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Real Estate Espresso

Author: Victor Menasce

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Your morning shot of what's new in the world of real estate investing. Daily real estate investment outlook from investor, syndicator, developer and author Victor J. Menasce. Weekday shows are 5 minutes of high energy, high impact awesomeness. The weekend edition consists of interview with notable guests including Robert Kiyosaki, Robert Helms, Chris Martenson, George Ross, Ed Griffin, Dr. Doug Duncan, and many more.
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Retirement at Sea

Retirement at Sea

2019-07-1900:05:18

On today’s show we are talking about a growing trend in retirement or pre-retirement living. A number of people are selling the family homestead and opting for life on the high seas. I’m not talking the billionaire mega-yachts. I’m also not talking about slumming it on a 25 foot wooden boat either. There is a large spectrum of options in the middle and I personally know of many people who have made this lifestyle choice. In some cases, they maintain a land based option but often as a second vacation home. One story is of a friend named Ian, a former executive with the Nielsen Group of Companies. These are the folks who are responsible for the Nielsen TV ratings and all kinds of other statistics that businesses have come to rely upon. Ian retired sooner than most. He was in his mid fifties, a little unsure about whether he had enough saved up to last the next 40 years. He sold his home in New Jersey about 5 years ago and bought a 45 foot yacht. He and his wife spend the winter months in the Bahamas, sailing from island to island. When it’s too hot in the South, the boat gets pulled out of the water in Florida and spends the summer in a cradle. From there, it’s off to another vacation home in the Azores. This vacation property was purchased for about $45,000 dollars and is a small piece of paradise overlooking the other islands and the Atlantic. A large expat community means that finding English speakers on this Portuguese island is not difficult at all. Modern navigation and communication equipment has come down in price in recent years. The latest systems use a collision avoidance system similar to what aircraft use in the skies. It’s now possible to get real time weather updates on your electronic charts. These systems are so much more sophisticated and have increase boating safety dramatically. My wife and I are routinely spending time aboard our boat in Europe. Marina fees average about $500 per month, and it’s an extremely affordable way to keep a home base. Daily rates can run anywhere from $40 a day to $300 a day depending on the size of your vessel. We feel extremely secure on board everywhere we go.Living on board means careful planning. Things like getting a haircut, or a large laundry requires more time than at home on land. We have a washing machine for clothing on board, but it lacks the capacity and features of the land based counterpart.On those days when we are not connected to shore power, we have a large solar panel that keeps the batteries topped up. Our largest electricity draw is refrigeration, and we can go several days on battery power alone without having to run the engine to charge the batteries.One of the latest trends in boats for retirement is the popularity of catamarans. The two hull vessels are very wide and stable. They don’t roll in an anchorage. The downside is that they are a bit more expensive to purchase. They are also more expensive to own since they occupy the same space as two boats in a marina, the marina’s charge double the price of a monohull boat. In some cases, finding space in a marina can be more difficult because not only do you need two spaces, you need two spaces side by side which is more difficult to find. So your operating costs can be much higher.Some areas are experiencing a significant increase in permanent live-aboard residents. One of the larger marinas we recently visited in Europe has over 4,000 boats. I can tell you from walking the docks, you can tell which boats have live-aboard crew. If there is a small herb garden of basil and mint, chances are high that the owners live aboard.
An Extra 20 Pounds

An Extra 20 Pounds

2019-07-1800:04:401

On today’s show we are talking about something that is rarely talked about. Entrepreneurship has been put up on a pedestal and it cool to be an entrepreneur.Today’s show is about the inner struggle of being an entrepreneur. It’s about handling the negative self talk that can surface when things don’t go as planned in your business. It’s when an employee or partner doesn’t fulfill their commitment. It might have been you. Maybe you made a mistake that needs to be corrected.Every one of these events results in managing an exception. It means having to work extra hard to fix something that should never have happened. Even if it wasn’t your fault, you, as the business owner feel responsible. It’s that sense of responsibility that is healthy for the business and heavy for you as the business owner. It’s a weight that you carry with you all the time. It’s an extra sack of potatoes on your back all day long, all night long, even when you sleep. The amount of effort that goes into managing exceptions is many times the effort associated with managing routine items. I’ll give you a simple example. If a tenant pays their rent on time, the money appears in the bank account, the book-keeper records the entry. All is good. But if a tenant vacates early, or if they fail to pay the rent, the amount of energy expended in managing that exception is many times what it would be in the normal case. The effort to manage an eviction is orders of magnitude more than the effort to receive a rent deposit. When something doesn’t go as planned there can be emotional baggage that makes the task much heavier emotionally than the task itself. In many cases, you don’t leave enough slack in the system or the calendar to handle these unplanned events. The effect is that other commitments are delayed. Here too, the cascade effect can result in more missed expectations. The feeling of overwhelm can be paralyzing. But the fact is, every single one of these issues can be solved. All too often, entrepreneurs fall back on the skill-sets that have made them successful in the past. It’s true, that this approach will fix the immediate issue, but it won’t solve the underlying problem. In fact, it is really perpetuating the problem. It’s instinctive to ask “What should I do?” But the better question is “Who do I need to be?”. Sure things need to get done, but they also need to be done the right way, by the right person in the organization. Michael Gerber in his ground breaking book called “Emyth” talks about the three roles in the organization. There is the technician, the manager and the business owner. If your instinct is to do the work, then you’re being the technician. If you are the manager, then you are assuming responsibility for the task, and often delegating the task, but not the responsibility. Sometimes, that’s who you need to be. But if you’re truly the business owner, you will find the right people in the organization to own the responsibility for getting the job done, and for getting the problem solved. When I say solving the problem, I’m not just talking about the immediate issue, I’m talking about the underlying issue.Your role as the business owner is to make sure the systems are put in place to make even these exceptions part of the standard operating procedure. When you engage with your team, the conversation should focus on the systems, and not the specific emergency. Yes, the emergency needs to be solved, but not at the expense of the systems. Otherwise you’re not solving a problem, it’s simply a bandaid and the problem will resurface. 
Erosion

Erosion

2019-07-1700:04:41

On today’s show we are talking about erosion. But not the usual form of erosion that happens when it rains. I’m talking about the factors that erode your business. When we encounter erosion, the natural reaction is one of dismay of disappointment. This shouldn’t be happening. So what could erode your business? These are the small things that you hardly notice. These are the inefficiencies that individually are hardly noticeable. On today’s show we are covering the top 5 sources of erosion for many businesses. Contractor theft. This is when your subcontractors order a little extra material. It’s natural that you need a little extra tile to handle the waste that results from cuts at the edge of the room. But general materials like lumber and drywall, fasteners, that you purchased often aren’t returned at the end of the job. Subscriptions. These are the software services that might have been ordered a few years ago. Today you would not subscribe to that same software. I’m actually guilty of this one. I have several examples of staff that are no longer part of the organization. But it’s important to keep an archive of their email. Our email is hosted by Google. The cost is $6 per month for their business suite. It would take about 15 minutes to shut down that specific user account and create an archive file. But before you actually delete the account and save the $6 per month you want to make sure that the archive is readable in the future should you need to access it. That process takes about another half hour or more. As you can imagine, saving those $6 hasn’t come to the top of the priority list this month anywhere in the organization. It wasn’t a priority last month, and it probably won’t be a priority next month either. So we have $6 of erosion every month. It’s been over a year. Increasing your tenants rent. In some cases, if your property is rent controlled, you might only be able to increase your rent by 2-3% per year. Sometimes, I’ve seen property management fail to increase the rent because it’s only an extra $22 a month, less than $1 a day. Increasing the rent isn’t urgent. You’ve got other more important things to work on. You have investor reports and accounting deadlines and the lady in unit 30 who wants her blinds repaired. Property tax appeals. Everyone who owns property needs to pay their fair share of property tax. But the property tax assessment process is not perfect and there are numerous examples of assessments that are out of whack with other comparable properties in the area. I know one investor with a large portfolio. The savings in property taxes are sufficient to justify a full time employee salary in his case. That’s all that person does. They appeal tax assessments. Insurance. Insurance prices and coverage vary widely. The easiest thing to do is to pay the same insurance company upon renewal. I have several recent examples where by shopping around I was able to save anywhere from 25%-65% on my insurance bill. I’m not talking about reducing coverage. I take the time to read the insurance policy and understand the coverage. In fact, many brokers are surprised when I request a copy of the policy. I’m told that I can get the policy after it is issued. But that’s like buying a brown paper bag and the salesman tells you that you can only see the contents of the bag after purchase. But trust us, you will like it. All of these things are small on their own. But when your cash flow is a subset of your profit margin after debt service, that 1-3% erosion of the gross revenue can over time accumulate into wiping out a large percentage of your cash flow. Cash flow is the most important metric for a real estate investment business. It means that you need to pay attention. 
This question is about Killeen Texas, just North of Austin Texas. 
Negative on Junk

Negative on Junk

2019-07-1500:04:44

When governments print money, where does it all go? Imagine if you went to Las Vegas to play a game of blackjack, but there was one player at the table who had a very special ability. That one player could print more cards at will. the game would not seem very fair now would it?If the player got found out they might justify that special ability as having a benefit to the game. It’s really just to stimulate the game and make it more interesting.Today, half of all European government bonds have a negative yield, with the total amount outstanding at €4.4 trillion. At the end of May, 20% of European investment-grade corporate debt had negative yields.In the latest case of things that don’t make any sense, more than a dozen companies with bonds having junk status, which usually carry high yields, now trade in Europe with a negative yield.These same bonds that have a coupon of 6-8% are now trading in the open market at or below zero. 
Special Guest Brett Swartz

Special Guest Brett Swartz

2019-07-1400:12:421

Brett is a specialist in a tax deferral mechanism called the Deferred Sales Trust. For US investors, this is one of the most important episodes so far this year. Check it out. 
Karen Briscoe is based in Washington DC. We had a great conversation about the market dynamics in Washington and the impact of Amazon coming into the market. She's the author of two books and host of the "5 Minute Success" podcast. You can reach Karen and learn more at 5minutesuccess.com. 
Solitary Confinement

Solitary Confinement

2019-07-1200:04:481

On today’s show we are talking about a problem that many real estate investors experience. It’s also rarely talked about. We’re talking about solitary confinement. A large number of real estate investors spend a large percentage of their time working on their own. For many investors, the list of solo tasks seems endless.The bill payments, reviewing leases, reviewing construction reports, posting updates on social media, responding to email, completing the application for a building permit, reading the latest update to your insurance policy. The list is endless. It all feels like busy work.This was not the carefree life of passive income and financial freedom that was talked about in the weekend seminar when you got into real estate at the very beginning.Well folks I’m here to tell you that there is no such thing as passive income. Real estate is an active business, just like running a service business. It is like running an engineering firm, or an airline. Real estate is a capital intensive business and therefore a disproportionate amount of emphasis is placed on the capital aspects of the venture. There is a problem with the do it yourself model of real estate investing. It means that you are doing it all yourself. It means that you have not hired the staff needed to build a sustainable business. I was talking earlier this week with an investor who was struggling with this very issue. The key is to hire. But before you can hire, you need to be working on projects that have sufficient scale to afford hiring. Your first hire absolutely should be a professional book keeper. After that, you want to hire someone who can truly step into your shoes and perform just about any task that you might do yourself. Your goal is to replace yourself. If you hire a virtual assistant, you can definitely get some help. But in my experience, the caliber of work you can delegate is limited. In most cases you end up delegating tasks, but not the responsibility. The delegated task even when completed, come back to you. If it comes back to you, then the leverage you get from hiring is dramatically diminished. The next issue with hiring is whether to hire full time or part time. You might not have enough work, or even enough money to afford full time. In my experience, part time employees have a number of things going on in their lives. It can be difficult to count on deliverables when you only have a part time commitment. In particular, I find that part time arrangements are rarely long term arrangements. You are likely to get into a cycle where your employee gets a full time job elsewhere and then you are hiring again, training again, and in the transition all of the work come back to you. Whatever help you had in the past vanishes. Whatever life balance had been restored, disappears. 
On today’s show we are talking about what it’s like to stand on the other side of the fence. Last week my wife and I stayed in a short term rental. The location was amazing and the price was low. The reviews were good but not great. The property manager put out three bottles of wine for the guests, and they were prominently on display as we arrived. Nice touch. The property advertised free parking included. But what that really meant was that street parking exists in the area, if it’s available. The interior featured high speed internet, and the performance was excellent.  The air conditioning was limited to the bedroom.  The beds were two single beds side by side. The sheets were old. The mattress was old. The towels were old.  The soap rack in the shower was rusted and hazardous. Here we were, in the most amazing location, paying only $110 per night in the height of the tourist season. On our last morning I spoke with the property manager as we were leaving. He manages 44 units.  I told him about the short term rentals that I own and how we are commanding prices of over $700 per night in peak season.  He seemed to dismiss what I was saying by positioning my property as a luxury property. What is the difference between cheap towels and expensive towels? Does it really cost that much more to put proper chefs knives and everything you need to prepare a meal? Does it really cost that much more to provide salt and pepper and the essentials? When you assume a perspective that every dollar spent on the customer experience is a dollar less in profit, you may not be focused on what it takes to maximize revenue. In a market where there is a lot of supply, it’s important to make sure that your product offer is differentiated in the market.Even if you’re convinced that you will be full in the high season, you will experience vacancy during the low season. If you want to get more than your fair share of occupancy during the low season, you want to have the best possible property reviews, The best photos, and be positioned as one of the premier offerings in the marketplace. You always have the choice of lowering your price at a later time. If there’s going to be vacancy, do you want the vacancy to go to the junk in the market not your property. 
Today is another AMA episode - "Ask me anything".Reed from Indianapolis asks. “One of the things that I don't like about the class B and C multifamily syndications that I'm in is that it seems like at least somebody is having or has had a problem with cockroaches per google reviews.  Maybe you could do a podcast related to pest control in real estate?  Are cockroaches something one just has to live with at some level or can they be completely eradicated?”Very few things spark as much fear into both landlords and tenants than the spectre of an insect infestation. There have been widely publicized reports of bed bugs in New York to cockroaches in Hong Kong. So what do you do if you get that phone call from a tenant reporting a bug problem? You have spent considerable time, money and effort to make your property desirable. The occupancy is high. The property has never looked better. News of bug problems can spread like wildfire. A bug infestation can cause tenants to abandon a property and break their lease. Things can get unpredictable fast. Bug infestations can be incredibly difficult and frustrating for landlords and tenants alike. Some warmer climates are known for having active insect populations, whether its ants, termites, or cockroaches. Termite control is often done proactively with perimeter spraying of buildings on a monthly basis. Cockroaches are much more difficult. First of all, a thorough cleaning is essential. The insects need to have their source of food eliminated. This can be a difficult conversation with tenants. Many take offence at having their landlord accuse them of being dirty. I recommend having a document for your tenants that describes the process for eliminating the pests, which also details their responsibility in the process. Spraying alone to eliminate cockroaches is difficult. They have a way of hiding and avoiding exposure to the insecticides. If you only spray the affected apartment, chances are that the cockroaches will move next door to safety and then come back at a later time. Sometimes the only solution is to notify all residents and perform a coordinated spraying campaign in the entire building. Understandably, landlords are reluctant to raise an issue with tenants who have not experienced a problem. In some cases, such a notification can create more of a PR problem than the spraying would solve. Bedbugs require a completely different approach to eradication. Bedbugs tend to hide in the stitching of mattresses, sofas, clothing, they tend to hide in the baseboards of a room, or the electrical outlets.Bedbugs also lay eggs. Getting rid of them requires spraying at specific intervals in order to intercept the reproductive cycle of bedbugs. Here too, you need to spray the affected apartment and the neighbouring apartments on either side, above and below. This is not a job for the do it yourself landlord. Always hire a professional and make sure that your tenants are fully on board with the process for getting rid of bedbugs. That means they must give you access to the apartment on a timely basis. They also need to do their part by bagging and washing all of their clothing at a laundromat utilizing hot water, And the heat of the dryer to make sure nothing survives the washing process in their clothing. Some apartment buildings and hotels in New York City have earned a reputation for having problems with bedbugs. Once that reputation is embedded in the community the reputation may live long after the bedbugs are gone. It’s your job as a landlord to attack the problem aggressively and proactively. Most importantly, your tenants need to feel as though you are taking action and communicating with them on a regular basis.
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