Four Strategies to Reduce Your Largest Business Expense – TAXES

 

As real estate entrepreneurs, do you know what is our biggest expense? It’s not resident related expenses. It’s not interest on our mortgage. It’s TAXES.

 

We can strategize to decrease other expenses all we want, but if we really want to make the biggest dent in our costs, we must start focusing on minimizing our taxes.

 

Diane Gardner, a certified tax coach, launched a business with the specific focus of providing tax advice and offering tax planning for real estate investors of all sizes and experience levels. In our recent conversation, she provided four legal ways to reduce our tax bill.

 

Related: How to Save Thousands of Dollars on Your Taxes Via Cost Segregation

 

#1 – Right entity type

 

The first thing you need to do to decrease your tax bill is make sure you are in the right entity type. Many investors, especially beginners, will hold property in their personal names. Not only does this open you up to potential liability issues down the road, but it also opens you up to paying unnecessary taxes.

 

Diane said, “by being able to move [properties] over possibly into a different type of entity, whether it be an LLC, an S Corp, a C Corp, or something along those line, they were able to do some tax planning with that, because we have more to work with at that point.” For example, she said, “we can look into setting up a management company and hiring maybe a spouse to work in that company, and then being able to write off potentially 100% of all your out-of-pocket medical costs.”

 

By being in the right entity, there are a lot of nice tax strategies that will decrease your tax bill, which you wouldn’t have been able to take advantage of by keeping the properties in your personal name.

 

#2 – Automobile deductions

 

Another basic tax deduction are automobile related expenses, which Diane said are often overlooked. “Make sure that they’re taking advantage of all their auto deductions, whether they’re taking standard mileage or they’re actually tracking actual costs,” she said.

 

#3 – Meals and entertainment

 

A third, and also often overlooked tax deduction are meals and entertainment. “How many times are they meeting with potential investors, potential seller, buyers, whatever it might be? Make sure that they’re taking full advantage of that write-off as well.”

 

These first three strategies – right entity type, automobile deductions, and meals and entertainment –  are simple and should be implemented immediately to decrease your tax bill this year.

 

#4 – Hiring family, both children, spouses, AND parents

 

A more complicated, but lucrative tax strategy is hiring family members to work in your business. You may know that you can hire your children to work in your business, but did you know you can hire your parents as well? Diane’s mom has been working in her business for years. It helps lessen her tax burden, but secondarily, it benefits her mother by providing her with extra income while her “dignity remains intact because now [she’s] feeling worthwhile and important again.”

 

Diane said, my mom “needs just that extra little bit each month to make ends meet, so I have hired her to work in my business. She fills out a time sheet, just like all my other staff do. She gets paid an hourly rate. We have her do various things around the office, and in the end, I would be helping her whether it came out of my personal pocket or it came out of my business pocket. But by hiring her to work in my business, I’m able to write off that many, versus I just cut her a check out of my personal account. That’s not a write-off for me.”

 

This strategy is slightly more complicated than the previous three because there is a little more effort and work required. Diane said, “you do want to have a job description and you want to have and keep a time sheet. And you actually have to set them up on payroll. You can’t just give them money and then at the end of the year to do a journal entry and drop this into my books so I can take it off my taxes. You actually have to pay them payroll and withhold the appropriate taxes, and just really make the point that they are a bonified employee, and that you are paying them a reasonable salary or a reasonable hourly wage.”

 

Related: Three Tax Strategies You Didn’t Know About to Save You Thousands

 

Conclusion

 

Taxes are our single greatest expense as real estate entrepreneurs. To decrease your tax bill for this year, implement the following four strategies:

 

  • Make sure you are in the right entity type
  • Take advantage of all automobile related deductions
  • Start logging and writing-off meals and entertainment
  • Hire family members

 

 

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Three Tax Strategies You Didn’t Know About to Save You Thousands

 

When was the last time your accountant brought you an idea that saved you thousands of dollars in taxes?

 

That was the question that pushed Travis Jennings, who has educated the wealthy on better techniques to improve their finances, investments, and taxes for over a decade, to launch an automated online platform to share the solutions of the top 1 percent with beginner investors. In our recent conversation, he provided three techniques to save thousands of dollars on this year’s taxes.

 

Technique #1 – Rent your house to your business

 

If you create a LLC, then by definition, you are a business owner. As a business owner, there are many different ways to decrease your tax bill. One well known example is deducting the square footage of your home office. However, what most investors don’t know is that they can rent their entire house for business events.

 

Travis said, “let’s say that I threw a pool party and I invited a friend of mine that was potentially going to become a client. Well, as long as we discuss business and we take notes, I get to rent my home to my business for that day.”

 

To determine how much in rent you can deduct, go to a site like Zillow.com, look up your homes estimated monthly rent, divide by 30, and that is how much you can write off for each event. For example, let’s say Zillow says your home could potentially be rented for $3,000 a month. That’s $100 per day. If you host a business event once a month, that’s a $1200 savings.

 

Travis said, “there’s some structure to that. You want to take notes. You want to have [meeting] minutes. You kind of want to briefly write down what you discussed that was business, and just in case one day you ever get audited, you’ll have some proof as to what you did.”

 

I host a monthly poker event with some friends and investors, so I plan on implementing this strategy immediately, and you should too!

 

Technique #2 – Hire your kids

 

Do you have kids? Put them to work and realize even more tax savings. Travis has three kids, and he puts all three to work at his home office. Once your kids turn seven, which is the age of Travis’s youngest, you can hire them.

 

Travis said, “you may have heard of this, but I’m going to give you a twist that’s even more fun. So what if we hired our kids at the 0% tax rate? What if we paid them $6,300 a year? Well, then effectively what we would be doing is shifting dollars off of my tax return and putting it onto their tax return. And if we’re paying them just enough to be in the 0% tax rate, if I’m in the 40% tax rate, I’ve just saved 40%. So on 3 kids at $6,300 a piece, I’ve just saved myself about $8,000 in taxes.”

 

Technique #3 – See if you have the right CPA

 

The biggest mistake a typical real estate investor makes from a tax standpoint is never upgrading accountants. “I would say that most investors – real estate included – don’t start off with the ten million dollar projects,” Travis said. “They build up to it. So then the accounting professional or your tax advisor is typically the advisor that you had in the beginning. I would say that most people don’t grow or they don’t reevaluate their trusted advisors enough. They just roll with what they’re comfortable with.”

 

The CPA that specializes in new development and a standard CPA, for example, have two completely different skill sets. If you have the wrong CPA for your niche, you could be missing out on huge tax savings.

 

A great way to determine if your CPA is the right fit, and if they are capable of getting you the most tax savings, Travis said to ask them “Can you tell me about one of the solutions in the last month or so that you implemented with a different client to save them a bunch of money in taxes?” He said, “if they stutter, if they seem unsure how to answer it, then they’re probably not doing a lot of proactive tax planning.”

 

Related: How to Save Thousands of Dollars on Your Taxes Via Cost Segregation

 

 

Which of these three tax strategies will you implement? Leave you answer in the comments below.

 

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Pay Attention to These Five Loan Components to Maximize Your Apartment Returns

Multifamily syndicators focus so much on getting equity for current or future deals,
but then they go with the first bank that offers them a loan, especially on the first few deals. In reality, the type of loan we put on the apartment is just as important as raising equity for the deal.

 

Large commercial loans are not the same as the cookie-cutter residential loans. There are a multitude of options when it comes to commercial financing. When you are dealing with multimillion dollar loans, the difference between two loans can have a huge effect on the cash flow and fees at sale.

 

Steve O’Brien, an investment officer who was responsible for the acquisition of over 20 multifamily assets totaling close to $200 million in the last five years, understands the different components of the loan and how they can affect an investor’s bottom-line. In our recent conversation, he outlined the five components of the apartment loans multifamily syndicators need to be paying attention to prior to selecting a loan.

 

1 & 2 – Interest Rate and Loan-to-Value

 

The two loan components that even the first-time syndicator is aware of are the interest rate and the loan-to-value. “Those are the two most important that everyone focuses on,” Steve said. “It basically determines what your costs are going to be, what is the debt service and how much money you’re going to need from an equity standpoint based on what amount they’re willing to lend you.”

 

3 – Recourse

 

While those first two components are relevant to residential loans as well, this next component is not – recourse vs. nonrecourse loans. Steve said, “with most banks these days, given the crash, they want recourse. What I mean when I say recourse is that they want you to guarantee some or at least a portion of the loan that you’re getting personally.” However, a lot of lenders will offer nonrecourse loans as well. Steve said, “on our entire portfolio that we’ve done of about $100 million in financing, we have not signed any recourse, meaning that if the deals were to go bad, the most the lender could do is come after you for the property itself, so you can technically lose your equity in the deal.”

 

Of all the loan components, recourse is the most important because it can come back to bite you bigtime. In fact, this is one of the things that happened with the real estate crash in the late 2000s. “A ton of people put up recourse and all their loans went bad, and it caused bankruptcies and other issues,” Steve explained. “Not all the lenders will do all the math on all the recourse you have. So you may have guaranteed 150% of your assets, and if everybody comes calling them at the same time, that can be a real problem.”

 

With a nonrecourse loan, you are personally protected as long as you don’t commit fraud (they are called “bad-boy carve outs”).

 

Steve said, “In general there are a lot of options for multifamily investing in particular that do not require recourse, and as long as you stay at a reasonable loan-to-value, you can get a nice healthy 75% loan and still remain recourse.” And if you go low enough on the loan-to-value ratio, depending on the lender, you can avoid the bad-bay carve outs too.

 

4 – Terms

 

Another component of the apartment loan to pay attention to are the loan terms. “A lot of banks will want to do a 35-month loan, or a 36, or up to five years with extensions,” Steve said. Your ideal loan terms will depend on your business plan. For example, if you plan on a long-term hold, especially with the historically low interest rates, it may make sense to pay a high interest rate and lock in a 15-year loan. If your business plan is to add value and refinance, a three-year bridge loan may be the best option for you.

 

5 – Prepayment Penalty

 

A final component of the multifamily loan to pay attention to is the pre-payment clause. If your loan has a pre-payment penalty and you want to sell early, you will have to pay the lender a large fee. Another form of a pre-payment penalty that may be triggered at sale is yield maintenance, meaning the bank will make you buy an instrument to pay them back the interest rate that you would have owed them if you completed the loan.

 

However, Steve said, “ultimately, that’s a decent problem to have because it probably means that you’re doing well, but it just limits your flexibility.”

 

Best Ever Loan Advice

 

Steve’s Best Ever advice for how to approach these five components is “You’ve got to pay attention to your goals. Is your goal to buy and improve a property and then flip it? Well, then don’t put long-term debt on it. If your goal is to buy a property and hold it forever, well then you may want to consider not doing a three-year bank loan with two one-year extensions and going to a longer-term lender that will do a balance sheet loan for you, like a life insurance company or an agency (Fannie Mae, Freddie Mac, something like that) in order to lock your returns in for the long-term, because it’s a nice, warm blanket to have a low interest rate that you know doesn’t mature for 10 years, unless you want to sell it, and then you’ve got a pre-payment penalty. So it’s all very determined based on your goals, and I think that’s what the key is – to set your strategy and your goals for the asset and try and find debt and equity that best mirrors your strategy and goals.”

 

 

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5 Tactics to Get Five-Star Real Estate Reviews

When browsing Amazon.com marketplace for a specific product, what is one of the first things you look at before adding the item to your shopping cart? If you’re like me, you scroll directly to the “reviews” section to see the number of reviews, the overall rating and to read customer feedback. If the product has too many negative reviews, I pass and move on to the next brand. These factors hold the most weight on my purchasing decisions.

 

The same concept that applies to Amazon products, and other online outlets, is applicable to real estate as well. When someone sees your rental listing on Craigslist, or if they search your apartment community online, they are going to see reviews. What do you want a prospective resident to see? Do you want them to read raving reviews, or the one or two people that had a bad experience? What’s likely to command higher rents – good or bad reviews? If good reviews can command higher rents, then that results in a higher cap rate, which increases the overall value of the property. Therefore, online reviews are paramount to a property’s success. However, I’ve found it incredibly challenging to get them.

 

A loyal Best Ever listener, Joseph, works for a property management company. One of his responsibilities is to get 5-star reviews for properties they manage. Lucky for us, Joseph sent me a list of the most effective ways to increase the number of 5-star property reviews.

 

1 – Hire a 3rd Party to Manage Reviews

 

The first method to get more reviews is to hire a 3rd party to manage your reviews. Joseph said, “if you can’t be them, get close to beating them. Yelp! is the hardest to control and seems to be an outlet for dissatisfied residents. We contract with a company called Modern Message, who has a resident’s rewards program that turns social media and reviews into a game for our residents. This allows us to get internal reviews and place them on an external site that has amazing SEO value.”

 

Basically, you hire a company, like Modern Message, that has a rewards program that makes leaving reviews like a game. Then when you get these reviews, you link them to your website, Facebook, or other online platforms, similar to a testimonials tab you see on websites. Since you are linking the reviews to these external sites, it increases the SEO for keywords for your company’s name. Joseph said that if you Google his company’s name, the first link is his company’s Yelp! page.

 

2 – Free Stuff in Exchange for Reviews

 

The second method is to give away a random gift to residents in return for property reviews. Joseph said, “We had $5 T-shirts for [a local sports team] and gave them away to everyone who came in on a certain day, along with a card that read ‘Thanks for being a great resident. Please share your experience on Google.’ And this worked really well.”

 

This is one of my favorite methods because when people expect something, they’re not as impressed with what you give them, but if they don’t expect something, you can give them something of a much lower value and it will be more impressive than the higher value item they were expecting. The only thing I would add is in the note, include a direct link to the reviewing site, which takes a step out of the process and will increase the chances of the resident leaving a review.

 

3 – Send a Satisfaction Survey

 

Another method is to survey your residents. Joseph said, “Send out a survey to your residents, asking for feedback on cleanliness of the building, maintenance response time and things like that. After you fix some of the concerns, send a survey out a couple of months later with a link to review at the end.”

 

This method is beneficial because not only are you getting more reviews, but residents may also bring issues to your attention that you didn’t know about.

 

A spin on this method is to take it to a more granular level. When there’s a maintenance request that doesn’t appear to be to a negative thing for the property, then after addressing it, send the resident an e-mail and say “Hey, did we fix it? Are you good with everything?” When they say “Yes,” provide them with a link to review. And what I mean by “a negative thing for the property,” you don’t want a resident posting a review if their maintenance request was that they had something like bedbugs. You want to use this method if the maintenance request is something small, like a leaky faucet or a malfunctioning toilet. If you follow this more granular, personal approach, you will receive a higher rate of reviews compared to sending out a mass email to all the residents.

 

4 – Be Responsive and Follow Up

 

The final method for getting reviews that Joseph provided was “be really, really good at answering the phone, expressing empathy, and following up.” This is similar to the previous method. You want to be responsive to your resident’s needs, and when you fulfill those needs, always follow up with a request for them to leave a review.

 

5 – Bonus Tactic

 

Along with Joseph’s four pieces of advice, another method to increase your property reviews is to host a community event (we do things like Taco Tuesday, Poolside Popsicles, etc.) and have an iPad or laptop available for residents to leave a review. Your residents are having a good time at your event, so they will be in the perfect mood to leave you a 5-star review!

 

 

What tactics do you use to get 5-star property reviews? Leave a comment below.

 

 

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How These Two Market Factors Will Make or Break Your Real Estate Business

In most markets across the United States, the apartment market is strong, which is great for multifamily syndicators like myself. However, what happens when the market takes the inevitable dip? How do we know that our properties will continue to cash flow?

 

A strong housing market can mask the weaknesses of inferior properties, but when the market weakens, those inferior properties will be the first to be negatively affected.

 

Peter DiSalvo, who has over 20 years of experience providing market research and has consulted on over 1,000 projects across 46 states, has a strong understanding of this phenomenon. In our recent conversation, he explained the two market related items you should analyze to ensure the long-term viability of your properties.

 

Related: Blueprint to Successfully Invest in ALL Market Conditions

 

#1 – Location

 

The first thing to analyze is the location of your property, which can be broken down into five factors.

 

One area to analyze is the property traffic. “Ideally, you have an apartment that has visibility to a lot of traffic,” Peter explained. “If you’re not one of those that are getting 10,000 to 15,000 cars a day in front of you, that may mean you’re going to have to spend more dollars marketing for people to find your property.”

 

Luckily, you don’t have to sit outside of your apartment with a tally counter. Here are three sources Peter provided for finding the traffic information on your property:

  • ESRI, a demographer
  • Department of Transportation for the state
  • City Municipality

 

Being hidden from traffic is a red flag and a sign of an inferior property.

 

Another location-related area to consider is your property’s accessibility. Peter said, “Good ingress, egress, how easy it is to get in and out of your property – that can play into it too.” For example, “if it’s a right out only, but you know that all the traffic goes left to go to work in the morning, that may be an issue.”

 

Also, see what is located next to your property. Does the surrounding real estate complement your properties demographic? For an extreme example, Peter said, “I recently saw an apartment development that was built near a strip club… The strip club would park their billboard sign next to the entrance. It was a family project where you had this enormous billboard sign of the next ladies that would be dancing there that night.” Other examples would be a storage facility, graveyard, construction site, landfill, or anything else that isn’t aesthetically pleasing or that isn’t contributing to the property’s demographic.

 

Depending on your demographic, the quality of school may be important. “Renters are having less kids, but I would say if you’re looking at a property that has a really heavy mix of three bedrooms, that’s when you really need to look into the schools,” Peter explained. “If the [public] schools aren’t particularly good, what are the private schools like? Sometimes that’s enough to negate that issue.”

 

Finally, if you want to attract the millennial generation, Peter said there are three location-based items to consider:

  • Are they close to jobs?
  • Do they have quick and easy access to highways?
  • How close are retail opportunities?

 

If millennials are your target demographic, the answer to these three questions will be vital to your success.

 

Related: How to Find a Cash Flow Friendly Real Estate Market

 

#2 – Product

 

The second item, which is often overlooked, is the product. Peter said, “When I’m talking about product, there are multiple opportunities with this, but looking out for that functional obsolescence. If it’s something that can be remedied, there’s a big potential for rent increases… If not, it’s a big red flag. If the market has those hiccups, you may be the first to experience problems.”

 

One huge red flag is a galley kitchen. Peter defined galley kitchens as “essentially a closet with your appliances in it.” Open kitchens are in and galley kitchens are out. If it’s possible to open up a galley kitchen, that is a great value-add opportunity, but if it’s unconvertible, it’s a big red flag.

 

A compartmentalized floor plan is another form of functional obsolescence. Peter said these are floor plans “where there’s a hallway everywhere, and your unit feels like a lot of doors and hallways.” Similar to the kitchen, renters like open floor plans. If you have the ability to open up the floor plan, great. If not, that’s another red flag.

 

Access to closet space is another important factor. Lack of closet space, Peter said, “can create some high turnover once they get [in] and say ‘Well, I don’t have enough space to put my clothes.’ Without the storage stuff, you’re going to have high turnover in your property, and maybe even [be] difficult to rent.”

 

A final product-related red flag would be a sub-grade unit, or garden-level unit. Peter said, “those apartments that are partially underground, in a basement. Those are … the ones that you need to keep an eye out for. That’s a big red flag. Those are tough, no matter how you look at it. Even in good time those can be difficult to rent.”

 

Conclusion

 

To ensure continued success, even in down economy, it is vital to analyze the location and product prior to investing.

 

Peter said, “understanding that just because you have a site in a strong housing market doesn’t mean you have a great site. Make sure you have those [two] fundamental market characteristics is important to having a long-term viable project.”

 

Related: How One Market Factor Can Tell You It’s Time to Invest or Sell

 

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How to Make Over 6-Figures with This Simple Networking Strategy

Anson Young, a real estate investor with over 10-years of experience specializing in wholesaling and flipping, was able to net over $100,000 in profit by implementing one simple networking strategy – starting an investor meet-up. In our recent conversation, he explains the “structure” and benefits of his meet-up business so you can (and should) replicate his success in your market.

 

Structure of a Meet-Up

 

The reason why I put “structure” in quotations is because Anson’s meet-up is very informal. “It is a monthly pure networking meet-up,” he explained. “We don’t do any speaking or pretty much anything besides get together, … find somebody who does what you want to do or that you want to find out more from, tackle them and pick their brain as much as possible.”

 

After three years of consistently hosting monthly meet-ups, the attendance has grown to an average of 70 people each meeting.

 

Over the years, Anson has hosted the event at multiple locations and finds that a local beer hall works best. “We got a pretty good deal going [at the beer hall],” he said. “Monday night was just a slow night for them, and so they love having 70 people coming on an off night. They don’t charge us. They don’t hassle us… We just take over their area and have fun for about three hours.”

 

Since 70 people is quite a large gathering, to help facilitate the meeting, Anson will try to pair up like-minded individuals he meets while working the room. For example, he said, “If I know that you are a fix and flipper and you’re having a hard time finding a contractor on the East side of town, and I go across the room and I find somebody who knows somebody, or somebody who is a contractor, I basically try to link everybody up, so that you’re not just blindly walking around with 70 people there. There’s at least one or two of use who’s walking around and trying to connect people who have needs.”

 

Benefits of a Meet-Up

 

Over these three years, Anson said he’s made $150,000 directly from deals from the meet-up. “I like to say that I’ve easily made six figures just by running this meet-up,” Anson said. “Probably in the neighborhood of 15 deals that I’ve done.”

 

$150,000 from 15 deals in three years may not sound like much, but based on the Anson’s minimal time investment, he was basically paid to hang out with friends and chat about real estate. Besides the three hours spent at the meet-up, Anson said, “I basically post a note saying, ‘Hey, this is all the dates that we’re meeting up for the whole year.’ Every month I just create a new thread [on BiggerPockets], I show up for three hours, and honestly, my voice is gone. I’m exhausted because I talk to a lot of people, answer pretty much any question that anybody has about nearly anything, and provide that value. But at the same time people come back to me and say, ‘Hey, yeah, you helped me out and I’ve been driving for dollars or I’ve been knocking on doors or whatever it is, and I came across this deal and I don’t know what to do with it.’ So I’m more than happy to partner up with them, help them with ARV, help them with repairs, contractors, whatever they need to be successful, and a lot of times we partner up and do that deal together. It’s very beneficial.”

 

Aside from finding deals by hosting a meet-up, other benefits include learning long the way, creating relationships and perhaps even friendships, and becoming more valuable to the deals that you are working on. Then, the relationships formed and lessons learned through conversations with investors at the meet-up can result in additional business opportunities, such as partnerships or entering a new real estate niche.

 

Overall, Anson’s success is a testament to the effectiveness of starting a meet-up from a financial, learning, and relationship standpoint. Anson said, “I always say, if you wish something like [a meet-up] was in your area, why don’t you just start it? I’m living proof that it works. I have friends who I’ve met just through there, and we’re friends or we’re partnering up on things now. We wouldn’t have that opportunity if I didn’t just say, ‘Hey, let’s just see what happens if I start it up.’”

 

Related: How to Effectively Network at a Real Estate Event

 

 

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When Is the Right Time to Sell Your Real Estate Asset?

There are countless articles online (this blog included) that provide advice on how to find deals, build a team, manage a deal, etc., but there isn’t much advice on what’s maybe the most important aspect of the deal – when to sell?

 

Jordan Fishfeld, who has decades of investing, development and sales experience in the real estate industry, has participated in the acquisition and sale of over $1 billion worth of real estate. In our recent conversation, he provided the three questions to ask yourself to determine if it’s best time to sell an asset.

 

Why Do Investors Have Difficulties Letting Go of Properties?

 

In Jordan’s experience, he has found that most investors suffer from what’s clinically called the endowment effect. Jordan defined the endowment effect as “basically, when you own something, you kind of want to keep owning it, even if it’s not in your best interest or fitting within your original model.”

 

A standard example would be you purchase a property for $100,000 at 25% down. Your original business plan is to hold the property for 5-years, receive a 10% cash on cash return each year – $12,500 overall. At year 5, the property appraises at $150,000. Rather than sell, since things are going great, you hold on to the property for another 5-years, continuing to receive the 10% cash on cash return, and now the property value is $175,000. For a novice to intermediate investor, that may look like an amazing deal. However, if you dig into the numbers, you could have received an even higher return if you sold in year 5, taken your original down payment and earnings, and reinvested your earnings into multiple $100,000 properties or a larger property, even at the same 10% cash on cash return.

 

This is a textbook example of the negative consequences of the endowment effect.

 

Jordan said, “the endowment effect problem is something that’s really hard to overcome. This isn’t an easy thing to do, to sell something you own that’s going well for you. It’s a very hard thing and I think that’s why it’s a great skill that is a learned skill. It is not a natural occurrence. It’s something that you have to learn and be good at and really stick to. I think people that do it well benefit tremendously from putting capital to the most efficient use possible at the most efficient time.”

 

How do you overcome the endowment effect and determine when is the right time to sell? Jordan said to ask yourself the following three questions:

 

  • Would I buy the asset today at the price that I am looking to sell it at? If the answer is no, then you should probably sell. For example, if your initial goal was to receive a 15% cash on cash return, if you purchased the property today at the price you could sell if for, would you continue to receive a 15% return? If not, then you should probably sell, take your earnings, and invest in a similar or larger deal with 15% return.
  • If I sell today, will the tax hit offset any gains I would achieve? Since when you buy a property, you aren’t hit with taxes, and when you sell, you are hit by taxes, make sure you are taking the tax bill into account when you consider selling.
  • Is there a project that I can put my money in to satisfy my same goals? For example, if you sell this project where your initial target was 12% return over four years, which you achieved, and you know for the next four years you’re going to be making 8%. That reduces your overall project yield to 10% (approximately), can you find another deal that has a return greater than 10% in the current market at the same risk profile? If yes, sell. If not, keep.

 

Jordan recommends asking these three questions on a yearly basis. And to pull it all together, he said, “it still always depends on the investor individually and the projects individually and the opportunities available to that investor. But as opportunities explode with the online capital raising space, as information explodes all over with podcast and papers and books, and as yields compress, there’s a lot of different reasons why you should stay in and not stay in certain investments. But I think the skill of just doing a check-up on your investments and making that decision is very powerful.”

 

Related: How One Market Factor Can Tell You It’s Time to Invest or Sell

 

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Why You’re Not Receiving a Response When Messaging a Big-Time Investor

 

If you want to obtain knowledge from an experienced, big-time investor, sending them a message on BiggerPockets or an email, for example, and inviting them out to lunch, coffee, or a phone call to pick their brain isn’t a good approach. If you’ve tried this in the past, it has likely resulted in rejection.

 

Why?

 

That approach might work for brokers or newer investors because offering to grab a coffee with them is fulfilling a need. If the broker is looking to gain you as a client, they can accomplish that by accepting your invitation. For the newer investor, every meeting they take can lead to an opportunity, no matter how small, that will have a significant effect on their business. And I am sure they would both appreciate the free lunch.

 

However, if you want to get facetime with a more seasoned investor, don’t expect to do so without offering something more in return. They don’t need someone paying for their coffee. And if the purpose of the meeting is for you to pick their brain, they really won’t be benefiting from that either. Also, the more successful an investor is and the larger their portfolio, the more coffee and lunch invitations they are receiving. Maybe you catch them at the right time and they accept your invitation, but most likely, they will decline because they have much more important things to do with their time. Therefore, you will need to approach them at a different angle.

 

Chris Tracy, who has been active in the world of real estate for 5 years, ran into this same problem. He was ready to make the jump to the big leagues (from small residential to large multifamily investing), which required connecting with big-time investors. In our recent conversation, he explained the best way stand out from the crowd of coffee/lunch invitations and to link up with veteran investors.

 

When reaching out to experienced investors, Chris says, ask yourself, “what are their needs.” Again, if you ask an investor out to coffee to pick their brain, are you fulfilling one of their needs? The answer is no.

 

“I see a lot of these people on BiggerPockets,” Chris said, and “you always see that comment in the forum where people would say, ‘Hey, I need a mentor. I’d love to meet up and have coffee.’ Well, I’ve got news for you. The guy that owns a huge portfolio [doesn’t] have time in [their] day to go out and have coffee with all kinds of random people that want to mentor them. [They] don’t have time for that.”

 

Instead, when sending a message, focus on adding value. As an analogy, Chris said, “If you’re trying to learn how to play basketball and you want LeBron James to teach you how to play basketball, learn what LeBron James needs.” The same applies for real estate investors. Chris said to learn “what the needs are of the person and bring value to them, and say, ‘Hey, do you need anyone to help you underwrite deals? Do you need anyone to help you make phone calls? I’ll bring you deals. What do you need?’ Not just, ‘Hey, can we do lunch?’…That would be much more attractive and appetizing, and you’d have the better success…if you can just focus on bringing value.”

 

If you want to really stand out, instead of asking “What are your needs?” in your message, do some research, anticipate their needs, and proactively add value without even asking them what their needs are. For example, I had someone reach out to me recently who researched my background, discovered that I was looking for apartments in the Dallas area, and offered to not only find me deals, but to conduct the on-the-ground due diligence as well.

 

Even if your offer isn’t what they are looking for, who cares! Most likely, no one has done that for them, at least not recently, and you’ll standout regardless. You’ll definitely receive a response, at which point, you can discover (or they will disclose) a need they have, you can fulfill that need, and start to build a relationship.

 

Conclusion

 

When reaching out to experienced, big-time real estate investors, don’t invite them to coffee or lunch to pick their brains. You will get rejected or not receive a response. Instead, ask them what their needs are.

 

To increase your chances of a response even more, proactively address their needs by researching their background, and when initially reaching out, either offer to fulfill that need, or even better, have already done the work to fulfill that need.

 

Related: The Secrets to Starting a Relationship with Someone You Don’t Know

 

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Should We Celebrate Closing a Real Estate Deal?

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On June 24th, 2017, I married the love of my life. The next day, we both update our Facebook pages to reflect our newly wed status. Tons of people liked it, and we received many congratulatory comments. It was amazing.

 

Later that evening, I was scrolling through my Facebook feed, and I see a post from one of my friends announcing his wife and his 8-year wedding anniversary. I noticed it only received 39 likes. I thought, “I wonder how many people liked their Facebook update announcing their marriage compared to the announcement of 8 years of a successful marriage?” Lo and behold, they received three to four times as many likes and comments for the marriage announcement.

 

Then I came across another anniversary post, with these friends celebrating two years of marriage. Sure enough, when I went back through their timeline, I discovered their wedding announcement received over 100 interactions compared to the 32 on the recent anniversary post.

 

I began thinking, “Wait a minute. Why do we celebrate the initial coming together more than two years, eight years, etc. of being together successfully and loving each other?”

 

At this point, you may be thinking, “what does this have to do with real estate investing?” Well, I think there is a clear parallel. For those of you that have completed a least one real estate transaction, what did you celebrate more: closing the deal or successfully operating the deal? If you are like me, and I am sure like most other investors, the largest celebration occurred at closing.

 

So similar to marriage and anniversaries, why do we celebrate the initial closing of a deal more than we celebrate a successful refinance a few years later, or when we deliver on our annual projections?

 

Now I am not trivialize getting married or closing on a deal, because those are great accomplishments. But I do think we are approaching it backwards. I believe we should be celebrating the milestones, anniversaries, delivering on our projections much more.

 

You may be thinking, “It seems strange to celebrate something like two years of cash flow from a deal,” but that is really what we should be celebrating. The investors who I interview on my podcast who are playing at a level that is three, four, or more times higher than me say, “You know Joe, as I progress further and further, I realize that it’s less about actually getting a deal or closing a deal and more about what you do after you have a deal.”

 

It is similar to a concept a previous guest on my show explained – being goal-oriented vs. growth-oriented. When we are goal-oriented, there are many more highs and lows. If we don’t get awarded a certain deal, we are low. If we get award a deal, we are high. When we are growth-oriented, there is less emphasis on whether or not we are awarded with a single opportunity. As long as we continue to successfully implement our business plan on the assets we own, meet our daily/weekly objectives, and growth as a business and a person, we have a reason to celebrate.

 

In other words, being goal-oriented has peaks and valleys, peaks and valleys, whereas being growth-oriented is you continuing to climb up the mountain. When we have a growth mentality, we can still celebrate getting married and closing on a deal. But we should put more weight on a wedding anniversaries and on an annual basis in our real estate businesses.

 

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The 6 Steps to a 7-Figure Income

Who wants to be a millionaire?

 

No not the popular TV game show. I’m talking about becoming a long-term, sustainable millionaire as a real estate entrepreneur!

 

Pat Hilban, who is a billion-dollar real estate agent, spent over four years self-reflecting, researching, and writing his New York Times Best-Selling book “6 Steps to 7 Figures.” The book outlines a 6-step process he, his mentors, and other successful entrepreneurs have followed to go from little to no money to over seven figures in annual income. In our recent conversation, Pat provided a blueprint you can follow to achieve the same.

 

Step #1 – Goals and Affirm

 

The first step is to set your HUGE goal. Then, break it down into smaller, bite-size pieces.

 

Pat said, “A lot of people just set really large goals. For instance, they set a goal ‘I want to be a millionaire,’ but they don’t set the small daily goals that it takes to be a millionaire, such as ‘I save $10/day,’ or even the goal before that is ‘What are you going to do to earn that extra $10 or save that extra $10?’” In this example, the long-term goal is to become a millionaire, but what you are really striving for is to save $10 per day by doing X, whatever you determine X to be.

 

Finally, you want to create a statement to affirm that goal. If your goal is to become a millionaire by saving $10/day, Pat said your affirmation would be “I am a millionaire. I save $10/day by doing X every day.”

 

Related: Set Goals + Don’t Be Greedy + Create an Incredible Team = Success

 

Step #2 – Track

 

Once you have set your overarching goal and broken it down into daily objectives, the next step is to track your progress. “I’m an avid tracker,” Pat said. “I’ve tracked everything for years. Every successful person I talk to tracks like crazy. People that tend to not get very far don’t track at all.”

 

Pat lives by the following truism: “If you track, you succeed. If you don’t track, you fail.”

 

For an example, for the longest time, Pat’s goal was to become a hundred-percenter. A hundred-percenter is having 100% of your bills paid by rental real estate and passive investments. He said, “In order for me to get to a hundred-percenter [status], I need to do a couple of things. I needed to first of all earn money, and then with that money, save money, and then with that savings, investing that money and invest it wisely. So my ultimate goal is to become a hundred-percenter; my daily goal that I might track would be I needed to list a house a day, or a house every three days. My goal from that would be to save $10,000/month in commissions, and then from that it would to invest. Then I would obviously track… Everything was tracked, from what I did to get the listing, what I did to save the money, what I did once I investing the money, and then how the money paid me sideways.”

 

There are a million different ways to track, but the idea is to have a system that tracks your daily objectives based on your overall goal.

 

Step #3 – Masterminds and Mentors

 

Step three is to join mastermind groups and get mentors. “I’ve had over 50 mentors that I can count that I have learned form and stepped upon. Kind of used to climb the ladder of success,” Pat said. “Many of those mentors I was able to find at masterminds. A mastermind is just simply a collective genius, so to speak. It’s 5 to 100 people that are all thinking the same and are sharing best ideas and best practices where you could just learn in abundance from multiple people all at once. People that have gone through what you want to go through.”

 

Related posts on finding a mentor

 

Step #4 – Act

 

Now it’s time to act – that is, the forceful act of moving forward.

 

After completing his book, Pat’s goal was to make the book a best-seller. He went out to find some mentors, and he landed on Gary Keller, who has written multiple best sellers like The One Thing, The Millionaire Real Estate Agent, and the Millionaire Real Estate Investor.

 

At this point, Pat’s plan was to friend request everybody he could find in the real estate industry on Facebook and post about his book daily. Gary told him that wasn’t enough. He told Pat, “What you need to do is you need to quit what you’re doing and you need to go out on tour and start speaking to real estate agents at offices throughout the country, talking about your book.” And that’s what Pat did.

 

Pat sold his real estate business to his top agent and went on a book tour. He spoke at 53 offices in 53 different cities across the county over a seven-month period and got all of them to commit to buying a book on the first day it came out.

 

“When my book was released, we sold 10,600 copies in the first week,” Pat said. “My point is that Gary told me that I needed to act. He said something I’ll never forget. He said, ‘You reap what you sow 100% of the time’ It’s so true… There’s no free lunch.”

 

Now that is what I call MASSIVE ACTION.

 

Step #5 – Build

 

One of Pat’s mentors used to always say “Build on a success, not from the ground up.” What that means is you already have success with something, leverage it for more success. For example, when I am inviting guests onto my podcast, I always mention that I have previously interviewed well-known, successful individuals like Barbara Corcoran, Robert Kiyosaki, Emmitt Smith, etc. Those are all successes I’ve had in the past that I use as a sort of bait to get other successful people on the podcast.

 

“For a real estate agent, if you have a house in a neighborhood that you just sold, don’t go to some other random neighborhood and try to prospect and farm it,” Pat explained. “Go to the neighborhood where you had the success and build on that success up, because you’re much more apt to get a listing in a neighborhood where you could say, ‘Oh we just sold a house up the street. You may have seen my sign.’”

 

The goal is to find every little success that you’ve had and keep building on those same blocks.

 

Step #6 – Invest

 

Finally, the last step is to use the money you’ve saved or created from steps 1 to 5 and invest in real estate. “Bust your ass, save money,” Pat said. “Be a good saver, be an excellent saver. Take the down payments and invest in real estate – that’s how I did it – and then live off the horizontal income from those investments.”

 

Related: 10 Laws of Successful Real Estate Investing

 

Want to take a deeper dive into the 6 steps to 7 figures? Check out Pat’s book: 6 Steps to 7 Figures: A Real Estate Professional’s Guide to Building Wealth and Creating Your Own Destiny

 

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

                       

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