US Residential Real Estate …

1. US Residential Real Estate … … an opportunity of a life time? - Ron Nawrocki - Don Mucha

2. Outline • City Contrast • US Real Estate Market • Some recent History • Real Estate Strategies • Impediments • Opportunities • Risks

3. City Contrast

4. City Contrast

5. State/Country Contrast

6. State/Country Contrast

7. US Real Estate Market • NO SUCH THING ! • Residential dropped in ‘07 – recovering in ’09 • Commercial lags - may recover in 1Q’10 or ‘11 • Detroit & Buffalo have shrinking population – minimal development • Phoenix & Las Vegas have boomed - overbuilt • Hardest hit areas in FL, AZ, CA, NV will recover fastest – Demographics! • Opportunities in Detroit as well as Las Vegas

8. US Commercial Real Estate • Remember when … Cap rates > 7 scarce • Now … cap rate < 10 are boring • I’m selling multi-unit apts at 12-13.5 cap rates! • Retail vacancy high and growing … but • Office market stagnant until employment grows • Apartment complexes offering free rent • Low hotel occupancy • Even hospitals closing • REIT’s are buying now!

9. US Commercial Real Estate • I’d defer investment for at least 1 year • … some areas doing OK (NYC, Wash DC & capitol cities) • Buy/Lease-back to US & State Govt.? • NOTE: not my specialty … yet

10. US Residential Real Estate • Invest where “graying” popul. will be moving … • Would you retire in Detroit or Phoenix? • Major factor in AZ, FL, CA decline was new immigrant hiring laws • My Client’s experience … • How many decreases in RE prices nationally since 1909? • Prices down 50-75% in hardest hit markets! • Back to “normal market” (6 months inventory) due to buying frenzy • Banks withholding “Shadow inventory”?

11. AZREIA: Days of Supply

12. AZREIA: Days by Price

13. Recent History • Disclosure: Former Chairman Republicans Abroad in Poland • 1977 Pres. Carter signed CRA (Community Reinvestment Act) to get mortgages in ghettos … road to hell is paved … • 1994 Pres. Clinton signed National Home-Ownership Strategy broadening CRA • Robert Rubin wrote rules to impose quotas for sub-prime & minority loans • Pres. Bush tried to keep housing going with 1st time buyer incentives • I’m from the Govt. and here to help … RUN

14. Recent History GREED: • Banks – lent 100+% of price • Mortgage Brokers – earn more on sub-prime loans • Appraisers – kept the smoke billowing • People who used a HELOC as an ATM machine • Investors who Fixed & Flipped for big profits • Builders kept building as lines grew to buy homes • Politicians who thrived on FNMA & FRE contributions • Goldman Sachs who inflated the bubble with new products (and hedged)

15. Recent History • NOTE: I was in Poland when mess happened ! • Two brief jokes … balanced politically • Many Sub-Prime borrowers never made their first payments! • Little known Author predicted the bust & now a boom – H.L.Quist • Aftermath of Greed • Profit: from the Coming Boom • Concern - inflation

16. Outline • City Contrast • US Real Estate Market • Some recent History • Real Estate Strategies • Impediments • Opportunities • Risks

17. 4 Ways to Invest in Real Estate

18. B.I.Solutions’ Investments

19. Evaluating any Investment … 4 tests • Liquidity • Safety • Rate of Return • Tax Consequences • Other: Social benefit Will Rogers: "I am more concerned about the return of my money, rather than the return on my money”

20. 1. Fix & Sell • Find a house at a low price (harder than appears) • Buy & Finance • Fix it to appeal to today’s buyers • Find buyer & Sell at a higher price (hard) Plus: • Highest potential return (100%+) Minus: • It’s a Job – You’re working for money • Learning curve • High risk • Fully taxable and become a dealer

21. 2. Lease-to-Own • Find a house at a good price • Buy & Finance • Fix it to appeal to today’s buyers • Find tenant/buyer • Design a contract for a good return Plus: • Easier to find tenant/buyers - banks aren’t lending • Good return (20%+) + tax deductions • Few competitors (mostly homeowners) Minus: • Learning curve • You take the risk

22. B.I.Solutions’ Lease-to-Own • We buy to meet a Client’s needs • Lease payments based on our cost of the property • 25% of rent payment applied toward purchase • Purchase price known at contract signing • Avoids the risk of homeowner defaulting on the mortgage • VERY few competitors!

23. 3. Fix & Rent • Find a house or multi-plex at a good price • Buy & Finance • Fix to rent • Find tenant(s) Plus: • Easy to find tenants • Multi-plex provides diversification • Good return (25%+) – plus tax deductions Minus: • Rents could fall • 3 T’s … Tenants, Toilets, Trash • Some risk

24. 4. Private Mortgage Lending • You are the bank (individual or company) • Find & Check Borrowers • Evaluate the Deals • Determine what YOU want • Negotiate & Agree T&C’s • Close with Title Company • Cash your checks ! • NOTE: Mortgage Pools require SEC registration – Avoid – Use LLC

25. MLS Comps

26. Determining Value (Cnt’d) • County Appraiser, Recorder & Taxes • http://www.maricopa.gov/Assessor/Parcel Application • http://recorder.maricopa.gov/recdocdata • http://treasurer.maricopa.gov • For Income Producing • Value based on Rental Income • Hint: Value ~= 120 rent payments

27. Appraiser

28. Appraiser

29. Recorder

30. Recorder

31. 4. Private Mortgage Lending Plus: • Title Co. handles the documents • Can lend via an established lender • Lowest risk & Short term investment (6 – 36 mo.) • Lending to investors: “Commercial loan on Residential Property” • Does not fall under residential mortgage licensing Minus: • Lower returns (6-18%) … compared to what? • Harder to leverage • Fully taxable (except in an IRA) • Need to foreclose if borrower defaults

32. Security – Private Mortgage Loan Any Private Mortgage Loan (should) have: • NOTE • DEED OF TRUST • LENDER’S TITLE POLICY • PROPERTY INSURANCE B.I.Solutions also provides: • CLIENT INCOME • B.I.SOLUTIONS CASH FLOW & ASSETS • RON NAWROCKI’S PERSONAL GUARANTEE

33. Who benefits from Investing … • We help people make money in Real Estate … • Who? Home buyers who can’t get a mortgage Fix & Flip Investors Cities & Towns Realtors Mortgage Brokers Title Companies Electricians Bank shareholders! Investors ! Phoenix Economy! Inspectors Plumbers Private Lenders ! Appraisers Painters Landscapers

34. Impediments Govt. looking for ways to make things worse: • Cancel programs for 1st time home buyers • New programs for 1st time home buyers • Investors: NO more than 4 mortgages • Investors: NO more than 10 mortgages • Raise bank reserve reqts. on real estate loans • New appraisal rules - pick out of town appraisers? • Add delays in closing process – protect buyer? • License all lenders - incl. seller financing • etc.

35. Impediments Banks: • Do NOT have money … all in reserves for bad debt • Prices dropping - would not decrease below mortgage value • Can't sell their inventory - tighten lending • REO dept. incentive – volume processed • Prices stabilizing - dump at 50% of value • Bidding wars & prices rising - raising list price 1-2% • Executives in meetings with Govt. – rather than running the business • etc.

36. ‘The Ronald’ on Problems … • Biggest Problem – Banks aren’t lending • There are no problems – Only Opportunities disguised (Pepsi mantra) • (1+2) Banks aren’t lending is the Biggest Opportunity – For Who? Private Mortgage Lenders !

37. Opportunities • Real Estate prices do NOT drop to zero! • Prices far below any long-term trend • Return to Fundamentals: • Cash flow – not appreciation hopes • Prices down a lot – rents pretty steady … buy & rent • 10 Commandments for Investors … • Niches: depressed markets, Section 8 & handicapped, adult living .. • Short-Sales … 21st Century phenomenon • Up 580% fold since Jun ‘08 … better for banks • Few bidding wars, no time pressure • Bigger selection, slightly higher prices

38. AZREIA: Price Trend

39. AZREIA: Short Sales

40. AZREIA: Distress dashboard

41. Opportunities • Subject-to sales • Seller avoids default on credit record • Buyer does not add mortgage on his credit • 1st help Seller do a loan modification • Bank “owner financing” – 7 mo. ago they said I was crazy • Bank wins big • Buyer avoids lots of costs and rules • $9 trillion in private investors pockets (they’re scared) • Cash is King! • 5-20% lower price offer accepted

42. When’s the best time to Invest? • 1st Commandment of Investing: When prices are low • Dollar cost averaging: Small amounts regularly • Power of Compounding: As early as possible • Buffett (Graham?): When others are fearful • Sir John Templeton: When you have money

43. Conventional wisdom … The year 2005 … • Invest with big name gurus with high returns • You can’t get ahead with guaranteed fixed return investments MYTH

44. Reality on gurus with high returns … • Some are crooks • Know who you’re dealing with • Read what they’re investing in

45. Risks • Property Valuation • Cost & Time to resell or rent a property • Real Estate prices could decline again • Govt. screws things up even more • Commercial loans cause banks to collapse • Investors stop investing in Real Estate • Rental rates could decline as investors buy-fix-rent more properties • There are shysters out there looking for investors to dupe • Other?

46. Contact Ron Nawrocki (The Ronald) B.I.Solutions Corp. Verrado Buckeye AZ 85396 1-623-249-4792 ron@TheRonald.us www.TheRonald.us B.I.Solutions: Proven, Profitable, and Positioned for Growth