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 catching monkeys can teach you about real estate investing

The story goes that in ancient India, the natives used a clever technique to catch monkeys. Unable to catch them outright since the monkeys were much faster, they dug a hole in a tree trunk that was just big enough to fit the monkey’s open hand. Inside that hole, they placed some nuts to lure the monkey and hid. When the monkey would reach in and grab the food, he would make a fist that was bigger than the hole in the tree. The monkey was trapped and the natives would come out of hiding and catch him with ease. This technique worked because it would never occur to the monkey that if he just let go of the food, he could pull his hand out again and run away.

We can derive three essential real estate investing lessons from that story.

First, when you’re faced with an important real estate investing decision,  there are almost always more options than what’s readily apparent at that moment. As an illustration, last week an investor asked me for my opinion on a dilemma he was facing: In the price range where he was looking, there were only two viable locations and neither of them would serve the investor well. But he kept insisting that he had thought this through backwards and forwards and there were no other options. He had painted himself into a corner then continuously went over those same two steps that corner allowed him to take. When I pointed out that he could purchase an excellent property in a high quality location at a slightly higher price while maintaining solid returns, there was a long pause on the line.…

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Houston real estate market outperforms: Rents, sales and prices surge in 2012

Every month of 2012, Houston’s real estate market continued its gallop posting higher sales and prices each month year over year – usually by double digits. Most importantly – the statistic that never fails to put a smile on my face – rents continued to rise reaching their peak at the end of the summer for the back to school rush then maintaining high levels through the end.

At the bottom of this post, there will be a link to the Realtor association press release for those who want to peruse the whole thing. But there’s four numbers you really need to know that tell the whole story of 2012 and write the prologue for this year:

  1. The average rent for single family homes in Houston was $1552/mo – that’s a 3.1% increase over a good 2011.
  2. Sales of all Houston properties came in at 73,994 units  – that’s a 16.3% increase year over year.
  3. The average home price climbed to $225,000 – that’s a 5.4% increase from the previous year.
  4. Inventory at the end of December was at 3.7 months! – Down 36% from 2011 (lowest level since 1999)

As we have pointed out in our previous updates on the state of the market, the real estate market’s strength was fueled by a solid local economy. According to The Economy at a Glance: Houston – a Greater Houston Partnership Publication:

The Houston-Sugar Land-Baytown Metropolitan Statistical Area added 85,300 net new jobs, a 3.2 percent annual increase, in the 12 months ending November ’12, according to data released in December by the Texas Workforce Commission.

…

Houston real estate market outperforms: Rents, sales and prices surge in 2012 Read Post »

Out of state investor’s guide to investing in Texas

At this point, the idea that Texas is the best real estate market for long term investors is a well-established reality. And as it gains more national publicity and exposure, we are receiving daily calls from interested investors that reside out of state: New York, Massachusetts, Las Vegas, South Carolina, Washington DC – you name it.  After they read articles about our Blueprint real estate investing strategy, they recognize the powerful impact that investing in high quality Houston real estate assets would have on their returns and retirement. Houston’s competitive advantage that springs from a strong job-producing local economy, affordable well located assets and attractive price to rent ratios has become hard to overlook.

However, from the viewpoint of an out of town real estate investor, it is one thing to recognize that the Texas market offers great investment opportunities. It is another to actually take that first step and acquire investment properties in that market. Inevitably, questions and challenges arise:

  • I don’t know the local market – How will I know which areas I should buy in?
  • How can I be sure that I will find a tenant soon after I purchase the property?
  • I don’t want to have to make a trip to Houston every time I buy a property –  that will cost lots of time and money. How can I avoid that?
  • I don’t want the tenant to call me in the middle of the night with a leaking sink. How will I manage these properties from far away?
…

Out of state investor’s guide to investing in Texas Read Post »

Debt free real estate investing for income and appreciation

When I have previously outlined our Blueprint real estate investing strategy, I have usually given examples that involved the leveraged acquisition of quality assets followed by an aggressive campaign of debt elimination to produce maximum cashflow at retirement. But as crucial as smart leverage can be to the investing success of some investors following our strategy, it is not required or necessary. At its very essence, our Blueprint is the road map from where you currently are to where you are trying to go at the end of your investment horizon. So in that spirit, the right investment strategy for you is determined and shaped by your current financial situation. For instance, an investor with limited capital will follow a very different path to retirement than another investor with a large enough capital base to generate sufficient debt-free income to retire tomorrow.

Next, let’s take a deeper look into the main reasons and motivations that push some real estate investors to the path of debt free real estate investing for income and appreciation.

Risk aversion to debt

Most investors that make the choice to avoid leverage completely do so to avoid the perceived risk that debt inevitably adds to their portfolio. And it does not matter that the added risk is usually accompanied by a higher, leveraged return on investment. A very conservative investor is content with a lower rate of return if they can avoid the risk of financing. They view leverage not as a temporary tool to grow your capital base in a shorter amount of time but as a fatal risk that could bring the whole thing down.…

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Asset allocation in a Blueprint real estate investing portfolio

As more and more investors come to the consensus that a well-crafted real estate investing strategy can help them achieve their financial goals (even the R word itself: Retirement) a fundamental question arises: How should you allocate your real estate holdings within a Blueprint real estate portfolio? Now, the whole notion of “allocation” within a portfolio containing 100% real estate assets may come across as unnecessary. But keep in mind that even in an “all-stock” investment portfolio, there are different types of stocks that bring different returns (and their accompanying risks) to the portfolio. In much the same way, different real estate assets bring different benefits and risks to a real estate portfolio.

Standard assets

These properties are consistent performers and reliable money makers: They are easy to lease and keep leased. Their weakness is that they don’t offer much in the way of property appreciation. Typically they follow the appreciation curve of the overall market or come just under it. These assets offer higher returns for moderate risk. They are recently built (under six years) or new properties located in areas that aren’t yet established to their full potential. Remember, if an area is already popular, it’s already too late for real estate investors. That train has already left the station – prices have risen to the level where price to rent ratios no longer allow for reasonable returns.

Approximate returns for this category of assets: Cash on cash returns of 15%+ and Internal rate of return of 17-18%.…

Asset allocation in a Blueprint real estate investing portfolio Read Post »

Four stages of executing our Blueprint investing strategy

Every wise real estate investor’s journey begins with a clear, overarching investment strategy. This strategy is the roadmap to get you from where you are to where you are trying to go. So needless to say, to come up with a worthwhile strategy, you must know your destination and be able to distill it into specific, time limited and written goals. If you can provide your goals, our Blueprint real estate investing strategy can provide you with a path to get there. More specifically it will show you what type of assets to buy, how many, as well as where and how to buy them. Setting out on an investment path without such a plan all but guarantees you a long journey into the wilderness of investing confusion – jumping from one fad strategy to the next.

But as crucial as it is to have an overarching strategy, the really hard part starts now. It’s what makes or breaks the plan and separates the best from the rest: Execution.

Four Stages to execute our Blueprint real estate investing strategy:

  1. Asset Accumulation
  2. Capital Base Growth
  3. Maximum Cash Flow
  4. Exchange or Exit

Asset Accumulation

The first stage of executing your Blueprint investing strategy is Asset Accumulation. At this point you have the exact number of assets you must acquire in order to achieve your goal so we must begin the acquisition of these assets. This phase should be completed as fast as your income and assets will allow because it is a prerequisite of all other stages.…

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The hottest real estate market for investors and the pitfalls of “amnesia investing”

In true Monday morning quarterback fashion the national media is recognizing what those of us in the real estate trenches have been saying since 2009: Houston is probably the hottest real estate market for real estate investors at the moment. And it is projected to retain that status for the foreseeable future in 2013. If you are skeptical of that strong statement, tell me, where else can you get the following combination of investing conditions: A rock solid local economy 1 percentage point away from full employment (5.8%), high rental demand, minimal vacancy rates and rising rental prices, price to rent ratios on new (or less than 6 yrs old) properties under 8 and a steady and reliable local real estate market in full bloom? Not to mention that Texas is one of the most landlord friendly states with no state income tax that’s responsible for more job creation nationwide than most other states combined. There are other locations that do offer some of the benefits I just mentioned to investors but none that offer them all, like Texas.

Lately, I’m getting calls from investors who seem eager to engage in some “amnesia investing” – that’s when an investor forgets what just happened in that market just a few years ago and wants to risk his money in a location where history is sure to repeat itself. Examples? There are the usual suspects: Florida, Vegas, California and the like. Because prices there are off a gazillion percent from the utterly ridiculous highs of 2006.…

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The fiscal cliff: How will it impact the real estate market and investors?

These days you can’t turn on your TV or radio without hearing something about Armageddon the impending fiscal cliff. And in hearing these pundits and newscasters and their lame, over stretched metaphors you would swear that the cliff must’ve been what the Mayans were talking about – they just missed it by a week and a half. But recently, some of our clients have called and asked me about the potential impact of the fiscal cliff on the real estate market as a whole and real estate investing in particular. Because of their concern, I think it would be beneficial to do take an objective look at the scenarios that could unfold and their real estate implications.

Scenario #1: No deal to avoid fiscal cliff

Under this scenario, if Congress does not reach an agreement to avoid the fiscal cliff, taxes increase on everyone (tax cuts expire) and deep spending cuts are applied across the board. The real estate market as a whole would suffer deep negative consequences on several fronts. First, a study by a leading commercial real estate services provider cited in a recent article on TheStreet shows that spending cuts from sequestration in 2013 would hit hard government contractors and their demand for commercial office space. The same study predicts that if these cuts were allowed to happen, office space the size of the entire Dallas office market would become vacant. Such an increase in the  supply of vacant office space would put downward pressure on prices as buildings compete to lease out their vacant space.…

The fiscal cliff: How will it impact the real estate market and investors? Read Post »

How to find an investment property in a hot real estate market

Every real estate market brings its own unique set of challenges for real estate investors. Back in 2005-06, the foreclosure wave hadn’t quite made it to shore yet, but it was giving its first signals. Long term real estate investors could purchase investment properties with as little as 10% down on a conventional mortgage but interest rates were just under 7%. Fast forward a couple of years (2008-10) and the recession was in full swing, foreclosure deals were a dime a dozen and Bernanke’s quantitative easing (a mouthful, isn’t it?) had slashed rates to record lows. But there was “blood on the streets”, the end of the world was surely coming and no one was sure their job would still be there next week. These days, the Houston real estate market is hot, rents are increasing every year, vacancies are low to nonexistent and investment property interest rates are in the low to mid 4s. But at the same time, strong demand from owner occupant buyers coupled with disadvantageous “first look periods” and lower foreclosure inventories are making it increasingly harder to find and acquire investment properties. As any real estate investor who’s actively looking will tell you, competition is pretty brutal right now. Frustrated investors are throwing prudence to the wind and overbidding on properties just to “buy the damned thing”. And those that aren’t, are starting to get cynical and conclude that this real estate investing thing doesn’t really work.

So how does one find investment properties in a high demand Seller’s market?…

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What it means to invest in real estate long term (and what it doesn’t)

Investing in real estate long term has a nice ring to it, doesn’t it? It makes your efforts feel prudent, measured and planned. You can stick your chest out and proudly proclaim you’re a long term investor as opposed to a short term speculator of sorts. The problem is when you dig a little below the surface of many investors’ strategies they’re the same short term methods hiding behind long term jargon. So today I plan on laying out exactly what it means to be a long term real estate investor.

Metrics

Long term real estate investors make decisions on the assets they purchase today based upon their long term performance and their adherence to their long term goals. They ask questions like:

  • What will this neighborhood be like in 10 years when this investment property is free and clear?
  • What will this home be worth in 10 years when I plan to trade to a newer one with less hassle?
  • What trajectory will rents in this area follow in my investment time frame?
  • What will the net operating income be when I will need it the most – at retirement?
  • What tax shelter(s) will my assets have left when I plan on living off the income they produce?

They are not the least bit concerned with short term metrics like current equity or current cashflow – their focus is strictly on the impact those metrics could have on their portfolio’s performance long term. Here’s what that means: Current cashflow is part of the fuel that a long term investor uses to get to a free and clear portfolio that meets their income goals at retirement.…

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