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.

Houston’s hot real estate market and its impact on real estate investors

Houston’s real estate market is scorching hot. The latest statistics on Houston’s real estate market we’re released last Friday and I wanted to share with you some interesting highlights:

  • Real estate sales rose for the 16th straight month. Higher sales were recorded in all price points except for properties priced under $80k. Any guesses on what the majority of properties are in that price range? (Hint: They’re owned by banks)
  • Inventory of properties for sale is 4.7 months! That’s the lowest that statistic has been since 2002. The market is tight and sellers are back in the driver’s seat due to high buyer demand.
  • Average and median sales prices are rising, too. So this isn’t the end of 2010 where sales were creeping higher because of lower selling prices.
  • Foreclosure sales are down double digits: Now they account for 16% of sales when in January of this year they accounted for 28%. So if banks are holding the infamous “shadow inventory”, it must not consist of Houston properties.
  • Last but not least, rentals of single family homes rose again while average rents remained high, although off July’s back to school record highs.

Market’s Impact on Real Estate Investors

The latest data is yet another indication that the strong Texas economy and its job creating prowess are contributing to a strengthening real estate market. But what does it all mean for real estate investors? How does it impact their quest to find quality investment properties? Well, if you’re a real estate investor of the “you make your money when you buy” variety that worships at the altar of “built in equity”, there will be scarcity in your future.…

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Flipping vs. Long Term Investing – Why it’s not even a close contest

When a new real estate investor sits down and looks at one of our cashflow analysis for the first time, she usually has a puzzled look on her face. And it’s understandable – Here she is looking at a financial projection where she invests $30,000 of her hard earned capital for an annual return of $3600-$4500 per year. Sure, 12-15% cash on cash return is nothing to sneeze at but in the end $4k per year won’t exactly change your life. It isn’t the lucrative, rich overnight image projected when people speak of real estate investing. It’s not the sexy buy-renovate-resell-double your money kind of strategy. So inevitably, the question comes up: Wouldn’t it make more sense to purchase a home to flip with that capital and earn much more money in a very short term? This is the part where I smile.

The debate over the merits of flipping homes versus investing in real estate long term is not even a close contest. As a matter of fact, they don’t even belong on the same debate stage and in this post I intend to show you why.

Our starting point is a look at the real math of flipping homes. Let’s look at the facts: even if you were able to acquire the property low enough, by the time you pay selling costs, closing costs, holding costs, rehab costs and Uncle Sam, your true return on investment isn’t exactly what you expected even in the most optimistic of scenarios.…

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Big news for real estate investors: Fannie loosens lending guidelines

It seems just before the ink dried on my last post about financing for investment properties, an update is required. And this is a very welcome update I’d like to write more often.

As I pointed out previously, long term real estate investors were restricted to a maximum number of 10 conventional mortgages they could have outstanding at one time. So if your investment goals required more properties, you were either up a creek or had to look at alternative less favorable types of financing i.e portfolio loans or lines of credit.

Well, as of today, Fannie Mae has expanded that number up to 20 mortgages provided that the investment property being financed is part of their own portfolio of foreclosures AND you use Homepath financing (from an approved Lender that offers it).. Starting with the 11th mortgage, real estate investors will be required to put down 30% of the purchase price, up from 25%. That should be a non issue since real estate investors have long been willing to commit more capital if they were allowed to finance more properties as the BiggerPockets/Memphis Invest survey showed last week. No indication yet of the interest rate premiums that will be charged on these loans although I would think there will certainly be some premium.

There are certainly some strong limitations to this policy change. Investors who purchase new construction or non Fannie foreclosures would not be able to utilize it and would still be restricted to 10 mortgages. This comes across as a move to clear Fannie Mae’s pipeline of foreclosures faster.…

Big news for real estate investors: Fannie loosens lending guidelines Read Post »

Financing for investment properties – A Primer

Fair warning – this will be a long one because it needs to be. Financing is a crucial component to investing in real estate long term because it impacts both your returns on investment and your investing experience. If you opt for the wrong kind of financing, that could mean that a great investment property isn’t cashflowing like it should due to your interest rate being too high. Or if you go with an inexperienced Lender, the process to obtain financing will be so tedious you won’t want to do it again. So, this post will go over the different financing options for investment properties in succession – meaning, we will start with the most optimal option for long term investing and then cover alternative options once the former is no longer available.

Conventional or conforming financing

As long as it’s available, conventional financing is the recommended route for long term real estate investing. Conventional loans have to abide by Fannie Mae/Freddie Mac guidelines. At the time of this writing, the guidelines allow for any qualified borrower to carry up to 10 conventional mortgages at a time, including the mortgage on their primary residence. So if there’s still a mortgage on your home, you can purchase a maximum of 9 investment properties with this type of financing. This of course has been and will continue to be subject to change just like anything else that’s dependent on a government entity. At times investors have been able to purchase an unlimited number of investment properties, as long as they had the income to support them.…

Financing for investment properties – A Primer Read Post »

How to have your cake and eat it too with real estate investing

Picture going into your investment advisor’s office to talk about your impending retirement, 15 years from now. You proceed to tell her that what you’d really like to accomplish is to quadruple your investment AND draw a six figure income at retirement. Now picture her chuckling and you being dressed down to more realistic expectations. When you think about it, most other investment vehicles consider the growth of your capital and the income derived from it to be mutually exclusive. If you want income, you have to purchase dividend yielding stocks or mutual funds which tend to experience minimal growth. Or if you are trying to grow your capital, the securities that provide it don’t yield any income. That’s life after all: You can’t have the cake and eat it too. Right?

Except, there is an asset class that can provide strong capital growth and enough tax sheltered income at retirement. So the purpose of this post is to show you exactly how to have the cake and eat it too with real estate investing. Hint: It’s all about timing.

In a previous post, I have discussed how to create a six figure income with real estate investing. It’s one of our most popular reads on the blog, so if you have not yet read it, I strongly recommend it. But in a nutshell, it shows you how the acquisition of 9 well located, quality single family homes combined with a disciplined domino strategy leads to a free and clear real estate portfolio worth about $1.2M in a 12 year timeframe.…

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Real Estate Investors: Know thyself before you wreck yourself

Real estate investors come in different varieties. Some are so risk averse that they keep six months of payments in cash reserves for each investment property they own. Others don’t really feel like they’re investing unless they’re going “all in” on some deal every week. But no matter where you fit into the risk spectrum, you should know exactly where you stand before you start investing. Then pick investment vehicles, strategies and advisors that suit that investment “personality”. I know that on the surface it sounds like a cliche piece of advice you might expect to find in a Yahoo Finance article. But in fact, it is crucial to your real estate success. Two cartoonish case studies for you:

Nathan Vegas wants to get started in real estate investing. He loves risk and adores leverage. He wants to invest in real estate for cash flow so he can quit his job and do what he loves. He wants to reach the desired level of cash flow by next Thursday by 6pm. So the strategy is to purchase investment properties that sport a freakishly high cap rate so he can get the highest return on his current capital. And there’s not much time left so he won’t have time to do any proper due diligence but that’s a risk he’s willing to take. After all, how wrong could these proforma statements be?

Meanwhile…

Brenda Conservative has been mulling over investing in real estate for seven years now and is just halfway through her due diligence.

…

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The cure for underperforming real estate investments

Sometimes people become real estate investors on purpose: They have a clear goal, they plan for it, analyze investment opportunities then pull the trigger on the option that better helps then achieve that goal. However, at times one can become a real estate investor by inertia. The property could be a former residence that got converted to a rental once they moved up in house. Or it could have been student housing for their children while they were going to college and became a rental once they graduated.

In the end, it doesn’t really matter that much how one comes to own an investment property – it matters how that property is performing and whether it is propelling that investor towards the fulfillment of that goal. So in that spirit I want to ask those inertia investors a Dr Phil question: How’s that been working out for you?

Certainly, there are exceptions as there are with every rule. But in the overwhelming majority of cases, the property is underperforming as a real estate investment. It might be breaking even or even costing the investor some money every year. But it’s easier to continue that inertia “trend” then to do something about it and right the ship. It feels that way because the opportunity cost of sticking with an underperforming property isn’t readily apparent. So allow me an illustration.

Jim Investor owns a property worth $130k with a $85k remaining balance on the 5% 30 year mortgage with 16 years left on it.…

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Paper tigers

At some point or another, every real estate investor has experienced temptation. You could be the new real estate investor just getting started that gets his head turned by an obscene cash on cash return rate. Or you could be well on your way after purchasing several quality assets and questioning your direction when you see higher cap rates or lower prices elsewhere.

Analytical minds love simplicity. I know because I’m the proud owner of one. We hate ambiguity, it’s “maybes” and “it depend”s. Instead we seek factual benchmarks, hard statistics that show what’s what without a shadow of a doubt. It’s simpler that way: A cap rate of 9 is better than 6 or a cash on cash return of 20 is better than 13.

The problem is long term real estate investing is much more complex than that. When you try to reduce in depth analysis down to the myopic perspective of an indicator or two, it leads to wrong answers.

Ceteris paribus – all else equal – a higher cap rate and cash on cash return is better than a lower one. Thing is, all else is rarely equal. Higher returns on paper typically reflect a higher level of risk. Think about it this way. In order to acquire a property in a great location you will generally have to pay more than if you were to acquire the same in an inferior location. In addition, properties priced lower tend to have lower property taxes, insurance costs and HOA dues.…

Paper tigers Read Post »

Your most important wealth building tool

I’m writing this from Terminal D of Houston’s Intercontinental airport so I’ll be brief. Brevity notwithstanding, the concept I want to talk about today will deeply affect your success with real estate investing.

Most aspiring real estate investors think that success in this business looks like a series of home runs. You know, you buy a house, flip it, double your money – then rinse and repeat till you get to your desired number of millions. Or the other popular choice: Buy five dozen homes, leveraged to the neck, rent them and walk to your mailbox to collect your wheelbarrows of money.

What I want to share with you today is this: Real estate is where you come to put your capital to work not where you create your capital. You see, you already possess the most important wealth building tool. It’s your income. Think about that for a second. When put to work properly, your income provides the savings that become the capital you invest. In addition your income provides the support that allows you to leverage that capital and acquire a higher asset value than you would paying cash. And most importantly, your income helps you pay off your properties faster so you can retire sooner.

Knowing that your income is your most important wealth building tool is one thing. But realizing that how you choose to spend that income can make a difference between retiring a millionaire and working till you’re 90 is the very heart of my point.…

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Everyone is a genius in a rental bull market

The rental market in Houston Texas is hot. Rents have been rising steadily for the last 4-5 years with average time on market dropping to under 30 days. Landlords are in the driver’s seat and the high demand for their properties allows them to ask for longer term leases, higher credit tenants and rent escalations built into the deal. What’s most important is that this rush of demand is fueled by real economic and job growth, not some artificial inflation. Under the current conditions you could literally close on any property on Friday and have a long term tenant in place the following Friday. And he probably had to fight off four or five other applicants to get accepted.

In the current market, it is easy for an investor to feel invincible – feel like they can’t go wrong. All the talk about quality of neighborhood, school district, amenities, upgrades etc. seems irrelevant. After all why would you go and spend 40% more money on a “better property” when you can buy cheaper, lower grade assets for a fraction of the price. With rental demand as strong as it is now, they will both rent out quickly and your ROI will be much higher on the lower end stuff. Right?

Mark Cuban said: “Everyone’s a genius in a bull market. Recessions are the great equalizer”. These are good times for investors but they’re also dangerous times. The euforia produced by the rental bull market can fool shortsighted investors into dropping their guard and skimping on asset quality.…

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