Author name: Erion Shehaj

I help professionals achieve financial freedom through real estate so they can live life on their terms. The ideas I write about come from my 20+ years of experience as a real estate broker, investor, and guide. I’ve helped clients purchase over $300 million in real estate assets to build their wealth. More importantly, I’ve been through different economic cycles and watched patterns emerge. I know what works and what doesn’t for busy professionals with demanding careers. I consider it my job to cut through the noise, eliminate the overwhelming options, and present you with a clear, proven path forward. Too many successful people never achieve financial freedom because they’re paralyzed by options or chasing the next shiny strategy. I am originally from Albania, a rugged country on the Mediterranean sea in southern Europe. I came to the US as an exchange student in 1999 and was the first member of my family to go to college. I believe that we best appreciate opportunities by way of contrast. Growing up in a totalitarian and communist country was not easy – but it has also provided me with a unique perspective that I utilize to spot opportunities and help my clients apply to reach financial freedom. My work isn’t about get-rich-quick schemes or building “empires” that become second jobs. It’s about using real estate as a tool to engineer the life you truly want—where work becomes optional, time belongs to you, and your finances support your values rather than dictate your choices.

What training for a marathon taught me about real estate investing

On February 18, 2012 I ran the Livestrong Half marathon in Austin Texas. The training for this event took almost a year of early morning runs in Houston’s hot and humid summer weather. It was a transformative experience for me as I went from over 200lbs and getting winded just walking to the mailbox, to being fit and healthy again. But most importantly, in pushing myself to accomplish this goal that seemed larger than life when I started, I learned some valuable lessons about real estate investing that I wanted to share with you today.

Lesson 1: Start with a plan then show up. No exceptions!

No one gets a free pass when it comes to training for a marathon. Unless you’re a proven runner, your level of fitness is largely irrelevant. A fit person might need a shorter training plan but they have to train! Lack of training is a guarantee of failure regardless of  your fitness starting point. So you must lay out a long term plan – which days will you run and how long. And this plan is designed to get you closer to the ultimate goal of finishing the big race. But the plan doesn’t work if you don’t show up and execute. Especially on the days when you feel like turning on the other side and getting another couple of hours of sleep.

Real estate investing is much the same say. Some people start with more capital some with less. Some with six figure incomes and some with less.…

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Successful real estate investors begin with the end in mind

Most real estate investors  that do it wrong, do it backwards.

They acquire a portfolio of cheap inferior properties in inferior locations with inferior schools and amenities. Then they try to figure out a way to place top notch tenants in them that will sign long term leases, will pay on time and will treat the property like they own it. And when time comes to sell the properties they acquired, then they try to figure out a way to sell them for maximum dollar.

That’s trying to fit a square peg in a round hole.

Stephen R. Covey said it beautifully in 7 Habits: Effective and successful people begin with the end in mind. So what does that mean in the real estate investing context?

You begin by thinking about the type of portfolio you would like to own. Think about it as a legacy. What type of properties you would like to pass on to your children or your loved ones? Where would they be located and what characteristics would they have? Next,  what kind of tenants would you love to have in your properties? Take it one further. These types of tenants you described, what are they looking for in a rental property? Think about the location, schools, upgrades and overall condition of the homes they seek.

Then acquire properties that fit that description by paying a fair price for them. Begin with the end in mind because the assets you acquire pick the tenants you will have and the price you will fetch when you sell.…

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How to create a six figure income with real estate investing

Have you ever thought about what your life would look like if you could create a six figure annual income from your long term real estate investments? Today’s post is about how the investments we plan and execute today could get you there at some point in the near future.

The math of creating a six figure income from your real estate investments is quite simple. Essentially, there are two, very different routes to get there:

The Blueprint Method we advocate involves fewer properties and much lower risk. The concept is simple but it requires a solid plan and the discipline to execute it. Look at it this way: each free and clear property in your portfolio produces an income of $11,000/year. In order to generate an annual income of $100k you would need to own 9 such properties. But you don’t have the capital to acquire 9 properties with cash today to produce that kind of income. Thing is, you don’t need to. We advise our clients to purchase quality assets with 20-25% down and then use the positive cashflow they produce to aggressively pay down the mortgages one at at time with focused intensity. For a more empirical illustration download the detailed analysis of this domino strategy on a portfolio of nine single family homes. In that example, the entire portfolio worth over $1.25M becomes free and clear in 12 years and produces a six figure annual income before taxes. Can your IRA or 401(k) match that kind of performance?…

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Why investing in condominiums does not work in the Houston market

In most real estate markets across the US, condominiums are the poster child investment property of choice. The reasons are obvious: They are small, easy to rent, usually well located and priced lower than their single family counterparts. So when our out of town clients come to Houston to view investment properties, the question never fails to arise: What about condos? What follows are three strong reasons why investing in condos in the Houston market does not make sense.

Higher operating costs hurt or eliminate cashflow

The primary reason why investing in condos does not make sense in the Houston market is their higher operating costs relative to the income they produce. Here’s what I mean in a simple example. Let’s compare two properties: The first is a single family home in a suburb of Houston and the second a Galleria condominium  both priced at $135k. Let’s assume that they both rent out for $1200/mo to level the playing field. The single family home will have operating costs of about 40% of the incoming rent or $480/mo which covers property taxes, insurance, annual HOA dues etc. In comparison, the condo will have operating costs of about 60% or $720/mo. The reason: Houston condos typically have $300 per month  in maintenance fees. Put a different way, a condo that costs $135k has similar costs to a $160-170k single family home. What does this mean? If you were to invest in the condo by putting 20% down, your positive cashflow would be wiped out by those higher costs and you would have a break even property at best.…

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The River and the Fish

Today I want to tell you a story.

Once upon a time, there was a beautiful river nestled in the middle of a peaceful forest just a few miles away from the village. Only a select few weathered and experienced village fishermen knew that this river was chock full of fish: trout, bass, you name it. It was their secret – and they preferred to keep it that way. They could drive up there in the weekends knowing that they would come home with a great haul. One day, a news reporter from the city nearby did a story about the wonderful bounty in this river. “If you like fishing – she said – this is a “must try” place”. Soon after the story aired, the village fishermen that had been coming to the spot for years, were surprised to find hundreds of people fishing at the same spot. They soon came to the realization that their fishing trips would never be the same again. Eager folks started fighting over spots and arguing with each other. Instead of going home with the best fish this river had to offer, they started settling for what was left. Everyone went home unhappy. The End.

Almost every real estate investor out there, long term or not, starts their investment property search by looking at bank owned foreclosures. The reasons are obvious. You are taught that to make an investment work you have to find a good deal – one that is priced well below the current market value.…

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The next three years

 Last week, Fed Chairman Ben Bernanke announced that the central bank will likely keep the fed funds rate near zero until late 2014. This piece of news is likely to be greeted by a standing ovation in the real estate investing community as a whole. So far, Fed’s downward pressure on the fed funds rate has resulted in never before seen 4.75% interest rates on 30 Year fixed investment property mortgages! This latest announcement means rates will probably stay put through 2014.

As a long term investor you are now presented with a choice: You can choose to interpret this as evidence that the best environment to invest in decades isn’t going anywhere and procrastinate. Or, you can look at this as a gift. An opportunity to get a glimpse of what’s around the corner and use the timeframe to build an incredible portfolio. Allow me to present you with three pieces of data that should hopefully make that choice a no-brainer:

  1. Increasing the interest rate on your investment property’s mortgage by 1% results in positive cashflow that’s 27.5% lower.
  2. A portfolio consisting of three $100k properties would be debt free in 12.25 years at 4.75%. The same portfolio would be debt free in 14.67 years at 5.75%.
  3. That 2.42 years translates to $64,514 of lost cashflow!

Assembling a great portfolio doesn’t happen overnight and it doesn’t happen automatically. You have to take action.

Not doing so, could cost you $64, 514.

Do you have a Blueprint yet?…

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The answer to THE most frequently asked question by real estate investors

Today I want to start by making a statement that’s as powerful as it is obvious. The critical foundation for any long term investment strategy is incoming rent. Without it, all projections fall apart, all returns vanish. Earth shattering, I know. But obvious as it is, is it any surprise that THE most frequently asked question I get from all real estate investors without exception is: How do I know that the property will rent quickly and stay rented? This question deserves an answer that’s better than just encouragement: It deserves solid facts.

The experiment

So facts I went chasing to provide an answer that will show how the Houston rental market actually performed in 2011. I analyzed all rented properties that closed in 2011 that fit the property profile we recommend: Built after 2003, Minimum 3 bedroom 2 bath 2 car garage and at least 1600 SF zoned to the best school districts in the city for the money. The results themselves didn’t stun me as I see them in action in my business every day. Their consistency across the board however, really did. Take a look for yourself:

As you can see, the average time it took for properties in that category to get a tenant was between 33-48 days. When you consider that after closing on an investment property the first mortgage payment isn’t for at least another 30 days that ought to put a smile on your face. And when you add to it that the average days on market for the properties we listed for lease in 2001 was 24 days, that’s even more cause for comfort.…

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Investing in new construction homes: Pros and Cons

Clients often ask me what my thoughts are about investing in new construction homes purchased from the builder or developer. As with most other nuances of real estate investing, this strategy has its pros and cons. A prudent real estate investor needs to clearly understand what they are and how they can potentially impact their success. Then and only then, that investor can determine if this strategy is a good fit with their long term goals.

Pros of investing in new construction homes

Investing in new homes reduces maintenance over time

Inexperienced investors without proper guidance often disregard this principle at their own peril. If you think that the built in equity more than makes up for the fact that the home was built when Mick Jagger was a chap, I have a bridge to sell you in Alaska. The fact is, if you invest in a new home today, ten years later, that home is just ten years old. Obvious, I know. But it’s critical in the context of long term investing. As you are executing your long term Blueprint, it’s important that maintenance issues don’t undo the good progress you make increasing your capital base.

Builders incentives can be used to lower the capital invested

In an attempt to drive sales, Builders sometimes offer flexible incentives that can allow a real estate investor to limit his cash out of pocket investment to just the down payment. For instance, the asking price on a new construction property I showed last week was $133k but the Builder was offering $16k in incentives to be used however the investor sees fit.…

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7 Powerful Tips on investment property management

The number one reason investors shun long term investing strategies is the perceived hassle of “landlording”. The concern is that this type of investment brings with it tenant calls at three o’clock in the morning, relentless maintenance, collecting trouble and the like. Since real estate investing success has as much to do with its return on investment as the overall investor experience, this is a valid concern that shouldn’t go unaddressed. So, I put together a list of 7 powerful tips to minimize the need for property management, eliminate hassle and increase your bottom line by saving on property management fees.

Property Management Tip 1: Buy New or Newer Properties

Most property management nightmares begin at the purchase. Seduced by “bargains” and equity, investors purchase three decade old properties with significant deferred maintenance and years of neglect. These “steals” often come with galvanized plumbing, electrical issues and air conditioning systems that have seen better days. Needless to say, these investors are setting themselves up for a bad experience that will often override any benefits brought by cash flow or captured equity. Instead, we advise our clients to purchase new or newer properties instead: Currently we don’t advise purchasing any properties built before 2005 (with some very rare exceptions). The reason behind this is that in a recently built home all major systems are also recent therefore less prone to breaking. Buy new (or newer) and avoid most issues that come with older properties.

Property Management Tip 2: Screen your Tenant well

This has to be both the simplest and most important property management tip in this list.…

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Weaving real estate investing magic: Crafting a Blueprint

Last week, I wrote a “meat and potatoes” post where  three  Houston investment properties in premium locations were dissected and analyzed thoroughly. (Read that post if you haven’t already. I’ll wait). Their locations were stellar: excellent schools, amenities and access. The numbers were solid: Positive cashflow, cash on cash returns between 8-10% and cap rates north of 7%. But anyone who reads this blog knows where I ultimately stand on this. It’s not about the properties. Real estate investing is all about the strategy. Here’s what I mean.

Real Estate Investing Before Blueprint

Let’s assume you purchased those three properties I analyzed in that post. To make the calculations simpler, we will assume they’re purchased at the same time. Let’s look at what was accomplished. Roughly $100k was invested ($86.5 in down payments + closing costs) to acquire a portfolio worth $432.5k which yields $8,855 in positive cashflow annually. Basically, this translates to a 9% return on investment: beats the hell out of your neighborhood bank’s CD and the stock market minus its bipolar volatility. The investor’s portfolio is expected to be paid off on your Lender’s schedule in 30 years. At that time, it will consist of three paid off 35 year old homes cashflowing at about 7% of whatever the properties are worth then. In the meantime, your cashflow amounts to little more than a nice bonus/part time income that can support your latte budget, a light bill and a couple of dinners out. So one may think: This strategy doesn’t work!…

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