How to Net Over $1 Million a Year Wholesaling Real Estate

 

There are a lot of wholesalers out there, but not many can say they make over $1 million a year in profit. Matt Garabedian, who has been wholesaling since 2012, eclipsed the million-dollar profit mark just last year.

 

In our recent conversation, he explains how he completed his first deal, as well as the most effective ways to find buyers and to find deals to replicate his million dollars a year success.

 

Matt’s First Wholesaling Deal

 

Matt didn’t become a million dollar wholesaler overnight. In fact, it took him 3 years after getting into the real estate business (as a traditional broker) to just close his first wholesale deal!

 

So to begin, here’s the story of Matt’s first wholesaling deal.

 

After fully immersing himself in a wholesaling mastery course, Matt sent out his first direct mailing campaign, sending out 300 letters. He received his first call and the game was on.

 

“I remember sitting in front of [the seller’s] house – I really had no idea what I was going to offer, but I kind of forced myself to make such a ridiculously low offer that I was uncomfortable telling him,” Matt said.

 

“I had to work up the courage to give him the offer, and I think I ended up offering this guy $18,000 for his house. I kind of felt that the property was worth fixed up maybe $60,000, So I worked up the courage to give him that offer, and he told me, ‘Well that’s not going to work, but how about we do $24,000?’”

 

“I was so excited just to get a counter, I said, ‘Okay,’ and I wrote up the deal, got it under contract, and then asked myself, ‘Boy, now what do I do with this?’ because I didn’t really have the cash buyer for that particular property type, or I didn’t know who would be interested in buying it.”

 

Matt was a broker, so he had access to the MLS. He researched the neighborhood and found a comparable property that sold recently and was purchased with cash. He couldn’t find the buyer’s information, but he did find the phone number of the agent that sold the property.

 

At this point, Matt said, “I called the agent and I said, ‘Hey, I noticed that you sold a property in the area recently. I have a house right down the street. Do you think that this particular buyer would be interested in another one?’ He said, ‘What have you got?’ Knowing that I had the property under contract for much lower than what the comps were, I kind of just shot for the moon and I said, ‘Well, I could sell this property for $52,000.’”

 

“I remember he told me, ‘Don’t tell anybody about this property. We’ll have the money in escrow in a week.’ I [thought to myself], ‘Wow this is amazing.’ I never thought that I could get this type of deal done.”

 

This deal was completed in late 2012 and Matt’s been grinding at the business ever since. In fact, in 2016, he made over $1 million in profit!

 

How to Find Buyers

 

Matt has found buyers for his deal following the same methodology as his first deal – calling up the agent/buyer of a comparable property in the same neighborhood that was purchased for cash and seeing if they are interested in buying more properties. However, over the years, Matt said, “I’ve been able to development some great relationships with cash buyers.”

 

Traditional wholesaling advice tells you to build a massive buyer’s list, which Matt did. However, he discovered that he was wholesaling the majority of his deals to a tiny portion of his buyers. “I hear a lot of people saying, ‘Go out and build your cash buyer’s list and get 500 names.’ I did that, but I think the honest truth is most of us do our deals with two or three guys. That works for me. I’ve got a huge cash buyer’s list, but I’m consistently showing my deals to two or three investors that I have.”

 

Related: 4-Step Process to Creating a 15,000 Person Buyer’s List

 

In fact, Matt’s largest buyer purchases around six deals from him each month. He met this buyer, who is an owner of an agricultural company, through a personal relationship. “This particular company, it’s two guys that run the company, and one of them I’ve know since I was 16 years old,” Matt said.

 

“He got into the real estate business a little bit before me… A few years ago, I found out that they were buying properties to buy as rentals or flips, so it was kind of an easy partnership, if you will, because we had some history and known each other.”

 

I can attest to this strategy – finding investors through personal relationships – because personal relationships were the main source of private money for my first deal, and they continue to invest to this day.

 

Matt met his second most frequent buyer by researching what he calls professional investors. “These are guys that are buying property on almost a daily or weekly basis,” Matt said. “When you start to see repetition and the same LLC or the same entity buying properties, you know that they’re in the business and they’re professional in how they build out their business.”

 

Once Matt finds these professionals, he contacts them in one of two ways.

 

First, he meets them in-person at local auctions. “I’ve actually showed up to the auction, and I would go up and introduce myself to that particular person and say, ‘Hey, I’m a wholesaler in the area. I come across great deals. I know you’re at the auction consistently. Here’s my business card. Can we have a cup of coffee?’”

 

The other way Matt contacts these professionals is through the mail. “Another [way] would be just sending them a letter and introducing myself and saying, ‘Can we meet up and talk?’ I like meeting face-to-face and getting to know people, and explaining what I do [and] what kind of value I can bring to them. It’s just a natural relationship at that point because you know that they’re looking for deals and I’m looking to sell deals, so it’s not a hard relationship to establish if you’re truly bringing value to the table.”

 

When I asked Matt if he had no buyers, but had a deal, what would be the number one way to find a buyer, he said, “I would go straight to the auctions.”

 

His reasoning was, “You know that these guys are cash buyers and they’re actively looking for property because they’re standing at the courthouse steps every day fighting over a few deals that end up going to a third-party, and they’re amongst competition.” If you have a deal under contract, going directly to buyers is the best and most natural way!

 

Tactically speaking, Matt said, “You can pull courthouse auctions – for my area I use Property Radar. Property Radar will give you the actual location and time of the auction date. If you get there 20 to 30 minutes prior to the auction starting, you [can] just go up and introduce yourself and pass out cards. Or I’ll do like a one-page brochure of the potential benefit to the buyer.”

 

After introducing yourself, Matt explained that you should say, “I’ve got a property on 123 Main St. Here’s the ARV. I’m selling it for this. The rehab is this. Give me a call.”

 

It’s that simple. It’s the best strategy to get in front of a cash buyer right away without having to build a massive buyer’s list first.

 

Related: 8 Ways to Quickly Build a Buyer’s List

 

How to Approach Finding Deals

 

Another important aspect of wholesaling, besides finding buyers, is finding deals.

 

Matt’s most effective lead generation technique is direct mail. And one the two most important aspects of direct mailing is tracking your key performance indicators. “Know your KPIs,” Matt said. “[It] took me a while to understand that. It’s never advisable just to throw money out the window without being able to track your response rate. You need to be able to track inbound calls, appointments, contracts, and closings.”

 

The most effective way to track KPIs is through the proper CRM system, which is the second important aspect of direct mail. Matt says he’s spent thousands and thousands of dollars developing his CRM. It enables him to not only track his KPIs, but to also split-test different mailing pieces to see which format is the best. “I can split-test my direct mail now and see based on what type of mail piece I’m using… For instance, if I’m using one mail piece to an absentee owner, I’ll split-test it with even the color of the letter or postcard to see what’s getting the best response rate.”

 

Matt said, “If you can dial in your CRM and your KPIs, which are both equally important, I think that’s going to be a huge advantage to anybody out there that is competing against other investors or wholesalers or other investors in the area, because you’re able to look at your KPIs and say, ‘Well, I’ve sent out X amount of letters to this mail type and I’ve sent X amount of letters to split-test sample B, and sample B for whatever reason is returning much more. So I’m going to focus on that and maybe look at what I could tweak on sample A to get a better response rate.”

 

Related: Guide to Automatically Wholesaling Over 20 Deals a Month

 

Best Ever Advice: Be Aggressive

 

All the advice and tactics in the world mean nothing unless you aggressively take intelligently directed action, which is Matt’s Best Real Estate Investing Advice Ever. “Be aggressive, but always have an exit strategy, and be okay with the worst-case scenario.”

 

Matt said, “If you analyze the deal and you assume that all hell was going to break loose and the numbers were going to go the opposite way of what you hope and anticipated, you’re still okay with the deal and you have an exit strategy once you figure out how you’re going to go about your [deal].”

 

Conclusion

 

The three main ways Matt finds buyers for his deals are:

 

  • Calling up the agent/buyer of a comparable property in the same neighborhood that was purchased for cash and seeing if they are interested in buying more properties
  • Through personal relationships
  • Researching professional investors and contacting them in-person at the auction, or sending them a letter in the mail

 

Rather than build up a massive buyer’s list, Matt recommends finding two or three go-to buyers and focus on building a solid relationship with them.

 

When it comes to finding deals via direct mailing, the two main things to focus on are:

 

  • Tracking your key performance indicators
  • Creating the proper CRM system

 

Matt’s best ever advice for a wholesaler is to be aggressive, always have an exit strategy, and be okay with the worst-case scenario.

 

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Guide to House Hacking Your First Investment Property

 

One of my favorite Tony Robbins’ quotes, among many, is “success leaves clues.” This applies to a wide-range of things, and real estate investing is one of them. If we want to learn how to get started, we don’t need to reinvent the wheel, because there are “clues” we can leverage to shorten the learning curve.

 

For those who are on the outside looking in, what you must do is quite simple: find someone who has successfully entered the real estate gauntlet and follow the breadcrumbs they’ve left behind.

 

Sunny Burns, a 26-year old real estate investor, purchased a fourplex for his first deal, and in our recent conversation, he outlined exactly what he did to successfully enter the real estate arena, which a newbie can use as a guide to purchasing their first investment property.

 

The Real Estate Strategy

 

Sunny’s first real estate investment was a fourplex, which he purchased using the house hacking real estate strategy. House hacking is when an investor purchases a two, three, or four-unit property, lives in one unit, and rents out the others. “I definitely recommend the house hack,” Sunny said. “If you buy a single-family house, depending on how much you make, half your income could be going straight into that house (mortgage, taxes, repair costs).”

 

“Buy at least a duplex,” Sunny continued. “You don’t want to become a slave to your house. You don’t want half of your paychecks to go there because it’s hard to get out of that and grow from there. But if you can buy something like a duplex, a triplex, or a quad, you can really start to almost live for free.”

 

By following this house hacking strategy, Sunny says, “we actually live for free, and then make a couple hundred dollars after that.” He gets the benefits of both an investment property (cash flow, appreciation, etc.) and essentially a free primary residence.

 

Sunny’s House Hacking Deal

 

Sunny found the fourplex deal on the MLS. “We were just looking at Realtor.com, and I got regular emails from them. One day, I got an email for this 12-bedroom, 4-bath quadplex, and I look at my email and was like ‘wow, this is the property we’ve been looking for.’”

 

When searching for properties, Sunny’s criteria was simple: $1,000 per month in cash flow after moving out of the rental and fully renting it out. It took a while to find the property, but the patience paid off when they found the fourplex.

 

Related: How to Find the BEST Deals with the LEAST Amount of Marketing

 

Most investors who purchase a property via house hacking use a FHA loan, which is an owner-occupied loan that requires 3.5% down. However, the drawback of the FHA loan is PMI, which is an additional monthly fee for mortgage insurance. Sunny, understanding that the PMI cost would decrease his monthly cash flow, elected to pursue conventional financing instead. “We actually did conventional financing through a smaller bank,” he explained. “We put 10% down. We went to the smaller bank because they don’t charge you borrower-paid PMI – they take care of the PMI – and we got a great rate at 4%, which I’ve since financed to 3.5%.” The down payment was higher, but since the bank covered the PMI, Sunny was able to save a couple hundred dollars each month. That being said, for the first-time investor, make sure you shop around for a loan to ensure you’re getting the best loan that fits your investment strategy.

 

Related: A Millennial’s Guide to Buying Your First Home

 

Sunny purchased the fourplex for $430,000. He put down 10%, which is $43,000, and put in and additional $20,000 in repairs, so $63,000 all-in. Once they completed the renovation, Sunny and his family moved into one unit, rented unit two for $1,000 per month to his in-laws, and rented out the other two units for $1,700 and $1,710. He said, “we can definitely get $1,500 for our unit easy, and then another $500 for my in-laws unit easy once they move out.”

 

As for the renovations, Sunny was able to cut costs by doing the renovations himself. Besides the fact that he and his wife already had some handyman skills (his wife grew up in an old Victorian with her family that constantly required repairs and he had experience working on cars), they learned how to do the majority of the repairs using YouTube. “YouTube really helped a lot in a lot of things,” Sunny explained. “Learning house repair, that was definitely a learning curve, but YouTube, and [my wife] having a lot of knowledge [was key].”

 

10 months after purchasing the property and after completing all the renovations, Sunny was able to refinance the property and pull out all of the money he put in, both the down payment and the renovation costs. He said, “It worked out great. We purchased it for $430,000, we put that $20,000 into it in repairs, and I think it was under market when we bought it, so it appraised for $550,000, so that was $120,000 over what we purchased it for. We did a cash-out refinance, so we pulled out $67,000, and that was pretty much the $43,000 that we put into it and the $20,000 repair costs, and some closing costs wrapped in.” Not only were they able to pull out all of their initial out-of-pocket costs, which they will use for their next investment, but they also have 20% equity, which is double what they initially put down.

 

Additional Factor When It Comes to House Hacking

 

Besides the tactics behind house hacking, there is one additional factor in play that applies to those who are looking to get into investing via house hacking, but have a family: convincing your significant other! Sunny said he had some issues convincing his wife in the beginning. “She was really hesitant about working with tenants. She was really scared about tenants – they’re going to sue you, they’re going to cause all these headaches.”

 

Rather than go another investment route, Sunny implemented policies and procedures to mitigate the risk of tenant issues. “We did credit score checks on every single tenant. We did background checks on every single tenant. We made sure that they had a least two times the rental income coming in.” As a result, he was able to lower his wife’s fears and now, he says, “she’s a huge fan and tries to tell all our friends to do the same thing.”

 

Conclusion

 

One of the best ways to get your start in real estate investing is house hacking – live in one unit and rent out the others.

 

Sunny followed this strategy by finding a property on the MLS that fit his criteria, performing the renovations himself, refinancing and cashing out his initial investment, moving into one of the units and renting out the others, and implementing policies and procedures to mitigate his wife’s fears of owning and living in a rental property.

 

Newer investors can use Sunny’s story (either in its entirety or pick out useful clues) to guide them through their first investment property purchase.

 

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The 3 Common Mistakes When Forming a Business Partnership

 

“To partner or not to partner – that is the question.” When investing in real estate, this is an extremely important question, and how you answer it can be the difference between failure and success. Or at the very least, success and massive success.

 

Chris Clothier, a partner at one of the largest turnkey real estate companies in the world, which does over $100 million in annual revenue, purchases over 600-single-family homes yearly, and manages over $400 million in assets, learned the pros and cons of partnership the hard way – through first hand experience.

 

In our recent conversation, he provided an example of a partnership that resulted in a six-figure loss, and he outlined the lessons he learned that ensured the success of partnerships in the future.

 

Chris’s Sticky Partnership Situation

 

The first company Chris founded was a grocery arbitrage company in Denver, Colorado. “I was very successful thanks to having some really good mentors and my family around me that helped me to build me first company successfully,” Chris said. “I was taking my earnings from that company and I began to invest in real estate.”

 

Even with this previous entrepreneurial success, rather than going at real estate investing alone, Chris decided to partner up. “I should have been smart enough to look around me and say, ‘I’m a smart person, I’ve got good people around me, I’ve paid attention, I’ve got good mentors’ … but I still felt like I needed a partner in order to invest in real estate, the fix and flip stuff.”

 

However, rather than selecting the best and most qualified partner, he picked a friend. “Let me be clear: great guy, phenomenal person. He was a good friend of mine, but the problem was that neither one of us had any experience in real estate, and the funny thing was we both were scared of losing, and rather than lose alone, we chose to lose together.”

 

Chris said, “that’s what happens so often in partnerships. We made the decision to be partners for all the wrong reasons. Not because he had strengths and I had strengths, but because we both had a weakness, which was a lack of faith, lack of bravery, lack of courage to go do it on our own.”

 

Things seemed peachy in the beginning, but that turned out to be a double-edged sword. “We picked a couple of deals and we were doing well,” Chris explained. “We had no idea that we were spending twice as much as we needed to spend and taking twice as long to do it, but we were selling the houses and making money. And we mistook making money for success.”

 

The main problems Chris and his partner faced were not tracking their progress, moving too fast, and not holding each other accountable. Instead, Chris said, “we basically were just kind of relying on the other to be the smart one.”

 

The combination of these three issues resulted in their eventually downfall and the dissolution of their partnership. “The problem is that we purchased a home that was literally two blocks away from where it needed – both school district and taxing district. The way that homes were going to be appraised and what would be used as comparable sales, it literally was the difference between a home being worth $500,000 and a home being worth $300,000.”

 

What Lessons Did Chris Learn?

 

As a result of this failed deal, Chris and his partner lost over six figures, the partnership broke apart, and they aren’t friends anymore. Here are the lessons Chris said he learned from this deal and partnership (my emphasis):

 

Don’t Partner Out of Comfort

 

“I tell people on the backside when it’s all said and done that I went into a partnership with someone that I was comfortable with, someone who told me all the right things that I needed to hear.”

 

“I chose to take the easy route, which was, ‘I’ll get a partner instead and let him do these things. I’ll provide the money and make it on the backside.’”

 

“The point of it was that all of it I did with a partner, because I wasn’t brave enough to go on my own. It’s interesting for me, because I look back on it… I had all the tools, I had everything that I needed, I just didn’t have the confidence and the bravery to go on my own.”

 

Find a Partner With Complementary Skill Sets

 

“I did not partner with someone who had the ability to run good forecasts as far as what we’re spending, how to budget that money, and how to model that money. I didn’t partner with someone who could pull comparable sales and could analyze that [two block] difference. I didn’t partner with a person that had the right skill set for me, because my skillset was absolutely at my business, and I had money. I had the ability to stay organized and stay on point, but I didn’t know real estate. My partner, unfortunately, didn’t have money, but also didn’t have the real estate skills that were needed, so he was managing a project that he didn’t know how to do.”

 

“I just didn’t recognize what I needed in a partner. Instead for me it strictly was, ‘I like this person, I’m good at what I’ve been doing, he’s been good at what he’s doing. It will be fun to be in a partnership with this person. He and I can make some money together.’ … These things say, ‘hey, this is what makes us a good partnership, and he’s got time on his hands, he’s got some experience…’ but I was never asking the question ‘does this person bring to the table exactly what I need?’ Forget anything else about it, and [ask yourself] ‘do they bring to the table the specific things that are going to make me successful in this project?’”

 

Don’t Partner Based on Fear

 

“I [partnered] out of fear, and that is never a good reason to go into any type of transaction… You should never enter one out of fear. We were fearful of losing money, so rather than losing money as individuals, we lost it as a partnership.”

 

“So when you’re making a decision on whether to bring a partner in based on fear of what could happen, then you’re probably not ready to bring on a partner.”

 

Related: 3 Questions for Selecting the Right Business Partner

 

Conclusion

 

Based on previous successful and not so successful partnerships, Chris’s three main pieces of advice when approaching a potential partnership are:

 

  • Don’t partner for comfort or lazy reasons
  • Don’t partner because you are afraid of going at it alone
  • If you do partner, make sure that person has the skill sets that complement your strengths so that you two are an ideal fit

 

“Surround yourself with good people, know your strengths, know what you need, be clear, and see what happens.”

 

 

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Friday Facts – Best Real Estate Investing Advice Ever Lightning Round Q&A

Learn this week’s Best Ever guest’s best ever books, real estate deals, ways to give back and biggest mistakes

 

 

Mark Allen from JF930: Recession-Proof? Why You MUST Diversify Your Assets

 

Best Ever BookNever Eat Alone by Keith Ferrazzi

 

Best Ever Deal Mark Has Done – Subject-to to flip

 

“I’d probably say the first deal that I did when I got to Dallas. I did a lot of direct mail marketing and got a seller that was interested in selling but the numbers didn’t work out. The only way I was able to work it out was to take the property subject-to the existing mortgage for $118,000.”

 

“I paid the seller $2,000, took over the mortgage at $118,000 balance, put $12,000 into the foundation and plumbing, and sold the home to the tenants 6 months later for $175,000. I guess I made nearly $50,000 with maybe $14,000 out of pocket, plus closing costs, so let’s say $16,000. Maybe wasn’t the highest net deal but I like the creative aspect.”

 

Best Ever Way Mark Likes to Give Back – Charity and T-shirts to the Homeless

 

“I used to host a charity series called Dance for Charity. We throw a big event, bring in a big electronic DJ and sell tickets and give 100% of the proceeds to a specific charity.”

 

“I’ve created We Buy Homes t-shirts, with your logo and your number and give those out to homeless people at like major intersections, under a bridge. Not only are you giving to the needy, but you’re getting your business out there.”

 

Biggest Mistake Mark Has Made So Far in Real Estate – Incorrect Comps for a Flip

 

“I think it was when I first started getting into flipping, it was like my first real flip here in Dallas, and the thing that I don’t like about residential real estate is it’s so subjective and I hated figuring out the values of homes because of that.”

 

“The first flip I ever did backed into a three-lane road and I knew that one block over, the homes would sell in the mid $400,000, but they were interior lots. This home that backed to the busy road ended up selling in the mid $300,000. I said ‘well hey this home is going to sell in the mid $400,000,’ so my numbers were all skewed. I ended up selling the home for the highest price per sq. ft. on that road that was backed to the busy road, but the $75,000 in profit that I originally thought didn’t happen. I ended up with like $600.”

 

“Always check for where things like busy roads, water towers, power lines, because those things are going to affect the value of the property.”

 

 

Neva Williamson from JF931: Being Fired, She LEARNED the REI Ropes QUICKLY!

 

Best Ever Book – Book of Proverbs in the Bible

 

Best Ever Way Neva Likes to Give Back – Real Estate Investing YouTube Channel

 

“Lately, what I’ve been doing, because … my email is over flooded, so what I started doing was I started a YouTube channel, “Time for Investing.” I’ve been really posting videos and answering questions and really helping people out, and now I get people commenting or emailing ‘hey I’ve been watching your videos and it helped me. I just closed on a deal.’ So that’s what I’ve been doing to really give back. Just to offer what I learned and how I wholesale and buy rental properties and things like that. I think that’s a great way for me to give back at this point.”

 

Biggest Mistake Neva Has Made so Far in Real Estate – Not Getting the Closing Documents Before Closing

 

“When you get your HUD-1 before closing on any house. Now I ask them if they can give me the HUD-1 or the closing documents the day before so I can really go through it because I’ve had times where they have calculated my wholesale fee and those types of things incorrectly, and then they wire incorrect amounts.”

 

“At the closing, what I’ve learned, the settlement companies, once they’ve wired those funds out, those funds are gone, so if they wire too much money to the seller of the property, you’re kind of stuck and you have to go to the seller to get your money back. You’re going to be at the mercy of them because now they sent them too much money.”

 

“The biggest mistake is not catching that those numbers are incorrect before the funds are wired. You really can’t trust the settlement company to make sure that those numbers are correct.”

 

 

Clayton Morris from JF932: FOX News Anchor Invests in Real Estate

 

Best Ever BookThe Four Spiritual Laws of Prosperity by Edwene Gaines

 

Best Ever Deal Clayton has Done – $43,000 Double-Close Wholesale Deal

 

“It was a wholesaling deal in New Jersey. It proves every point of real estate – systems work, follow-up works. I had done a mailing in New Jersey where I live, and I found a property in a very affluent neighborhood. These houses were being kind of torn down or built out from $400,000 and being sold for $900,000. And I managed to do a mailing, I got these people, stuck to my guns on price, I sent them a purchase agreement when no one else did, and a month or two months later they followed up with ‘Is your offer still good? We’re exhausted from going around in circles, we’ll take your offer.’”

 

“I got it, and it ended up being a wholesale deal. It ended being a $43,000 assignment. Or, actually, I double-closed that one. So a $43,000 double-close. That was a big moment for me. That was my second wholesale deal I ever did.”

 

Best Ever Way Clayton Likes to Give Back – 30 minute, Free Consulting Calls

 

“I’ll spend 30 minutes on the phone with investors, and they have no money — I don’t care, I want to help people take action. I’ve been blessed with a broadcasting career, so one of the ways that I like to give back is to just share as much as I can… Share everything, be as transparent, open as a book.”

 

“I’ll jump on the phone with people, talk for 30 minutes, they’ll tell me about their financial goals, they’re struggling with this, and I’ll kind of just help them over that hurdle. I sort of try to be a mentor to as many people as I can.”

 

“I try to go in inner cities to help with that financial education, because we’re not taught this stuff. We were never taught this is the way to build wealth. We’re taught, ‘Go get a job,’ and we we’re taught, ‘This is how you balance a checkbook,’ but we’re not talking about real wealth building in this country. So I try to give back in that way to the best of my ability anytime I’m asked. Any speech, going to a public library in the inner city – anything like that is what I love to do.”

 

Biggest Mistake Clayton Has Made so Far in Real Estate – Dragging Out a Wholesale Deal

 

“There’s been a bunch, but one sticking out to me is dragging out a deal for too long and making promises that I couldn’t keep to the seller. This would happen to be on a wholesaling deal. At the end of the day, I lost my deposit – I wasn’t going fight that, of course – and the dragging out of the deal, and thinking that at the last moment I could just bail on the contract.”

 

“People’s lives are involved in this, right? They’re planning on moving, they’re planning on packing up their stuff, and I thought for sure that I could sell this house; I thought for sure that I could buy this; I could do something with it. But it ended up being a disaster – [there was] a sewer condition with the property.”

 

“I thought for sure that this house would sell, [and that] we could do a great deal. It ended up dragging on and on. She’s packing up, ready to move to Pennsylvania, and I just have to tell her I can’t do it. It was just heartbreaking.”

 

“Now I pull the Band-Aid off real fast. Right away, as soon as I can. Not waiting that long, 40 days, before I have to make a decision like that.”

 

 

Andrew Holmes from JF933: Your FORMULA to Buy 5 Rentals in 2 Years and Payoff in 7!

 

Best Ever BookRich Dad Poor Dad

 

Best Ever Deal Andres has Done – Drive For Dollars

 

“Bought it for $12,000, and we keep it, and it’s worth over $150,000.”

 

“Actually I got while driving for dollars”

 

“I was driving around, I saw a really bad driveway, windows were all messed up; it looked like a house that clearly was distressed, so I called the owner and he said, “Well, it’s going to auction, and I want nothing to do with the property.” We approached the owner and we paid him $2,000, paid off the $10,000 mortgage and that was the end of the story.”

 

Best Ever Way Andrew Likes to Give Back – Shares Everything He Knows

 

“I think the best ever way I like to give back is share what we know, because the more that I share, the more openly information is shared, the more we get to grow.”

 

“A lot of times people hold this belief, ‘Why would you share so openly?’ I’ve always laughed, that every time I share, I get back so many more folds, because people give back in ways they don’t even know. The best way of learning is to teach others to do it.”

 

Biggest Mistake Andrew Has Made so Far in Real Estate – Greed

 

“Getting greedy and not trusting your gut instinct when it says no. It doesn’t matter how good it sounds, pass.”

 

Click here for a summary of Andrew’s Best Ever Advice: Formula to Buy 5 Rental Properties in 2 Years and Payoff in 7

 

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Formula to Buy 5 Rental Properties in 2 Years and Payoff in 7

Today’s post is about real estate investor Andrew Holmes. He has successfully implemented the infamous BRRRR – buy, rehab, rent, refinance, repeat – strategy on over 160 properties. In our recent conversation, he outlines, in extreme detail, his exact step-by-step 2-5-7 formula for how he purchases a minimum of 5 properties every 2 years and pays them off in 7.

 

What is the 2-5-7 Investment Formula?

 

Andrew’s investment strategy adheres to what he calls the “2-5-7” formula. In 2 years, the goal is to accumulate a minimum of 5 properties and pay them off in 7 years. Andrew said, “The formula doesn’t change, it’s just the number of properties, how much cash flow you want to create, and you scale based on that.”

 

In order to stick to this strategy, Andrew has the following additional requirements:

 

Deal Location – “Most people, whenever they own rental properties, they tend to buy … in areas that are rather challenging. We have a different philosophy, which is we tend to buy in bread and butter areas, right next to what we would call premium areas. Basically, if premium areas are A, we tend to buy B- or C+.”

 

Minimum 25% equity – “Whenever we’re buying a property, after rehab, it must have a minimum of 25% equity.”

 

Small Ranches – “We focus on buying small, three-bedroom, one and one-and-a-half bath ranches.”

 

$400 to $450 cash flow – “They must cash flow to the tune of $400 to $450 per property after all expenses, including management.”

 

Example Deal

 

Here’s an example deal Andrew provided to see the 2-5-7 formula in action:

 

“Let’s say you’re buying a bread and butter property: three-bedroom, one bath ranch for $65,000. You’re going to put $20,000 to $25,000 into rehabbing the property. You have a carrying cost of another $5,000 to $6,000, so you’re all in cost into the property is somewhere around $90,000.”

 

“This is the most critical part, which to me [distinguishes] investing versus what most people do, and that is the property needs to appraise on a conservative refinance appraisal for $120,000 to $130,000. That’s the key thing – that’s the only way you’re going to be able to get all the capital that you put into the property out, so that you can efficiently recycle the same money over and over and over.”

 

“So the property appraises for about $125,000. The lender is going to give you about 75% of appraised value… That’s the key thing. That’s the benchmark people have to look at. If the property appraises for $120,000 to $135,000, now they’ll give you the $90,000 to $95,000 refinanced.”

 

“So you take that loan, you pay your first lender off – the loan you used to buy the property and to do the rehab – and then you just recycle the same funds. Or if it’s your own money, that’s fine also, but you just repeat that process over and over and over, [with the] goal being you need to get to a minimum of five.”

 

How to Finance the Properties?

 

On the front-end, Andrew explained that there are three major ways he funds his deals:

  • Partnership – “Number one, you can partner with somebody that has the capital and do a 50/50 joint venture. They buy the property, they put up the money for capital [and] you’re the driving force. You’re doing all the work, but you’re giving up 50% of the returns. That’s where I started initially”
  • Hard Money Lender – “The second way to do it is the traditional route, which is you borrow money from a hard money lender, and put in some of your own money.”
  • Private Money – “The third route, which we tend to use the most [is] private money… Join your local REIOs, join the local groups; whichever town you’re in, there are tons of them. There are people that are willing to make loans out of their IRAs, they have personal money, and you end up paying anywhere from 8% to 12% and that’s what we tend to do and that’s what we always try to get people to understand – there’s a lot of money out there where people are willing to loan for the front end of the transaction.”

 

On the back-end refinance, the biggest challenge Andrew faced in regards to following this strategy and buying 5 properties in 2 years is that most residential lenders will usually only provide up to 4 loans. However, he has found a solution to his problem: commercial loans at small local banks.

 

“Basically, a five-year balloon with a 25-year amortization. It’s a commercial loan at five, five and a half percent,” Andrew explained. “The speed at which you can scale and grow is much faster.”

 

“We tend to go to the small banks that are in town. Typically, they’ll loan on anywhere from one to five, ten, fifteen, twenty ranches. We’re not going to go to Chase Bank and we’re not going to go to the big lenders, because they don’t really offer these programs for small investors.”

 

 

Meet the Bank’s VP

 

When Andrew walks into a small bank to get a loan, his goal isn’t to speak with a teller or a manager or a loan officer. He wants to go straight for the bank’s Vice-President. “You always want to go and directly talk to the VP. Typically, at these small banks, the VP is pretty much the main guy there, and that’s the person you want to approach.”

 

When approaching a conversation with a bank VP, the first thing Andrew does is explains, in two minutes or less, his business plan. His two-minute elevator pitch is, “Hey, we’re buying foreclosure type of properties or investment properties that are rentals. When we come to you, they’re going to be purchased, they’re going to be already stabilized – they like that word – and there’s already an existing tenant. We do two-year to three-year (minimum) leases only; we don’t do short-term leases.”

 

Next, Andrew explains his 2-5-7 formula and his philosophy of aggressively paying down the properties in 7 years. Then, he goes into more details and shows the VP a couple of successful past deals. However, if you’re brand new, just show them a property or two that you have in the works.

 

How to Find Local Banks

 

To find a local bank in your area, visit https://www.bauerfinancial.com/home.html. Also, in terms of finding a local bank, Andrew advises, “whatever community you live in, I would draw a 10 to 15 mile radius around it, and then start with the ones that are closest to wherever you’re going to buy properties. Especially if it’s in a B-market, a C+ type of market, then the banks that are local in that area, they have depositors from that particular area and they need to make a certain amount of loans in that particular market. So that’s the first place to start.”

 

Advantages of Local Banks

 

Here is a list of three additional advantages that Andrew finds with using small, local banks:

 

Building Relationship – “As you start developing relations, as you start having credibility with a particular bank, they’ll scratch their arms a little bit, but in general, the place to start always is the community banks – they want to have a relationship; it’s a relationship sort of lending, and they really like that word. If you go in and say, ‘hey, we want to develop a relationship with you’ and you tell them that you’re going to put your rental deposits in their bank, they’re all over that because that’s really what in the long run they’re looking for.”

 

Flexible Loan Qualifications – “They don’t have stringent criteria. For people who may not have a W-2 income, they’ll work with 1099. If somebody doesn’t have a W-2 or 1099, but has retirement income, they’ll work with. If somebody doesn’t even that but has some assets, a good portfolio in the stock market, or just cash, they’re much more forgiving and they’re not as sensitive, even in the department of credit scores.”

 

Loans to Business Entity – “As you work with these commercial banks, you can buy properties in your LLCs, you can buy properties in your S Corps, you can buy companies under a trust.”

 

Conclusion

 

Andrew follows the 2-5-7 investment formula: purchase a minimum of 5 properties in 2 years and pay them off in 7.

 

The three ways Andrew finances his deals on the front-end are partnerships, hard money, or private money loans. On the back-end, he refinances the properties with a commercial loan from a small local bank.

 

When walking into a bank, Andrew goes directly to the Vice-President and explains his business plan.

 

For those interested in following this strategy or just want to find a small local bank, visit: https://www.bauerfinancial.com/home.html.

 

The three main advantages, among many others, of using a small local bank is the ability to form relationships, flexible loan qualifications, and loaning to your business entity.

 

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4 Ways to Partner with a Property Management Company on Your First Apartment Syndication Deal

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A frequently asked question I receive is “how do I partner with a property management company on my first deal?”

 

The challenge first-time apartment syndicators face when pursuing a deal is a lack of credibility. They’ve never done a deal before, so being taken seriously isn’t a guarantee. However, by partnering with a property management company, the first-time investor can leverage the management company’s experience in order to establish credibility with the seller, the lender, and the investors.

 

Based on my syndication experience, there are four distinct ways a first-time syndicator can partner with an established property management company

 

Method #1 – Sign the Loan

 

The first way to partner with a property management company is to have them sign on the loan. As a result, they will become a general partner in the deal.

 

This is ideal if the syndicator doesn’t personally have the liquidity or net worth to qualify with a commercial lender. By having the property management company’s signature, the syndicator can leverage their liquidity to be approved for a loan.

 

To compensate the property management company, the syndicator can offer 0.25% of the loan balance, which will be paid out annually, or offer a general partnership ownership interest, or a combination of the two.

 

Method #2 – Invest in Deal

 

Another way is to have a property management company invest in the deal and as a result, become general partners. For this method, the compensation will depend on the actual deal and the value of the property.

 

Method #3 – Bring on Investors

 

A third way is to have the property management company invest in the deal and bring in their own investors as well. The extra benefit of following this method is that it adds another layer of credibility (i.e. the property management company’s investors) and it adds another level of alignment of interests since the property management company and their investors have their own skin in the game.

 

Similar to method #2, the compensation will depend on the deal.

 

Method #4 – Ownership Interest

 

The final way that a syndicator can partner with a property management company is to exchange the property management fee for ownership interest in the general partnership.

 

The benefits of this method are three-fold. First, it establishes credibility right out of the gate for all parties. Two, the first-time syndicator can leverage the property management company’s liquidity or net worth to qualify for the loan. And three, since the property management company will likely bring in their own money and/or their investor’s money, it decreases the amount of money the syndicator must raise.

 

Are There Any Downsides?

 

The downside of bringing on a property management company as a general partner is that they and the syndicator are essentially married. Therefore, if the management company falls off the face of the earth, completely forsakes the property, or they turn out to be bad people, then the syndicator is going to have a very messy divorce. If this happens, the syndicator will have to buy them out in some form or fashion.

 

If you decide to follow any of the four methods, in order to mitigate your risk, you need to make sure that you have proper clauses in the contract that stipulates a buyout process. Also, you have to be careful about who you select as a property management company. (See All You Need to Know About Building a Solid Real Estate Team)

 

 

From personal experiences, I believe the benefits of partnering with a property management company outweigh the potential downsides, as long as you’ve planned for them in advance. I have successfully overcome the challenges mentioned earlier (i.e. lacking in credibility and/or liquidity/net worth) by partnering with property management companies on past deals using all four of the methods described above.

 

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A Millennial’s Guide to Buying Your First Home

 

Are you a millennial that is ready to dive in and make you first home purchase? Lauren Bowling, a millennial and award-winning blogger and editor behind the personal finance site “Financial Best Life,” recently took the dive into real estate investing and made many costly mistakes. In our recent conversation, she outline the mistakes she made and the lessons she learned, as well as provided a guide for first-time, millennial investors so that they can avoid falling into the same expensive and time consuming traps.

 

Do All The Research You Can Prior to Closing

 

Lauren’s first piece of advice for first homebuyers or investors is, “do all the research you can do, not only on just the purchase itself, but what you’re going to do after.” In order to explain why she provided this advice, I’ll provide some context – what happened on Lauren’s first deal?

 

Lauren’s first investment was a three-bed, two-bath property in an up-and-coming area in a southwest suburb of Atlanta, which she purchased for $65,000. Her business plan, she said, was to “really get a great deal, buy low, and eventually, in 5 to 10 years, sell high so I can really make my first home purchase make money for me.” After closing, Lauren put in $70,000 in renovations, lived in the property for 3 years, and then rented it out. Currently, the property rents for $1325 a month, which nets her $500 a month in profit.

 

$500 profit a month? Sounds like a 360-windmill slam-dunk, especially for a first deal! However, when we dig a little deeper, that doesn’t turn out to be the case.

 

“First of all, it was a complete gut job,” Lauren explained. “It was a massive renovation that I undertook, not only as a first time homebuyer, but also as a first time renovator. We’re talking stripping things down to the studs, which was just such a huge project to undertake. I was 26 years old. I was a young, single woman and I had no clue what I was doing, which was a prime opportunity for a lot of vendors to come in and take advantage of my inexperience and kind of present themselves as trusted advisors and then bait and switch me.”

 

After major renovations were completed, as well as $70,000 later, Lauren is still fixing things to this day. “It’s the gift that keeps on giving.” She also explained, after the major renovations were completed, “I had another contractor come in and bid some things. He said ‘you spent $70,000 for about $40,000 worth of work.’ The other $30,000 of stuff still needs to be done, not only as a landlord, but also if I want to eventually sell the house.”

 

The lessons that Lauren learned in order to avoid overpaying for renovations and finding the right contractor:

 

  • Put in a contingency into your rehab budget,
  • Research as much as you can to determine exactly what you’re going to do once you close the property
  • Obtain multiple contractor bids to see if she’s getting price gouged
  • Most importantly, ask TONS of questions. “I definitely could have asked a lot more questions … even if I already know the answer. I think the process of asking questions let’s people know you’re paying attention.”

 

For more on finding the right contractor:

 

Which 203k Renovation Loan Should I Use?

 

To purchase the property and pay for the renovations, Lauren used a 203k-renovation loan. She said, in regards to a 203k-loan, “it’s a loan product where you can lump in your costs to renovate in with your mortgage so you’re making one payment every month. It’s a good program. It’s a great way for people to raise money to fix homes … especially as a first-time buyer. Maybe you have money saved up for a down payment, but not enough saved for the project and the fixes.”

 

For Lauren’s deal, the purchase price was $65,000 and her rehab costs were $70,000. So instead of getting a conventional loan for $65,000 and paying $70,000 out-of-pocket, she was able to get a loan for $135,000, which covered both expenses. That is an upfront cost difference, assuming a 3.5% down payment for an owner-occupied loan, of $67,550 ($72,275 – $4725).

 

When Lauren was pursuing the 203k-loan, she learned that there are two different types. “There’s the streamline 203k, which is less than $35,000, which is for more cosmetic fixes. Then there’s a full 203k-renovation loan, which is for those bigger projects like what I did.”

 

Which 203k-loan option does Lauren recommend for first-time homebuyers or investors? The streamline. “I definitely recommend for first-time buyers, only do a streamline 203k because that keeps you out of the bigger projects [so you won’t be] in over your head.” In other words, the 203k streamline forces the investor to keep renovations under $35,000 and to avoid risky projects that require major renovations since those are the homes that are more likely to result in budget creep.

 

Related: The Most Commonly Overlooked Expenses in Real Estate Investing

 

Advice for Millennial Homebuyers

 

Lauren specifically focuses on providing financial advice to the millennial generation. Besides being a millennial herself, the main reason she focus on millennials, she said, is “I think given all the factors, [like] the recession and the student loan crisis, millennials are in a very interesting place financially so they need a different type of advice than what their parents got or even the generation that comes after is going to get.”

That being said, Lauren provided two, millennial specific pieces of advice:

 

  1. Get Student Debt Under Control:

 

  • “You can’t really talk about buying a home as a millennial without first talking about how millennials can get debt, if they have it, under control… [So] first, it’s about getting your debt under control. Maybe not paying it off entirely, but to the point where you can accommodate both a mortgage and a loan payment.”
  • For those unfamiliar with the student debt crisis: According to Student Loan Hero, Americans owe over $1.3 trillion in student loan debt, spread out among over 44 million borrowers. The median monthly student loan payment for borrowers between the ages of 20 and 30 is $351. The average Class of 2016 graduate has $37,172 in student debt, which is up six percent from the Class of 2015.
  • Visit Lauren’s blog for more details on how to manage student loan debt: http://financialbestlife.com/blog/

 

  1. Shop Around for Interest Rates

 

  • “The second thing I see a lot of millennials not doing is a lot of comparison shopping for different interest rates. I think a lot of millennials will go with whoever their parents told them to get a mortgage with or maybe a friendly recommendation, which is fine, but you lose out on a lot of money if you don’t shop for interest rates and take the lowest one.”
  • “There’s lots of website where they can go, like Lending Tree is a place where you can just plug in your information and see the ballpark of what you’re qualifying for. Then, if you want to see what your home bank will offer you, [go in] and say ‘hey I got this offer from this other place,’ and do it that way just so you have in mind your credit score and what you’re looking at. If you go with just your first offer, you don’t know how much money you’re losing on the table.”
  • For example, let’s say you are purchasing a $200,000 property. The difference between a 3.5% interest and 3.75% interest loan that is amortized over 30 years is over $10,000!

 

Conclusion

 

The lessons Lauren learned after spending $70,000 on $40,000 worth of renovations on her first investment property are:

 

  • Put in a contingency into your rehab budget
  • Research as much as you can prior to close
  • Obtain multiple contractor bids
  • Ask tons of questions to contractors, brokers, and lenders

 

Of the two 203k-renovation loan types, Lauren recommends using the streamline option, which covers renovations up to $35,000. This forces the investor to keep rehab costs under $35,000, so they will be less likely to take on riskier rehab projects.

 

For millennials who are looking to purchase their first home, either for personal or investment purposes, get your student debt under control and make sure you shop around for interest rates

 

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Friday Facts – Best Real Estate Investing Advice Ever Lightning Round Q&A

Learn this week’s Best Ever guest’s best ever books, real estate deals, ways to give back and biggest mistakes

 

Himanshu Jain from JF923: How He Started with a Condo and a 20-Unit Apartment Complex

 

Best Ever BookThe Millionaire Real Estate Investor by Gary Keller
Best Ever Deal Himanshu has Done – Wholesale Deal Bought at 40% Market Value

 

“I think [my best deal was when I] bought a townhome from a wholesaler. I paid almost 40% of the [market] value.”

 

“I had hardly anything to do on it. They were looking to close quick and I was able to move pretty quick on that [because I could pay] in cash.”

 

“I paid around $45,000 [and sold it] for $110,000.”

 

Biggest Mistake Himanshu Has Made So Far In Real Estate – Not Looking at HOA Documents before Purchasing a Condo as a Rental

 

“Condominiums are managed and run by the homeowner’s association, so you can run into a lot of issues if you’re investing in a [condo building] that has a very small number of units. The homeowner’s association is too picky about things. In my case, I invested in a property in the Naperville area (suburb of Chicago), which is a condo that we bought in 2013. It was a nice property.”

 

“When we bought it, I bought it through the auction process and we tried to rent it out, but we were told we couldn’t rent it out.”

 

“Later on, last year … I reached out to the association because they were allowing other people to rent, so I asked, ‘can I rent it out?’ and they said yes. It was a verbal communication that happened and once I rented it out and once the tenant moved in, they came back with all these written letter saying, ‘you cannot rent it out. The rentals are only allowed for 1 or 2 units in the property,’ which were rented already at the time.”

 

“This time, because I was in a dire situation because the tenant had already moved in, what I did is I went out and looked at the association documents. Fortunately, I found that they had not registered all the amendments with the county, so they did not have the right to stop me from leasing it out. I had to hire an attorney and then we were able to address that and they had to let me lease it out.”

 

“The lesson learned is look at the association documents and see what is there. Don’t take it at face value of whatever the associations says because many times, these associations, I think, are on a power trip. They really do not follow the rules themselves, but they expect everybody else to follow them. I would have been better off if I had looked into this situation before because I could have leased it out a long time back and I wouldn’t have been holding it unnecessarily.”

 

Michael Flight from JF924: SHOPPING CENTER Investing and Why Ugly is GOOD!

 

Best Ever BookThe Yes-I-can Guide to Mastering Real Estate by Mark Bruce Rosin
Best Ever Deal Michael has Done – Ground Lease with Meijer

 

“Doing a ground lease with Meijer. It took 8 years to put together, but it worked out great for the community. It was actually Meijer’s first ground lease ever. They had typically bought their own property in the past before that.”

 

“All in, it was probably somewhere in the $18 million range and the property is probably a $42 million dollar property now if it was sold.”

 

Click here to learn how Michael did this deal!

 

Best Ever Way Michael Likes to Give Back – Real Estate for Ministries

 

“I’m compelled by my faith in Christ to do things for other people. I utilize the talents I received from God by doing real estate for several ministries, one of which is Chicago Hope Academy in the city. All of their students are below average income levels and they’ve put together strategies for flipping houses to generate cash for the high school. I serve on their real estate board and hook them up with banks to give them lines of credit. Last year, I think they actually … raised $650,000 for the high school by flipping houses.”

 

Biggest Mistake Michael Has Made So Far In Real Estate – Investing in a Corrupted Town

 

“On the single-family fix-and-flips, we had a property that was in a bad town, and this is one of my biggest [pieces of] advice, [which] is always check what type of town it is, because if the town’s corrupt and the town has high taxes and the town has all kinds of problems, no matter how good of a deal it seems, just run away from it with your hair on fire.”

 

“The deal that we had was a single-family. We also got out front of the contractors. He said he was doing the work and we didn’t check on it. I paid him because he was my partner’s brother. We ended up losing $40,000 on that deal, but like I say, the town also sunk us too.”

 

Tim Emery from JF925: TOP Reasons to Start an REI Club and How a Mountain Man Turns to Investing

 

Best Ever BookCentennial by James Michener

 

Best Ever Deal Jeremy has Done – Owner-Financing Rental

 

“I have a rental property that is an owner carry. I got the owners to take a second [mortgage] on it to cover a little bit of the mortgage and fix up. That has now [been] rented for 3 years to a group that will take care of everything, and more than likely, that group will be in the home for a long time.”

 

“It’s one of my kids college funds.”

Cory Binsfield from JF926: Don’t Listen to Dave Ramsey and Buy 10 Duplexes in 10 Years

 

Best Ever BookWheelbarrow Profits by Gino Barbaro

 

Best Ever Deal Jeremy has Done – 10-Year Process to Buy a 11-unit

 

“The deal I just did. What happened there was it was a property I’ve been trying to buy for 10 years. I’ve been bugging this trust department at this bank. Sure enough, out of the blue, the guy called me in September and says, ‘hey still want to buy this property?’ It was an 11-unit. I said sure, let’s do it.”

 

“That one had a couple warts on it – needed a foundation and some tuck pointing – but so far, it’s turning out to be an incredible deal.”

 

Best Ever Way Jeremy Likes to Give Back – BiggerPockets and Blogging

 

“I go onto BiggerPockets and go into the forums and give advice there, as well as I’m toying with this new blog and just basically throwing it out there – my journey as a real estate investor and offering tips to people.”

 

Biggest Mistake Jeremy Has Made So Far In Real Estate – Not Having Two Lenders

 

“I’ve made so many [mistakes], it’s amazing.”

 

“I was doing this deal and the deal almost went south because the bank got cold feet. What I would advise people to do is whenever you’re looking at a deal, always have two lenders in the pipeline competing on that deal.”

 

“When I almost lost that deal, it would have been the first deal I ever lost. It would have ruined my reputation in this town by not being able to follow through on a deal.”

 

 

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3 Primary Ways an Apartment Syndicator Makes Money on a Deal

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There are countless ways for a syndicator (also referred to as sponsors or general partners) to make money on an apartment deal. However, three are the most common.

 

#1 Acquisition Fee

 

The first primary way that a multifamily syndicator makes money is with an acquisition fee. The acquisition fee compensates the syndicator for their time for putting the entire deal together, from start to close.

 

The acquisition fee charged can be anywhere from 1% to 5% of the purchase price. I’ve heard upwards of 5% at certain seminars I’ve attended but I’ve never actually seen it in real life. And I’ve actually personally seen an acquisition fee of less than 1%, which was what I charged on my first deal. At the time, I didn’t know about the acquisition fee, and I backed into it after I talked to my investors, which resulted in a very awkward conversation!

 

If a syndicator were to charge a 2% acquisition fee, for example, and the apartment sales price is $1 million, it would be $20,000 paid to the syndicator at closing.

 

#2 Asset Management Fee

 

The second primary fee is an asset management fee. I’ve seen this fee collected in two different ways.

 

First, an asset management fee can be charged as a percentage of income. The industry standard is 2%. If a property collected $100,000 in income per month, the syndicator would receive $2,000 each month.

 

Another asset management fee structure is a cost per unit per year. The standard fee I’ve seen is $250 per unit per year. If a syndicator is managing a 100-unit asset, they’ll be compensated $25,000 per year.

 

I personally don’t like the latter approach – cost per unit per year – because it doesn’t show alignment of interest. No matter how well or poorly the property performs, the syndicator’s compensation remains the same. Therefore, I prefer the alignment of interests that receiving a percentage of monthly income provides.

 

#3 Percent Ownership

 

The third primary way a syndicator makes money is getting ownership interest in the entity that owns the property. Ownership can be anywhere from 10% to upwards of 70%. It depends on the deal, how much money the syndicator personally invested, and the overall opportunity for the investors.

 

A typical example is the limited partners (i.e. the investors) receiving 70% ownership and the general partner (i.e. the syndicator) receiving the remaining 30%. These percentages equate into dollars when you refinance or sell the property. While this method lacks in consistent cash flow, as long as the syndicator performs for the investors, it’ll turn out to be significant dollars at the end.

 

 

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How to Effectively Network at a Real Estate Event

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A common question I receive is, how do I approach networking at real estate event?

 

Create One Relationship Per Day

 

My answer is simple: I focus on building one friendship. I don’t see how many business cards I can hand out, nor do I try to meet as many people as I can. Rather, I focus on creating one solid, personal relationship. If I’m attending a multiday conference, I’ll focus on one person per day. If it’s an event, meet-up group, or one-day conference, I’ll form one friendship.

 

Most Important Question to Ask

 

When approaching it this way (building one relationship as opposed to many relationships or handing out business cards), we are playing the long game. We’re taking the time to actually learn about what this person has going on, in both their business and their personal life. We’re spending the majority of our networking time learning about their goals, and most importantly, why they are there in the first place.

 

That is the money question: “Why did you come to this event (or meet-up, conference, etc.), and what are you trying to get out of it?

 

Personal Message on LinkedIn

 

It’s important to ask this question and remember the answer they provided because after the event, we’re going to follow up with them on LinkedIn, and we’re going to send them a personal note. That’s very important. I don’t simply add them as a colleague. I take it one step further and send them a personal note based on why they attended the event and what they intended on getting out of it.

 

The reason why I send this personal note is two-fold:

 

  1. It stands out in the sea of basic colleague requests
  2. If I go back to their profile years later, I’ll remember how I met them and what we talked about

 

Personally, I usually forget how I initially met someone, so this personal note technique acts as my external memory bank. LinkedIn algorithms do an amazing job keeping track of messages that people send back-and-forth to each other, even the message from the initial colleague request.

 

How Can I Add Value to Their Business?

 

Once I’ve added them on LinkedIn and sent them a personal note, based on our conversation, I determine if I can add value to this person now (if we’re at comparable phases in our businesses) or should I just stop at the personal message and that’s that. If it makes sense for me to help them now, I do so by connecting him or her to someone in my network who is focused on whatever they’re trying to accomplish. And that person may be someone I met at a previous event, which is where the personal message comes in handy again.

 

That’s it! It is such a simple thing to do, yet most people don’t do it.

 

Next time you attend an event, try this technique out. Again, it’s a long-term play, but based off personal experience, I’ve gotten a ton of value out of it.

 

 

Did you like this blog post? If so, please feel free to share is using the social media buttons on this page.

 

I’d also be VERY grateful if you could rate, review, and subscribe to the Best Ever Show on iTunes by clicking this link: http://bit.ly/2m2XyM1

 

That all helps a lot in ranking the show and would be greatly appreciated. And if you have any comments or questions, leave a comment below.

 

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