Ebb And Flow

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The Ebb and Flow

It’s an interesting phenomenon, the ebb and flow of membership at the Madison REIA.  Turns out, it tracks closely with most REIAs across the country, but it does not track at all with most professional networking associations.  I wanted to understand this curiosity a little better, so I took a closer look.

First, let’s define what this ebb and flow is all about.  Through social media, search engine queries, and referrals from individuals and organizations, people find their local REIA.  The individual referrals are the best because they are person-to-person and all about explaining value received by one person explaining it to another.  It’s like seeing a great movie – you share it with people.

But those organizational referrals can be a double-edged sword, especially if the referrer is a “fly-in guru” that has come to Madison, talked people into parting with their money for a “boot camp” or personal coaching, and then admonishes them to go “find your local REIA” on the premise that this is where you will really learn what this stuff is all about and interact with like-minded people.

While the latter points are entirely true, the problem is that it’s the guru laying claim to having discovered this awesome resource just for you and, consequently, you now deserve to “step up” to a more advanced coaching program where you’ll really get the juice.  But that juice is expensive, as you may already know.

With all these sources funneling into the REIA, a few people will look closely at the value that they might get from being a part of the association, and they sign up as members. This is the flow of membership increases. Read More...


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Why Dogs Bite

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I’ve had some discussions lately with coaching students about marketing.  One student was perplexed and somewhat upset, understandably, that “nothing is working”.  So, we drilled down into his work to see if we could uncover something.  I asked what he was doing for his marketing.

“Direct mail” was the answer.  Good, that’s a great way to reach out to a lot of people and get decent results; although this was clearly NOT the case for this guy.  Now, I should mention that I have seen his marketing letters and they are really great – to the point, clear, and all about helping the prospect.

So, naturally, I went to “quantity” and found that he was doing about 100 a week.  Not an avalanche by any means, but certainly enough to generate a response or two from time to time.  But, “nothing” is what he claims to be getting.  Absolutely nothing.  Makes no sense, really.

Later that same day, another student approached me with a couple of questions and remarked that he was fielding a “bunch of leads”.  “Wait a minute”, I said with this earlier conversation in mind, “where are you getting these leads?”  Oh, direct mail, talking with REALTORs, and friends.

So, the first thing you could rationally conclude is that he had multiple streams of marketing going on, but with all things being equal, he should have had little or no response from direct mail.  Not the case.  He was getting the lion’s share from direct mail response.  He was having good conversations. Read More...


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Legislative Update

Utah Real Estate Investors Association

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Seller Finance: The Seller Finance Coalition has moved its focus to the US Senate with an advocacy campaign requesting Senators to incorporate HR 1360 language into S 2155. Please be sure to send your email advocacy through National REIA's Action Center (on NREIA's website, under the legislative tab). There is a pre-drafted letter is for your convenience.
HUD Lead law update: On August 10, 2017 HUD issued a notice updating its Lead Safe Housing Rule (LSHR). This rule impacts all Public Housing Authorities, Project Based Properties, AND Housing Choice Vouchers, i.e. Section 8 vouchers. The rule increases the responsibilities of property owners who accept vouchers. Be sure to reach out to the Housing Authority to make sure that if you accept a voucher holder, you are working under the most up to date rules for notification and maintenance.
Tax Reform: Tax reform has started! The initial wave of tax reform has been passed, and as National REIA has pointed out there are positives and concerns. I won't say negatives yet, because we have to wait for the regulatory onslaught that is already underway by the IRS in "clarifying" what the House and Senate meant. One of the key areas we are focused on is the definition of full time job versus part time efforts. The designation or distinction could result in the awarding or loss of a 20% tax break for Pass-through entities like LLCs.
Housing Reform: the next wave of welfare reform is percolating in Washington DC and the focus is on limits to generational housing and unlimited housing for the able-bodied. With the economy moving and jobs-aplenty, the Republicans in Congress are ready for another bite at the apple of reform. Needless to say this will be neither quiet nor quick. As yet, only a few key principles such as 5-year limits to subsidized housing have been leaked out. There will be a lot more on this issue once the budget is actually passed and IF the GOP believes it will help them in the mid-term election.
Energy Benchmarking: LEEDs programs have taken on a new life of their own - not just as incentives for developers, but as a standard of efficiency by local elected officials appealing to their green constituents. Energy efficiency is a good thing, but there is a cost/benefit factor that needs to be considered, and that has been over-ridden by the folks claiming the earth is growing hotter, oops, no colder, oops climate change. Well the weather is changing, but in the Midwest where common sense still resides, we call it the Seasons. Needless to say, many of these efforts are on the coasts. There are alternatives to LEED and many are much more pragmatic. Consider Green Globes and Energy Star as examples. In fact, Chicago IL is considering an energy rating system which would require all buildings to have an energy benchmarking - with an Energy Star© system that is under re-evaluation and may be changing its own system. Benchmarking has its set of problems, and while adherents support the process as transparent, the unintended consequences may be decreased property values over and above the cost of the utilities involved.
Rent Control: California may be facing a rent control-style program to its ballot process by a group evolved from ACORN. Several Cities are also considering implementing similar plans. Ironically, even Bloomberg News is reporting on the ineffectiveness of Rent Control! (see article on Real Estate Investing Today.com) Additionally, California property owners are working through the impossible task of "proving the negative" by showing that they no longer have bed bugs if a unit was found to have them by a prior resident.
Inclusionary Zoning Requirements: numerous cities like Philadelphia, have been working on approving new zoning mandates for mixed income housing.
Evictions: Are the hottest issue to "address" by municipalities. The book "Eviction," has set the stage for an argument for making it more difficult to evict a resident. Yes, even if they have wasted their income, or spent their money on drugs - as repeatedly documented in the book, and lied to their landlord, repeatedly... somehow the accountability aspect of paying a bill, i.e. rent, should now be more difficult to enforce. Read the book. Be aware. Be ready for it to come to a community near you! One argument to make is to ask that rental contracts be handled similar to other installment payment agreements, like auto and home loans. If those are worthy of being broken, then the rent payment can as well...
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Back on the Horse

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You’ve no doubt heard the expression that if you “fall off the horse”, the best thing to do is to “get back on the horse again.”  OK, that’s cute, we get it’s “insider meaning”, which refers to anything that you’ve done before that you’ve failed at for any reason, the best thing to do is to try again.

It’s a little subtler than that, too, of course.  It also refers to things that you may have been doing and were interrupted from doing for events outside of your control.  In other words, no so much that you failed at anything, but perhaps you were just stopped, for whatever reason.

So, this is my one-year celebration of pulling myself back on the horse – the horse of life.  You see, one year ago, a team of surgeons, acting as a team of rehab experts that included a framer, a plumber, and an electrician, rehabbed me.  They took my heart out, re-plumbed the feed lines, and put it back.

How I got to that point is anyone’s guess, and the team of cardiologists who looked at my heart muscle and say that it’s a strong as a horse’s, just the feed tubes got clogged.  They believe that there is a large amount of heredity in that equation.  Who knows, really.

I never actually fell off the horse, either.  I stopped the horse, I said “something’s not quite right”, got off the horse, and sought assistance from my health-care coaches.  No one forced me to “do” anything, but what they did do was make strong recommendations for that rehab I described above.

Once that was done, they told me to go home and let the automatic processes of the body rebuild the damage and the trauma caused by the surgery.  Then I got handed off to another set of coaches that guided me back to re-building physically. Read More...


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First, Do What You Love

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I’ve had many a conversation with people who believe that they want to step into real estate investing, and the topic of “why” ranges widely.  Many people have seen the shows on HGTV, read Rich Dad, Poor Dad by Robert Kyosaki, or otherwise have been exposed to this real estate thing and got interested.

There’s a real problem with finding what you want to do in your life on T.V.  Realize that the very first priority with a television show is to generate viewership and, hence, advertising dollars.  When that show happens to be one about rehabbing or, as they call it, “flipping”, things can really go sideways.

Real life often does not make for the best television viewing.  For example, talk to health care professionals and ask how much of the T.V. show “Grey’s Anatomy” reflects the real world.  Often, eyeballs will be rolling upwards.  Staff at Grey Sloan Memorial goes through more of their own trauma than they are servicing.  And it makes for great television – I am an admitted addict myself.

So, what’s “off” about the HGTV rehabbing shows?  Well, they only show the three most exciting things about a rehab:  1) an awful distressed property, 2) construction that goes smoothly, usually done by one star of the show (Chip Gaines comes to mind), finished on time (yeah, right), and 3) a completed project that blows your mind.  Throughout, they find points to add extreme drama, like when the mold is detected, or they need to add a $5,000 furnace -  the music gets ominous and we break for commercial. Read More...


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What’s Next for You?

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Used to be that when you found what you did in life, that was that.  The cobbler was a cobbler until he died.  The blacksmith was a blacksmith, the engineer was an engineer, the doctor was a doctor – all until they retired or died.  Well, it’s just not that way anymore.

Some years ago, I knew somebody who was a great electrical engineer.  He was a whiz at circuit design and worked for a company around Chicago that designed and built small controllers.  One day I met up with him and he told me he was back in school.  I assumed he was going for his masters in EE.

Quite the contrary, he was in pre-med and had already arranged for an internship at a hospital across the country.  Wait, what?  No, seriously – what are you up to, I asked.  That was it – he was serious, and he actually did it.  Years later I heard from him and he was a surgeon somewhere out west.

You see, something called to him and he acted on it.  He didn’t allow himself to be pigeon-holed into being an engineer forever, even though he excelled at it.  As a surgeon, the hours were long, the disappointments huge, but the successes were massive – for him.  And if you think about it, those two worlds are not that far apart.  He spent a lot of time diagnosing and fixing circuit problems before.

What really struck me was the conversation he had around money.  It figured somewhere near the bottom of the list for him; his happiness was up at the top, and he was fully prepared to take a position at a rural hospital in a poor area of the country or even practice in a far-away land where money was no object because there really wasn’t much.  And still he would survive – probably thrive – on his joy. Read More...


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Tax Reform Was Passed, Signed & Delivered

Utah Real Estate Investors Association

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As there has been a great deal of hype on all sides of tax reform, let’s see if we can dig into the issues with more light and less heat.  Hopefully you find this helpful and instructive on items that will no doubt have lasting ramifications and unintentional consequences for many years.  The summary: The reforms should be good for real estate, with tax advantages for pass-through entities improving.  Before making decisions based on tax reform, please be sure to speak with a tax accountant up to date on the all real estate rules, as those will be coming fast and furiously from the IRS!  To start, let’s get a quick understanding about “the process” and how we got here:

The rules in the Senate, specifically those about budget reconciliation drove the GOP Tax Reform process; or more perhaps accurately, hemmed it in.  The Senate rules would not allow not budgetary items to be included in the bill, though somehow the opening of the ANWR for oil drilling was deemed appropriate.  I say that not to be tongue in cheek or sarcastic, but to highlight that the rules of the Senate can be rather extensive and somewhat archaic.  Nothing illustrates that more the Byrd Bath, or Byrd Rule, named after Sen. Byrd of WV, who was prolific in his ability to ear mark projects (and have them named for him throughout the state).  This provision limits a budgetary item from being either “extraneous” to the budget or would significantly increase the federal deficit beyond a ten-year term.  Those definitions, and the reference to the 10-year life span of legislation for the Senate, are key. Read More...


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Must Do, Should Do, Could Do

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When you’re rehabbing a house for re-sale, you’re faced with deciding which approach to take to make that house sellable without overbuilding.  How do you do that?  Well, largely, it comes from experience and mentorship, but there are some general “rules-of-thumb” that you can employ to help you choose.

We break our rehab lists into three categories; the “Must Do” list are those things that would prevent a retail buyer from obtaining a loan (FHA restrictions), or something that will surely be caught on a house inspection that we would have to fix anyway.

These things include an old (15+ years) furnace, an old (10+ years) water heater, a fuse box or a breaker panel manufactured by Federal Pacific Electric (FPE) or Wadsworth, a decaying or “frito-ing” roof, broken or damaged components such as doors, walls, windows, flooring, cabinets, or countertops, or certain “handyman special enhancements” that are clearly code violations, just to name a few.

The next list is the “Should Do”, and it includes things that are likely to sway buyers into the “buy it” camp.  Since kitchens and bathrooms are the biggest factors in house-buying decisions, these are things like updating the kitchen and bathroom cabinets and countertops, faucets, sinks, and lighting.

This is where things get a little fuzzy.  Depending on the current market, some of these things can slide between the “Should Do” and “Could Do” list.  If the market is strong and houses are flying off the shelf, you don’t have to do quite as much, although doing so can cause a house to move fast. Read More...


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Market Condition

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I was talking with a friend the other day, and she said something I hear a lot: “oh, you must be having a tough time in real estate with this market”.  I’m not quite sure what aspect of the market that she was referring to, but I assured her that in my area of the real estate market, there’s never a tough time.

How can that be?  Interestingly, where people get their “data” is from news reports, and we already know that the news outlets love nothing more than bad news.  It’s sooooo dramatic and sometimes sad, but somebody’s got to get the word out there, right?

Well, we know that the RETAIL real estate market has its cycles.  First, there’s the micro-cycle of local seasonal conditions where a lot of real estate is transacted in the spring, and not so much in the fall and winter.  Of course, this seasonal cycle depends on where you are in the country, too.

Then there’s the macro-cycle of the housing industry at large.  The best recent example of this was the precipitous descent we took around 2008 when prices crashed through the floor.  People were trying to dump their houses left and right – some from fear, some for legitimate reasons.  Didn’t matter.

And that visibility is about the retail side of real estate – the buying and selling of homes by people who occupy those homes.  That’s not our side of real estate, where we look at a different cycle and different market conditions.

Now, it would be folly to say that those retail conditions have no impact on what we do – they surely do.  But those conditions don’t dictate an “up or down” market for real estate investors.  When you tell that to people, they don’t understand how that could be. Read More...


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What About the Sellers?

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There’s so much to write about in the world of real estate investing, I could go on forever.  But the one aspect that we don’t talk about too much is the impact we have on the seller of a property.  Many people assume that the seller is a faceless bank and that this is just a financial transaction.

In fact, most of the property sellers that we work with nowadays are just normal folk, and their need to sell ranges from “I am desperate and need to sell NOW” through “I’m looking for a more easeful way of getting this done” and everything in between.

For example, last year we purchased from someone in Baraboo that had listed her property twice over the prior 18 months, got plenty of offers, and even got two of them accepted.  The first one fell through at the bank, then the second one did the same thing.

The problem was viability/insurability.  While it was of little or no immediate impact to her, the furnace and water heater were on their last legs, and the electric panel was all fuses.  These are things that, when the bank does its due diligence, can cause the deal to fall through during underwriting.

Clearly, she was frustrated and a little worried.  There was no way that she could afford, or even want to afford, replacing those things.  And to make matters worse, the house used to be a duplex and had two (2) electric meters.  She got two electric bills each month, one for upstairs and one for downstairs. Read More...


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