That’s what members and guests said about July’s Investor Meeting. Pat Bell, REIS Member and Mortgage Broker with M-Lend, presented a case study on one of his recent personal investment endeavors. In sharp contrast to other case study presentations, Pat’s premise was that he had a “Gut Feeling” about this deal and he acted on his gut. Admittedly, it’s not necessarily the way an investor should run a real estate investment business, but that was his story and he stuck to it—basically. Pat’s deal was a Bladensburg rambler, about 50 years old. This home had significant water infiltration problems and extensive mold. It also needed the usual kitchen, bath, windows, paint and carpet. He knew what he had to pay for the property and he had a rough idea of the worst-case renovated resale value. But, while he did not do the math to the penny in the planning process, it became evident that his 25+ years of experience enable him reasonably accurately ballpark the cost of renovations. Further, he used contractors he knew quite well and a few contractors who were referred to him by long-time friends. This gave him a sense that he was getting fair bids without going through the competitive bidding process.

In the final analysis, Pat did pay more for the renovations than planned, but his worst-case final sales price was some $40,000 less than the price he actually received. So, all’s well that ends well—he realized about a $37,000 profit on the deal. That made it all right—not so fast. Here’s where Pat was challenged by members, guests and former speaker, Roosevelt Lafontant, whose presentation was just the opposite. Roosevelt likes to enter a deal knowing exactly what the renovation cost will be and how many minutes it will take so he can peg his carrying costs. While it was a lively discussion, it demonstrated that there is more than one way to succeed at a real estate investment, but that Pat’s profit came partly from his experience and mostly from luck.

Many of us start our investing careers on gut instinct—some have reliable guts; some not so. But, with experience, we learn approximately what it costs to do a new roof, to paint, to waterproof a basement and so on. With that experience, it might sound like we’re operating from the gut, but, in fact, we are relying on experience. The danger is that prices change, job scopes change, the contractors we use change and not all contractors offer the same pricing. So, only by carefully planning can we enter a deal knowing accurately how we will exit, but that is not to say that failing to plan every detail ensures failure. Experience and gut do play a major role in real estate investing. After all, even if you plan to the nth degree, the market can change over the course of 90 to 180 days thereby destroying the best laid plans. Planning does not ensure success. Failing to plan does not ensure failure. Experience is a valuable tool, but detailed planning is a critical element in reducing the risk associated with real estate investing.

Next Meeting: August 17 at 6:30 PM

JUNE’S EVENT- REIS is a proud sponsor of a spactacular Business Coaching Event.  Please join us on June 17th by clicking here and enter the Promo Code SWDC070 for a complimentary ticket.

LAST MONTH’s MEETING RECAP- On May 18^th the members of REIS met for their usual meeting but the meeting content and format was brand new. 

 Over the past couple month’s we had been hearing requests from our members to try an incorporate some real case studies into our monthly meetings.  And this month’s meeting saw just that. 

 Deborah Diehlman, a REIS investor member and CPA lead a case study of a property she had just completed.  The goal was to discuss and analysis a complete investment transaction from identification to close.  The result was that, and MORE!  The meeting was extremely interactive and topics covered everything from financing to rehab to exit strategy.   Based on the evaluations, the content and our meeting was the most successful to date.

Learn the tricks of the trade from the experts and from your piers!!!

This month REIS will continue it’s Case Study Series. The attendees will be working with actual scenarios, discussing challanges, analyzing numbers and extrapolating outcomes. CLICK HERE TO REGISTER

With the help of REIS’s custom real estate investment analysis spreadsheets the attendees will be working with actual scenarios, discussing challenges, analyzing numbers and extrapolating outcomes.

If you have a property you’re considering, please feel free to bring them for a group analysis (disclosure of specific property address is not required)

APRIL RECAP

The members of REIS and their honored guests had the priviledge of a presentation from one of their own. One of REIS’s charter members and one of it’s most successful investors, Roosevelt LaFontant, shared a tremendously valuable presentation on the keys to keep you rehab projects on schedule and on budget. These techniques showed the attendees how to take the guest work out of scheduling and budget, how to identify EARLY in the process when you’re behind schedule or over budget so corrections can be made before project completion

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Abstract: There may be many reasons for an individual to establish a trust.

While most people think trusts are only for the wealthy, trusts are commonly used to distribute property after death or to protect one’s assets in the event of physical or mental disability. A trust is simply the legal relationship created when an owner of property (the grantor) transfers property to another person (the trustee) to hold for the benefit of a third party (the beneficiary).

Among the uses for a trust, is providing continuity in the management of a business or other property. Or a trust can name a guardian for minor children. A trustee can help manage assets and protect assets for beneficiaries who are unable to prudently handle their personal financial affairs.

The grantor usually has a specific goal in setting up the trust, such as to provide the beneficiary with continuing financial assistance or passing ownership or control of a specific property. This is generally the case where minors, or others deemed legally incompetent, are the intended recipients.

A living trust is a trust created when the grantor is alive as opposed to a testamentary trust created by a will, which takes effect at death. Under a living trust, a trustee may be empowered to handle business details and arrange financial matters for a living person who is unable to handle his or her own affairs.

For a large estate, avoiding the publicity of probate may be another consideration in setting up a trust. During probate of a will, all actions of the executor under court supervision become a matter of public record, open to anyone wishing to look up the proceedings. While the administrator of a trust has many of the same tasks as an executor, the transactions themselves remain private.

Many people set up a trust so that they can donate to charity on a tax-advantaged basis. A Charitable Remainder Trust, for example, enables a grantor to give appreciated property to a charitable organization without paying capital gains taxes on the appreciation.

The potential estate and gift tax savings made possible by the use of certain types of trusts may be another factor in setting up a trust. Even with the many changes in estate tax laws over the past few years, trusts can frequently be useful in minimizing the size of the grantor’s future estate, thereby reducing estate taxes due. A particularly attractive example of such a trust is an irrevocable trust funded by life insurance.

Trusts can serve many useful purposes. The law of trusts and estates is a complex area, however, and it is constantly changing. Before a trust is established, many legal and tax issues must be fully considered. You should consult with your legal and tax professionals to help ensure that the trust established provides the benefits intended by the grantor.

AXA Advisors, LLC does not provide legal or tax advice. Please consult your tax or legal advisor regarding your individual situation.

This article is provided by William Phillips.  William Phillips offers securities and investment advisory services through AXA Advisors, LLC (member FINRA, SIPC) 3141 Fairview Park Drive Falls Church VA 22042 and offers annuity and insurance products through an insurance brokerage affiliate, AXA Network, LLC and its subsidiaries.

Goal: It is not abatement, rather it is designed to contain, control, and clean up any lead based paint contamination.  A “do no harm” type of approach for renovations.

Effective Date: April 22, 2010

Triggers for this particular regulation:

1. Potential for disturbing lead based paint
2. Pre-1978 Housing
3. Child occupied facilities that will disturb lead based paint
   1. Children residing or visiting a minimum of 60 hours per month
   2. Renovations for compensation.
      1. Renovations
         1. i.      Potential for disturbing painted surfaces over 6 sq ft (interior)
         2. ii.      Potential for disturbing painted surfaces over 20 sq ft (exterior)
4. Compensation:
   1. i.      Receiving Rent
   2. ii.      Hiring or subbing someone/some company to do the work
   3. iii.      Receiving property management fees

Complying with the regulation:

1. Must hire a contractor certified at firm level and worker level to do this work
2. Separate and distinct from the MD state regulation for pre-1950 housing
3. Civil and criminal penalties for non-compliance of up to $33,500 each
4. Includes notification and documentation from residents prior to commencing work and filing paperwork for minimum of three years after the work was completed.
5. Containment – establish a sealed work area to control the escape of dust, prevent entry
6. Control – minimize dust by wet misting during the work
7. Cleaning up – get rid of material and specialized cleaning and testing protocol

Exemptions:

1. Minor repairs disturbing less than 6 sq ft (interior) or 20 sq ft (exterior)
2. Owners doing their own renovations
3. Studios or efficiencies
4. Common areas in multi-family dwellings (however must distribute notice to all residents)
5. If have a report certifying there is no lead based paint present in the building

More info:

www.epa.gov/lead/pubs/renovation.htm

In particular, look at the EPA’s  “Small Entity Compliance Guide”

The name of a “local” company that is certified to do the training is the Connor Institute in Baltimore.  Jackson Anderson was the guy who did the seminar I attended in Silver Spring last month.  www.connorinstitute.com

janderson@connorinstitute.com

Article Courtesy of NAIC

SAN FRANCISCO (June 4, 2007) — A large percentage of U.S. homeowners mistakenly believe that standard
homeowners insurance protects them from a wide array of perils, according to new research by the National Association of Insurance Commissioners (NAIC). In fact, typical property and liability policies don’t cover home damage from floods, earthquakes, water line breaks, termites, mold, and several other perils, large and small.

The survey found that 33 percent of U.S. heads of household, who own a home and have homeowners insurance,
incorrectly believe flood damages would be covered by a standard homeowners or property and liability policy, despite extensive media coverage on Hurricane Katrina victims whose claims were denied because they lacked flood insurance.

“Many homeowners learned the hard way that their insurance policies did not provide flood protection,” said Walter Bell, NAIC President and Alabama Insurance Commissioner. “As we enter the 2007 hurricane season, we strongly encourage consumers in flood–prone areas to check whether they are properly covered.”

According to the NAIC, flood insurance polices generally are available from the National Flood Insurance Program (NFIP) and are often sold by agents that sell homeowners policies.

“There are some limitations in flood insurance polices that differ from standard homeowners policies,” Bell said. “Excess flood insurance is often available from private insurers when people seek to insure high–value homes that exceed the limits offered by the NIFP.”

The NAIC survey also revealed other homeowner misunderstandings relating to common loss situations — none of which are covered by standard homeowners insurance policies — such as:

• 68 percent think vehicles such as cars, boats and motorcycles stolen from or damaged on their property are covered.

• 51 percent think damages from a break in the water line on their property supplying water to their home are covered.

• 37 percent think damages due to a break in the sewer line on their property that connects to their municipal sewer system are covered.

• 35 percent think damages from earthquakes are covered.

• 34 percent think damages from mold are covered.

• 31 percent think damages from termites or other infestation are covered.

• 22 percent think pets stolen from or injured on their property are covered.

“Many homeowners could be seriously harmed financially by misunderstandings about their insurance,” Bell said. “It’s critical that consumers look closely at their policies and ask their insurance agents detailed questions to become fully aware of what is, and what is not, covered.”

The NAIC survey revealed another type of potential consumer misunderstanding. Twenty–four percent of respondents indicated their policies insured their homes for the actual cash value, while 64 percent said their policies covered the replacement cost. Another 12 percent said they did not know which type of coverage — actual cash value or replacement cost — they purchased.

Actual cash value is the amount it would take to repair or replace damage to a home and its contents after depreciation. Replacement cost is the amount it would take to replace or rebuild a home or repair damages with materials of similar kind and quality, without deducting for depreciation.

“It’s important that consumers understand this distinction,” Bell said. “In the event of a covered loss, an actual cash value payout could be thousands of dollars lower than a benefit calculated at the replacement cost.”

The NAIC survey also uncovered a growing concern among homeowners about being sued. Twenty–eight percent of
respondents reported they were more concerned today than they were five years ago about being the target of a lawsuit.

“Consumers can better protect themselves from lawsuits by adding umbrella liability coverage to their homeowners
policy,” Bell said. According to the NAIC survey, a majority of homeowners — 63 percent — lack this umbrella coverage.

The NAIC provides extensive information, tips and considerations regarding homeowners insurance on its consumer education Web site, Insure U (www.InsureUonline.org). The entire site is also available in Spanish
(www.insureuonline.org/espanol).

Insurance Tips for Homeowners from the NAIC’s Insure U Web Site

• Add insurance coverage as you enhance the value of your home and acquire expensive possessions, such as furniture, computers, stereos and televisions.

• Alert your insurance company when making any major home improvements — usually anything more than $5,000.  Also, update your homeowners insurance policy to reflect the new enhancements and prevent being underinsured.

• In maintaining your residence, realize that you are liable for things that happen on your premises. Keep in mind that in many states you could be held legally responsible for the actions of anyone who drinks in your home and then has an accident in your house or after leaving it. Your policy should protect you against lawsuits due to these types of liability issues.

• Backyard items, such as a trampoline or pool, may require you to increase your liability coverage through an umbrella policy that protects you in the event that someone is injured while on your property.

• As you acquire more valuables — jewelry, family heirlooms, antiques, art — consider purchasing an additional “floater” or “rider” to your policy to cover these special items. They’re typically not covered by a basic homeowners or renters policy.

• It’s a good idea to make an inventory of all of your personal property, along with a photograph or video of each room. Also, save your receipts for major items and keep them in a safe place away from your house or apartment. That will make it easier if you need to file a claim.

“Consumers also should protect themselves from being scammed by fake insurance companies selling bogus insurance policies,” said Catherine J. Weatherford, NAIC Executive Vice President and CEO. “All they need to do before purchasing insurance is take a few minutes to stop, call their state insurance department, and confirm that a company is legitimate and authorized to sell insurance in their state.”

For more information about insurance, consumers can visit www.InsureUonline.org.

About the NAIC
Headquartered in Kansas City, Missouri, the National Association of Insurance Commissioners (NAIC) is a voluntary
organization of the chief insurance regulatory officials of the 50 states, the District of Columbia and the five U.S. territories. The NAIC’s overriding objective is to assist state insurance regulators in protecting consumers and helping maintain the financial stability of the insurance industry by offering financial, actuarial, legal, computer, research, market conduct and economic expertise. Formed in 1871, the NAIC is the oldest association of state officials. For more than 135 years, statebased insurance supervision has served the needs of consumers, industry and the business of insurance at-large by ensuring hands-on, frontline protection for consumers, while providing insurers the uniform platforms and coordinated systems they need to compete effectively in an ever-changing marketplace. For more information, visit NAIC on the Web at: http://www.naic.org/press_home.htm.

In an opinion issued March 22, 2010, the Maryland Court of Appeals ruled that “a trier of fact could hold [a member of an LLC] personally liable for lead paint-related injuries suffered by children who occupied a dwelling that the LLC owned.”

Under the facts of this case, an LLC purchased the property at tax sale and planned on re-selling it “as is” instead of holding it as a rental property.   At the time of purchase, the Managing Member was unaware that the property was occupied by tenants of the prior owner.  Upon discovery of occupants, the LLC provided them with a 30-day notice to vacate.  The occupants failed to vacate the property and were finally forcibly removed from the property by court order several months later.  The LLC sold the property 1 year after it had acquired title.  Two years later, the occupants of the property filed a complaint against the LLC for elevated lead levels suffered by two minor children.

The Court found that, despite the fact that there was no formal tenancy established and that the occupants had no legal right to possess the dwelling, that the owner of the property had a duty under the Baltimore City Housing Code to keep the property “in good repair, in safe condition, and fit for human habitation”.

The Baltimore City Housing Code states that any “owner or operator of a property … shall be responsible for compliance with all of the provisions of the Code.  It defines “owner” as “any person, firm, corporation…who…owns, holds or controls” an interest in property.  Within this definition, the term “owner” includes “any vendee in possession of the property and any authorized agent of the owner”.  It defines “operator” as “any person who has charge, care or control of a building…”  The Court determined that the term “control” is defined as one who has “an ability to change or affect” title to the property.  Since the member of the subject LLC “was responsible for running the day-to-day affairs [of the LLC]” and had signed certain deeds and other documents on behalf of the LLC, the Court found that a “trier of fact” could find that he may have changed or affected title.  They further found that “a reasonable trier of fact could determine that Respondent personally committed, inspired or participated in the tort alleged in this case, even as a member of [the LLC] and if so, he may be held personally liable…”

This Court Opinion is based upon the very broad definitions contained in the Baltimore Housing Code, however, similar language is contained in the Maryland Lead Poisoning Prevention Act.  The point to remember here is that when purchasing property, it is important to determine the physical status of the property and whether or not the property is occupied.   In this case, no member of the LLC had ever visited the property, before or after the purchase.  The Court has ruled that whether or not occupants are legally in possession of the property, the Owner of the property owes a duty of care to those occupants.  Further, the Court has re-emphasized that simply acting on behalf of an LLC or corporation, does not eradicate a person’s liability for their own acts and failures to comply with law.

April’s Investor meeting will bring a new twist.  On April 20th REIS will be holding a very hands-on meeting.  We will be reviewing an actual case study of one of our members recent investments.  We will be looking at several different sides of the transaction and discussion the challenges along the way.

THIS IS A CAN”T MISS FOR INVESTORS (the registration will be posted soon)

The event was, no doubt, a success and REIS was happy to see several new members attend the meeting.   We hope you’ll join us on April 20th