to it. This home needed some new paint and new carpet. There was one area in the home that was kind of an off-shoot from a living room that they took foam pad out of—like weight room flooring, or something you’d see at Gold’s Gym—so they can put carpet down. They usually just clean them up. A home may need appliances. It may need a few holes on the walls patched up. There was another home that I walked through that was gorgeous. They literally, the day before, had bought it at the auction. They hadn’t even begun work on it yet. I walked through the home and you could literally tell that a family had just moved out. There were gummy bears and pennies on the floor. You could see that a family had just been there. A few of the bedrooms were painted cute for the kids. It was a little heart-breaking to think that a family had to move out, but we’re going to put another really good family in it. When I walked around this house, it was fresh from the auction. FMLL9DD2 You would have seen the problems if there were any to be seen. ;D9QKGF2 Yes, I would’ve seen them. It was a very clean home. It needed a uniform coat of paint. It had a couple painted accent walls. For a rental home, to make the home more pleasing to everyone, we’ll do a really basic two-tone paint job in a taupe color with white trim. A few rooms needed new carpet. Otherwise, a deep carpet-cleaning would have been appropriate. This home also needed a refrigerator, an over-thestove microwave, and a deep-cleaning. That was it. There were no big holes in the walls. No one had ripped all the dry wall off of the studs. It wasn’t bad at all. The garage was in great shape. As a bonus, our supplier will go into the garage and put a coat garage floor paint over it to Real Estate Investor SUMMER 2011 | 51 DIALOGUE make it easier to clean and make it durable. They do little things like that. It’s nice for our clients. They will own these homes for three, five, or seven years. We don’t want them to put a lot of work into them every year, so we try to do a really good job. FMLL9DD2 So, we’re not buying homes that have flood damage, or that were ex-meth houses. They are really, really high-quality homes that former homeowners simply couldn’t afford anymore. ;D9QKGF2 Correct. The last home I walked through was the most expensive of all the homes I saw in Phoenix. This thing was beyond beautiful! It sold for around $270,000 to $290,000 at the peak of the market. At that price, the mortgage payment, depending on the interest rate, was about $1,800 to $2,500 a month. For whatever reason, the former homeowner couldn’t make the payment. But the home was in great shape. It had brand new carpet, brand new paint, a beautiful pool, a sandbox. We paid about $100,000. In Utah, a home like that would sell for around $360,000. It had a built-out area for entertainment, granite counter tops, all of its appliances, and the cabinets were in great shape. It was a good looking home. FMLL9DD2 How old would you say the house was? ;D9QKGF2 It was built, I believe, in 2007 or 2008. The oldest home I saw on that trip was built in 2004. paying $2,000 to $2,500 a month, but we can rent that home for $950 a month. Our client would have a $500 to $600 mortgage on it. We could easily rent that home for $1,000 a month. Heck, we may be able to rent it for $1,200 a month. That’s half of what the previous family was paying. I didn’t ask our supplier to take me to the nicest homes out there. I said to him, “Take me to the worst; take me to the best. Let’s just go.” Every neighborhood visited were master-planned communities, for the most part, 30 to 45 minutes outside of Phoenix. They aren’t in central Phoenix, but still within a reasonable commute. FMLL9DD2You’re talking about East Mesa and Gilbert. ;D9QKGF2Yes, and Queen Creek. We’ve purchased a lot of homes in Surprise all over that general area. I was in the Queen Creek area and saw a couple of homes there. I can’t remember the names of the other areas, but they were master-planned communities. In every community, I saw a dad or a mom walking the dogs, kids playing outside; it seemed like a member of law enforcement lived in every neighborhood. Three of the homes I saw had a Sheriff living nearby. And I know this, because their car was parked in the driveway, and the car was turned off, so I know they weren’t parked, with the car running, checking out a meth house. [Laughs.] FMLL9DD2 So we’re talking about four- or five-year-old homes, with pools, nice features inside and out for $100,000? These homes are not really old, don’t need a lot of work, and can be filled with good, middle-class families. They’ll pay in rent half of what they were paying on a mortgage when they lost their home. ;D9QKGF2 Yes! Maybe the family that couldn’t handle that payment anymore. They were And you know what, even if the house isn’t new like the ones I visited, there is so much power in buying in these markets right now. Sometimes we will buy homes that were build in the 80’s or 90’s but they are typically in super hot rental markets, so your cash on cash return is the same, and that is really the name of the game right now… cash flow. Here is the other thing worth considering. Our clients are buying homes for around 40-50 bucks a square foot, and that is 40-50 dollars on a fixed up rental ready property. If any of these homes needed to be rebuilt today, it would cost at least 70 bucks a square foot, and that is really saying something when you consider how cheap labor is right now. I really want to emphasize that these are great homes in great neighborhoods that are fixed up and rental ready! Our suppliers do a tremendous job getting all these homes in REIC shape. Because of the amount of work they do, fixing homes and that, Lowe’s approached our supplier and said, “Hey, we want to cut you a deal.” Our supplier orders what he needs for a house, Lowe’s gives him 40 percent off of the purchase, and Lowe’s drop’s it at the curb on the day that he works on that home. So think about this: we have a supplier who gets deals from big retailers, which obviously keeps his costs down. If his costs are low and he works efficiently, it’s going to take less time, cost less, and the quality of the work will remain high. All of those savings get passed along to our clients. FMLL9DD2That’s amazing! Even Lowe’s is involved in REIC’s project in Phoenix. ;D9QKGF2 I had no idea, either. They told him, “We wouldn’t normally work with CONTINUED ON PAGE 60 “THESE HOMES ARE NOT REALLY OLD, DON’T NEED A LOT OF WORK, AND CAN BE FILLED WITH GOOD, MIDDLE-CLASS FAMILIES. THEY’LL PAY IN RENT HALF OF WHAT THEY WERE PAYING ON A MORTGAGE WHEN THEY LOST THEIR HOMES.” 52 | SUMMER 2011 Real Estate Investor T he Re al E s t at e F ir m "FmeZ]jklYc]f^jgeRaddgo&[ge Hjgh]jlqeYfY_]e]flYf\gl`]j^]]kfgllYc]faflgY[[gmfl Invest in the #1 and #2 best markets in the country! ?glgLJ=>hj]k]flYlagf&[ge 10348 West Atlantis Way, Tolleson AZ 85353 713 South 125th Avenue, Avondale AZ 85323 13042 West Cheery Lynn Road, Avondale AZ 85392 Photo © Trulia.com Photo © Trulia.com Photo © Trulia.com Previous High Sale: $225,385 (Jun 2008)* Last Sold: $106,500 (Dec 2010) Leased for: $1,150 Monthly Cash Flow: $556 Previous High Value: $290,000 (Mar 2006)* Last Sold: $86,000 (Dec 2010) Leased for: $950 Monthly Cash Flow: $424 Previous High Value: $262,000 (Nov 2005)* Last Sold: $82,100 (Dec 2010) Leased for: $950 Monthly Cash Flow: $421 Previous High Value: $264,000 (Apr 2006)* Last Sold: $71,000 (Dec 2010) Leased for: $925 Monthly Cash Flow: $443 )+,-*O]klJàf]DYf]$Dal[`Ú]d\HYjc9R0-+,( 3214 S 80th Ave, Phoenix, AZ 85043 7315 West Glass Lane, Laveen AZ 85339 11867 West Cypress Street, Avondale AZ 85392 Photo © Trulia.com Photo © Zillow.com Photo © Trulia.com Photo © Trulia.com Previous High Value: $336,000 (Feb 2006)* Last Sold: $96,000 (Jan 2011) Leased for: $1,100 Monthly Cash Flow: $462 Previous High Value: $262,000 (Feb 2006)* Last Sold: $66,000 (Jan 2011) Leased for: $895 Monthly Cash Flow: $451 Previous High Sale: $191,075 (Dec 2007)* Last Sold: $73,000 (Jan 2011) Leased for: $900 Monthly Cash Flow: $375 Previous High Sale: $259,078 (Dec 2006)* Last Sold: $86,500 (Jan 2011) Leased for: $975 Monthly Cash Flow: $423 522 S Madeline, Mesa, AZ 85208 11845 W Edgemont Ave, Avondale, AZ 85392 13386 West Saguaro Lane, Surprise AZ 85374 ))+,)O=\]fE[c]fra]<j$Kmjhjak]$9R0-+/0 Photo © Zillow.com Photo © Zillow.com Photo © Trulia.com Photo © Zillow.com Previous High Value: $231,000 (Oct 2006)* Last Sold: $71,200 (Feb 2011) Leased for: $850 Monthly Cash Flow: $360 Previous High Value: $239,000 (Mar 2006)* Last Sold: $72,000 (Feb 2011) Leased for: $825 Monthly Cash Flow: $334 Previous High Value: $263,000 (Jan 2006)* Last Sold: $90,000 (Jan 2011) Leased for: $900 Monthly Cash Flow: $365 Previous High Sale: $245,000 (Feb 2006)* Last Sold: $77,000 (Jan 2011) Leased for: $925 Monthly Cash Flow: $422 !!! BLE A AIL AV !!! BLE A AIL AV !!! BLE A AIL AV *-.,=<]k]jlJgk]LjYad$Im]]f;j]]c$9R0-),+ 7365 W Desert Lane, Laveen, AZ 85339 8861 East Plana Avenue, Mesa, AZ 85212 Photo © Trulia.com Photo © Trulia.com Photo © Zillow.com Previous High Value: $266,000 (Aug 2006)* Estimated ROI: 21% Previous High Sale: $215,000 (Mar 2005)* Estimated ROI: 18% Previous High Value: $310,000 (Aug 2006)* 5209 West Pecan Road, Laveen AZ 85339 Photo © Trulia.com !!! BLE A AIL AV 1366 West 17th Avenue, Apache Junction, AZ, 85120 Photo © Zillow.com Previous High Value: $240,000 (Jul 2006)* Real Estate Investor SUMMER 2011 | 53 By Stephen Miller PERSISTENCE AND PERSEVERANCE REAL ESTATE CAN BE AN AMAZING VEHICLE TO HELP YOU ACHIEVE YOUR FINANCIAL GOALS. L`YlZ]af_kYa\$alakY\a^Ú[mdl n]à[d]lgmk]Yko]dd&Aloaddhmk`qgmjZmllgfk$l`jgomhgZklY[d]k$Yf\[Ymk] qgmlgogf\]jo`qqgm]n]j\][a\]\lg_]lafngdn]\oalàlafl`]ÚjklhdY[]&:ml$ dac]]n]jqlàf_l`Ylakogjl`Yfqlàf_$a^qgmoaddh]jk]n]j]Yf\egn][gfklYfldq lgoYj\qgmjj]Yd]klYl]_gYdk$qgmoaddkm[[]]\ 54 | SUMMER 2011 Real Estate Investor “HOW MANY TIMES HAVE YOU TRAVELED DOWN A CERTAIN PATH AND ENCOUNTERED AN OBSTACLE YOU HADN’T ANTICIPATED?” H ave you ever, at any point in your life, tried to accomplish something, and then, for whatever reason, gave up? If you have ever experienced this, I am talking to you. Why did you decide to give up on pursuing that accomplishment? What was it that made you stop seeking after it and give way to failure? Why did you give up? I know that there are many reasons (excuses, really) for failing to reach goals, but the boiled-down basis of your failure is this: fear and doubt. You may simply be afraid of not fully reaching the goal, or believe you are just not good enough to achieve it. You may be afraid that if you do reach your goal, you’ll always have to live up to the new standard you have set. A fear of the unknown holds many people back, so when things don’t go according to plan, they drop out or quit instead of adjusting their plans to keep moving towards their goal. In any situation, and with any goal, if you persevere—if you stick to it— you will accomplish it. I had the opportunity to take my mother on a trip to Europe about 18 months ago. Our journey began in France, and went from there to Germany and Italy. While in Germany, we rented a car to drive from Munich to a few different cities my dad lived in when he was younger. Along the way, we wanted to stop at one particular, very old, traditional German city. It is surrounded by tall walls that you can climb and walk upon allowing you to view the entire city from above, with its beautiful architecture and amazing history. Just being there, eating the food, visiting the quaint, old-fashioned shops, and experiencing the unique culture is astounding, and I wanted my mother to have that experience. After planning and plotting our course, we were off. Along the way, we came to a detour in the road. Unlike detours in the States that take you around the block and get you back on your desired path, this detour took us in a completely different direction. Every time we tried to find our way back to the path, we encountered more detour signs, road work, and road blocks. I don’t remember how long we searched for the right street, or how many roads we drove to get back on the right course, but it wasn’t a few. We kept trying until we finally found a road sign that stated Rothen- burg. The sign pointed in the direction of the city, we turned accordingly, and finally found our destination. We arrived later than we had planned, but we got there. We spent the evening and the next morning in Rothenburg. We ate dinner at a highly-recommended restaurant that was set out on a rooftop terrace. That evening couldn’t have been more perfect. My mother and I were able to talk and enjoy each other’s company, as well as the amazing city around us. How many times have you traveled down a certain path and encountered an obstacle you hadn’t anticipated? Did you stop to reevaluate your path? Did you turn back in the direction from which you came? Or did you just quit? I remember when I first started my path in real estate. I was managing a number of homes and my responsibility was to get them lease optioned through REIC’s Compassionate Financing program. At the time, I didn’t consider myself a salesman. I learned all I could about the program, including all of the different benefits for lease option holders. I set out to achieve CONTINUED ON PAGE 57 Real Estate Investor SUMMER 2011 | 55 “ “ REST IS NOT IDLENESS, AND TO LIE SOMETIMES ON THE GRASS UNDER TREES ON A SUMMER’S DAY, LISTENING TO THE MURMUR OF THE WATER, OR WATCHING THE CLOUDS FLOAT ACROSS THE SKY, IS BY NO MEANS A WASTE OF TIME. - SIR JOHN LUBBOCK, =F?DAK@:9FC=J$:AGDG?AKL$9J;@9=GDG?AKL$ AND POLITICIAN 56 | SUMMER 2011 Real Estate Investor CONTINUED FROM PAGE 55 my goal of becoming an excellent “lease optioner,” and put goals in place to help me keep track of my progress. I remember an experience in which I was faced with a home that I would have termed difficult. It wasn’t the prettiest, it was smaller than all the other homes I worked to fill, and it was also the older. Like my experience with my mother in Europe, I encountered a road block. My plan, which was working so well with all of the other homes, wasn’t working with this one. I was being forced to take a detour and didn’t know how I would arrive at my goal. I remember dreading showing that home. My attitude was negative, and that surely came across to prospective tenants. I talked with one of my mentors and asked for some advice. He advised me to change my attitude, and if I did, I would get that house filled. Instead of throwing in the towel and turning back, I decided to persevere with a better attitude. The next few times that I showed the home, I did so with excitement and enthusiasm. The home was filled shortly after I changed my attitude, and I accomplished my goal. Perseverance is an attribute anyone can acquire. As we learn to persevere, we must be sure that we are focusing on the solutions. As a matter of fact, if you persevere in finding solutions, it isn’t a matter of if “WHEN I WAS 10 YEARS OLD I WANTED A TREE HOUSE IN A VERY BAD WAY. MY FAMILY HAD NO MONEY...BUT I WAS DETERMINED.” you will reach your goal; it is simply a matter of when. Calvin Coolidge once said, “Nothing in the world can take the place of persistence. Talent will not; nothing in the world is more common than unsuccessful men with talent. Genius will not; unrewarded genius is a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent.” If you desire success, you must be persistent. You must persevere. All that means is that you decide to take one more step. Be willing to try one more time, or as my Mother and I experienced, to turn down one more road. The answer to the current problem, or the key to the next success, sits waiting on the other side of the roadblock. If you turn away and leave the path altogether, you’ll never reach your success, even though it was just a few more miles, a few more steps, or an arm’s reach away. People must learn how to persevere. Perseverance has its own language. If you have ever learned a new language, think about the process that you have to go through. It can be quite grueling. You start out by trying to form sounds and words that are absolutely foreign to your brain and to your mouth. After trying to speak all day in a new language, your mouth, jaw, and tongue aches with fatigue. Your brain literally hurts from trying to remember all the new words. Just as learning a foreign language can take time and effort, learnReal Estate Investor SUMMER 2011 | 57 ing the language of perseverance will take time and effort as well. This is a short list words commonly used in the language of Perseverance: s 5SE CAN INSTEAD OF CANT s 5SE WILL INSTEAD OF WONT s 5SE POSSIBLE INSTEAD OF IMPOSSIBLE s 5SE SUCCESS INSTEAD OF FAILURE Those who persevere experience fear and then lovingly move forward. They experience a bout of failure here and there only to find success on the other side. The fascinating thing about perseverance is that it looks almost exactly the same as quitting. The only difference is that perseverance takes at least one more step towards success. Can you see that? The road that leads to a goal, both for the quitter and for the believer, is identical … except for that small detail. History has shown where perseverance leads: s s s 7ALT $ISNEY WAS TURNED DOWN times for the financing needed to build Disney Land (ARLAN $AVID 3ANDERS OR #OLONEL Sanders, went to more than 1,000 restaurants to sell his fried chicken recipe before someone bought it 4HOMAS %DISON TRIED TO CREATE THE lRST electric light bulb almost 10,000 times before he was finally successful You have the ability to do anything you want. You have the ability to create whatever you want. Only you can decide when you will stop and when you will persevere. The interesting thing about real estate is that there are so many naysayers. There are so many talking heads that are willing to tell you that you will fail; that this market is too risky; that you will end up losing your shirt if you invest now. I remember experiencing something similar in my childhood. 58 | SUMMER 2011 Real Estate Investor I hen I was 10 years old, I wanted a tree house in a very bad way. My family had no money. Going out to buy lumber or any of the other materials needed to build an adequate tree house was out of the question. Additionally, my father had health problems that prevented him from being able to help me. But I was determined. I told my siblings what I intended to do and all of them told me that there was no way; I wouldn’t be able to do it myself. It wasn’t possible. So there I was, a 10-yearold boy with no outside help, no real plan of attack; but I knew that I could do it. I searched dumpsters and back alleys in my neighborhood looking for wood that I could use. I found a solid wood door that was perfect, and I schlepped it all the way home and into my back yard. For days in a row, I searched and searched for materials. I remember finding remnants of an old water bed one day. Water beds were made with really sturdy wood. Piece by piece, I assembled the wood I had found. I searched through our old garage to find any old nails or screws that I could find. I’d found enough to get a few 2-by-4s nailed into the tree trunk to use as a ladder with a few more nails to spare; the tree was very tall. Then I began hoisting the wood into the tree. I used an old lawn hose to pull some of the wood up. After all that work, I ran out of nails and I couldn’t go any further. My mother came to me and pulled me aside as if she was going to tell me a secret. She had a bag in her hands. She put her hand into the bag and pulled out a box of nails that she had purchased for me. That was a really big deal to me. I finished the tree house with those nails, and it was amazing. It had four separate levels, and was sturdy enough to hold grown adults. This story holds a lot of meaning to me. At the age of 10, I understood the power of perseverance. I did all that I could, and in the face of defeat, the way to reach my goal became available. Because I persisted, regardless of the obstacles I faced, I achieved what I had set out to do. The following poem has become a favorite over the years: When you want a thing bad enough to go out and fight for it, To work day and night for it, To give up your peace and your sleep and your time for it; If only the desire of it makes your aim strong enough never to tire of it; If life seems all empty and useless without it, And all that you dream and you scheme is about it; If gladly you’ll sweat for it, fret for it, plan for it, Pray with all your strength for it; If you’ll simply go after the thing that you want with all your capacity, Strength and sagacity; faith, hope, and confidence, stern pertinacity; If neither poverty nor cold nor famish nor gaunt Nor sickness or pain to body or brain can turn you away From the aim that you want; If dogged and grim, you besiege and beset it, you’ll get it! —Author Unknown The truth is that those who would deter you from your success in real estate will most likely never see that success themselves. They will continue to oppose you and to tell everyone around them that success in real estate is not possible. They have likely experienced obstacles in real estate themselves—obstacles they never persisted through—and allowed failure to become their story. But the truth is very different from their reality. Whether your goal is to succeed in real estate or to accomplish something else, if you will persevere through all obstacles that may arise, you will succeed. Nothing can keep you from reaching your goal except yourself. Allow yourself to keep trying. Allow yourself to stand back up when you’ve been knocked down. Allow yourself to say, “I can, and I will.” If you do, you will achieve all that you set out to accomplish. You will be a successful real estate investor. DIY FOCUS 10 TIPS FOR A SMOOTH HOME REMODEL FOLLOW THESE 10 TIPS WHEN YOU EMBARK ON AN EXCITING HOME REMODELING PROJECT. 1. Establish good two-way communication with the home remodeler. It’s essential to have good communication for a smooth home remodeling project. Does the remodeler listen? Does he or she answer questions clearly and candidly? Can you reach him when you need to? Does he return phone calls promptly? Does he let you know when problems arise and work with you on solving them? 2. Make sure you have compatibility and “fit” with the contractor. You’ll spend a lot of time with your remodeler so it’s important to have a good rapport and trust in him. 3. Set a clear and mutual understanding about the schedule. You and your home remodeler should agree on the schedule up front to avoid conflict and problems later in the project. 4. Request a written proposal. Often times, two people remember the same conversation differently. Get the proposal in writing and work with the remodeler to ensure it reflects your wishes. 5. Determine a clear and mutual understanding on the miscellaneous details. There are a lot of little details that need to be settled before work starts. What times of day will they be working? How will he access the property? How will cleanup be handled? How will they protect your property? 6. Remember to be flexible. Remodeling is an interruption of your normal life. Remember to be flexible during the project so that you can handle the unexpected and go with the flow. 7. Create a clear and mutual understanding of how Change Orders will be handled. With home remodeling there is always the chance you may want to change materials or other project details during the job. Agree with your home remodeler on how these changes will be handled before the start of work. Also understand that changes could affect the schedule and the budget, so it’s important you have all changes in writing. 8. Agree on a well-written contract that covers all the bases. The contract should include these elements: a timetable for the project, price and payment schedule, detailed specifications for all products and materials, insurance information, permit information, procedures for handling change orders, lien re- leases, provisions for conflict resolution, notice of your right under the Federal Trade Commission’s Cooling Off Rule (your right to cancel the contract within three days if it was signed someplace other than the remodeler’s place of business), and details on the important issues (such as access to your home, care of the home, cleanup and trash removal). 9. Ask for a written Lien Waiver from the home remodeler upon completion of the work. If the home remodeler hires subcontractors for portions of the work it is their responsibility to see them compensated. In order to ensure this has been done and to protect yourself, ask for a written lien waiver when the work is finished. This document will verify everyone has been paid. 10. Establish a project plan, covering all phases and dependencies in the work. Plan your big picture goals with the home remodeler and talk out your needs. Hire a home remodeler who will plan it out with you, listen to concerns, and answer questions. From How to Hire Your Dream Remodeler by Tom Higgins, Superior Products Home Improvement, Littleton, Colo. Printed with permission of the National Association of Home Builders. To learn more about home remodeling, visit www.nahb.org/remodel. Real Estate Investor SUMMER 2011 | 59 J]laj]e]fl7 EYqZ]$Yf\EYqZ]Fgl didn’t realize you had so much going on when I first scheduled the interview with you, so I really appreciate your time. CONTINUED FROM PAGE 23 E9JC@9E2We got a rain and snowstorm last night, so I spent all day in the office trying to catch up on paperwork, which I need to do once in a while. to see exactly what direction I’ll take. I have given myself time to move one direction or the other. FMLL9DD2 But you do have the option to do just real estate, with a little sod farming. So, you not only have just one option, but multiple options to look at. E9JC@9E2 Correct. Not just the sod farm. I also have an equipment business. FMLL9DD2Oh, really? What type of equipment business do you have? E9JC@9E2It’s called Brower. It’s an equipment business that sells to sod farms. We sell sod harvesters, mowers, vacuums—anything to do with turf equipment. I have been doing this for 30 years, too. Between two full-time businesses, as well as real estate, I’m busy. FMLL9DD2 Yeah, that’s what it sounds like. I Afn]klafJ]Yd=klYl]Z]^gj]alk LggDYl] CONTINUED FROM PAGE 52 a company that does one small job at a time.” Rick does a lot of work, but Lowe’s would normally work with huge construction companies. He’s been in their stores so often buying supplies for these homes that they actually approached him. That’s pretty incredible! It’s also a testament to the number of homes we are working with. As we drove through Phoenix and the surrounding area, there are so many distressed homes. The population is growing. We certainly did not feel like we’re going to run out of supply any time soon. There’s such a large geographic area with such a dense population. There are so many homes available in those areas, and the reason why they’re available is that families don’t want to move out 60 | SUMMER 2011 Real Estate Investor I’m talking with friends around here that are interested. I pass out the book [The Strait Path to Real Estate Wealth by Kris Krohn], and they’re calling me to pick my brain. Not that I know it all, but I have had a little experience, and it’s been a good experience. Another thing I really want to stress is that the people that work at REIC—they are great people. I mean, they have been awesome, and they do the things that they need to do for their clients. As a client, if I didn’t have that feeling, it would have been tough to do what I just did. FMLL9DD2 That’s true. A lot of what we tout is that we’re a one-stop-shop. In order to be a one-stop-shop, you have to have the people with the talent to get things done. We need to have the right people to give our clients a really good experience. of the Phoenix area. They’ve simply hit a rough spot, or their mortgage adjusted too high, but they still want to live in that area. They lost their home, but they need to live somewhere. Even though I say there’s a great supply of homes, there aren’t ghost towns in the Phoenix area like there are in Ohio. People are still living there. FMLL9DD2 So, you didn’t witness any tumble weeds rolling down the middle of empty streets? ;D9QKGF2 No, it’s not like that. In fact, I received an e-mail earlier this week, specifically about Arizona, from Bryson Bennett, who works directly with our suppliers. He said, “Hey, we’ve had a great week for tenant placement!” Seven homes closed this week, and four of those seven already have tenants placed in them who will be paying more rent we built into the pro forma statements, which are conservative financial projections we give to our clients. E9JC@9E2 That’s what people look for—a one-stop-shop. People don’t have time to do things anymore. When you’re in the market, you had to find a broker to work with, and you relied on him or her to do everything for you. I’ve had a few experiences that did not go very well. FMLL9DD2 And to actually have a return on invest to control in the first place—that’s a pretty good thing to have. E9JC@9E2Yes. Yes it is. Ed’s experience is a perfect example of what REIC strives to deliver for its clients. Most clients don’t move as fast as Ed and Mindi. Each client has their own 10-year game plan to follow. Ed and Mindi have their game plan. Do you have yours? Ed Markham is an REIC Global student. His results are personal and yours may vary. A survey of the “typical” results of REIC Global students can be found at www.reicglobal.com. FMLL9DD2 Wow! That’s a big deal! Why are you going down to Phoenix again? ;D9QKGF2 We’re doing another seminar there. We have great people down there that are filling events regularly. People in that market know that now’s the right time to buy. They know that if they’re doing okay, they need to buy investment real estate. We’re buying homes for $100,000 that were worth $250,000, or $270,000 or more. That means your $20,000 down payment will go much further. Your cashon-cash return is in the 20 percent range. That’s your net cash-on-cash return; that’s after you take out property management and tenant placement costs. You don’t have to worry about all of that. REIC works directly with the property management companies in focal markets to coordinate all of the details with them. Those property management companies, as you can imagine, feel a tremendous sense of loyalty towards us and our clients because we’re giving them so much business. They want to perform at optimum levels so we’ll continue to give them business. Otherwise we could take our business elsewhere. FMLL9DD2 That’s a huge amount of business, too. When you talk about cash-on-cash return, what does that mean? ;D9QKGF2 Let’s use a really simple example: $100,000 is a higher price-point for a lot of the homes we’re acquiring in Phoenix, but let’s just use it as an example. If a real estate agent lists the home, they would list it for $105,000 or $120,000. Our client buys it for $100,000, so they’re buying it below list its possible listing price. For that $100,000 purchase, you need a 20 percent down payment. There are some closing costs and things like that you will have to pay, but if you take that $20,000 down payment and finance the remaining $80,000 at the current interest rate — right now, I believe they’re in the 5s, but whatever interest rates are — the client pays the mortgage, principle and interest, taxes and insurance, property management fees, and we escrow a small amount for eventual repairs and potential vacancy loss. After taking all of those factors away, the actual, real dollar cash flow month-on-month, may be $400 net a month. Multiply $400 by 12, which gets you, $4800. Then divide $25,000 (to account for fees, escrows, etc. and to keep it really conservative) by $4800 to find the annual cash-on-cash return. What is that? FMLL9DD2 That’s 19 percent. ;D9QKGF2That number is based on net rent collection, not gross rents, and on the amount of money initially invested in the property. FMLL9DD2The income potential is absolutely huge! ;D9QKGF2As I walked through a few of those homes, I asked myself, “How can I be a part of everything at REIC and move my family to Phoenix?” I’m not kidding! These homes were so beautiful, so immaculate, so incredible in terms of purchase price and potential upside, in great communities. Why would investors not want to buy these homes? Why would people not want to live in these homes? I would move my family to one of those homes in the same neighborhoods where we’re buying, in a heartbeat. That’s how strongly I felt about those areas. I saw five or six homes that day. Are we buying more homes than that? Yes! We buy homes every week. Are better homes available? Possibly. I see most of the homes we buy when they come across the wire to Bryson, and it’s always the same stuff. It all looks like what I saw on that trip. The neighborhoods are very similar, and so are the prices. THERE ARE THOUSANDS OF NEW HOMES AND THEIR OWNERS CAN NO LONGER AFFORD TO LIVE IN THEM. FMLL9DD2Those homes must be really good, if not just absolutely great. I don’t know why any of REIC’s members wouldn’t want to invest in Phoenix properties right now. ;D9QKGF2 Well, here’s the thing. I’ve invested in real estate all over the country. I’ve invested in Utah, Wisconsin, Ohio, Indiana, Arizona. I’ve bought homes all over the place, and honestly, the only place I want to buy right now is in the Phoenix or Vegas markets, for now. It doesn’t mean that I won’t want to buy elsewhere in the future when the market changes. I don’t know when, in my lifetime, I’m going to be able to buy as nice of a home, that’s this new, at this price, that will cash flow as much, in a down economy. Imagine owning this homes knowing what the economy could do in the future. When the economy recovers, it will be amazing! The Phoenix market is still, according to my understanding, growing and doing quite well. FMLL9DD2Do you think what has happened in that market is simply a little hiccup that’s caused the market to drop? ;D9QKGF2I do. What led that market to this point is a bit different than other markets. In the Midwest, homes are old and have been around forever. Almost every home in the Phoenix area is newer. That market grew overnight. What happened was this: people would walk into a model home in a master planned community and want to buy a home. The builders construct one phase of the community at a time. In Phase 1, home prices started at $160,000 to $175,000. The first phase sold out so quickly that the builder needed to start planning for Phase 2. Because Phase 1 sold so well at $175,000, home prices in Phase 2 will start at $185,000. More people come to look at the furnished model homes. The sales agent in the model home tells their potential buyers, “The property value went up between Phase 1 and Phase 2 from $160,000 to $185,000. You should buy right now because the builder told me that in Phase 3, home prices will start at $200,000.” FMLL9DD2Or $205,000, or $225,000. ;D9QKGF2 Exactly! It was a case of artificial inflation; but not really though because people were buying those homes. The market reached a point that people stopped buying homes. Those who had purchased those homes shouldn’t have qualified for the loans they received. When the value of their home skyrocketed, they refinanced their loans after a relatively short period of time; their equity had tripled almost overnight. They pulled all the cash value out and spent it. This is what led to the collapse. There are thousands of new homes and their owners can no longer afford to live in them. I know of no other markets in the nation, besides Las Vegas, where we’re also doing some purchasing, that something like this has happened. There may be little pockets here and there, but in terms of large geographic, populated, metropolitan areas, I’m not aware of another area in the country that this sort of thing has taken place. Real Estate Investor SUMMER 2011 | 61 Let’s go back to the homes I told you about earlier. They are large, 2,300- or 2,400-square-foot homes, and our clients are buying them for around $95,000, fixed up and beautiful. They are relatively new homes. Rebuild costs alone are probably $70 to $85 per square foot. Let’s do the math on rebuilding a 2,300 square feet home. FMLL9DD2Do you have a calculator? ;D9QKGF2 Yes, I do. To rebuild a 2,300-squarefoot home, would cost anywhere between $160,000 and $195,000 depending on how cheap you could get good labor — just to rebuild in today’s market. REIC clients are buying homes like that for $100,000, or less. The market is obviously out of integrity. Market values are well below what it would cost to rebuild these homes, and we’re buying them at prices well below that. If the market even comes back, even partially, over the next few years, our clients win big as a result. Even if it doesn’t, the fact that their payments are so low, and their renting their homes at great rates, they’ll be in really good shape. FMLL9DD2 This is a long-term strategy, right? ;D9QKGF2 Yes, it’s a long-term investment. Our clients seem to understand that. When they buy these homes, they buy at a price well below where market value is or should be. I mean even if they are buying at “market value” based on recent comparables, when we look at the rebuild cost, we still know these homes are well below where the market was and will likely trend back to. That doesn’t mean much in the short term because they don’t plan to flip the house. Are they looking to capture potential appreciation? Absolutely. Will they do so in the future? Possibly. We don’t know what the economy will look like. My focus is the fact that with a $20,000 down payment, an investor can make a 19 percent cash-on-cash return, which is far better than any mutual fund, any stock, any annuity, and any other investment type all across the current economy. Nothing is going to yield cash-oncash returns like these. Even if you did find an investment yielding around 20 percent, 62 | SUMMER 2011 Real Estate Investor will that investment cut you a check every single month to do with as you please? FMLL9DD2 The chance of that happening is very slim. ;D9QKGF2 This is—literally—a once-ina-lifetime opportunity, in a once-in-alifetime economy, in a once-in-a-lifetime market to be able to purchase once-in-alifetime investment properties. Our clients have to understand that. They need to realize this is not a flipping strategy. This is not a short-term equity play. Is there equity to be made? Of course. Does it matter right now? No, it really doesn’t. “MOST PEOPLE INVESTING IN THIS PROGRAM USE IT TO HELP BUILD A RETIREMENT PORTFOLIO. “ Only four things matter: 1) the purchase price, 2) the down payment amount, 3) cash flow yield, and 4) the families we’re able to put into those homes to give investors those rents consistently. Some of our property managers are signing twoyear lease agreements locking in cash flow numbers for at least two years. FMLL9DD2 That’s almost a guaranteed twenty percent return for two years! ;D9QKGF2 You don’t find that anywhere. The best fund managers in the world would love to go to a country like China and say, “I promise to get you 20 percent on your money annually!” China would go ballistic if they could find something like that. We’re doing it with homes in local real estate economies that are literally primed and perfect for real estate investment right now. Most people don’t have access to the deals and the process that they can have at REIC. There is a huge benefit for them here. FMLL9DD2 So, the biggest takeaways for the Phoenix program, and the Vegas program, are 1) do not treat those homes as an equity investment, and 2) treat them as a cash flow opportunity. Don’t worry about the equity. Worry about the cash flow. The cash flow potential is huge! The equity potential is huge too, but more dependent on future market movement. ;D9QKGF2 In the long run, yes; don’t worry about equity in the short-term. This is a cash-flow game. This is a cash flow machine. This is a residual income businessbuilder. That’s why it needs to be looked at. So, now you have a better idea of what I was talking about a few pages ago. This program does sound too good to be true, but like I said earlier, I’ve seen some of the deals they have done with this program. I’ve also met some of the investors participating in the program (Remember Ed Markham?). Yeah, it’s the real deal. Most people investing in this program use it to help build a retirement portfolio. Making a move like that makes complete sense. But what if you are in a position in life that simply requires more cash flow? Who knows? This program may be a fit. What’s great about a program like this is that you control the cash flow. You have the opportunity to do with it what you’d like. The only problem with this program is that its lifespan depends on the economy. When the overall U.S. economy turns around and improves, it may be too late to find deals similar to those Kevin told me about. If you would like more information about the Phoenix Accelerated or the Las Vegas Accelerated programs, call 1-801-841-3300. The Terms & Conditions regarding participation in REIC Programs is set forth at www.reicglobal.com. You are urged to review this and understand that the disclaimers and policies for participation in REIC programs are relevant in your evaluation of the strategies contained in this article. Want to know how to own your own bank? It isn’t just a philosophy... it’s a way of life. Be your own banker www.TFFpresentation.com Real Estate Investor SUMMER 2011 | 63 Bad Credit? Have Credit but no Capital? Learn the place that investors go to Round up both Call 877.801.8040 64 | SUMMER 2011 Real Estate Investor

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