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					             calIFoRnIa InvestoR QuaRteRly
Issue 19                                      octobeR 2011                               FRee subscRIptIon
The Moment of Truth

The following are quotes from a document called, “The Moment of Truth.” It was
written by The National Commission of Fiscal Responsibility and Reform. This
document is dated December 10, 2010.

                                 Throughout our nation’s history,
                                 Americans have found the courage to
                                 do right by our children’s future. Deep
                                 down, every American knows we face a            Real Estate Radio Show
                                 moment of truth once again. We cannot                   590AM
                                 play games or put off hard choices any
                                 longer. Without regard to party, we have        satuRdays FRom 6:00-6:30pm on
                                 a patriotic duty to keep the promise            Inland empIRe’s KtIe 590am
                                 of America to give our children and
                                 grandchildren a better life.
                                                                                  FEATURES
       As members of the National Commission on Fiscal Responsibility             Kaaren Hall........................ 3
       and Reform, we spent the past eight months studying the same               Amanda Han ..................... 4
       cold, hard facts. Together, we have reached these unavoidable
                                                                                  Aaron Norris ..................... 7
       conclusions: The problems are real. The solution will be painful.
       There is no easy way out. Everything must be on the table.”                James Conaway .................. 9
                                                                                  Randy Grigg..................... 10
       The President and the leaders of both parties in both chambers
       of Congress asked us to address the nation’s fiscal challenges
       in this decade and beyond. We have worked to offer an
       aggressive, fair, balanced and bipartisan proposal — a proposal            NEWSLETTER TEAM
       as serious as the problems we face. None of us likes every                 Bruce Norris
       element of our plan, and each of us had to tolerate provisions             Aaron Norris
       we previously or presently oppose in order to reach a principled
       compromise. We were willing to put our differences aside to                Rich Durant, Graphic Design
       forge a plan because our nation will certainly be lost without one.”       Laura Hamilton, Editor

       In the weeks and months to come, countless advocacy groups and
       special interests will try mightily through expensive, dramatic, and
       heart-wrenching media assaults to exempt themselves from shared
       sacrifice and common purpose. The nation’s interests, not special
       interests, must prevail.
tnG calIFoRnIa InvestoR QuaRteRly – octobeR 2011



 This report deals with our country’s projected debt far                     tax “gifts.” What other asset can you sell and have a
 out into the future, as well as our annual fiscal debt                      $500,000 profit completely tax free? What other asset
 in our immediate future. The choices that have to be                        can you sell, and in exchange, send all of your profit
 made will force us to deal with very taboo topics…the                       tax deferred to the next property?
 third rails of Social Security and mortgage interest
 deductions just to name two.                                               At immediate risk is the policy that allows the
                                                                            homeowner to deduct the interest they pay. Part of the
 Our most immediate problem has to do with tax                              above comment, “special interests will try mightily to
 revenue and elevated expenses due to unemployment.                         exempt themselves from shared sacrifice,” is directed
 In 2010, our tax revenue was 15% of GDP (the lowest                        to groups like the National Association of Realtors,
 level since 1950). However, federal spending was about                     the Mortgage Bankers Association, etc.
 24% of GDP, creating about a 9% shortfall. There
 comes a time when kicking the can down the road has                        Another quote in The Moment of Truth Report states:
 to stop and, according to the title of this report, that
 time has been reached.                                                             We urge our leaders and citizens with
                                                                                    principled concerns about any of our
 The chart below shows where we are headed in the                                   recommendations to follow what we call
 next 30 years. Isn’t it amazing what a few “mid-course”                            the Becerra Rule: Don’t shoot down an idea
 corrections can make to the end result? If we adopt                                without offering a better idea in its place.
 the suggestions of this committee, we’ll end up with
 a declining debt as a percentage of GDP. If we keep                        With that thought in mind, I think the real estate
 moving in the direction we’re going now, we could                          industry should consider, in advance, what likely will
 well be in excess of 200% of GDP.                                          be asked of us. How important is the interest rate
                                                                            deduction to the buyer’s decision to own a home? Is
 As real estate investors, we need to realize that some                     it really why we buy or is it just a “perk” that we are
 of the assumptions we’ve made about write-offs and                         accustomed to? At 4% interest, it takes a pretty big
 capital gain rates may soon change. The real estate                        mortgage to get over the standard deduction in our
 industry has been the recipient of some very nice                          federal tax code. I wonder what percentage of owners

                 Figure 1: Debt as a Percent of GDP




                 The Extended-Baseline Scenario generally assumes continuation of current law. The Alternative Fiscal Scenario
                                                                       2
                 incorporates several changes to current law considered likely to happen, including the renewal of the 2001/2003 tax
                 cuts on income below $250,000 per year, continued Alternative Minimum Tax (AMT) patches, the continuation of the
tnG calIFoRnIa InvestoR QuaRteRly – octobeR 2011



  actually receive no tax break because the standard             Estate event on October 14th, we’ll be talking about
  deduction exceeds their annual interest payments.              this trade. What if we could give them what they want
                                                                 in exchange for something that would be extremely
 I think the industry will be asked to do its share. I           beneficial to millions of people for many years to
 think that’s fair and reasonable. I also think that there       come? I know we’re sold out, but I hope you particpate
 may be a trade we can make. During the I Survived Real          in the online feed and respond to the questionnaire.



   Don’t Leave Your 401k BehinD

                      Written By:                                In the bustle of changing jobs, many people forget
                      K aaren Hall                               about their 401(k). Don’t worry, everyone makes
                      President                                  mistakes. But don’t make another one, not when it
                      uDirect   irA ServiceS                     comes to your retirement. Do your homework and
                      2522 chAmberS roAD, Ste 100                find the best investment for you. A partial list of these
                      tuStin, cA 92780
                      714-460-5505                               investments includes:

                                                                     •   Residential real estate, including: apartments,
 The falling values of stocks have created a $6.6 trillion               single family homes, and duplexes
 deficit in the retirement savings of Americans according            •   Commercial real estate
 to a study commissioned by Retirement USA. How we                   •   Undeveloped or raw land
 can take control & protect our retirement accounts?                 •   REITs (Real Estate Investment Trusts)
                                                                     •   Real estate notes (mortgages and deeds of
 I say it’s time for Americans to realize what has been                  trusts)
 a best-kept secret. What is that secret? It’s the self-             •   Life Settlements
 directed IRA. For over 35 years we’ve been able to                  •   Promissory notes
 direct our IRAs into alternative assets (not the stock              •   Private limited partnerships, limited liability
 market).                                                                companies, and C corporations
                                                                     •   Tax lien certificates
 You can take control and roll over your old 401(k) into             •   Foreign currencies
 a self-directed IRA. Why? That part’s simple, you can               •   Oil and gas investments
 choose from over 45 different asset classes! The IRS                •   Publicly traded stocks, bonds, mutual funds
 doesn’t say what you can invest your IRA in; they only                  (see our Brokerage Information)
 tell us what we CAN’T invest in (www.IRS.gov Pub                    •   Private stock offerings, private placements
 590). That is a very short list. The IRS tells us we                •   Judgments/structured settlements
 cannot invest our IRA dollars in:                                   •   Gold bullion
                                                                     •   Car paper
     1) Life Insurance Contracts and                                 •   Factoring investments
     2) Collectibles                                                 •   Accounts receivable
                                                                     •   Equipment leasing
 Everything else is fair game so long as it’s for
 “investment purposes only.” So your IRA will not                Don’t ignore your old 401(k). Put it back to work with
 be buying, for example, a home for you to live in.              a self-directed IRA. View our website at
 It can, however, buy a property to rent with rental             www.uDirectIRA.com or contact us at
 income flowing right back into the IRA tax-free or              info@uDirectIRA.com. Our toll-free number is
 tax-deferred!                                                   (866) 538-3539.
                                                             3
tnG calIFoRnIa InvestoR QuaRteRly – octobeR 2011




  how to avoiD uDFi taxes when investing                               in   reaL estate         with    Your
  retirement FunDs
                      Written By:                                (meaning you do not pay taxes on that money until
                                                                 you take the money out at retirement age) or tax
                      amanda Han
                      CPA                                        free (meaning no more taxes EVER from this point
                      KeyStone cPA, inc,
                                                                 forward). So the benefit of investing with money from
                      1912 bAtAviA Street Suite J                your IRA is your ability to let money grow year after
                      orAnge, cA 92865                           year without losing part of it to taxes. The extent to
                      (877) 975-0975
                                                                 which you will benefit will depend on the number of
                                                                 years you have until retirement and the number of years
 Over the past few years, we have seen a significant             of compounding growth that money can go through.
 increase in the amount of retirement funds (IRA)
 being invested in real estate deals. I, myself, have also       Another great advantage of investing in real estate
 utilized my retirement money to invest in various real          with retirement funds is that generally, no additional
 estate deals. The ability to invest in real estate using        tax planning is needed. For example, since there are
 your retirement money is called self-directed investing.        no taxes due currently on the monthly income, then
 So why are we seeing such a dramatic increase in the            we eliminate the need to do cost segregation studies
 amount of retirement funds being invested in real estate        to accelerate depreciation. Also, because of the tax
 now? This phenomenon has often been referred to as              preferred treatment of IRAs, there is generally no need
 the “Perfect Storm.” Several factors that contribute to         to deal with Section 1031 exchanges on your real estate
 the Perfect Storm are:                                          when you sell it because all the transactions within the
                                                                 retirement account are already tax deferred!
   1. Significant decreases in the value of
      traditional retirement investments such as                 Having said that, there are pitfalls to watch out for
      stocks, bonds, and mutual funds.                           when investing in real estate with retirement money.
   2. The opportunities which now exist in real                  As real estate investors, we all want to maximize our
      estate investing as a result of depressed                  ability to “leverage” our money. The great news is that
      property values.                                           you can also do it with your self-directed money!

   3. Increased awareness…for the first time                     There is, however, a tax trap associated with self-
      the public is becoming aware of this                       directed IRA investing. Some of you may have heard
      opportunity that has been available for                    of the term Unrelated Debt Financed Income Tax
      over 30 years.                                             (UDFI). Essentially, this is a tax imposed in certain
                                                                 instances when you self-direct your retirement funds
 As real estate investors, we should become familiar             into real estate and use leverage at the same time.
 with the opportunities now available in self-directed
 retirement investing as a result of this trend. As              For example, if you purchase real estate using your
 an investor, you may be able to tap into your own               self-directed IRA with 50% debt and earn $50,000 of
 retirement money to invest in real estate deals.                income, that income is generally subject to the UDFI
                                                                 tax of 35% resulting in a tax bill of close to $9,000 for
 One of the greatest benefits of investing in real estate        the year.
 with retirement funds is the ability to defer taxes.
 The income generated by an investment within the                Before you get discouraged, there is a loophole around
 retirement account is generally either tax deferred             this and it is very simple. Rather than using a self-
                                                             4
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                Andrea Jennings        Georgette Leal       Maria Torres          Robert Maletti     Terri Quenzer
                Andres Britto          Gregory Norris       Michael Ceccon        Robert Pereira     Thomas Heubach
                Angel Bronsgeest       Iris Veneracion      Mike Bacich           Ronald Jung        Tiffany Humfeld
                Barbara Plate          Janet French         Myron Williams        Sabrina Segal      Tina Barth
                Bobi Alexander         Jean Scheidt         Noelle Zhang          Sandy MacDougall   Vickie Watts
                Bonnie Kitahata        Jeff Veresh          Phillip Silver        Sara Cramer        Warren Cramer
                Bruce Norris           Joseph Gain          Reshma Patel          Sarah Gain         Wendy Chiem
                Cesar Morea            Julie Falen
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tnG calIFoRnIa InvestoR QuaRteRly – octobeR 2011



 directed IRA to invest in leveraged real estate, instead                                  As you can see, a Solo K Plan may allow the taxpayers
 use a self-directed 401(k) to invest in real estate.                                      to contribute a total of up to $109,000 during the year
                                                                                           to save close to $50,000 in taxes each year! This is
 One of the biggest benefits of investing in real estate                                   significantly higher in dollar amount as compared with
 with your self-directed 401(k) is that this vehicle                                       an IRA contribution limit of $6,000. Not only do you
 actually allows you to use your retirement funds                                          get a huge tax write off in the years of contribution, but
 to invest in leveraged real estate without the taxes                                      the funds can then be utilized immediately to invest
 potentially associated with UDFI. With leverage being                                     into real estate and receive tax deferred treatment!
 one of the preferred ways to invest, real estate investors
 need to tap into the benefits of this loophole.                                           As we talked about before, retirement investing is one
                                                                                           of the most powerful tax saving tools that is available
 To continue with the example above, if you make the                                       to us as taxpayers. If you think the self-directed 401(k)
 same purchase under your 401(k) rather than your                                          may be the best retirement plan for you but already
 IRA, you can avoid the UDFI tax all together which                                        have another type of plan established, consider the
 saves close to $9,000 in taxes! This is a great benefit                                   opportunity to roll those amounts over. Most types
 that the Solo 401(k) plans have above most other types                                    of retirement accounts can be converted into a self-
 of retirement plans.                                                                      directed 401(k) plan.

 Another great benefit of a self-directed 401(K) plan is in                                Remember, retirement investing is an extremely
 the large annual contribution limits allowed. Businesses                                  powerful tool that allows you to pay towards your
 with a spouse on the payroll can also contribute to the                                   retirement rather than to the IRS. As an astute investor,
 Solo 401k. Provided the business owner and spouse                                         retirement planning is an essential component to your
 have sufficient income from the business, taxpayers                                       tax savings plan so make sure you speak to your tax
 may be able to contribute up to $49,000 each ($54,500                                     advisor to take advantage of this powerful tool to
 each if both are age 50+) in 2011.                                                        significantly reduce your tax bill!




                                                                                                                                                                                             Call or visit our website today
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tnG calIFoRnIa InvestoR QuaRteRly – octobeR 2011




    FaceBook                                   For             smarties
                                                    Written By:                                                                                      You may be wondering why Facebook has more profiles
                                                    a aron norris                                                                                    than people in both San Francisco and Sacramento. I
                                                    ViCe President                                                                                   have a question into Facebook on this matter, but it’s
                                                    the norriS grouP,                                                                                most likely due to pages/profiles for things like
                                                    1845 chicAgo Ave, Ste. c
                                                    riverSiDe, cA 92507
                                                                                                                                                     business, nonprofits, and brands.
                                                    (951) 780-5856
                                                                                                                                                     In comparison, Mercury News and the San Francisco
                                                                                                                                                     Chronicle have daily circulations of 577,665 and 235,350
 What’s so wonderful about technology is that far more                                                                                               respectively. (Source: Audit Bureau of Circulations.)
 developers are focusing on user interface (UI) and                                                                                                  Not bad, but Facebook has almost as many Gen Y’ers
 experience. An iPad is a perfect example of beautiful                                                                                               as it does total subscribers!
 interface design. A two-year-old and a senior can both
 have an amazingly tactile, intuitive, and fun experience                                                                                            Granted, print and Facebook are extremely different
 without having to know much about the technology                                                                                                    channels. Both have their benefits, but the numbers
 they’re using.                                                                                                                                      in social media are pretty exciting. Properly leveraged,
                                                                                                                                                     you could be potentially reaching and engaging very
 Facebook is another of these intelligently-built and                                                                                                targeted demographics.
 addictively interactive sites. It has increased to over 600
 million users since it launched in 2004. Here you can                                                                                               Enough about numbers — now for some tips to engage.
 see which sexy actress your grandma most resembles                                                                                                  Hopefully I’ll reach both those that are beginners and
 or reconnect with your 3rd grade crush. Or, you can                                                                                                 avid Facebook addicts.
 use it strategically for business.
                                                                                                                                                     Step 1: Be Interesting
 It’s still shocking to see so many small businesses
                                                                                                                                                     Ask someone extremely honest and close to you if you’re
 completely ignore Facebook as a serious business tool.
                                                                                                                                                     interesting or not. If you’re told you’re as interesting as
 Hopefully this chart puts it into perspective.
                                                                                                                                                     a door knob, don’t worry. Simply skip to step 6 and
                                                                                                                                                     read the book, Tipping Point. It’s time to figure out if
  1,000,000
    900,000
                                                                                                                                                     you’re a maven, connector, or a sales person. Knowing
    800,000                                                                                                                                          is half the battle. And when you know, you can use
    700,000
                                                                                                                                                     what you’ve got to get what you want.
    600,000
    500,000
                                                                                                                                                     Step 2: Create Two Separate
                                     226,860




    400,000
                                                                                                                             191,080
                                                                                     125,960




    300,000
                                                                                                                                                     Accounts
                 564,940
                           500,340


                                               805,235



                                                                 329,620
                                                                           248,940


                                                                                               945,942



                                                                                                         393,060
                                                                                                                   315,120


                                                                                                                                       466,488




    200,000
    100,000
          0                                                                                                                                          If you’re just beginning with Facebook, create an
                    San Francisco                                      San Jose                               Sacramento                             account. Use your personal email address and only
                        13-30     31-46                              47-64     Population
                                                                                                                                                     invite close friends and family. Have someone familiar
                                                                                                                                                     with Facebook settings review important privacy
                                                         Source: Facebook and US Census Bureau 2010 dataset.
       This is information on Generation Y, Generation X, and Baby Boomers on Facebook
                                                                                                                                                     information and settings. Then? Play! Learn the site,
          compared to the new census numbers for San Francisco, San Jose, and Sacramento.
                                                                                                                                                     the tools, and the games. Learn how to post pictures,
                                                                                                                                                     post a status update, and make sure you know the
                                                                                                                                                     difference between posting on a wall and sending a

                                                                                                                                                 7
tnG calIFoRnIa InvestoR QuaRteRly – octobeR 2011



 private message. Then listen, but not in the auditory        need for it as long as someone monitors and updates
 sense. Spy on what other people are doing in your            the page regularly.
 network and get to know the rules of engagement.
                                                              These pages have some additional benefits. Putting in
 For those where your personal network is almost              your physical address allows people to “check in” to
 100% uninterested in your work and you plan to use           your location when they visit you — thanks to GPS
 Facebook for business purposes, consider opening a           technology. You can also install several apps to allow
 second account using your business email (it must be a       things like your blog, Twitter, and YouTube accounts
 different email from your personal account). Use this        to automatically post content to your Facebook page.
 exclusively for engaging in business, for networking,        These pages can also be used for the “like” buttons on
 and for customer service. Separating to a business           your website and/or to advertise on Facebook to reach
 account gives you more freedom to talk about work            more fans.
 without your personal friends finding you annoying.
 It also allows you to “friend” acquaintances without         4. Show Up
 showing them high school photos of you with a
                                                              Many people make the mistake of creating an account
 permed mullet or foot-high bangs.
                                                              and disappearing. This reminds me of an 8th grade
                                                              dance. No one is going to talk to you cowering in a
 In all seriousness, use common sense and watch
                                                              dark corner. Post interesting content, become an
 what you post online. If you’ve created a network of
                                                              indispensable resource, and engage those willing to
 acquaintances, they don’t always need to know where
                                                              “like” your page. If you can’t do these things, see
 you’re at, what your kids are doing, and how many
                                                              number one above.
 times you brush your teeth. Facebook has built in
 some rich privacy features and filters to separate who
                                                              5. Advertise
 sees what, but some might prefer a separate profile
 only for business.                                           Once you’ve set up a page, why not post an ad to get
                                                              even more followers? The best way to start is to create a
 3. Create a Business or Fan Page                             simple ad delivered to friends of friends. Set a very low
                                                              cost per click or cost per thousand (you get charged
 Facebook has made a lot of changes to the way fan
 pages work in the last few years. Creating a business        when Facebook delivers your ad 1,000 times). Your ad
                                                              will then only be delivered directly to the networks of
 page allows you to post information strictly on your
                                                              the people who already love you.
 business ranging from address, times open, pictures,
 and web links. This is not as personal as having a
                                                              Word-of-mouth friending is a great way to test the
 personal Facebook account but could easily replace the
                                                              waters of Facebook ads. Be sure to watch your progress



                             I Survived Real Estate 2011 (SOLD OUT)
                                    Watch free online Friday, October 14, 2011
                                           Register at bit.ly/isurvived

                                                    Limited online spaces.
                                                          8
tnG calIFoRnIa InvestoR QuaRteRly – octobeR 2011



 and budget. Don’t be afraid to try different wording           It’s absolutely acceptable to hire someone to help you
 and graphics to see what works and what doesn’t. I             manage Facebook. However, not your 13-year-old
 promise it’s much easier than you think if you give it         niece who knows nothing of your business and who
 some time.                                                     might litter your wall with lmao, lol, brb, and a host of
                                                                other acronyms you know nothing about.
 6. Hire Someone
                                                                Treat Facebook like any other serious advertising
 Facebook marketing can be extremely complex
                                                                channel. Make sure whomever you have managing
 depending on your product, budget, and how much
                                                                understands your product, your values and mission,
 time you personally have to spend managing pages.
                                                                and how you expect them to engage your fans and
                                                                potential customers.
 However, it’s worth it. Facebook is extremely detailed
 on what demographics can be reached. Unlike paid
                                                                Facebook leveraged correctly can be an incredible tool
 advertising on Google, Facebook can easily target
                                                                for customer service, networking, and referrals. It’s not
 genders, ages groups, education levels, hobbies, and
                                                                just for college kids anymore.
 interests. Imagine delivering your ad over and over
 only to single women over the age of 50 who like the
 book How to Win Friends and Influence People and live in
 San Francisco. Yep, it’s that powerful.


   Doing weLL BY Doing gooD
                      Written By:                               As real estate investors, we know that every property
                      James Conaway                             has a “personality.” Sometimes this personality is
                      FinAnCiAl strAtegist                      pleasant and a joy to be around, and sometimes it is
                      conAwAy & conAwAy,                        quite the ornery personality. So what is one to do?
                      300 e. birch Street, Suite 109
                      breA, cA 92821
                                                                Well, you could sell it! After all, one man’s poison is
                      (714) 577-8758                            another man’s meat! However, it seems like around
                                                                every corner is a dilemma. If you end up selling the
                                                                properties for more, you will have to pay taxes on
 Let me tell you a hypothetical story. Mr. Smart had            them! If you sell for less, you will be at a loss. And
 some extra cash lying around, so he decided to buy             keep in mind that there is also the hassle factor
 a bunch of little houses for $17,700 apiece, and               of trying to deal with the properties. So in a case
 promptly lost money on them. From the start, these             such as this, is there a way to do well AND do good?
 little houses caused him nothing but trouble. They
 constantly broke down and needed repairs due to                Yes! Mr. Smart’s team found out that a “qualified
 poor tenant management. In turn, no one really                 appraisal” evaluated the properties at a value of $36,000
 wanted to live in a house that constantly caused               for each little house. Mr. Smart had already owned
 them problems, so the houses remained vacant more              the houses for more than a year and he was in a 46%
 often than not. Poor Mr. Smart had to deal with                tax bracket! So, to avoid the hassle of renting out his
 vandalism when they were vacant, and he still had to           properties, or trying to put them back on the market
 pay insurance on them (which never seemed to cover             to sell them, he decided to leverage his situation by
 anything.) To add insult to injury, the property taxes         “giving” the houses to charity. In turn, he received a
 were extremely high. These properties weren’t just             $72,000 tax deduction (fair market value), which saved
 badly behaving properties; they had bad personalities!         him $33,120 in taxes. The amount it saved him in taxes
                                                                is half of the appraised value of the four houses. His
                                                            9
tnG calIFoRnIa InvestoR QuaRteRly – octobeR 2011



 cost was the appraisal (this can sometimes be paid            headache, and help out a charity of his choice, all by
 by the charity) and the cost of a Quit Claim Deed.            thinking smart. Now that’s doing well by doing good!

 So what did Mr. Smart end up doing with his                   James and Lorraine Conaway are owners of Conaway & Conaway, a
 misbehaving properties? He got rid of the little              strategic planning firm in Brea, California and hosts of Smart Money Talk
 houses that were taxing not only his money, but               Radio every Monday from 3-4 pm on KCAA 1050AM or on the web
 also his mental shelf space. He stopped taking                www.kcaaradio.com. Conaway & Conaway does not provide tax advice; be
 losses on those properties, and was able to help              sure to consult your tax advisor about your individual situation.
 out a charity! His true gift to charity was roughly
 $3,000 (the hard cost of the transfer appraisal and           Securities offered through J.P. Turner & Company, LLC (Member
 $17,700 x 2 - $33,120). The charity may net $40,000           SIPC). Financial planning and investment advisory services offered
 to $50,000 dollars once they sell the properties.             through J.P.Turner & Company Capital Management, LLC (a registered
                                                               investment advisor). J. P. Turner & Company, LLC and J.P. Turner &
 So you see, Mr. Smart ended up living up to his               Company Capital Management, LLC are not affiliated with Conaway &
 namesake. He was able to get a valuable tax deduction,        Conaway, Inc. or the Norris Group.
 get rid of the little houses that caused him such a



   eFFective strategies to maximize income (anD reDuce risk) using
   singLe FamiLY houses
                     Written By:                               The goal of this article is to offer you some ideas that,
                                                               if implemented, might make your life easier and maybe
                     r andy GriGG
                     President                                 even more productive as a single family house investor.
                     elite AuctionS,
                     1700 cherry Street                        The information I’m going to share with you hopefully
                     bAKerSfielD, cA 93304                     will give you another perspective on buying and
                     (661) 325-6500
                                                               holding houses for cash flow. If you’re somewhat lucky
                                                               and listen to Bruce, you may also capture the growth
 Holding houses long term for monthly income can               that price appreciation offers. Growth that comes
 create financial independence if you do just a few            from appreciation, however, can only be realized if
 things right.                                                 you sell or refinance. Also “appreciation growth” can
                                                               vanish quickly as we all well know (sort of like stocks).
 I’ve been the manager of the houses my wife and I             Growth through amortization, on the other hand, is
 own now for 34 years. About 8 years ago we stopped            pretty much automatic if you make your mortgage
 buying houses to hold because we didn’t need any more.        payments.
 The net income produced was sufficient to support our
 family’s lifestyle. Many of the mortgages have been           I would recommend securing a decent paying job or
 paid off by the tenants who occupy our houses.                career to supply the income you need to pay your bills.
                                                               Flipping houses could work if you could get paid on a
 Although property values in Bakersfield haven’t               consistent basis and made enough each month to pay
 increased much over 34 years, except during the               the bills. When you buy houses to hold using high
 incredible speculation boom of 2004-2006, rents have          leverage, typically there will be little net income that
 doubled. A decent 3 bedroom 2 bath house in a decent          you can use to supplement your immediate cash flow
 area rented for about $500 per month in 1977. Today,          needs.
 the same house can fetch about $1,000 per month.
                                                          10
tnG calIFoRnIa InvestoR QuaRteRly – octobeR 2011



 If you can buy right, you should at the very least break
 even from a net rental income standpoint. My first
 of many mistakes was to buy houses that my tenants
 couldn’t afford because I didn’t structure the payments
 terms properly.

 You should figure on an expense factor using 40%
 of the estimated gross rental income. This formula
 should give you a fairly conservative guideline when
 you negotiate payment terms when you buy. Many
 new investors don’t realize the cost of vacancy
 (especially resulting from a non-paying tenant) and
 expensive capital expenditures that occur in the future
 (i.e. sewer lines, old galvanized water lines, roofs and
 heating/cooling units). A $3,000-5,000 replacement
 cost for these “components” can take you quickly out
 of the game if you didn’t buy right and didn’t have
 an emergency fund for these high-priced repairs that
 come when you least expect them.

 Offering potential sellers a few choices to buy their
 houses worked well for me over the years. Usually two
 of the proposals were low down with favorable terms
 (for me), and the third proposal was an all cash offer at            After completing the necessary repairs, mowing the
 usually 50-55% of retail value minus repairs. Because I              lawn, trimming the trees and scrubs, possibly spot
 was buying to hold, the all cash offer was used to make              painting the exterior trim, and having the interior
 the higher priced “term” offers look more enticing.                  thoroughly cleaned, I was ready for my tenant/
                                                                      potential buyer.
 If the cash offer was accepted, I either assigned it to
 a retailer for a small fee or brought in a well-heeled               Over the years, I found out two important things:
 investor with cash who closed. I then leased back the
 property with an option to buy half of any equity when               1. They didn’t complain about the cosmetic condition
 we decided to sell.                                                     of the house.
                                                                      2. They very rarely exercised their option to buy…but
 When one of the term offers was selected…bingo…I                        stayed much longer than when I was cosmetically
 landed another long term keeper.                                        fixing the houses prior to occupancy without
                                                                         allowing my tenants the chance to buy.
 In the book I recently wrote in honor of Marsha Norris,
 The Carrot Approach to Monthly Income for Life, the letter to        In California, it’s best not to give a tenant an option
 potential sellers and marketing pieces to generate leads             to buy until they’re ready to close. Several other
 are included.                                                        precautionary measures should also be taken so the
                                                                      court, in case of a lawsuit, doesn’t claim your tenant
 The real thrill starts when you become a landlord!                   has an equitable interest in your property. In the book
 Offering a tenant the chance to buy made my life much                there are seven specific things you should follow if you
 easier and my house portfolio more profitable.                       allow a tenant the chance to buy your house.

                                                                 11
tnG calIFoRnIa InvestoR QuaRteRly – octobeR 2011



 As I indicated, very rarely have my tenants exercised             If you want more specific information on buying,
 their options to buy. If they do, you lose rental income,         managing, and using land trusts to hide ownership/
 but if you finance the purchase, your cash flow can               sell on terms to your tenants, get a copy of The Carrot
 increase without the concern of management. If they               Approach to Monthly Income for Life. It’s FREE if you
 cash you out, on the other hand, and you don’t want               donate a minimum of $75 to Susan G. Komen for the
 the cash, you can use a delayed exchange to buy more              cure.
 rentals. Another great benefit of selling to a tenant is
 you don’t pay a commission, and there are no holding              Please review the final page of the newsletter for more
 costs that occur with a vacant property.                          details or email to Grigger12000@yahoo.com for an
                                                                   order form.



  the norris group caLenDar

        = tnG lIve event                       = specIal a ll day tRaInInG


        Oct 14th       I Survived Real Estate 2011                To attend online for free, register at    Please Call
                       (LIVE EVENT SOLD OUT)                      www.bit.ly/isurvived or to be placd      951-780-5856
                                                                  on the waiting list call the office

        Oct 21st       Women’s Council of Realtors: East          Property ID Buidling                        Open
        8:30am-        Valley Chapter                             2086 South E Street (@Hunt’s Lane)
        10:00am                                                   San Bernardino, CA 92408

        Oct 27th       IVAR Realtors and Technology               Ontario Convention Center                   Open
                       Conference - Bruce and Aaron               2000 East Convention Center Way
                       Norris are both featured speakers          Ontario, CA 91764

        Oct 28th       The Mighty Riverside Sunrise Rotary Riverside Marriott Hotel                           Open
                                                           3400 Market St.
                                                           Riverside, CA 92501

        Oct 29th       Cutting-Edge Financial Tactics             Mission Inn Hotel & Spa                     Open
                       Brunch featuring Bruce Norris,             3649 Mission Inn Ave
                       Conaway & Conaway, Keystone                Riverside, California 92501
                       CPA, uDirect IRA.

        Nov 16th       Chino Valley Chamber of Commerce TBD                                                   Open




                                                             12
tnG calIFoRnIa InvestoR QuaRteRly – octobeR 2011


   current trust DeeDs avaiLaBLe
     The Norris Group has the following 9% trust deeds available. If you’d like to be notified about upcoming
     trust deed investments, sign up for our free ebook on www.TNGtrustdeeds.com. These are being funded
     by retirees, doctors, nonprofits, self directed IRAs, and many other sources. For more information on any
     of these investments or the program, call our office at 951-780-5856 or visit www.TNGtrustdeeds.com

                        Location: Hesperia, CA                                                                                                               Location: Victorville, CA
                        Appraised Value: $141,000                                                                                                            Appraised Value: $68,000
                        Loan Amount: $84,000                                                                                                                 Loan Amount: $38,000
                        Loan to Value: 59.57%                                                                                                                Loan to Value: 55.88%
                        Payment to Investor: $630                                                                                                            Payment to Investor: $285
                        Rent Range: $950                                                                                                                     Rent Range: $865
                        Term of Loan: 8 Years                                                                                                                Term of Loan: 8 Years


                        Location: Indio, CA                                                                                                                  Location: Lancaster, CA
                        Appraised Value: $96,000                                                                                                             Appraised Value: $90,000
                        Loan Amount: $54,000                                                                                                                 Loan Amount: $54,000
                        Loan to Value: 56.25%                                                                                                                Loan to Value: 60%
                        Payment to Investor: $405                                                                                                            Payment to Investor: $405
                        Rent Range: $1,100                                                                                                                   Rent Range: $950
                        Term of Loan: 8 Years                                                                                                                Term of Loan: 8 Years


                        Location: Banning, CA                                                                                                                Location: Lancaster, CA
                        Appraised Value: $87,000                                                                                                             Appraised Value: $80,000
                        Loan Amount: $52,000                                                                                                                 Loan Amount: $48,000
                        Loan to Value: 59.77%                                                                                                                Loan to Value: 60%
                        Payment to Investor: $390                                                                                                            Payment to Investor: $360
                        Rent Range: $1,000                                                                                                                   Rent Range: $950
                        Term of Loan: 8 Years                                                                                                                Term of Loan: 8 Years


                                                                                                                                                        of
                                                                                                                                               p of one
                                                                                                                                     h the hel




                                                                                                                                                                For your free book on trust
                                                                                                                              ng wit
                                                                                                                     inv esti            ies.
                                                                                                             t dee d          g com pan
                                                                                                  ld of trus          len din
                                                                                          ble wor         d mo ney
                                                                                 pro fita         ing har
                                                                         ting the ifor nia’s lead
                                                               Nav iga          Cal


                                                                                                    g
                                                                                   Investin
                                                                           st Deed By Br uc e No rr by                                                             deed investing, visit
                                                                                                   is


                                                             California Tru
                                                                                                                                                                www.TNGtrustdeeds.com
                                                                                                                                                                    or call 951-780-5856




                                                        13
tnG calIFoRnIa InvestoR QuaRteRly – octobeR 2011
                                                                                                              Saturday, OctOber 29th
  Cutting-EdgE FinanCial
  taCtiCs BrunCh
  Tax, Planned Giving, and Investment
  Strategies for 2011 and Beyond


     The 2012 tax year may be several months away, but
     now is the time to strategize on ways to leverage
     tax, giving, and investing tactics to maximize savings
     and profits for 2011 and beyond.

     Join our elite panel of experts Saturday, October 29th, for a
     unique brunch and learn experience as we explore:

          •	   What legislative and regulatory changes could mean
               for the Southern California real estate market
          •	   The 2011 BIG tax write-off opportunity you can’t
               afford to miss
          •	   Tax free & tax efficient ways to extract profits out of
               your business
          •	   Tax deductions NOW for a future gift
          •	   Zero estate tax strategies
          •	   Alternative investments using self-directed
               retirement accounts
          •	   Selling property in a tax exempt trust
          •	   Passive and secured 9% annual returns without
               the hassle of being a landlord
          •	   And much more

     Whether you’re a retiree, doctor, teacher, government
     employee, real estate investor, business owner, or just
     someone wanting to learn more, join us for brunch and
     get your questions answered by the experts.




              Bruce Norris                James & Lorraine Conaway              Amanda Han & Matt MacFarland                   Kaaren Hall
    Real Estate and Trust Deeds Expert     Financial Strategists, LUTCF,                  CPA, MBT                               President
            The Norris Group                       CSPG, CRC                            Keystone CPA                        uDirect IRA Services
                                              Conaway & Conaway


                                                   When                               Where                             Early Pricing Until
                                                   Saturday, October 29th             Mission Inn Hotel                    October 21st

                                                                                                                      $39
                                                   8:30am – Registration              3649 Mission Inn                                  per
                                                   9:00am-1pm – Event                 Ave
                                                                                      Riverside, CA 92501
                                                                                                                                        person

                                                 Register Online at                (                                    $49 after October 21st     )
                                                 www.tngtrustdeeds.com or call 951-780-5856
                                                                                  California D ep ar tm ent of Real E s t ate, DR E License 01219 911



                                                                           14
                                                                              $39
     When                                 Where                                                    per
     Saturday, October 29th               Mission Inn Hotel                                        person
                                                                              ($49 after October 21 )
     8:30am – Registration                3649 Mission Inn                                                st
     9:00am-1pm – Event                   Ave
                                          Riverside, CA 92501


     Register Online at
     www.tngtrustdeeds.com or call 951-780-5856
     California Depar tment of Real Estate, DRE License 01219911




                               Bruce Norris                                                                           Amanda Han &
                               President of The Norris Group                                                          Matt MacFarland
                               Real Estate investing, trust deed                                                      Keystone CPA
                               investments, real estate market                                                        CPA, MBT
                               analysis.



Is	the	California	real	estate	market	really	what	it	                                          2011	year-end	tax	strategies	you	can't	afford	to	
seems?	Bruce	will	discuss:                                                                    miss	including:
•	   The statistics behind Southern California real estate                                    •	   The 2011 BIG tax write-off opportunity
     trends and the real behind-the-scenes scoop                                              •	   3 strategies to legally delay paying your taxes
•	   What government intervention could mean for the                                          •	   Strategies to pay yourself rather than the IRS
     future of Socal real estate                                                              •	   Tax free & tax efficient ways to extract profits
•	   Alternatives to owning real estate, without the                                               out of your business
     hassle of land lording                                                                   •	   How to create tax free income from your real
•	   Passive and secured 9% returns with trust deeds                                               estate




                            James Conaway &                                                                          Kaaren Hall
                            Lorraine Conaway                                                                         President, uDirect IRA
                            Conaway & Conaway                                                                        Services

                            Financial Strategists, LUTCF,
                            CSPG, CRC

Doing	well	by	doing	good	including:                                                           The	ins-and-outs	of	leveraging	the	mighty	power	of	
                                                                                              IRAs	including:
•	   Tax deduction NOW, for a future gift!
•	   Sell your property in a Tax Exempt Trust                                                 •	   Using your IRA as a tool for alternative investing
•	   Zero estate tax strategies                                                               •	   The do’s and don’t’s of Self-Directed IRA investing
•	   How to give without writing a check                                                      •	   How to use your IRA to invest in real estate
     Securities offered through J.P. Turner & Company, LLC (Member SIPC)                      •	   Avoiding prohibited transactions
     Investment advice and financial planning offered through J.P. Turner & Company Capital   •	   The basics on the “Checkbook IRA”
     Management, LLC (a registered investment advisor) J.P. Turner & Company, LLC and
     J.P. Turner & Company Capital Management, LLC are not affiliated with Conaway &
     Conaway, Inc., The Norris Group, Keystone CPA, Inc., or uDirect IRA Services, LLC.
                                                                                   15
 e Carrot Approach to
Monthy Income for Life
                                                                         by Randy Grigg
Please help the cause of nding cures for cancer! Donate $75
and get a FREE eBook entitled e Carrot Approach to Monthly
Income for Life written by Randy Grigg, a 34 year veteran “in
the trenches” real estate investor.

   e book was written in honor of Marsha Norris who courageously
battled cancer for 17 years. Her passion for life and her family as
well as her incredible tenacity gave me the inspiration to try and
give back. Please join me by giving back too!

10 Reasons to get a copy of “ e Carrot Approach to Monthly
Income for Life” Plus 1 BIG Reason

 1. Where to nd the best houses to buy on terms for long-term
    investments and the easiest way to make o ers to buy
 2. Why o ering tenants the chance to own a home can give you the
    highest possible net monthly cash ow with the least amount of
    hassle
 3. Why you don’t need to own or option houses in beautiful
    neighborhoods to make substantial monthly income
 4. How to convert houses that need updating and cosmetic improvements           Course includes:
    to cash cows without xing or wholesaling them                                   • eBook
 5. How to use an auction to generate the highest possible upfront move-in          • All forms, contracts, letters
    money from your tenants                                                            and marketing pieces in
                                                                                       Word format
 6. Why it’s best not to give a tenant an option to buy until they’re ready to
    close… especially in California
 7.   How to create multiple income streams from tenants who rent and
      tenants who buy your houses                                                Please email Randy Grigg at
 8. Using land trusts to participate in future price increases from houses       Grigger12000@yahoo.com and
    you assign a percentage of the bene cial interest. If the feds disallow      request an order form for the
    seller nancing you now will have another tool that you can use               ebook.
 9. Eliminate holding costs, commission and other selling expenses when
    you sell your houses                                                         All proceeds of your donation will
                                                                                 be given to Susan G. Komen for
 10. Get all the forms, letters and agreements to become nancially
                                                                                 the cure.
     independent from someone who has 34 years of “in-the–trenches”
     experience
                                                                                  Minimum donation $75 (Please
 11. Help women who have or will be dealing with breast cancer                       donate more if you can).

       All proceeds of your donation will be given to Susan G.
                         Komen for the cure.

				
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