We have spent a lot of time over the last couple of weeks thinking about our internal goals for 2019 as an office, and as individuals. In our office, our model has changed a little bit as we are getting away from taking on each project as a full rehab. However, we are still looking to do the same number, if not more, of transactions that we have done in the past. Changing our model though does not change how we want to go about the process, and our first step in our collective process as an office is thinking about our goals.

The first conversation I have with someone who is in the Complete Dealflow System (completedealflowsystem.com) always revolves around what they have accomplished in years previously and what they wish accomplish in their year upcoming. This allows us to anchor ourselves with a tangible target, that hopefully is not entirely financially motivated. Think of the simple formula that (X) calls turns into (Y) conversations which turns into (Z) appointments and with your specific close rate turns into (S) offers which brings you into your (M) closed deals- which means you get paid, and everybody loves getting paid right!?

Think about what is you want to accomplish and put forth a vision that of where you want to be. What does that look like? What does that feel like? What does sound like? Be as specific as you can possibly be. A great list of goals is not just one sentence by itself, but rather encompasses what you want to do, how much of that something you want to do, and by when you want it done: Bad Example: do more wholesales. Good Example- five wholesale deals by the end of March. The second example anchors you into doing five specific transactions by the end of a certain time period.

The more you can focus on doing the little things, the bigger things will seem far easier and you will become comfortable with the uncomfortable. As always Nick and I are available to go over your goals and talk you through creating them to make your 2019 your  best year yet!

OK, listen.  I know that politics by itself is a nasty topic right now.  And nevermind that I’m about to propose an opposing opinion to the National Association of Realtors.  But, as a real estate professional and an economist, and always a student of causality, I want to weigh in on this.

Any article or media post that you are reading, with homeowners saying “In the first 24 hours Trump was in office, he already cost me $400 this year,” is just a false statement.  And I get SO ANGRY when people, namely the mainstream media, put out sound bites or opinions and call it news. So, here’s what ACTUALLY happened, folks.

Screen Shot 2017-02-01 at 11.27.11 AM

First of all, let’s review what an FHA mortgage is — FHA is the Federal Housing Administration, which was created to insure mortgages and collect fees from borrowers to reimburse lenders in case of a default. They are attractive to borrowers, particularly from a credit-worthiness standpoint, because they are easier to qualify for and require a down payment as little as 3.5% of the purchase price, plus closing costs and a monthly MIP (mortgage insurance premium).

From 2006 to 2009, there was not enough in the FHA reserve to bail out all the banks staggering under defaulted loans. In response to that, the US Treasury just printed money like there was no tomorrow ($1.7 BILLION, to be exact) to keep the FHA funded, and therefore the banks didn’t learn their lesson — see my previous write-up on The Big Short. After this debacle, FHA premiums rose significantly — in 2013, FHA borrowers paid 1.75% as an up-front fee at closing, and an additional 1.30-1.35% of their total purchase price over 12 months as mortgage insurance premium (MIP) in addition to their monthly mortgage payment. The purpose of these payments is for the FHA to replenish it’s cash reserves since the crash completely wiped it out — just to keep the banks with terrible underwriting guidelines and more concern for profit than potential risk afloat, which in the end, wasn’t at risk at ALL (again, see my Big Short article!), but I digress.

So. On Jan 10 — just ten days before leaving office, the Obama administration, in what some have called a political move to boost public opinion and ratings on the way out — made an announcement that effective Jan 27, they would maintain the 1.75% premium cost at closing, but would cut the MIP, currently at 0.85% of the purchase price, down to 0.60%, saving NEW homeowners closing after Jan 27 an average of $400 a year. It does NOT “cost” current homeowners/borrowers anything, since nothing changed for them after Trump halted the lowering of this premium — perhaps a lost DISCOUNT, but no added costs for borrowers.

So why did the Trump administration suspend this discount to new borrowers? As I drafted this article, the only official statement is: “FHA is committed to ensuring its mortgage insurance programs remain viable and effective in the long term for all parties involved, especially our taxpayers,” and the new HUD Secretary, Ben Carson, added he would “work with the FHA administrator and other financial experts to really examine that policy.”

I think putting more thought behind this, instead of just enacting more “feel good legislation,” is prudent, especially where — and this is my “well informed” opinion for sure — all signs are pointing to a correction in the marketplace, yet again.  We’re seeing it here in the tremendous uptick in our short sale firm, where we are now getting 4-5 new incoming cases a week, an uptick from our usual pace of 1-3 new cases per week, mostly due to job loss or reduction in income. Income and employment have not seen increases in line with the increases in the price of housing, which is a primary indicator for when we’re due for a correction.

Screen Shot 2017-02-01 at 11.27.48 AM

THAT said, if we are in for another correction, banks will be looking to the FHA for bail-outs when defaulting mortgages increase as people can no longer pay their high mortgage payments (if they were even credit-worthy to begin with), and the FHA relies primarily upon the fees it collects from borrowers to bail them out. If there’s no money left, well then, one could assume another total obliteration of banking as we know it. But since no one learns from history, if the FHA runs out of money the most likely scenario is that we, the taxpayers, will bail out the big banks, literally giving them ZERO risk in making these bad loans. Hell, they should just start issuing sub-prime loans again, since none of this does anything for accountability anyway! In that case, since the facts and economic indicators apparently don’t matter, they should just go ahead and decrease the MIP and save everyone $400 a year.

All sarcasm aside, I have to say it’s an encouraging sign for the FHA to keep the rates stable until they complete an economic analysis (like any insurance company or prudent financial firm would) as to how much risk they’d be exposed to in the event of a mortgage collapse, make sure they have sufficient reserves, and THEN make the adjustment.

Or they could just get rid of it altogether, since it won’t matter and the US Treasury will just print more money and bail out the banks anyway!
: – P

End of rant, and thanks for reading. And remember, confirm the accuracy of where you’re getting your “facts.” Note: if it’s the media or a National Association, or anything else poised to make a profit from swaying opinion one way or another, better check multiple sources!

Keep calm, and rehab on!

Robbie Reutzel at the Social Law Library

I’m super pumped about this announcement — in fact, I’m so excited, that after sharing this news far and wide via email and social media, I forgot to post it here! So please join me in extending a warm (though belated) AARE welcome to Attorney Robbie Reutzel — our new Director of Acquisitions and Liquidations for the AA Real Estate Group!

And as a graduate of our very own Complete Dealflow System©, I’m especially pleased to announce that he’s going to be the new Head Coach and Educator of the program, working directly with new students to ensure they stay on track with their business, as well as training and overseeing other coaches that join us as we FINALLY launch our Complete Dealflow System© to the masses!

By way of introduction, I’ll let Robbie tell you in his own words why he loves real estate!


Why I Love Real Estate, Part 1



Why I Love Real Estate, Part 2



3,2,1… hold onto your hats, cuz we have a huge year coming up!


ForRentAs I’ve gained experience in the real estate world and my business has grown, I have expanded my focus to include as many steps in the real estate process as possible — acquiring distressed properties, expediting short sales, rehabbing and selling properties, and I also include rentals and property management as part of my business model. Some call this ADD. I call it smart growth!  And since people have asked me recently why we’re putting such a focus on rentals, I figured an article was due!
So, why include rentals?
Once purchased and renovated, rentals provide stability and cash flow to ALL lines of business, smoothing the months between the sale of our rehabbed properties. Rental properties as we acquire them are intended to be held long-term and provide a “passive” (though anyone who believes rentals are completely passive, has never actually held any!) system of generating cash flow for the long-term operations.
I’ve always recognized that rehabbing was just one facet of the business and that if the market changes, deal flow dries up, or a loss is sustained on a rehab deal, without a foundation of rental properties, there would be nothing left. So my goal was to include rentals as one piece of the pyramid to sustain longer term operations. They also provide some peace of mind and a break from managing the time-consuming contractor/ management roles and day-to-day tasks of rehab projects.  I firmly believe that if you do rentals right and set up your processes from the beginning, they’re less time intensive or stressful as some rehabs and development projects turn out to be.
I’ve always believed in the concept of turning “quick cash” into “long-term wealth building,” but I had to accomplish this slowly and in different ways than many other investors have done. My strategy was to pick up one rental building for every 4 rehabs, which sounds easy enough, but it was very rarely simple. Because of my rough start in the beginning, I was out of the credit game for a long time and had to find other avenues for generating rental income.
So, working with private money and cash generated from my wholesale and rehab deals, I began buying single family homes in markets outside MA. And let me stop here for a minute to give some street cred to local power couple Linda and Nyrik Huuskonnen, who introduced me to my first “out-of-state” experience beyond MA and NH — welcome to the Pittsburgh market! It was here that I could invest some cash from my rehabs without having to chase down bank financing, and began purchasing single family homes for between $5-15K, investing an additional $20-30K per unit, and then renting them out for $500/month. Pretty good deal, right?  There’s a separate story on the challenges of running an out-of-state investment company (Coming soon!), but it certainly beat paying $300K in Mass to only make $3000/month in gross income.
Now that I have re-established my credit and my business is financeable, AARE Group is acquiring both local and out-of-state rental units at a more aggressive pace, making sure that we set aside the cash to cover down payments. Our typical rental lending relationship will fund 75% of the acquisition price as an investment.
RichardsonRoadAnother key to the success of this process is property management, which we have folded into the AARE Group as well (while not publicly marketed as of yet). As with everything that we do, I find a solid system makes all the difference.  Key points we exercise here are all about tenant screening and pulling from a greater tenant base to ensure we get the best of the best. Our goal is to attract better tenants with better properties. This, along with treating everyone as customers instead of just “tenants,” are a couple of the ways we are able to retain our good customers and, when we have a turnover, we use it as an opportunity to refresh the unit and bring it one step closer to “flip quality.”
I’ll wrap up with an analogy. In our office, we talk about the difference between firing cannons and pistols. A rehab is like shooting a cannon ball’s worth of cash at a project, expecting a return of 1 1/2 cannon balls, roughly 12 – 20% ROI, or 25 – 50% Cash on Cash ROI (depending on location, and market conditions).
A rental is like firing a small bullet of cash at a project to create a net cash flow of $150-300/month per unit (after expenses, repairs, mortgage, taxes). THEN, we work to make money on the cash flow, as well as getting a slight benefit from the depreciation we claim through the investment and principal paydown, and over time, the asset increases in value (although we NEVER count on this happening) — a win – win – win – win!
If you have the resources and are willing to set up a system to maintain your properties, rentals will serve your real estate investment business well.
Hope this helps, and as always,
Keep calm and rehab (or rent!) on!