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Regional Spotlight: Portland, Maine

The Northeastern market remains competitive in 2020. As with every other U.S. city, Portland, Maine, entered summer 2020 pulled in many directions. Fortunately for Portland, as the most populous city in Maine with just over 66,000 residents (according to 2019 U.S. Census estimates), some of the tension in the market has been due to a competitive housing market and an economy that’s tentatively recovering. That economy, which has historically relied largely on the tourism and service sectors, may well turn out to be the sort of “diamond in the rough” that truly shines and grows in value under pressure. “Portland went through a big hospitality boom that led to a second-home boom in this market,” Fred Forsley, founder and owner of the local Shipyard Brewing Company and a real estate investor, said of the pre-coronavirus market and economy in the area. “Now, even more people are thinking about buying a condo in Portland and doing business here as well as vacationing here.” “We are experiencing an influx of buyers triggered by the need to get out of their current situation,” said Nancy Carleton, a managing broker at William Raveis Real Estate in Bath. Carleton said she is seeing buyers from most of New England and as far south as Pennsylvania. “People have discovered they can work from home and realized they may continue to work from home for the foreseeable future. That is freeing them up to buy more substantial properties as they plan on spending more time in Maine,” she said. Forsley, who developed eight residential condo units as part of a larger project near his brewery noted that many of his buyers spent about half their time in the Portland area and the other half in a major metropolitan area like New York City or Boston before the pandemic. However, with COVID-19 still ravaging many densely populated areas of the country, second-homeowners could well begin making more use of their vacation location. “[This spring] people definitely came to their second homes in Maine and then stayed to work remotely,” Forsley said. The result, in Portland at least, has been that development has continued wherever possible. At present, Forsley is involved in several development projects, including a waterfront site, high-end condos and the beer-themed Cambria “brewtel,” the first of its kind in Maine. Pandemic Partnerships Keep the Market Moving With Redfin describing the Portland market as “very competitive” at the end of July 2020, the city’s real estate market seems to be holding firm during the COVID-19 pandemic. “Homes sell for around list price and go pending in around 10 days,” Redfin agents reported, and June sales prices were up just over 8% year-over-year. Much of the competition for homes comes from outside the state, said agent Rebecca Kingsley. As an associate broker for the Hatcher Group of Keller Williams Realty, Kingsley specializes in helping clients from out of state. “If they are working remotely, why not bring that national dollar to Maine and be able to continue on with their Chicago salary?” she said. However, many local housing advocates are becoming concerned those out-of-market dollars could price Portland locals out of housing options. With a low inventory of available properties, the trend in rising prices seems unlikely to change direction any time soon. Maine Realtors Association president Tom Cole told the Portland Phoenix, “Maine’s for-sale inventory is down 19% compared to a year ago.” Inventory availability is unlikely to loosen up any time soon since so many Americans arenow actively considering moving out of denser urban areas into cities like those in Maine. One advantage for real estate investors looking to acquire properties in the area is the local planning board’s ongoing work during the pandemic. The determination to keep development moving represents a certain degree of hope for local homeowners wanting to acquire an affordable residence. Despite beginning virtual meetings in April, the city has still managed to approve about 150,000 square feet of construction ranging from residential developments to medical offices to utility projects. “At the beginning of the pandemic, we established a goal here in the city to support the continuation of city development approvals and ongoing construction activities while protecting public health,” said Greg Mitchell, Portland’s economic development director. The city pivoted quickly to remote services to keep developers actively working in the area. Local developers agreed to take on “the responsibility of public safety and the public health crisis” in exchange for continuing work. The result of this was that hundreds of local workers remained employed on job sites and many developers avoided breaking commitments made to investors. The city’s Port of Portland, the largest tonnage seaport in New England, has also remained open for most forms of cargo. As in most ports, cruise service has been suspended, but Maine ports are exploring options for permitting some cruise ships to dock in the area and possibly board a limited number of passengers. The presence of a large port like the Port of Portland provides additional economic insulation to the Portland area, since shipping, storage and related services are largely considered essential services and continue running during shutdowns. Portland’s Emerging Markets Could Stabilize a Service-Centered Economy While some of the nation’s highest-profile hospitality and service-industry markets are suffering record-breaking unemployment and economic meltdowns, Portland appears to be weathering the storm relatively well. Portland’s May unemployment rate, for example, was 10.3%, below the national average of 13.3% for the same period. Forsley credits job growth in biotech companies and the “nonseasonal” second-home market for much of the market’s stability. He explained that in Portland, Maine, second homes are not generally used solely along seasonal parameters, unlike many other northern vacation homes. Portland has also benefited from its state’s emerging life science and biotech markets and is home to many of the companies that are currently on the forefront of the worldwide effort to stop COVID-19. “Maine’s biomedical and life science companies are providing crucial tools in the global fight against COVID-19. High demand for

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Understanding the Difference Between RIN and RON

E-closings are likely here to stay, so make sure you understand how they can be used. Typically, the closing process includes a variety of inperson tasks, culminating in the actual signing ceremony. To help keep real estate transactions moving forward during the coronavirus pandemic, the closing and title world had to consider alternatives to traditional inperson closings. E-closing seemed like a reasonable option during a time of physical distancing. States with remote online notary (RON) laws could rely on existing processes that governed how to complete closings online. For other states, there was a push to lobby state governors to allow remote notarizations and closings. By the end of March 2020, some state governors had issued executive orders (pursuant to their authority to issue emergency orders) allowing for the expansion of the definition of the term “in the presence of” to also mean “electronic presence.” That allowed notarizations and closings to take place online and without actual person-to-person physical contact—and in the absence of existing RON state law. A primary purpose of these state orders was to help the housing market continue to close transactions during the health emergency. E-Closing Variations Variations of the e-closing process include Paper Remote Online Notarization and In Person Electronic Notarization. Two other variations that are more prevalent are Remote Online Notary (RON), as mentioned previously, and Remote Ink Signed Notarization (RIN). It is important to understand how RON and RIN are similar and how they are different. The overriding similarity is that both rely on a shared audio-video, real-time connection. Imagine the closing attorney in their office and the borrower at their home, office or anywhere else they can access the internet. With both RON and RIN, the borrower and attorney meet in an online session to review the loan and closing documents and then execute the documents to evidence the completion of the transaction. There are a few significant differences too. First, RIN is temporary. The state authorizations are orders issued by the governors pursuant to their emergency orders. They last just for the duration of the emergency orders. In contrast, RON is permanent. They are the laws of respective states. As of summer 2020, there were about 25 states with some type of RON statute, with Missouri the most recent to enact a RON statute effective Aug. 28, 2020. Second, RIN results in what is commonly thought of as a “wet” signature. RON, though, is fully digital—the borrower signs by applying a digital signature or mark, as does the notary when applying their notary seal or certification. Third, with RIN, the notary must manually verify the borrower’s ID. The rules governing how this is accomplished can vary across jurisdictions, but ultimately it is a manual review process. With RON, most software uses automated ID verification and/or knowledge-based questions to authenticate the signor. Finally, RIN requires the customary pile of papers to print, organize into a package, send to the signor to sign, copy, ship to the lender and store in a file. Anyone with experience closing a real property transaction is familiar with all the paper. RON, however, is a fully digital process. Software and Hardware Needed Regardless of which e-closing process you use, you must obtain the specialized software and hardware necessary to complete it. The software connects the signor and closing attorney or notary and acts as an interface. There are a variety of RON software providers. A vital consideration when researching one to fit your needs is whether the company is approved by regulators and your underwriters. Another important point of analysis is whether and what changes or improvements they have made since onboarding other clients. Keep in mind that this is a very new industry, so you should expect changes and modifications. RIN providers don’t require a similar onboarding process as RON companies. The RIN process can be as simple as downloading software and registering online. Still, a similar important factor when choosing a RIN provider is whether the provider is approved by your title insurance company. Title insurance companies have different requirements; for example, whether the online closing should be recorded, or where and for how long the audio and visual data should be stored. It also is important to keep in mind that at a traditional closing all the consumer must do is show up. The paper, pens, coffee and everything else needed to complete the closing is supplied by the closing office. But for an e-closing, the signing party must have the necessary hardware. A desktop computer or laptop is required because most guidelines don’t allow smartphones or tablets. And the hardware must have a camera and microphone to allow for that shared audio/video connection. Keep in mind that not everyone knows whether their device has a camera or microphone or how to install drivers or otherwise enable the functions if there is a technological problem. It saves time to have a borrower test their device before the closing date. Where E-Closings Go From Here While a new process, e-closings seem here to stay. The number of states with RON statutes is rising each year, and real estate closing professionals in states that issued RIN orders in 2020 may have become accustomed to the e-closing process and push for full-blown RON statutes once the RIN orders expire. As more and more closings are completed online, it is vital to maintain loan document integrity. A RON signing is completely digital, with prompts along the way. For example, the signor can’t skip to a signature field on page 3 until pages 1 and 2 are completed. All required pages and signature fields are required to be completed in order to finalize or complete the signing. RIN still results in the traditional, blue-ink signature, and even experienced real estate professionals know the process sometimes results in a missed or incomplete signature. It also will be important to consider the roles realtors and loan officers will play in an e-closing. Typically, they rely on personal connections and customer

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The Art of the German Schmear

This simple technique is an affordable and easy option for updating older homes. Most people tend to look at repairs as do-it-yourself projects, especially when DIY is the most cost-effective approach to achieving a certain look. Updating interiors and exteriors is a common strategy for ridding the dated look of an older home or for spicing up a newer home. One simple way to achieve this appeal is by using a technique called the German smear. A German smear is a cost-effective way to give a fresh look to dated, boring brick. Options and Advantages Unlike a paint surface, a German smear is maintenance free, but it is also permanent. German smear comes with options such as a light smear to a medium to heavy texture. There are color options as well. Most often, you see smears that have no color additive but use the standard buff and ivory buff colors to accent the additional trim, doors and shutter colors. This is the same for the interior smears to accent any interior paint scheme. Going with buff mortar is more in line with a beige look, whereas an ivory buff gives you a white appearance, one some would describe as a whitewash. To achieve a uniform look, it’s highly recommended that you prep and complete the process within the same day. If the project requires an additional day, it’s best to complete corner to corner instead of starting and stopping in the middle of a wall. That’s because weather plays a big role with the curing process. If you want a medium to heavy texture and then decide you would like to change to a light smear, then time is of the essence. Your timeframe is limited due to the curing process of the mortar. Remember, a German smear is permanent. So, start with a light coat (thin mixture), then possibly tighten the mixture (thick coat) to satisfy your taste. You may like some brick colors in your wall, but you really may not like the majority of them. The advantage is that you can have the brick you like smeared and wiped for a thinner appeal so the brick can come through. Applications for Foundations A German smear is also a great option for homes that have foundation issues. When foundations are repaired, usually the mortar and the brick are cracked. Some people simply paint over the damage, leaving the cracks visible even through the paint. Not all visible cracks in brick are immediate signs of structural or foundation issues; some can be caused by normal settlement. A common problem after foundation repairs are made is how to repair the cracks. No one really has the answer to repairing brick and mortar defects besides replacement or tuck pointing. A German smear would be an option because the smear would match the existing non-repaired areas. The areas where foundations typically fail are around a large body of water or if the home is built on a clay-based pad. A house with a repaired foundation doesn’t mean it’s in bad condition; it may even be better because it has gone the limit already and is more stable than before the issues were visible. There is really no life span for a German smear, but it can last for years. And, a German smear that has become darkened or discolored due to location and weather issues can always be fixed by adding a new thin coat to recreate that curb appeal you desire. How-To Tips Follow these simple tips to get started: Before starting the German smear process, wash the brick free of dirt and grime. It does not have to dry before you begin the application process. It is easier to work with a dampened brick than a totally dry brick. This will also help you achieve the desired look before the mortar has time to dry, which usually begins within 20-30 minutes. Begin with a ratio of 70% mortar to 30% water, and then proceed to the coverage you desire. The 70/30 ratio will give you a pancake batter texture. Use a sponge for interior small projects that require the lighter coat. Use a trowel for the heavy texture look. Use a car-wash-style brush with medium flexible bristles for the transparent look (haze). Use a wire brush to re-move any heavy buildup that is not desired.  

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Property Management and Insurance Go Hand in Hand

Who manages your investment properties is important to your insurance company. One of the first questions any real estate investor should be able to answer is, “How am I going to manage my property(ies)?” The answer is important for many reasons. It’s also important to someone you may not have thought of: your insurance company. Some investors handle their own property management and others hire a third-party company. The important thing is to make sure whatever property management strategy you use allows you to maximize your yield and minimize your risk. Entity Separation If you do decide to handle your own property management, it is often recommended that you set up the property management services as a separate entity from the entity(ies) in which you hold your assets. The former is considered the “operational entity,” and the latter is the “asset-holding entity.” Separating the two will help maximize your protection and may add additional layers of insurance coverage for potential claims. It is always important to protect your asset-holding entity, meaning all the agreements you enter and risk management decisions you make should be done with that in mind. Even though you may own and control both entities, think of them separately, each with its own assets, liabilities risk exposures and insurance policies. When you self-manage, you will wear two hats—that of an investor and that of a property manager. When you are wearing your property-owner hat, maintain the same expectations of your own property management company as you would a third-party company. You would expect a third-party manager, for example, to: Quickly respond to emergency calls.  Use insured subcontractors (meaning your contractors have general liability, workers’ compensation and commercial automobile coverage in place). Handle evictions that follow local, state and federal housing guidelines. If you are unable to handle these basic requirements, then hiring a third-party manager may make the most financial sense for you. Outsourcing property management automatically gives you entity separation and clearly defines expectations and expenses. A good third-party property manager can also help you minimize your insurance claims, especially smaller, nuisance-type claims. Fewer claims can result in lower premiums. What Insurers Look For Next, let’s take a look at good risk practices as it relates to how your properties are managed. This is not only important in helping you protect your assets, but also in helping you reduce and transfer risk. Most insurers will look at whether you are following good risk practices in managing your properties. Here are some of the items they look for when underwriting and pricing insurance for your asset-holding entity. Signed property management agreement. A signed agreement outlines what is expected of both you and the management company as it relates to a variety of services. Even if you self-manage, it is important that you maintain a signed agreement between all your asset-holding entities and your property management entity. In the event of an insurance claim, this agreement may be the difference in which policy responds to a loss. Since insurance policies “follow the contract,” it is very important this contract is in place and enforceable. Signed lease agreement. The term should be for at least 12 months. Make sure the lease is compliant with any local and state laws and ordinances. Tenant screening of all residents over age 18. Proper screening includes a criminal background check, employment/income verification and sex-offender registry verification. Renter’s insurance. Renter’s insurance provides your tenant not only coverage for their belongings but also liability coverage if the tenant unintentionally causes damage to your property. Forty percent of all fires are tenant-caused. If your tenant does cause a claim, a renter’s insurance policy can be the primary policy to respond. This allows you to avoid filing a claim on your policy, paying your deductible and having a claim on your insurance record. A high percentage—43%—of renter’s insurance policies cancel within the first week, meaning tenants often start a policy to satisfy a lease but then quickly cancel coverage. It is important to use good tracking systems to ensure your tenants maintain coverage. Rekeying/Lock Replacement. Make sure your property manager rekeys or changes locks when a tenant moves out or is evicted. Vacant Property Procedures. Many insurance claims that occur do so in a vacant property. There can be multiple reasons for a vacancy, including tenant turnover, renovation or eviction. In fact, 38% of claims filed happen when a home is unoccupied. By putting good controls in place and scheduling regular inspections of a vacant property, you can avoid or reduce your claims exposure. Also consider having your management company install cameras or video surveillance of the vacant property. Make sure any system you install can work off cellular technology in case there is not active Wi-Fi. “Smart” Home Technology. There’s been an explosion of “smart” options for making housing more secure and efficient. There are systems that can provide keyless locks, cameras, smart thermostats, water management, lighting control, sprinkler control and garage control. Although these systems help save residents money and protect the asset while its occupied, they can also help when your property is under renovation or between tenants. For example, they can reveal when a vendor accesses a property to do work, an HVAC system is not performing, a water leak is detected or a real-time photo of a prospective resident doing an unattended showing. These are just a few examples of actions a property manager can take to help contain your risk and minimize your exposure in the litigious world we live in. It is highly recommended that you utilize a reputable, insured property manager as you begin your investment journey. As you continue to scale your operations, you may want to consider vertically integrating your operation; however, be aware that capturing these costs through your own operations entity/property management company may not always be profitable.  

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4 Ways to Grow Your Rental Property’s Value

How to work with your property manager on an “asset management” approach that drives overall value Entrusting the management of your investment portfolio to a property management company should take only a little work on your part, especially if you are looking for traditional basic services. Traditionally, a property manager focuses on maintaining the property, managing the terms of the lease, handling tenant issues and collecting the rent. Most investors and property managers, however, do not take an “asset management” approach to improving the overall value of your property.  Here are four simple things all investors should challenge their third-party managers to do in order to drive net operating income (NOI), which increases the value of your property. Set Budget Goals You do not need to talk to your property manager all the time, especially when you set expectations by establishing a budget for each property. Talk with them about your NOI goals by establishing market rents and estimated expenses.  Once both parties agree to the budget, you can take the Ronco. tagline of “Set it and forget it.”  That said, adding a budget-to-actual report to your monthly batch of owner statements is a good idea. That report helps to ensure you are on track to hit your NOI goal.  Also consider doing a quarterly proactive review of the financials and budget with your property manager. Market Valuation  Ask your property manager to provide you with a comprehensive market analysis when you lease your property and again when it is time to renew leases. Reassessing the rental market value of the property every 9 to 12 months will help ensure you are capturing rent growth opportunities and staying competitive in the rental market. This information is helpful to appraise the current and future value of the property and to make financial decisions with your entire portfolio in mind. If your property is experiencing frequent delinquencies or below-market rents, it may be time to replace the tenant and get some serious rent growth on the books. That leads right to #3—your Renewal Strategy. Renewal Strategy  Keep in mind that retaining existing tenants is the ideal plan to maintain consistent cash flow and reduce additional expenses that are incurred with turning over the property and vacancy loss.  Re-leasing can be costly, and your property manager should advocate to retain good quality tenants for you by contacting the tenants 90 days before their lease expires.  Possibly incentivize your property manager to keep the property leased and negotiate renewals with rent increases instead of having to locate a new tenant. Ensure that your property managers are proactive, and set a calendar reminder to renew that lease before the tenants even think about moving. Leverage In-House Maintenance  The No. 1 variable cost and cap rate killer is high turnover and maintenance expenses. It is better to have a property manager that has in-house maintenance where their staffing is less expensive than professional handymen or third-party vendors. In-house maintenance can be scheduled ahead of time and can expedite the work so you have less vacancy loss. Some third-party vendors are scheduled out up to 30 days before they can get to a turnover.   A good property manager should feel more like a partner and less like a service provider.  They literally hold the keys to your retirement, your children’s education, the food on the table or a rainy day. Challenge them not only to take care of the day-to-day maintenance and tenant needs but also to take care of your value growth by using the tips above. If you do that, you should have more money in your pocket and more free time to spend it.  

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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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