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 is the return on investment for the Blueprint real estate investing strategy

After a workload-induced two week hiatus from writing, I’m back to answer one very frequently asked question. What is the return on investment when you execute the Blueprint real estate investing strategy?

Investors that ask that question are usually trying to compare and contrast investments in different asset classes (stocks, bonds, commodities, life insurance, real estate etc) to make an allocation decision. After all, every investor has a finite amount of hard earned (even harder saved) capital and the quality of their retirement depends  in large part on their decision to invest that money wisely.

The final decision depends on four things: The return on investment, the risk involved, the investor’s tolerance for risk and her available investment timeframe. If the investment offers a sky high rate of return but there’s a good chance to lose all your principal, you might want to pass if you have a low tolerance for risk (or possess common sense). If instead, the principal is relatively safe but the return on investment looks up to inflation, you better hope your accumulated capital is enough to hold you as you cannibalize it in your retirement years. Last but not least, the direction  you take in your investing is very different if you are 20 years or 24 months away from retirement.

Put a different way, it’s crucial to strike the right risk-return-timeframe balance. And that’s much easier said than done.

Having said that, the question is a fair one. Inquiring minds want to know: If you invest a dollar of capital in a quality asset and hold it long term what should  you expect your return to be on that dollar?…

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Appreciation play: How to make money in real estate when there is no cashflow

As most our regular readers already know, our cornerstone Blueprint real estate investing strategy relies on the long term acquisition of cashflow positive, quality assets to grow your capital base and reach your income goals at retirement.

So surely, many of you must be squinting at the title, rubbing your eyes in disbelief at the prospect of an investing strategy where cashflow is not present. But the fact is that many long term investors just like you, equate asset quality with location quality alone. The problem is that usually the more centric the location, the higher the price to rent ratios. Think of the price to rent ratio as an indicator of how much money you pay for each dollar of gross income. As the ratio increases, the cashflow first declines, then disappears and finally becomes negative.

So how can you make money in real estate where the location you have to have demands a price that won’t produce any positive cashflow?

You could apply our Domino strategy and pay off these assets using your job income instead of the cashflow (which isn’t there). That would work but it would amount to a savings program rather than an investing strategy.

The best viable investing strategy under these circumstances is the leveraged appreciation play. Here’s how it works: Suppose you buy a condominium for $100,000 in a great central location you put 20% down and you hold it for 15 years. As I have previously outlined in Why investing in condominiums doesn’t work in the Houston market, this property will break even and will not have any positive cashflow due to high maintenance fees.…

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Houston market update: Prices and Sales up, inventory drought

Statistics for the performance of the Houston real estate market during January were released a few days ago and they point to a strong Sellers market. All the required ingredients are there: Strong sales, higher prices and inventory levels unseen since Bill Clinton was President (December 1999 to be exact). So let me give you the “espresso ristretto” version of the real estate market stats for January 2013:

    Property sales were up 29% over January 2012
    Average home sales prices were up 3.4% over January 2012
    Homes under contract were up 13.5% over January 2012
    Active listings for sale were 33,500 – that’s a 20% drop
    Inventory levels were down to 3.6 months – a 36% drop
    Average home rents were $1548 – a 7.4% increase
    Number of homes rented was flat (+0.7%)

Okay great, so what’s it all mean?

The statistic of most importance in this report is the inventory number because it will determine where the market goes from here. At 3.6 months, it’s approaching a level where it may be too low for the market to function normally and it’s likely to cause price increases across the board as Sellers find themselves in the driving seat. Also, this level of inventory is great news for home builders who are likely to benefit greatly from this supply shortage. In fact, they’ve already started to raise their base prices in reaction to these market conditions. Although Buyers may have to pay a little more for their home, this is ultimately good news for the local economy as it will likely benefit from the growth in residential construction.…

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How to buy investment properties with no money

A large number of Investing Architect readers get here after googling “how to buy investment properties with no money” every week. Once arrived, they read extensive articles about our Blueprint real estate investing strategy in which long term real estate investors employ their hard saved capital to build a solid stream of retirement income using quality real estate investments. At first glance, the two are thoroughly incompatible – on the one hand, there are aspiring investors who seem to want something for nothing and on the other an investment strategy that requires extensive resources they don’t possess. But things aren’t always as they seem.

First, let me start by saying that the beauty of our human ability to dream is that it doesn’t require the possession of resources necessary to fulfill that dream. In other words, just because you might not have the capital to invest in real estate and assemble a sizable portfolio, that shouldn’t prevent you from aspiring to it. In fact, this country was built on its people’s incredible ability to make something from nothing. To take a humble beginning and transform it into a success story that boldly defied its initial odds.

But there’s a fundamental difference between wanting to make something from nothing and wanting something for nothing. There are strategies and detours that investors in the first category can take to better their position – and I will share one of those strategies later in this post. But for those that feel entitled to something for nothing – to “investing without investment” – I’m afraid that I have nothing to offer but an attempt to change their mind and their course.…

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Real estate investing and authentic Italian pizza

A couple of years ago, an American friend of mine went on vacation to Italy with the family and he tried authentic Neapolitan-style pizza for the first time. He was speechless! The pizza amounted to a unique culinary experience and had nothing whatever to do with its gooey American counterpart he had taken out thousands of times. “How is it possible – he asked the shopkeeper – that something made the same way from the same ingredients, can be so deliciously different?” The shopkeeper’s answer was as brilliant as it was obvious (feel free to read this in an Italian accent in your mind) :

Well, there can only be three reasons why the pizza is better: The ingredients, the oven and the cook.

The wise shopkeepers words make for great real estate investing advice. When you invest in real estate long term, the difference between success and failure also comes down to the ingredients, the oven and the cook.

Ingredients

At first glance, one might think that authentic pizza has the same ingredients as its American cousin. But this couldn’t be further from the truth. From the hand kneaded and tossed dough, to the San Marziano tomatoes that make up the sauce and the fresh mozzarella di buffala – everything is superior. The unique textures and flavors that come as a result simply cannot be replicated without using similar quality ingredients.

In real estate investing, the “ingredients” are the properties inside your portfolio. As in the pizza example above, a fleeting glance at two portfolios might lead you to believe that they’re one and the same.…

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Equity and the myth of playing it safe

When I started Investing Architect a couple of years ago, I wrote a controversial post called Why Equity doesn’t matter that caused quite a stir. It was inevitable. A conservative, prudent, “low and slow” real estate investing guy (by his own admission) was advising his readers that built in equity was irrelevant. How could this be, considering what happened to real estate markets in 2008 with millions underwater on their mortgages? Wouldn’t it be more conservative and prudent to only purchase properties with built in equity – in case you have to sell the property due to another deteriorating market?!

There’s a powerful, fear-driven myth among long term real estate investors that says: Buying an investment property with built in equity is the best and only way of minimizing risk and playing it safe. In today’s post, I will dispel that myth.

1. Before we go any deeper, it’s very important that you have a clear understanding of equity’s true nature. Equity is a Snapshot that tells you what you would make if you were to sell the property today – and nothing more. This short term indicator provides zero information about what that property will do in the future. Don’t believe me? Most of those people underwater on their mortgages post recession had plenty of “equity” in their properties just a few short years prior. And sadly, the equity they thought they had, didn’t minimize their risk of being underwater in the future.

2. Next, the reason why investors feel that equity minimizes their risk is because it gives them an Exit.…

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Does your real estate investing strategy offer flexibility?

In my last post, I discussed one of the most important advantages of our Blueprint real estate investing strategy: Built in performance benchmarks. Well, today I want to tell you about another unique advantage that’s just as important. Unlike other strategies that by their very nature are rigid and resistant to change, our Blueprint strategy allows real estate investors the flexibility to make adjustments midstream to account for potential changes in goals, personal finances, portfolio performance and the overall economic environment.

Why does flexibility matter? Well, because real estate investing doesn’t happen in the vacuum assumed by cash flow analyses and multi year projections. The circumstances surrounding the portfolio and the investor herself don’t remain static – they are always changing. And unless your investing plan can change with them, it might be “providing answers to old questions” and leading you down the wrong path.

So let’s take a look at some specific case studies where flexibility in your real estate investing strategy can make the difference.

First, a case where a change in investor goals can require a course correction. Suppose that when you started investing, you were aiming for a second source of income to subsidize your job income or to allow your spouse to stay home with the kids. You thought all you wanted was an extra $35k a year. Until you saw the plan in action and realized its true potential. Until you realized that you don’t really like your job after all and if you could replace that income you’d quit without batting an eye.…

Does your real estate investing strategy offer flexibility? Read Post »

How to tell if your investing strategy is working

Most long term investing strategies have one element in common: They all require hope and faith. The basic premise goes something like this: You will feed your 401k/IRA/mutual fund account regularly for 40+ years and then hope and believe that at retirement your nest egg will be sufficient to avoid Walmart employment at 65.

Don’t get me wrong – you will periodically receive detailed statements about your account balances and positions throughout the four decades. But those balances and statements aren’t worth the soft paper they’re written on the moment a 2008 type recession ravages your portfolio by 40%! The fact remains that despite the informative statements, your retirement plan hinges in part on your hope that the timing of recessions and market corrections will be kind to you. The problem with that plan is that recessions happen with painful regularity! You can pretty much count on one affecting you right around the time you get ready to retire.

But what about the fact that the market always bounces back up within a few years? Merely bouncing back may not be enough – if your retirement accounts had $100 before going down by 40%, you’re left with $60 and now require a 67% bounce to get back to your $100.

But you don’t have to take my word for it – just look at the facts. The average 401(k) at the end of 2012 had $75,900 in it and that’s an all time high! Let’s not stop there but instead let’s assume you’re not an average investor and I’m off by 100% – can you retire with a nest egg of $150,000?…

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Diversification and real estate investing

One of the first things people tell you about investing is that you must diversify. And by people, i mean your Uncle Ralf, who took a finance class once. Then comes the proverbial “Don’t put all your eggs in one basket” accompanied by the mandatory wag of the index finger. After you put some thought into it you realize that Ralph might be on to something here. It’s commonsense – when you put all your money in one thing, if that thing goes bust so do you. So spread your money around and while you might not make as much, you won’t lose as much either.

Aspiring real estate investors and experienced clients alike always bring up the diversification question during our conversations. So in this post I want to go over two main types of diversification. The first type is diversification between different asset classes. For instance, you can invest some of your money in real estate, another portion in stock market mutual funds and the rest in CDs. The second  is diversification within the same asset class. As an example, if you invest in real estate you might spread your holdings in different locations. Or you can purchase a mix of multifamily and single family properties or commercial and residential assets.

But whether you diversify between or within asset classes, the principal at work is the same. Diversification at its very core is about hedging your bets by spreading the risk over assets that will counterbalance each other.…

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What happens after you decide to move forward with your Blueprint

Based on conversations after the fact, many of our clients revealed that they had been reading Investing Architect for months (and in one case, over a year) before they decided to contact us to craft and execute their real estate investing Blueprint. This surprised me a little at first.

But after giving it some thought it all started to make a lot of sense. Before you take the step to contact someone like me, you have to come to two important conclusions. First, you have to decide that investing in real estate offers the most efficient path between where you are right now and where you aim to be at retirement compared to any other asset class. Then, after considering the plethora of options in the real estate investing spectrum, you have to decide that the Blueprint method we advocate is the one that  best aligns with your goals, risk profile and personality. As tall an order as that might be, the “glue” that brings it all together is trust. After you decide that you will start investing in real estate and our strategy speaks to you unlike any other, you must be able to trust that with our help you will be able to execute a plan and bring the strategy to life.

So, just in case there are some of you who might be wondering what happens after you decide to move forward with our Blueprint real estate investing strategy, I thought I’d just tell you.

The Blueprint comes first

Everyone’s combination of financial goals, capital, income and time is unique so the very first thing we do is craft your Blueprint.…

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