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 to expect when you are investing – Houston 2015 Edition

Consider the following scenario: You are a successful professional and through hard work and living beneath your means you have managed to set aside some capital. Thus far, your career has been fine but you want something more. You wonder what might be possible if you were to invest the capital you have managed to save in real estate. Would it be possible to create enough of an income stream to achieve financial independence? Or  put a different way, can this investment lead to an income stream that would give you the freedom to invest your time how you want, rather than how you must? You start reading and researching and after a while you are overwhelmed with different strategies pulling you in a thousand directions. Good old paradox of choice. But then you take a step back and look at the big picture: You’re not a gambler, or a speculator and you don’t like excessive risk. You want to invest your capital in real estate but don’t want to invest all your time (i.e don’t want it to turn into your full time job). Therefore you eliminate all forms of investing that don’t fit well with your investment personality and risk aversion. You come to the right conclusion that the best strategy to achieve financial independence is a long term investment strategy. Then one day, you read one of my posts on BiggerPockets or stumble on an article from Investing Architect. And it all seems to make sense.…

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The fascinating paradox with long-term real estate investors

There is this fascinating paradox I encounter regularly in our real estate practice. The overwhelming majority of real estate investors I have the privilege to help, fall on the conservative end of the investing spectrum. They are driven by unbiased logic, need empirical evidence and have a long term focus. If you haven’t left this site yet after reading an article or two, you can probably relate.

But with all that focus on logic, numbers and the “long game” they still succumb to doubts that run counter to all those things. See, we like to think of ourselves as rational beings driven by unbiased logic but the truth is we are hard-wired to respond to certain impulses and fears.

Cute little confused student shrugging his shoulders has no answer, thinking, puzzled

Let’s look at two related misgivings I hear frequently from our clients:

1. “I wish I had met you in … (2008, 2010, 2012 – you name it) so property prices would have been more favorable.”

2. “Shouldn’t I wait to acquire investment properties since we’re in a Seller’s market and prices are high?”

These statements indicate valid concerns but they’re paradoxical in that they run counter to the very core of the conservative long term investor.

Silly Rabbit … Market Timing is for traders

Real estate prices in most markets (Texas included) were substantially lower in 2008-2013 than they are now. Furthermore, most investors that purchased during that time were able to lock in quite a bit of equity and very favorable price/rent ratios. That’s especially true if you consider the increase in rents during the same amount of time.…

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Should you sell your investment property? A comprehensive guide

If you are a real estate investor that purchased well-located investment properties between 2008 and 2012, you are faced with somewhat of a dilemma.

On one hand, you have watched the value of your property rise significantly in recent years on top of any built-in equity you may have secured at the time of purchase. Not to mention that in this market properties sell in a heartbeat for full asking with multiple offers. So you look at the current market value, then look at your mortgage balance and can’t help but feel that it may be time for you to “cash your chips” and go home. After all, no one ever went broke making a profit…

But on the other hand, rents have also risen significantly and you have enjoyed great returns on your invested capital. If you sell, you “kill the goose” and forget about the golden eggs. Positive cashflow, value appreciation, mortgage pay down, depreciation – they all come to a halt.

So what’s the right call – sell or hold on, cash out or stay invested? To be sure, it’s a good problem to have but a problem nevertheless. Below is a methodical way to think about it.

Goal Clarity Above All

Every decision you make in regards to your investment portfolio has to be aligned with the overall mission of that portfolio. Ask yourself: What’s the principal goal you employed your portfolio to accomplish? Is it income, or wealth accumulation?

If the main goal is income, liquidating an income-producing asset without a proper plan to replace it with better income producing asset(s) is counterproductive.…

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Regret > Loss

The current strategy most Americans use to save and invest for retirement is fundamentally flawed. In order to evaluate the effectiveness of any strategy in an empirical way let’s look at the final results.  Then let’s compare them to the results you employed the strategy to achieve.

We will go through that very process using two well known and often quoted studies.

First, a 2007 study performed by the Employee Benefit Research institute found that the average Baby Boomer had an average balance of $75,000 in their retirement account at retirement age. The same study performed recently, found that average balance has risen to  $127,000 following the bull market of recent years.

Second, a 2009 study performed by the US Census found that the average college graduate (undergraduate) earns a little over $2M in their lifetime. Graduates with higher level degrees earned $2.5M (masters) and $3.5M (doctoral). But let’s stick with the undergraduate figure for the purposes of this article.

The math here is shocking and unforgiving! After 40+ years of working, earning, saving and investing the average “retiree” ends up with a little less than 2 years salary  in their nest egg?! After four decades of tax-deferred 401K contributions, employer matches, double digit average market returns you arrive to find an account with 6% of your lifetime earnings?!

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I know, I know. Yes, many boomers invested when the market was at the peak and pulled their money out at the bottom because they were fearful. Yes, they may have neglected to invest during the early years because they weren’t thinking about retirement then.…

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Why did oil prices drop in 2014

Last year, on the morning of June 12, the market price for a barrel of West Texas Intermediate Crude Oil was $107.12. When the ball dropped to announce the arrival of 2015, the price of oil did a spot-on impression and dropped 51% (to $53.45). As I write this article, the price sits even lower at $44.80.

As you read through those numbers, you are probably asking yourself two critical questions:

  1. Why did oil prices drop in 2014?
  2. How will the drop in oil prices impact the real estate market in Houston and across Texas?

If you own investment real estate in Texas (and especially Houston) you might be substantially more interested in the answer to the latter question vs. the former. However, in order to understand the impact that a significant change in market conditions can have on real estate demand and prices, you must first have a clear understanding of the causes behind the drop in oil prices as the two are deeply interconnected.

Over the last month or so, I’ve been answering those questions almost on a daily basis in one-on-one conversations with clients and long term real estate investors. In this article I will share the answer to the first question backed by empirical data in Greater Houston Partnership’s annual report.

Why did oil prices drop in 2014? Too much of a good thing

Have you ever heard politicians of both sides of the isle talk about “reducing our dependency to foreign oil” during presidential election campaigns?…

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How to avoid “getting married” to a rate of return and a pyramid scheme story

The year was 1997 and the country was on the brink of civil war.

Just under two years prior, several “investment” firms had appeared offering a very enticing opportunity: Invest a sum of money and in 90 days receive three times the amount. People could smell that something wasn’t right but they felt drawn to the easy profit nevertheless. So they started investing small amounts: $100 at first that became $300 in three months time. And the word started to spread as more and more people decided to dip their toes in cautiously (at first).

Then came the rise. Emboldened by the capital that kept coming, many of the firms started making public investments, sponsoring sports teams and the arts, and in one occasion even became an official sponsor of Formula 1. By now the phenomenon had gone national. Only a few “stubborn skeptics” remained out of the “investment of the century” and they were under constant pressure from friends and family members to join in. For a brief six month period, a poor, previously communist country experienced what it was like to live in an affluent society. Everyone had money, jobs were plentiful and the good times had smiled upon us again.

The missing piece from that story is that while euforia overcame common sense, people’s comfort zone had expanded to the point that many were selling their homes and investing their life savings in these companies. Of course, none of it was real. The companies tried to reduce the amounts they paid out per quarter at first to 15% and finally to 8% but there were simply no people left to feed the pyramid.…

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The curious case of the Houston real estate bubble – An empirical analysis

The Houston real estate market has been on fire over the past 18 months. Since the start Q2 of 2013, we have experienced double digit increases in sales as well as rising prices and rents fueled by low inventories and high demand.

The gallop has felt incessant. Just when you might expect that the market will take a breather for seasonal reasons or otherwise, it keeps sprinting forward. So, in this market climate, it’s no wonder that the hypothesis of a Houston real estate bubble has arisen reinforced by anecdotal “evidence” and largely unrelated 1980s oil crash references.

However, a couple of weeks ago, Trulia released its Bubble Watch report. Mainstream newspapers like the Houston Business Journal and the Houston Chronicle regurgitated the findings without much scrutiny and that seemingly lent some “empirical” credibility to the story.

Here’s where I got involved.

I usually dismiss market studies from companies that are best known for data inaccuracies without a second thought. After all, how much credibility can you assign to a study that finds real estate markets like Las Vegas and Chicago to be undervalued?! But I started receiving calls and forwarded links to articles from concerned clients so I decided to take an in-depth empirical look and share the findings with you here.

It’s hard to argue with anecdotes and I won’t try. I’m sorry to break it bubble proponents but the fact that your cousin’s neighbor’s house sold in 18 hours, 10% over list price to the highest bidder of 15 offers does not constitute evidence for a real estate bubble.…

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Income taxes on your real estate investments

Observations on income taxes on your free and clear investment portfolio

Many of the articles I have written on InvestingArchitect.com have originated from discussions with investors like you. A few months back, Robert – a regular reader and “subscriber” to our Blueprint strategy – made the following observation.

One thing I have noticed though is that the income taxes I am paying keep increasing as the properties are paid off. Typically when you have a leveraged property the cash flow is completely tax sheltered by the depreciation. When the property is free clear a large chunk of the cash flow is not sheltered.

Keeping this in mind means that one pays a lot less income tax for the same amount of capital invested if that capital is spread out over more properties. The only problem is that one is also increasing their risk.

I think that when I finally retire with that $100K/year this will be less of a problem as my 9 properties will shelter around $40K/year and the highest tax bracket on $60K married filing jointly is 15%. As apposed to my rental income now on top of my salary which puts me in the 33% bracket.

I know you don’t like to include the topic of tax in your articles but I think this truism must be considered

I think there is an important lesson for us tucked within Robert’s observation.

Let’s look at some specific numbers in a simplified scenario that will illustrate my points.

Scenario

John owns a portfolio of nine identical properties that he purchased for $165k each and financed 75% of their purchase with a 30 year mortgage at 4.5% interest.…

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How to increase velocity of money to turbocharge your investment returns

Fact: Every investor I’ve had the privilege to help has worked extremely hard to earn and save the capital required to make long term real estate investments. So it’s no wonder that as an investor you want to put in practice strategies that maximize your return on that capital. But I have a slightly different take on this matter. Because I’ve seen first hand how hard many of you work to create that capital, we have a duty to make that capital work as hard as possible to help achieve your financial goals.

So in that vein, today I want to introduce the concept of velocity of money and show you a strategy to increase the velocity of money your real estate investments produce and turbocharge your returns in the process. First of all, the concept of velocity of money can mean very different things depending on the context (i.e macro economic or field specific). For the purposes of this article we are looking at velocity of money strictly as it applies to long term real estate investments.

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In simple terms, consider the following analogy to illustrate velocity of money at work. Imagine that an investment property is an actual vehicle and the initial capital to acquire that property is the fuel for that vehicle. When you put your capital to work in a long term investment property, it produces positive cashflow that represents a return on that capital. In our illustration, when you put “fuel” in your “vehicle” and engage the first gear, it will reach a certain speed or velocity.…

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The invaluable lesson a Roger Federer video taught me about long term real estate investing

Roger Federer, arguably the best tennis player in the history of the sport, visited the Google campus in Mountain View a few weeks back along with his coach Stefan Edberg (one of the game’s greats in his own right). During that visit, they put on Google Glass and shot a fascinating video that showed a tennis match from the perspective of these two great players. Take a look:

As I was watching that video, an interesting thought crossed my mind. As good as Edberg was in his day, he never reached Roger Federer’s level in terms of skills, trophies won and excellence in general. And yet, Edberg coaches Federer. This isn’t a phenomenon that happens in tennis alone. Every top performer, no matter the field, uses a coach to elevate their “game”. In fact, one could argue that top performers would not reach the same heights without their coaches’ help.

This sounds almost paradoxical. Why is it that a supremely talented and skilled performer needs the mentoring of someone that often does not possess the same capabilities?

The reason is that skills and talents only go so far in the road toward success and excellence. How many times have we seen history repeat itself with naturally gifted athletes that never reach their full potential? Often, talents and gifts are prerequisites for but not guarantees of success. For example,  if you are to be the best player in the NBA you must be of a certain size and build. But if you possess that size and build, you’re not necessarily going to be the best player in the NBA.…

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