7 Biggest Mistakes
Real Estate InvestorsAre Making in the
Current Boom Cycle
How to Avoid the
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DISCLAIMER: THE AUTHOR OF THIS REPORT IS NOT A LEGAL OR TAX PROFESSIONAL AND
THE INFORMATION HEREIN SHOULD NOT BE CONSTRUED AS LEGAL, TAX OR
OTHER FINANCIAL ADVICE. THIS REPORT IS FOR INFORMATIONAL PURPOSES
ONLY. THE AUTHOR DOES NOT ASSUME ANY RESPONSIBILITY FOR ERRORS
AND OMISSIONS. MATTHEW BOWLES AND MAVERICK INVESTOR GROUP, LLC
SPECIFICALLY DISCLAIM ANY LIABILITY RESULTING FROM THE USE OR
APPLICATION OF THE INFORMATION CONTAINED HEREIN. IT IS THE DUTY OF
ALL READERS TO CONSULT THEIR OWN LEGAL, TAX AND FINANCIAL
PROFESSIONALS REGARDING THEIR INDIVIDUAL SITUATION AND APPLICABLE
LAW BEFORE PURCHASING ANY REAL ESTATE. BUYING REAL ESTATE
INVOLVES RISK WHICH BUYER ASSUMES. ALWAYS CONDUCT YOUR OWN
DUE DILIGENCE.
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Introduction Understanding the Seismic Shift in Today’s
Residential Investment Property Market
The next great real estate boom cycle is now thoroughly underway.
But today’s real estate expansion cycle has some unique differences from
previous ones, including a “seismic shift” already underway in the residential
investment property market which is localized, fragmented and imperative for you
to understand for 2 reasons:
1. It will be the primary driver for a huge transfer of wealth over the next two
to five years, and smart real estate investors that make the right plays will be
able to make (or recover) their fortunes, reduce their tax obligations dramatically,
hedge against inflation, and create substantial streams of passive income that
provide increased freedom, time and mobility, so that you can take your lifestyle
design to the next level (whether that means improving your golf game, jet setting
around the world, volunteering for causes you care about or simply spending
more time with your family).
2. Investors who make the wrong decisions will lose big because the reality
(that most real estate gurus and investment property promoters won’t tell you) is
that most real estate is not a good investment. In every real estate cycle people
who don’t understand how to buy right continually lose their shirt....again and
again, like clockwork, with mistakes that are easy to avoid. Don’t be that guy (or
gal)!
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My name is Matt Bowles, and I have been investing in
residential investment property for over a decade, during
which time I personally purchased millions of dollars of
residential investment property. I have been through
both boom and bust cycles, made almost all the mistakes
in the book myself, learned through doing, and came out
much stronger and wiser as a result. I took my real life
knowledge “from the trenches” (that most real estate
books, courses and gurus won’t teach you) and,
together with my business partners, used it to
formulate “The Maverick Approach” to real estate investing…designed to help
you navigate the traps and pitfalls so you can win in the real estate game.
In 2007 I co-founded Maverick Investor Group, which was named one of the Top 50
Real Estate Opinion Makers and Market Leaders by Personal Real Estate Investor
Magazine--the leading U.S. magazine for individual real estate investors. Maverick has
presented at real estate conferences around the world, been featured on ABC, NBC,
CBS, FOX, TheStreet.com, Real Estate Wealth Magazine and a number of other
publications. My business partners
and I have helped individual real
estate investors like you (not
Funds or Institutions) buy over
$100 million in residential
investment property across 15
states, which has enabled many of
our clients to take control of their
financial future and take their
lifestyle design to a whole new
level.
Maverick Investor Group Named
"Top 50 Real Estate Investment
Opinion Makers & Market Leaders"
by Personal Real Estate Investor
Magazine.
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As we move through this next great
expansion cycle, there are different
players in the space, different market
movers, and new factors that savvy
investors need to understand. This
report is your guide for navigating the
new real estate economy and
understanding the unique aspects of
this particular expansion cycle.
So, come along for the ride and I will
show you how to avoid the 7 biggest
mistakes that real estate investors
are making in today’s market so you
can be better positioned to make the
right real estate investment
decisions that can fundamentally
change your financial future over the
next 2 to 5 years.
Remember, as with all investing there is never a ‘guarantee’ in real estate (and if
anybody tells you there is, you should run in the other direction) but there are people
who consistently win in the real estate game, and there are very specific (and not very
complicated) reasons for that, which I will unveil in this report and show you how to
apply.
Let’s begin...
“ Maverick Investor Group has pioneered
a business model that helps individual
investors from around the U.S. and
around the world buy quality turn-key
real estate in the best real estate
markets. ”
Andrew Waite, Founding Publisher
Personal Real Estate Investor Magazine
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Mistake #1 Confusing “property flipping” with “real estate investing”
Back when I lived in Los Angeles full time, I was sitting on my rooftop pool deck (which
our LA-based clients endearingly referred to as “the Maverick office” because this was
where nearly all of my in-person client meetings were held) and i got a call from a
producer at a major TV network. She told
me they were in the early stages of
designing their next reality TV show, and
they wanted to make something akin to
ABC’s SharkTank (where aspiring
entrepreneurs pitch potential investors) but
for real estate investing. She had heard
about Maverick Investor Group and was
wondering if we wanted to be involved, so I
told her it sounded interesting and asked
her to tell me more.
As she continued speaking, it became
clear that she didn’t want to make a show
about real estate investing....she wanted to
make (Yet Another!) show about flipping
properties. She wanted to take a film
crew around with a couple individuals who
would muck through distressed properties,
do the acquisition, renovation, and then
attempt to re-sell them.
“ A year and a half ago, I was a brand
new investor, and now I have my 5th
property under contract through
Maverick. Everything I’ve learned from
Maverick in the past 18 months has been
priceless. I consider Maverick to be an
essential asset in my real estate wealth
building and I can’t imagine going
forward without them.”
Ali Boone,
Aeronautical Engineer
Los Angeles, CA
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I explained to her that real estate investors (like the investors on the SharkTank panel
she was attempting to emulate) do not spend their time mucking through distressed
properties and renovating them. There are a number of reasons for this. To begin
with, real estate investors do not “flip” properties because flipping negates almost all the
unique benefits of residential investment property.
These are the primary advantages for real estate investors that are buying and holding
residential investment property:
Owning Hard Assets.
Deeded, freehold residential
investment property is a
hard asset that you
completely own and control
yourself. Serious investors
build a portfolio of cash flowing
rental properties and keep a
substantial portion of their
wealth invested there.
Flipping means you are
continually getting rid of these
assets instead of building a
portfolio of them.
Tax Advantages.
Residential investment
property is the most tax-
advantaged asset class in
“ Maverick has been really great in helping
my clients make more money and keep
more money. They understand what it takes
to find really good investment properties.
Every one of my clients that has bought a
property through Maverick has come back
and bought additional properties. Even our
staff CPAs are buying through Maverick.“
Diane Kennedy, CPA
Best-Selling Author of Real Estate
Loopholes and Loopholes of the Rich
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the U.S. As long as you are buying to hold, the U.S. government allows you to
“depreciate” your rental property (the structure, not the land) over 27.5 years and
take that as a “loss” on your tax return, even if the property has gone up in value
(in addition to a number of other tax benefits).
Flipping properties negates just about all of these tax benefits and may also
throw you into the “real estate dealer” category, which can be especially dis-
advantageous for tax purposes.
Passive Residual
Income. Performing
rental properties (provided
you buy them right)
produce passive residual
income (“PRI”). Also
called “positive cash flow”,
this is your gross rental
income minus all of your
fixed expenses (taxes,
insurance, property
management fee, HOA if
any, mortgage payment,
etc.), minus an estimate for
vacancy and maintenance.
It is “passive” because you
don’t have to actively work
for it, and it is “residual”
because it flows to you
every month.
“ The beauty of Maverick is that they go
out into the best markets around the
country and find investment properties
that perform. The properties come with
tenants and property management in
place already so the heavy lifting is done
for you.”
Jon Swire, Keller Williams
Top 25 Agents in the U.S. for Five
Consecutive Years; Author of There's No
Free Lunch in Real Estate
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Building a base of hard assets that generate PRI is what smart real estate
investors do. Producing enough PRI to cover your living expenses so that
you don’t need to work for active income enables you to recapture your
time and design your lifestyle as you choose.
On the opposite end of the spectrum, flipping properties is “work” that (in a
best case scenario) produces “active” income, which builds nothing and
ends the minute you stop working, just like any other job. Whether you are
working for yourself or someone else, it is still a job.
Hedge Against
Inflation. When you own
residential investment
property you have one of
the only assets that
provides a built-in hedge
against inflation. Home
prices rise with inflation, as
do rents (which you have the
ability to raise each year
when you sign a new lease
with your tenants). Buying
and holding residential
investment property is one of
the most effective ways to
defend your wealth against
inflation.
“ Maverick has built its business on
sound economic and financial principles,
and it has access to deals individual
investors would never be able to get
close to because it is bargaining with
collective buying power.”
Rob Cass, Publisher
Local Real Estate Deals Magazine
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Needless to say, flipping properties obviously provides no such protection
against inflation.
Still on the phone with the TV producer, I concluded for her in summary that real estate
investors make decisions and cash checks. They want passive residual income,
financial independence and the ability to recapture their time and design their lifestyle to
maximize their freedom. Flipping properties simply doesn’t provide a path for that.
She agreed that it sounded far more compelling to be a real estate investor than a
flipper. But...she said that she still needed to make a show about flipping because it
was more interesting to a TV audience and, after all, her network is in the business of
getting TV ratings.
And so....the property flipping shows
continue!
Which explains why the confusion
continues, particularly amongst newer
investors trying to get in the real estate
game.
I have chosen to start the 7 mistakes
with this one, because this mistake is
not just expensive, but it can often turn
people off from real estate...for life.
Even if you were ok with all the
disadvantages outlined above, and you
decided you still wanted to muck
through distressed properties and work
hard to make active income without any
“ I was looking to buy a strong cash flow
property and you found a great value
proposition for me. The best thing about
working with Maverick was the personal
attention I received. The whole
experience was tailored to my specific
needs as an investor. You listened to my
needs and responded well. The
customer service was excellent."
Bruce Warner, CPA
Garden City, UT
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of the benefits of holding investment property....Remember that what I have outlined
above in my description of flipping is an absolute best case scenario.
Keep in mind that property flipping comes with an incredibly high degree of downside
risk and rarely produces this best case scenario, especially for individuals who are
relatively new at it. For example, when you buy properties at foreclosure auctions, you
often cannot even get inside the property to inspect it until after you have purchased it.
This means there is an unknown level of repairs that could be substantially higher than
you estimated. It could also take you much longer to complete them, and much longer
to rent or sell than you anticipated, increasing your holding costs. These variables can
quickly eviscerate your profit margin...or make it negative.
By contrast, when you buy properties through
Maverick Investor Group, the properties are
either new or completely renovated, and you
can conduct an independent 3rd party home
inspection as part of your due diligence to
verify everything was done properly. There
are also local property management services
available to lease and manage your property,
so you don’t have to be a landlord.
And the final (and perhaps most formidable)
challenge to flipping properties is simply the
amount of competition. There are multi-million
dollars companies that do this professionally, at
scale, in most major cities. How, exactly, are
you as an individual property flipper going to
compete with the resources of those entities?
“ Maverick is the first real estate
company I’ve worked with that really
understands small investors. All my
questions were answered completely
and their customer service was
excellent.”
Jason Crew, CEO
Houston, TX
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Apparently there is a big ‘consumer’ market for the property flipping TV shows.
Apparently, there is also a big consumer market for info-products hawked by self-styled
real estate gurus about how to get rich quick flipping properties. If you are someone
who finds those things alluring, I would encourage you to think hard about whether it is
a sound financial decision for you to put your time and money into a property flipping
endeavor. Based on the amount of investor-failures I have seen so far this year alone,
for most people it is not.
On the other hand, if you are interested in real estate investing, either because you
are a newbie looking to get into the game or because you are a seasoned investor
looking to expand your existing portfolio, I would like to make you a special offer:
I would like to offer you a free 30 minute phone consultation
where we can get to know you, understand your financial goals
and real estate investing preferences, and then answer any
questions you may have and strategize about how Maverick can
support you in meeting your personal real estate investing goals.
Schedule your free consult with us, custom tailored to your
personal needs and goals here:
www.maverickinvestorgroup.com/phoneconsult
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Mistake #2 Buying real-estate-backed securities instead of deeded, freehold real property
This is similar to Mistake #1 but the special interest groups trying to steer you in this
direction are different.
Whereas Reality TV shows, infomercial gurus, and local real estate investment clubs
(whose primary business model is to help real estate gurus hawk their info-products to
would-be real estate investors) are the
primary culprits trying to convince you that
“flipping properties” is the way to riches...
Financial advisors/planners and the mega-
financial-institutions where they work are
behind the big money advertising campaigns
to convince you that you should surrender
your money entirely to them (under the guise
of “retirement planning” or “building a nest
egg” or whatever the marketing term of the
month is) and allow them to invest it into
paper assets on your behalf, and that this is
the “responsible” way to go.
Like the infomercial gurus, these financial
planners are also trying to convince you
to give them your money, but these folks
use more of a “long-term responsible
“ Working with Maverick is different
than working with other real estate
companies because I don't feel
pressured.
You guys are easy to work with and
your customer service is excellent. I
would definitely buy real estate from
Maverick again because I trust you
guys and trust is a big deal.”
Sarah Luu, Real Estate Broker
Sunnyvale, CA
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investing” discourse as opposed to the “get-rich-quick-so-you-can-buy-flashy-cars-like-
me” discourse of the infomercial gurus.
It is important to distinguish between the two though, because they target different
groups of people.
If you hear language about getting rich and about being able to buy real estate with no
money and no credit, guess who that is targeting? Obviously people who are not rich
and who have no money and no credit. The “nest egg” discourse of “give us all your
money if you want to call yourself a responsible human being who plans for retirement”
is targeted more towards people who actually have money to invest.
And while your financial planner may offer you the opportunity to invest in a Real Estate
Investment Trust (REIT), or buy stock in
publicly traded home building companies
as a way of “taking advantage of the real
estate boom”, remember these are
securitized paper assets that do not
provide any of the benefits of owning
residential investment property
discussed in Section 1 above.
Q: Do you want to know why 99% of
financial advisors are not going to
recommend that you buy deeded,
freehold investment property?
“ I would definitely buy real estate
from Maverick again. They thoroughly
research their offerings...only
selecting a property or project that fits
their rigid criteria for investment. Plus
they follow up and are extremely
responsive.”
Richard Hall, Real Estate Broker
Austin, TX
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A: Because (s)he doesn’t make a commission on it (and it reduces the amount of
your money they will have under management).
Mistake #3 Buying Commercial Real Estate instead of Residential Investment Property
Now that we have established
the importance of buying
deeded, freehold investment
property that you own and
control (and now that you
understand who is trying to
deter you from doing so and
why), the next question is:
What kind of investment
property should you buy?
People with a substantial net
worth are often confused about
whether to buy residential or
commercial real estate. And
while I have absolutely nothing
against commercial real estate
in principle, during this current
boom cycle....there is a big
difference.
“ Most property providers are transactional
sales companies that operate in one market
and try to convince people to buy in their
market at all times, but the reality is that the
best real estate markets change over time.
Maverick was able to completely turn this
around and develop a model that puts the
investor first instead of the market or the
property. Maverick starts by understanding
the personal financial goals of each client
and then helps them develop a real estate
investing strategy that enables them to
diversify across markets as they build their
portfolio over time."
Robert Rakowski, Associate Publisher
Personal Real Estate Investor Magazine
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Historically, well capitalized investors who could afford it, would often choose to invest
in commercial real estate, figuring the capitalization rate (and overall return on
investment) should be better if you are putting more money into a larger asset that
should be more scalable and less cumbersome to manage. Hence the more efficient
thing to do, according to the historical assumption, would be to buy an apartment
building or an office or retail complex instead of a bunch of single-family homes.
Not So Today! And this is a mistake you definitely want to avoid.
Starting in 2007, we witnessed a cataclysmic real estate market crash which, when all
was said and done, resulted in a dramatic “over-correction” of the residential property
market. What emerged out of that over-correction (sometimes called a “market
inefficiency”) was an extraordinary value proposition enabling individual real estate
investors like you to purchase fully-renovated single family homes for less than the
builder replacement cost. At the same time, rental demand began increasing as more
and more homeowners were displaced through the foreclosure process and thrust into
the rental market. Now, overlay those general trends with select markets that were
experiencing both job growth and population growth, and you had a perfect storm that
provides the potential for residential real estate investors to win big…if you knew where
to buy.
For the first time ever, Wall Street and some of the largest private equity funds who
typically buy either no real estate or exclusively commercial real estate, decided to jump
into the single family rental property space and start buying up homes because the
opportunity was just so much better than other asset classes (including distinct
advantages over commercial real estate).
Over a decade since the initial housing crash, the foreclosure crisis has stabilized, most
of the large insitutional players have gotten out of the market, and home prices have
been recovering year over year….but price-to-rent ratios for residential investment
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properites are still uniquely advantageous in many markets, and long-term trends still
favor investors in very important ways.
In addition to understanding the comparative value proposition that makes residential
investment property more advantageous than buying commercial property right now in
terms of home price trends....it is also imperative to understand how much more
compelling the rental demand is for residential property and what the long-term rental
trends look like as well.
U.S. Census Bureau Reports Number of U.S. Renters is
Increasing
The U.S. Census Bureau reported that home
ownership has dropped to 65%. That means
that the percentage of people renting their
homes rose to 35%, the highest percentage
of renters since the mid-1990s. This is very
significant for owners of rental properties
because it means the demand for your asset
(rental property) is increasing. In fact, this
same report from the US Census Bureau
reports that the vacancy rate for rental
properties across the US is the lowest it has
been in over a decade and continuing to trend
downward.1
To really understand rental demand, including
likely future trends, it is important to dig a little
“ The best thing about Maverick is
that you guys are creative thinkers
and problem solvers - always willing
to go the extra mile to make the
deal work. You guys are always
available. You walked me through a
lot of the basic stuff. I really
appreciated it and am looking
forward to the next deal.”
Farlan Dowell, Sales Manager
San Francisco, CA
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deeper and get to the economic drivers that are contributing to these statistics.
Former Homeowners Want to Live in a Single Family Home, Not
an Apartment
One of the effects of the foreclosure crisis is that it displaced a huge number of
American families who have steady, good paying jobs. They have entered the rental
market and have to remain there for quite some time. They cannot buy another home
because their credit took a major hit and they still cannot get a bank loan anytime
soon, so they need to rent. Because they used to be homeowners, they want to
live in a single family home, not an apartment. So there is a large and continually
growing rental market for single family homes. This trend will likely benefit owners of
single family rental properties more so
than owners of apartment complexes.
Increasing Student Loan Debt
Is Causing Generation Y to
Remain Renters Until Much
Later in Life
Looking forward at the next generation of
potential homebuyers who did not get
tripped up in the last housing downturn,
there are additional factors keeping them
as renters until much later in their lives
than the previous generation. In
general they are putting off marriage and
family formation until later, but one
crucial economic factor is the exorbitant
“ I'm a conservative real estate investor
and prior to working with Maverick I
had never considered investing outside
of my local area. But Maverick helped
me buy out-of-state properties that had
a better net return and better capital
appreciation potential. What I like best
about Maverick is their follow through
and their immediate response to my
questions. I have closed on 3 Maverick
properties in the last 5 months and I
am now working with them to buy my
next one."
Paul Keele, Electrical Contractor
Reno, Nevada
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amount of college debt today’s students are incurring as tuition rates continue to
skyrocket. Hundreds of thousands of dollars in non-dischargeable debt that cannot go
away even with a bankruptcy is keeping Generation Y as renters for much longer than
prior generations.
Reuters recently reported that “More than 40 percent of 25-year-olds now have student
debt, and 35 percent of twentysomethings are more than 90 days delinquent on loans
that are being repaid.”2 By contrast, ABC noted that under 25% of Baby Boomers had
college loan debt. And not only do more students have debt today but the amount of
debt is getting much larger as tuition rates skyrocket.3 A bi-partisan poll reported that
73% of today’s young adults say they owe more in student debt than they can manage.4
So, whether it is because they cannot afford a down payment, or because they cannot
get a mortgage due to delinquent student loan payments, these economic factors are
increasing the number of renters in the U.S. and shaping trends for years to
come.
If the U.S. is able to get the student loan situation under control and Gen Y starts
increasing their home-buying power, great, you will have more demand by people who
want to buy your property when you are ready to exit. If the student loan problem
continues and more people are driven to remain renters, you will be providing a
valuable service by offering a quality rental property to help meet the increased rental
demand.
In any case, residential investment property is what provides the greatest value to
today’s renters and what is currently providing the greatest returns to real estate
investors.
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Portfolio Diversification
By purchasing multiple single-family homes instead of one apartment complex (or other
commercial building--office, retail, industrial, etc.), you are able to diversify
geographically. It allows you to build a diversified portfolio of cash flowing
residential investment properties over time and across markets, which also helps
to mitigate your downside risk in the event that one property or market does not
perform as well as you projected.
Retail Exit Strategy
Commercial properties--such as apartment complexes--are owned exclusively by
investors. That means that when you are ready to sell, you need to sell to another
investor who, like you, will be looking to get a great deal and want a discount on the
property.
Single family homes, however, are also in
demand by primary homeowners that want to
live in them. And those are “retail buyers.”
By selling your property to an owner-
occupant, you have more upside potential
between what you bought it for and what
you are able to sell it for on the retail
market when you are ready to exit.
Segmented Liquidation Strategy
Finally, when you have a large piece of
commercial real estate, you only have two
choices: Sell or Continue to Hold. If you
“The property I bought through
Maverick is one of my greatest
cash flow properties, it performs
even better than I expected. Plus
Maverick is very easy to work
with and has excellent customer
service so I would definitely buy
real estate from them again.”
Dr. Brad Baver
Real Estate Investor
Fort Mohave, AZ
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have a portfolio of residential investment property made up of numerous single
family homes across many markets, then you can engage in a “segmented
liquidation strategy”, meaning you can sell some properties while continuing to
hold others, either because you need the money or because it is the optimal point
in the property cycle to do so. It gives you more flexibility and freedom to control your
financial future and strategically maximize your gains.
Maverick Investor Group helps you do exactly this--we assist our clients in building a
portfolio of residential investment property over time and across markets for
maximum control, profit and lifestyle benefits.
The most investor-advantaged markets change over time, and Maverick studies local
market trends very closely. If you would like to discuss what we feel are today’s most
investor-advantaged markets, and how you can own turnkey rental property in them
(new or fully-renovated properties with local property management services in place to
lease and manage the properties) regardless of where you live, I would like to offer you
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Mistake #4 Sitting on the Sidelines and Hesitating to Buy Property
Given the historical moment that the real estate market is currently in, this mistake could
be the most expensive one you ever make. Let’s take a brief look back over the past
few years to see how this mistake has impacted people...
In 2010, we helped many of our Maverick clients buy turnkey property the Phoenix,
Arizona market and they did fantastic. That was the time to buy. Those who didn’t
buy missed out.
We started getting our clients into Atlanta, GA well before the big funds even arrived
(over a year before the article above was published). Since early 2011 Maverick
Colony, Blackstone, Waypoint Real Estate Group LLC and American Homes 4
Rent have converged on Atlanta in search of low-priced properties to buy and
rent out, after helping drive prices up 34 percent in Phoenix from a year ago.
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clients were buying in Atlanta. Once the funds got there, things just went through the
roof....and our clients who bought have been sitting back and riding the wave.
The S&P Case-Shiller home price
data for April 2013 showed that
Atlanta home prices were up 20.8%
from a year earlier, marking the
largest annual increase in Atlanta
home prices since the Case-Shiller
Index began tracking it in 1992!5
Home prices are going up fast
and you too can buy in the path
of growth and benefit from this
momentum. But things are
moving fast, so there is no more
time to be sitting on the
sidelines.....or you will miss the
whole boom cycle. In the 4th
quarter of 2012, Maverick started
helping our clients start buying in the Chicago market. Here is the home price
appreciation graph for the year after our clients got in the market. The Green Circle is
when our clients entered the market:
According to the S&P Case-Shiller Home Price Index, Chicago home prices increased
10.3% in the 3-month period of May-June-July 2013 alone.7 That was the fastest home
price increase of any market in the country tracked by the index during that time period.
We have many clients who bought multiple Chicago properties in 2013 through
Maverick and absolutely crushed it.
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In 2014 we helped our clients get into the Dallas-Forth-Worth market in Texas. At the
time DFW lead the country in both job growth and population growth for large metro
areas and, in addition to massive rental demand, DFW home prices jumped 10% in a
year and continued to rise through 2015.
In 2015 we helped our clients start buying in Philadelphia, PA, and in 2016 the Philly
market saw an 11.6% rise in home prices in a single year. 8 Philly saw an additional
12.7% increase in 2017 (more than twice what the other top 10 largest U.S. cities
averaged), and in Q1 of 2018, Philly saw the highest number of home sales the city has
seen in any Q1 since 2007!
There is still substantial upside potential in many markets, especially cities like
Baltimore where I personally just bought a property for my own portfolio in 2018 (as
have many of our clients) because home prices in that market are rising but still well
below their pre-recession peak, yet rents are high, so it has some of the best cash flow
margins in the country. The lesson in all this is that you need to know which market
to buy in, and what point in the property cycle to buy.
Many of the most advantageous real estate markets over the last decade are no longer
the most advantageous markets to continue buying in today because prices have gone
up faster than rents and there has been a process of “yield compression”. If you
bought at the right time and locked in your price-to-rent ratio, you are golden. But
continuing to buy as prices rise without proportional increase in rents means your
returns are being diminished, and it will soon become less advantageous to keep buying
there and more advantageous to buy in another market. This is exactly what Maverick
helps our clients do....but in order to take advantage of the opportunity you need
to get off the sidelines and get in the game.
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Mistake #5 Speculating
When I started investing in real estate in the 2004 boom cycle, it looked a lot like today.
Home prices were shooting up, and it felt like you couldn’t lose no matter what you
bought. As a brand new investor, I didn’t have a company like Maverick to guide me,
so I read a bunch of books, listened to some self-styled “experts” and assumed that as
long as I bought in what appeared to be a growing market, not much else really
mattered since I would surely profit off capital gains at the end of the day even if the
cash flow was negative...
Let’s just say that when the boom cycle ended, that theory didn’t pan out so well.
Some call it “speculating”, some call it “gambling”, but no matter what you call it...
Don’t Do It!
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This is where I learned my biggest, hardest and most expensive real estate investing
lessons. The most expensive lessons always seem to be the ones that make the
biggest impact, don’t they?
What I learned from my own mistakes and how to avoid them in the future would
ultimately inform The Maverick Approach— the framework for how Maverick Investor
Group now helps our clients approach real estate investing based on “real estate
fundamentals”.
The Maverick Approach Buying Rental Properties Based on Real Estate Fundamentals
Buying real estate in an appreciating market is great...
If And Only If
That market ALSO has sound real estate fundamentals.
At Maverick we help our clients determine not only what markets are going up in
value (and where they are in the property cycle), but we also look at:
The price-to-rent ratio (how low you can buy the property for and how high you
can rent it). Hence, how good is the potential cash flow margin?
Demand drivers like job growth, population growth and percentage of the
population that rents.
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Supply side indicators - how much property is available for sale and for rent in a
particular price point? How long does it stay on the market? What is the
absorption rate?
Affordability - What percentage of the population can actually “afford” the median
home price based on the median income (and how much more can the properties
appreciate before the majority of the population can no longer afford them)?
Expenses. How much do property tax rates, HOA fees and other localized
expenses (which vary by market and location) affect your overall cash flow and
your “capitalization rate”?
Micro Market Factors - What is the ratio of primary home owners to renters in the
community? What are the market rents, the localized vacancy rates and how are
those trending in the local areas?
Whereas it certainly makes sense to “buy in the path of growth” in many instances, be
advised that many investors are buying in certain markets that we consider highly
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speculative. Regardless of the home price appreciation trends in these markets, we
absolutely do NOT recommend our clients buy in markets do NOT have the sound
real estate fundamentals that are the entire foundation of The Maverick Approach.
Be sure you know which markets are which.
Learning how to get access to this type of market data is a core component of the
value we provide to our clients so you can make highly informed decisions when
you are ready to buy your investment property.
Mistake #6 Failing to Conduct Proper Due Diligence
Many people get burned because they don’t conduct the proper due diligence on their
properties before they close.
The first step in due diligence should be all of the market analysis (both macro and
micro) listed above in the previous section (verifying rental rates, vacancy rates, trends,
etc.), to ensure you are buying in an “investor advantaged” location. We provide our
clients tools and access to relevant data so they can do all this independently.
Once you have established that, you need to go deeper and investigate the actual
property itself. As the buyer, you are always responsible for doing your own due
diligence. Nobody can do it for you and if anyone tells you they can, run in the other
direction. The responsibility is on you to establish a thorough, uniform due diligence
regiment that should include these items as a bare minimum:
A third party home inspection by a professional home inspector. Ensure
you are the one who hires the home inspector (and don’t simply accept an
inspection that was already done and paid for by the seller). When the home
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inspector is hired by you, they work for
you, and their job is to help you identify
any defects in the property that need to be
cured before you close (or if there are
serious problems, to let you know about
them so you can decide not to buy that
property).
Independently verifying all of your
expenses associated with the property
(property taxes, insurance rates, HOA
dues if any, mortgage payment if any,
etc.). Under-estimating or omitting some of
these can skew your cash flow analysis.
Reviewing the purchase contract as well as the property management
agreement (you have a right to get your lawyer to review it as well). Ensure
that you get all your questions answered and that you understand everything
before signing.
If there is a Home Owners Association (HOA), you should confirm it is
solvent. Otherwise, your property value could decline based on other residents
not paying their HOA dues. You also need to understand the CC&Rs and
confirm there are no restrictions on renting your property (I have heard about
investors buying property in communities where the HOA did not allow
rentals…Now that would suck. Confirm before you close!)
“Maverick has been very nice
to work with. They have been
professional from start to
finish and we never had any
sales pressure. Their
customer service was tailored
to our specific needs and we
felt very comfortable through
the whole process.”
Dr. Chris Latvis
Dentist
Avon, CT
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Mistake #7 Not Doing the Proper Tax Planning
Residential investment property is the most tax-advantaged asset class in the
U.S. The government has devised a number of major financial incentives to
encourage you to buy and hold rental property. You simply need to know what
they are and understand how to take them. If you are not taking advantage of these
tax incentives, you are losing out on one of the most lucrative aspects of this asset
class.
Now, I need to make the important disclaimer that I am not a lawyer or tax professional,
this is not tax advice, tax laws change regularly, and you need to consult your own tax
professional about your individual situation and the most updated applicable law. Got
it? Ok.
With that said, I can tell you that many of our clients have been able to use their
investment real estate as an incredibly strategic vehicle for dramatically reducing their
taxes. As mentioned in
the first section of this
report, residential
investment property is
depreciable for tax
purposes even if it is
appreciating in value.
You need to remove
the value of the land
and then you can
depreciate the
structure of your
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property over 27.5 years. That means if the structure is worth $275,000, you can
depreciate $10,000 per year, and take that as a “phantom loss”. You can then use that
“loss” to offset some or all of the taxes that would be owed on the rental income
generated by the property, for example. There are a number of other potential write-
offs, as well as ways to accelerate deprecation on certain parts of your property. You
just need to know what they are and how to take them, legally.
A number of our clients have also been able to qualify for the coveted “real estate
professional” status, which allows your left over real estate “losses” to be taken
against other forms of income (including earned income from your job or your
spouses job that has nothing to do with the property), regardless of how much
money you make. IRS guidelines for this qualification are tightening so be sure to
consult with a tax professional to ensure it is done properly.
The possibility of using residential investment property to dramatically change your tax
situation is profound. But, you have to ensure you are doing it correctly and legally.
And, as a word of caution here, if you are serious about this you do not want to rely
exclusively on regular accountants who deal primarily with W2 wage earners. You
want to seek out experienced CPAs who specialize in dealing with professional real
estate investors and business owners and are experts in this niche.
Maverick has good relationships with some of the nation’s premiere CPAs that
specialize in working with real estate investors and our clients get exclusive
access and personal introductions. The same is true with asset protection
specialists, mortgage lenders, insurance providers, and other industry experts
that can help you with various aspects of your real estate investing. We have
developed an elite network of the nation’s premiere experts and being a part of
the Maverick community gets you personal access at no charge.
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If you would like to schedule a phone consult discuss your real estate investing goals,
as well as any expert-introductions you may need, and to get your questions answered,
I’d like to offer you completely free phone consultation. You have made it to the end of
this report, so you are obviously serious and diligent. We always appreciate that about
our clients and would love to get to know you better and see how we could provide
value to you. You can just click on the link below to register for the completely free
consult so you can get to know us and see if it would be a good fit for us to work
together. We look forward to speaking with you!
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Special Offer For You:
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where we can get to know you, understand your financial goals
and real estate investing preferences, answer all your questions
and strategize about how Maverick can support you in meeting
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Register Here:
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Footnotes: 1. http://www.census.gov/housing/hvs/files/currenthvspress.pdf
2. http://blogs.reuters.com/great-debate/2013/03/07/student-loan-bubble-babble/
3. http://abcnews.go.com/Business/student-loan-
debt/story?id=19150985#.Uaf6ppXr46g
4. http://www.ticas.org/files/pub/2011_Young_Adult_Higher_Ed_Poll_NR.pdf
5. https://www.spice-indices.com/idpfiles/spice-
assets/resources/public/documents/12473_cshomeprice-release-0625.pdf
6. http://www.bloomberg.com/news/2013-05-29/carrington-stops-buying-u-s-rentals-
as-blackstone-adding.html
7. http://us.spindices.com/indices/real-estate/sp-case-shiller-il-chicago-home-price-
index
8. http://drexel.edu/lindyinstitute/projects-reports/reports/
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About Maverick Investor Group:
Maverick Investor Group was founded by real estate investors for real estate investors.
It is run by investment property specialists that serve real estate investors exclusively.
Vision
To radically improve peoples' lives through real estate.
Mission
To build a socially responsible community that uses real estate as a vehicle for
designing extraordinary lifestyles, living their dreams in the present and affecting
positive change in the world.
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Maverick Investor Group, LLC
725-222-0488
9890 S. Maryland Pkwy. Suite #200-A
Las Vegas, NV 89183