How to Perform Due Diligence on an Apartment Building

The due diligence process for an apartment building is much more involved and complicated in comparison to that of a single-family residence or smaller multifamily building. For the latter, you will likely only require an inspection report and an appraisal report in order to close. If you are experienced, you’ll perform your own financial audit, comparing the leases and rent rolls with the historical financials.

 

When you scale up to hundreds of units, the increase in potential risk points is such that you’ll need additional reports before deciding whether or not to move forward with the deal. In fact, for the apartment due diligence process, you’ll want to obtain and analyze the results of these 10 reports:

 

  1. Financial Audit Report
  2. Internal Property Condition Assessment
  3. Market Condition Report
  4. Lease Audit
  5. Unit Walk Report
  6. Site Survey
  7. Property Condition Assessment
  8. Environmental Site Assessment
  9. Appraisal
  10. Green Report

 

1 – Financial Audit Report

 

The financial audit report is the detailed results of an inspection conducted by a commercial real estate consulting company. They will analyze the asset’s operating history and provide a breakdown of the individual components of the operating income and expenses.

 

When you underwrote the deal, you likely used the income and expense figures provided in the pro-forma, and then made assumptions for what those figures would be after you took over the property. The results of this report will confirm the actual income and expenses, as well as allow you to make adjustments to your assumptions if necessary.

 

2 – Internal Property Condition (PCA) Assessment

 

The internal property condition assessment is an inspection report that provides you with the overall condition of the property. The assessment is conducted by a licensed contractor of your choosing.

 

This assessment will differ depending on the contractor. However, you will most likely be provided with a list and images of problem areas observed by the contractors, recommendations for repairs, opinions on costs to address deferred maintenance, and whether or not further inspections are required.

 

These results will help you confirm or make adjustments to your repair and rehab assumptions and screen out deals that have maintenance issues outside your investment criteria.

 

3 – Market Condition Report

 

The market survey and condition report is a comprehensive comparison analysis of the sub-market. The subject property is analyzed and compared using multiple variables, including rents, unit type, occupancy, unit size, new construction, historical statistics, amenities offered, and more.

 

This report is created by your property management company, so the thoroughness of the report will depend on who you select.

 

The results of this report can be used to confirm your underwriting assumptions including for occupancy and rental rates.

 

4 – Lease Audit

 

The lease audit is a systematic examination of the leases, including the stated income and expense figures, billing methodology and lease language. Typically, this audit will be conducted by your property management company.

 

The purpose of this audit is to verify that charges billed are accurate an in compliance with the lease terms. The most important piece of information I receive from this audit is to understand the difference between economic and physical vacancy.

 

5 – Unit Walk Report

 

A question my clients ask a lot is “when I am performing due diligence, do I need to walk every single unit?” The answer is a resounding yes! And that is the purpose of the unit walk report. It is a detailed inspection of every single unit, assessing the condition and characteristics of the entire unit.

 

This report is also prepared by the property management company. However, if you so desire, you can print out a spreadsheet and perform the inspection yourself.

 

6 – Site Survey

 

A site survey shows the boundaries of the property, indicating the lot size. It also includes a written description of the property. The report resembles a map.

 

There are a lot of third party services that can conduct a site survey. A quick Google search of “site survey + (city name) will do the trick.

 

7 – Property Condition Assessment

 

The property condition assessment is the same as the internal property condition assessment, except this one is created by a third party selected by the lender. So, you’ll have two PCAs from two different contractors, which should cover all your bases.

 

8 – Environmental Site Survey

 

The environmental site survey is an assessment that identifies potential or existing environmental contamination liabilities. This report is required and is conducted by a third-party provider selected by the lender.

 

The analysis typically addresses both the underlying land and the physical improvements on the property.

 

9 – Appraisal

 

The appraisal is a report that determines the value of the property based on market capitalization rate and net operating income. This report will also be created by a third-party provider selected by the lender. Hopefully, the appraisal value comes back equal to or, even better, exceeding the contract price.

 

10 – Green Report

 

The green report is an energy audit that evaluated an apartment for potential energy and water conservation opportunities and calculates the estimated cost savings that would result from addressing these identified opportunities.

 

The audit is performed by an energy efficiency provider. Once completed, you are sent a report with the results and recommended next steps.

 

Conclusion

 

The 10 reports needed when performing due diligence on an apartment buildings are:

 

  1. Financial Audit Report
  2. Internal Property Condition Assessment
  3. Market Condition Report
  4. Lease Audit
  5. Unit Walk Report
  6. Site Survey
  7. Property Condition Assessment
  8. Environmental Site Assessment
  9. Appraisal
  10. Green Report

 

Failing to do so can, and most likely will, result in unexpected and unplanned for expenses later on down the road.

 

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How to Start Up a Business w/ Pittsburgh Steelers Legend Franco Harris

 

According to Bloomberg, 8 out of 10 entrepreneurs who start business fail within the first 18 months. Or, for every 5 business ideas you attempt implement, one will hit and four will fail.

 

How can you increase your odds of success? Well, I great place to start is to learn about how entrepreneurs who’ve been successful in starting up a business were able to do so.

 

Franco Harris, NFL Hall of Fame Pittsburgh Steelers running back, has two booming businesses in completely unrelated fields – the food and silver industries. In our recent conversation, he offered tips, based on his experience, on how to successful startup a business from scratch.

 

Q: After 13 successful years in the NFL, how did you smoothly transition into a new career field?

 

A: When football was over, I said to myself, “Franco, you need to get busy.” Upon retirement, one thing you definitely don’t want to do is stay idle. Even if that meant I’d go work in a fast food restaurant, I had to do something.

 

I decided to start a food distribution company, and I called it Franco’s All Natural. I wanted to serve all natural food products. And I dove in feet first. I loaded and unloaded trucks, delivered, and partook in all the day-to-day operations. Eventually, we rebranded the company to Super Foods, and it has been beyond my wildest dreams where we’ve taken that.

 

Q: Are you actively involved in all the businesses you’ve started?

 

A: Yes. I prefer building businesses from the ground up, so learning the lowest level operations of the business is advantageous, and I believe a requirement, to scaling a business. That philosophy really helped me grow Super Foods.

 

This is also the advice I provide to NFL players when they’re transitioning out of the league. I say, “Don’t buy your way to the top. Learn the business. Learn every aspect of the business.” As I said before, that really helped me scale Super Foods. I delivered the products and worked in the warehouse, so I knew every aspect of the business and how it feels to perform the multitude of duties. I know how it feels to unload the tractor trailer. I know how it feels to drive an hour to deliver something or drive three hours for a business appointment.

 

Q: Since you have such a hands-on approach to your businesses, in order to make the most out of your time, how do you determine which business ideas to pursue and which to push aside?

 

A: The first thing I look at is if the idea is unique enough and if there is space for it. For example, when I started Franco’s All Natural, all natural foods were not the norm yet, but it is obvious today that there was space to grow.

 

I also co-founded SilverSport, which incorporates the odor killing properties of silver into clothing and paints. That is another area that was kind of new and not saturated, but in demand. Everyone wants a product that eliminates their body odor, right?

 

So, I’ve been successful by looking at unique things, things that are different, and things that have potential.

 

Q: What is your specific as the co-founder of SilverSport?

 

A: I focus on the company’s long-term strategy. I try to build the culture to align with what the company stands for, which is to provide the best odor-free clothing and paint lines in the world. I strategize to determine what the company needs to focus on to accomplish that mission, and make sure we have all those pieces in place.

 

I love this creative part of the business, doing new things, and exploring new ideas about how we can be different and the best. When you talk sports, that’s one of the things that you always work on. You want to be the best player on the team, right? I was fortunate enough in sports to experience that, and I leverage the experience to continually improve my businesses.

 

Q: Based on your business experience, what is your best advice ever?

 

A: I think you’re lucky enough if you’re able to do what your passion is, what you love to do, and really jump into it. But, a lot of the time, we hesitate. So, my advice is if you have something that you love to do, jump in. It doesn’t matter where you start, but if you do the right things and you put the time and effort into it, you can really make great things happen, and at the same time, do something that you really love to do.

 

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meetup

To Source Real Estate Deals And Generate More Wealth, Start A Monthly Meetup

Originally featured on Forbes.com here

 

Having interviewed over a thousand business and real estate entrepreneurs on my podcast, one of the most valuable pieces of advice I’ve gotten is how to start an in-person meetup group. From a business development standpoint, the educational benefits, relationships formed and the potential for direct monetization have been instrumental to the growth of both the investors who attend and a business’s growth. In fact, it’s been so successful for my business that I require my clients to start their own in-person meetups within their local market.

 

In general, the advent of the internet has given us the capability to connect with like-minded strangers more easily than ever before. And while forums, blogs and social media allow you to join any number of virtual communities, other platforms promote the formation of in-person communities. One such outgrowth I take advantage of is meetup websites.

 

No matter how mainstream or obscure your interests might be, there’s a meetup group for you. Meetup.com, one of the more popular meetup sites, boasts a membership of 32.3 million people participating in over 288,000 meetup groups across 182 countries.

 

Interested in joining a community of psychic vampires? There’s a group for you. Want to relive a cherished childhood freeze tag experience? Don’t worry. There’s a group for you, too.

 

Of course, as a real estate entrepreneur, I’m not as interested in meeting vampires or playing freeze tag as I am in leveraging popular internet advancements to scale my business. Since online-generated meetup groups is a relatively new concept, and monetized meetups even more so, many people don’t know how to get started.

 

And starting a meetup can be nerve-racking — especially if you’re an introvert. This anxiety will be the No. 1 enemy keeping you from actually scheduling your first event. That’s why I advise you avoid spending an inordinate amount of time planning and structuring the perfect meetup event. Instead, simply focus on starting it.

 

A successful meetup group can be pretty informal. One investor I interviewed, Anson Young, has been hosting a meetup for over three years with very little structure. Once a month, Anson and about 70 other investors meet at a local beer hall. For three hours, they just drink beer and talk real estate. There’s no agenda or scheduled speaker. It’s just good old-fashioned networking, a time for investors to chat, solve any problems they’re facing, team up on real estate projects, and most importantly, learn from each other’s mistakes and successes. Even so, in just three years, Anson’s made six figures directly from partnerships and relationships formed at the meetup. That’s a return of nearly $1,000 per hour spent simply drinking beer and networking.

 

Starting a meetup group like Anson’s at a local bar is an easy and informal option, but maybe you’re a little more conscientious and orderly, like me. I created a meetup that’s much more structured than Anson’s, which is broken into four parts:

 

  1. Presentation: Each meeting begins with a short presentation from an active real estate professional or attendee.
  2. Share opportunities: Attendees have the opportunity to share deals with the group — maybe they’re trying to sell a deal, find a partner, or have questions on a deal under contract.
  3. Business updates: Each person provides a 90-second update on the latest in their business.
  4. Open floor: I allot the remaining time, about an hour, for networking, closing deals, sharing information and forming business partnerships.

 

Overall, the meeting lasts two hours.

 

Both Anson and I run our meetup groups on a monthly basis. Our primary objectives are to educate and build relationships — efforts that indirectly result in more deals, more business partnerships and more money in the long run. But if you want an even more direct avenue to financial gains from a meetup, create a rockstar-level meetup like real estate entrepreneur Taylor Peugh, and turn the group into a deal-generating machine.

 

Taylor hosts a meetup — not once a month, or even once a week — but four times a week. Three of the meetups are dinners and the other is a lunch. About 30 to 40 unique investors attend each meetup, which means Taylor networks with 100 to 150 real estate entrepreneurs every week. The result? Every rental property, wholesale, and the majority of the fix-and-flip projects he negotiates stem directly from someone he met at his meetup. For Taylor, a meetup group isn’t just a space to educate and build relationships; it’s the main source of his investment gains.

 

Want to replicate Taylor’s success?

 

Here’s the agenda for his meetups:

 

  1. Check-in: At check-in, attendees must answer: “What are you doing right now that will move you forward in the next 30 days?”
  2. Recognize wins: Each person describes what they accomplished personally, or in their business, that week.
  3. Needs and wants: Attendees have the opportunity to ask for anything they need. For example, “I need a plumber,” or “Does anyone know a good CPA?”
  4. Property pitches: This is where Taylor makes his money; anyone who has an active deal can present it to the group to see if anyone has an interest in buying, partnering, or funding it.
  5. Open floor: The end of the dinner/lunch is an open Q&A session where attendees can ask any questions they want.

 

Hosting a meetup is one of the best ways to create valuable relationships, learn about real estate from those active in the field, and find deals and create partnerships that generate wealth in other the short and long-term. I’ve provided three meetup examples above, ranging from monthly, informal beer hall gatherings to powerhouse groups that meet four times a week, but in reality, the sky’s the limit. There are an infinite number of ways you can structure your meetup group.

 

But don’t forget the most important step: Get over your fear or procrastination and host your first event!

 

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How to Successfully Overcome an Identity Crisis w/ NFL Running Back Terrell Fletcher

 

Imagine living your entire life performing at the highest level, losing nearly everything, and then discovering your true purpose on this Earth?

 

That’s exactly what happened to Terrell Fletcher, NFL running back turned Senior Pastor, motivator, and best-selling author.

 

In my interview with Terrell, he shared his journey from losing his NFL superstar identity after retirement to finding the true meaning of life.

 

Read on for lessons on how to bounce back from crises of identity and unlock your life’s mission.

 

 

What were you doing during the three-year transition period between retirement and becoming a Senior Pastor?

 

Soul searching.

 

Football is such a time-consuming activity that you don’t have a chance to find your true self. You inherit a stock identity – an NFL player. Upon retirement, you lose that identity and are left with the unpleasant feeling of emptiness.

 

So, I spent that period not looking for a new job, but searching for a new identity. I finally had time to explore the parts of myself that my football identity had suppressed.

 

As you began the search for your true identity, what did you gravitate towards?

 

People.

 

I rediscovered the meaning that came through altruism. What non-professional athletes don’t understand is that the world centers around the team and you. Then, there’s your secondary world that includes your “handlers” – your agent, financial advisors, friends, and family. And you are the center of that world too. Without even realizing it, you become selfish.

 

Did you work during this transitional period, and did those jobs impact your soul-searching process?

 

I went into the sportscaster role, but my heart wasn’t connected to it. I also went the coaching route, but my heart wasn’t connected to that either. There wasn’t a feeling of purpose, even though I was still deemed a success in the eyes of others. That’s when I realized that people will root for you at the level of their expectation of you. If their expectation of you is lower than the level of expectation to which you hold yourself, then you feel insignificant. People will applaud you for average, so I learned that you can’t go off of what everybody else thinks.

 

How do you determine what brings you a feeling purpose and significance?

 

You have to find that thing in your heart and chase it. That’s where you find real satisfaction.

 

I always had a love for real estate, public speaking, and inspiring people. So, after failing to find purpose in sportscasting and coaching, I tried to hone those skills, hoping one or two of them would shake out.

 

But I knew that before I could find true purpose, I needed to performed deep introspection. That required addressing existential questions, like ‘Who am I? What do I have to offer this world. What core tenants of life am I going to operate in?’

 

What were the takeaways of this introspection process?

 

A life’s mission. My purpose is to motivate, educate, inspire, and entertain every person I come across. No matter what business venture I pursued, that mission would be a part of my job.

 

You mentioned the need to disregard other’s expectations of you. How did you shed these expectations to start living your new mission?

 

At first, I was giving into those expectations. I was following the path I thought I was supposed to follow. And it was a very predictable path – underdog athlete reaches his dreams, and now he becomes a sports announcer or a coach.

 

But through my introspection, I determined I didn’t want to be predictable. I didn’t want to be normal. Nothing about normal inspired me. I knew my core competencies lend to more than what people were expecting of me. I could have done it, and I probably would have attained some level of success. But I learned along the journey that I didn’t just want success. I wanted significance. I wanted meaning. And to do so, what I did needed to count towards somebody else’s life and not just my own.

 

How did this need to be altruistic and giving manifest in your life?

 

I began to understand that my pursuits had to be more than a money grab or a fame grab. So, I needed to find the underlying purpose for why I wanted all of those things. To discover the root of why I wanted to build wealth, why I wanted to be a household name, and why I wanted my face on TV. Once I deconstructed those, my “why” became clear and I found my true identity.

 

Through real estate, entertainment, faith, and inspiration, I fulfill my “why” and feel a sense of significance while giving back to the world.

 

Based on your journey, what is your Best Ever advice to real estate investors and entrepreneurs for finding and completing their life’s mission?

 

Always stay the course. Often times, we spend too much time focusing on our end goal and not enough time preparing for what’s going to show up between now and the end. Barriers, enemies to our success, whether they’re external or internal, are guaranteed to show up on the journey. But don’t give into them. Fight them. Do battle with them. Get victory over them. Because those barriers are not there to stop you; they’re designed to make you stronger.

 

How do we overcome these barriers to success?

 

You must realize that as long as you’re on the right path and have a goal in mind, every barrier that arises is meant to make you stronger, wiser, and more compassionate.

 

The thing that seems disastrous is actually going to be for your benefit in the long run. I wish someone would have told me that the troubles of my life were actually going to be what helped make me the man I am today. I would not have run from so many things. I would have embraced the journey, understood that barriers were a part of the process, got victory over them and kept on moving.

 

 

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How Former UK Great Tony Delk Reached the Highest Levels of Success in Multiple Fields

 

Through hard work and surrounding yourself with the right people, anything is possible. Those are the two factors that were main drivers of success for Tony Delk, whose resume boosts a NCAA national championship, 10 years in the NBA, and a multitude of entrepreneurial endeavors.

 

In my interview with Tony, he shared the life lessons he learned from legendary coach Rick Pitino and how that help him not only become a basketball star, but also prepared him for creating a star life after the NBA.

 

If you want to learn the lessons that helped Tony achieve uber-success in multiple differing fields, read on.

 

You played college basketball at the University of Kentucky, and then went on to have 10 successful years in the NBA. Out of all your coaches, which one had the biggest impact on your career?

 

Coach Pitino while I was at UK. He taught me the game – the mental aspect and the physical aspect. But most importantly, he prepared me for life after basketball. In fact, as a senior, Coach Pitino set me up with a really good business manager who’s been with me since 1996.

 

What’s an important lesson from Coach Pitino?

 

The most important thing that he taught me was to not let money define who you are, and to always stay humble. Because of that advice, once I began making a lot of money, it didn’t change who I was as an individual.

 

The money that comes in, in tandem with the fame from being on TV, results in an extreme pressure to change and let it go to your head, but my foundation in which Coach Pitino helped to create kept me grounded and humble.

 

What did this foundation consist of?

 

Mostly, it was surrounding myself with a good circle of friends, which was something else Coach Pitino provided. His circle of friends became our circle of friends. That’s one of the things I enjoyed most about him. He didn’t allow us to go out and meet new friends that that could take us away from being who we were, or give us money or some other thing we thought we wanted.

 

What characteristics should we as entrepreneurs look for when determining whether or not to accept someone into our circle of friends?

 

If someone is in my circle of friends, it’s because they’re an asset and not a liability. Liabilities are the people that when you go out, they never get the check. They’re always mooching. They want free clothes, free gear, and never pay for gas. In other words, they like everything if it comes for free.

 

An asset is a friend that I know is willing to get out and work, and it’s someone I don’t need to take care of as if they were my kids. Assets are the friends that rarely ask you for anything, but when they do, you know they’re either going to give it back or are in a desperate situation.

 

Also, it’s important that they are truthful, offer constructive criticism and feedback, and hold you accountable.

 

Does this asset/liability concept also reflect your overall business philosophy?

 

Absolutely. Coach Pitino used to say “when something is given, it can be taken away. But when it’s earned, it’s yours.” I’ve always taken that dictum with me wherever I’ve gone, and it’s the motto I pass on when offering advice to others, especially when I speak to kids. I always tell them – listen, the most important thing is hard work. You have to put so many hours in, and when you put those hours in, it’s earned, not given to you. So, it’s important to not only surround yourself with assets, but to also be an asset yourself.

 

Tactically, how do you apply this concept when screening investment opportunities or partnerships?

 

Well, initially, I didn’t. When I was in my 20s, if someone brought me an exciting business opportunity, I would jump on it without conducting much research. Or if it was a friend, I would invest to just help them out.

 

For example, in 1996, I gave my brother $15,000 for a business idea. I knew that it wasn’t going to pan out, but I made the investment because he was my brother. He had mentored me growing up, so it was sort of a payment of gratitude. However, the business idea flopped and I never got that money back. So, I also learned a valuable lesson – don’t invest with family or friends.

 

How did your approach to business opportunities evolve as you got older?

 

For my early investments, a common thread was that the only money invested in the deal was my own. So, now there needs to be an alignment of interests financially.

 

I also conduct a lot more research, specifically on the other people involved in the deal. I want to know if they’ve ever gone bankrupt. And if they have pursued other business endeavors, and if so, if they were successful. And to have an understanding of their business careers and where they are to this day.

 

And then of course, I study the business itself. But not just the financials. I want to get to know the employees, and the family and friends of the owners. You want to have that financial alignment of interest, but you also want to know if they are family-oriented and treat their friends and employees properly. If they don’t take care of their employees, they won’t take care of your clients.

 

Based on your successful NBA and business career, what is your Best Ever Advice for real estate investors and entrepreneurs?

 

When you’re investing in a deal or in a business, have equity. That way, you will personally benefit from any financial gains, but you are also creating generational wealth for your children and grandchildren.

 

Also, I would advise to only pursue opportunities that you love. If you love it, you’re going to be all in and want to see the project grow.

 

 

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5 Steps to Raise over $30,000,000 for Apartment Syndications


How do you raise private capital from high net individuals to invest in large multifamily deals? Well, that question assumes that 1) you have high net worth individuals in your network and 2) you know how to syndicate large multifamily deals. If you are like most entrepreneurs, neither of those assumptions are true. So, the real question is, how do I create a network of high net worth individuals, and how do I learn how to syndicate large multifamily deals?

 

Dave Zook, who has closed on over 2,800 units since 2010, has raised well over $30 million for apartment syndication deals. But, at one point he was like you. He didn’t have the connections, nor did he know how to invest in apartments. So, how did he get to where he is today, and how can you replicate his success?

 

In our recent conversation, he condensed his journey into a five-step process to raising millions of dollars from private money investors.

 

Related: How Do I Know If I’m Ready to Become an Apartment Syndicator?

 

Step #1 – Build a Reputation

 

Before even entertaining the idea of raising money for deals, Dave was already investing in multifamily utilizing his own capital. Also, he was running a sales and marketing company. Due to these successes, he was known by others in his local market to be a savvy entrepreneur who could effectively manage a business. “Having a good reputation in your local market is a great start,” Dave said. “We’re well-known in the community for the business we’ve done there.”

 

A reputation of previous business success, even if it’s not in apartment investing, is a requirement prior to raising money. No one will entrust you with their hard-earned money without having the confidence that you can navigate the syndication niche.

 

Related: How a Wannabe or Experienced Investor Can Obtain a FREE or PAID Real Estate Education

 

Step #2 – Tell Your Story

 

After building a business reputation, you want to locate the high net worth individuals in your current network and tell them your story. And if you are thinking to yourself, “Joe, I don’t have any high net worth individuals in my network,” then you need to continue working on that reputation. When you are performing at a high level, in either real estate or business, you will cross paths with these potential private money investors.  For example, prior to becoming a syndicator, I was a VP at a New York City advertising firm. When I decided to raise private money, people whom I created relationships with in that industry were some of my first investors, and they still invest to this day. They had seen my success in business (the advertising industry) and in real estate (I had purchased multiple SFRs and taught classes on how to invest in SFRs).

 

Similarly, Dave said, “what really helped [me] was I was able to show them what I was doing. I started in this business investing in multifamily on my own for myself. I had a tax problem. I needed some tax shelter. We got creative on that side, so I was able to approach some of the people that I knew that had some investable income, and I just told them my story.”

 

So, after building your reputation, use it as a selling point to the high net worth individuals you met along the way.

 

Related: Four Tips to Successfully Sell Yourself in Real Estate Investing

 

Step #3 – Get Investor Commitments

 

Once you’ve built your reputation and begin telling your story high net worth individuals, get them to commit to investing in a deal. For example, Dave’s first investors came from the members of a local bank’s board in which he was invited to join. He said, “I was invited to sit on the board of a local startup bank… I was listening to conversation that went something like this – These guys were talking back and forth, and I knew most of these guys around the table, about a dozen guys. They were talking about investing in this bank and wanting to know if it was a good idea, a wise investment. I heard conversations like, ‘Well, you may not see a return for 5-7 years, but it’s better than putting our money in a CD.’ I was just blown away. I was amazed at the conversation. I got to looking at what I was doing in the multifamily space and got thinking, ‘Man, how can I add value to these guys?’ It was about the time I had bought a couple hundred units on my own. I was sort of coming to the point where I was running out of cash. I had to slow down. Then I talked to another friend of mine who was on the board as well. I ran the idea by him about syndicating and teaming up with these guys. He thought it was a great idea. For the next deal, they come along.”

 

Due to his business reputation, he was invited onto the board. Due to his previous real estate experience and successes, he had a compelling story to tell. With this combination, he was able to raise private money for his first syndication deal. “I needed $850K to get the deal done,” Dave said, “and I went to see some of these individuals. Some guys that I knew were able. It was about getting around the right people and about having a good relationship in the community, and being able to go out there and talk to people that knew and trusted me.”

 

Related: A 5-Step Process for Raising BIG Capital for Multifamily Syndications

 

Step #4 – Increase Investor Network Through Referrals

 

Once you gain your first investors and complete a deal or two, as long as those deals were a success, your current investors will refer you to their other high net worth friends. From there, it’s a snowball effect.

 

Dave said, “If I would pinpoint and go back to each one of those [investors], a lot of the guys were from referrals. People that invested with me and then said ‘Hey, I’ve got a friend,’ and they’d give me a third-party endorsement, and we ended up doing a deal together. One thing led to the next, and the next thing you know they’re a really faithful investor.”

 

Related: Three Ways to Cultivate Word-of-Mouth Referrals

 

Step #5 – Retain Current and Referral Investors

 

Finally, once you receive a new investor, either your first investors or through referrals, retain them by continuing to syndicate successful deals. As long as you consistently provide your investors with a solid return, you will not only continue to receive more referrals, but those current and referral investors will come back deal after deal. For an example, Dave said, “We [recently] closed a 373-unit building. We’ve raised $3.5 million. About 85% of those investors had invested with me on other deals. So, they were current investors and just coming back for another round.”

 

Related: 16 Lessons from Over $175,000,000 in Multifamily Syndications

 

Conclusion

 

For those aspiring entrepreneurs who want to become multifamily syndicators, starting from scratch, the 5-step process is to:

 

  • Build a business or real estate reputation in your target market
  • Convey your reputation to high net worth individuals in your network through storytelling
  • Get investors to commit to your next deal
  • Increase your number of private money investors through referrals
  • Retain your investors by consistently providing a solid return on investment

 

Related: 6 Creative Ways to Break into Multifamily Syndication

 

 

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6 Ways to Spot a Scam Artist Lender

 

As you start growing your real estate business, you will likely get to the point where you will need to find more money to fund your deals. Even if you started with a lot of money, leveraging OPM (other people’s money) decreases your risk and offers the chance of an infinite return. So, regardless of your financial starting position or your real estate niche, everyone should have the capability and understanding of how to raise capital.

 

When most investors reach the point where they need to find more money, they get nervous. They think accessing capital will be difficult. However, with a few quick Google searches, you’ll find a flood of people who need to deploy their capital quickly.

 

That’s great, right? Well, not exactly.

 

Ross Hamilton, who is the CEO of Connected Investors, an aggregator of crowdfunding portals with 250,000 investors, said “we work closely with all of the real hard and private money lenders around this great country, and the number one complaint and the biggest competitor of lenders is not other lenders. It’s scammers.”

 

So, with a plethora of scam artist lenders, how do we distinguish between the real and the fake? In our recent conversation, Ross explained how to screen lenders by looking for the six red flags of a scam artist lender.

 

Related: How to Qualify for a Commercial Real Estate Loan

 

What is a scam artist lender?

 

Before outlining the six red flags, let’s define a scam artist lender. Ross said that a scam artist lender is “going to be people who are actually trying to steal your money, and other people who are just completely and totally wasting your time.” So, a scam artist is the Zimbabwe King that emails you asking for your personal information so they can send you millions of dollars, a newbie lender that doesn’t know what they’re doing, and everything in-between.

 

When screening a new lender, what are the red flags to look out for?

 

#1 – Do they want you to wire the down payment?

 

“If a lender ever asks you to wire them your down payment money, run,” Ross said. Typically, down payment transfers are handled by your attorney, which the lender should know. Therefore, if they ask you to personally wire them money, that is a huge red flag.

 

#2 – Do they ask for your social security number or other personal information?

 

Ross said, “Giving away your social security number or any of that information before you’ve vetted a lender” should be avoided and should raise your alarm. This includes bank account information as well. Provide this information and risk having your bank account emptied or your identity stolen, both of which Ross has experienced. If these are the first things they ask for, consider working with another lender.

 

#3 – Do they have a business email address?

 

“Using a Gmail [email] address [is a] red flag. This person’s not really in business,” Ross said. This is a quick red flag to spot. If the lender doesn’t have a business email address, that’s a sign that you’re potentially dealing with a scam artist.

 

#4 – How well is their English?

 

Ross said another red flag is if “their English isn’t very proper. You can hear the accent come across in the e-mail correspondence.” However, that doesn’t mean that foreigners are the only scam artists. “The people who will waste your time are inside the U.S., the people who will steal your money are typically outside the U.S., because it’s tough to track those people down.”

 

If improper English is the only red flag, then you are likely in the clear. But if there are other red flags as well, like a Gmail email address and they are asking for your social security number, they may be a scam artist.

 

#5 – Do they have a website?

 

“Make sure they have a website. A lot of these lenders have very bad, fake websites (they’re easy to see through) or they just don’t even have a website,” Ross said. This is an obvious red flag that is applicable to any potential business partner. If someone doesn’t have a website in this day and age, something fishy is going on.

 

#6 – Do they have examples of past deals?

 

If the lender passes the first five red flags, the last test is to ask for referrals.

 

Ross said, “A big thing you want to do is you want to vet the lender and you want to say ‘Hey, can you give me some examples of recent deals that you’ve funded?’” If they are the type of scam artist that wants to steal your money, you probably won’t hear back. If it is the incompetent scam artist type, they will either disappear, or they will back pedal, both of which will be obvious to spot.

 

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

 

Conclusion

 

There are a lot of lenders and private money investors looking for deals to fund. However, a portion of them are scam artists.

 

In order to screen lenders, Ross Hamilton tells us to look for these 6 red flags:

 

  • Do they want you to wire the down payment?
  • Do they ask for your social security number or other personal information?
  • Do they have a business email address?
  • How well is their English?
  • Do they have a website?
  • Do they have examples of past deals?

 

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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S.O.S.

The S.O.S. Approach to Managing an Investment During a Crisis (like Hurricane Harvey)

As I am sure you are aware, Texas was hit by Hurricane Harvey earlier this week, and it continues to persist as of this writing. The director of FEMA, Brock Long, called Harvey the worst disaster in Texas history, and expected the recovery to take many years. So, first and foremost, our thoughts are with all of those who’ve been impacted.

 

To help those individuals who lost it all from the storm, we’ve set up a make-shift distribution center using the home of one of my investors. He is accepting supplies and is taking them to Houston shelters that are servicing those in immediate need. For those interested, click here for more information.

 

From a business perspective, when a crisis – a hurricane, fire, earthquake, etc. –  occurs and you have an investment property in the area, you need to have a process for approaching the situation, and even more so if you have private investors. The procedure I use is the acronym S.O.S, which stands for Safety, Ongoing Communication, and Summary.

 

S – Safety

 

The first step when a crisis occurs is always and most importantly safety. That is, safety for both the people and the money.

 

So, you first want to ensure the safety of both your residents and your team members on the ground. I own two apartment buildings in the Houston area. One building was unaffected, while the other was in the flood zone and received minor damage. Fortunately, from all accounts so far, the residents and team members on the ground are safe and secure.

 

From a money perspective, one of the properties took in small amounts of water. But, we have flood insurance. So, after we do a final assessment once the weather permits, we will determine if we will make an insurance claim or not.

 

O – Ongoing Communication

 

Once we have ensured the safety of the people and have an understanding of the initial damage done to the investment, we communicate that information to the investors.

 

Since this crisis was a hurricane, we had some degree of forewarning. So, once Harvey made landfall, we sent an initial email to investors to notify them if the property was impacted. And in this case, one of the properties wasn’t, so we relayed that information to our investors. For the property that did take in water, we communicated that information and stated that we would provide another, more detailed update once Harvey weakened.

 

A few days later, once the hurricane weakened, we sent the investors a second email with another status update and how we will manage the situation moving forward.

 

The important thing to remember here is to only provide sustentative information and not hour by hour updates.

 

S – Summary

 

In a week or two, we will have a better understanding of the situation. At that point, we will provide our investors with a summary of where we are netting out from an insurance claim standpoint, if there is one at all, as well as any other developments.

 

So, when a crisis occurs, the three step procedure is S.O.S. – safety of the people and the money, ongoing communication to provide your investors with status updates, and then providing a summary a few weeks later.

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trump

Three Ways To Thrive In A Trump Real Estate Market

This post was originally featured on Forbes Real Estate Council on Forbes.com.

 

If you’re a real estate investor and been keeping up with current events, chances are you’ve asked yourself this question: “How will Trump’s presidency affect the market?”

 

Since Donald Trump has made millions as a real estate entrepreneur, common sense says he will likely implement policies to strengthen the real estate industry. At the very least, he wouldn’t make a decision to undermine it. He wouldn’t hurt his own bottom line, right?

 

But with the current political climate as it is, it’s difficult to predict what Trump will do. If you’ve tuned in to any of the major news networks since the beginning of the 2016 presidential campaign, one of the most consistent things you’ve seen from Trump is … well, inconsistency.

 

 

I don’t know what will happen over the next four to eight years, and I don’t think anyone does —Trump included. I am not a politician, nor a political strategist. But I am a real estate entrepreneur. And the good news from a real estate perspective is that Trump’s actions shouldn’t matter.

 

Ultimately, as investors, we can’t make decisions based off of who the president is or who controls the House or the Senate. While Donald Trump’s inauguration and the ensuing tweetstorm are causing some Americans to celebrate and others to mourn, there are three simple principals that real estate investors must follow to thrive in the current market of uncertainty — tried and true methods that work in any market, at any time in the market cycle.

 

1. Don’t buy for appreciation.

 

Natural appreciation is a simple concept. It’s an increase in the value of an asset over time. From 2012 to 2016, for example, real estate prices in the U.S. as a whole increased by 13%, according to Zillow. If you purchased a property for $1 million in 2012 and sat on it, making no improvements, the property would have been worth $1.13 million in 2016.

 

Sounds like a good investment strategy, right?

 

Not necessarily.

 

It’s important to make a distinction between natural appreciation and forced appreciation. Forced appreciation involves making improvements to the asset that either decreases expenses or increases incomes, which in turn, increases the overall property value. Unlike forced appreciation, natural appreciation is completely outside of your control. Say you purchased the same property in the example above for $1 million in 2008. Four years later, the property value would have decreased by $229,000.

 

Many investors, past and present, buy for natural appreciation, and it is a gamble. Eventually, they all get burned—unless they’re extremely lucky. Buying for natural appreciation is like thinking you’ll get rich at a casino by playing roulette and only betting on black. Maybe you can double up a few times, but sooner or later the ball lands on red or — even worse — double zero green, and you lose it all.

 

That’s why I never buy for natural appreciation. Instead, I always buy for cash flow. When you buy for cash flow (and as long as you have a large supply of renters), you don’t care what the market is doing. In fact, if the market takes a dip, the demand for rentals will likely increase. When real home prices dropped 23% from 2008 to 2012, the number of renter-occupied housing units increased by 8%.

 

 2. Don’t over-leverage.

 

Leverage is one of the main benefits of investing in real estate.

 

Let’s say you have $100,000 to invest. If you decide to invest all of your money in Apple stock, you would control $100,000 worth of stock. On the other hand, if you wanted to invest all of your money in real estate, you could spend $100,000 on a down payment at 80% LTV (loan-to-value) and control $500,000 in real estate. If you’re a creative investor, you could use that $100,000 to control an even larger value of real estate. That’s the power of leverage.

 

But there’s also a catch.

 

The less money you put in the deal — or more specifically, the less equity you have in a deal — the more over-leveraged you are. Consequently, the higher your mortgage payment will be. In a hot market, over-leveraging may seem like a brilliant idea, but what happens when property values start to drop?

 

According to Zillow, from 2008 to 2012, real property prices in the U.S. dropped by over 20%. If you purchased a property in 2008 with less than 20% equity and wanted to sell in 2012, you would have lost a decent chunk of change.

 

My advice? Always have 20% equity in a property at a minimum. Avoid the tempting 0% down loans at all costs. Doing so (in tandem with committing to not buy for appreciation) will allow you to continue covering your mortgage payments in the event of a downturn.

 

3. Don’t get forced to sell.

 

When you’re forced to sell, you lose money.

 

The main reasons people are forced to sell or return properties to the bank are that they speculated and bought for appreciation, or got caught up in a hot market and were over-leveraged.

 

Another reason you would be forced to sell is if you have a balloon payment on a loan. This is typical for commercial real estate but not residential. The problem investors have is when they have a balloon payment come due during a downturn in the market.

 

A way to mitigate that risk is to be aware of when your balloon payment is due and plan years ahead of time for what type of exit strategy you are going to pursue.

 

Some common exit strategies are:

 

  • Selling the property
  • Refinancing into another loan
  • Paying off the balloon payment

 

By sticking to the three principles above, I’ve personally accumulated over $170 million in real estate assets over the past four years, and at the same time, I’ve helped countless of my investors generate passive income streams. Regardless of what President Trump does or doesn’t do over the next four or eight years, if you stick to these principles and invest in income-producing real estate, your investment portfolio will not just survive. It will thrive.

 

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direct mail

How to Get a 57% Response Rate on Your Direct Mail Campaigns

 

If you are sending out direct mail on a frequent basis, what is your response rate (i.e. the ratio of phone calls, text messages, emails, or other forms of communication in response to a piece of marketing to the overall pieces of marketing sent).

 

0.5%?

 

1%?

 

5%?

 

As far as I can tell, based on interviews on my podcast and from perusing the BiggerPockets forum, the average response rate range for direct mailing campaign falls somewhere between 0.5% and 5%.

 

However, what if I told you that you could increase that rate by a factor of 10 to 100?

 

Well, Jay Connor, who fix-and-flips 2-3 deals a month with an average profit of $64,000, created a direct mailing campaign with a 57% cumulative response rate*, which is indeed 10 to 100 times greater than the average rate!

 

*Cumulative response rate is the ratio of owner responses to the number of owners contacted. It is not based on the total pieces of marketing sent. For example, if 100 owners were contacted with 200 pieces of mail, and 10 replied on the first piece of mail and 10 replied on the second piece of mail, for a total of 20 replies, the cumulative response rate is 20% (20 replies / 100 owners), not 10% (20 replies / 200 piece of mail)

 

How does he do it? In our recent conversation, Jay outlined his 8-step direct mailing campaign that results in a response rate of almost 60%**.

 

**Keep in mind that all 57% of the replies did not result in a deal. Angry responses count too!

 

RELATED: Success Blueprint – How to Direct Mail to Delinquent Tax Lists

 

Principle #1 – Multi-piece, intensifying campaign

 

According to Jay, there are two keys to receiving such a high response rate.

 

First, you must send out a multi-piece campaign with each subsequent letter being an escalation of the last, as opposed to a single-piece campaign or a multi-piece campaign with each lettering being the same.

 

For Jay, he sends 8-different pieces of marketing to owners. He said, “Each message starts intensifying a little bit more and more. Each letter looks different; each letter is in a different envelope; each envelope is hand addressed; each envelope is a different color and different size. By the time we get to number seven and we get to number eight – we’re using a very big envelope on seven and eight – they actually get a gold tube with a rattle inside of it, just for the sake of curiosity. So of course, with each letter we also start talking about how time is running out and times is of the essence.”

 

RELATED: 3 Unique Ways to Increase Your Network and Generate More Leads

 

For context, that last part (“time is of the essence”) is in reference to the foreclosure date, because Jay’s main focus is on pre-foreclosed properties. Since these are pre-foreclosure properties, Jay said, “we also mail these letters three days apart. So here in North Carolina, from the time of a notice of default until the hearing day is typically about 4-6 weeks. After the hearing day, then the sale date is about two weeks after that. So it’s about eight weeks from the time of the notice of default. So at three days apart we’re going through these letters about every 24 days, and we’ll keep mailing the letters until we have a response or until the house goes to sale.”

 

Besides making certain changes based on your target property, the messaging for each letter, Jay said, is an iteration of “if you’re interested in a solution and having some cash to put in your pocket, reach out to us and we’ll see what we can do.”

 

To summarize, you goal is to create a schedule to send multiple letters with each being a different design and more intense than the previous letter and continuing to do so until the deal is 100% off-the-table (property was sold, owner asked to be removed from your mailing list, etc.).

 

RELATED: Three Marketing Methods to Wholesale 250 Deals a Year

 

Principle #2 – Offer Multiple Response Communication Channels

 

“One principle of marketing,” Jay said, “whether you’re a real estate investor or in any other industry is the more ways that you give a potential respondent to respond, the more response you get.”

 

Similar to the escalation of messaging, letter quality, envelope size and color, etc., for each letter, Jay offers additional ways for the owner to reply, and he has found that to increase his response rate substantially.

 

RELATED: How to Successfully Market for Real Estate Leads with TV Commercials

 

His progression is as follows:

 

  • Letter #1Cell phone number with an individual’s name (for Jay’s campaigns, this is a virtual assistant’s name) for them to call
  • Letter #2 – Cell phone number and email address
  • Letter #3 – Cell phone number, email address, and 24-hour recorded message hotline (because some owners are turned off by the prospect of talking to someone)
  • Letter #4 – Cell phone number, email address, hotline, and a tear-off where the owner can write down their information and mail the tear off back to Jay
  • Letter #5 – Cell phone number, email address, hotline, tear-off and (this will blow your mind) a fax number
  • Letter #6 and onwards – Cell phone number, email address, hotline, tear-off, fax number, and a number to text

 

Finally, for each letter, Jay provides a web address that sends them to a landing page. Overall, he offers seven different ways for the owner to reply.

 

RELATED: The Most Effective Lead Generation Tactics & Importance of Follow Up

 

Conclusion

 

Jay Connor, an investor who fix-and-flips foreclosed SFRs, conducts an 8-step direct mail campaign that receives a 57% cumulative response rate. Sometimes he receives a response on the first letter; sometimes he receives a response on the 8th letter; sometimes he receives a response with someone cussing him out.

 

In order to increase your response rate, Jay recommends following two marketing principles: (1) Create a progressive, intensifying, multi-piece mailing campaign and (2) offer multiple response communication channels

 

 

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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