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Providing Education, Resources & Networking Since 1978 Kentucky’s premier investment club for landlords, rehabbers and wholesalers Meeting the 4th Thursday of every month (except November & December) KREIA.COM • facebook.com/groups/kreiaky • twitter.com/reiaky

Monthly Newsletter for KREIA Members

Vol 9-21 September 2021 President’s Letter

Dear KREIA Members and Friends,

Creative Finance: Curious about ‘no money down’ deals?

Welcome, New Members!

National REIA News Briefs

Prices are too high! Inventory is too low! Inflation is looming! Deflation is just around the corner! Foreclosure moratoriums and rental assistance programs are too burdensome! It’s too hard to find contractors! The list of reasons cited for not investing in real estate now is quite exhaustive. The problem is that most of these aren’t reasons at all. They are excuses.

Mike Butler: Home Depot’s ‘Hard 6 to Find’ Benefits Q&A: Attorney Michelle Rawn talks evictions post-moratorium

Government Affairs Links

Hampton Scurlock: Examples of 14 recent creative finance deals Eric Shadowens: The Real 16 Estate Dealer vs. Investor Problem KREIA Photos

Lifetime Achievement Award: Frank Miller receives honor

L.O.T.S. Recap: Diamond Shirley 24 Alexander BRRRRs in Newburg Nina Musgrave: How Does 30 Louisville Compare to Competitive Cities for Housing Justice?

Erik Hitzelberger

Understanding the difference between reasons and excuses is fundamental to your success in every aspect of your life. When it comes to investing, scarcityminded people will allow others to dictate their future. If things are hard, they find an excuse to not proceed and to pass the blame. In doing so, they also cede responsibility for controlling their results. Investors want control of their financial future. They set goals and understand that any investment that supports those goals is a good investment. Importantly, they take ownership while the scarcity-minded are making excuses. If things are hard, investors lean into the problem and ask, “How do I?” This month KREIA is hosting a fantastic panel that will provide you with a multitude of answers to that very question. Vice President Stacey Duvall will be moderating a panel featuring Chris McCarty, Dennis Erhard, Jay Long and Darin O’Neil and covering topics such as how to invest with little to no money down, how to sell with a Lease and Option, and how to avoid/delay taxes by investing through your Self-Directed IRA (SDIRA). You can get everything in life you want if you will just help enough other people get what they want — Zig Ziglar Continued on Page 4

Tool Tip Forms: Ask Tamara 38 West for help, or demo your own cool solution Calendar of Events

Copyright MMXXI Kentuckiana Real Estate Investors Association • P.O. Box 91225 • Louisville, KY• 40291 (502) 509-2216 www.KREIA.com DISCLAIMER: KREIA does NOT pre-qualify, evaluate, endorse, guarantee or warranty any particular deal, service, company, or person. The Kentuckiana Real Estate Investors Association recommends you perform your own due diligence & seek appropriate legal, accounting, or other professional advice before making any investment. KREIA is a Member of National Real Estate Investors Association.

Your KREIA Leaders

President Erik Hitzelberger

Vice President Stacey Duvall

Advertise With KREIA

Secretary Jordan Pohn

Treasurer Mike Treasurer-Elect Grinnan CPA Wally Kallbreier

Board of Directors

Put your message in front of the most active rehabbers, landlords and wholesalers in the state! KREIA offers five membership levels for businesses. Go to KREIA.com and join at one of these annual advertising levels to get your ad in every issue of KREIA’s newsletter and be invited to make ad pitches at meetings:

Business Card Membership . . . . . . . . $199 Includes your business-card-sized ad. Admission at monthly meetings is $20. Premium Levels: These four advertising levels include your ½-page ad in each issue.

Rue McFarland

George Foree

Frank Miller

Greg Nalley

Hampton Scurlock

Rob Bergeron

Christopher Jaquith

Alexis Fentress

Ian Hooper

Mary Conrad

Eric Feller

John Mays

Michelle Rawn Parliamentarian

Chris McCarty Past President

Lauren Willoughby Media Manager

Get involved with KREIA. You can help with the monthly meetings, L.O.T.S. program, this newsletter, Saturday workshops, Government Affairs roundups, marketing, the KREIA website & more. Work alongside active investors! Ask for someone to direct you at the checkin desk at the main meetings.

KREIA's newsletter is published monthly and serves to educate you and to remind you of upcoming monthly meetings. About KREIA: The Kentuckiana Real Estate Investors Association is a nonprofit organization focused on education, networking and resources for today’s investor. Whether you are just starting out in real estate investing or are working on your hundredth deal, KREIA can help you learn more, earn more, and have more fun doing it. Group discounts are available. Contact us at support@KREIA.com if you: Want to advertise on KREIA.com • Need help • Have a question

Bronze Membership . . . . . . . . . . . . . $499 Includes free admission to monthly meetings for one person. Silver Membership . . . . . . . . . . . . . . $699 Includes free admission to monthly meetings for two people. Gold Membership . . . . . . . . . . . . . . . $999 Includes free admission to monthly meetings for two people and gives you a skirted table in the vendors area. Platinum Membership . . . . . . . . Reserved Includes extra promotion. There can be only one advertiser at this level. Our current Platinum Sponsor, MM Lending, holds exclusive renewal rights until 2021. Questions? Catch up with KREIA Sponsor/ Advertiser Chair Dennis Erhard at the meetings. Or email support@KREIA.com.

Join KREIA Joining KREIA is easy: Go to KREIA.com and click the "JOIN" option on the menu. Tell all your investing friends. The cost to join as an individual member is $125 per year, with a door fee of $20 at our monthly meetings (which covers the buffet meal and rent on the hall). Click JOIN at KREIA.com to find out about all the benefits of membership for both individuals and businesses. Too many to list here!

Think Outside the Box to Build Your Rental Portfolio KREIA’s September 23rd main meeting shows you how to get creative What is creative financing? It’s what traditional financing isn’t — it’s NOT going to a bank to put 20% down on a rental house. Creative financing includes a number of bank-less strategies (or initially bank-less), among them: • Seller financing (aka seller carryback) — having

sellers “be the bank” themselves and sell you their houses on payments • Subject-to, in which investors step in and take over making a seller’s mortgage payments • Investing using your IRA • Lease options If you’ve been wondering how “no money down” and “low money down” deals work, this is a must-attend KREIA meeting for you! Many KREIA members who are successful today were broke when they started out — or were very cautious in committing their capital — and used creative strategies to launch their rental portfolios. For our September 23rd main meeting, we’ve invited four well-known local investors who’ve benefited from using creative financing strategies. Learn from Chris Chris Dennis McCarty, Dennis Erhard, Jay Long and Darin O’Neil. They’re going to share stories from their background in investing (more than 100 years’ combined experience!) and Jay Darin answer your questions. Including this one, which has probably occurred to you: Why in the world would people sell their houses to someone who doesn’t put money down?! You know, that’s a very good question! Please make your way through the buffet line and be in your seat by 7 p.m. at Woodhaven (or on the Zoom call) to hear some very good answers! Whether you're a brand-new investor or a longtime landlord, you will learn some valuable techniques you can add to your investor toolkit.

Illustration by Nina Musgrave

Meet Our Speakers Mark this month’s event on your calendar as “must attend.” It’s been a long while since KREIA has devoted a main meeting to creative finance techniques. And during this very strange market of high demand, low inventory and COVID fears, it’s about time we did! Our four speakers have been buying houses and creatively solving sellers’ problems in all kinds of markets – including this one. Chris McCarty is a KREIA Past President twice over: He served his first term from 1997 to 1999 and recently piloted us through the rough waters of 2020. Dennis Erhard is also a KREIA Past President, serving from 2013 to 2015. Dennis is a buy-and-hold landlord who’s known for being “all about the ROI.” Jay Long is another KREIA Past President (2008-2010) who parlayed his start in real estate as a bird dog and wholesaler into that of a successful, many-doored landlord. Darin O’Neil is a KREIA past board member who is known for reaching financial freedom through lease option strategies. You’re going to learn so much. Register now at kreia.com! ► And read Hampton Scurlock’s Page 14 article!

Agenda for KREIA’s Sept. 23rd Main Meeting • 5:30 p.m. – Early Meeting: CPA Eric Shadowens • 6 p.m. – Orientation with Jordan Pohn • 6:15 p.m. – Welcome, announcements, property pitches, and sponsor pitches. Buffet line opens! • 7 p.m. – Feature presentation on creative financing BRRRR/House Hacking Workshop! See Page 34!

5:30 p.m. Early Meeting: Eric Shadowens Pick a CPA’s brain! Eric, an accountant with DMLO, invites you to: “Bring your popcorn and let’s talk about the different ways a real estate investor can be taxed.” Check out his article on Page 16!

Welcome, New KREIA Members! Tommy Arnold Thaddeus Bell Danny Bramer Dan Brault Lisa Carpenter Stephanie Collins Eliana Israel Tim Maddox Eric May Debra Murphy

Lecresha Sewell Ariel Sickles Chase Smith Kyle Thomas Schuyler VanFleet Daniel Wagner Lynn Wright

KREIA’s New Member Orientation Jordan Pohn will give a short presentation of the benefits of joining KREIA at every regular monthly main meeting. We offer many educational and cost-saving opportunities! Join him in the small conference room at 6 p.m. Online Presentation: You can view a recent session with Jordan and Stacey Duvall by visiting the Intro to KREIA page at kreia.com (About/Intro to KREIA on the menu). On the Member Benefits page (Join/Member Benefits), you’ll learn how to secure your discounts and bonuses.

National REIA News Roundup National REIA, of which KREIA is a chapter, reports on issues affecting real estate investors and also links to stories of interest from other organizations. Here is a sampling of recent news and resources that Brad Beckett, NREIA’s Director of Education & Outreach, has compiled. For more news, visit RealEstateInvestingToday.com

Demand for Pools Exploded During the Pandemic The Wall Street Journal (reposted on Realtor.com) says 2020’s pandemic induced an “explosion” of swimming pools across the country. They cite data showing sales of new in-ground pools rose 24% in 2020 – which they say is historic. Read the report at Realtor.com: bit.ly/k2109pools

Study: How Are Landlords Faring During the COVID-19 Pandemic A recent study from Harvard’s Joint Center for Housing Studies asked just that question. In the report, 2,500 landlords shared information about their rental property portfolios, as well as the individual rental properties themselves. Download the report PDF: bit.ly/k2109harvard Continued on Page 28 President’s Letter Continued from Page 1

For those of you looking for emotional and economic fulfilment, I encourage you to attend this meeting. If you haven’t yet, you will meet someone for whom traditional processes don’t work. You’ll have the opportunity to make excuses (the price is too high, they weren’t qualified to buy) or to put together a deal that works for everyone. All you need for the latter is a little bit of knowledge. We will continue to meet both in-person and via Zoom this month. Please join us whichever way you feel most comfortable by pre-registering at KREIA.com. This is the season of opportunity. It is sitting and waiting to be seized. You need to show up, get educated, and take action. KREIA is here to help. To your investing success! Erik Hitzelberger KREIA President Copyright MMXXI Kentuckiana Real Estate Investors Association • P.O. Box 91225 • Louisville, KY• 40291 (502) 509-2216 www.KREIA.com DISCLAIMER: KREIA does NOT pre-qualify, evaluate, endorse, guarantee or warranty any particular deal, service, company, or person. The Kentuckiana Real Estate Investors Association recommends you perform your own due diligence & seek appropriate legal, accounting, or other professional advice before making any investment. KREIA is a Member of National Real Estate Investors Association.

Some of KREIA’s national sponsors via National REIA. For the full list, and info on discounts, visit nationalreia.org/benefits

Home Depot’s ‘Hard to Find’ Benefits By Mike Butler Howdy, Fellow Investors! There are probably over 9,000 ways to invest in real estate; however, almost all investors will step into the arena of repairs, fixer-uppers, rehabs, maintenance and much more. My company has had a Home Depot Commercial Account since Home Depot opened stores in Louisville a long time ago. We also have business accounts at Lowe’s, paint stores, local hardware stores and more. A little over two years ago, I had the opportunity to meet with HD’s head honcho of their Pro-Loyalty Account and National REIA’s staff person assigned to help members with Home Depot. The name for this Pro-Loyalty Account is “NREIA Affiliation” and the code is “NREIA.” There is not enough space in this article to explain every hidden benefit in detail, but let me give you some of the best benefits that I never knew existed with Home Depot. FUEL REWARDS Membership: (Give HD a phone call. I couldn’t find it online) • Would you like to pay less than 50 cents per gallon even for premium gas? • Log in to your Home Depot Pro Loyalty account and sign up. • You will get a Fuel Rewards card for Shell gas stations in the mail. • Insert your rewards card first at the pump, then your credit card, and you will get your discount to buy 20 gallons of gas at discounted price. • Your discounts increase as you buy more stuff in your Home Depot Account. ‘PRO XTRA Perks’ • Receive gift cards for purchases or for tool rentals, based on your total purchases in a year. • As your volume increases for the year, you are issued higher dollar amounts of perks. This month, my perks purchased a Gorilla ladder and some nice new tools for our maintenance dept. ALL FREE! With FREE Delivery! • This explains the whole program. Too much to list here: https://www.homedepot.com/c/ProXtra_TermsandCo nditions PRO-LOYALTY GIFT CARDS • I could not find this on their website, but twice a year Home Depot mails me a gift card for hundreds of dollars. • As I recall, the dollar amount of your gift card is based on total volume purchases. As you buy more, the % rate of your purchases increases.

PRO EXTRA Paint Rewards - Receive up to 20% discounts on qualifying paints “LIST” Feature is powerful. • For example, on a rehab, you could create a list named “123 Main St.” • Go shopping online and add materials to your “list.” • If it’s a large amount, submit to the Pro Desk for up to an additional 25% discount. “Pro Online Resource Center”: https://www.homedepot.com/c/pro_resource_center Use this link to see all of the hidden benefits you might be missing out on. NEVER Again will you go to Home Depot to buy materials to deliver to your job site. Now you can sit at home in your underwear, create a new list, order everything online, assign a PO or Job Name (address), and Home Depot will put your order together for curbside pickup. You enter the name of who you authorize to pick up this order. They must show Home Depot their valid photo ID for pickup. You can also have the order delivered. Be careful here on delivery: Have it delivered to your office or home, otherwise it might disappear if you have it delivered to your job site. Please do not accept this article as the bible on Home Depot’s benefits for investors. There are a boatload of benefits I’m probably still missing or have not found yet. If you want to get all of the details on all these hidden benefits I still have a hard time finding today, please call Home Depot’s Pro Customer Support at 1-800-525-5000. Make sure you tell them you want to enroll in the ProLoyalty Account “NREIA Affiliation,” and the code is “NREIA.” My Landlord Certification 3-Day LIVE Training event happens in Louisville, Oct. 15-17, 2021, and includes a certificate presentation with graduation photos and hot lunch buffet every day! Register now at MikeButler.com Remember, LIFE does NOT have a Pause or Rewind Button! It’s up to you to make it happen. To your continued $uccess,

P.S. Sign Up for Your FREE Investor Training Every Tuesday at 12 noon: MikeButler.com/PowerLunch Mike Butler is a KREIA Past President, a recipient of the Ed Melton Award, a property manager, a high-volume landlord, a principal in Tenant Finder Service, a retired Louisville undercover police detective, and the author of the bestselling real estate book “Landlording on Autopilot,” now available in its 2nd edition.

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Q&A With Attorney Michelle Rawn We check in with real estate attorney Michelle Rawn for her thoughts on evictions since the COVID-related moratoriums have expired. Now that the Eviction Moratorium is no longer in effect, how busy have you been in the last few weeks? We’ve never stopped filing evictions. Since the moratorium has expired, there has been a small increase in filings, but not very much. Are you glad not to have to write another courts update related to the COVID Eviction Moratorium? Absolutely. I think from a landlord’s perspective the moratorium went on for much longer than was necessary and did a lot of irreparable harm. What’s the mood like in the courtroom during eviction hearings? The judges still don’t want to enter eviction judgments during a pandemic and are strongly encouraging landlords and tenants to try and work out a solution. If one cannot be reached, judgments are being entered. How are judges dealing with the deluge of cases? There isn’t a deluge of cases. The judges are still hearing 60 cases a day, just like they were when the moratorium was in place. Before COVID in Jefferson County, the judges heard between 80-90 cases each day. Got any advice for landlords pondering an eviction? Court dates are running 3-4 weeks from the filing date. If you need to file an eviction, then you should go ahead and file. The closer we get to the holidays, the longer the delays in court dates. Also, for evictions for non-payment of rent cases, there is still a 2-week continuance mandated by the Kentucky Supreme Court. What’s your gut feeling on whether eviction moratoriums will be imposed again in the near future? It’s up to the states now or for Congress to pass something. I hope that they do not, as a lot of my clients have lost properties, their retirement and their nest eggs. I’m not sure what the best answer is in this situation, but stopping evictions and leaving the landlords having to still pay all of their expenses while they cannot evict the nonpaying tenant and hopefully replace them with someone who will pay, is definitely not the answer. What do you think the aftereffects of the moratorium will be for investors? I know a lot of investors who have either decided to get out of residential real estate investing or who are completely getting out of the business. I believe a lot of these properties may have lost value because the owner was unable to make repairs as they did not have the funds available. Also, a lot of investors have changed their leases

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to be month-to-month leases so that they can evict a tenant with 30 days’ notice. It will create a hardship on both landlords and tenants with not having the stability of a long-term lease. What strategies would you recommend landlords to pursue looking ahead? I’ve advised my clients to stick with shorter-term leases or to add a clause to their longer-term leases stating that the landlord has the right to terminate the lease with 30 days’ notice to the tenant. This was if another moratorium for non-payment of rent is put in place, they will not be unable to evict as the lease term is 1-3 years. You can reach Michelle Rawn, of Rawn Law Firm, PLLC, by emailing michelle@rawnlawfirm.com, calling (502) 6399396, or visiting her website: rawnlawfirm.com.

How Your Tenants Can Claim Assistance Landlords, you cannot directly tap into the millions sent to Louisville for rental assistance – but your tenants can. If you have any residents who are behind in rent and that you have filed eviction on, please direct them to this website: StopMyEviction.org The site offers a form they can fill out and instructions on how to proceed.

GOVERNMENT AFFAIRS LINKS State Government Roundup Kentucky Realtors Legislative Updates. Read weekly updates on bills in play in Frankfort at the Kentucky Realtors’ site: bit.ly/KYR_LEGU

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Local Government Roundup Louisville Metro Government: Get a summary of local affairs (and state) by the Greater Louisville Association of Realtors (GLAR): bit.ly/LRGAU

Let’s Get Funky – With Creative Finance By Hampton Scurlock One of the things that can be exciting about real estate is the ability to get creative (or funky). If you can consistently solve people’s problems, you will be very successful in the real estate business. The ability to think creatively and craft solutions to solve problems will help you get deals in situations where other investors don’t think there is a deal to be made. I was recently asked to write about creative finance deals (like most awesome DJ’s, I take requests) and wanted to outline a couple of recent deals and ideas that may help you land more opportunities. 1. Lease it now, buy it later. I was buying a vacant house downtown, and when I tried to close on it we found out that it had title issues. I could not close on it until the sellers sold another (more expensive) property. The sellers were “done” dealing with the cheap property I wanted, so I needed to think of a creative solution. I proposed that I lease the house from them for $1 until I bought the property, or for 5 years, whichever was quicker. I would be able to sublease the property, and I was responsible for mowing the yard. Within two weeks it was cleaned up, and we had a tenant move in for $650 a month. This creative solution helped solve the sellers’ problem, was profitable for me and helped them. We are currently on about month 8, and after about 15 months the renter will have paid more than the purchase price of the home. 2. Find a win-win situation. As a former financial planner, I am aware of certain entitlement and benefit programs and that people can lose certain benefits or be forced to spend almost all of their money or liquidate all of their assets before benefits will be reinstated. So, while most sellers want a cash offer, some sellers may actually lose or suffer from reduced or lost benefits as a result of a cash sale. In these instances, it can make sense to structure the purchase by making payments to the seller over time. Instead of receiving a lump sum, they receive money in installments and are able to keep their benefits, while you get a low/no/favorable interest rate if it is agreeable to both parties. 3. My price, your terms or your terms, my price. I use this phrase often when negotiating with sellers. It means that if a seller wants me to agree to their terms, they need to agree to my price. If they are sticking to their price, then they will need to agree to my terms (which often includes owner financing or receiving payments over time). It does not always result in coming to an agreement, but it often gets the seller to think from my perspective – which typically leads to a discussion and hopefully an agreement that works for both parties.

If a seller wants $85,000 for a cash sale with a quick closing, you may offer $65,000 and agree to his terms. Or, your other offer may be $85,000 over 170 months at $500 a month. If you are fine with either scenario, you can give the seller a choice between the two. I think it is good to give sellers options – just not too many, or you can overwhelm them – to help get a deal completed. 4. You can exchange/trade properties. You can give someone a down payment (maybe to pay off their current mortgage or debts they want to pay off) and then make payments to them to buy their house. “Subject to” deals can also be beneficial to both parties if done properly. 5. Maybe buy the seller’s house and lease it back to them for a period of time to get the deal done and give them time to find somewhere else to live. Also, you can have them pay rent up front out of the sales proceeds (if you are charging them) and if they agree to it. 6. Buy all the properties a seller is selling. Bundling, or buying in bulk, can lead to significant discounts. 7. Construct a multi-part deal. If they are moving in with family members or wanting to combine households, see if they want to sell you their house too (or buy or rent one of yours). 8. Give the sellers free rent or a rent credit at one of your other properties (if you want them as a tenant). 9. Pay for a dumpster for them or allot up to a certain amount for one, or you could pay for a moving truck and movers. 10. Buy the seller’s cars and boats that are sitting at the house. Or if they need a vehicle, give them one of yours, or agree to buy them a vehicle (subject to a certain cost limit out of the proceeds). Steve Craven and Chris Simms are KREIA members who also have car lots. 11. Give sellers some time at your Airbnb as an incentive, or offer some other item or service to sweeten the deal. This Continued on Page 38

The Real Estate Dealer vs. Investor Problem How to avoid a date with a Tax Court Judge By Eric Shadowens This controversy brings before us the “old, familiar, recurring, vexing and oft-times elusive” problem of whether to treat profit arising out of sales of subdivided real estate as capital gains or ordinary income. I’d like to say I authored that first sentence but must give credit to the judge who ruled on one of the many court cases that have come about regarding this issue. This particular court case occurred in 1973, and I could tell you about many other cases that date back to the ’70s and likely prior.

Factors and Considerations Helpful, But Do Not Guarantee Treatment Through the years court cases have helped define guidelines on how to address the Dealer vs. Investor issue. One case introduced five factors that have been used in subsequent rulings to help determine whether the taxpayer is a Dealer or Investor. These include how frequently and continually the taxpayer sells real estate, the nature and extent of improvements and development, solicitation, advertising and sales activities, the nature and purpose of holding the real estate, and extent and substantiality of transactions. Dealer versus Investor – A Big Tax Difference In addition, court cases have considered duration of You may wonder why the controversy. Imagine you are an ownership, extent of subdividing and development to owner of a business and made a $100,000 profit on the sale increase the sale price, use of a business office for sale of of real estate. You’re likely curious to know what amount of real estate, and character and degree of supervision or tax you will be paying on the sale. Generalcontrol over representation of selling the ly, the federal tax on the sale of real estate, real estate. If given the choice, if ordinary income, is taxed at your tax These factors and considerations are any taxpayer would bracket, which could be as high as 37%. In important when trying to characterize the addition, you could be subject to employwant to have the sale intent of your business and sale of real ment taxes of 15.3%. In this example the estate. of real estate total federal tax would be $52,300. There have been cases where a calculated using But what if the sale of real estate was taxpayer originally sets out to deal in real capital gains vs. instead taxed at capital gains rate, the estate as a flipper, for example, which ordinary income rates. would designate them as a Dealer. At some highest being 20%, plus you were required to pay the investment income tax of 3.8%? point the taxpayer may have a life situation Unfortunately, it’s The total federal tax on the sale would be that forces her to abruptly sell a piece of more complicated $23,800. As you can see, this would result real estate she owns prior to any than simply choosing. in you paying $28,500 less in federal taxes. development, without any advertising and having never established an office. If she Documenting Your Business Intent held the real estate longer than a year, it would be eligible Naturally, if given the choice, any taxpayer would want to for long-term capital gains treatment even though the have the sale of real estate calculated using capital gains vs. business she originally intended to conduct would be ordinary income rates. Unfortunately, it’s more complicated considered a Dealer. than simply choosing, and that is why all the litigation. Another example may be that a taxpayer seeks to invest I’ve seen this issue arise many times working with clients in real estate and hold it to be sold in the future for a profit and reading through blogs and forums, and it’s important for without development. Once he makes the purchase of the taxpayers to understand the issue long before the sale. A big real estate, he decides the market is so hot he could split reason the Dealer vs. Investor issue comes up so often in up the real estate into subdivided lots and make a decent court is the failure of the taxpayer to understand the profit. He opens up an office on the property and begins to differences. In addition, taxpayers have come up on the short advertise the sale of subdivided lots. In his case he has end on many of these court cases because of a failure to become a Dealer in the property. document and substantiate their reasoning. The main thing to remember is that it’s very important And it’s not always taxpayers attempting to claim investor to document the intent of your business and revise this status. There are times it would be more advantageous to documentation if conditions change. have Dealer status if a sale of real estate incurs a loss. Some In addition, it would be wise to consult with your tax taxpayers may have other ordinary income the loss could advisor so that you understand the tax implications well offset, so it goes both ways in this controversy. Continued on Page 38 Copyright MMXX Kentuckiana Real Estate Investors Association • P.O. Box 91225 • Louisville, KY• 40291 (502) 509-2216 www.KREIA.com DISCLAIMER: KREIA does NOT pre-qualify, evaluate, endorse, guarantee or warranty any particular deal, service, company, or person. The Kentuckiana Real Estate Investors Association recommends you perform your own due diligence & seek appropriate legal, accounting, or other professional advice before making any investment. KREIA is a Member of National Real Estate Investors Association.

Photo courtesy of Andrea Dewey & Rob Bergeron Last month was a busy one for Hampton Scurlock, at left, who heads up KREIA’s Social Committee. Hampton planned an outing to a Cincinnati Reds game – attended by Andrea Dewey and Rob Bergeron, shown above – and also a picnic in the park in Douglass Hills (at far left). At the picnic we celebrated our recent milestone of reaching 800 active KREIA members with a yummy cake.

Photo courtesy of Alexis Fentress

KREIA

Photos

Photo courtesy of Hampton Scurlock

Photo courtesy of Jackie Snyder

Visit KREIA’s Private Facebook Group to see more of Bruce Hinson’s photos from last month’s meeting – in color!

Photo courtesy of Chris McCarty

Photo courtesy of Jackie Snyder

At Left: Erik Hitzelberger takes the podium for the first time as KREIA President. Above: Karen McKnight wears the blue lanyard of landlording. Above Right: Loretta Showalter and Nishea Sipley network. At Right: Investors enjoy some ’que before Greg Nalley’s Lunch & Learn Presentation.

photo by bruce w. hinson www.obedientcamera.com

Photo courtesy of Jackie Snyder

Congratulations to Frank Miller KREIA Past President Frank Miller, who runs Believe Investment Group along with his wife, Tommi, shown at right, received the first Hank Schildknecht Lifetime Achievement Award at last month’s main meeting. The award recognizes recruitment of new members, mentorship, and being a good role model. Frank said Hank was the person who invited him to KREIA about 17 years ago. “I feel honored to get this award,” Frank said during his acceptance speech, “and I appreciate everything he showed me along the way. He was a great mentor.” KREIA Parliamentarian and Past President Hank Schildknecht, shown near right in this 2019 photo with his wife, Martha, received KREIA’s first Lifetime Achievement Award at our 2019 Holiday Party. After Hank passed in August of 2020, KREIA created this new award in his honor. Watch a video of Frank’s emotional acceptance speech, recorded by Eric George: photo by bruce w. hinson bit.ly/k2108frank www.obedientcamera.com

Photo courtesy of Eric George

At Left: New KREIA Vice President Stacey Duvall and her husband, Ron Burns, took their place in the buffet line. At Right: August’s featured speaker, Mike Butler, extolled the virtues of mailbox money and – even better – rent payments arriving directly in your bank account. Below: While attendance is not yet back to full strength at Woodhaven, this August crowd shows it is picking up.

Photo courtesy of Tommi & Frank Miller

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Do You Want Your Business Card to Appear Here? Join KREIA as a Business Card Advertiser for only $199/year and see your ad in a year's worth of KREIA newsletter issues! Copyright MMXXI Kentuckiana Real Estate Investors Association • P.O. Box 91225 • Louisville, KY• 40291 (502) 509-2216 www.KREIA.com DISCLAIMER: KREIA does NOT pre-qualify, evaluate, endorse, guarantee or warranty any particular deal, service, company, or person. The Kentuckiana Real Estate Investors Association recommends you perform your own due diligence & seek appropriate legal, accounting, or other professional advice before making any investment. KREIA is a Member of National Real Estate Investors Association.

Newburg Rehab House: A Closer Look Diamond Shirley-Alexander BRRRRs her way into a new rental By Lauren Willoughby Investor/broker Diamond Shirley-Alexander, who heads up her own real estate company, Diamond Key Realtors, says her ventures into investment property began when she came to KREIA about two years ago and kept getting asked the same question. “Every time I walked into a KREIA meeting, Mike Butler would ask, ‘How many rentals you got?’” “None,” she would answer. “What are you waiting on?” Diamond Shirley-Alexander and her husband, Vincent, welcomed KREIA investors to their was the KREIA Past President’s latest flip project, located at 5110 Shepherdsville Road. (Photos courtesy of Alexis Fentress) follow-up. This conversation played out every month, she said. “And for $65,000 – which Diamond was happy to pay. “And I then I met George, and he did the same thing.” won’t charge you a commission,” Diamond told her. Future mentor George Foree, a longtime investor and She and Vincent used KREIA sponsor MM Lending for KREIA board member, told her, “You keep saying you want to their funding to purchase the property, and they got their do it – the first step to getting there is just to do it.” refinance through CUB Bank. They opted for a 20-year Over a year ago she bought her first flip. Then she and her loan, and the refinance left them with 20% equity in the husband decided that the houses they found they’d prefer to property. keep and turn into rentals in order to reap the passive The couple has been working on the house for about income. “So, we now have 10 rentals.” three months. “We ordered the windows three months ago, and they just got here yesterday,” Diamond told the Diamond said they KREIA crowd gathered in her back yard. used the BRRRR method Any surprises in the rehab, someone wanted to know? – Buy, Rehab, Rent, “We came in and water was dripping out of the Refinance, Repeat – to furnace,” she said, so they are replacing some of the turbo-charge their way floors. into a portfolio. Be sure to check out the video and photos from the Diamond was the host st event posted to our Facebook Group: The rehab is of our August 31 Learn On The Site event, where gorgeous. “Our goal is to get to 20 rentals in the next year – 10 she invited us to a house more next year,” Diamond said. they’d rehabbed in The way these two are zooming along, we’re sure they’ll NewBRRRRg. Er, make that goal. Newburg. Great job, guys! Thank you for hosting us. This house on Shepherdsville Road fell into her lap about three THE NUMBERS Find the months ago when a Purchase: $65,000 video from this L.O.T.S. event, motivated seller called Total Rehab Cost: $32,800 along with photos, her. The woman’s father Monthly PITI Payment: $860 posted on our KREIA had passed away, and Monthly Rent Received: $1,200 Facebook Group. Appraised Value: $140,000 Mike Fallot of MM Lending provided she didn’t want to clear out anything. She just the funding for the purchase and Why do we call it “L.O.T.S.”? Because we Learn On The Site! wanted a quick sale – rehab of this house. Copyright MMXX Kentuckiana Real Estate Investors Association • P.O. Box 91225 • Louisville, KY• 40291 (502) 509-2216 www.KREIA.com DISCLAIMER: KREIA does NOT pre-qualify, evaluate, endorse, guarantee or warranty any particular deal, service, company, or person. The Kentuckiana Real Estate Investors Association recommends you perform your own due diligence & seek appropriate legal, accounting, or other professional advice before making any investment. KREIA is a Member of National Real Estate Investors Association.

Copyright MMXX Kentuckiana Real Estate Investors Association • P.O. Box 91225 • Louisville, KY• 40291 (502) 509-2216 www.KREIA.com DISCLAIMER: KREIA does NOT pre-qualify, evaluate, endorse, guarantee or warranty any particular deal, service, company, or person. The Kentuckiana Real Estate Investors Association recommends you perform your own due diligence & seek appropriate legal, accounting, or other professional advice before making any investment. KREIA is a Member of National Real Estate Investors Association.

National REIA News Briefs Continued from Page 4

Rentable Says September Rents are Surging Rentable says that the median nationwide rent price for one-bedroom units in September was $1,219 (up 2.4%) with two-bedroom units coming in at $1,479 (up 2.09%). Read the report: bit.ly/k2109rentable

Construction Spending Up 9%

The Vacation Rental Business is Coming of Age A recent article in the Wall Street Journal (reposted on Realtor.com) says vacation-rental ownership among young adults is on the rise across the country. They look at several young people who find that rental income is worth it despite the challenges involved – such as lack of credit history, student debt or limited time to save for a down payment. Read the article at Realtor.com: bit.ly/k2109vacation

The U.S. government is reporting that total construction spending in July was at a seasonally adjusted annual rate of $1,568.8 billion, which is 0.3% above June’s revised estimate. However, July’s figure was 9% higher than from one year ago. View PDF at Census website: bit.ly/k2109construction

Black Knight Says 1.45 Million Mortgages Seriously Past Due

5 Must-Know Steps to Renovate a Multifamily Apartment Property

Biden’s Eviction Moratorium Put Small Landlords on the Brink

On a recent episode of the Rental Property Owner & Real Estate Investor Podcast, Brian Hamrick talked with Ken Gee about the most important steps you must follow. Ken has over 24 years of real estate, banking, private equity transaction, and principal investing experience, and has been involved with transactions valued at over $2 Billion. Listen to the podcast: bit.ly/k2109multifamily

65% of New Homes have Porches Porch-sitters, take note? According to new research from the NAHB’s Eye on Housing, 65.3% new homes built in 2020 were equipped with a porch. While this might sound mundane, it marks only the third time that porches have broken the 65% threshold. Read the report: bit.ly/k2109porch

Working for a Living All across the nation men and women are engaged in numerous trades and occupations – and let’s not forget they all need a place to live! Recent data from the U.S. Census Bureau took a look at selected occupations with more than 1 million full-time, yearround workers by sex. View the infographic full-size: bit.ly/k2109working

According to a Black Knigh report for July 2021, overall delinquency volumes continued to edge closer to their prepandemic levels, but the number of serious delinquencies were still significantly elevated at the end of July. Read the report: bit.ly/k2109pastdue

In a recent essay, former Cincinnati Mayor & deputy undersecretary of HUD, Ken Blackwell, says we often expect politicians to enact constitutionally dubious laws & executive orders, but usually they at least pretend that their actions are legal. Read the article on Fox News: bit.ly/k2109biden

Emergency Rental Assistance Slow to Reach Tenants National REIA has reported about this problem several times now – it’s almost criminal. In fact, National REIA’s Charles Tassell even said, “Let’s face it, the government is so inept they cannot give away money!” Indeed… this infographic points out how the $46 BILLION in Emergency Rental Assistance has been incredibly slow to reach tenants. View the infographic: bit.ly/k2109tenants

Student Housing is Hot this Year A recent report from CNBC’s Diana Olick says demand this year is up over 2%, even in the midst of the coronavirus epidemic. She also points out that 70% of students live in off-campus housing. Watch on CNBC: bit.ly/k2109student Continued on Page 34

How Does Louisville Compare to Competitive Cities for Housing Justice? By Nina Musgrave In 2003 the Greater Louisville Project (GLP) launched to support the merged government of Louisville Metro. Since then it’s continued to publish research on core civic topics, using indexes to compare data to designated competitive cities. The project is fiscally sponsored by the Community Foundation of Louisville, Inc., a 501(c)(3) organization. In December of 2020, GLP drafted the document A Path Forward for Louisville, which produced four deep dives on housing justice, early childhood education, the digital divide, and Black wealth. I’ve pulled out a couple of the graphs from their housing report so we can check in on how Louisville is doing. There are also two corresponding charts showing data for Jefferson County Metro Council districts. Please visit greaterlouisvilleproject.org to read the complete report. For clarification, a Cost Burdened Renter equates to households making less than $35,000 per year and paying more than 50% of their income in rent. The graph in Figure 1 shows how Louisville compares. These Metro Council Districts have 50% or more cost burdened renters: Metro District 19 16 7 17 18 26 2 14 21

Figure 1.

Figure 2.

Cost Burdened 70% 66% 64% 64% 56% 52% 51% 50% 50%

How does Louisville compare with percent renters – the percent of the population that rents, instead of owns, their housing? See the graph in Figure 2. These Metro Council Districts have 50% or more Percent Renters: Council District 4 6 5 15 2

Percent Renters 80% 77% 57% 55% 50%

Rent burden is a significant barrier to home ownership, and we know that homeownership is one path to wealth. As we can see, Louisville is doing relatively well compared to our competitive markets. However, we can always do better. What can we do, as real estate investors, to improve Louisville’s place on these lists? Nina Musgrave is an investor and past KREIA board member. She is passionate about real estate, technology, and potato chips. Most platforms: @onlyonenina

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National REIA News Briefs Continued from Page 28

Fastest Growing Cities in America The Visual Capitalist reminds us that the world has become increasingly more urbanized, especially in the United States – with over 80% of our populartion concentrated in key metro areas. So, which of these urban areas (those with 300k+ people) are growing the fastest? View the full-size map: bit.ly/k2109growing

Vet Landlord Faces Homelessness After Moratorium Barred Her from Evictions The list keeps growing of small business men and woman who have been economically harmed (and in many cases ruined) by the CDC’s eviction moratorium. An Air Force veteran in New York state is now living out of her car after the eviction moratorium prevented her from evicting tenants who withheld more than $23k in rent. Read the story at Breitbart: bit.ly/k2109vet

FEMA to Add Climate Change Data to Nat’l Flood Insurance Program CNBC is reporting that, starting October 1, FEMA will be factoring in the impact and risks of climate change as part of a complete overhaul to make insurance pricing more accurately reflect each property’s unique flood risk. Read and watch at CNBC: bit.ly/k2109flood

Eric Shadowens: Real Estate Dealer vs. Investor Problem Continued from Page 16

Hampton Scurlock: Get Funky With Creative Finance Continued from Page 14

before you proceed with any transactions. This could save you from becoming one of those many court cases mentioned previously. In a court case the burden of proof falls on you to substantiate the position you have taken on your tax return for the sale of real estate.

could include mowing their yard until closing, a $100 gift card to their favorite restaurant, or something else creative. 12. Partner with someone who has creative ideas and the experience to get a deal done with sellers you are working with. Hopefully this article gives you some ideas on how to be creative when crafting offers in order to get more deals. If you use any of these strategies to get a deal that you want to sell or wholesale, I would love to be the first person you contact.

Advantages and Disadvantages I have mentioned the tax savings an investor has due to their gain on the sale of real estate being characterized as a capital gain. Other advantages include the option to purchase another piece of real estate in a 1031 exchange or invest in an Opportunity Zone. In addition, a sale of property by an Investor is eligible for an installment sale. All three advantages help defer tax to future years. A disadvantage to being an Investor is a sale of real estate at a loss would result in a capital loss. Taxpayers may only offset capital losses with capital gains plus an additional $3,000 after netting gains and losses. Therefore, you may have, for example, a loss of $50,000 on a sale of property that cannot be offset with any capital gain. This would result in getting a $3,000 deduction to your ordinary income with the remaining $47,000 loss being carried forward indefinitely to future years until fully utilized. A Dealer would be able to deduct the entire $50,000 loss against any ordinary income he has earned. If the $50,000 was not used up entirely, then the remaining amount would be carried forward as a Net Operating Loss to future years. (The recent CARES Act temporarily allows an NOL to be carried back 5 years)

Wrapping It Up I realize most folks do not enjoy the idea of curling up to a nice, thick stack of old and new court cases over a cozy fire and reading all the fascinating details of how taxpayers have gone wrong. But this history can save you from the “old, familiar, recurring, vexing and oft-times elusive” problems in tax court. Happy tax planning!

Hampton Scurlock is a real estate investor and KREIA Board Member. If you need help closing a deal or negotiating with a seller, call or text Hampton at 859-433-3095. You can also send deals to him at financialwhiz1@gmail.com. He hosts the NexGen real estate meetup at Roosters at 10430 Shelbyville Road every 2nd Tuesday of the month from 6 p.m.-8 p.m. He also co-hosts the KREIA Game Night and Happy Hour events. The preceding is not tax, legal or investment advice; consult a paid professional on such personal matters.

Got a Question? Want to Show Other Investors Something Cool? Tamara West, host of KREIA’s Tool Tip Tuesday monthly Zoom call, is taking requests! If you would like to ask the longtime broker/investor to cover a particular topic, or to use her screen share powers to walk you through a solution to a computer problem that’s been bedeviling your real estate business, use this form to let her know: bit.ly/tooltiptuesday

Eric Shadowens is a Certified Public Accountant and Senior Tax Manager with DMLO CPAs (Deming Malone Livesay + Ostroff, dmlo.com). You can reach him by calling (502) 3262319 or emailing him at eshadowens@dmlo.com. You can also connect with him on social media: Twitter: @ericshad76cpa LinkedIn: linkedin.com/in/ericshadowens BiggerPockets: Biggerpockets.com/users/EricShadCPA

Or maybe you’ve got a tip you’d love to share with Tamara and other investors. We bet you do! If you’ve found a new must-have tool or figured out a timesaver in your business, ask Tamara to let you take the controls of the screen share. Use this form to get on her schedule: bit.ly/tooltipshowus

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THE Local Resource for Landlords, Rehabbers & Wholesalers Meeting the 4th Thursday of every month (except November & December) at Woodhaven Country Club, 7200 Woodhaven Road, Louisville, KY 40291 KREIA.COM • twitter.com/reiaky • instagram.com/reiaky • youtube.com/reiaky facebook.com/reiaky (public) • facebook.com/groups/kreiaky (private)

UPCOMING EVENTS

Creative Financing Curious about how to buy houses with “no money down” – or “low money down”? Learn how from four guys who have made use of creative strategies to build their rental portfolios: Chris McCarty, Dennis Erhard, Jay Long and Darin O’Neil. Sept. 23rd, 5:30 p.m. - 9 p.m. ► 5:30 p.m. Early Meeting: CPA Eric Shadowens from DMLO explains “the many ways real estate investors can be taxed.” ❖ Sept. 28th — noon-1 p.m. L.O.T.S. event. We visit an investor’s active rehab project. Members only. Lunch provided! ❖ Oct. 6th — Noon-1:30 p.m. Lunch & Learn. Tonya Allen speaks on branding, and Duna Bolotte hosts. Members only. Please note the move to Wednesdays for the time being.

❖ Oct. 12th — Noon-1 p.m. Tool Tip Tuesday. Tamara West hosts a Zoom call where she demonstrates software and resources helpful to investors. Members only. ❖ Oct. 14th — 5 p.m.-7 p.m. KREIA Happy Hour. Networking at Woodhaven Country Club. Everyone invited. Bring a friend! ❖ Oct. 21st — 5:30 p.m.-8 p.m. KREIA Game Night. Want to get out of the Rat Race? Play CashFlow with us! Hampton Scurlock and Alexis Fentress host. Everyone is invited. ❖ Oct. 30th – 10 a.m. – 1 p.m. Beginning Investors Workshop. KREIA teams up with NAREB and Master Builders Academy. Speakers include attorney Harry Borders.

Main Meeting Preview Here’s what’s coming in the months ahead: October 28th: Social Media Marketing November 11th: KREIA’s Holiday Party

We’re Back at Woodhaven, Baby! PRE-Register Now at KREIA.com