Why Your Realtor isn’t a Real Estate Genius

I see this misconception happen all of the time. “Well my realtor says ____________ about the market.” That blank is always something like “Buy now or you’ll miss out” or “The market won’t go down anytime soon” or my favorite “This isn’t 2008.” Yet, guess what? Realtor’s were saying that in 2008 as well ha.

Now, before I go any further there are a small percentage of realtors that go out of their way to learn from people like me and they do understand the market, but I would say that is less than 5% of realtors. These realtor’s are amazing assets to you and you should cherish them. I would assume most of you think this is your realtor, so I am going to show you a test I recommend people do with any realtor before you work with them any further later in this article.

I want you to understand 2 key items

  1. Realtors have no formal real estate training

I know what you’re thinking… “What do you mean Ken they go to Real Estate School and they sell property all day long. How can you say they have no experience in real estate.”   I will sit here and tell you they have no experience in real estate. In school, they are taught about contracts, rules, and regulations. They are never formally educated about the actual markets. They are taught to price units, obtain customers, and commission splits. This is the exact thing they do in their daily job. They don’t forecast market cycles, follow economic trends, and most don’t even own rentals themselves.

  1. They work on commission

If you went into a car dealership would you ask the  car salesperson “Is this a good time to buy a car?” or how about “With the increase in unemployment, do you think the price of this car I am considering may go down this time next year?” Of course you wouldn’t ask them that because you know that they don’t have a clue on how the economy will relate to car pricing and also they are going to tell you “Yes, it’s a great time to buy a car.” every time. Why? Well of course Ken they get a COMMISSION on the sale, so they will never tell you not to buy it! Well I am here to tell you realtor’s are the same way. I can’t say I blame them. This is their livelihood, but all too many times people believe their realtor’s perspective on whether or not now is a good time to buy and their perspective has a big motive to be skewed. Or frankly, they don’t follow real estate cycles and just don’t know. The same reason a car salesperson doesn’t follow car pricing trends based on the future of the economy. 

So where does that leave you?

Well to start, you need to be educated and do your own research and not blindly trust people when they tell you it is or is not a good time to buy. If you don’t know how to run your own numbers I discuss this in my bookThe ABC’s of Buying Rental Property.”

Secondly, an educated and honest realtor can be a great asset. This person will only send you true “deals” they come across and will really be educated on the market. Now I always say “Trust, but verify.” So you will still always want to run the math on the deals they send, however you need someone like this on your team.

How to Know What Kind of Realtor You are working with…

This is a test I recommend you put your realtor through upon hiring or continuing to work with them. I want you to find a property where the numbers obviously don’t work. It’s clearly overpriced or it needs too much work and you know it. It’s so obvious. Now, I want you to send this property to your realtor. Email them stating you really feel like the numbers could work at this property and say how excited you are. Tell them you are ready to make an offer on it, but first want their opinion on if it’s a good deal, since they are the expert. See what they say. If they tell you they don’t think it’s a good deal and you should walk away then you have someone on your team. If they confirm to you it’s a great deal and can send an offer letter over, you know they only care about their commission and you need to move on. 95% of you will be disappointed.

Secondary Markets Outperform Primary Markets

Primary markets as most of you know are suffering. What we are seeing is a lot of secondary markets by the big cities are heating up as the cities cool down. For example, as Washington DC cools, Virginia Beach heats up. Same with San Francisco -> Sacramento and Los Angelis -> Riverside. The truth is, these more expensive cities were already at their tipping point prepandemic. The pandemic only accelerated it.

The cities experiencing the biggest drop off in rent prices generally fall into two categories:
-Markets where the local economy is heavily dependent on tourism (Miami, Orlando)
-Expensive markets (San Francisco, Seattle, New York, San Jose)

Year-Over-Year Rent Growth:
San Francisco & Bay Area Continue Downward Spiral

  • Rents decreased 0.3% in August on a year-over-year basis, unchanged from July. Of the top 30  markets, year-over-year rent growth is negative in 16 markets, a slight improvement from the 17  negative markets in July, with Raleigh (0.4%) flipping positive in August.
  • The three markets with the largest year-over-year rent declines remained unchanged from July:  San Jose (-5.5%), San Francisco (-5.1%) and Boston (-2.5%). Rents in San Jose and San Francisco  have continued to deteriorate rapidly since March, while rents in Boston have remained steady.  Since March, overall rents have declined by $143 in San Jose and $97 in San Francisco.

-Among the markets that flipped negative on a  month-over-month basis in August were Austin  (-0.3%), Tampa (-0.2%) and Seattle (-0.1%).  Tampa fared the worst, declining 100 basis  points in August on a MoM (Month over Month)  basis.

-Tampa is one  of 12 markets where Lifestyle rent growth is out

performing Renter-by-Necessity rent growth.  The Lifestyle asset class in Tampa is likely benefiting from an exodus out of New York, where  renters are used to extremely expensive rental  prices, causing them to be unfazed by the price  of a Lifestyle rental unit in Tampa.

-The downward pressure on rents in Austin could  be from the large amount of completions in the  last few months. As of August, roughly 4% of total stock had been delivered in the past year. Another factor that could be affecting the declining rents in Austin and Tampa is the increasing  homeownership rate.

-While job growth in Nashville and Raleigh was  significantly affected by the COVID-19 pandemic, these two markets fall in the top half of our  Matrix top 30 markets for YoY job growth as of  June 2020. Job growth in Nashville as of June  2020 was -3.2%, while job growth in Raleigh was  -4.8%.

Long Term Impact

As far as longer-term impacts, the pandemic’s effect on rent prices will depend heavily on how quickly the economy is able to recover specific to each area. There are indications that the recovery will be more drawn out than many had initially hoped, making it likely that we’ll see a stagnation in rent growth or even a downward trend because due to large unemployment numbers, families will begin looking for more affordable housing. We may also see a significant slowdown in new household formation, as more Americans move in with family or friends to save on housing costs.That being said, we will see many homeowners become renter’s as well.

 These trends could mean that competition will remain tight for rental units at the middle and lower ends of the market, while luxury vacancies get harder to fill. As long-term remote work gains traction, we may also be seeing the beginning of a shift away from expensive downtown markets and toward more affordable suburbs.

5 Mistakes Most New Investor’s Make

In the current atmosphere everyone is a real estate investor. A simple search on Instagram will land you with everyone from realtors to marketing gurus pretending they know how to invest in real estate. The truth is, the last ten years in real estate have been easy. Basically anything you bought increased in value and it was really hard to make a bad deal. Yet, here we are in 2020. Real estate investing is going to get a bit trickier and take it from me you want to have a true “expert” leading you in your journey. I wanted to share with you some common mistakes I see investors making when they first start out in real estate.

1. Ignoring the Numbers

The numbers are the MOST IMPORTANT part of any deal. So many times I hear of investors trusting their realtor or a friend who knows real estate. When you purchase any property it is a big investment and there is risk involved. That risk decreases significantly with the more education in real estate you have. Any deal you make you should personally crunch the numbers on to ensure it is cashflowing. I go over this step by step in my book “The ABC’s of Buying Rental Property.”

The truth is Many people miss the costs associated with real estate and are overly optimistic on their numbers. I’ve seen first-time investors run the numbers on a new deal and miss critical costs like Cap X or property taxes on their spreadsheets. You need to know all of the costs associated with a property and the actual rent you can collect from capturing other similar properties in your area.

2. Not Properly Screening Tenants

Having a tenant is having a business relationship with someone and is not just putting someone in a unit. I see first time landlord’s rush on this critical piece, but here are the standards you must check before moving someone in. I listed them below, but go in more detail on this here.

        1      HEALTHY CREDIT HISTORY

        2      CLEAN BACKGROUND CHECK

        3      CLEAN EVICTION HISTORY

        4      STABLE EMPLOYMENT HISTORY

        5      SUFFICIENT INCOME

        6      POSITIVE LANDLORD REFERENCE CHECKS

3. Repairs and Maintenance

No matter how nice the property is there will be maintenance issues that arise. Most new investors don’t calculate this. An experienced investor will know to put aside at least 2% of the value of the property every year to account for any of these potential costs. This can at times kill a deals profitability, but it has to be considered.  Finding a good, affordable, and reliable handyman is someone you need to have on call in these situations to mitigate the cost.

4. Getting Too Attached

Do not let your heart rule on any of the decisions when it comes to buying or selling a property. If you let your emotions get involved you could end up making the wrong choice. I never get attached to any property I am looking at. I buy based on the numbers, it’s as simple as that.

I have seen this too when people already own a property and go to rent it. They are worried about the tenant staining the countertops, or scratching the wood floor. Once again, don’t be emotional. Get a nice sized security deposit to cover these incidents, because they will happen, and move on. Your rental properties are your business and you can’t get attached to them.

5. Not Knowing the Market

The worst deals are made when someone who isn’t a local comes in knowing nothing about the market and starts purchasing. I always advise small investors to stay in their local markets. You know that market better than anyone. You know what areas are good to be in and where you would run. If you are going to invest in a market you are not extremely familiar with then go there and get to know the area. Also, chat with people in the community to better understand the pros and cons of that area.

If you’re looking to get into real estate investing you should know it’s not easy. It’s going to be a whole lot of work and there are going to be a whole lot of things you need to watch out for.

Make sure you know the numbers and that you’re willing to walk away from the deal if it doesn’t work out for you based on those numbers. Rushing in could cost you a lot of money, but knowing what you’re doing could make you a lot of money.

The Nine Most Important Things to Consider, When buying a Rental Property….

1) Does it Cashflow

People often times miss this very important question. They try and measure the cashflow of the future value, or they say they don’t mind feeding it some money each month. To be direct, it is only a good investment if it cashflows based on the rents and expenses of today, not the future rents you think you will get five years from now. Cashflow is the most important thing when deciding on a rental property.

2) Property Taxes

Property Taxes are an expense that varies widely in an area. Once again this goes back to cashflow. If the property taxes are high, but it’s a good area and you can charge high rent then it may be worth it. You always have to look at your profit minus your expenses to really see the cashflow potential.

3) Schools 

Consider the quality of the local schools around you. Good tenants with kids normally want them in a quality school district.

4) Crime

No one wants to live in an unsafe place. Sure, most areas look safe during the day, but make sure to take a drive around on a Friday night. See if you feel safe in that environment. Also, talk to the neighbors and ask them about criminal activity in the area.

5) Job Market 

Locations with growing employment opportunities attract more tenants. To find out how a specific area rates for job availability, check with the U.S. Bureau of Labor Statistics (BLS). Too many times investors don’t take this into account. There is inexpensive real estate in some areas, that would cashflow if you had a tenant. The important word there is “if”. Jobs create tenants, so make sure there are jobs in that area and that the employment rate is growing and not declining.

6) Amenities

Tour the neighborhood and check out the parks, restaurants, gyms, movie theaters, public transportation links, and all the other perks that attract renters. The more amenities an area has the easier it will be to rent.

7) Is It Somewhere People want to Live?

Investors get very wrapped up in price and often forget about the demand in the area. You will have high vacancy if it’s not a desirable area for tenants to live. A desirable area typically has a lot of the amenities above.

8) Average Rents

Rental income will be your bread-and-butter, so you need to know the area’s average rent and what the comps to your property are charging for rent. Zillow is a good place to start to find this out.

9) Natural Disasters

This was a big lesson I had to learn, but you don’t want to invest where there are high rates of natural disasters. Hurricanes are an especially expensive disaster and take it from me, a hurricane will eventually hit your property if you’re in a hurricane area.

Investing in real estate is a great way to obtain financial freedom, that said you can’t just go into it blindly. You have to do it right. In my book, “The ABC’S of Buying Rental Property” I walk you through what you need to know, so you make the right investment choices and maximize your profits.

Click here to check it out!

It’s Just Math

95% of the success in real estate is understanding the math. So many times I get people asking me if a certain property is a good investment. Basically, they are waiting for my blessing. This is a TERRIBLE strategy. You need to be able to understand this for yourself, or you will be pushed into a bad investment by someone you trusted. I see this happen to people all of the time by online “gurus” only trying to get low dollar investors. 

It all comes down to your cashflow.
Income – expenses = CASHFLOW

In this video, Click here to watch I am going to show you how to look at a Zillow listing and decide if the property is cashflow positive or negative. Obviously, I want you to dig into these numbers and verify the rent and expense numbers, but start with just the basic calculation. If the numbers don’t work on the initial calculation, then it is not worth your time. If the numbers do work, it is time to move into due diligence and verify the rental and expense amounts. FYI in this hot market, most listing don’t work. That is why it is up to you to always look at the new listings and run the numbers daily.How to find out if a property cashflows in minutes

A Story is Worth a Thousand Words

I think a lot of you right now are questioning whether you will be going back to your job anytime soon. You don’t even know if your job is the right job for this new economy and what you are going to do if you need to switch careers. Most people have this knee jerk reaction that the answer is more schooling, but I want to challenge you in this ever changing environment to self educate yourself on things you are interested in. It’s never too late to reinvent yourself. Maybe you learn internet marketing, social media, real estate, or how to private label a product (I hear masks are trending right now haha). 

Whatever you want to learn, now is the time to educate yourself in order to navigate this new economy. I want you to get away from thinking you need another degree and approach it as you need more “self education.” Be open to the flexibility the future holds and be excited about it. I wrote a book on this exact thing. It is a fictional book, but Return to Orchard Canyon is more than just your basic fiction novel. It is a journey that discusses new beginnings and starting over in your career. While at the same time giving you the knowledge you need to take that step and make that decision. Click Here to check it out! 

The Real Estate Crash of 2021

A correction is coming to the real estate market and I expect to see it early next year. Each downturn is very similar to the next. We have high unemployment, and housing prices that are extremely inflated. Yet, people keep asking me, “Ken how can you say it’s going to crash when prices are skyrocketing?! I am going to miss out on the buying opportunity if I keep waiting!” So let me put a few things into perspective for you. This is a supply and demand issue. That is what inflates and deflates prices. Inventory vs demand for housing.

First, let’s discuss supply. You have the supply of properties being lowered for a couple of reasons. Reason One, some people are afraid to move. Either because of COVID itself, or the lack of certainty around their job or income. A lot of people are staying put to wait and see what happens. Reason Two, Banks are providing one year of mortgage forbearance. This means the owner does not have to pay their mortgage for one year, and the balance goes on the back end of the loan. Think about it, If someone is out of work and the bank is now allowing them to live mortgage free for one year (ending in April 2021) that person is most likely going to take the forbearance and hope they return to work within that timeframe. These issues are creating very low supply.

Now let’s discuss demand. Demand is about the same and possibly a bit higher with people trying to get out of cash or relocating from a larger city now that they can work remotely, but these buyers are competing for a limited supply, which is what is elevating prices.

Next year I see this house of cards falling. Banks can’t keep giving forbearance on mortgages and I believe most people will still be out of work. When this happens a supply of homes will flood the market and that is when it will start to correct. To see this in more detail please watch the video below!

The Real Estate Crash of 2021 Explained

It Won’t Happen Here….

If I had a dollar for how many times I have heard this over the last six months I would have made quite a bit of cash. People like to ask me about the real estate market even more than usual lately due to the instability of the stock market and rising real estate prices. Yet, there is a trend in almost every conversation…and that is the person agrees the real estate market will correct, but it won’t happen here. Where is here? Here is where ever they are invested or live. When I talk to my friends in Arizona, it won’t happen there because California people are moving there, when I talk to my California friends it won’t happen there because of the weather, when I speak with my Idaho friends it won’t happen there because people from Washington are moving there, and when I talk to my Girlfriend’s family in Ohio, it won’t happen there because well they haven’t given me a reason, just because.

I am not trying to call out anyone in this situation, but if you find yourself saying or thinking, “It won’t happen here.” The truth is you have to accept your own denial and the bullshit people around you are feeding you or you’re feeding yourself. When a correction occurs, it generally happens everywhere in the country. Sure, some areas worse than others, but all areas are affected. So you have to wrap your head around that.

If you’re an educated investor and understand market cycles, then you will understand where we are at right now in the market cycle. I can’t emphasize this enough, you can’t be a successful investor if you don’t thoroughly understand market cycles.

Click Here Where I explain the Market Cycle and Where we are Now!

Talk to you soon,

Ken

Cash is King

If you missed Monday’s email I am going to be going over 4 things you need to be doing now to be ready for the opportunities that will be created because of Coronavirus. I want to be clear I wish this wasn’t happening, but while this is very personal to a lot of people (including me and the employees in my company) this is another recession. Which many of us have been through before. There have been 4 global recessions since World War II and we will all get through this together. While it will create opportunity for some, it also has the potential to be devastating for others. I am just trying to help you prepare financially for this and to look at the past to prepare for the future.

Cash is king moving forward. Let me repeat cash is going to be king in the next 12 months. Here is why. Banks want to lend, it is in their nature. The problem is if people are out of work or just starting a new job, or are behind on bills the bank cannot lend to them. (Currently, if I am going by generally reported unemployment will be around 30% of people as of now) They can only lend to those who have a steady job, and have been paying their bills. This makes the demand on houses go down. Sure, people will still want houses, but they won’t be able to get a loan to get houses or may not have a downpayment. So when the demand goes down, so does the price of real estate. 

Supply will also go up as demand goes down. People paying on a mortgage will either default or decide to sell to move into an apartment. Either way people may be selling their homes and moving to rentals. Just like in 2008. Supply going up and demand going down. More sellers and less qualified buyers.

This is where your CASH comes in. That downpayment will make the bank feel reassured you can take on a loan. You could even be an all CASH buyer if you have something to refinance. You won’t have to even try to attempt to get a loan from a bank for a new property.

There are many ways to get cash. Refinancing, small business loans, etc. 

Getting Cash ready is the first thing you should be doing…there will be massive opportunities for those with cash. So should you go get cash right now? Hold on….let’s discuss that tomorrow.

Talk to you tomorrow,
Ken

Affordable Housing and Mobile Home Parks

The biggest issue we face today in real estate is affordable housing. With rents rising faster than income, cities are looking for a way to help people afford to live in their communities. Where in steps mobile home parks. These parks have always been frowned on by the cities because of the stigma they carry, but governments are starting to open their mind to these parks as affordability becomes more and more of an issue. 

In this YouTube video,. I talk to Mike Ayala of Park Place Communities. Him and his partners are creating an investment out of these mobile home parks and doing quite well at it! In this episode, Mike discusses what he looks for in a park, red flags he sees, and the good he is doing for the community. 

I will tell you that affordable housing will become more and more of a need in the United States over time and this is definitely something you should understand and look into. That is potential here from owning a park to possibly even converting a mobile home into a rental. Click here to watch!

Until Next Time,

Ken