REI INK

Company Spotlight

Making a Habit of Best Practice

Keystone Asset Management Finds Solutions in Every Real Estate Scenario.  By Carole VanSickle Ellis Keystone Asset Management has been on the path to big things from its very inception. Founded in 1995 in Philadelphia, Pennsylvania, Keystone started out, as CEO Ryan Hennessy describes it, as “a real estate company in ‘Philly’ handling distressed bank-owned assets for lenders including Fannie Mae, Freddie Mac, HUD, and various financial institutions.” Keystone is a family company; Hennessy’s mother, Jane Hennessy, and a then-partner realized in the mid-1990s that there was a need in the market for an asset management company specializing in distressed assets and REO (real estate owned) properties. Soon, business was booming, and the two added a valuation unit to handle broker price opinions and other facets of valuation. “By 1997, they had a national platform,” Hennessy said proudly. From there, the company continued to grow and expand to meet investor needs. Today, Keystone offers a vast range of services from property valuation to REO asset management to property preservation to property tax consulting and insurance. “There are so many things that go into a successful plan for each asset in a portfolio. As investors encounter diverse scenarios across their portfolio, we can help them formulate best practices, commonsense solutions, asset protection strategies, and even brand protection and building processes,” explained Jim Jacquelin, the company’s Director of Operations. The company combines decades of experience and deep-dive economic analytics to create custom management strategies for large real estate portfolios. “Effective, profitable asset management requires constant monitoring and evaluation of assets, strategies, and analytics. Our service and quality remain the same, but we adapt to our asset owners to reprioritize strategically and analytically to meet their specific goals and needs,” Hennessy said. Keystone employs a vast array of experts in a wide variety of fields including field services, performance and execution and an economic arm. This combination approach has served the company well, particularly since the end of the Great Recession when institutional investors entered the housing market in full force and began dealing with the kaleidoscopic and intricate details of single-family residential real estate. As the face of institutional investing and high-volume portfolio owners has changed over the past decade, Keystone has evolved to keep up with the changing and diverse needs of these major real estate players. Fitting All the Pieces Together Because Keystone is a national company catering to clients with vast geographic spread in their portfolios, nearly every service sector within the corporate structure is equipped to identify bellwether signs of a changing economy and respond appropriately. However, Hennessy said, that positioning, while starkly apparent today, has been serving Keystone clients well for decades. “We know that markets are cyclical, and certain types of investor behavior in certain sectors are also predictable. Combining those two facets of knowledge gives us a head start on the rest of the field when it comes to adjusting asset strategy,” Hennessy said. By working closely with clients to identify what type of investment strategies are most comfortable for them and what types of assets they want to leverage, the company can create the best position for each asset in the portfolio. For example, when a new “file” or asset enters the process, occupancy is the first piece of the equation. This is particularly important at present when the COVID-19 pandemic creates unusual issues with tenancy, leasing, rent payments, and evictions. “There are a lot of factors that go into working on a property with a tenant to create a positive outcome for everyone involved,” said Jacquelin. “Even if there is no one residing in the property, there are certain liabilities we protect against like securing the property against the elements, preventing break-ins and squatting, and preventing anyone from getting hurt while on the property.” Even before COVID-19, each state and local government had different rules, laws, and codes for these issues. Failing to address the logistical “fine print” could be catastrophic from both a legal and financial standpoint, particularly for high-volume investors who might be particularly attractive targets for litigation and bad publicity. “We have to handle all of those angles before we dive into figuring out what strategy will be the best fit for that property,” Jacquelin said.  Getting in the Best Position for 2020 and 2021 Thanks to Keystone’s extensive work with high-volume portfolios and owners with a diverse set of goals, Hennessy has been able to identify certain investing characteristics and types of investor over the years. Embracing certain strategic tendencies can position any investor, regardless of the volume of properties they currently own, in a prime position to emerge from the current economic downturn better off than they went in. “You must know who you are as a real estate investor and be flexible,” Hennessy said. “Does your strategy dictate your portfolio or, through pool acquisition, does your portfolio dictate your strategy?” In 2020 and 2021, the latter type may have an innate advantage over the former due to rising competition in the single-family marketplace. “We have a unique ability to aggregate critical data points surrounding the four core inputs on asset decisioning: geography, occupancy, valuation and intangibles—title, HOA, taxes. Ultimately, correctly aggregating data on these inputs paint a true picture on management philosophy and optimal disposition paths,” Hennessy added. “If you are the type to strategically acquire a specific type of property, then you should take a close look at your ‘buy boxes’ to see how they are affecting your long-term goals right now,” Hennessy said. “It might make sense to stretch the box or diversify a little bit.” On the other hand, most institutional investors tend to be acquirers first and strategize second, mainly because they tend to acquire in bulk. In this case, the portfolio itself will dictate strategy and, ideally, each asset will have a unique strategy that makes the most of that asset while protecting the interests of the new owner from every angle. “Institutional players tend to look at things at a much

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Q&A With Cardone Enterprises’ Grant Cardone

35-year veteran of the real estate investment industry shares insights ranging from his personal journey to the post COVID-19 real estate world Grant Cardone is a 35-year veteran of the real estate game. He’s the CEO of Cardone Enterprises and has $1.7 billion under management. Cardone has always been seen as a forward-thinking business operator. He is often called on by Fortune 500 companies and real estate leaders for his practical business ideas and strategies. Cardone is a preferred borrower with Fannie Mae, Freddie Mac and life insurance companies. An entrepreneur, private equity manager and New York Times bestselling author, Cardone is known as the #1 Sales Expert in the world today. Forbes magazine called him one of the top CEO’s to follow on social media. Under Cardone Enterprises, Cardone currently owns and operates seven companies with $150,000,000 in annual sales. He also launched the Grant Cardone Foundation, whose mission is to impact the lives of children who grow up without fathers. According to Cardone, “the holy grail of every entrepreneur is taking risks in order to make more time and money.” Cardone was gracious enough to answer a few questions for REI-INK while he was on the road getting ready for a big event. His answers range from revelations about his own personal journey to his “macro” view of the real estate world post COVID-19. Q: How did your real estate investment journey begin—and what was it like? I’ll never forget my first real estate deal. I put down $3,500 on a $78,000 property in Bellaire, Texas, and I thought I was getting away with stealing. I knew nothing about finding tenants, listing the property, drawing up a lease—zero. All I knew was that I owned a piece of real estate and I had hit the big time. I finally got some tenants and a whole bunch of problems—roaches, plumbing, you name it. Then they moved out, and I was stuck with the payment. I ended up selling the place and turned my original $3,500 into $7,000. I made 100% with no idea of what I was doing. After that, I started doing my homework as I looked for other apartments. Q: Who were some of your mentors? I can’t talk about mentors without first mentioning my dad. He was the first person in my life to set an example for me when it came to showing up, putting in the time and doing the work. I also have to give my mom a lot of credit because she showed me what strength and determination were every day after my father died. Later in life when I was on the ropes in every way, someone looked me in the eye and asked me, “What are you doing?” That was a wake-up call for me. That guy put me on the track that led me to where I am today. Of course, I studied all the great sales trainers and professional speakers back in the day too. So, I owe my success to a lot of people. Q: Your company currently has close to $2 billion of assets under management. Are they single family, multifamily, land, retail? Cardone Capital is one of the largest private real estate funds in the country, and we got there through crowdfunding. In record time, I might add. We made it happen because we offer opportunities to both accredited and nonaccredited investors.  As far as our assets go, right now we’re concentrating almost exclusively on larger multifamily apartment complexes, especially in the southeast U.S. But that doesn’t mean we’ll limit ourselves to that sector. I’ve done retail, commercial, single family, you name it. I’ll invest in anything, anywhere if I think it will result in cash flow. That’s what it all comes down to, but right now multifamily is our sweet spot. Q: Do you favor one asset type over another? My third real estate deal was for a 48-unit property that I chose because I didn’t want to have to rely on just one renter for my income. Even if a few units are empty, I’m still collecting. Anyway, I put $350,000 on that deal and made $5 million. That was the game changer for me, where I was like, “OK, I’m investing in apartments from now on.” So right now, Cardone Capital is focused on multifamily properties across the South and Southwest because that’s where the money is. Plus, now more than ever, America is becoming a nation of renters. COVID-19 is going to accelerate that. So right now, I’m focused on apartment complexes of 300-500 units in good locations in the South and Southwest with everything tenants want nearby—good schools, convenient shopping, Starbucks, things like that. If you can offer all that, people will pay as much as $2,000 a month or even more, depending on the location and amenities. With that kind of cash flow, even if you don’t have full occupancy, there’s no way you’re losing money.  Q: What is your “macro” view of the real estate industry post-COVID? What everyone else is calling a crisis, I’m calling the biggest real estate opportunity of my lifetime. As soon as this COVID situation happened, I was like, get ready, people. I told everyone I knew to look at markets everywhere and not just for people with millions to invest. Every market in America has duplexes, four-plexes, 10 units, 20 units. Almost anyone can access those properties and once you do, you are set. Right now, large multi-family generates the most cash flow for me and my investors, but I’m always looking for new opportunities. Q: Tell us about the 10X Movement? 10X is a timeless principle for success to get what you truly want out of life. I boiled down the only difference between the times I was successful and the times I felt my ventures failed. It came down to just not thinking big enough. The 10X rule is almost like an insurance policy. You have to aim 10

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What to Do While You’re Waiting for the Turnaround

Standard Management Company founder Samuel K. Freshman on the post-pandemic economy Samuel K. Freshman, owner and chairman of private real estate investment and management firm Standard Management Company (SMC) and chairman emeritus of Stanford Professionals in Real Estate (SPIRE), has been in real estate since 1958.  Under Freshman’s leadership, SMC has acquired and managed more than 6,000 apartment units and 5 million square feet of office, retail, mixed-use and industrial space across 12 states and 25 U.S. cities during the past five decades. Freshman looks at it all with a mixture of pragmatism and patience. After spending this past spring working from home, he’d really like to get back to his Los Angeles office. He’s not holding his breath that he’ll get his wish anytime soon,however. “I think this turnaround is going to take longer than people expect,” Freshman said in a recent interview with REI-INK. “It’s going to take some time, and we could see some sectors experience significant crises before it’s over.” REI-INK sat down with Freshman to talk about how the current economic environment is affecting his company’s investments and whether the effects of the COVID-19 pandemic are as unprecedented as many would argue. Q: What kind of timeline do you expect for the economic recovery, or will there be one? A: First thing I would say to you is, “Your guess is as good as mine!” Then I would say, it is going to take longer than people expect right now. Until they actually solve the COVID-19 virus problem, things will remain tough. Unfortunately, efforts to alleviate financial strain on tenants by delaying or prohibiting evictions could stretch the recession farther because landlords will be in crisis as well. For example, there is currently a proposal to reduce rents by 25% in some jurisdictions. While this sounds nice, the reality is that nearly no operators make 25% returns to begin with, so there is nowhere to cut that much. It would immediately put operators under, and every single landlord out there would be asking for relief from that initiative. It would destroy the rental industry. The disaster and the disaster response both must be measured and proportionate or we will stretch the crisis out. Q: In March, many analysts predicted staggering delinquencies on rents. Did those delinquencies manifest this past spring? A: They have not yet [as of June 27, 2020]. We are collecting about 94%, down from 96%. The problem that many policymakers do not understand is that this means we are 6% down each month, which is about half of our net operating income (NOI). The “top dollars” in real estate go to NOI after you maintain the building, pay your taxes and loans, utilities, water treatment, etc. So, if you write down rents by 25% across the board, that eliminates all the NOI and puts the building into duress because no operator is making 25% NOI. Q: What types of assets do you find attractive right now? A: I would not be particularly enthusiastic about Class A assets, and I’m not sure what is going to happen to communities with Class C buildings, either. We are focused in the range between B- and B+, which seems to have held up pretty well so far; we have not yet had any great loss of rentals or ability to pay. There is a lot of risk across the board right now. Some people are starting to move back home; others are doubling up so they can afford rent on an apartment if they lose their job or lose hours at their job. We have not acquired much this year so far becausewe are sort of waiting to see what the trends are going to be. We have talked to people who say they are quite optimistic buying at a 4% CAP rate because they expect to increase rent, but I think rents may decline in the multifamily arena. Q: Is SMC still lending in today’s environment? A: Yes, although maybe not as much as we were. There are always exceptions. We are making loans on properties in Malibu, which is coming back pretty strong because of the beach. After all, they are not making any more of it! I would not necessarily want to do much lending on construction, but if there is an existing property, we will make the loan. We have to become more conservative because we do not really know in what direction we are going. Q: What regions of the country particularly interest you? A: As a practical matter, I prefer to stay invested in places that are no more than 90 minutes from L.A. However, if I lived in the Midwest or Eastern U.S., I would definitely be looking at Florida and Texas. Atlanta, Georgia, seems to be doing well also. We look primarily to invest in Nevada, Arizona, secondary California markets and the states on the West Coast. Q: Does state reopening policy affect your interest in an asset? A: It depends on how the economy in the state is doing. We just look at which states are doing well and which aren’t in order to decide. We don’t necessarily review their policies. Q: Is the current economy and national environment as unprecedented as most people seem to think? A: Unfortunately, the biggest problem is that the two main political parties in the country are at loggerheads. That is making the entire situation harder to resolve on top of the issue that the coronavirus is historically unique. Probably the closest comparison would be the Black Plague in Europe during the 1500s. The most important thing we can do is to get control of this thing or it will become even more serious. It’s very frustrating for me because they have opened my office building back up, but because I am over 65, they don’t want me to come in! As a nation, we need to watch the education system carefully going into the fall to make sure grade

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Q&A With Growth Group’s Steven Cinelli

Futurist and growth advisor discusses outlook for the national and global economies Steven Cinelli is the founder of California-based Growth Group and the managing director of boutique advisory firm SLAMINA LLC. He also serves as an adviser for London-based fintech incubator and consulting firm FinTech4Good and has spent decades as a creative strategist, banker, adviser and fintech executive. Known for his uncanny ability to anticipate markets, Cinelli has been predicting the kind of global economic crisis catalyzed by COVID-19 for nearly two years now. “[In late 2018] we were in the middle of an alleged robust economy with a buoyant stock market, and most people did not want to hear the words ‘global meltdown’ or ‘global depression,’” Cinelli said. “The fundamental strength of the economy was surface-level, largely propelled by inexpensive debt within both private and public sectors. COVID-19 was merely the pin that popped the bubbles.” REI-INK sat down with Cinelli in mid-April—while most of the country was still in the middle of “shelter-in-place” and “safer-at-home” initiatives—to delve into his outlook for the national and global economies. Cinelli’s take on the economic situation at home and abroad was, as he put it, “certainly not a pretty picture,” but it opened some intriguing avenues of discussion relevant to real estate investors and the other business people who will likely bear the burden of supporting, bolstering and recreating the economy. What made you think the economy was in trouble so “early” compared to most analysts? It has been clear for some time that the fundamental strength of the U.S. economy was surface level. It seemed healthy, but when you started looking at the nature of employment and unemployment, you observe that we have a gig economy. People do not have steady jobs as they enjoyed years ago. They have one job today and a different job tomorrow. The government’s employment figures are “net” figures, the difference between new and lost jobs. The lost job number has been considerable for years; it’s just that new jobs outweighed the losses. Now, new jobs have come to a halt, and the unemployment figures will continue to increase. As mentioned, the economic performance is very surface-level, and—to further exacerbate the underlying instability—most people do not have very deep pockets (i.e., large savings). Just in the last four weeks, we have seen over 20 million individuals filing for unemployment benefits. Certain analysts claim the real unemployment rate is nearing 18%. That is unheard of. It matches the Great Depression. And when the economy reopens, whatever that means, how many of those who were laid off will be reabsorbed—and over what time period? The employment narrative has been part of the veneer of a very fragile economy. Certain asset classes, like equities and housing, have been fed by borrowing. When that window closes, the music stops and prices will fall. You ask why my forecast predates others: The biggest telltale sign was the rapid increase in overall debt levels without a corresponding increase in economic production. This has been clear since the early years of the expansion coming off the Great Recession. Cheap money has led to profligate spending and creating debt-fed asset bubbles. Think about this: If interest rates rose only by 300 basis points, we would virtually double the level of debt service in the economy, sucking a considerable amount of economic oxygen out of the room. Can the United States and real estate investors take any indicators or cues from what is happening globally to predict how things will look moving forward? One definitely has to assess things on a global basis now, not merely [look at the situation] in a domestic sense. There are fundamental weaknesses within all existing socio-economic systems right now, be they capitalism-democracy, socialism-autocracy, etc. In fact, these systems are, in many ways, becoming mirrors of each other. The capitalist U.S. has more safety-net programs and government regulation of industry than most and no longer ranks in the top capitalist countries in the world according to the Heritage Foundation. The recent CARES (Coronavirus Aid, Relief and Economic Security) Act and so-called stimulus programs, in my view, seem more socialist than capitalist, particularly those supporting big business. Why shouldn’t large corporations avail the capital markets for funding, rather than [take] a bailout from Uncle Sam? Furthermore, society has changed with technology continuing to influence behavior. As we move into the fourth industrial revolution, with artificial intelligence, internet of things, genome editing and other cyber-physical protocols, we will further alter the ways we live, work, interact and spend money. Our infrastructures must adapt to new realities, and one of the things that everyone must accept as soon as possible and be most concerned with is the level of debt the world’s challenged economies have taken on both before and during the COVID-19 outbreak. In the U.S., with this current transition, we could see our GDP drop to $15 trillion (down from $21 trillion). In conjunction with the stimulus bills, the CARES Act and deficit spending, we are likely to see federal debt move up to at least the $30 trillion level. Beyond that, we need to consider debt outside the federal level, like state and local municipalities, which carry almost $10 trillion, and household debt, like student loans, mortgages, auto loans and credit cards, which amounts to another $17 trillion. On top of that, consider the corporate debt in the marketplace today because many companies took on debt to buy back stock, which is probably another $9 trillion or $10 trillion and the unfunded pension and other statutory liabilities of nearly $150 trillion. Across the board, the level of debt in the U.S. is probably twice as much as it was in 2008. And with a shrinking economy, our debt to GDP ratio may approach Japan’s, at north of 200%. In simple terms: I believe the U.S. has moved to economic euthanasia. With such a financial situation, and with rates with no further room to drop, I fear that the debt

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Q&A With Strategy Investment Group

Mike Jordan takes a practical approach to profitable investing, focusing on strategy and diversification.  When Mike Jordan, founder and president of Detroit-based Strategy Investment Group thinks about his greatest successes, the first thing that springs to mind has nothing to do with real estate. It has to do with kidneys. “My father is still around at 83 because I donated my kidney to him in 2011,” Jordan said. “Idid it for myself. I love having him around.” That type of practical, forthright action is typical of Jordan, who has been active in real estate since 1999. He started Strategy Investment Group, a private investment company specializing in the purchase, renovation and resale of single-family residential (SFR) homes in Detroit and the surrounding suburbs, in 2001. During that time, he has had plenty of chances to apply his no-nonsense approach to the industry and to develop a real estate investment philosophy that stresses diversification. “I love real estate, but I know you have to diversify in order to really have the stability and security in your portfolio that most real estate investors are seeking,” Jordan said. “Fortunately, there are a lot of ways to diversify within this industry and keep the advantages that come with owning and optimizing real estate and real estate-related assets.” REI-INK sat down with Jordan to talk about his investment strategy, his business philosophy and his longtime dedication to doing business in his hometown of Detroit, Michigan. How have you diversified your own investments and those of your clients while staying in the real estate sector? A lot of my clients are passive investors, so they really rely on Strategy Investment Group to present them with good investments that are reliable, predictable and will generate good returns. For that reason, we focus on acquiring properties at deep discounts, identifying the right strategy for that property during the acquisition process, and then immediately deploying the strategy to create a good asset for our investors. This is a diverse process in itself, since we might renovate a property and then place a tenant, “wholetail” the property—which means fixing some very basic things and then reselling at a discount once again—or renovate the property for a long-term strategic hold of some other nature. While we are known for our work on the SFR side of the business, we also purchase and renovate multifamily properties, purchase nonperforming mortgage notes and work with private lenders to help them deploy their capital in a very secure, predictable environment. To my way of thinking, you can have an extremely diverse, economically insulated portfolio without ever diverging significantly from this industry. In my case, Strategy Investment Group has also diversified by expanding, at our clients’ request, into property management as well via Strategy Properties. As both a borrower and a lender, what do you think is the most important quality of a borrower in this industry? I tend to think along the lines of “The 5 C’s of Lending.” If a borrower meets all five of these requirements to my satisfaction, then I would expect to qualify for the loan. My 5 C’s of lending are: Character. Will the borrower pay? Capacity. Is the borrower able to pay? Cash Flow. Does the borrower have (or will the borrower have) cash flow to pay principal and interest when the project is done? Creditworthiness. Does the borrower have a history of paying? Collateral. How viable is the asset being used to secure the loan? When I make loans, I also ask the sometimes uncomfortable, but very important, question: If the borrower gets hit by a bus, what happens to my capital? If the answer is unclear or unacceptable to me, then I don’t make the loan. What do you wish every real estate investor knew before getting into a passive real estate investment? I wish that more passive investors had a better understanding of the importance of capacity. Most real estate investing companies like mine have a certain amount of bandwidth. When that capacity is reached, we cannot do any more deals until we finish the ones we started. A company that will admit it has a waiting list and tell you what types of properties it absolutely must acquire in order to make investors’ capital work as promised is a far better bet for a passive real estate investor than one that operates on the premise that the sky is the limit. In most cases, the limit is much lower than the company has indicated, and the passive investors pay the price when that too-ambitious attempt to scale backfires. For example, if I tell you that I have just purchased 4,000 houses and that I plan to do so every month from here on out, you probably should not invest with me. There is not a solid reason to believe I have the capacity to handle that rate of acquisition because last month, and the month before that, and the month before that, and so on, I was doing between 20 and 50 deals a month. On the other hand, if I tell you I need a loan so I can acquire 25 more houses, then you absolutely can feel confident making that loan because you already know I have the capacity. What is your strategy going into the next 12-18 months? We are going to continue to concentrate on the city of Detroit and the suburban areas around Detroit. We have been in this market for years, and we expect it to keep expanding. This area of the country is extremely downturn resistant, especially in the rental sector, so we buy “defensively” by purchasing homes at steep discounts and then either wholetailing them or renovating them and placing tenants in them. These properties are in areas where people want to live, with good schools, low crime and high rental demand, so we feel confident that our strategy of persistent growth and having about 60 purchase agreements in the pipeline at any given time is

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Q&A With Colonial Funding Group LLC & NoteSchool

Eddie Speed’s creative real estate strategies stand the test of time. Eddie Speed, founder of the educational company NoteSchool and owner and president of Colonial Funding Group LLC, has been a leader in the real estate-secured note business for nearly 40 years. Throughout those decades, he has become known for his take-no-prisoners honesty and relentless strategic creativity. He leverages both on behalf of students and investors who are focused on creating wealth and securing their financial future by creating or funding private mortgage notes. “The cornerstone of NoteSchool is using real estate to generate secure investment income, but with more cash flow and without having the headaches that come with some of the more ‘traditional’ strategies, like landlording,” Speed said. “It’s more than just creating private notes. Every transaction, I am crafting a deal, and I teach my students to do the same thing.” REI INK sat down with Speed to discuss how the note industry and note education has evolved since he got started in the early 1980s. Q: Today’s real estate market is extremely competitive. Are notes a good real estate strategy in this environment? A: We are dealing today with one of the most competitive real estate investing markets anyone has ever seen. As an investor, you are in the biggest knife fight in the world when you are trying to acquire properties at a discount. When you make a cash offer on a house, it’s you and a dozen other people at least. My colleagues who rely on the “buy low/sell high” model tell me that today they are only getting about one in every 25 offers they make accepted. Things are getting really tight. That competition makes this market perfect for investors who are able to structure creative financing for their deals. Imagine being able to say to your seller, “I’ll happily pay retail for that property. You just need to work with me on how to finance it.” Knowing that you can pay retail and make competitive offers in this market while still generating reliable, attractive returns on your investment is one of the best things about note investing and makes it one of the most effective real estate strategies in use today. Q: What are some examples of how this might work in the “real world” for real estate investors? A: There are probably more than 50 ways that you can buy a house and pay the seller back using creative note strategies. When I teach my three-day advanced classes on this topic, I break them all down on a huge whiteboard. Here are some examples: The seller carries the financing and you pay the loan back [in a lump sum] in the future. The seller carries the financing and you make recurring payments over time. You make a down payment to the seller; then the seller carries the remainder of the financing and you pay the seller back in the future. You take over the existing mortgage. And on, and on and on. The details on the deal will change depending on what you, the investor, need from the seller and what the seller needs from you. You are the deal architect. I find that once real estate investors really grasp the concept that they are in charge of the deal when they use note investing strategies, their note businesses really take off. Q: But what about building up equity? A: You know, I hear this question a lot from new note investors. They tell me that they are afraid to stop landlording because then they won’t have any equity to work with. When I hear that question, I stop and do a little math for them. Here is one of my favorite examples: Say you pay $80,000 for a 20-year note on which the borrower owes $100,000. That means you just bought 20 years of payments totaling $100,000 for a discount of 20%. That’s great! Two decades of income purchased at a fantastic discount. However, in this hypothetical situation, you need some investment capital today. To get that capital, you sell the first half of the note (the first 10 years of payments) to a passive investor for $79,500. They would receive the next 120 payments. Let’s say the payments are $825.00 per month, then that would be equal to $99,000. Now you have more investment capital to work with in the present, and in 10 years the payments on that note will start coming to you instead of the investor who just bought the first half of your note. You just generated $79,500 in investment capital and 10 years of passive income for an investment that cost you a net $500. That type of scenario is not just relatively simple to achieve over and over again, it is also commonplace in the note investing industry. You are generating long-term wealth and immediate capital at the same time, which is a win-win. Q: What are the most important lessons you have learned from your 30+ years in real estate? A: There are three things every real estate investor should know before they get started investing: You don’t have to just look at price as value. You can look at creative financing terms as equal in value to price. Don’t think that wholesaling will last forever. A lot of wholesalers (who tend to be new investors) get into real estate in order to escape their previous job and ultimately create a new job for themselves with wholesaling. You have to remember that wholesaling produces transactional income that cannot last forever. Real estate investors should be focused on building wealth, not just making money. Learn strategy from people who learned it and lived it themselves. When you invest in real estate education, invest with someone who understands what they are teaching from a personal standpoint. They should have experience in what they are telling you to do. I like to compare real estate education to professional football. There are a lot of

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