internal rate of return vs. cash on cash return

Internal Rate of Return (IRR) vs. Cash on Cash (CoC) Return: What Is the Difference?

When an apartment syndicator analyzes the results of their underwriting, and when a passive investor is deciding whether to invest in a syndicator’s deal, the two main return factors they focus on are the cash-on-cash return and the internal rate of return.

In this blog post, you will learn the definitions of these two important return factors, how they are calculated, and why they are relevant in apartment syndications.

 

What is Cash-on-Cash Return?

Cash-on-cash return (commonly referred to a CoC return) is a factor that refers to the return on invested capital. CoC return is the relationship between a property’s cash flow and the initial equity investment, which is calculated by dividing the initial equity investment by the cash flow. For the purposes of the CoC return calculation for apartment syndications, cash flow is the profits remaining after paying the operating expenses and debt service.

There are actually two different versions of the CoC return for apartment syndications: including profits from sale and excluding profits from sale. The CoC return factor excluding profits from sale will show passive investors how much money they should to expect to receive for each distribution during the hold period, as well as an average annual return on their investment. The CoC return factor including the profits from sale will show passive investors how much money they should expect to make from the project as a whole.

In order to calculate both CoC return factors, you need the initial equity investment amount, the projected annual cash flows, and the projected profit from sale for both the overall project and to the passive investors.

Here is an example of how to calculate CoC return for an apartment project:

 

Year 0Year 1Year 2Year 3Year 4Year 5Year 5 CFSales Proceeds
Project CF$(7,923,378)$471,608$821,793$626,271$710,025$13,710,776$796,687$12,914,089
Project CoC (w/o profits)5.95%10.37%7.90%8.96%10.05%
Project CoC (w/ profits)5.95%10.37%7.90%8.96%173.04%

 

Passive investors aren’t as concerned about the overall project’s CoC return but more so the CoC return to the limited partners (LP).

Here is an example of how to calculate the CoC returns to the limited partners based on an 8% preferred return and 70/30 profit split:

 

Year 0Year 1Year 2Year 3Year 4Year 5Year 5 CFSales Proceeds
Project CF$(7,923,378)$471,608$821,793$626,271$710,025$13,710,776$796,687$12,914,089
LP CF$(7,923,378)$471,608$765,416$626,271$687,178$12,164,718$747,842$11,416,876
LP Coc (w/o profits)5.95%9.66%7.90%8.67%9.44%
LP CoC (w/ profits)5.95%9.66%7.90%8.67%153.53%

 

In this example, the average annual CoC return to the LP is 8.33%, which is good because it is above the preferred return offered. The overall CoC return for the five years is 185.72%. So, someone who invested $100,000 would make $85,720 in profit.

However, as you can see in the example above, the CoC return to the limited partner is below the preferred return percentage in years one and three. So, for this deal, the syndicators options are to review their underwriting assumptions to see if they can increase the cash flow, have the preferred return accrue and pay the accrued amount at sale or when the cash flow supports it (i.e. end of year two to cover the year one shortfall), or pass on the deal.

A “good” CoC return metric is subjective and based on the goals of the syndicator and the passive investors. However, a good rule of thumb is a minimum average CoC return excluding the profits from sale equal to the preferred return offered to the limited partners.

 

What is Internal Rate of Return?

The main drawback of the cash-on-cash return metric is that it doesn’t account for the time value of money. For example, receiving a 185.72% CoC return over a 5-year period is very different than receiving the same CoC return over a 10-year period or a 1-year period. That is where internal rate of return comes in.

The technical definition of internal rate of return (commonly referred to as IRR) is the interest rate that makes the net present value of all cash flow equal to zero. In layman’s terms, this equates to a project’s actual or forecasted annual rate of growth by isolating the effect of compounding interest if the investment horizon is longer than one-year, which CoC return does not.

If you have the data to calculate the CoC return, you can calculate an IRR for the overall project and to the passive investors. What is needed is the initial equity investment and the annual cash flows, with the final year including the profit from sale.

The IRR formula is complex (click here if you want to see the full formula), so for simplicity, the IRR() function in excel should be used.

Following the same example, here is the 5-year IRR for the overall project and for the limited partners:

EquityYear 1 TotalYear 2 TotalYear 3 TotalYear 4 TotalYear 5 Total
Project CF $ (7,923,378) $   471,608 $   821,793 $   626,271 $   710,025 $ 13,710,776
Project IRR17.34%
LP CF $ (7,923,378) $   471,608 $   765,416 $   626,271 $   687,178 $ 12,164,718
LP IRR14.73%

 

Another IRR metric is XIRR. For the regular IRR calculation, the assumption is that the cash flows are distributed on a fixed, periodic schedule (i.e. annually, monthly, quarterly, daily, etc.). The XIRR function calculates the internal rate of return when cash flows are distributed on an irregular period.

In order to calculate XIRR, the additional data required are the exact days that the cash flow was distributed. Examples of instances where the XIRR would come into play are when the syndicator refinances or secures a supplemental loan to return a portion of the passive investors’ equity and when the syndicator sells the asset since the closing date likely will not be exactly 1, 2, 3, etc. years after purchasing the deal.

A “good” IRR metric is also subjective and based on the goals of the syndicator and their passive investors. For my company’s deals, we want a 5-year IRR to the limited partners of at least 15%.

 

The main difference between the cash-on-cash return and internal rate of return metric is time. If the investment is held for one-year, then the two return metrics are interchangeable. But if the projected hold period is more than a year, internal rate of return is more accurate.

 

Want to learn how to build an apartment syndication empire? Purchase the world’s first and only comprehensive book on the exact step-by-step process for completing your first apartment syndication: Best Ever Apartment Syndication Book.

apartment syndication school

Apartment Syndication School

Welcome to the Syndication School!

We created the Syndication School to provide you with a FREE apartment syndication education so that you have the tools to launch your own apartment syndication empire.

Each week, we will release two podcast episodes that focus solely on apartment syndications. For the majority of episodes, we will offer you a FREE resource, which will be available for download below.

 

Series #2 – Are You Ready To Become an Apartment Syndicator?

In the second Syndication School series, we will discuss the two main requirements before you are ready to start your apartment syndication business.

In part 1, we cover the first requirement – the experience.

In part 2, we cover the second requirement – the education.

 

Part 1: The Experience Requirements

What you will learn:

  • Why a successful background in real estate and/or business can translate to a successful syndication business
  • Questions to ask yourself to evaluate your business and real estate background
  • Rank your “experience” on a scale from 1 to 10
  • Based on your ranking, determine whether you can move onto the education phase or if you need to focus on building a track record in business and/or real estate first

 

Click here to listen to Part 1: The Experience Requirements

 

Part 2: The Education Requirements

What you will learn:

  • The obvious and not so obvious benefits of an apartment syndication education
  • The first step in your apartment syndication education process – memorizing the important terminoloy
  • Three other creative ways to obtain an apartment syndication education

 

FREE RESOURCE: 

  • Click here to download the FREE Master The Lingo presentation, which has a list of over 80 apartment syndication terms, including the definitions and real world examples, that you need to memorize and know how to immediately calculate before you are ready to become an apartment syndicator.

 

Click here to listen to Part 2: The Education Requirements

 

Series #1 – Why Apartment Syndications?

In this first series, we will discuss the benefits and drawbacks of the apartment syndication strategy so that you can determine if it is the ideal investment strategy for you.

In part 1, we will define what an apartment syndication is, as well as compare and contrast raising money vs. using your own money to buy apartments and being a passive investor or active sponsor in apartment syndications.

In part 2, we will compare and contrast apartment syndications to other  popular real estate strategies, including single family rents, smaller multifamily, REITs, and development.

 

Part 1: What is an Apartment Syndication?

What you will learn:

  • The definition of an apartment syndication
  • The high-level 10 step process for completing an apartment syndication from start to finish
  • Pros and cons of raising money vs. using your own money to buy apartments
  • The pros and cons of being a general partner (i.e. active syndicator) and a limited partner (i.e. passive investor) in an apartment syndication

 

Click here to listen to Part 1: What is an Apartment Syndication? 

 

Part 2: Apartment Syndication vs. Other Investment Strategies

What you will learn:

  • The pros and cons of apartment syndications vs. single-family rentals
  • The pros and cons of apartment syndications vs. smaller multifamily rental (2 to 50 units)
  • The pros and cons of apartment syndications vs. REITs
  • The pros and cons of apartment syndications vs. apartment development
  • Based on the pros and cons of apartment syndications vs. other investment strategies, determine if apartment syndication is your ideal investment strategy

 

Click here to listen to Part 2: Apartment Syndication vs. Other Investment Strategies

 

Want to learn how to build an apartment syndication empire? Purchase the world’s first and only comprehensive book on the exact step-by-step process for completing your first apartment syndication: Best Ever Apartment Syndication Book

free MBA

How To Get An MBA-Level Education For Free (Or Even While Getting Paid)

As detailed in a ThoughtCo article, the average tuition to obtain an MBA degree exceeds $60,000 and can be more than $100,000 for a top U.S. business school. Obtaining an MBA degree online can be cheaper, but expect to pay at least $7,000 to $120,000 or more on a top online program. Then add to that the costs of books, boarding and supplies.

Of course, you can obtain financial aid, but then you’ll have to pay back your initial loan balance with interest, leaving you in debt for years — maybe even decades.

But what if I told you there’s a way to obtain an MBA-level education for free or, even better, while making money? This can be accomplished by creating a thought leadership platform.

A thought leadership platform is an online networking tool where you produce valuable content about a specific business niche and share it with the world. Typically, an entrepreneur creates a thought leadership platform in order to build a reputable brand and/or promote their business. However, for the purposes of gaining an MBA-level education, the same thought leadership platform can be used to curate a customized educational program while also allowing you to network with business professionals who are currently working in the industry you want to enter. All of this can occur without having to go into debt — or even while collecting a paycheck.

Examples of thought leadership platforms include podcasts, YouTube channels and blogs. Regardless of which option you pursue, I would recommend having the platform be interview-based. That means you conduct interviews with business professionals who are currently working in your desired industry.

 

In my mind, this avenue offers four main advantages over an MBA degree:

 

1. You can build relationships with active professionals in the industry. For example, instead of going to business school for two years and sitting in a classroom, you could conduct one interview a week for two years with people who are active and already successful in the real world. That’s over 100 conversations or “lessons.” Or you can do what I do, which is to conduct daily interviews. That’s over 700 “lessons” in two years as well as over 700 networking opportunities to find a potential employer or business partner.

2. It can be significantly cheaper. Creating a thought leadership platform can be low-cost. If you decide to create a podcast, you only need a laptop and a microphone to get started — or for the most economical approach, all you need is a smartphone. Additionally, once you’ve built a large enough following, it provides you with the opportunity to make money through paid sponsorships.

3. You can add value to the interviewee. Since they work in or run a business, they’ll get free exposure. Also, you add value to the listeners because they’re getting the same real-world education from the people who are actually working in the industry.

4. You can position yourself as an expert in the industry. You can become known as the go-to resource for the best information and strategies for a specific industry. As your audience and reputation grow, you’ll attract better, more successful guests, which in turn can increase your audience, reputation and quality of business opportunities. Then, as an expert with a large following who is known to attract big-name guests, you can monetize your thought leadership platform by bringing on sponsors.

 

So, how do you get started on your MBA-level education?

 

1. Select a thought leadership platform. Choose a platform based on what you enjoy doing. For example, if you like speaking but are camera shy, create a podcast. Also, make sure you’re able to tap into a large built-in audience. Consider iTunes, YouTube or WordPress.

2. Set a consistent publishing frequency. Just like business school, you need to set a schedule. Weekly or daily is ideal.

3. Create a content calendar. This is like your business school syllabus that outlines a plan for the year. You should have your content planned at least a month in advance, which starts with scheduling interviews.

The type of person you’ll interview will depend on the specific industry you enter. The more specific you are, the better. For example, if you want to become an apartment syndicator (which is what I do), don’t just interview anyone who is involved in real estate. Instead, focus on the professionals who specialize in apartments, like other syndicators, commercial lenders and multifamily property managers and brokers.

Once you’ve specified an industry, find people in that industry to interview. Search for individuals or groups related to the industry on social media (Facebook, Twitter and LinkedIn). Find other thought leaders in the industry on iTunes, YouTube, Google and industry-specific blogs and forums. Search Amazon for authors who write about the industry.

When you reach out, state that you’re interested in interviewing them on your platform. Tell them you created it to educate yourself on the industry, as well as to provide valuable content to others who may be interested in entering the industry.

 

I don’t have an MBA. But I’ve hosted a daily real estate investing podcast for nearly four years, which means I’ve had over 1,400 conversations with real estate professionals that have been listened to over 7 million times. As a direct result of the education I’ve received and relationships I’ve formed, I’ve gone from making $30,000 a year at a New York advertising company to controlling $400 million in apartment communities, as well as earning revenue from podcast sponsorships.

That’s the power of a thought leadership platform.

 

Want to learn how to build an apartment syndication empire? Purchase the world’s first and only comprehensive book on the exact step-by-step process for completing your first apartment syndication: Best Ever Apartment Syndication Book

joe fairless jordan peterson

4 Things I Learned at a Jordan Peterson Seminar

I went to a seminar to hear Jordan Peterson talk and have been obsessively watching his videos on YouTube ever since. Here are my top 4 takeaways from the seminar I attended with my wife.

 

1 – Make dangerous things useful.

Fire is dangerous. Or it is lifesaving. It depends on how it is directed. Emotions too. Emotions can be dangerous or they can be lifesaving. Not only lifesaving but life sustaining. So don’t judge the emotions we have. Use them.

Feeling scared? What does that really mean? Well it could be a healthy feeling. Perhaps we need to watch out for something ahead. But ultimately it likely means, get prepared.

 

2 – Just write the damn thing down.

When something big and scary is in your head, write it down. If you are worried about something, write it down. Why? Because once you write it down it becomes real. And real things have flaws, have vulnerable points. When writing it down you can then do the exercise of identifying where the vulnerabilities of this thing are. Otherwise, it is something that seems strong and bulletproof.

 

3 – Voluntarily confront what you’re afraid of.

Find what you’re are afraid of. Well, let’s be honest, it already found you, didn’t it? Now that you have identified it, voluntarily confront it. Because when you voluntarily confront it, it makes it a challenge not a threat. And you don’t become less afraid. You become brave.

 

4 – Compare yourself to who you were yesterday. Not who someone else is today.

Micro improvements are the key here. Be focused on improving yourself every day. Ask yourself, what can I do today that will make me a better version of myself than yesterday? And do it. And set yourself up for success.

Want to be a successful real estate investor but don’t have the time to be active on BiggerPockets? Then just make a commitment to post one time a week.

Don’t have time to do that? Then just post one time every two weeks. Just do something. Then, that will build momentum.

The Matthew Principle states that every success you have will increase the probability to have a future success. But be aware, the inverse is true. Every failure will increase the probability to have a future failure. So set yourself up to win by creating micro habits that you can and will do. Then build on it.

 

If you are new to Jordan Peterson and want to learn more, a great place to start are the links above or his interviews on the Joe Rogan podcast, with this interview here being the most popular. Or just search “Jordan Peterson” on YouTube as there are thousands of videos to choose from.

 

Want to learn how to build an apartment syndication empire? Purchase the world’s first and only comprehensive book on the exact step-by-step process for completing your first apartment syndication: Best Ever Apartment Syndication Book

 

 

 

 

supplemental apartment loan

How to Secure a Supplemental Multifamily Loan

A supplemental loan is a type of loan that is subordinate to the senior indebtedness and is secured at least 12 months after the origination of the first agency loan or the most recent supplemental. In other words, a supplemental loan is additional funding that is available 12 months after closing on an apartment deal.

A supplemental loan is not the same as a refinance. The supplemental loan is a second loan secured in addition to your existing loan while a refinance is the process of replacing your existing loan with an entirely new loan.

The benefits of securing a supplemental loan compared to a refinance are the lower cost, certainty of execution, faster processing time, and ability to obtain multiple supplemental loans each year.

In apartment syndication, the supplemental loan is typically utilized to return a portion of the limited partners’ initial equity investment without refinancing into a new loan or selling the property.

A supplemental loan must be secured from the same debt provider as the original loan. If the original loan was provided by Fannie Mae, the supplemental loan must come from Fannie Mae, and the same applies to Freddie Mac.

 

Supplemental Loan Terms

Here is an overview of the general terms for the Fannie Mae and Freddie Mac supplemental loans:

Fannie MaeFreddie Mac
Loan term5-30 years5-30 years
Loan sizeMinimum $750,000Minimum $1 million
AmortizationUp to 30 yearsUp to 30 years
Interest rate100 to 125 bps above standard pricing100 to 125 bps above standard pricing
LTVUp to 75%Up to 80%
DSCRMinimum 1.30 (1st and supp. combined)Minimum 1.25 (1st and supp. combined)
RecourseNon-recourse w/ standard carveoutsNon-recourse w/ standard carveouts
Timing45 to 60 days from application45 to 60 days from application
Costs-$10,000 application fee
-1% of loan amount origination fee
-$8,000 to $12,000 legal fees
-$15,000 lender application fee
-Greater of $2,000 or 0.1% of loan amount Freddie Mac application fee
-1% of loan amount origination fee
-$8,000 to $12,000 legal fees

 

How to Secure a Supplemental Loan?

If securing a supplemental loan is a part of the terms on your initial loan, you can request one any time after your original loan has been seasoned for 12 months.

Reach out to the mortgage broker or the lender who provided the original loan and ask them what they need in order to size out a supplemental loan. Typically, they will request:

Then, they will perform an appraisal and a physical needs assessment (which is essentially a property conditional assessment) in order to determine the size of the supplemental loan.

You also want to ask your mortgage broker or lender how many supplemental loans are permitted, because you may be able to get more than one (as long as you wait 12 months between loans).

 

Example Supplemental Loan

If you plan on securing a supplemental loan for an apartment deal, you must include that assumption in your initial underwriting. Once the loan is secured, your debt service will increase, which will reduce the overall cash flow.

To estimate the maximum supplemental loan and debt service, you need to know the following:

  • Supplemental loan year
  • Projected net operating income at supplemental
  • Projected capitalization rate at supplemental
  • Balance of first loan (plus other supplementals) at supplemental
  • Supplemental loan length
  • Supplemental loan amortization schedule
  • Supplemental interest rate
  • Supplemental max loan-to-value (LTV)
  • Closing costs

For example, the initial Fannie Mae loan amount is $22,000,000 with three years of interest-only payments at 4.94%. The plan is to take out a supplemental loan at the end of year two, so the loan balance remains at $22,000,000 (since only the interest was paid for the first three years). After inputting all of the underwriting assumptions, the projected net operating income at the end of year two is $1,828,101. The in-place capitalization rate (i.e. the rate based on the purchase price and net operating income at purchase) is 5.5%. To be conservative, we assume a cap rate of 5.75% at year 2. The property with a net operating income of $1,828,101 and a capitalization rate of 6% is valued at $31,793,061.

Since the initial loan was secured from Fannie Mae loan, the maximum LTV is 75%. In other words, Fannie Mae will fund a maximum of 75% of the property value, which, for our example, is $23,844,796 at the end of year two. Since the loan balance on the initial loan is $22,000,000 and assuming $220,000 in closing costs, the maximum supplemental loan available is $1,624,796.

To determine the additional debt service from the supplemental loan, you need to know the expected loan terms. Based on the Fannie Mae supplemental loan terms, we can expect a 30-year amortized, 5-year loan at 5.04% interest (4.94% + 100 bps). Apply these loan terms to a $1,624,796 loan and the annual debt service of $106,178.

 

If the plan is to refinance the property, the process to calculate the new loan amount is similar to that of calculating the maximum supplemental loan. A smart underwriter will create two scenarios, one in which a supplemental loan is secured and one in which the property is refinanced, and compare the return projections and risk levels of each.

 

Want to learn how to build an apartment syndication empire? Purchase the world’s first and only comprehensive book on the exact step-by-step process for completing your first apartment syndication: Best Ever Apartment Syndication Book

 

 

apartment syndications with no experience

Three Ways To Break Into The Apartment Syndication Industry With No Experience

In an apartment syndication, a syndicator raises money from passive investors to acquire apartment communities while sharing in the profits. It being an advanced real estate strategy, an investor will rarely, if ever, begin their career by raising millions of dollars to purchase and asset manage an apartment syndication by themselves. They must have the educational and experience requirements before becoming a syndicator.

Now that sounds like a Catch-22: To become an apartment syndicator, you need the education and experience. To gain experience and obtain an education, you need to be a part of an apartment syndication.

So then, how do you become an apartment syndicator?

Well, as an experienced apartment syndicator myself, with a company that controls over $400 million in apartment communities, I’ve identified three main ways to break into the apartment syndication industry with no real estate experience.

1. Past Business Experience

If you don’t have prior real estate experience, but you do have a successful business background, then you may easily be able to translate those skills into buying apartment communities. And by a “successful business background,” I mean that you’ve either started your own company or you’ve held a high-level position at a large corporation.

To start a business or climb the corporate ladder, you typically need high-level project management skills, networking abilities and resourcefulness. As an apartment syndicator, these skills will help you manage team members, find and oversee apartment deals and find passive investors, which is about half of the syndication puzzle.

However, since you’re still lacking in real estate experience and education, it’s vital that you surround yourself with a credible team, which includes an advisor (ideally, someone who is an active apartment syndicator), a partner who complements your background (ideally, someone with real estate or apartment operational experience), a property management company to manage the day-to-day operations and a real estate broker to help you find deals.

 

2. A Thought Leadership Platform

If you don’t have prior real estate or high-level business experience, you can break into the apartment syndication industry by creating a thought leadership platform. This is an online networking tool where you create valuable content about a specific business niche (in this case, apartment syndications). Examples of thought leadership platforms are a podcast, a YouTube channel or a blog, with the most powerful — in my opinion — being the podcast.

To fulfill education and experience requirements, your platform must be interview-based. That is, the content you create must be based on interviews with real estate professionals in the apartment syndication industry. Through these interviews, you are getting a practical, real-world education from people who are active in the field. At the same time, you are networking not only with the people you interview but with the people who are consuming your content. This opens up the opportunity to find the advisors, partners and team members that will offset your lack of experience, as well as passive investors to fund your deals, covering all of your bases.

An additional benefit of a thought leadership platform is your ability to become a reputable, well-known force in the apartment syndication industry. You’re creating content that is valuable to apartment syndicators and passive apartment investors alike. I cannot count how many times I’ve spoken with passive investors or other real estate professionals who say they feel like they already know me because they’ve listened to my podcast. This will give you a leg up that you wouldn’t have without the platform, because it essentially allows you to network worldwide, even while you sleep.

 

3. Intern For An Apartment Syndicator

The third option for breaking into the industry is to intern for an apartment syndicator. This will cover the educational and experience requirements because you are getting a practical, real-world education and you’re actually implementing your education on a day-to-day basis.

To find apartment syndicators, attend real estate and apartment conferences, seminars and meetup groups. Listen to podcasts, watch YouTube videos or read blogs that are hosted by or have interviewed active apartment syndicators. Search on social media networks. Nearly every apartment syndicator will have an online platform, so perform a Google search to find their websites and blogs.

The easier part is finding apartment syndicators. The hard part is getting them to bring you on as an intern. People constantly reach out to me asking to intern for my business. The vast majority of the messages are people simply asking to intern for my business for free. While I always appreciate the offer, we’ve reached a place where “free labor” isn’t enough of a value-add to my business.

To increase the chances of an apartment syndicator accepting you as an intern, offer something more than free labor. One strategy is to conduct research on the apartment syndicator’s business, identify a need they might have and then in your message, offer to fulfill that specific need.

If you want to really impress the apartment syndicator and essentially guarantee an internship, take the previous strategy one step further. Once you’ve identified a need, proactive fulfill it before reaching out. For example, if an apartment syndicator is struggling to find deals in their market, bring them a deal. Or, at the very least, show them that you’re in the process of finding deals in that market, even if that just means you’ve spoken with a real estate broker who has sent you a handful of deals. The point is to stand out from a sea of messages by showing the syndicator that you’re actually willing to put forth effort and that you’re serious about adding value to their business.

 

These strategies have been used by aspiring investors with no experience to break into the apartment syndication industry. Pick one, stick to it and you could find yourself completing your own syndications in the next 12-24 months.

 

Want to learn how to build an apartment syndication empire? Purchase the world’s first and only comprehensive book on the exact step-by-step process for completing your first apartment syndication: Best Ever Apartment Syndication Book

 

best ever apartment syndication book

A Sneak Peek of the Best Ever Apartment Syndication Book in 4 Interviews

The Best Ever Apartment Syndication Book is officially available for purchase.

I wrote this book specifically for anyone who wants to become an apartment syndicator but doesn’t have the experience, access to capital, access to deal flow, and/or the ability to execute a business plan.

In the book, you will learn how I overcame the aforementioned challenges, as well as the exact step-by-step process I implemented in order to go from owning four single family homes and making $30,000 a year at a NYC advertising agency to building a portfolio of over $400,000,000 in apartment communities.

For a sneak peak of the content offered in the book, check out these four interviews where I discuss different parts of my journey and tactics that helped me get to where I am today!

 

“The Best Ever Advanced Multifamily Strategies For Raising Money At Scale” – Apartment Building Investing w/ Michael Blank Podcast

In my interview on the Apartment Building Investing w/ Michael Blank Podcast, I explain the additional reasons why I wrote the Best Ever Apartment Syndication Book, which will hopefully inspire you to write your own book!

 I offer advice to aspiring apartment syndicators for how the overcome the lack of experience challenge, which includes four ways to gain credibility with potential investors through alignment of interests and how to approach staying top-of-mind with investors

I also provide my insights on the benefits of partnerships in real estate, as oppose to attempting to build a business alone.

Listen to my interview with Michael Blank here.

 

“From W2 Job to Controlling $400,000,000 of Apartments” – The Cashflow Hustle Podcast w/ Justin Grimes

My interview on The Cashflow Hustle Podcast with Justin Grimes focuses on the mindset shift required to transition from a W2 job and/or smaller real estate investment strategies to purchasing large multifamily properties.

I explain how I made the leap to multifamily real estate. Of course, like all business endeavors, you will face many challenges as an apartment syndicator. So, I also offer advice on the tactics I use in order to overcome these challenges, which includes having a vision board, knowing where and who to turn to when looking for feedback and guidance, and asking “what would a billionaire do in this situation.”

Listen to my interview with Justin Grimes here.

 

“How Joe Fairless Analyzes Markets, Purchases Apartments, and Raising Millions” – Cash Flow Connections Podcast w/ Hunter Thompson

My interview on the Cash Flow Connections Podcast with Hunter Thompson focuses on three aspects of building an apartment syndication business.

First, you need to know where to invest. This is your target market. I outline my seven-step process for selecting and evaluating a target investment market.

Second, people need to know who you are if they are going to trust you with their money. I’ve found that the best way to accomplish this is through a thought leadership platform. I provide tactics for how to become a thought leader in a highly competitive sector of the investing world.

Third, you need to raise money in order to fund your deals. I explain the systems, technologies, and processes that can help you raise more money faster, which includes how my mentorship program has helped me raise millions of dollars.

Listen to my interview with Hunter Thompson here.

 

“From Zero to 3,000 Units In 5 Years” – Unbelievable Real Estate Stories Podcast w/ Ellie Yogev

My interview on the Unbelievable Real Estate Stories podcast with Ellie Yogev focuses on how to complete your first syndication deal when you have zero apartment investing experience.

I know that you can complete a deal without prior apartment experience because that’s what I did. I share the story of how I acquired my first deal, including my first experiences with real estate brokers, creative financing, and how I overcome the multitude of challenges as a first-time apartment investor.

Listen to my interview with Ellie Yogev here.

 

Want to learn how to build an apartment syndication empire? Purchase the world’s first and only comprehensive book on the exact step-by-step process for completing your first apartment syndication: Best Ever Apartment Syndication Book

 

 

build a business from scratch

How to Create a $400,000,000 Apartment Syndication Business from Scratch

Apartment syndication, which is the pooling of money from numerous investors that will be used to buy an apartment building, is a complex real estate investment strategy with one of the highest barriers of entry. In fact, before even searching for your first apartment deal, you’ll likely require years of preparation in order to set yourself up for success.

After leaving a $30,000 a year advertising job and acquiring four single family rental homes, I syndicated my first deal in 2014. Over the next four years, my company built a portfolio of over $400,000,000 in apartment communities. Through this experience, I wrote a book, Best Ever Apartment Syndication Book, distilling all of the lessons I’ve learned along the way so that others my replicate my company’s success.

Here are the 11 steps I followed to create a $400,000,000 apartment syndication business from scratch:

 

 1 – What are the experience and educational requirements needed to syndicate an apartment deal?

The two main requirements needed before becoming an apartment syndicator are education and experience.

First, you must comprehend the fundamental apartment syndication terminology in order to effectively communicate with your team members and passive investors, as well as to understand how to create and execute a business plan (here is a glossary of terms you need to memorize). These are concepts like internal rate of return, effective gross income, economic occupancy, preferred return, profit and loss statements, and many more.

Additionally, you will need a successful track record in business or real estate – ideally in both. Your team members and passive investors need to trust that you are able to execute an apartment syndication business plan. Understanding the apartment terminology is a good start, but having a successful background in business and/or real estate will give them confidence in your ability to replicate those successes as an apartment syndicator.

So, if you haven’t received promotions or awards in the business world or if you haven’t succeeded in a different real estate investment niche, that should be your focus before moving forward in the apartment syndication process.

 

2 – Why is goal setting important when beginning to syndicate apartment buildings?

Once you have the educational and experience requirements covered, the next step is to set a compelling goal. However, instead of simply setting a goal for how much money you want to make, take it a step further and determine how much money you must raise in order to achieve that goal.

One of the main ways an apartment syndicator makes money is from an acquisition fee, which is paid to the syndicator at closing for putting the deal together (here are the other six common fees). This fee ranges from 1% to 5% of the purchase price. So, if your goal is to make $100,000 and you plan to charge a 2% acquisition fee, you would need to syndicate $5 million worth of apartment communities. Assuming an equity investment of 35% of the purchase price, you would need to raise $1,750,000.

At this point, you know exactly what you need to do (i.e. how much money you need to raise) in order to achieve your specific, quantifiable apartment syndication goal.

 

3 – Why should you create a thought leadership platform to syndicate a real estate deal?

Even though you comprehend the apartment syndication terminology and have a successful track record in business and/or real estate, since you haven’t completed an apartment deal, you are still going to face a credibility problem. A thought leadership platform, which is an interview-based, online network where you consistently offer valuable content to your loyal following free of charge, is a major part of the solution. Examples of thought leadership platforms are a podcast, a blog, a YouTube channel and a meetup group.

Through your thought leadership platform, you will position yourself as an expert in the apartment syndication field. Additionally, you will build upon your initial apartment syndication education by having conversations with active real estate entrepreneurs, probing them for the best advice they have to offer. Lastly, you will get your name and voice in front of real estate professionals while you sleep, which will help you source apartment deals and private capital, as well as network with potential team members.

Overall, a thought leadership platform will help address your credibility problem, as well as be a tool for finding potential team members, business partners and passive investors. So, while you are working on the experience and education requirements, launch and grow a thought leadership platform (here is my guide for how to create a real estate thought leadership platform).

 

4 – How do you select a target market for apartment syndication?

The last step before you beginning put together your team is to select a target market, which is the primary geographic location in which you will focus your search for potential investments. There are more than 19,000 cities located in the United States, and it is impossible to evaluate and target every single one.

I recommend selecting seven potential target markets based on where you live, where you have lived (because these are markets with which you are likely already familiar), and the top apartment markets in the country. Then, evaluate those markets across a variety of factors, including population growth, population age, unemployment, job diversification, and supply and demand, in order to select one or two markets to target (here is my guide for evaluating and selecting a target market).

 

5 – How do you build an all-star apartment syndication team?

You’ve covered the education and experience requirements, launched a thought leadership platform, and selected a market in which to invest. Now, it is time to create your core real estate team. Your core team will consist of a real estate broker who will help you find on-market deals and close on deals, a property management company who will help you during the due diligence process and manage the apartment after closing, a mortgage broker who will help you secure financing, a real estate attorney and securities attorney who will help you create the partnership documents between you and your investors, an accountant and a mentor/consultant.

Again, since you haven’t completed an apartment deal, you are going to have a credibility problem with your passive investors. The thought leadership platform is part of the solution and finding experienced team members is another part. The best approach to building your team is to 1) find a mentor/consultant through referrals, 2) leverage your mentor’s relationships and the relationships you created through your thought leadership platform to find the other members of your core team, and 3) conduct interviews to select the best candidate.

Each member of your team will have their own motivations, so it is your job to prove to them that by becoming a part of your team, they will achieve their goals too. That means leveraging your background, thought leadership platform, and the expertise of your mentor and team members to prove your ability to successfully raise money for, close, and execute a business plan on an apartment deal.

 

6 – What are the best strategies for finding passive investors?

Surprisingly, the main reason people will invest with you is not based on the returns you offer. Instead, it will be because they trust you with their money. I’ve found that this trust is created in three important ways – through time, displaying your expertise, and creating personal connections.

The best way to find passive investors with which you already have a trusting relationship is through your existing network. Therefore, the approach I recommend is to create a list of every single person you know and categorize them based on how you know them (i.e. work colleagues, family, college friends, neighbors, etc.). Then, your goal is to get one person from each category interested in investing with you and, with their permission, name drop them to the other people in that category. People are more likely to invest with you if they know someone else who is interested in investing too.

If your existing network is small, or to expand your network, other great ways to build personal connections are 1) through your thought leadership platform, 2) participating on BiggerPockets, 3) attending or creating a meetup group, and 4) volunteering (here are a collection of articles with more money raising tips).

Before moving on to the next step, your goal is to obtain verbal commitments from your network of investors that is greater than the amount of money you need to raise in order to achieve your goal, which you set in Step 2.

 

7 – What’s your ideal apartment syndication business plan?

There are three main apartment syndication business plans. The first is the distressed strategy, which is to purchase an apartment community with an economic occupancy level below 85% (and likely much lower), address the deferred maintenance, bring the property to stabilization, and either sell for a large profit or refinance and hold for cash flow. Another is a turnkey strategy, which is to purchase a completely updated, highly stabilized apartment community with an economic occupancy level of 95% or higher and cash flow starting day one. The third, and the one that my company implements, is the value-add strategy, which is to purchase an apartment community with an economic occupancy level between 85% and 95%, add value (which is to improve the physical property and operations in order to increase the income and decrease the expense), and sell after five to seven years.

Your ideal business plan is based on the goals of you and your investors. If you and your investors are interested in a large, lumpsum return after 12 to 24 months with minimal to no cash flow, as well as the risk of losing most or all of their initial investment, the distressed strategy is ideal. If you and your investors need a place to park capital without the upside potential at sale while receiving a return that beats inflation, the turnkey strategy is ideal. If you and your investors want an ongoing return and a moderate lumpsum return after five to seven years, the value-add strategy is ideal.

Similar to selecting a target market, you cannot pursue every single investment opportunity. There are simply too many. Instead, you must select one of the three investment strategies and only pursue properties with the specific criteria that aligns with that strategy, which includes the current occupancy, condition, asset class, construction date, and resident demographic.

 

8 – How do you find your first apartment deal?

As I mentioned in the introduction, a large time investment is required before finding your first deal. But, now that you’ve covered the education and experience requirements, set a goal, launched a thought leadership platform, selected a target market, created your core team, obtained verbal commitments from passive investors, and selected a business plan, it’s time to find your first deal.

There are two types of apartment deals: on-market deals listed by a real estate broker and off-market deals without a listing broker. To receive on-market deals, contact your real estate broker, as well as the top brokers in your target market/s and ask to be added to their email list.

Sourcing off-market deals requires more proactive effort on your part, but you will benefit from dealing directly with the owner, avoiding a bidding war, having more financing flexibility, and potentially closing faster. Also, off-market deals are perceived as stronger opportunities in the eyes of passive investors.

There are countless ways to find off-market opportunities, but here are the five most effective strategies. I recommend having at least two lead generation strategies that bring in at least one new off-market lead each week.

 

9 – How do you evaluate apartment deals?

As you receive on-market leads from real estate brokers and off-market leads from your lead generation strategies, you will need to determine if the lead warrants an offer. This process is called underwriting.

To properly underwrite a deal, you need to obtain a current rent roll and trailing 12-month profit and loss statement, as well as create or purchase a financial model. The underwriting process for apartment communities is quite complex, but here is a brief overview:

  • Determine how the apartment is currently operating
  • Set assumptions for how the apartment will operate once you’ve taken it over and implemented your business plan
  • Create a pro forma, which is the budget with projected income, expenses, and cash flow during the hold period
  • Use the pro forma cash flows and the desired returns of you and your passive investors to set a purchase price that will achieve those returns.

After setting an offer price, you’ve arrived at the point where you need to determine if you will submit an offer. If the results of the underwriting process meet or exceed the return goals of you and your passive investors, you will submit a letter of intent, which is a non-binding letter that represents your intent to purchase the property. If your letter of intent is ultimately accepted, you will sign a purchase and sale agreement to officially put the property under contract to purchase.

Once you have the property under contract, you will perform additional due diligence in order to confirm the assumptions you made during the underwriting process and decide if you need to update your offer price and terms or cancel the contract. If you decide to move forward, you will secure financing from a lender. If it is your first deal, you likely won’t meet the liquidity, net worth or experience requirements to qualify for financing. If that is the case, you will need to bring on and compensate a loan guarantor.

 

10 – What’s the process for securing commitments from passive investors?

Once you have the property under contract and while you are performing due diligence, you will present the new apartment offering to and secure investments from your passive investors.

First, you will use the results of your underwriting and due diligence to create an investment summary document, which outlines the main highlights of the investment and the market, as well as the return projections to your passive investors. Then, using the investment summary as a guide, you will present the new investment offering to your passive investors. Finally, you will officially secure investments from your passive investors, having them sign the required documentation, including an operating agreement, subscription agreement and a private placement memorandum, which are prepared by your attorneys.

 

11 – How do you execute your business plan on an apartment building?

After the deal has passed the due diligence process and you’ve secured commitments from passive investors, you’ll close on the deal! Upon closing, you will notify your investors of the close and set expectations for ongoing communication and distributions. Then, you will execute your business plan by performing your duties as an asset manager.

Your 10 asset management responsibilities are:

  1. Implement the business plan by adhering to the income and expense budget
  2. Conduct weekly performance reviews with your property manager
  3. Send the correct distributions to your passive investors
  4. Provide monthly recap emails to your passive investors
  5. Manage the renovations
  6. Maintain economic occupancy
  7. Plan trips to the property
  8. Frequently analyze the competition
  9. Frequently analyze the market
  10. Resolve issues as they arise

Here is a blog post where I go into more detail on these 10 duties.

The last step in the entire syndication process, and when you and your investors make the BIG money, is to sell the property. The ideal time to sell is based on your business plan and the market. Obtain a broker’s opinion of value from your real estate broker a few times a year and calculate the return projections to your investors based on that sales price. If you can meet or exceed the return goals early, great! If it comes time to sell and the market is such that you cannot meet or exceed the return goals, don’t feel forced to sell. Hang on and wait for the market to turn around before selling.

 

This was a brief overview of the entire apartment syndication process. For more in-depth information on raising money to buy apartments, you can purchase my book, Best Ever Apartment Syndication Book, visit my apartment syndication blog here, or email me questions at info@joefairless.com.

trust a broker's rent comps

Should You Trust a Listing Broker’s Rental Comps?

You receive a call from your real estate broker about a hot apartment deal that they’ve just listed. You quickly review their offering memorandum and, using a current rent roll and T-12, you populate your underwriting model. Before you can calculate an offer price, you need to perform a rental comparable analysis to determine your stabilized market rents. Luckily, the real estate broker has already conducted the analysis, so you should just use their results, right?

WRONG!

You should never unquestionably use the information in a real estate broker’s offering memorandum. The offering memorandum is only to be used as a guide, and this applies to their rental comparable analysis as well.

I’ve reviewed my fair share of offering memorandums. As a result, I’ve developed a keen eye for identifying instances where a listing broker tricks a buyer with incorrect rent comp information (whether it is intentional or unintentional is up for debate). Since the results of rental comparable analysis will be used to calculate a stabilized market rent, which will have a direct effect on the cash flow, using the correct properties is a must.

Now, a good starting place for finding rental comps is the offering memorandum. But, there are three main things to look out for when reviewing the comps that the real estate broker provided.

 

#1 – How far are the rent comps from the subject property?

First, see how far the comps are from the subject property. Distance is important, because a rent comp that is 30-miles away will not give you accurate results. But the neighborhood in which the comp is located is even more important.

For example, I was looking at a property and the rent comps provided by the listing broker were nearby (within a few miles) but were in a completely different neighborhood. I was local, so I knew that the comp was located in a neighborhood of college graduates while the subject property was not. But if I wasn’t local, I’d have to investigate the neighborhoods in which the rent comps are located to confirm that they are similar, especially in regards to demographics. A neighborhood with college students will demand different rents than a neighborhood with young professionals or blue-collar workers.

Key takeaway: The rent comps need to be close enough to the subject property to be in the same or a very similar neighborhood with similar renter demographics.

 

#2 – When was the rent comp renovated?

The second thing to look out for is the year the property was renovated, over what period of time, and how that relates to your business plan. As a value-add investor, we will often purchase apartment deals from owners who have already initiated a renovation program. Maybe they’ve renovated 25% of the units over the last 6 months. In that case, our plan would be to upgrade the remaining 75% of the units over a 12 to 18 month period, projecting to demand the same rental premiums they received on the 25%. When that is our business plan, we need to find rental comps that were upgraded to a similar quality and with a similar renovation timeline.

For example, I was looking at another property that had proven rental premiums but the renovations had been performed over two years to only 25 units. That’s about one unit per month. Our renovation timeline moves faster than that, so that is not a good comparison, because the renovations were too slow. A better rent comp would have those 25 units renovated over a few months.

Another red flag would be if the units weren’t renovated recently. If the units were renovated over 6 months ago, you cannot trust the accuracy of their rental premiums, because they’ve likely changed.

Key takeaway: The rent comps need to be renovated recently and over a period of time that is similar to the speed at which you will perform your renovations.

 

#3 – Do the operations at the rent comp match those at the subject property?

Last, look at the operations of the property to see whether they match up with the subject property.

For example, I was reviewing an offering memorandum that had a mixture of rental comps where the owner paid for all of the utilities and rental comps where the owner paid for some of the utilities. If the subject property has the owner pay for all of the utilities, all of the rental comps need to be the same, because this impacts the rental rates.

Another example would be the rent specials offered. If a rental comp is offering concessions to new applicants, then they can likely demand a higher rent. Unless you plan on offering a similar amount of concessions, that rental comps should be eliminated (or the rents need to be adjusted downwards). If all of the rent comps provided by the listing broker are offering a lot of concessions, that may also indicate a market with low demand.

Key takeaway: The operations at the rent comp must match those at the subject property.

  

If the listing broker’s rent comps adhere to these three factors, great. But you should still verify that information provided is correct. If they don’t, however, you’ll need to find your own rental comps (and here’s how you do that).

 

Want to learn how to build an apartment syndication empire? Purchase the world’s first and only comprehensive book on the exact step-by-step process for completing your first apartment syndication: Best Ever Apartment Syndication Book

 

 

Happy Labor Day! Five Investors Who Hustled Their Way to Success

In honor of Labor Day, and for some education on your day off, tune in to these five Best Real Estate Investing Advice Ever podcasts about five investors who labored and hustled their way to success:

 

#1 – Melanie Bajrovic, From Bartender to Millionaire Real Estate Investor and Entrepreneur

Melanie was lucky enough to have parents who taught her about money, and how to save it. By the time she was 22 she had a “nice nest egg”. Looking for guidance with what to do with her cash, her dad suggested investing in real estate. Starting with single family homes, she hustled her way into the commercial real estate industry and opened her own business in a piece of property she bought. Listen to what it takes to improve your quality of life substantially through real estate investing here.

 

#2 – David Moadel, Conventional and Unconventional Ways to Earn More Passive Income

David has been a market expert for years, nailing a ton of different key topics including precious metals, cryptocurrency stocks and real estate crowdfunding. He teaches you how to hustle on the side to earn more passive income. Listen to his episode here to hear some ideas that you’ve heard before, and more ideas that you probably have not. When you have a chance to learn from an expert like David, you listen up!

 

#3 – Evan Holladay, Hustle Leads to Dream Job as an Affordable Housing Developer

Evan was in the medical field in college before realizing that it was not for him. He noticed a student housing development being built close to his school and wanted in. He blew up the development company until they gave him a task, get 100 students to the ground breaking. Evan got 800! Now working for a large development company, hear how he was able to get his dream job and how they use tax credits to build affordable housing here.

 

# 4 – Stash Geleszinski, How to Leverage Brokers to Hustle for Deals

Real estate brokers are the gatekeepers to many deals whether they are single family or multifamily. Stash is a multifamily broker and has discovered clever ways to incentivize brokers, organize leads, and covert them over time. All it takes is a little hustle. Listen to Stash’s advice here or read a summary of his Best Ever Advice here.

 

#5 – Giovanni Isaksen, How Success Will Follow Persistence and Hustle

He lost on a condo conversion deal at the last second all because the bank changed the terms the day before close. Giovanni didn’t give up after a hard loss! He continued to crunch numbers and familiarize himself with larger deals and met some key players along the way. Now he is in the private equity space finding large transactions and putting them together. Tune in here to learn how he did it.

 

Want to learn how to build an apartment syndication empire? Purchase the world’s first and only comprehensive book on the exact step-by-step process for completing your first apartment syndication: Best Ever Apartment Syndication Book

worst real estate investment

5 Lessons Learned from the Worst Real Estate Investments

Each week, we post a new question to the Best Ever Show Community on Facebook. The Best Ever Show Community is a place where real estate entrepreneurs of all stripes and sizes can come together to interact with each other, me, and the guests featured on my podcast with the purpose of everyone helping each other reach the next level in their businesses and their lives.

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was “what is your worst deal ever and why?”

 

You don’t just want to learn about people’s worst deals ever. What you really want to know is why it was bad and how you can avoid making the same mistakes!

That said, here are five lessons active real estate investors learned from their worst deals ever:

Lesson #1 – Rental Properties are Better Wealth Builders Than Fix-and-Flips

Garrett White learned two valuable lessons from his worst deal ever. It was his first attempt at a fix-and-flip in 2017. Up to that point, he had only purchased rental properties. Garrett purchased the property for $77,500 from a burned-out landlord, put in $18,500 in renovations and sold it for $120,000 three months later.

While he was able to make a profit on the deal, the first lesson he learned was that, compared to fix-and-flips, rental properties are much better wealth builders. On fix-and-flips, the main benefit comes from the short-term forced appreciation. Whereas for rental properties, you’ll benefit from short-term forced appreciation, long-term natural appreciation, ongoing cash flow, tax advantages and the principal paydown. He made quick profit with fix-and-flips but to build long-term wealth and use his time more effectively, he believes rental properties are a much better option.

 

Lesson #2 – Time is Your Most Valuable Asset

Another lesson Garrett learned from his worst deal ever was the importance of time. He said the amount of time, hustle and stress involved during those three months spent on the flip were greater than the four years of owning six rental properties combined. The large time commitment involved in identifying a fix-and-flip opportunity, evaluating and closing, managing or doing the renovations, and selling the deal weren’t worth the stress and short-term profit. Instead, Garrett would have rather spent his time cultivating relationships with brokers, owners and passive investors so that he could syndicate deals and buy rental properties.

 

Lesson #3 – Consider Creative Financing Before Passing on a Deal

Robert Lawry II’s worst deal ever was a deal he didn’t do. It was a 2-bedroom condo with an oceanfront view listed for $30,000 in 1993. Robert was 19 and couldn’t fund the purchase price, so he passed. Today, the condo is valued at $800,000…ouch!

But Robert learned a valuable lesson. Rather than passing on the deals he cannot fund alone, he now knows that he should brainstorm creative financing options first. For example, he could have raised private capital to purchase the condo. Or he could have implemented the house hacking strategy, bringing on a roommate or two to cover the acquisition costs and to pay rent to cover the mortgage payments.

Don’t pass on the deal just because you cannot fund the acquisition costs. If the return projections are truly strong, you shouldn’t have an issue finding someone to help you purchase the deal.

 

Lesson #4 – Don’t Deviate from Your Investment Criteria

Eric Jacobs’ worst real estate deal was a home he purchased in the Bahamas. He knew it wasn’t a good deal but he bought it anyways. Eric lost a fair amount of money on this deal, but he fortunately realized the error is his ways and didn’t pursue any more deals in the Bahamas.

His error was that he fell in love with the property. As a result, he deviated from his investment criteria and ignored the results of his underwriting. We’ve all been there, but we must remember that we set our investment criteria the way we did for a reason. If the deal doesn’t meet our criteria, no matter how much we love it or try to bend the numbers, we have to pass.

 

Lesson #5 – Hold Partners Accountable

On Roman Bulgakov’s worst deal ever, he was betrayed by his business partner. He trusted that his partner had the best intentions of the company in mind when the reality was that his partner was only looking out for himself.

Roman partnered with a contractor who agreed to finish the project in six months at an agreed upon price. However, the contractor ended up taking twice as long and charging twice as much. By the time the deal made it to the closing table, Roman only made $1500.

Roman’s lesson is to keep partners accountable. He failed to create accountability checks along the way, which the contractor took advantage of. Moving forward, Roman has a defined process with his partners in which he has frequent check-ins to receive status updates on his projects. That way, he can catch timeline or budget deviations before it’s too late!

 

What about you? Comment below: What was your worst deal ever and why?

 

Want to learn how to build an apartment syndication empire? Purchase the world’s first and only comprehensive book on the exact step-by-step process for completing your first apartment syndication: Best Ever Apartment Syndication Book

apartment syndication compensation

How to Structure the GP Compensation for Apartment Syndications

The two main parties in an apartment syndication are the general partners (GPs) and limited partners (LPs). Essentially, the LPs fund the deal and the GPs manage the deal and each party is compensated accordingly – the most common compensation structure is an 8% preferred return to the LP and a 70/30 profit split of the remaining profits to the LP and GP respectively.

In regards to the GP, if all of the duties are performed by one person, then that individual would receive 100% of the compensation allotted to the GP. However, it is unlikely that the GP will be a single person, especially one the first few deals. Instead, the GP responsibilities will be fulfilled by two or more individuals.

When that is the case, how do you determine how much money each individual makes? Like most things in apartment syndications, it depends because every deal is different. There are, however, general guidelines for how to create a compensation structure for the GP.

Basically, the GP is broken into five parts. Each part has certain duties, as well as an assigned percent ownership of the GP. All of these percentages are negotiable, but here are the general guidelines:

 

1 – Due Diligence Costs

The time between signing the purchase sales agreement and closing the deal is known as the due diligence phase. During the due diligence phase, certain costs are incurred by the GP. These include the earnest deposit, legal fees to create various contracts, inspection costs and appraisal costs. Most of these expenses are due before reaching the closing table.

Since you are dealing with multimillion-dollar deals, these due diligence costs will likely be in the tens of thousands of dollars. If you can personally pay for these upfront costs, great. Front the costs and reimburse yourself at close. If you cannot, then you will need to bring on a third-party to cover these costs.

In return, you will need to compensate this person. There are a few approaches. You could borrow the money from a family member or friend and sign a personal guarantee, promising to pay them back at close. Another option is to ask one of your passive investors to front the cost. In return, you can offer to pay them back at closing with interest. Or, you can offer them a percentage of the general partnership.

For the latter approach, expect to give up 5% of the general partnership to the person who fronts the due diligence costs.

Eventually, you will be able to cover these costs yourself (or between you and your partner).

 

2 – Acquisition Management

Another collection of duties performed by the GP is acquisition management. The acquisitions manager is responsible for finding deals. They generate off-market leads and build relationships with brokers to source on-market deals. Once a deal is located, they are responsible for underwriting the deal and submitting offers on qualified deals. After the deal is under contract, they will manage the entire due diligence process, secure financing from the lender and oversee the closing process.

In return, the acquisition manager will generally receive 20% of the GP.

 

3 – Sponsor

The sponsor is the individual or individuals who sign on the loan. This person may also be referred to as the loan guarantor.

Usually, first-time apartment syndicators will not have the liquidity, net worth or experience requirements to qualify for a loan. So, they must find an experience apartment syndicator as well as someone with a net worth equal to the principal loan balance and liquidity equal to 10% of the principal loan balance at closing. Ideally, the sponsor covers the experience and financial requirements.

The compensation offered to the sponsor varies from deal-to-deal. Typically, they are either offered a one-time fee at closing or an ongoing percentage of the GP. The one-time fee can be as low as 0.5% to 1% and as high as 3.5% to 5% of the principal balance of the loan paid at closing. The ongoing percentage of the GP can range from 5% to 20% or higher.

The riskier the deal and the riskier the financing, the higher the compensation. For example, the sponsor of a distressed apartment community will receive more compensation compared to a turnkey apartment community. And the sponsor who signs on a recourse loan will receive more compensation compared to a nonrecourse loan.

 

4 – Investor Relations

Another GP duty is investor relations. Investor relation responsibilities include generating interest from passive investors prior to finding a deal, securing commitments for the passive investors in order to fund the equity investment and ongoing communication with the passive investors while the business plan is executed.

Generally, 35% of the GP is allotted to investor relations. On some deals, 100% of the equity investment is raised by a single individual. In other cases, multiple people raise money for the deal. For the latter, the 35% allocated based on how much each individual raise. For example, if the equity investment is $1 million and two people raise $500,000, they will each receive 17.5% of the GP.

 

5 – Asset Management

Lastly, the GP is responsible for the ongoing asset management of the deal after close. They ensure that the property management company is implementing the business plan, which includes conducting weekly performance reviews with the site manager, frequently visiting the property, analyzing the market and the competition and addressing any issues that arise.

Generally, the asset manager receives 20% to 35% of the GP.

 

Again, these are the general compensation numbers for the five parts of the GP. But everything is negotiable and will vary from deal-to-deal.

One person might perform all of these duties, a handful of people might perform all of these duties or multiple people might perform one of the duties (i.e. multiple people raising money, sponsoring the deal, finding deals, etc.). Usually, on the first few deals, there will be multiple people on the GP. But, as you complete more and more deals, you will need to bring less and less people onto the GP. But when you are starting out, you should do whatever it takes to complete a deal, even if that means giving up a majority stake in the GP.

 

Subscribe to my weekly newsletter for even more Best Ever advice www.BestEverNewsletter.com

 

Want to learn how to build an apartment syndication empire? Purchase the world’s first and only comprehensive book on the exact step-by-step process for completing your first apartment syndication: Best Ever Apartment Syndication Book

 

skeptical of real estate deal

5 Reasons to be Skeptical of a Real Estate Deal

Each week, we post a new question to the Best Ever Show Community on Facebook. The Best Ever Show Community is a place where real estate entrepreneurs of all stripes and sizes can come together to interact with each other, me, and the guests featured on my podcast with the purpose of everyone helping each other reach the next level in their businesses and their lives.

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was “what is the biggest red flag for you when evaluating a potential deal?”

Depending on your business plan, the entire underwriting process – which includes gathering the required data, building a financial model, performing a rental or sales comparison analysis and visiting the property in person – can take anywhere from a few days, to a few weeks to even a few months. Then, once the property is under contract, you’ll have 30 to 60 days to perform additional due diligence to confirm your underwriting assumptions and create a business plan. When you add to that the costs associated with both underwriting and due diligence, the deal evaluation process requires quite the investment, of both time and money.

Therefore, the earlier in the process you can identify potential red flags or disqualifiers, the better, as you will save yourself both money and time.

In fact, I created a series about the top 10 tips for underwriting a deal (click here to listen to part 1). In addition, here are five more tips on things to look for when evaluating a potential real estate deal.

 

1 – Errors in the Offering Memorandum

The offering memorandum (also referred to as the OM) is a sales package created by the listing real estate broker that is used to market and provide a summary of the deal. The key word here is “sales.” The purpose of the OM is to help the real estate broker sell the property for the highest price possible, because the higher the sales price, the higher their commission.

While the OM will include a rent roll, T-12 and proforma, you should NEVER use that data when evaluating a deal. It should, at most, be used as a guide. The reason is because the information provided in the OM may not be 100% accurate.

For example, Youssef Semaan comes across many deals where there is a discrepancy between the OM and the actual rent roll. On one deal, he discovered that the rents listed on the OM were $50 to $100 higher than what was listed on the rent roll. That’s a huge problem! On a 100-unit property in a market with an 8% cap rate, that is a difference in value of $750,000 to $1.5 million! To make matters worse, on that same deal, the OM listed an occupancy rate of 100% (a red flag in and off itself) while the actual rent roll occupancy rate was significantly lower. This is why you must always use the actual historical profit and loss data and a current rent roll when evaluating a deal.

Another error you might find on an OM is a calculation error. Taylor Loht came across a deal where the internal rate of return was calculated incorrectly. Other examples of miscalculations I’ve seen are an incorrect cap rate, net operating income, capital expenditure budgets, and results of a rental or sales comparable analysis. While it may seem like these calculation errors are a moot point (we’re supposed to use the actual rent roll and T-12s and create our own cost assumption, right?), if the owner or listing real estate broker made mathematical mistakes on the OM, how can you trust the other information that they provide?

 

2 – Indications of an Unethical Owner, Listing Broker or Property Management Company

A discrepancy on the OM compared to the rent roll or T-12, or a calculation error on the OM might have been an honest mistake. However, there are other things that cannot be seen as anything other than unethical behavior.

For example, Todd Dexheimer caught a property management company forging the certified rent roll, P&L statements (i.e. T-12) and leases. They also claimed an occupancy rate of 90%, but the actual rate was 81%. The only reason they uncovered these forgeries was because the management company accidentally sent out the actual rent roll and then tried to recall the email.

Another example of unethical behavior happened to Eric Jacobs. Usually, in the terms of the purchase sales agreement, the owner is required to provide the buyer with the property’s financials, including a certified rent roll, T-12, leases and bank statements. However, Eric had a deal where the owner refused!

Unfortunately, we live in a world with dishonest people. And since the real estate industry is a part of world, you may come across a deceitful person during your career. My advice? Run at the first sign of unethical behavior

 

3 – Unrealistic Profit and Loss Statement

The profit and loss statement (also referred to as the T-12) is a document or spreadsheet containing detailed information about the revenue and expenses of the property over the last 12 months. Generally, when underwriting a deal, the T-12 is used as a guide for determining the stabilized income (i.e. loss-to-lease, bad debt, concessions, other income, etc.) and operating expense amounts. For example, if the other income was 13% of the gross potential rent (also referred to as GPR) and the contract services were $250 per unit per year, then it is safe to assume those same amounts when you take over the property. However, there are other times where the T-12 data is unrealistic, which means adjustments are necessary.

For example, on the income side, Ajit Prasad said that an other income amount that is greater than 20% of the GPR is a red flag. The “incomes” included in other income are late fees, lease termination fees, lease violation fees and damage fees, which are all associated with a poor resident base. Therefore, a higher other income can indicate a poor resident base, which may disqualify the deal or is something that will be reduced after you take over the property.

There may also be unrealistic amounts on the operating expenses side. For example, Joseph Gozlan said that this can occur when the owner has economies of scale in the same area. If the owner controls thousands of doors in one submarket, they may have a carpet cleaner, garbage person, painter, etc. on staff rather than on contract, which drastically reduces certain operating expenses. Or, they may have a family or friend who owners a service company (like a landscaping or pest control company) and provides their services for free or at a reduced price. However, once you take over the asset, those economies of scale and/or family and friends discounts go away.

One way to identify an unrealistic T-12 is to calculate the expense ratio. The expense ratio is calculated by dividing the total operating expenses by the total income. While it varies from market-to-market, if you see an expense ratio of less than 40%, that is an indication that the income and/or operating expense data is unrealistic.

The best way to overcome an unrealistic T-12 is to base your underwriting assumptions on how YOU will operate the property, not how the current owner is operating the property. And hiring a great property management company can help you with this.

 

4 – Bad Market

Another factor that may disqualify a potential deal is the market. Ryan Gibson performs market studies for all of his deals. If the results of his market study indicate a lack of demand or a market that is not strong enough to expand in, raise rents or execute a value-add business plan, he passes on the deal.

Last week, I posed a question to the Best Ever Community about the red flags that disqualify a real estate investment market. Here is the blog post that outlines the top six responses.

 

5 – Issues Identified During the In-Person Visit

Even if everything looks good on paper, I always recommend that you visit a property in person before moving forward with a deal. There are certain red flags or disqualifiers that cannot be uncovered until you see the actual property.

For example, Joseph Gozlan said that too many cars in the parking lot on a Tuesday around [11:00]am is a red flag because it indicates a high level of unemployment. Also, Adam Adams visits the property and the surrounding neighborhoods to look for indications of crime.

Visiting the property in person may also change your exterior renovation budget. For example, Theo Hicks was reviewing an OM that stated the property only needed new roofs and new window A/C units for an exterior renovation budget of ~$500,000. At that point, the deal made financial sense. However, after visiting the property in person, the exterior renovation budget increased to over $1.5 million. At that point, the deal did not make financial sense.

 

What about you? Comment below: what is the biggest red flag for you when evaluating a potential deal?”

 

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Want to learn how to build an apartment syndication empire? Purchase the world’s first and only comprehensive book on the exact step-by-step process for completing your first apartment syndication: Best Ever Apartment Syndication Book

 

raise apartment rents

When to Raise Rents – It’s More Complicated Than You Thought

You’ve acquired an apartment community at the right price and successfully executed your value-add business plan, renovating the interiors and upgrading the community amenities in order to achieve your projected rental premiums. Now, you just ride out the business plan until the sale, right…?

Wrong.

Among your many duties as an asset manager is to frequently analyze the market to confirm that you are maximizing your profits by keeping up with the market rental rates.

How is this accomplished?

The short answer – perform a rental comparable analysis (commonly referred to as the rent comps), which can be done by you and/or your property management company, using the results to determine if you should raise the rents and by how much. Here is a blog post on how to perform the rent comps over the phone.

However, the more sophisticated (and likely more successful) apartment syndicator will rely on more than the results of the rent comps to determine when is the opportune time to raise the rents. Here are the seven other factors to keep in mind:

 

1 – The Business Plan

To determine if it is the right time to raise rents, the first question to ask is “what is the business plan?”

Prior to closing on a deal, you should have created a business plan for how you will approach raising the rents during the hold period, which should have been confirmed by your property management company. So, how well were you able to adhere to that plan?

Were you able to achieve your projected rental premiums? Are you on track with the return projections to your investors? Were you able to complete the interior and exterior upgrades on-time? Were you able to achieve the desired loss-to-lease? How are you performing relative to what was projected in terms of occupancy?

If the business plan was executed without a hitch or any major deviations – or even better, if you were able to exceed expectations – then you may consider raising the rents. However, if you or your property management company were unable to achieve one or more of these projections (i.e. rental premiums, investor returns, renovation timeline, loss-to-lease, occupancy, etc.), your focus should be on how to get back on track rather than raising the rents.

 

2 – Concessions

Another factor to consider is the amount of concessions you are offering to new applicants. The amount of concessions you need to offer to entice prospective residents to sign a lease is directly related to the demand of your apartment community. The more concessions you offer, the lower the demand and the lower the gross potential income.

If your concessions are greater than 3% of your gross potential rent (this percentage may vary from market-to-market), then your focus should be on reducing the amount of concessions offered before you consider raising the rents.

 

3 – Bad Debt and Delinquency

You also want to look at the bad debt and delinquencies (i.e. delinquent rent and other expenses paid by residents) at your apartment community. Similar to concessions, the more bad debt and delinquencies you have, the lower the gross potential income, which negatively affects your returns.

If residents aren’t paying their rent on-time or if the bad debt exceeds your business plan assumption (ideally, bad debt is less than 1.5% to 2% of the gross potential rent), then your focus should be on minimizing these factors first before you consider raising the rents.

 

4–The Competition

Another question to ask when you consider to raising the rents is, where are my rents relative to my competitors? This is accomplished by performing a rental comparable analysis on a monthly basis, at the very least.

While you do not want to be the market leader in terms of rental rates, if your current rents are significantly lower than a similar apartment community in a similar neighborhood, then you may want to consider raising the rents. The key term here is similar – when analyzing your competition, make sure that the community has similar amenities, similar unit upgrades and similar property operations. In terms of property operations, for example, do both properties include utilities in the rent? Do both properties offer the community amenities free of charge? Do both properties offer coin-operated laundry facilities?

 

5 – Number of Evictions and Skips

Before you consider raising the rents, review the number of evictions and skips (i.e. residents leaving before the end of their lease) at your apartment community over the past few months.

Evictions and skips are very costly. There are legal fees, turn/make ready costs, marketing costs, administrative costs and lost income associated with both. If you are experiencing a higher than normal number of evictions and skips, your focus should be one minimizing those first prior to raising rents.

 

6 – Cancelled Applicants

A cancelled applicant is a resident who has signed a lease, has a scheduled move-in date but when that day comes, they fail to show up. Similar to evictions and skips, there are costs associated with cancelled applicants, as well as an overall waste of your property management team’s time.

If you have too many cancelled applicants (with “too many” depending on the size of the property and the market – speak with your property management company to get an acceptable number), determine why they are cancelling and focus on reducing those first prior to raising rents. Because higher rents mean nothing if the resident fails to move in.

 

7 – Rental Season

Lastly, determine when the peak rental season is in your market prior to raising rents. That is, what month are you currently in and how close are you to the beginning and end of the rental season?

Generally, rental season begins in the spring and ends before winter. So, if you are inside of that time period, it may be the opportune time to raise rents. However, during the winter, your best bet is to focus on maintaining your occupancy rates in preparation for the start of the rental season in the spring.

 

What about you? Comment below: What factors do you analyze when you consider raising the rents at your properties?

 

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real estate market red flags

6 Red Flags That Disqualify a Real Estate Investment Market

Each week, we post a new question to the Best Ever Show Community on Facebook. The Best Ever Show Community is a place where real estate entrepreneurs of all stripes and sizes can come together to interact with each other, me, and the guests featured on my podcast with the purpose of everyone helping each other reach the next level in their businesses and their lives.

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was “what is the biggest red flag for you when evaluating a market?”

We’ve all heard the investing cliché “real estate is all about location, location, location.” While I believe the ability to execute the business plan is more important than the market, the quality of market comes in close second. So, what factors should you analyze in order to determine the quality of a market? First, I recommend reading my ultimate guide to evaluating a real estate market. Then, read on to learn the 6 red flags active real estate investors said will disqualify a real estate investment market.

 

1 – No Job Diversity

If the dominate industry employs too large of a percentage of the population and that industry collapses, many people will likely become unemployed. And when people become unemployed, their ability to pay their rent or purchase a home is reduced, which will reduce the amount of rent you can demand or price you can sell a property at as an investor.

When I evaluate a market, I want to see that no single industry employs more than 25% of the population – 20% or lower is ideal. Then, if any major industry is negatively affected, the damage to the real estate market is minimized. Visit the US Census website for job diversity information.

Similarly, Garrett White would disqualify a market that lacks a diverse economy or has major employers leaving the area. A quick Google search of the real estate market will show you if any major employers have left or are expected to leave the market.

John Jacobus puts a small spin on the job diversity question. He will disqualify a market if one or two dominant employers derive their revenue from highly cyclical sources. This is determined by finding the business sector (i.e. manufacturing, technology, medical, etc.) of the top employers in the market and seeing how that sector fairs during the high and low points of the economical cycle.

 

2 – High Rent to Income Ratio

People can only spend a certain amount of their yearly salary on home expenses. Therefore, if the ratio of the median home expense to the median income exceeds a certain threshold, housing expenses are too high or the median incomes are too low for the population to afford housing expenses in the long-term.

When Theo Hicks evaluates a market, if the annualized median rent is more than 35% of the median income, the market is disqualified. Matt Skog has a similar approach – if the annualized median rent is more than 40% of the median income, he won’t invest.

Both the median rent and median income data can be found on the US Census website.

 

3 – Population Decline

The most basic and obvious red flag is a decline in population. A declining population likely indicates a declining overall economy, which includes a declining real estate market.

There are a few factors that indicate a population decline. Hai Loc and Neil Henderson look are the overall population trend, with a negative trend disqualifying a market. Garrett White looks at the trend of the number of households, with a negative trend disqualifying a market. And Youssef Seamaan looks at the net migration, with a negative net migration disqualifying a market.

Population, household and migration data can also be found on the US Census website.

 

4 – No Job Growth

Another basic and obvious red flag is no job growth. Again, if less people have jobs, the lower the demand for real estate. Hai Loc and Neil Henderson look at both the population and job trends. A lack of population and/or a lack of job growth will disqualify a market.

Yearly job and employment data can also be found on the US Census website.

 

5 – High Inventory

“Supply and demand” is one of the golden rules of economics. The higher the supply, the lower the demand and vice versa. And the lower the demand, the lower the price. Therefore, markets with high inventory indicate a low demand.

Harrison Liu analyzes the supply of apartments in a market. If there is an oversupply, he disqualifies the market.

Luke Weber also analyzes the supply of real estate in a market, using the factor “months of inventory.” Four to six months of inventory is bad, while six or more months of inventory is even worse.

The number of apartments in a market can be found on the US Census site or on the local county auditor/appraisal site. In order to determine the current “months of inventory” factor, reach out to your real estate agent.

 

6 – Local Regulations

Something that some investors may forget to think about are the local regulations governing the real estate market. But not Blaine Clark. As a note investor, he says local government processes and regulations trump the economic environment.

So, prior to investing in a market, obtain a basic understanding of the local regulations governing the real estate market and how they positively or negatively affect real estate investors.

 

What about you? Comment below: What is the biggest red flag for you when evaluating a real estate market?

 

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firing a property management company

How to Approach Firing a Property Management Company

The property management company is one of the most – if not the most – important member on your core apartment syndication team. They are the boots-on-the-ground who oversee property operations on a daily basis and execute the business plan. Therefore, the success or failure of a deal is highly dependent on the quality of the company managing the property.

Hiring a qualified, experience and credible property manager should be done prior to looking for and ultimately purchasing a deal. However, what happens if are acquiring a deal, the property management company is unable to execute efficiently?

Well, they may need to be let go and another property management company will need to take their place.

In this blog post, I will outline the three reasons why you would need to part ways with your property management company, the five things you need to address in order to ensure a smooth transition and how to approach the conversation when letting the old manager go.

 

When Should You Fire Your Property Management Company?

There are three main things your property management company could do that should start the firing process:

 

1. Criminality or fraud

If you discover that your property management company has committed fraud or a criminal act, you should begin the firing process immediately.

 

2. Lack of execution

Lack of execution is another reason why you would fire your property management company. However, before beginning the firing process, confirm that the lack of execution is due to the property management company and not some other factor. For example, a failure to meet rental premiums on renovated units, a lower than expect occupancy rate or a high loss-to-lease could be due to the current market conditions and not the property management company. Or poor unit renovations or deferred maintenance could be due to a poor vendor and not the property management company.

You don’t want to go through the trouble of firing your property management company if the problem will continue once a new management company is in place, so make sure you do your homework.

 

3. Lack of communication

While this reason is subjective, you will know if your property management company is an ineffective communicator. Are they ill prepared for, don’t show up to, or have to constantly reschedule the weekly meetings? Do they take days to reply to your emails? Is it a struggle to get them on the phone? Do they communicate with you immediately when something goes wrong at the property? These are examples of a property management company that lacks communications and should be fired.

 

Unless the property management company has committed fraud or a criminal act, I recommend waiting at least one quarter before beginning the firing process. If after a quarter they still aren’t executing the business plan and/or lack communication, the first step of the firing process is to find a replacement property management company.

 

5 Things to Address to Ensure a Smooth Transition

Once you’ve made the decision to fire your property management company and found a replacement, there are 5 things you need to address in order to ensure the smoothest transition possible.

 

1. Staffing

First, you need to decide if you are going to fire all of the existing onsite staff or if you will allow some of them to stay under the new management company. To determine who stays and who goes, have the new property management company interview and vet the current staff. After the interviews and vetting, they can decide who to keep and who to let go.

Keeping some of the existing staff can be very helpful with the transition, because they have previous experience of and inside knowledge on operating the property. But if the current staff isn’t performing, the property management company may need to bring on an entirely new staff.

 

2. Financials

Your new property management company should proactively request all of the financial documents they need in order to take over the operations. This include the historical profit and loss statements, the current leases and rent roll and the chart of accounts (list of income and expense line items and the bad debt/delinquency).

 

3. Renovations

The new property management company will also need a list of the units that have and haven’t been renovated. Additionally, they need to know the exact renovations that were done for each unit. This information needs to be as detailed as possible. The new property management company needs to know what units are completely renovated (and what the upgrades were), what units have been partially renovated (and what upgrades remain) and what units have not been renovated. That way, once they take over management, the can start right where the old management company left off.

 

4. Vendors

The new property management company will need a list of all the vendors who work on the property, like the maintenance person, plumber, painter, appliance repair person, carpet person, drywall person, etc. Similar to the staff, continuing to work with the current vendors will help with the transition process.

 

5. Service Contracts

The new property management company will also need a list of all the contractors who work on the property, like the pest control company, pool person, landscaper, security, etc. And, they will need the actual contracts as well.

 

Other Things to Think About

Firing a property management company isn’t easy and unforeseen difficulties will arise. So, in order to minimize these difficulties, I recommend the following.

First, use soft communication skills when explaining the reason why you are firing them. Don’t call them on the phone, say “you’re fired” and hang up. Instead, I recommend placing the blame for the firing on your passive investors. For example, I would say, “I am getting a lot of pressure from my investors to find a new company to manage the property so we are going to have to part ways.”

Next, read the contract between you and your property management company. Make sure you understand how much time in advance you need to notify the property management company before firing them.

Finally, have a representative from your new property management company address the 5 things I outlined above with the old property management company. You shouldn’t be doing them yourself. Also, have your new representative talk with a neutral party from the old property management company. They shouldn’t be talking to the president or the person who oversaw the property. A regional manager who isn’t emotionally involved with the property is the ideal go-between.

 

What about you? Comment below: Tell me about a time you had to part ways with a property management company and how you approached it.

 

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Seven Ways To Attract High-Quality Residents To Your Apartment Community

One of the main factors that will make or break your apartment budget is the quality of resident you attract. A high-quality resident is someone who pays rent on time, treats the unit and apartment community as if it were their own home and is courteous to the neighbors. High-quality residents not only make your life easier, they make you and your passive investors more money in the long run.

Sure, low-quality residents can help you increase your occupancy rate in the short-term. But they will negatively impact other important financial factors longer term. Low-quality residents lead to higher turnover costs, both due to more frequent turnovers and more expensive, lengthier turns. They also lead to more expenses associated with evictions, higher bad debt (i.e., uncollected debt after a resident moves out) and a higher amount of delinquent rent.

Therefore, the successful apartment syndicator or property manager will proactively implement procedures with the purpose of attracting the best-qualified residents in the area. This approach minimizes the number of low-quality leads and maximizes the higher-quality ones, which has a positive feedback effect: Attract high-quality residents to your apartment and they refer your apartment to others, which brings in more of the same caliber.

As a result of building a portfolio of over $400,000,000 in apartment communities, I have identified seven market strategies that attract these high-quality residents.

 

1. Maximize Internet Advertising

According to Zillow’s 2017 Consumer Housing Group Trends Report, online tools are the No. 1 way that renters are searching for their home (87%), followed by referrals from a friend, relative or neighbor (57%). Therefore, an online presence for your apartment community is a must. This starts with having a URL and website for the apartment community.

Next, all of your “for rent” units should be listed on a variety of online real estate and apartment listing services, with the most effective ones being Apartments.com, Craigslist, Realtor.com, Trulia and Apartmentfinder.com. You should also market your listings on social media, including Facebook, Twitter and Pinterest.

To optimize your rental listing, make sure it includes a clear and accurate description of the unit and the community, highlighting the major selling points. Invest the few hundred dollars into having professional pictures taken.

 

2. Hire Locators

A locator is an apartment rental agency that helps prospective residents find their ideal apartment community based on their specific needs. Therefore, locators can be great resources for finding high-quality residents.

To find apartment locators in your market, Google “apartment locators in (city name).” Then, reach out and offer them a commission of the first month’s rent for providing you with a converted lead. (50% commission is standard).

Once you’ve hired a locator, provide them with weekly email and phone call updates on your current unit availability.

 

3. Target Local Businesses And Employers

Use the current resident demographic data, which you should have collected on initial rental applications, and the surrounding job hubs to create a list of target businesses, employers and schools in the area. You can also add local tax preparation offices, bus stops and train stations to your list.

Print out and drop off flyers, business cards, price sheets, floorplans and site maps to your targets, always asking for permission first.

Additionally, you can send a small gift (e.g., a gift card, gift basket, wine, toolkit, etc.) to your current residents who are employed at the business on your target list. Thank them for their residency and ask if they are willing to refer the apartment community to their colleagues at work.

 

4. Build A Referral Program

As established, 57% of renters find a home through referrals. To capitalize on this, you should create a referral program and offer a fee to any current resident who refers someone to the apartment community. A fee of $300 paid 30 days after the execution of the new lease is standard.

To advertise the referral program, deliver notes to your residents’ doors and send out friendly emails with the details of the referral program on a monthly basis.

 

5. Financially Incentivize Your Leasing Staff

Most apartment owners or property management companies offer their leasing staff a small bonus for each new move-in, with $50 being the standard. In addition, you can set monthly move-in or occupancy goals and offer a larger bonus, like a $100 to $250 gift card, if they hit the specified target.

 

6. Hold Resident Appreciation Parties

To promote resident satisfaction and retention, host monthly resident appreciation parties. These can be as small as providing a small breakfast or wine night in a common area on a monthly basis. Another idea is to host timely or holiday-themed events, like a Valentine’s Day card-making event, holiday gift-wrapping party, back-to-school barbecue or a Halloween costume contest. Click here for 51 additional resident appreciation event ideas.

 

7. Encourage And Monitor Online Reviews

The online rating of your apartment community will probably be the first thing that a prospective resident will look at during their apartment search. Organic reviews are great, but you should also implement strategies to increase the number of reviews.

One strategy is to ask a resident for a review after fulfilling a maintenance request. Only use this strategy for minor maintenance requests that were addressed in a timely fashion. Another strategy is to have a laptop station set up during the monthly resident appreciation parties, which the residents can use to write a review before they leave.

 

All seven of these strategies have been proven to attract the highest quality residents to an apartment community and are beneficial to your bottom-line. Do not wait to come up with a marketing plan until after you close on an apartment deal. This is something that should be created prior to close so that you can account for the expenses in your underwriting.

 

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rental comparable analysis on phone

How to Perform Your Own Rental Comparable Analysis Over the Phone

The rental comparable analysis is the process of analyzing similar apartment communities in the general area to determine the market rents of the subject apartment community.

As an apartment investor or apartment syndicator, the three main times you will perform a rental comparable analysis is 1) during the underwriting process when initially analyzing a deal, 2) as a part of the market survey during the due diligence process and 3) on a recurring basis after closing on a deal.

Ideally, you’ve partnered with property management company who agrees to perform the rental comparable analysis during all three of the three stages – and most importantly, during the due diligence phase. However, there may be times when you will need to perform the analysis yourself. For example, if you find a deal before partnering with a property management company, if you only have a few days to submit an LOI or if you want to perform you own analysis for comparison purposes. Therefore, it is important that you have the ability to calculate the market rents on your own. And in this blog post, I will outline the process to do so without the use of fancy property management software. All you will need is an internet connection and a phone.

The first step of the rental comparable analysis is to find 5 to 10 apartment communities (i.e. rental comps) that are similar to the subject property. That means they were built around the same time, are in the same submarket and have the same level of interior upgrades and amenities. The best resource to find rental comps is on www.Apartments.com.

Once you’ve located the 5 to 10 rental comps, log the property address, year built, number of units and contact phone number. Then, pick up the phone and call the property. The purpose of the phone call is to collect data required to confirm that the rental comp is similar to the subject property, as well as to collect the rental data so that you can determine the market rents of the subject property. And in order to obtain this information, you will pose as a resident who is interested in renting a unit.

Here are the 6 main pieces of information to obtain:

 

1 – Rental Data

One of your main goals is to obtain the rental data for the rental comp. Sometimes, this information will be listed on the rental comp’s Apartments.com page. However, you still want to confirm that the information is accurate on the phone call.

If the rental comps has 1-bed and 2-bed units only:

  • First, ask “I am interested in renting a 2-bedroom unit. How much do those rent for?” to which they will respond with the rental amount. If they offer multiple 2-bed units, whether they are different floorplans or have different upgrades, they will provide you with a range of rents.
  • In order to obtain the 1-bed unit rents, say, “Oh. Your 2-bedroom rents are slightly outside of my price range. I was hoping for an extra bedroom but how much are the 1-bed unit rents?”

If the rental comp has 1-bed, 2-bed and 3-bed or more units:

  • Follow the same approach for the 1-bed and 2-bed apartments
  • Call back a few days later and ask for rents of the other unit sizes

At this point, you will have the rental data for all of the unit types offered at the rental comp.

 

2 – Upgrades

One of the most important factors in the rental comparable analysis are the unit upgrades. You want to make sure that the units at the rental comp are of the similar type and quality at the subject property.

When gathering the rental data, ask, “have you performed any unit upgrades recently?” The upgrades to the kitchen and bathrooms, in particular, must match the upgrades at the subject property in order to qualify as a rental comp.

Additionally, ask “have you performed any property-wide upgrades recently?” The quality of the common areas must also match those at the subject property as well.

At this point, you will know the upgrades for all of the unit types offered at the rental comp, as well as any property-wide upgrades.

 

3 – Amenities Package

Another factor that must match between the rental comp and the subject property are the amenities offered to the residents. Because, like the level of unit and property upgrades, the type of amenities offered will dictate the rental rates demanded.

Ask, “something that will heavily weigh into my decision to rent are the amenities offered. What are the individual unit and property amenities?”

Examples of unit amenities are the type of flooring, washer and dryer hookup or actual washer and dryers in unit, storage availability (i.e. closet space), pet-friendliness, patios/balconies, fenced in yards, etc.

Examples of property amenities are fitness center, clubhouse, pool, online rent payment, online maintenance request, type of parking, common area, utilities included in the rent, etc.

Then, for all of these amenities, ask “are there additional monthly fees for any of the amenities you listed?”

At this point, you will know if type and quality of amenities offered match those of the subject community.

 

4 – Rent Specials

Next, you want to know the types of concessions offered. Concessions are the credits given to offset rent, application fees, move-in fees and any other revenue line items, which are generally given to residents at move-in.

Ask “do you currently offer any rent or move-in specials?” Examples are security deposit specials, rental discounts for signing longer leases, referral programs, etc.

Concessions are generally offered to boost occupancy rates. So, understanding the types of concessions offered at your competitors will give you an idea of the types of concessions you will need to offer at the subject property. Additionally, if they are offering a lot of concessions, that implies that either the demand is low or the rental rates are too high.

 

5 – Demand

Understanding the rent specials offered will give you an idea of the demand at the property (which will give you an idea of the demand at your subject property).

For additional demand information, ask “I am relocating to the are in the next couple of months. Do you have any available units are is there a waiting list?” If they have a waiting list, that implies that the rental rates may be too low, and vice versa.

 

6 – Customer Service

At the conclusion of the phone call, take a few minutes to take notes on the level of customer service you received. If you own the subject property or end up closing on the subject property, the person you spoke with will be your competition!

 

Determining the Market Rents

At the conclusion of the phone call, you will have confirmed or disproved that the property is a rental comp, keeping in mind that the upgrades and amenities do not need to be an exact match – just similar. Also, the rental comps should be similar to your stabilized subject property. That is, for value-add apartment syndications, the unit upgrades should match the post-renovation upgrades and not the current level of upgrades.

Repeat this process for all 5 to 10 rental comps.

After all of the phone calls, the apartments that aren’t similar to the subject property can be eliminated. For the ones that are, determine the rent per square foot for each of the unit types in order to determine an average rent per square foot for each unit type in the overall market. Then, you can determine the market rent of the units at the subject property using this average rent per square foot and the square footage of the subject property’s various unit types. For example, if the average market rent per square foot for 1-bed units is $1.09 and the 1-bed unit at the subject property is 900 square feet, then the market rent is $981.

 

Conclusion

This was a general outline for how to approach performing the rental comparable analysis over the phone. It is not an exact step-by-step guide to be followed verbatim. Instead, it should be used as a guide for what questions to ask to obtain the information you need to gain a better understanding of the market and the market rental rates.

Also, the results of this rental comparable analysis should be used in tandem with a more detailed analysis performed by your property management company. This analysis can be used as a starting point for the market rental rates but should not be the sole basis for purchasing a deal.

Finally, if you are just starting out, I recommend doing a few practice calls on non-rental comps to get a feel for the flow of the conversation.

 

What about you? Comment below: How do you perform a rental comparable analysis for apartment communities?

 

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What is Possible in 9 Years as a Real Estate Investor?

“To whom it may concern” is how my letter started out.

It was 9 years ago and I had finally, after 10 long months of looking for my first investment property, found a deal. It was a 4-bed, 2-bath single family residence in Duncanville, Texas. The purchase price was $76,000. The rent was $1,050. The property didn’t really need any repairs. The puppy was going to cash flow and I was going to get my first investment property. Heck yeah!

Well…that was until the lender had their say. Apparently, in 2009, a bunch of lenders were feeling the burn of loose or nonexistent underwriting guidelines from years prior and were looking to correct those mistakes. Good for them. They should. But, it was bad for me at the time because they were asking me why on earth would I want to buy an investment property if I didn’t *gasp* own my primary residence?

Pretty simple, actually. I lived in NYC. Places cost too much. After all, I started out making $30,000 as a junior project manager so how the heck could I have afforded to buy a NYC apt?!

So, on September 25, 2009 I wrote a letter to the lender and told them the situation. Here it is:

 

To whom it may concern,

I am a resident of New York City and am looking to purchase an investment property in Duncanville, Texas. I have lived in New York City since June 2005 but am originally from Texas. I went to elementary, middle and high school in the DFW area and graduated from Texas Tech University with a degree in Advertising.

My mom, brother, sister, dad, niece and nephew all still live in the DFW area and I visit them as often as I can and usually spend Christmas in DFW. My family, particularly my sister and dad both of the whom have professional real estate experience, has been instrumental in helping me identify the income-producing property I currently have under contract and am looking to close on. Additionally, I already have had conversations with XYZ Property Management (edited this part because the management company was TERRIBLE – that’s another story) office in Duncanville and am planning on utilizing them to manage the property.

Although I’m not sure when, I do plan on eventually moving back to Texas and specifically to the DFW area. Under normal circumstances, I would own my primary residence; however, I live and work in Manhattan where the cost of real estate is prohibitive.

If you would like any further information, please call me directly at XXX.XXX.XXXX.

Thanks,

Joe Fairless

 

Fortunately, it worked! They approved me for the loan and I was the proud owner of this, ahem, beauty!

 

 

I still have this house today. Speaking of today, I just got done signing the loan guarantor docs on a 400+ unit apartment building worth over $30M that my company is closing on tomorrow. It will put our portfolio at 4,169 units and worth over $350,000,000.

I have documented most of the lessons learned after I close each project and you can read the lessons learned here:

 

Closed on 250-units in Houston, TX…2 Lessons Learned

Closed on 155-units in Houston, TX…3 Lessons Learned

6 Ways to Creatively Get into the Multifamily Syndication Business

Investor Analysis After Closing on a 296-unit Apartment…2 Lessons Learned

Closed on a 200+ Unit Multifamily Syndication…1 Simple Lesson

I Just Reached Over $100,000,000 in Apartment Communities…Lesson Learned

How to Find Deals in a Hot Market

How to Find Private Money Regardless of Where You Live

 

The purpose of this is to simply say that whatever you’re looking to do in real estate, it is possible. I went from making a $30,000 salary with $20,000 in student loans after college to being a multi-millionaire.

If you have big, audacious goals then good for you. It’s possible. Others before you have accomplished it (or something similar) so you can too. It’s possible.

 

Here are 9 beliefs that I’ve lived by through my 9-year journey:

  1. Nothing in life has meaning until I decide to give it meaning.
  2. Challenges are a gift. Life happens for me, not to me.
  3. Help enough people get what they want and I’ll get everything I want.
  4. Richest people in the world build networks. Everyone else looks for work.
  5. The secret to living is giving.
  6. Work harder on yourself than you do your job.
  7. Best way to get out of a funk is to move and be grateful.
  8. Have perspective by remembering that I will die.
  9. Be proud of who I am when nobody is looking.

 

Here are 9 habits that have helped me be consistent with my progress:

  1. Immediately think of one thing I’m grateful for when I wake up.
  2. Drink a liter of water with a scoop of wheatgrass in the morning
  3. Do cardio and weights (not just cardio)
  4. Volunteer at least once a month
  5. Think about life in terms of # of experiences remaining, not years remaining
  6. Journal my thoughts, feelings and whatever else comes in my head daily
  7. Always have a vision board prominently displayed everywhere (wall in office, phone, computer background)
  8. B.R. (always be readin’)
  9. Be incredibly responsive to my clients and my investors. And even more responsive to my wife!

 

What about you? Comment below: Do you have any beliefs or habits that have helped you achieve success? If so, what are they? Would love to learn about them so I can see about incorporating into my life/routine as well.

 

Subscribe to my weekly newsletter for even more Best Ever advice www.BestEverNewsletter.com

 

resident appreciation parties

51 Resident Appreciation Event Ideas to Retain High-Qualify Residents

In the blog post “How to Become an Award-Winning 5-Star Apartment Syndicator,” I explained how an apartment syndicator won two back-to-back Rental Owner of the Year awards by hosting frequent resident appreciation events. In this blog post, I want to expand upon this strategy by providing a list of 30 more resident appreciation event ideas.

Resident appreciation parties have massive benefits, with the foremost benefit being the fostering of an inclusive community. Hosting resident appreciation parties offer residents the chance to engage with in the community. They get to know their neighbors, as well as the management staff, forming relationships that are deeper than merely being acquittances. And as a result, residents will likely to stay longer, treat the apartment community with more respect, be more courteous to their neighbors and the staff and pay their rent on-time.

Hosting resident appreciation parties also motivates the residents to leave reviews (which is important for the reputation of the apartment community) and recommend the community to their friends and colleagues.

Overall, hosting resident appreciation parties will result in higher occupancy, less turnover, lower bad debt, better and more leads and higher quality residents, which means a higher net operating income.

They type of resident appreciation party to host depends on the resident-demographic. In other words, the type of event hosted at an A-class luxury apartment will usually differ from the event hosted at a C-class property in a working-class neighborhood. So, use common sense when brainstorming party ideas.

That being said, here is a list of 51 more resident appreciation party ideas:

 

Valentine’s Day Event Ideas

  1. Valentine’s Day Card Making Event: Set up a card making station in the clubhouse.
  2. Speed Dating Event: For the single residents only!

 

Mother’s Day Event Ideas

  1. Flowers for Mom: Free flower pots in the clubhouse for residents to give to their moms.
  2. Mother’s Day Card Making: Set up a card making station in the clubhouse.
  3. Gift Wrapping Station: Set up a gift-wrapping station in the clubhouse.

 

Fourth of July Event Ideas

  1. BBQ: Pool party with hot dogs, burgers, chips and drinks.
  2. Fireworks: Most likely firework viewing, unless you want to do your own fireworks (depending on the local laws).

 

Halloween Event Ideas

  1. Costume Competition: Host a costume party and have everyone vote on the best costume, with the winner receiving a Halloween themed gift.
  2. Pumpkin Carving Party: Host a pumpkin carving event and have everyone vote on the best Jack-o-Lantern with the winner receiving a Halloween themed gift.
  3. Caramel Apple Bar: Set up a caramel apple making station in the clubhouse.
  4. Trick-or-treating: Door-to-door trick-or-treating.

 

Christmas Event Ideas

  1. Gingerbread House Competition: Host a gingerbread house making competition and have everyone vote on the best house with the winner receiving a Christmas themed gift.
  2. Pictures with Santa: Have someone dress up as Santa and take pictures with the children.
  3. Cookie Frosting: Set up a cookie frosting station in the clubhouse.
  4. Cookies and Hot Cocoa Party: Host a party where you offer cookies and hot cocoa.
  5. Ugly Sweater Party: Everyone dresses up in their ugliest sweater and offer refreshments in the clubhouse
  6. Movie night: Watch It’s a Wonderful Life, A Christmas Story or your favorite Christmas movie.
  7. White Elephant: Host a gift exchange party in the clubhouse.

 

Free Food Ideas

  1. Breakfast-On-The-Go: Purchase portable breakfast foods (burritos are the best) and juice and give them to the residents while they drive through the gate on their way to work. You could also pack brown bag breakfasts or lunches for the kids, or hand out bagels or muffins instead.
  2. Sip-N-Sweet Mondays/Fridays: Set up a coffee and donut station in your clubhouse.
  3. Wine Tasting: set up a wine tasting station with cheeses in your clubhouse.
  4. Take and Bake Pizza Parties: Set up a pizza making station in the clubhouse. Residents can come in, make a custom pizza and take it home to cook.
  5. Pops(icles) by the Pool: Hand out popsicles on a hot day at the pool.
  6. Snow Cones in the Shade: Hand out snow cones on a hot day at the pool.
  7. Sundae Sunday: Set up an ice cream sundae making station in the clubhouse.
  8. Taco Tuesday: Set up a taco making station in the clubhouse.
  9. Pancakes and Pajamas: Offer pancakes on a Saturday or Sunday morning to residents who show up to the clubhouse in their pajamas.

 

Parties for the Children

  1. Back to School party: Host a pool party for the kids on the weekend before school starts.
  2. Froyo Friday: Set up a frozen yogurt station in the clubhouse.
  3. Egg hunt: Host an egg hunt on Easter Sunday.
  4. Back to School Bingo Bash: Winners get free school supplies.
  5. Teddy bear picnic: Picnic for the kids with their favorite stuffed animal.
  6. Game night: Have the kids bring their favorite games to the clubhouse for a game night.
  7. Legos and Eggos: Serve waffles and offer Legos for the kids.
  8. Water Balloon War: Dodgeball, but with water balloons.
  9. Astronomy Night: Invite astronomers from a nearby observatory or university, asking them to bring along a telescope, and invite the kids to gaze at the night sky.
  10. Arts and Crafts: Set up craft making or finger-painting stations in the clubhouse.
  11. Chalk Party: Provide children with sidewalk chalk to write on the parking lot or sidewalks, have a hopscotch competition with prizes.
  12. Superhero Party: kids dress up as their favorite superheroes.
  13. Princess Party: kids dress up as their favorite princesses and have a small fashion show.
  14. Pajama party: Kids come to the clubhouse dressed up in their pajamas with their sleeping bags. Offer popcorn and smores, and have a movie or game night.
  15. Cupcake decorating: Set up a cupcake decorating station in the clubhouse.

 

Competitions with Prizes

  1. Trivia Night: Host a trivia night in your clubhouse with prizes.
  2. Game Night: Host a game night in your clubhouse with prizes.
  3. Chili cook off: Host a chili-making competition. Offer prizes (and maybe even a trophy) for the annual winner.
  4. Poker night: Host a Texas Hold’Em tournament.

 

Other Event or Party Ideas

  1. Clean Out Your Closet: Host a community-wide closet cleaning event, collecting gently used clothing from residents. Enter the participants names into a raffle and give away a gift card to a clothing store.
  2. Yard Sale: Host a yard sale in the parking lot by the clubhouse. Residents can sell stuff and buy stuff from other residents.
  3. Pool Party: Host a pool party with a DJ.
  4. Fitness classes: Host fitness classes, like Zumba, aerobics, pilates or yoga, in your fitness center or at a nearby gym. Other fitness ideas are a run club, hiking club, or bike club.
  5. Nacho Average Tailgate: Set up a nacho making station in the clubhouse on gamedays.

 

For more event ideas, a great resource is www.apartmentlife.org.

 

What about you? Comment below: Have you hosted a resident appreciation event at your apartment community that isn’t on this list?

 

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first real estate deal

How 28 Real Estate Investors Completed Their First Deal

Each week, we post a new question to the Best Ever Show Community on Facebook. The Best Ever Show Community is a place where real estate entrepreneurs of all stripes and sizes can come together to interact with each other, me, and the guests featured on my podcast with the purpose of everyone helping each other reach the next level in their businesses and their lives.

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was “after you first became interested in real estate, how long until you had your first deal under contract?” 

Of course, being the Best Ever Community, the majority of the members are active real estate investors. However, if I had to guess, only 1 out of every 10 people who become interested in real estate actually pull the trigger. And an even smaller number of people pull the trigger within a year! That being said, if you are interested in real estate but haven’t completed your first deal, let this blog post be a motivator. Because, of the 28 responses, 24 investors acquired their first deal within 1 year. That is over 85%! And if they can do it, so can you.

That being said, thank you to everyone who responded. The poll is closed, the responses are in and here are the answers:

 

Less Than a Week

Two investors had their first deal under contract within a week of becoming interested in real estate. When Shannon Feick was browsing the local newspaper looking for a place to rent, he came across a potential candidate. Within 3 days, rather than renting, he purchased the property using a lease-option.

Theo Hicks had his first property under contract within 48 hours of learning the power of real estate from a friend. He learned about real estate investing on a Tuesday; he had a meeting with a real estate agent on Wednesday, setting up an MLS automated email; he received an email with a listing that met his investment criteria that same Wednesday; he toured the property the next day and had a signed contract by Thursday night, utilizing the house-hacking strategy.

While closing a deal within a week of becoming interested in real estate is a possibility, especially with the use of creative financing, it is not without its risks. Shannon said that she ended up losing the property after two years. And, due to a lack of experience and education, Theo had a nightmarish experience on his first deal. Fortunately, that didn’t stop them from as they are both still active investors to this day.

 

1 Week to 1 Month

Two more investors had their first deal under contract between 1 week and 1 month of becoming interested in real estate. Dan MacDuffie bought his first fix-and-flip project within 14 days, and Adam Adams acquired his first deal for only $100 within three weeks. Reach out to Adam on the Best Ever Community to learn how he was able to accomplish such a feat!

 

1 to 6 Months

The most common timeline between becoming interested in real estate and putting a deal under contract is 1 to 6 months, with half of the responses falling within that time range.

Whitney Sewell has a very inspiring entrance into the real estate industry. While working every night of the week, as well as weekends, as a police officer, he came across “Rich Dad, Poor Dad,” and knew he needed to make a career change. Within 3 months, he purchased two 3plexes, using private money for the down payment, which meant that he had none of his own money in the deal. He eventually sold the properties without making a profit, but he gained a lot of knowledge and experience that he still applies to this day.

Matt Skog spotted a seemingly vacant house but one month later, he discovered that the owners were actually just out-of-state for the winter. However, the owners were downsizing into a smaller home, which allowed Matt to acquire the property with a 0% interest seller financing loan. A few years later, he sold the contract and has tripled that profit in just over 7 years.

Two investors become interested in real estate and made the smart move to educate themselves prior to purchasing a deal. Brandon Abbott acquired his first deal after spending 45 days reading 6 real estate books and listening to countless podcasts. And Michael Rafales read “Rich Dad Poor Dad” and “How to Invest in Real Estate With No and Low Money Down” in February and bought his first investment in June.

Other investors who fall within the 1 to 6-month time range were Peter Eiseman (1 month), Brian Trippe (45 days), Devin Elder and Cody Dover (2 months), Julia Bykhovskaia, Davi Brown, Hai Loc and JP Sayers (3 months).

 

6 Months to 1 Year

The next most common timeline between becoming interested in real estate and putting a deal under contract is 6 months to a year. In fact, this is where I fall – I had my first deal under contract (a single family residence) within 10 months.

Similarly, it took Garrett White 9 months before purchasing his first investment – a single family residence. Tom Lipps was in the research phase for 6 months (reading blogs and books and listening to podcasts) before finding the right property 3 months later, for a total of 9 months. Kris Bennett had two apartment deals fall through, continued on his search and eventually succeeded in closing on a self-storage deal 12 months after starting his search.

Other investors who fall within the 6 months to 1-year time range were Sean Morrissey (9 months), John Jacobus and Kurt Schuepfer (11 months) and Justin Silverio (12 months).

 

1 to 5 Years 

Two investors had their first deal under contract 1 to 5 years after becoming interested in real estate investing.

Chad Althaus became interested in real estate investing while he was still in college. After saving up the money for a down payment during his remaining two years until graduation, he purchased a property within a year of commencement.

It took Lucas Miller a couple of years before acquiring his first property for reasons to which I am sure everyone can relate: he was confused about which investment strategy to implement, so he went through a multi-year trial-and-error phase.

 

5 or More Years

The last two investors are a case study in patience and long-term determination, because they purchased their first investment after being interested in real estate for over 5 years!

Darrin Carey had a casual interest in real estate for 15 years, at which point he made the decision to become a serious investor. Two years later, he closed on not one, not two, but four deals in quick succession.

It also took Greg Gaudet 15 years to invest. He fell in love with real estate and decided to become an investor in 2003 while working as an appraiser. However, he said he made up for his procrastination by purchasing two properties in Maui over a three-month period and is currently on the hunt for his next deal.

 

At the end of the day, whether it takes less than a week or 15 years to acquire your first deal, what matters most is entering the game! My recommendation for those who are in the process of purchasing their first deal: reach out to one of the investors in this blog post on the Best Ever Community on Facebook. They’ve all completed at least one deal, and maybe they can offer you the advice you need finally pull the trigger.

 

What about you? Comment below: How long did it take you to acquire your first property after initially becoming interested in real estate?

 

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how passive investors make money

How Do Passive Investors Make Money in Apartment Syndications?

Passive investing is one of the best ways to receive the benefits of owning a large apartment building without the time commitment, funding the entire project or obtaining the expertise require to create and execute a business plan.

A passive investor might not see the same returns as an active investor who is finding, qualifying and closing on an apartment building use their own capital and overseeing the business plan through its successful completion. But compared to other passive investment vehicles, like stocks, bonds or REITs, apartment syndications cannot be beat (assuming the passive investor has found the right general partnership and qualified their team).

The returns offered to the limited partner (i.e. the passive investors) vary from general partner to general partner. Before making the commitment to invest, the limited partners (referred to as the LP hereafter) should understand the general partner’s (referred to as the GP hereafter) partnership structure, which includes the type of investment structure and how the returns are distributed.

Typically, a passive investor is either an equity investor or a debt investor in an apartment syndication. In this blog post, I will outline these two investment structures and the types of return structures for each.

 

Equity Investor

Of the two main types of investment structures, being an equity investor is the most profitable, because they participate in the upside of the deal. However, they typically will not receive their initial equity investment until the sale of the apartment.

The equity investor is offered an ongoing return, as well as a portion of the profits at sale. Generally, after the operating expenses and debt service are paid, the a portion of the remaining cash flow is distributed to the LP. For some partnership structures, the GP will take an asset management fee before distributing returns to the LPs. I do not like this approach since it decreases the alignment of interest because the GP receives payment before the LP. So, my company puts our asset management fee in second position to the LP returns (which means we don’t get an asset management fee until we’ve paid the LP).

The most common ongoing return is called a preferred return. The preferred return ranges from 2% to 12% annually based on the experience of the GP and their team, the risk factors of the project and the investment strategy. The less experience and the more risk, the higher the returns. In regards to the preferred returns associated with the three main apartment syndication investment strategies, the GP will offer the highest percentage for distressed apartments and the lowest percentage for turnkey apartments, with value-add apartments falling somewhere in-between.

For example, on a highly distressed apartment deal, the GP may offer a 12% preferred return. However, since the deal will likely have a lower or no return during the stabilization period, the preferred return would accrue and be paid out to the LP in one lumpsum. For turnkey apartments, the preferred return will fall towards the lower end of the range because, since the apartment is already stabilized and minimal value can be added, there is less risk. For value-add apartments, the typical preferred return that is offered to the LP is 8%.

Conversely, the GP may not offer a preferred return but a profit split instead. For example, 70% of the cash flow is distributed to the LP and the remaining 30% to the LP. However, I do not like this structure for the same reason why I don’t like putting the asset management fee ahead the LP returns – a reduction in alignment of interest. Therefore, the GP will usually offer a preferred return and the remaining cash flow is split between the LP and GP.

This remaining profit split can range from 90/10 (i.e. 90% to the LP, 10% to the GP) to 50/50. A common variation on the profit split will include hurdles, using return factors like the internal rate of return (referred to as IRR hereafter) or cash-on-cash return. For example, the LP is offered an 8% preferred return and the remaining profits are split 70/30. But, once the LP receives a 13% IRR, the profit split drops to 50/50.

The equity investor also participates in the upside of the deal, which means they are offered a portion of the sales proceeds.

The most common equity structure for value-add apartment deals is an 8% preferred return with a 50/50 LP/GP profit split. The next most common equity structure is an 8% preferred return with a 70/30 LP/GP profit split until the LP IRR passes a certain threshold (10% to 20% is the standard range), at which point the remaining profits are split 50/50.

 

Debt Investor

Of the two main types of investment structures, being a debt investor is the least profitable. However, the lower profitability comes with a lower risk. Once the GP pays operating expenses and debt service, the remaining cash flow must go to distributing the fixed interest rate to the debt investor. However, unlike the preferred return offered an equity investor, if the GP is unable to pay the fixed interest rate (assuming they are still able to cover the operating expenses and debt service), the debt investor can take control of the property. Hence, less risk.

Unlike the equity investor, the debt investor doesn’t participate in the upside of the deal. Instead, they are offered a fixed interest rate until the GP is able to return 100% of their investment.

Similar to the preferred return, the interest rate that is offered to a debt investor is based on the GP’s experience, the risk factors associated with the project and investment strategy. However, since there is an overall reduced risk involved with being a debt investor, the interest rate is typically lower than what the preferred return would be for a similar project.

Another difference between equity and debt investors is that debt investors will typically receive their capital back before the apartment is sold, which generally occurs after a refinance or securing a supplemental loan. A supplemental loan is a financing option that is secured on top of the existing financing on the property that is typically available 12-months after closing the initial loan.

 

What’s a Better Passive Investment?

Like any investment, the best partnership structure is based on the passive investor’s goals. For those looking for a low-risk investment vehicle to park their money for a few years while receiving a fixed return that beats inflation, then becoming a debt investor may be more appealing. For those looking for an investment vehicle that offers a higher ongoing return (although not guaranteed) and the potential for a large lumpsum profit at sale, then being an equity investor may be more appealing. And of course, diversifying between the two structures is also an option!

 

Want to learn more about passively investing in apartment syndications? Visit the Best Ever Passive Investor Resources page, the only comprehensive resource available to passive investor.

 

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How to Become an Award-Winning 5-Star Apartment Syndicator

How does an apartment syndicator earn back-to-back “Rental Owner of the Year” awards and obtain a 5-star Facebook review rating for their apartment portfolio?

 

The answer: foster a community.

 

You foster a community by implement marketing strategies that will create an atmosphere in which people want to live. A place where residents are engaged in the community. Where neighbors know each, respect each other and like each other.

 

The creation of this type of community is best accomplished by giving back to the residents.

 

At least this is the approach of Bruce Peterson, an apartment syndicator with a portfolio of over 800 units. By following this strategy, Bruce has won local and national apartment owner rewards and has achieved a 4.9 out of 5 star rating on Facebook. In our recent conversation on my podcast, he explained his exact marketing approach, which included these two creative and unique strategies.

 

Strategy #1 – Raffles

 

First, Bruce consistently hosts raffles and drawings at his apartment communities. However, these are more than just putting the names of everyone at the community in a hat and randomly picking a winner. Because where’s the engagement in that?

 

Instead, Bruce creates engaging activities in which residents are required to complete a task in order to be entered into the drawing.

 

For example, he hosts a food drive every November and a toy drive every December. Residents who drop-off an item and like the property Facebook page will be entered into a drawing. The winner will receive a turkey dinner!

 

Another funny, yet effective example is a Garden Gnome Competition. Bruce purchases a garden gnome, gives it a name and hides it on the property grounds. Residents will then search for the gnome. If they find the gnome, take a selfie, post the selfie to their Facebook timeline and tag/mention the property Facebook page, they will be entered into a drawing. The winner receives a gift card (although, I recommend that if you replicate this strategy, you give them the gnome too!)

 

Strategy #2 – Demographic-Specific Events

 

Second is to host demographic-specific events with the focus on adding value and/or fulfilling a need of your residents.

 

For example, after purchasing a new dog washing station at one of his properties, Bruce hosted a “Yappy Hour.” Residents could bring in their dogs for a free wash, as well as receive a token that could be used for another free wash in the future and are entered into a drawing to win gifts like doggy beds, treats, toys and food/water bowls.

 

And speaking of the children, one of the most creative events Bruce hosts at another one of his properties is a “Free School Supply Giveaway” event. They reach out to the local elementary and middle schools, get the school supply lists for each grade and purchase school supplies for all of the children at the property. Then, they bring all of the school supplies into a vacant unit and purchase pizzas to giveaway. Each family comes in, grabs a piece of pizza and picks up a backpack full of their required school supplies for the year. Bruce said he’s never seen kids with bigger smiles on their faces! And he also said that this event was the main reason why he’s won “Rental Owner of the Year” awards for two years running.

 

Other events Bruce hosts at his apartment communities are:

 

  • Cinco de Mayo: a party with a piñata, a band and an ice cream truck
  • Annual Halloween costume party
  • Breakfast at the Gate: a drive-through at the gate where residents are given free breakfast tacos and juice on their way to work
  • Sip-N-Sweet Friday: offer free donut and coffee in the clubhouse Friday mornings
  • Fiesta Party: a party with a DJ, face painter, food truck and – of course – a raffle.

 

For both of these marketing strategies, Bruce and his team are constantly taking pictures and videos and posting them to the respective property Facebook pages. I would recommend visiting Bruce’s website and look at the social media pages for his properties to see his company’s social media strategy.

 

Conclusion

 

By participating in these types of activities, events and raffles, the residents are engaged and having fun, which motivates them to not only like and leave reviews on the social media page, but talk about the apartment community with their friends and colleagues.

 

From a financial perspective, this strategy will help you retain current residents and attract more leads, which directly impacts your bottom-line.

 

What about you? Comment below: What types of events do you host in order to foster a community at your properties?

 

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glossary of apartment terms

Glossary of Apartment Syndication Terms

A glossary of terms and definitions, listed in alphabetical order, used in apartment syndications for aspiring apartment syndicators and passive investors to study in order learn the industry terminology.

Navigations: A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

 

A

 

Absorption Rate: The rate at which available rentable units are leased in a specific real estate market during a given time period.

Accredited Investor: A person that can invest in apartment syndications by satisfying one of the requirements regarding income or net worth. The current requirements to qualify are an annual income of $200,000, or $300,000 for joint income, for the last two years with the expectation of earning the same or higher, or a net worth exceeding $1 million either individually or jointly with a spouse.

Acquisition Fee: The upfront fee paid by the new buying partnership to the general partner for finding, evaluating, financing and closing the investment.

Active Investing: The finding, qualifying and closing on an apartment building using one’s own capital and overseeing the business plan through its successful execution.

Amortization: The paying off of a mortgage loan over time by making fixed payments of principal and interest.

Apartment Syndication: A temporary professional financial services alliance formed for the purpose of handling a large apartment transaction that would be hard or impossible for the entities involved to handle individually, which allows companies to pool their resources and share risks and returns. In regards to apartments, a syndication is typically a partnership between general partners (i.e. the syndicator) and limited partners (i.e. the passive investors) to acquire, manage and sell an apartment community while sharing in the profits.

Appraisal: A report created by a certified appraiser that specifies the market value of a property. The value is based on cost, sales comparable and income approach.

Appreciation: An increase in the value of an asset over time. The two main types of appreciation that are relevant to apartment syndications are natural appreciation and forced appreciation. Natural appreciation occurs when the market cap rate naturally decreases over time, which isn’t always a given. Forced appreciation occurs when the net operating income is increased by either increasing the revenue or decreasing the expenses. Force appreciation typically occurs by adding value to the apartment through renovations and/or operational improvements.

Asset Management Fee: An ongoing annual fee from the property operations paid to the general partner for property oversight.

B

 

Bad Debt: The amount of uncollected money owed by a tenant after move-out.

Breakeven Occupancy: The occupancy rate required to cover all of the expenses of a property.

Bridge Loan: A mortgage loan used until a borrower secures permanent financing. Bridge loans are short-term (six months to three years with the option to purchase an additional six months to two years), generally having higher interest rates and are almost exclusively interest only. Also referred to as interim financing, gap financing or swing loans. The loan is ideal for repositioning an apartment community that doesn’t qualify for permanent financing.

 

C

 

Capital Expenditures (CapEx): The funds used by a company to acquire, upgrade and maintain a property. Also referred to as CapEx. An expense is considered CapEx when it improves the useful life of a property and is capitalized – spreading the cost of the expenditure over the useful life of the asset. CapEx included both interior and exterior renovations.

Capitalization Rate (Cap Rate): The rate of return based on the income that the property is expected to generate. Also referred to as the cap rate. The cap rate is calculated by dividing the net operating income by the current market value of a property.

Cash Flow: The revenue remaining after paying all expenses. Cash flow is calculated by subtracting the operating expense and debt service from the collected revenue.

Cash-on-Cash Return: The rate of return based on the cash flow and the equity investment. Also referred to as CoC return. Coc return is calculated by dividing the cash flow by the initial equity investment.

Closing Costs: The expenses, over and above the purchase price of the property, that buyers and sellers normally incur to complete a real estate transaction. These costs include origination fees, application fees, recording fees, attorney fees, underwriting fees, due diligence fees and credit search fees.

Concessions: The credits given to offset rent, application fees, move-in fees and any other cost incurred by the tenant, which are generally given at move-in to entice tenants into signing a lease.

Cost Approach: A method of calculating a property’s value based on the cost to replace (or rebuild) the property from scratch. Also referred to as the replacement approach.

 

D

 

Debt Service: The annual mortgage amount paid to the lender, which includes principal and interest. Principal is the original sum lent to a borrower and the interest rate is the charge for the privilege of borrowing the principal amount.

Debt Service Coverage Ratio (DSCR): The ratio that is a measure of the cash flow available to pay the debt obligation. Also referred to as the DSCR. The DSCR is calculated by dividing the net operating income by the total debt service. A DSCR of 1.0 means that there is enough net operating income to cover 100% of the debt service. Ideally, the DSCR is 1.25 or higher. A property with a DSCR too close to 1.0 is vulnerable, and a minor decline in revenue or minor increase in expenses would result in the inability to service the debt.

Depreciation: A decrease or loss in value due to wear, age or other cause.

Distressed Property: A non-stabilized apartment community, which means the economic occupancy rate is below 85% and likely much lower due to poor operations, tenant problems, outdated interiors, exteriors or amenities, mismanagement and/or deferred maintenance.

Distributions: The limited partner’s portion of the profits, which are sent on a monthly, quarterly or annual basis, at refinance and/or at sale.

Due Diligence: The process of confirming that a property is as represented by the seller and is not subject to environmental or other problems. For apartment syndications, the general partner will perform due diligence to confirm their underwriting assumptions and business plan.

 

E

 

Earnest Money: A payment by the buyers that is a portion of the purchase price to indicate to the seller their intention and ability to carry out sales contract.

Economic Occupancy Rate: The rate of paying tenants based on the total possible revenue and the actual revenue collected. The economic occupancy is calculated by dividing the actual revenue collected by the gross potential income.

Effective Gross Income (EGI): The true positive cash flow. Also referred to as EGI. EGI is calculated by subtracting the revenue lost due to vacancy, loss-to-lease, concessions, employee units, model units and bad debt from the gross potential income.

Employee Unit: An apartment unit rented to an employee at a discount or for free.

Equity Investment: The upfront costs for purchasing a property. For apartment syndications, these costs include the down payment for the mortgage loan, closing costs, financing fees, operating account funding and the fees paid to the general partnership for putting the deal together. Also referred to as the initial cash outlay or the down payment.

Equity Multiple (EM): The rate of return based on the total net profit and the equity investment. Also referred to as EM The EM is calculated by dividing the sum of the total net profit (cash flow plus sales proceeds) and the equity investment by the equity investment.

Exit Strategy: The general partner’s plan of action for selling the apartment community at the conclusion of the business plan.

 

F

 

Financing Fees: The one-time, upfront fees charged by the lender for providing the debt service. Also referred to as finance charges.

 

G

 

General Partner (GP): An owner of a partnership who has unlimited liability. A general partner is usually a managing partner and is active in the day-to-day operations of the business. In apartment syndications, the general partner is also referred to as the sponsor or syndicator and is responsible for managing the entire apartment project.

Gross Potential Income: The hypothetical amount of revenue if the apartment community was 100% leased year-round at market rental rates plus all other income.

Gross Potential Rent (GPR): The hypothetical amount of revenue if the apartment community was 100% leased year-round at market rental rates. Also referred to as GPR.

Gross Rent Multiplier (GRM): The number of years it would take for a property to pay for itself based on the gross potential rent. Also referred to as the GRM. The GRM is calculated by dividing the purchase price by the annual gross potential rent.

Guaranty Fee: A fee paid to a loan guarantor at closing for signing for and guaranteeing the loan.

 

H

 

Holding Period: The amount of time the general partner plans on owning the apartment from purchase to sale.

 

I

 

Income Approach: A method of calculating an apartment’s value based on the capitalization rate and the net operating income (value = net operating income / capitalization rate).

Interest Rate: The amount charged by a lender to a borrower for the use of their funds.

Interest-Only Payment: The monthly payment for a mortgage loan where the lender only requires the borrower to only pay the interest on the principal.

Internal Rate of Return (IRR): The rate needed to convert the sum of all future uneven cash flow (cash flow, sales proceeds and principal paydown on the mortgage loan) to equal the equity investment. Also referred to as IRR.

 

J

 

K

 

L

 

Lease: A formal legal contract between a landlord and a tenant for occupying an apartment unit for a specified time and at a specified price with specified terms.

Letter of Intent (LOI): A non-binding agreement created by a buyer with their proposed purchase terms. Also referred to as the LOI.

Limited Partner (LP): A partner whose liability is limited to the extent of their share of ownership. Also referred to as the LP. In apartment syndications, the LP is the passive investor who funds a portion of the equity investment.

London Interbank Offered Rate (LIBOR): A benchmark rate that some of the world’s leading banks charge each other for short-term loans. Also referred to as LIBOR. The LIBOR serves as the first step to calculating interest rates on various loans, including commercial loans, throughout the world.

Loan-to-Cost Ratio (LTC): The ratio of the value of the total project costs (loan amount + capital expenditure costs) divided by the apartment’s appraised value.

Loan-to-Value Ratio (LTV): The ratio of the value of the loan amount divided by the apartment’s appraised value.

Loss-to-Lease (LtL): The revenue lost based on the market rent and the actual rent. Also referred to as LtL. The LtL is calculated by dividing the gross potential rent minus the actual rent collected by the gross potential rent.

 

M

 

Market Rent: The rent amount a willing landlord might reasonably expect to receive and a willing tenant might reasonably expect to pay for tenancy, which is based on the rent charged at similar apartment communities in the area. The market rent is typically calculated by conducting a rent comparable analysis.

Metropolitan Statistical Area (MSA): A geographical region containing a substantial population nucleus, together with adjacent communities having a high degree of economic and social integration with that core. Also referred to as the MSA. MSAs are determined by the United States Office of Management and Budget (OMB).

Model Unit: A representative apartment unit used as a sales tool to show prospective tenants how the actual unit will appear once occupied.

Mortgage: A legal contract by which an apartment is pledged as security for repayment of a loan until the debt is repaid in full.

 

N

 

Net Operating Income (NOI): All the revenue from the property minus the operating expenses. Also referred to as the NOI.

 

O

 

Operating Account Funding: A reserves fund, over and above the purchase price of an apartment, to cover things like unexpected dips in occupancy, lump sum insurance or tax payments or higher than expected capital expenditures. The operating account funding is typically created by raising extra capital from the limited partners.

Operating Agreement: A document that outlines the responsibilities and ownership percentages for the general and limited partners in an apartment syndication.

Operating Expenses: The costs of running and maintaining the property and its grounds. For apartment syndications, the operating expense are usually broken into the following categories: payroll, maintenance and repairs, contract services, make ready, advertising/marketing, administrative, utilities, management fees, taxes, insurance and reserves.

 

P

 

Passive Investing: Placing one’s capital into an apartment syndication that is managed in its entirety by a general partner.

Permanent Agency Loan: A long-term mortgage loan secured from Fannie Mae or Freddie Mac. Typical loan terms lengths are 3, 5, 7, 10, 12 or more years amortized over up to 30 years.

Physical Occupancy Rate: The rate of occupied units. The physical occupancy rate is calculated by dividing the total number of occupied units by the total number of units at the property.

Preferred Return: The threshold return that limited partners are offered prior to the general partners receiving payment.

Prepayment Penalty: A clause in a mortgage contract stating that a penalty will be assessed if the mortgage is paid down or paid off within a certain period.

Price Per Unit: The cost per unit of purchasing a property. The price per unit is calculated by dividing the purchase price of the property by the total number of units.

Private Placement Memorandum (PPM): A document that outlines the terms of the investment and the primary risk factors involved with making the investment. Also referred to as the PPM. The PPM typically has four main sections: the introductions (a brief summary of the offering), basic disclosures (general partner information, asset description and risk factors), the legal agreement and the subscription agreement.

Pro-forma: The projected budget with itemized line items for the revenue and expenses for the next 12 months and five years.

Profit and Loss Statement (T-12): A document or spreadsheet containing detailed information about the revenue and expenses of a property over the last 12 months. Also referred to as a trailing 12-month profit and loss statement or a T-12.

Property and Neighborhood Classes: A ranking system of A, B, C or D assigned to a property and a neighborhood based on a variety of factors. For property classes, these factors include date of construction, condition of the property and amenities offered. For neighborhood classes, these factors include demographics, median income and median home values, crime rates and school district rankings.

Property Management Fee: An ongoing monthly fee paid to the property management company for managing the day-to-day operations of the property.

 

Q

 

R

 

Ration Utility Billing System (RUBS): A method of calculating a tenant’s utility usage based on occupancy, unit square footage or a combination of both. Once calculated, the amount is billed back to the tenant.

Recourse: The right of the lender to go after personal assets above and beyond the collateral if the borrower defaults on the loan.

Refinance: The replacing of an existing debt obligation with another debt obligation with different terms.

Refinancing Fee: A fee paid to the general partner for the work required to refinance an apartment.

Rent Comparable Analysis (Rent Comps): The process of analyzing the rental rates of similar properties in the area to determine the market rents of the units at the subject property.

Rent Premium: The increase in rent demanded after performing renovations to the interior and/or exterior of an apartment community.

Rent Roll: A document or spreadsheet containing detailed information on each of the units at the apartment community, including the unit number, unit type, square footage, tenant name, market rent, actual rent, deposit amount, move-in date, lease-start and lease-end date and the tenant balance.

 

S

 

Sales Comparison Approach: A method of calculating an apartment’s value based on similar apartments recently sold.

Sales Proceeds: the profit collected at the sale of the apartment community.

Sophisticated Investor: A person who is deemed to have sufficient investing experience and knowledge to weigh the risks and merits of an investment opportunity.

Subject Property: The apartment the general partner intends on purchasing.

Submarket: A geographic subdivision of a market.

Subscription Agreement: A document that is a promise by the LLC that owns the property to sell a specific number of shares to a limited partner at a specified price, and a promise by the limited partner to pay that price.

 

T

 

U

 

Underwriting: The process of financially evaluating an apartment community to determine the projected returns and an offer price.

 

V

 

Vacancy Loss: The amount of revenue lost due to unoccupied units.

Vacancy Rate: The rate of unoccupied units. The vacancy rate is calculated by dividing the total number of unoccupied units by the total number of units.

Value-Add Property: A stabilized apartment community with an economic occupancy above 85% and has an opportunity to be improved by adding value, which means making improvements to the operations and the physical property through exterior and interior renovations in order to increase the income and/or decrease the expenses.

 

W

 

X

 

Y

 

Yield Maintenance: A penalty paid by the borrower on a loan is the principal is paid off early.

 

Z

 

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apartment investing offer

How the General Partner Submits an Offer on an Apartment Deal

Generally, the general partner (referred to as GP hereafter) in an apartment syndication has certain investment criteria to determine which deals to submit offers on. This criteria could be as sophisticated as requiring a projected internal rate of return and cash-on-cash return above a certain threshold, which is what my company does, or as basic as a cash flow per door.

 

Regardless of their investment criteria, an experienced GP will perform underwriting on tens, if not hundreds, of deals before finding one that qualifies for an offer. And once they do, there is a four-step process for submitting an offer.

 

Understanding this process is obviously important for those striving to syndicate their own apartment deals in the future. But it is important for those passively investing in apartment syndications to understand as well. If they are entrusting the GP with their hard-earned capital, they should know how the offer price and terms are calculated.

 

1. Pre-Offer Conversation

 

Before completing the underwriting process and submitting an offer, the GP will likely need to reach out to the listing real estate broker and their property management company.

 

If questions arise during the course of the underwriting process, the GP will need to get the answers from the listing broker before submitting an offer. For example, there might be a discrepancy between the rent roll and the offering memorandum in regards to the number of units renovated by the current owner. Or the properties used by the listing broker for the rental comparable analysis are too dissimilar to the subject property. Or the GP needs more information on the exterior capital expenditures completed by the current owner over the past few years. The GP should leave no stone unturned before determining an offer price.

 

Similarly, the GP should review the underwriting with the property management company who will manage the deal after acquisition in order to confirm the assumptions there were made.

 

Additionally, the GP should visit the property in-person. Ideally, the GP visits the property with their property management company and, if they plan on performing renovations after acquisition, a general contractor. Together, they should look at the condition of the big ticket exterior items, like the roofs, siding, parking lots, clubhouse, amenities (i.e. pool, fitness center, playground, etc.), landscaping and signage. They should interview the onsite property management company to understand the historical operations of the property. They should tour a handful of units, preferably the “best” and “worst” unit. Then, they should leave the property and drive a 2-mile radius around the property, making note of nearby retail centers, restaurants, employment hubs and other apartment communities. Lastly, they should visit these other apartment communities to gain an understanding of the local competition.

 

Based on the feedback from the real estate broker and property management company, and the in-person visit, the GP should update or revise any underwriting assumptions in preparation for submitting an offer. At this point, the GP will have better assumptions than those that were made by simply reviewing the rent roll and profit and loss statement. But, if they are awarded the deal, the GP will conduct more detailed due diligence in order to finalize their assumptions.

 

2. Determine an Offer Price

 

During the underwriting and pre-conversation phase, the GP will usually have an idea of the price at which the owner is wanting to sell. Sometimes, the sales price is explicitly stated but this is usually only the case for smaller apartment deals. For deals with 50 to 100 or more units, the listed purchase price will likely say “to be determined by the market.” If that is the case, the GP can usually get a ballpark number from the listing real estate broker or the owner. If not, then they may use the current market cap rate  and the current net operating income to get an estimated sales price.

 

However, the sale price the owner desires is fairly irrelevant when determining an offer price. Experienced GPs will set an offer price that results in projected returns that meet their investment criteria. For example, my company will set an offer price that results in, at minimum, a 8% cash-on-cash return and a 16% 5-year internal rate of return to the limited partners.

 

If the GP’s offer price differs greatly from the listed, stated or estimated sales price, it may be due to an error on the GP’s side or due to the seller making too aggressive of assumptions. If it is the latter, the GP can either walk away from the deal or submit their offer along with an explanation for why the offer is much lower than what the seller desires.

 

In addition to determining an offer price, the GP should also have a conversation with their lender or mortgage broker to obtain estimated loan terms to include in their offer.

 

3. Submit an LOI

 

At this point, if the results of the underwriting meet their investment criteria, the GP will submit an offer in the form of a letter of intent (referred to as LOI hereafter). The LOI should be prepared by the GP’s real estate attorney.

 

The LOI is not legally binding. Its purpose is to show the GP’s intent to purchase the apartment at the stated price and terms, which includes the purchase price, down payment amount, earnest deposit and the due diligence timeline.

 

For the earnest deposit, 1% of the purchase price is standard and goes hard (i.e. is non-refundable) once the inspection period is completed (30 to 45 days). However, if the GP is in a competitive offer situation, the earnest deposit terms can deviate from the norm, whether it is a higher deposit amount and/or a shorter time frame before it goes hard (with the most competitive offers having the earnest deposit go hard day 1). For example, on a recent deal, my company had a $200,000 earnest deposit go hard day 1.

 

The GP can have a conversation with their real estate broker about what they are seeing in the current market for earnest deposit and its terms. Or, the GP can base the earnest deposit amount and terms on their previous acquisitions in the same submarket.

 

After submitting the LOI, the GP may be invited to a best and final call with the sellers. This is when the sellers ask for the interested investors’ best and final offer. Then, the investors with the most competitive offers will be invited to a call with the sellers, which is basically an interview so that the seller can determine if the investor is capable of closing on the deal.

 

4. Submit a Formal Offer

 

If the sellers accept and sign the GP’s letter of intent or they are awarded the deal after the best and final round, the GP will submit a formal offer in the form of a purchase sales agreement. Similar to the LOI, this sales agreement should be prepared by the GP’s real estate attorney. The purchase sales agreement is a detailed contract that outlines all of the terms of the sale.

 

Funding the upfront costs

 

In addition to the earnest deposit, other fees paid prior to closing are the upfront bank fees. Since the earnest deposit is due soon after closing, the GP needs to know where these funds will come from prior to putting the property under contract. The GP may front these costs and reimburse themselves at the close. Another option is for the GP ask an investor to fund the earnest deposit and upfront bank fees and create a promissory note so that the GP is responsible for paying the investor back if they lose the money (which happens if the contract is cancelled after the earnest deposit goes hard). Or, the GP could partner with someone on their team that has those funds. Ideally, the party who funds the earnest deposit will fund the other upfront banks fees as well.

 

In terms of how much upfront cash is needed, a good estimate is 2.5% of the purchase price (1% for the earnest deposit and 1.5% for the bank fees). For example, a $10 million purchase price would require an estimated $3.5 million in equity (25% down payment, GP fees, closing costs and cash reserves) at close. Of that $3.5 million, the GP would need approximately $250,000 in cash to cover the earnest deposit and upfront bank fees to get the deal to the closing table.

 

To learn more about the apartment syndication process from the perspective of a passive investor, visit my passive investor resources page here.

 

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REIT vs. Apartment Investing

Apartment Vs. REIT: Which Is The Better Passive Investment?

Originally Featured on Forbes.com here.

 

In real estate investing, there are two major strategies to choose from, and each can be used to pursue a variety of different opportunities. In passive real estate investing, two of the most popular investment opportunities are apartment syndications and real estate investment trusts, or REITs.

 

REIT is a company that owns, operates or finances income-producing real estate that generates revenue, which is paid out to shareholders in the form of dividends. An apartment syndication is when a syndicator (i.e., the general partner) pools together capital from passive investors (i.e., the limited partners) to purchase an apartment community while sharing in the profits.

 

In both cases, the passive investor is investing in real estate. However, the investment structures differ, which means that there are distinct pros and cons for each strategy. From my experience syndicating over $300,000,000 in apartment communities, when compared to REITs, I’ve found six pros and cons of passively investing in an apartment syndication.

 

1. Liquidity

 

With REITs, you have the ability to buy and sell like a standard stock. If you find yourself needing to pull out your capital, you can do so relatively quickly. Conversely, a passive apartment syndication is less liquid. Your initial investment is locked in until the end of the projected hold period. However, depending on the syndicator, there may be exceptions to this rule.

First, the syndication may have a clause that allows you to sell your shares of the company with the written consent of the general partnership. It is not as fast or as simple as selling shares of a REIT, but if an emergency were to arise and the syndication has such a clause, there is a process for reclaiming your investment. But overall, the passive apartment syndication is less liquid than a passive REIT investment.

 

In regards to liquidly, REITs win. REITs 1, apartments 0.

 

2. Barrier To Entry

 

To invest in a REIT, a large sum of capital isn’t required. Most REITs have no minimum investment, although they may require that you purchase blocks of 10 or 100 shares. That means you can invest in a REIT with less than $1,000, whereas apartment syndications have a higher barrier to entry.

 

First, you may need to be accredited, which means having an annual income of $200,000 or $300,000 for joint income for the last two years, or an individual or joint net worth exceeding $1 million. Additionally, apartment syndication may require a minimum investment. For example, my company requires a first-time minimum investment of $50,000 and then $25,000 thereafter. You can find syndicators that don’t require a minimum investment or for which you meet the accredited investor qualifications, but regardless, the financial barrier of entry is higher for apartment syndications than REITs.

REITs 2, apartments 0.

 

3. Diversification

 

With REITs, you invest in a diversified portfolio of properties that provide a blended return. Because the risk is shared across a pool of assets, you will not see major fluctuations in your returns and portfolio value. With a passive apartment investment, your return is directly tied to the performance of a single asset. If something negative happens to the property or the submarket in which the property is located, your projected returns will be reduced accordingly. However, the same logic applies to the upside as well.

Of course, this risk can be greatly reduced by only investing with apartment syndicators who follow the Three Immutable Laws of Real Estate Investing. Additionally, you can make up for the lack of diversification by investing in multiple apartment syndication deals, essentially creating your own personal REIT.

 

I’m calling this one a draw. So, the score remains: REITs 2, apartments 0.

 

4. Returns

 

The major benefit of passively investing in apartment syndications is the higher average returns. The total REIT return over the last five years (May 2013 to 2018) is 25.213%, including dividends and distributions. If you initially invested $100,000 in May 2013, your total profit by May 2018 is $25,213. As a comparison, my company does not purchase an apartment community unless the average annual return exceeds 9% and the five-year internal rate of return exceeds 16% to our passive investors. On a deal we purchased in 2015, we projected a 13.5% average annual return and a 20% five-year IRR to our passive investors, which would result in a total five-year profit of $102,805. As of this writing, not only are we on pace to exceed these projections, but we were able to refinance the property into a new loan and return about 40% of our passive investors initial capital. That is the power of apartment syndications.

 

Money is the crux of why people invest in real estate at all, so I’m giving apartments three points on this consideration. REITs 2, apartments 3.

 

5. Ownership

 

When investing in an apartment syndication, you also benefit from having direct ownership of the underlying asset. The major benefit of direct ownership is transparency — you see the actual asset you are investing in. As the general partnership progresses through the business plan, you will receive updates where, again, you can to see the actual asset, along with pictures of the updates and a variety of KPIs (rents, occupancy, etc.).

 

Another — and essential — benefit is having the direct contact information of the person calling the shots. If you have a question, you won’t have to worry about speaking with customer service or an automated phone service. Instead, you have direct access to the general partner who is managing the asset.

 

Another point for apartments: REITs 2, apartments 4.

 

6. Taxes

 

From a tax perspective, both REITs and apartment syndications will pass the depreciation benefits through to the passive investor. However, where these two strategies differ is with the profit at sale. For a passive apartment syndication investment, you have the opportunity to utilize the 1031 exchange tax instrument, which allows you to defer the taxes on your profit at sale by reinvesting in another deal with the same syndicator.

 

The final tally: REITs 2, apartments 5.

 

While the returns on both REITs and apartments have historically exceeded those of regular stocks as long as you are financially qualified and willing to tie up your capital for five to 10 years, passively investing in apartment syndications is, overall, the superior strategy.

 

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apartment syndication taxes

The Five Tax Factors When Passively Investing in Apartment Syndications

In addition to the capital preservation and cash flow benefits, one of the main reasons that passive investors seek to invest in real estate opportunities, and apartment syndications in particular, is because of the tax benefits.

 

When a passive investor invests in a value-add apartment syndication, they will generally receive a profit from annual cash flow and the profit at sale. Being a profit, this money is taxable. However, for apartment syndications, there are five pieces of tax information that the syndicator and the passive investor need to understand in order to determine the tax advantages of investing. These are 1) the depreciation benefits, 2) accelerated depreciation via cost segregation, 3) depreciation recapture, 4) bonus depreciation and 5) capital gains tax at sale.

 

DISCLAIMER: THIS IS FOR YOUR INFORMATION ONLY. SINCE I AM NOT A TAX ADVISORY FIRM, I REFER ALL GENERAL TAX-RELATED REAL ESTATE QUESTIONS FROM PASSIVE INVESTORS BACK TO THEIR ACCOUNTANTS. HOWEVER, I WILL SAY THAT INVESTORS OFTEN SEEK REAL ESTATE OPPORTUNITIES TO INVEST IN DUE TO THE TAX ADVANTAGES THAT MAY COME FROM DEBT WRITE OFF AND LOSS DUE TO DEPRECIATION. BUT I DON’T INCLUDE ANY ASSUMPTIONS ABOUT THESE TAX ADVANTAGES IN OUR PROJECTIONS.

 

1 – Depreciation

 

Depreciation is the amount that can be deducted from income each year as the depreciable items at the apartment community age. The IRS classifies each depreciable item according to its useful life, which is the number of years of useful life of the item. The business can deduct the full cost of the item over that period.

 

The most common form of depreciation is straight-line depreciation, which allows the deduction of equal amounts each year. The annual deduction is the cost of the item divided by its useful life. The IRS considers the useful life of real estate to be 27.5 years. So, the annual depreciation on an apartment building worth $1,000,000 (excluding the land value) is $1,000,000 / 27.5 years = $36,363,64 per year.

 

Generally, the depreciation amount is such that a passive investor won’t pay taxes on their monthly, quarterly or annual distributions during the hold period. They will, however, have to pay taxes on the sales proceeds.

 

2 – Cost Segregation

 

Cost segregations is a strategic tax planning tool that allows companies and individuals who have constructed, purchased, expanded or remodeled any kind of real estate to increase cash flow by accelerating depreciation deductions and deferring income taxes. A cost segregation study performed by a cost segregation engineering firm dissects the construction cost or purchase price of the property that would otherwise be depreciated over 27.5 years, the useful life of a residential building. The primary goal of a cost segregation study is to identify all property-related costs that can be depreciated over 5, 7 and 15 years

 

For example, my company performed a cost segregation on our portfolio for 2017. On one of the properties, we showed loss from depreciation of greater than 412% than we would have seen with the straight-line depreciation using the 27.5 year useful life figure.

 

To perform a cost segregation, the syndicator will need to hire a cost segregation specialist. This can cost anywhere between $10,000 and $100,000 depending on the size of the apartments.

 

3 – Depreciation Recapture

 

Depreciation recapture is the gain received from sale of depreciable capital property that must be reported as income. Depreciation recapture is assessed when the sale price of an asset exceeds the tax basis or adjusted cost basis. The difference between these figures is “recaptured” by reporting it as income.

 

For example, consider an apartment that was purchased for $1,000,000 and has an annual depreciation of $35,000. After 11 years, the owner decides to sell the property for $1,300,000. The adjusted cost basis then is $1,000,000 – ($35,000 x 11) = $615,000. The realized gain on the sale will be $1,300,000 – $615,000 = $685,000. Capital gain on the property can be calculated as $685,000 – ($35,000 x 11) = $300,000, and the depreciation recapture gain is $35,000 x 11 = $385,000.

 

Let’s assume a 15% capital gains tax and that the owner falls in the 28% income tax bracket. The total amount of tax that the taxpayer will owe on the sale of this rental property is (0.15 x $300,000) + (0.28 x $385,000) = $45,000 + $107,800 = $152,800. The depreciation recapture amount is $107,800 and the capital gains amount is $45,000.

 

4 – Bonus Depreciation

 

One of the major changes with the Tax Cuts and Jobs Act of 2017 was the bonus depreciation provision, where business can take 100% bonus depreciation on a qualified property purchased after September 27th, 2017. Click here for more information on the qualifications and benefits of the change in bonus appreciation.

 

5 – Capital Gains

 

When the asset it sold and the partnership is terminated, initial equity and profits are distributed to the passive investors. The IRS classifies the profit portion as long-term capital gain.

 

Under the new 2018 tax law, the capital gains tax bracket breakdown is as follows:

 

Taxable income (individual or joint)

  • $0 to $77,220: 0% capital gains tax
  • $77,221 to $479,000: 15% capital gains tax
  • More than $479,000: 20% capital gains tax

 

Annual Tax Statements

 

At the beginning of the following year, the syndicator will have their CPA create Schedule K-1 tax reports for each passive investor. The K-1 is a tax document that includes all of the pertinent tax information that the passive investor will use to fill out their tax forms.

 

DISCLAIMER: THIS IS FOR YOUR INFORMATION ONLY. SINCE I AM NOT A TAX ADVISORY FIRM, I REFER ALL GENERAL TAX-RELATED REAL ESTATE QUESTIONS FROM PASSIVE INVESTORS BACK TO THEIR ACCOUNTANTS. HOWEVER, I WILL SAY THAT INVESTORS OFTEN SEEK REAL ESTATE OPPORTUNITIES TO INVEST IN DUE TO THE TAX ADVANTAGES THAT MAY COME FROM DEBT WRITE OFF AND LOSS DUE TO DEPRECIATION. BUT I DON’T INCLUDE ANY ASSUMPTIONS ABOUT THESE TAX ADVANTAGES IN OUR PROJECTIONS.

 

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Secure Passive Investor Commitments

5 Step Process for Securing Passive Investor Commitments for Apartment Syndications

There are three main steps to take an apartment deal from contract to close. First, the apartment syndicator performs detailed due diligence to confirm or update the underwriting assumptions. Next, the apartment syndicator secures a loan to finance the deal. Lastly, and the focus of this blog post, the apartment syndicator secures financial commitments from passive investors in order to fund the deal.

 

For apartment syndications, and the value-add investment strategy in particular, the syndicator will get a loan to cover the majority of the project costs. Generally, the costs that are not covered by the loan are the down payment for the loan (which is 20% to 30% of the purchase price or the purchase price plus renovations, depending on the loan), general partnership fees charged by the syndicator, financing fees (which are approximately 1.75% of the purchase price), closing costs (which are approximately 1% of the purchase price) and an operating account fund (which is approximately 1% to 3% of the purchase price).

 

In total, a syndicator should expect to require 30% to 40% of the total project costs in order to close on the deal. These remaining costs come from a combination of the general partners (i.e. the syndication team) and the limited partners (i.e. passive investors), with the majority generally coming from the limited partners.

 

The purpose of this blog post is to outline the 5-step process for securing financial commitments from passive investors after an apartment deal is under contract in order to cover this 30% to 40% of the project costs and close on the deal.

 

1 – Investment Package

 

From the syndicator’s perspective, one of the first steps towards securing commitments from passive investors is creating an investment package. Before closing on the deal, the syndicator underwrote the property, conducted a rental comparable analysis, visited the property in-person and negotiated a purchase price. During this time, they become extremely familiar with the property and the surrounding area. The purpose of the investment package is to take all of this knowledge gained by the syndicator from initially qualifying the deal and consolidating it into a digestible form so that the passive investors can review the deal and make an educated investment decision.

 

The form of and the information included in an investment package will vary from syndicator to syndicator, depending on their experience and the business plan. At the very least, the investment package will include the main highlights of the deal that are relevant to the passive investor. These highlights include the purchase price, the projected returns for the project and to the passive investors, an explanation of the business plan including the exit strategy, and the partnership structure. However, ideally the investment package includes much more about the underlying assumptions behind these investment highlights.

 

For example, my company creates an investment summary package which includes the following sections:

 

  • Executive Summary: a summary of the information that is relevant to the passive investor, which is expanded upon in later sections. This includes things like purchase price, return projections and the business plan
  • Investment Highlights: an explanation on why this apartment deal is a solid investment. This includes things like our value-add business plan, the debt terms, the exit strategy and anything unique to the specific deal or market
  • Property Overview: an overview of the property details. This include things like the community amenities, unit features, a property description, the unit mix and floorplans, and a site map
  • Financial Analysis: shows the underlying analysis and assumptions of the return projections. This includes things like the offering summary, debt summary, projected returns to the investor and the detailed proforma
  • Market Overview: an overview of the submarket and market in which the apartment deal is located. This includes things like job growth, demographic data, nearby transportation of developments and the rental and sales comparables that were used to calculate the projected rents

 

Mostly everything that a passive investor needs to know in order to make an educated investment decision should be included in the investment package.

 

2 – Passive Investors Notified about New Deal

 

Once the investment package is created, which could take anywhere from a few days to a week, the next step is for the syndicator to notify their investor database about their deal.

 

I highly recommend that a syndicator gets verbal commitments from passive investors and creates an investor database prior to looking for deal (here are over 20 blog posts on how to find passive investors). In fact, understanding how much money they can raise will determine the size of deal a syndicator should pursue. For example, understanding the they will require approximately 30% to 40% of the project costs to close, a syndicator with $1 million in verbal commitments can look for apartment deals in the $2.5 to 3.3 million range.

 

For my company, once we put a deal under contract and creates the investment package, we notify our passive investors about the new opportunity via email. In this email, we include the top two to three highlights of the deal, include a link to the investment package and invite them to a conference call where we will go over the deal in more detail. We set up the conference call using www.FreeConferenceCall.com and include the date and call-in information in this email.

 

3 – New Investment Offering Call

 

A few days to a few weeks after sending the notification email, my company hosts a new investment offering conference call. Here is a blog post I wrote that outlines my 7-step approach to preparing and conducting a successful new investment offering call. Read this post for more details, but the 7-step approach is:

 

  1. Get in the right mindset
  2. Determine your main focus
  3. Introduce yourself and your team
  4. Provide an overview of the deal, the market and the team
  5. Go into more detail on the deal, the market and the team
  6. Questions and answers session
  7. Conclude the call and send the recording to the investors

 

This is my company’s approach, but it will vary from syndicator to syndicator. Some syndicators will structure their presentations differently. Some syndicators may host a video webinar. Others might just send the investment package and/or a recording to their investors.

 

4 – Secure Commitments

 

After the new investment offering presentation, however the syndicator decided to approach it, the next step is to secure financial commitments from the passive investors.

 

If you are a passive investor, if the deal aligns with your investment goals, you can verbally commit to investing in the deal. How you make your commitment will vary for syndicator to syndicator. For my company, we ask our passive investors to send us an email with their commitments and we hold their spot until they review and sign the required documentation, which I will outline in the next section.

 

If you are an apartment syndicator, this process will vary depending on your experience level. When you are first starting out, you will need to be more proactive when securing commitments. A good strategy is to send emails to your investor database every week or two, inviting them to invest in the deal and providing them a new piece of positive information. You don’t want to send them an email that only asks them to invest. You want to provide a new piece of positive information like a due diligence report came back clean, a new development that was recently announced down the street, the rental comparable report came back and the rents are higher than what you projected, etc. Then, as you gain more experience and credibility from passive investors, they will come to you. Your goal should be to have 100% of the funding 30 days before closing. And once the deal is fully funded, don’t turn away interested investors. Instead, tell them that the deal is fully funded but that you will put them on a waiting list.

 

5 – Complete Required Documentation

 

The last step is for the passive investors to make their investments official by reviewing and signing the required documentation. There are five main documents that the syndicator needs to prepare (with the help of their real estate and securities attorney) and the passive investors need to sign in order to make the investments official.

 

  1. Private Placement Memorandum (PPM)

 

The PPM is a legal document that highlights all the legal disclaimers for how the passive investor could lose their money in the deal.

 

Generally, a PPM will include two major components. One is the introduction, which includes a summary of the offering, description of the asset being purchased, minimum and maximum investment amounts, key risks involved in the offering and a disclosure on how the general partners are paid. The other section covers basic disclosures, which includes general partner information, offering description and a list of all the risks associated with the offering.

 

The PPM should be prepared by a securities attorney for each apartment deal.

 

  1. Operating Agreement

 

For each apartment deal, my company forms a new limited liability company (LLC). My company is a general partner (GP). Our investors will purchase shares in that LLC and become a limited partner (LP). However, every syndicator should speak with a real estate attorney to determine which approach is best for them.

 

The operating agreement outlines the responsibilities and ownership percentages for the GP and LP.

 

The operating agreement should be prepared by a real estate attorney for each apartment deal.

 

  1. Subscription Agreement

 

Simply put, the subscription agreement is a promise by the LLC to sell a specified number of shares to passive investors at a specified price, and a promise by the passive investors to pay that price. For example, a passive investor that is investing $50,000 would purchase 50,000 shares of the LLC at $1 per share.

 

Like the operating agreement, the subscription agreement should be prepared by a real estate attorney for each deal.

 

  1. Accredited Investor Qualifier Form

 

The accredited investor form required is based on whether the offering is 506(b) vs. 506(c). Most likely, the general partner is either selling private securities to the limited partners under Rule 506(b) or 506(c). One key difference is that 506(c) allows for general solicitation or advertising of the deal to the public, while 506(b) offerings do not. But the other difference is the type of person who can invest in each offering type. For the 506(b), there can be up to 35 unaccredited but sophisticated investors, while 506(c) is strictly for accredited investors only. That being said, a syndicator should have a conversation with a securities attorney to see which offering is the best fit for them.

 

If the general partners are doing a 506(c) offering, they must verify the accredited investor status of each passive investor, which requires the review of tax returns or bank statements, verification of net worth or written confirmation from a broker, attorney or certified account. The accredited investor qualifications are a net worth exceeding $1,000,000 excluding a personal residence or an individual annual income exceeding $200,000 in the last two years or a joint income with a spouse exceeding $300,000.

 

If the general partners are doing a 506(b), they are not required to verify the accredited investors status – the passive investor can self-verify that they are accredited or sophisticated. In addition, for the 506(b) offering, to prove that the general partners didn’t solicit the offering, they must be able to demonstrate that they had a relationship with the passive investor before their knowledge of the investment opportunity, which is determined by the duration and extent of the relationship.

 

This form should also be prepared by a securities attorney, but only on one occasion (unless the accredited investor qualifications change).

 

  1. ACH Application

 

Lastly is the ACH application. This document is optional but recommended. It will allow the passive investor to receive their distributions via direct deposit into a bank of their choice.

 

Once a passive investor has committed to investing in a deal, the general partners should them these five documents to make the partnership official.

 

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Direct Mail Guide

The Ultimate Guide to a Successful Direct Mailing Campaign

So, you want to find an off-market deal? There are countless ways to generate off-market apartment leads, but one of the most common strategies is the direct mailing campaign.

 

A direct mailing campaign is when you send out a batch of letters to owners with the purpose of negotiating a sales price and putting their property under contract.

 

The two main aspects of the direct mailing campaign, which will be the focus of this guide, are the list and the letter. Read on for all of the tools you need to create a successful direct mailing campaign from scratch.

 

Creating a List

 

Before creating your list, you need to define your investment criteria. Your investment criteria should include factors like the market, property type, number of units and the construction date. Setting your investment criteria prior to creating your list will save you a lot of time, because you will know that every single owner on your list owns an apartment community that aligns with your business plan.

 

With your investment criteria set, it is now time to create your list. There are many sources that you can use to build your list. Listsource and CoStar are great tools for creating larger lists but they do not send out the letters for you. Postcard Builder and Open Letter Marketing are two full service direct mailing companies where you can create a list, draft your letter and send out the direct mailing campaign all in one place. Local title companies are also a good resource for obtaining a list. And if you are lucky and found the right real estate broker, they can create a list on your behalf, and maybe even send out the letters too!

 

Regardless of which resource you use, you will create a custom list of properties that meet your investment criteria. And, if you want, you can customize your list even further using hundreds of other factors like the amount of equity the owner has in the property, the demographics, the owner type or status and much more.

 

Additionally, to increase the chance of finding a seller that is interested in selling, you want to identify motivated owners. These are owners who are motivated to sell their apartment because they are distressed (i.e. have maintenance or capital expenditure issues, tenant issues, management issues, financing issues, tax issues, etc.), they are at the end of their business plan or they implemented a different business plan (i.e. they purchased the apartment for cash flow but didn’t add value to increase the rents).

 

Depending on your investment strategy, you may or may not be able to create a list of motivated sellers by solely using Listsource or similar list making services. Therefore, here is a list of additional ways to locate motivated apartment owners:

 

  1. Driving for dollars: If your target market is local, you can drive around the market and look for apartment communities that are showing signs of distress. Examples would be poor landscaping, obvious deferred maintenance, offering rent specials, broken windows, peeling or fading paint, or an apartment that stands out from surrounding properties. Find the owner’s contact information and give them a call or send them a direct mailer.
  2. Eviction Court: Locate your local eviction court and obtain a list of apartment owners that are evicting residents. Evictions are a major headache for real estate owners in general, so they may be extremely motivated to sell. Typically, the eviction list is located on the local county’s Clerk of Courts website.
  3. Building Code Violations: Locate a list of apartment owners who recently received a building code violation from the city.
  4. Delinquent Taxes: Locate a list of apartment owners who are delinquent on their taxes. Unless you are building a list from scratch, most of the automate direct mailing list providers will allow you to set “delinquent taxes” as a criterion. If you are building a list from scratch, information on the apartments with delinquent taxes can be found on the local county’s Clerk of Courts or Sheriff’s Office website.
  5. Out-of-State owners: Owning an out-of-state apartment community won’t necessarily indicate a motivated owner. However, there is a higher chance that an out-of-state owner hasn’t maintained the asset or managed the property management company effectively compared to an in-state owner whose apartment community is right around the corner.
  6. View the Profile Picture on Apartments.com: A creative way to identify motivated sellers of value-add apartments is by looking at the profile picture on the www.apartments.com listing. If the apartment was newly renovated, the owner would show off those updates online to attract residents. If there is only one picture available, that may indicate that the interiors and/or exteriors are outdated. If there are pictures of the interiors and exteriors available, scroll through them to see if the apartment is updated. If the interiors are old, you’ve identified a potential value-add deal.

 

Those are the six main methods, but other creative strategies include:

 

  1. Property owners whose tax assessments went way up this year: Search for an apartment on the local county auditor or appraiser site and locate the annual tax data. Most auditor or appraiser sites will list the annual taxes paid each year. If the taxes paid in the most recent year is significantly higher than the previous year, the owner most likely had a tax assessment. Taxes is one of the largest expenses paid by the owner, so if they had a significant increase, they may be motivated to sell
  2. Expired apartment listings: Expired apartment listings were listed for sale by a real estate broker and weren’t sold by the end of the period specified in the contract between the owner and the real estate broker. The best way to locate apartment listings that expired is on the MLS. Ask your real estate broker to send you a list of expired listing for the past 12 months.
  3. Properties that are owned without debt (purchased 20 to 30 years ago): Owners who own apartments free and clear may be willing to sell their property for a lower price, or may be willing to accept creative financing terms, like seller financing. There are a few ways to locate apartments that are owned free and clear. If you are creating a list with a service like CoStar, an automated direct mailing provider or the MLS, you will have the option to apply a filter for apartments that do not have a mortgage. Another approach is to locate the property on the local auditor or appraisal site and compare the “own name” to the “mailing name.” The mailing name is usually the name of the company that holds the debt. So, if they mailing name is the same as the owner name, the property is owned free and clear. Also, you can search for properties that were purchased over 20 years to 30 years ago, because the owner will have likely paid off the debt.
  4. Health code violators: The local Clerk or Courts website will have a list of all the properties in the county with health code violation.
  5. Owners facing foreclosure: The list of apartment owners facing foreclosure can be found on the local Sheriff’s Office website.
  6. Owners late on loan payments: The list of apartment owners who are late on their mortgage payments can be found in the same location as the delinquent taxes list, which is the local Clerk of Courts website.
  7. Section 8 approved properties: Locate the local city’s HUD website to obtain a list of section 8 approved properties. These properties are likely rented below market rates and, depending on the local regulations, can be converted into regular apartments.
  8. Properties with liens: A list of apartments with liens can be found on the local Clerk of Courts website. You might be able to use the criteria on ListSource to identify these types of distressed opportunities. But some of these strategies will require extra research – both online and in-person – on your part. If you are struggling to find the owner’s contact information, skip tracing is an effective solution. The top skip tracing services are TLO (the best and most expensive), Locate Plus and Whitepages Premium (least expensive option)

 

Creating a Marketing Piece

 

Next, you will create a marketing piece to send out to your list. There are nearly an infinite number of approaches to a direct mailing campaign. Variables include the message, frequency, letter type and color and envelope type and color. The most successful direct mailers A/B test different mailer types to determine which is the most effective. Therefore, select a few different mailer types, send them out to owners and record the success rates of each. Whichever one performs the best, continue sending. For the ones that perform poorly, change a variable and continue to send out and log the success rates. As time goes on, you will find the best combination of variables that results in the highest success rate.

 

For starters, here are two direct mailing templates:

 

  1. Template #1

 

Dear Recipient Name,

 

I am the acquisition coordinator for __________. Our portfolio consists of over ______ apartment units, all acquired within the last _______ months. With one of our principals based in ________, we are looking to expand to this area. We are familiar with your apartment complex, (name complex) and we would like to discuss purchasing this property. Please reach out if you would like to discuss further. My email is ______ and my cell phone number is ________.

 

Sincerely,

____________

 

  1. Template #2

 

Dear Recipient Name,

 

I am interested in purchasing your apartment community. Are you interested in selling?

 

I currently hold a portfolio of apartments similar to yours and am looking to add more.

 

Please contact me at your earliest convenience so we can discuss the sale of your apartment community.

 

Call me directly at _________ or email me at _________.

 

If you are not interested in selling at this time, please accept this inquiry as the highest compliment to your investment.

 

I look forward to hearing from you.

 

Sincerely,

____________

 

The important point you want to get across to the owners is that you are interested in buying their property and that you are an experienced investor who is able to close. If you don’t currently own any properties yourself, leverage the experience of your team. For example, “my property management company manages 1,000 units in the market,” or “my partner (who can be your mentor) controls 1,300 units across the country.”

 

Screening Calls from Owners

 

Once you’ve sent out the campaign, (hopefully) your phone starts ringing off the hook. Rather than freestyling, I recommend creating a script that outlines exactly what you will say when an owner calls. An example script is provided below:

 

Hi. My name is (your name). Thank you for responding to my letter. As I said, I work for a group of investors, (your company name). We were driving your neighborhood and wanted to know if there would be any interest in selling?

 

Now, you would think that because they called you, they are interested in selling. Unfortunately, some of the callers will, politely or aggressively, tell you that they aren’t interested in selling and/or ask to be removed from all future mailing campaigns.

 

If the caller is aggressively asking to be removed from the list, politely thank them for their time, hang up and remove them from their list.

 

If the caller is polite but says that they aren’t interested in selling at this time, find out a little bit more information as to why they won’t sell. Figure out why they aren’t interested in selling with the purpose of trying to identify a trigger or pain point of things that are holding them back. This will help you identify ways that they will benefit from selling the property. One example is to visit the property or perform some online research and make a note of something that stands out, like signs of distress. Then, leverage this information to identify a potential pain point.

 

For example, maybe you discover that they are an owner-operator who doesn’t like being a property manager. Or they won’t want to incur a capital gains tax by selling. Or maybe they aren’t interested in selling now, but they may be interested in six months. Depending on their response, there may be a creative way to structure the deal so that you can solve their problem.

 

If they still aren’t interested or you cannot identify any pain points, thank them for their time and hang up. However, you aren’t done yet. Unless they specifically asked you to remove them from future mailing campaigns, the next step is to mail them a follow-up letter saying:

 

Thank you for your time when we spoke on (date you called). As I said, I work for (your company name). I will follow up on (date) and I look forward to speaking with you then.”

 

Now, the next time you call them, you can start the conversation by referencing your previous call and the follow up letter.

 

If they are interested in selling, congratulations. But, you’re only partway there. Now, you need to extract more information from them about the property. At this point, the goal of the conversation is to get the owner to provide you with the trailing 12-month income and expense statement (T12) and the current rent roll. That is the information you will need in order to underwrite the deal and determine a fair offer price.

 

Regardless of whether the owner says is or isn’t interested, focus on building rapport. During the course of the conversation, make sure you talk in terms of their interests in order to begin building a relationship. If they are interested, this will help you during the negotiation process. If they are not interested, they will remember you when you call back.

 

Also keep in mind that this is an iterative process. If you’ve never spoken to an owner on the phone before, don’t expect to be perfect at first. Practice, specifically in regards to overcoming their objections, see what works and what doesn’t work, and adjust your script accordingly.

 

10 Reasons Your Direct Mail Isn’t Working

 

I asked Justin Silverio, the founder of Open Letter Markeing, “what are the main reasons why a direct mailing campaign would fail?” Based on his experience sending out his own campaigns and working with hundreds of other investors, there are 10 reasons why a direct mailing campaign isn’t working:

 

  1. Bad Messaging: Your messaging should be clear and concise. Otherwise, your content will not be read or will be confusing to your prospects, thereby reducing your response rates. Additionally, avoid using messaging that is the same as most other investors in your market; you want to set yourself apart. Finally, make the messaging about the seller, not you. Talk to them about how you will solve their problems.
  2. Low Quality Lead List: One of the most important aspects of a successful direct mail campaign is the quality of the lead list. If you are mailing to the same prospects as your competition, expect your response rates to be very low. Instead, seek out niche markets that no one else is marketing to. The general rule is that if it takes time to build a particular list, you will have less competition because most other real estate investors won’t take the time to create it.
  3. No Branding on Mailers: Branding is the number one most important thing that you should be doing and in many cases it’s a missed opportunity in direct mail. People can recall a logo much easier than a name so your chances of a seller remembering you is much higher. It’s a simple detail, but the payoff is big.
  4. Not Building Trust: One of the most important aspects of closing a deal is to build trust and rapport with the seller. Aim for this from the start with your direct mail by sending professional looking mailers with letterhead and company information. This shows your prospects that you are an actual company and not a fly-by-night operation.
  5. You’re a Copycat: If you’re mailing the same mail piece as everyone else, what makes you think you’re going to stand out from them? Step away from the copycat syndrome and use something else besides yellow letters or generic postcards. Use a mailer that will stand out and get noticed.
  6. Only Using Handwritten Letters: When sending handwritten letters, your messaging should be short and to the point. When you only send handwritten letters, you can’t fully explain how you’re able to help your prospect. Therefore, you should always incorporate longer, professional letters into a mailing campaign.
  7. Handwriting Doesn’t Look Authentic: Using handwritten fonts that don’t look realistic could have a negative impact on your response rates. Most people will read that as being deceptive and not call you back. Be sure to either handwrite your letters OR use a realistic looking font.
  8. Bad Campaign Sequence: A bad sequence will have a negative impact on your results. It’s important that you stack your letters in a way that build off of each other and create a conversation with your sellers. Provide more information as your campaign moves forward so they can learn more about how you can help them.
  9. Inconsistency: This is, by far, the worst mistake you can make. Direct mail takes time to build momentum because your prospects need to see you multiple times before most will start to call. You should budget to mail 5-6 times before expecting to see consistent results. Also, buying real estate is mostly situational so if you are not mailing your prospects consistently you may likely miss out on a deal when your prospect’s situation suddenly changes.
  10. Bad/No Follow Up: I can guarantee you are losing deals if you don’t have proper follow up. Many deals will come from consistent follow up with your prospects who weren’t ready to sell the first time you spoke with them. Make sure you have a system in place to remind you to follow up. A good solution could be as simple as a spreadsheet or calendar or as robust as a CRM.

 

If you avoid these 10 pitfalls but still aren’t receiving many responses from owners (say after 3 to 4 mailers), another strategy is rather than asking to purchase their property, invite them to your meetup group (or if they are out-of-state, a webinar).  Tell them you will be presenting information relevant that will add value to their business. For example, 10 ways to increase the NOI on your apartment building.  From there, build a relationship with them so that when they are ready to sell, you are the first person they reach out to!

 

Direct Mail Case Studies

 

Click here to read about a six-step direct mailing campaign with a twist – rather than only sending out letters, this investor will text the owner. As a result, he’s been able to accumulate a portfolio of over 300 units!

 

Click here to learn more about selecting a mailing service, creating a list and the best practices for creating an attractive marketing piece.

 

Click here to learn about how a fix-and-flip investor created a direct marketing strategy that results in a 57% response rate.

 

Finally, click here to learn about an direct mailing campaign with a twist – rather than only sending out letter, this investor cold-calls the owners on his list.

 

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securing financing on apartments

How a Syndicator Secures Financing for an Apartment Deal

Once a syndicator puts an apartment deal under contract, concurrent with the due diligence process is the process of securing financing. Generally, debt is a part of the apartment syndicator’s business plan because of the benefits that arise from leverage. Rather than purchasing the apartment community with all cash, they obtain a loan for upwards of 80% of the value while benefiting from 100% ownership.

However, not all debt and financing are the same. The type of debt and financing an apartment syndicator puts on the asset is highly dependent on the business plan. Also, different types of financing bring different levels of risks. Therefore, as a passive investor or an apartment syndicator, it is important to understand 1) the different types of debt and 2) the different types of financing. In doing so, you will be able to identify which combination of debt and financing is in your best interests based on the business plan.

 

Two Types of Debt: Recourse and Nonrecourse

Before diving into the two main types of loans, it is important to first distinguish the two types of debt – recourse and nonrecourse. According to the IRS, with recourse debt, the borrower is personally liable while all other debt is considered nonrecourse. In other words, recourse debt allows the lender to collect what is owed for the debt even after they’ve taken the collateral (which in this case is the apartment building). Lenders have the right to garnish wages or levy accounts in order to collect what is owed.

On the other hand, with nonrecourse debt, the lender cannot pursue anything other than the collateral. But, there are exceptions. In the cases of gross negligence or fraud, the lender is allowed to collect what is owed above and beyond the collateral.

Apartment syndicators almost universally prefer nonrecourse debt while lenders almost universally prefer recourse debt. But, while nonrecourse is advantageous to the borrower for the reasons stated above, it generally comes with a higher interest rate and are only given to individuals or businesses with a strong financial history and credit.

 

Two Types of Financing: Permanent and Bridge Loan

Generally, an apartment syndicator will secure one of two types of loans: a permanent agency loan or a bridge loan.

A permanent agency loan is secured from Fannie Mae or Freddie Mac and are longer-term compared to bridge loans. Typically loan term lengths are 5, 7 or 10 years amortized over 20 to 30 years. For example, with a 5-year loan amortized over 25 years, the syndicator would make payments for 5 years at an amount based on a loan being paid off over 25 years. At the end of the loan term, the syndicator will either have to pay off the remaining principal, refinance into a new loan or sell the asset.

The permanent agency loan is an LTV (loan-to-value) loan at 75% to 80%, which means the lender will provide funding for 75% to 80% of the value of the apartment and the syndicator provides the remaining 20% to 25%.

Generally, permanent agency loans are nonrecourse. However, value-add or distressed investors likely won’t be able to have the renovation costs included in the loan. Additionally, depending on the physical condition and operations, the asset may not qualify for permanent financing.

Compared to bridge loans, the interest rate is lower, and you may be able to get a few years of interest-only payments. Also, since these loans are longer-term in nature, they are less risky. The permanent loan is a set it and forget it loan where you won’t have to worry about a balloon payment or refinancing before the end of your business plan.

The other most common type of loan is the bridge loan. A bridge loan is a short-term loan that is used until the borrower secures long-term financing or sells the property. This loan is ideal for repositioning an apartment, like with the value-add or distressed apartment strategy.

Typically bridge loans have a term of 6 months to 3 years with the option to purchase an extension of a year or two. They are almost exclusively interest-only. For example, with a 2-year bridge loan, the investor would make interest-only payments for two years, at which point the investor must pay off the loan, refinancing, purchase an extension or sell the property.

The bridge loan is an LTC (loan-to-cost) loan at 75% to 80%, which means the lender will provide funding for 75% to 80% of the total project cost (purchase price + renovation costs) and the syndicator provides the remaining 20% to 25%.

Generally, bridge loans are nonrecourse to the borrower and have a faster closing process. Also, since they are interest-only, the monthly debt service is lower. However, the disadvantages are that they are riskier than permanent loans because they are shorter term in nature. Before the end of the term, which will likely occur before the end of the business plan, the syndicator must refinance or sell. And if the market is such that permanent financing isn’t available or if the business plan didn’t go according to plan, the syndicator is in trouble.

When securing financing, the most important thing is that the length of the loan exceeds the projected hold period, which is law number two of the Three Immutable Laws of Real Estate Investing. In doing so, as long as the syndicator follows the other two laws (buy for cash flow and have adequate cash reserves), the business plan is maintainable during a down turn. This law will usually be covered with the permanent loan. However, if the syndicator secures a bridge loan that will come due in the middle of the business plan, they better have a plan in place well ahead of time, whether that’s an early refinance or purchasing an extension.

 

Overall, the type of debt and financing a syndicator secures is based on their business plan. Bridge loans can be great for value-add investors, as long as they buy right, plan ahead and have an experienced team in place. And permanent financing is great because it is less risky and is a set it and forget it type of loan.

But regardless of the business plan, the syndicator should always have a conversation with a lending professional before securing financing for a deal.

 

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18 Creative Ways to Market Apartment Rental Listings

One of the 11 responsibilities an apartment syndicator has as the asset manager of an apartment community is maintaining and maximizing the economic occupancy. For value-add investors, this involves renovating the units and upgrading the community amenities in order to increase the rents, thus increasing the cash flow and returns.

 

However, no matter how beautiful the newly upgraded apartment community is, the syndicator still needs to implement a marketing strategy in order to fill the units with high-quality residents. Ideally, the syndicator hires a property management company that already applies the best marketing practices. But it is still their responsibility to oversee the management company and make sure the marketing strategy is being implemented properly.

 

Therefore, whether you are an apartment syndicator or a passive investor in syndications, it is helpful to understand the main ways to effectively market rental listings to attract the desired resident – one who pays rent on time and is courteous to their neighbors – and increase overall economic occupancy.

 

Here is a list of 18 creative ways to market an apartment rental listing to accomplish the above stated goals:

 

  1. Create a landing page, either standalone or as a part of your website, that captures the information of potential residents
  2. Create a direct mailing campaign and send it out to people living in similar buildings, inviting them to move into yours by offering some sort of concession (i.e. reduced rent for the first month, reduced security deposit, waive the application fee, etc.) and highlighting the major selling point of your community compared to theirs (i.e. direct garage access, new fitness center, BBQ pit, etc.). This strategy could anger local owners, so if you decide to do this, don’t expect to be popular and expect others to do it to your residents
  3. Contact the Human Resources departments at all the major employers in the area, letting them know that you own an apartment in the area and asking if they can direct new hires to your community
  4. Create a resident referral program where you offer current residents a flat fee ($300 is standard) if they refer someone that signs a lease
  5. Set up an open house and invite members of the local community to attend. Having a model unit and offering refreshments is helpful
  6. Offer special pricing to soldiers, police and first responders, like 50% off the first month’s rent
  7. Design a “for lease” banner and put it near the entry of your property, or near an area that has high foot or car traffic
  8. Design and place flyers at local establishments that are frequented by your resident demographic, like laundry mats, hair salons, nail salons, gyms, coffee shops, etc.
  9. Purchase advertisements in the local newspaper
  10. Post “for rent” listings to Craigslist, Zillow, Realtor.com, Apartments.com and other free online rental listing services
  11. Partner with a real estate broker or agent and advertise your apartment community on the MLS
  12. Create a Facebook advertisement, which allows you to select criteria to hyper-target your preferred resident
  13. Create a Facebook page for your apartment community, posting weekly content to generate a following and posting your rental listings
  14. Pay close attention to the nearby landmarks to cater to that audience, like colleges, military bases, large corporations, etc.
  15. Provide good old-fashioned customer service. Be responsive and timely with requests and questions. If doesn’t matter if you are a marketing wizard and get hundreds of responses to your rental listings if you don’t pick up the phone or respond quickly to emails, politely answer their questions and get them one step closer to viewing the property and signing the lease
  16. Call all residents who have previously notified you that they plan on leave at the end of their lease, asking them about their reason for leaving to see if it is something that can be addressed
  17. Send marketing material or gift baskets to businesses and employers surrounding your community
  18. Follow-up with old leads that are older than 90 days

 

Some of the strategies are free and just require effort on the part of the syndicator and/or property management company. Others will require an upfront investment or result in a short-term reduction in income. Therefore, it is important that the syndication team understands the marketing strategy prior to closing on the deal so that they account for these expenses in the underwriting.

 

What about you? Comment below: What strategies do you implement to fill vacancies at your rental properties?

 

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realestate hustle and knowledge

Hustle or Knowledge: What’s More Important for Real Estate Success?

Each week, we post a new question to the Best Ever Show Community on Facebook. The Best Ever Show Community is a place where real estate entrepreneurs of all stripes and sizes can come together to interact with each other, me, and the guests featured on my podcast with the purpose of everyone helping each other reach the next level in their businesses and their lives.

 

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was “which is more important for success as a real estate investor: hustle or knowledge?

 

Hustle beat out knowledge with 15 votes to 9 votes, while 4 others said both and one rebel said neither are important (although their response was my favorite one!). However, the margin was much smaller than I expected. While the majority of the active real estate professionals think that hustle is more important than knowledge, which I believe as well, the knowledge voters made a strong case for their side.

 

That being said, the poll is closed, the responses are in and here are the results:

 

Hustle is More Important

 

Personally, I am of the belief that hustle trumps knowledge for the same reason as Slocomb Reed. He said that hustle will naturally lead to knowledge, but knowledge will not naturally lead to hustle. Similarly, Ryan Groene said that knowledge can be acquired while hustle is hard to teach. Anyone can become knowledgeable of real estate though books, blogs, podcasts, seminars, consultant/mentors and various other educational means. However, I don’t know of any course that teaches you how to hustle and persist when the going gets tough. You either have it or you don’t.

 

The other camp of investors who think hustle is more important than knowledge came to that conclusion because taking action is the only thing that brings you closer to achieving your goals, period. Grant Rothenburger said all the knowledge in the world means nothing with no action or hustle. Evan Holladay provided a powerful quote from a book he is reading, Born to Build by Gene Glick, on the importance of hustle: “Nothing in the world can take the place of persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education alone will not; the world is full of educated derelicts; persistence and determination alone are omnipotent.” If you are the most educated, talented genius in the world, without hustle, persistence and determination, it’s all for naught. And we see this time and time again when we hear the stories of the college or high school dropout who built a real estate or business empire or the athlete who was cut from their high school sports team (Michael Jordan comes to mind) and become a professional sports legend through hustle and grit alone.

 

 

Knowledge is More Important

 

I still believe that hustle is more important than knowledge when it comes to real estate success, but some of the active real estate professionals in the Best Ever Community made a strong case for knowledge being more important. One of the most common arguments is that hustle without knowledge is like a sailor without a compass or a driver without a map. Dan Handford said you can have all the hustle in the world but if you don’t have knowledge, then the hustle is just busy work without results. Glen Sutherland said he has friends with no knowledge but plenty of hustle. They don’t know what to do or how to create a business for themselves, so they end up working for someone else who has the required knowledge.

 

The other common argument is that hustle is only important in the short-term, while knowledge is vital to long-term success. Nathan Nuckols said hustle is temporary and applied knowledge is long-term, which is the difference between active and passive investing. He would take passive (which comes from knowledge) all day. Charlie Kao said hustle is important at the beginning but knowledge is important later on because you hustle to acquire the knowledge and use the knowledge to work smarter, not harder. Lastly, Michael Beeman said with knowledge and no hustle, you can grow slowly over time. He buys real estate from mom and pop landlords who built a portfolio of 20 to 25 units over the course of 30 years and who are all financially free in their retirement years. Also, Michael voted for knowledge because he’s seen investors who lack knowledge but have a lot of hustle make horrible mistakes which lead to burn outs or quitting entirely.

 

In summary, for the knowledge argument, Curtis Danskin said knowledge is power.

 

Both are Important

 

Of course, as you can see from the previous two sections, both are important. Julia Bykhovskaia said knowledge without taking action is useless and hustle without knowledge is like a high-speed, rudderless boat. It will just run aground. Chibuzor Nnaji said to have knowledge and add hustle to it, because you can know everything you need to know but what good does that do for you if you sit on your hands.

 

Neither are Important

 

I think my favorite response to this question was Adam Adams, who said that it is impossible to be successful without both. However, if you have knowledge, you can partner with hustle and if you have hustle, you can partner with knowledge. I am a firm believer that everyone has a unique talent and skill set, and that they should focus on applying that to their business while finding team members and partners who complement them.

 

What do you think? Comment below: What is more important to success in real estate, hustle or knowledge?

 

 

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thee laws of investing

The Three Immutable Laws of Real Estate Investing

Ask a room full of active real estate investors what they think is the most important factor that makes for a successful investment and a significant portion will respond with “it’s all about location, location, location.” The market in which you invest is one of the most impactful decisions you will make.

Or is it…?

Real estate investors have made money in every market across the country, and more recently the world, at every point in time since the first person purchased a piece of real estate for investment purposes. So, how can two investors investing in the same market see totally different results, with one thriving and one failing?

The answer is quite simply: the actual market means nothing if the investor cannot execute on the business plan properly.

This doesn’t mean that you can blindly invest in any real estate market. To maximize your chances of success, you should always evaluate a market before investing. However, from my experience scaling from a handful of single family rentals to controlling over $400 million in apartments, and from interviewing thousands of active, successful real estate professionals on my podcast, I identified a pattern.

I discovered that there are three laws that, when followed, result in a real estate investors ability to thrive in any market at any time in the market cycle. These Three Immutable Laws of Real Estate Investing are 1) buy for cash flow, 2) secure long-term, low leveraged debt and 3) have adequate cash reserves.

 

Law #1 – Buy for Cash Flow

The first of these three laws is buy for cash flow. The opposite of buying for cash flow is buying to appreciation. And in particular, natural appreciation. Natural appreciation is completely out of your control because it fluctuates up and down based on the overall real estate market and economy. Whereas forced appreciation is the bread and butter of value-add investors. Forced appreciation involves making improvements to the asset that either decreases expenses or increases income, which in turn, increases the overall property value.

Many investors, past and present, buy for natural appreciation instead of cash flow, 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 the casino by playing roulette and only betting on black. Yeah, maybe you can double up a few times, but sooner or later the ball lands on red or – even worse – green, and you lose it all.

That’s why you should never buy for natural appreciation. Instead, buy for cash flow. Because 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!

 

Law #2 – Secure Long-Term, Low Leveraged Debt

The second law is to secure long-term, low leveraged debt. The leverage that comes from financing 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 that money into a stock, you would control $100,000 worth of that stock (you can leverage a stock by investing in options contracts, but there is significantly more risk). On the other hand, if you wanted to invest all of that money in real estate, you could spend $100,000 on a down payment at 80% loan-to-value and control $500,000 worth of real estate. That’s the power of leverage from financing.

But there’s also a catch. With leverage comes a mortgage, which you must continue to pay each month. If you fail to make a payment or cannot sell/refinance once the loan comes due, the bank will take the property.

The less money put into a deal – or more specifically, the less equity you have in a deal – the more over-leveraged you are. Consequently, the higher your mortgage payments will be. In a hot market, over-leveraging may seem like a brilliant idea, but what happens when property value or rental rates start to drop? Well, if you purchase a property with less than 20% equity at close and the market drops by 5%, 10% or 20% (which has happened in the past) by the end of your loan term, you are forced to sell the property at a lower than projected price (maybe even at a loss) or you are forced to give the property back to the bank.

My advice? Secure a loan with a term that is longer than your projected hold period and have 20% equity in an apartment deal at minimum. You shouldn’t run into this problem if you are getting a commercial loan from a bank, as they will typically offer loan terms of 5, 7, 10, or 12 years and require at least 20% to 30% down. However, if you are pursuing a creative financing strategy, you may have the opportunity to purchase an apartment with a significantly less than 20% down and the length of the loan is completely negotiable. Don’t be tempted. Similarly, a bridge loan (a loan usually used to cover the purchase price and renovation costs before securing permanent longer-term financing) may offer a higher loan-to-value ratio and are generally 6 months to 3 years in length. In these cases, have 20% of the total cost (purchase price plus renovations) in the deal and make sure you have the ability to purchase enough extensions on the bridge loan to cover the entire hold period.

Technically, you will be able to secure a loan with a term that is shorter than your projected hold period and with less than 20% equity. But doing so will expose you and your investors to more risk. Although securing long-term, low leveraged debt, in tandem with committing to buy for cash flow, will allow you to continue covering your mortgage payments, avoid having negative equity in the event of a downturn and avoid being forced to sell/give the property to the bank.

 

Law #3 – Have Adequate Cash Reserves

The final law is to have adequate cash reserves.  

When you don’t have adequate cash reserves, you won’t have funds to cover an unexpected expense that occurs during operations. When you cannot cover an unexpected expense, you’ll need to either do a capital call, which will reduce your investors’ returns, or sell the property at a loss or give the property back to the bank if these expenses pile up.

To mitigate these risks, I recommend having an ongoing operating budget of at least $250 per unit per year in reserves. Additionally, to cover unexpected expenses that occur in the first year, create an upfront operating account fund equal to 1% to 5% of the purchase price. 

 

By sticking to these Three Immutable Laws of Real Estate Investing, don’t buy for appreciation, don’t over-leverage and don’t get forced to sell, your investment portfolio will not just survive, but thrive in any real estate market and in any economic condition.

 

Want to learn how to build an apartment syndication empire? Purchase the world’s first and only comprehensive book on the exact step-by-step process for completing your first apartment syndication: Best Ever Apartment Syndication Book

 

due diligence on apartment

The Ultimate Guide to Performing Due Diligence on an Apartment Building

After putting a deal under contract, 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 due diligence process on an SFR or smaller multifamily building, the lender will likely only require an inspection report and an appraisal report in order to provide you with financing. And then for your own knowledge, you’ll perform your own financial audit, comparing the leases and rent rolls with the historical financials to make sure the rental rates are in alignment.

 

When you scale up to hundreds of units, the increase in the number of potential risk points is such that the lender will require additional reports prior to financing the deal and you will want to obtain additional reports before deciding to move forward with the deal.

 

For the apartment community due diligence process, you’ll want to obtain and analyze the results of these 10 reports:

 

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

 

In this ultimate guide, I will outline the contents of each report, how to obtain them, the approximate cost of each (for apartment communities 100 units or more) and how to analyze the results.

 

1 – Financial Document Audit

 

The financial document audit is an analysis that compares the apartment’s historical operations to your budgeted income and expense figures you set when underwriting the deal.

 

For the audit, a consultant will collect detailed historical financial reports from the sellers, including the last one to three years of income and expense data, bank statements and rent rolls. The output of the analysis is a detailed spreadsheet of the asset’s historical income, operating expenses, non-operating expenses and net cash flow which are compared to the budgeted figures you provided.

 

The summary will take on a form that is similar to a pro forma, with the income and expenses broken down into each individual line item for an easy comparison on your end. They will also provide you with an executive summary document, which will outline how to interpret the audit, what data was used to create the audit spreadsheet and an explanation of any figures that deviate from your budget.

 

To obtain this document, you will need to hire a commercial real estate consulting firm that specializes in creating financial document audits. An approximate cost for this report is $6,000.

 

When you initially underwrote the deal, you set the income and expense assumptions based on how you and your team will operate the property once you’ve taken over. These assumptions came from a combination of the trailing 12 months of income and expense data and the current rent roll provided by the seller and the standard market cost per unit per year rates for the expenses.

 

Once you receive the results of the financial audit report, you want to go through each income and expense line item and compare them to the assumptions in your underwriting model. Ideally, the consultant that performed the audit already compared the results to your provided budget, made adjustments based on their expertise and any inputs you provided and commented on any discrepancies.

 

If any discrepancies were found or if the consultant recommended any adjustments, discuss them with your property management company to see if you need to update your budget. If you and your management company come to the conclusion that the budget needs to change, make the necessary adjustments to your underwriting model.

 

2 – Internal Property Condition (PCA) Assessment

 

The internal property condition assessment (PCA) is a detailed inspection report that outlines the overall condition of the apartment community.

 

A licensed contractor will inspect the property from top to bottom. Based on the inspection, the contractor will prepare a report with recommendations, preliminary costs and priorities for immediate repairs, recommended repairs and continued replacements, along with accompanying pictures of the interiors, exteriors and the items needing repair.

 

Being an internal report, you will be responsible for hiring a licensed commercial contractor to perform the assessment. An approximate cost for this assessment is $2,500.

 

During the underwriting process, you created a renovation/upgrade plan for the interior and exterior of the apartment community, which included the estimated costs. Once you receive the internal PCA, compare the results to your initial renovation budget.

 

The results of the internal PCA are preliminary costs, not exact costs. However, they will most likely be more accurate than the assumptions you made during the underwriting process. Therefore, if there are discrepancies between the contractor’s estimated renovation costs and your renovation budget, update the underwriting model to reflect the results of the internal PCA.

 

Hopefully, your initial renovation assumptions were fairly accurate. And ideally, if you made very conservative renovation cost assumptions, you discover that you over-budgeted and can reduce the costs in your underwriting model.

 

3 – Market Survey

 

The market survey is a more formal and comprehensive rental comparison analysis than the one you performed during the underwriting phase.

 

For the market survey, your property management company will locate direct competitors of the apartment community. Then, they will compare your apartment community to each of the direct competitors over various factors to determine the market rents on an overall and a unit type basis. A few key points on the market survey analysis is to make sure that your property management company uses apartment communities that are upgraded to a similar degree as how your apartment community will be post renovations and not in its current condition, that are in similar neighborhoods and that were built within a similar time period.

 

When initial underwriting the deal, you set your renovated rental assumptions based on a combination of performing your own rental comparable analysis and, if the sellers had initiated an upgrade program, proven rental rates. Compare the results of the market survey to your initial renovated rent assumptions. If there are any discrepancies, update your underwriting model to reflect the results of the market survey.

 

4 – Lease Audit

 

The lease audit is the process of examining the individual leases at the apartment community.

 

Your property management company will collect all of the leases of the current residents at the apartment community and perform an audit. They will analyze each lease, recording the rents, security deposits, concessions and terms. Then, they will compare the information gathered from the leases to the rent roll provided by the owner, recording any discrepancies.

 

Unless the current property management company was extremely incompetent, the discrepancies should be minor, if there are any at all, and it should affect your financial model.

 

5 – Unit Walk

 

A question my apartment syndication 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 the inspection of each individual unit at the apartment community.

 

During the unit walk, your property management company will inspect each individual unit. The purpose of the unit walk is to determine the current condition of each unit.  So, while conducting the unit walk, they will take notes on things like the condition of the rooms, the type and condition of appliances, the presence or absence of washer/dryer hookups, the conditions of the light fixtures, missing GFCI outlets, and anything else that stands out as a potential maintenance or resident issue.

 

Once you receive the unit walk report, compare the results to your interior renovation assumptions to determine the accuracy of your interior business plan.

 

Do the number of units that require interior upgrades match your business plan? Is there unexpected deferred maintenance that wasn’t accounted for in your budget? Are there a high number of residents who will need to be evicted once you’ve taken over the operations?

 

Using that data, you can create a more detailed, unit-by-unit interior renovation plan and calculate a more accurate budget. Make any adjustments to your interior renovation assumption on your financial model.

 

Most likely, your property manager will perform the market survey, lease audit and unit walk report, and they will usually do it for free. However, ask the property manager how much they will charge you for these three reports if you do not close on the deal. And if you have to hire a 3rd party to create these three reports, the cost is approximately $4,000.

 

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. I recommend reaching out to multiple companies to get a handful of bids for your project. The approximate cost for the site survey is $6,000.

 

The site survey report will list any boundary, easement, utility and zoning issues for the apartment community. Generally, if a problem is found during the site survey, the bank will not provide a loan on the property. So, if something does come up, your options are limited and should be addressed on a case-by-case basis. If the problem can’t be resolved, you will have to cancel the contract.

 

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. The cost is approximately $2,000.

 

Analyze this reports the same way that you analyzed the internal PCA. Then, compare and contrast the results of the two PCAs. Maybe the lender’s contractor caught something that your contractor did not, and vice versa.

 

8 – Environmental Site Survey

 

The environmental site assessment is an inspection that identifies potential or existing environmental contamination liabilities. It will address the underlying land, as well as any physical improvements to the property, and will offer conclusions or recommendations for further investigations of an issue is found.

 

The environmental site assessment is also performed by a 3rd party vendor selected by your lender. The approximate cost is $2,500.

 

Similar to the site survey, if the vendor identifies an environmental problem, the lender will not provide a loan for the property. Again, these issues should be addressed on a case-by-case basis.

 

9 – Appraisal

 

The appraisal determines the as-is value of the apartment community.

 

An appraiser will inspect the property, and then calculate the as-is value of the apartment community. The two appraisal methods that will be used to determine the value of the property are the sales comparison approach (i.e. comparing the subject property to similar properties that were recently sold) and the income capitalization approach (i.e. using the net operating income and the market cap rate).

 

The appraisal report is created by an appraiser selected by your lender. The cost is approximately $5,000.

 

Once you receive the appraisal, you should compare the appraised value to the contract purchase price. The lender will base their financing on the appraised value, not the contract price. Therefore, if the appraisal comes back at a value higher than the contract price, fantastic! That’s essentially free equity. However, if the appraised value is lower than the contract price, you will have to either make up the difference by raising additional capital or renegotiate the purchase price with the seller.

 

10 – Green Report

 

The Green report is an optional assessment that evaluates potential energy and water conservation measures for the apartment community. The report will include a list of all measures found, along with the associated cost savings and initial investment.

 

The report is created by a 3rd party vendor selected by your lender. The approximate cost is $3,500.

 

The green report, which is the only document that won’t disqualify a deal, will outline all of the potential energy and water conservation opportunities. It will list all of the opportunities that were identified, the estimated initial investment to implement, the associated cost savings and the return on investment. Deciding which opportunities to move forward with should be based on the payback period and the projected hold period of the property.

 

For example, following energy efficient opportunities were identified at an apartment project my company had assessed:

 

  • Dual pane windows
  • Wall insulation and leakage sealing
  • Roof insulation
  • Programmable thermostats
  • Low-flow showerheads and toilets
  • Interior and exterior LED lighting
  • Energy Star rated refrigerators and dishwasher

 

After analyzing the investment amount and cost savings, the opportunities we implemented, and the associated savings and payback periods were:

 

  • Low-flow showerheads: 1-year payback, $16,827 annual savings
  • Exterior LED lighting: 14.4-year payback, $3,236 annual savings
  • Pool cover: 1.5-year payback, $409 annual savings

 

The reasoning behind the low-flow showerheads and pool cover was that we planned on holding the property for 5-years, so once we paid back the initial investment amount, it was pure profit. We ended up losing money on the exterior LED lighting project. However, we installed these lights to increase resident safety.

 

You will find that the green report will list ALL opportunities, even if the payback period is absurdly long. If we implemented all the opportunities identified in the example above, the overall payback period would have been 91.9 years, with the longest payback period being 165 years for the Energy Star rated dishwashers. Unless we decided to hold onto a building until we died or unit they’ve discovered an immortality serum, we will stick to the opportunities that either result in a payback period lower than our projected hold time or address a resident safety concern.

 

How to Pay for the Due Diligence Reports

 

Usually, the costs of the due diligence reports will not be due until closing. So, when underwriting the deal, make sure you are taking these costs into account when determining how much equity you need to raise.

 

Other times, you will need to pay for a due diligence report upfront. If this is the case, you can do one of two things. You can come out-of-pocket and reimburse yourself at close. Or, you can take a loan from a third-party (maybe one of your passive investors) and reimburse the initial loan amount with interest at close.

 

Review the Results of Your New Underwriting Model

 

Based on the financial document audit, market survey report, lease audit report and green program report, you either confirmed or updated your income assumptions. Based on the financial document audit, you either confirmed or updated your expense assumptions. Based on the two property condition assessments and the unit walk report, you either confirmed or updated your renovation budget assumptions. Based on the appraisal report, you either confirmed the accuracy of the purchase price or determined that you have the property under contract at price that is below or above the as-is value. And based on the site survey and environmental survey, you determined if there is anything that disqualifies the deal entirely.

 

Once you have received the results of all 10 due diligence documents and made the necessary adjustments to your underwriting model, you need to re-review your return projections. If you had to make drastic changes to the income, expenses or renovation budgets in the negative direction, then the new return projections will be reduced. In some cases, the return projections will be reduced to such a degree that the deal no longer meets the return goals of you and your investors. Also, if an issue came up during the site survey or the environmental site assessment, which is rare, it will need to be resolved prior to closing. If the seller is unwilling or unable to address these issues, your lender will not provide financing on the property, which means you will have to cancel the contract.

 

If the updated return projections fall below your investor’s return goals, adjust the purchase price in your underwriting model until the projected returns meet your investor’s goals again. Then, explain to your real estate broker that you want to renegotiated the purchase price and state the reasons for doing so.

 

If the seller will not accept the new contract terms, don’t be afraid to walk away from the deal. At the end of the day, it is your job to please your investors, which means providing them with their desired return goals.

 

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win over apartment broker

4 Ways an Apartment Syndicator Can Win Over an Experienced Broker

Real estate brokers can be a great resources for finding on-market and off-market real estate deals. However, do not expect a real estate broker to automatically put you near the top of their go-to client list, especially if you haven’t completed your first syndication deal.

 

After finding a real estate broker, one of the biggest challenges you are going to face is proving that you are the real deal. From the real estate broker’s perspective, there is a lot of uncertainty. They’ll be thinking, “if I begin working with them, are they really going to pull the trigger on a deal?”

 

Therefore, in regards to your relationship with a real estate broker, your main focus needs to be proving that you are a serious, credible apartment syndicator who is capable of closing on a deal.

 

Don’t just take my word for it. Thomas “T” Furlow, who is a commercial real estate investor who has specialized in apartments for years, agrees. Experience real estate brokers won’t take a newbie investor at their word. They must prove, through action, that they are serious. In our recent conversation, he offered four tactics a newbie apartment syndication can implement in order to win over the trust of an experienced real estate broker.

 

1 – Consulting Fee

 

One tactic is to offer the real estate broker a consulting fee. To show that you are serious and that you respect their time, offer to pay them an hourly fee ($150 to $200 per hour), even if you don’t find a qualified deal. In return, you can use them as a consultant, including asking them questions, sending them potential deals to review, having them run rental or sales comp reports and – ideally – having them send you prospective off-market deals.

 

2 – Visit Their Recent Sales

 

Another tactic is to get in your car and drive to the real estate broker’s recent apartment sales. Ask them to send you a list of their most recent 10 apartment sales and visit those properties in person.

 

After visiting the 10 properties, follow-up with the real estate broker, telling them which properties meet your investment criteria and why. In doing so, you are not only portraying yourself as a serious investor but are also giving the real estate broker an idea of what type of apartment you are interested in acquiring.

 

3 – How Will You Fund Your Deals?

 

The third tactic is to provide the real estate broker with information on how you will fund a potential deal. Since we are apartment syndicators, we are raising money from accredited investors. Explain how many people have expressed interest or have verbally committed to investing. Tell them about the strategies you are implementing to find potential private money investors

 

Since you will likely be securing a loan, tell them about the mortgage brokers you’ve spoken with.

 

Anything else related to the funding of the deal should be communicated to the real estate broker to qualify yourself as a credible investor who has the financial capabilities to close a deal.

 

4 – Constant Follow-Up

 

Lastly, and most importantly, constantly follow-up. Whenever you perform a task that brings you closer to completing a deal, notify the real estate broker. A simple email will suffice.

 

For example, if you have a conversation with a lender, provide the real estate broker with their contact information and the outcome of the meeting (i.e. “I met with XYZ Lending. I told them about my business plan and they told me that I will qualify for a loan.”).

 

Once you’ve found a qualified property management company, send the real estate broker their biography.

 

Before sending out a direct mailing campaign, as well as when you start receiving phone calls from interested sellers, notify the real estate broker.

 

However, only follow-up with information that is relevant to completing an apartment deal. The real estate broker probably won’t care much about what you had for breakfast.

 

 

Overall, proving your seriousness to the real estate broker is about communicating your effort towards and commitment to finding and closing on an apartment deal. To accomplish this, you can offer a consulting fee, visit their recent sales, communicate how you will fund a potential deal and constantly follow-up with relevant information.

 

How about you? Comment below: What tactics have you implemented to win over a real estate broker?

 

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written goals

The Two Massive Benefits of Written Goals for Real Estate Investors

Each week, we post a new question to the Best Ever Show Community on Facebook. The Best Ever Show Community is a place where real estate entrepreneurs of all stripes and sizes can come together to interact with each other, me, and the guests featured on my podcast with the purpose of everyone helping each other reach the next level in their businesses and their lives.

 

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was “on a scale of 1 to 5, how important is it to have written goals for your real estate business?”

 

Step 1 of Tony Robbins’ Ultimate Success Formula is to know your outcome. He says clarity is power because where focus goes, energy flows. Once you define and write down a desired goal or outcome and make it your main point of focus, you will begin to – almost automatically – take the right action to achieve it. Therefore, writing down our goals gives us something to focus on, which allows us to narrow down the actions required to achieve our desired outcome.

 

I can tell that we have a lot of Tony Robbins’ fans in the Facebook community. Not only did the overwhelming majority (46 out of 51 responses) of active investors say that writing down goals is very important, but they also believe that they benefit from having written goals because it allows them to focus and take the right action that will lead them to achieving their goal.

 

That being said, the poll is closed and here are the results:

 

Written Goals = Focus

 

I think the quote that sums up the benefits of written goals in regards to focus is from Youseff Semaan, who said “If I don’t write my goals down, they remain thoughts in my head. By writing them down, they become tangible!”

 

A commonly referenced survey of Canadian media consumption by Microsoft in 2012 concluded that the average attention span fell to 8 seconds in 2012 from 12 seconds in 2000. Or to put it another way, humans have a shorter attention span than goldfish! So, focusing on our thoughts (and a goal that is only a thought) just isn’t realistic. Whereas if we’ve written our goals down, we can review them and refocus. Because, like Mark Ferguson said, “not only do [goals] need to be written down, [but] you need to have set times [when] you review those goals! It is too easy to lose track of what you really want.”

 

When we review our written goals, we become more and more focused. In regards to regularly reviewing our written goals, Michael Bishop quoted Napoleon Hill saying “repetition puts thoughts into your subconscious mind, and your subconscious mind has power to transmute desire into its physical equivalent.” Similarly, Nathan Nuckols said “what you [focus on] daily will eventually come to fruition.”

 

Even Mr. Miyagi and horse trainers understand the power of focus. Jay Helms said that goals are very important “for the same reason horses run with blinders on and the same lesson Mr. Miyagi kept trying to teach Daniel son – focus.”

 

There is a caveat, however, to focusing on your written goals. Curtis Danskin gave a warning, saying “if you fail to understand that goals are meant to morph and grow and change, you will surely experience disappointment. Goals are guides, a roadway with unexpected twists and turns, so keep up on them.” In other words, focus on your goals, but don’t become so focused that you pigeonhole yourself. Which leads us to the second benefit of written goal setting, which is that it allows us to take the right action steps towards achieving our desired outcome.

 

Written Goals = Right Action

 

Staring at a piece of paper with our goals written on it is a good start, but we also need to get out there and take action. Which is why Harrison Liu, who actually thinks that written goals aren’t very important, said “I have a goal that’s financial independence. After 17 years investing in real estate, I achieved that goal but never wrote it down. Taking action is a lot more important than writing on a piece of paper.” Looks like Harrison has been able to maintain his attention span while the rest of us are going the way of the goldfish!

 

Someone else who doesn’t right down their goals, but thinks they are very important is Eric Kottner. He said “as someone who doesn’t write down their goals, I have a lot of open time not know what to work on and [I] just wing it.” That is why we need to go a step further than just writing down our goals and regularly focusing on them. We need to also create a plan of action for how we will achieve them.

 

This includes determining the higher dollar tasks that make the biggest impact on our businesses. Micki McNie said “if I don’t have my goals written out along with specific action steps, I get stuck working on low dollar activities or distracted by shiny objections.”

 

It also means breaking own our long-term goal into smaller goals. Matthew Ryan said “without goals, you have no tasks that tell you what to execute on a quarterly, weekly and daily basis.” And Matt Anices said “I always write them down, long-term, short-term and daily.”

 

To tie the “focus” and “right action” together, I will end with a quote from a fortune cookie that Justin Grimes has taped to his car speedometer: “A dream is just a dream. A goal is a dream with a plan and a deadline.” So, without writing down your goals, focusing on them regularly and creating a plan of action, it is just a dream.

 

What do you think? Comment below: Why do you think it is important to have written goals?

 

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How a Passive Investor Qualifies an Apartment Syndicator’s Team

One of the three main risk points associated with passively investing in apartment syndications is the syndication team (the other two are the deal itself and the market). The best deal, from a projected returns standpoint, in the best market in the country may result in failure if the team cannot successfully execute the business plan. Therefore, prior to committing to a particular apartment syndicator or to a particular deal, a passive investor should qualify the main team members involved in the deal.

 

Before asking these questions, however, you need to qualify the actual apartment syndicator. Click here for a blog post for how a passive investor qualifies an apartment syndicator.

 

There are the 7 team members involved in syndication process: property management company, real estate broker, CPA, mortgage broker, real estate attorney, securities attorney and a consultant (optional). But the main team member is the property management company.

 

The property management company is the boots-on-the-ground force that is responsible for overseeing the ongoing, day-to-day operations of the apartment community. This includes marketing efforts to attract new residents, resident relations (like hosting resident events), managing turnovers, fulfilling maintenance requests, maximizing rents and occupancy levels, etc. If the syndicator is following a value-add or distressed investment strategy, the property management company will also oversee the renovation process.

 

Prior to investing with an apartment syndicator, you want to determine the credibility of the property management company, which you can accomplish by asking the following 8 questions:

 

  1. How long have they been in business?

 

A relatively new property management company might not have enough experience managing certain sized or types of apartments. Generally, the longer they’ve been in business, the better. For example, the property management company that we use has been in business for over 75 years.

 

  1. What geographic areas do they cover?

 

The property management company MUST have a presence in the market in which the apartment syndicator is investing. That means the company must be local to the market or, if they are a national property management company, must have a regional office located in the market.

 

  1. How many units do they manage?

 

Similar to the question 1, the property management company should manage multiple apartment communities in the same market. However, bigger isn’t always better, because if they manage too many units, they might not be able to provide the highest quality service. Also, if they have been in business for decades but only manage a handful of communities, that could be a red flag.

 

  1. How many units do they own?

 

If the property management company owns other apartment communities in the same market, it could be a conflict of interest. If the syndicator’s property and their property have a vacant 2 bed, 1 bath unit at the same time, which one are they likely to fill first? Not a deal breaker, but this is definitely something that you want to be aware of.

 

  1. What asset class do they specialize in?

 

The property management company MUST have experience implementing the same business plan that the syndicator is pursuing. For example, If the syndicator is following a value-add investment strategy, the property management company must have experience with value-add apartment communities.

 

  1. What are some of the names of nearby properties they are currently managing?

 

This proves that they are actually managing apartments in the local market. But it will also allow you to perform some research to see how the apartment communities are maintained. If you are local to the market, you can visit these properties in person. If not, you can perform online research by looking at the website and by looking at the property on Google Maps. Also, you can look up the apartment community on Google or Apartments.com to read resident reviews and see the overall rating.

 

  1. Have you worked with this company in the past?

 

Since you are ideally investing with a syndicator who has previous apartment experience, this shouldn’t be the first time they used their property management company. If the property management company doesn’t manage the majority of their portfolio in their target market, that could be red flag. So, if that is the case, a follow-up question would be to ask them why this management company doesn’t manage the majority of their portfolio.

 

  1. Is the property management company showing alignment of interests?

 

Alignment of interests are always important, but they are especially important if the syndicator doesn’t have a long, successful track record with apartment communities. There are five main ways that the property management company can show alignment of interest.

 

The lowest level of alignment of interests is the management company has a proven track record managing apartment communities that are located in the local market, has worked with the syndicator in the past and has followed the same investment strategy that the syndicator is implementing. Regardless of the experience level of the apartment syndicator, this level of alignment of interest should be shown.

 

The next level up is when the property management company has an equity stake in the general partnership.

 

The third level of alignment of interest is when the property management company invests their own capital in the deals.

 

The fourth level of alignment of interest is when the property management company invests their own money in the deal AND brings on their own passive investors.

 

And the highest level of alignment of interests is when the property management company signs on the loan.

 

Again: it is ideal that the syndicator has previous experience with apartments, but if they don’t, having alignment of interests with the property management company – or with other team members, like the real estate broker or a local apartment owner/consultant – can offset their lack of experience. If the syndicator does have experience, then the level two to five alignment of interests are less important.

 

 

Over the course of your communication with a prospective apartment syndicator, these are the eight questions you want to ask in order to determine the credibility and experience of their property management company.

 

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4 Ways to Acquire Real Estate with No Money Out-of-Pocket

Each week, we post a new question to the Best Ever Show Community on Facebook. The Best Ever Show Community is a place where real estate entrepreneurs of all stripes and sizes can come together to interact with each other, me, and the guests featured on my podcast with the purpose of everyone helping each other reach the next level in their businesses and their lives.

 

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was “how much money do you need to do your first deal?

 

Overall, the responses fell into two camps: no money down and money down, with the former camp winning out by four. 13 investors said $0 was needed for the first deal while 9 said some form of capital was required for the first deal.

 

I think the most interesting and educational aspect of these responses was from the winning camp (the $0 downers), who offered up their creative strategies for acquiring real estate with no money down. A common theme between all of the investors who believe that one can acquire their first deal with no money down is that one’s own money needs to be substituted with something else. There is no such thing as a no money down strategy that doesn’t require a high level of effort to offset the lack of capital.

 

That being said, the poll is closed, the responses are in and here are the four substitutes to your own money that can result in the acquisition of real estate with no money down:

 

1 – Knowledge

 

The first substitute is knowledge. Brandon Moryl said that it is a balance between money and knowledge. If you don’t have the money, you need to compensate with knowledge, and vice versa. Similarly, Harrison Liu said that getting started with no money is the easy part. The difficult part is having a profitable first deal. In both scenarios, the investor who wants to acquire their first deal with no money out-of-pocket is required to invest in their education. That means reading books and articles, listening to podcasts and picking the brain of experienced investors who are actively and successfully pursuing the same investment strategy they plan on implementing.

 

2 – OPM

 

The most popular substitute for your own money is OPM (other people’s money). In regards to fix-and-flip projects, Eric Kottner said you can go in with $0, but you’ll need to have access to funds to cover the down payment and rehab costs. And for rentals, you’ll need to make sure that you have at least one-years’ worth of rent in reserves and the down payment money. But for both of these scenarios, the funds can be OPM.  Ryan Groene said that you can partner up with a private money investor to purchase real estate with zero dollars out-of-pocket, but you will need a little bit of cash to pay for gas to visit properties and to pay for coffee or lunch when meeting with potential partners. Adam Adams says that you need as much money as the deal costs but it doesn’t need to come from you. Finally, Nathan Tabor says you can enter a deal with zero money down by partnering with a private money investor or partnering with the current owner in the form of seller financing. However, most of you won’t be able to snap your fingers and, poof, has access to OPM. But as an apartment syndicator myself, I have documented proven tactics for finding OPM, which you can learn about here.

 

3 – Leverage

 

Another substitute for your own money is leverage. Glen Sutherland purchased his first investment property by leveraging the existing equity in his personal residence. Elliot Milek financed 100% of his first investment property with a line of credit from a local bank. Hai Loc said that you can leverage credit cards. And Robert Lawry II said the someone can acquire their first investment property with $0, especially when all they have is $0. All it requires is leverage, learning and strategy.

 

4 – Resourcefulness

 

The final substitute for your own money is resourcefulness. For example, click here to learn how someone was able to acquire a property with a paperclip in one year! Similarly, Ash Patel said that sometimes hustle is better than money.

 

 

In reality, all four of these strategies require resourcefulness. But what is great about resourcefulness, creativity and hustle is that – unlike money – they are essentially unlimited. As long you are willing to put in the time, anything is possible.

 

 

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qualify an apartment syndicator

How a Passive Investor Qualifies an Apartment Syndicator

The syndicator, also referred to as the sponsor or general partner, is an individual or a group of individuals that puts an apartment syndication together. And, this entails a lot of responsibilities.

 

Their main responsibilities include creating the syndication team, selecting and evaluating a target market, finding a deal, qualifying or disqualifying the deal through underwriting, submitting an offer and negotiating the purchase price and terms.

 

Once a deal is under contract, their main responsibilities are to manage the due diligence process, confirm the underwriting assumptions, create the business plan, arrange the debt, secure the equity from passive investors and coordinate with the real estate and securities attorney to structure and create the partnership.

 

Once the deal is closed, they are responsible for the ongoing asset management of the project, which includes implementing the business plan, distributing the returns to the passive investors, communicating updates to the passive investors, visiting the property and frequently analyzing the competition and the market.

 

Essentially, they are responsible for managing the entire process from start to finish. Because of their heavy involvement in the process, the success or failure of the deal rests mostly on their shoulders. Therefore, rather than investing with the first apartment syndicator you find, you need to qualify them by asking questions.

 

The Business Plan

 

One of the first things you want to know is the general business plan they implement. Click here to learn more about the three apartment syndication options. This will segue into the next question, which is what is their past experience with this particular business plan? In particular, you want to know if they have taken a deal full cycle (from acquisition to sale) following this business plan and whether or not they were successful (which is determined by how the projected returns compared to the actual returns distributed to the passive investors).

 

Alignment of Interests

 

If the syndicator does not have previous experience implementing the business plan, that is not an automatic disqualifier. However, their lack of experience must be made up for by having a credible team and strong alignment of interests. And for the experienced syndicator with a proven track record of successfully implementing their business plan, having a partnership structure that promotes alignment of interests is the icing on the cake.

 

There are many other team members that are involved in the syndication process, but the three team members with the most involvement in the deal are the property management company, the real estate broker and – if the syndicator doesn’t have previous apartment experience – a consultant. And each of these team members bring different levels of alignment of interests to the deal. Generally, an experienced property management company results in the most alignment of interests, followed by an experienced syndication consultant or local owner who is active in the apartment industry, followed by an experienced real estate broker.

 

The syndicator themselves can also promote alignment of interests. For example, one of the common fees the syndicator charges in an ongoing asset management fee. If they put that fee in second position to the preferred return, that promotes alignment of interests. If you don’t get paid, they don’t get paid.

 

Additionally, they can promote alignment of interests by investing their own capital in the deal, whether that’s is their personal funds, company funds or by allocating a portion or all of their acquisition fee into the deal. By not having money in the deal, the syndicator isn’t exposed to the same level of risks as you are. If the deal performs poorly, they won’t get paid but they also won’t lose any capital either. Whereas, by having their own skin in the game, they are incentivized to maximize returns.

 

Another way to promote alignment of interest is for the syndicator, or a member of the team, to personally guarantee the loan as a loan guarantor.

 

Transparency

 

Another characteristic of a good syndicator is transparency. To determine the level of transparency, ask them about their ongoing communication process. How often do they send updates on the deal? Will they provide you with financial reports so you can review the property’s operations?

 

You also want to ask them what the communication process is when you have a question. Will they provide you with their cell phone number or direct email address? And if you do have a question, what will be the turn-around time?

 

You are trusting the syndicator with your hard-earned capital, so having transparency in regards to what they are doing with your money and how the deal is progressing is a must.

 

Credibility

 

A good question to determine the syndicators track record is to ask them how many of their passive investors have invested in multiple assets. Syndicators who have investors that continue to come back deal after deal is an indication that they have a proven track record of meeting and/or exceeding the projected returns. While the opposite may be true if the syndicator has a poor investor retention rate.

 

Similarly, ask the syndicator what percentage of their new investors come in the form of referrals. If they have a lot of referrals, that indicates satisfied investors who are motivated to share their success with friends and colleagues.

 

You can also gauge the reputation and credibility of a syndicator by their online presence. Are they easily found when you perform a Google search? Do they have a website? Do they create content in the form of a podcast or blog? You can learn a lot about a syndicator by performing online research prior to actually speaking with them.

 

 

The syndicator’s past experience with the apartment business plan, level of alignment of interests, transparency and credibility are important factors to understand when determining whether or not to passively invest in their deal.

 

If you are a current passive real estate investor, what do you think? Comment below: what do you look for when qualifying an apartment syndicator?

 

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Should You Focus on One or Multiple Real Estate Investment Strategies?

Each week, we post a new question to the Best Ever Show Community on Facebook. The Best Ever Show Community is a place where real estate entrepreneurs of all stripes and sizes can come together to interact with each other, me, and the guests featured on my podcast with the purpose of everyone helping each other reach the next level in their businesses and their lives.

 

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was “is it better as a real estate investor to focus on one strategy or more than one?”

 

Most, if not all, investors begin their real estate careers by focusing on one investment strategy. Although, some investors will start out with multiple strategies, like fix-and-flipping and wholesaling, or fix-and-flipping and rentals, or a combination of passive and active investing, or acting as a real estate professional (i.e. real estate agent, property management, etc.) while investing on the side. But, since the majority of first-timers focus on one strategy, the question really is, “is it better to continue to focus on your initial investment type or do you expand or transition into another?”

 

Another distinction to make before getting into your responses is between the types of focus. For example, I personal own three single-family homes and have syndicated over $300,000,000 in apartments. Even though I am technically involved in two distinct investment strategies (SFR rentals and apartment syndications), I wouldn’t say that my focus is on SFR rentals. However, for someone who completes 100 fix-and-flips per year while also wholesaling 30 to 50 properties is an example of an investor who focuses on more than one strategy.

 

That being said, the poll is closed, the results are in and here are the responses:

 

Of all the responses, three individuals were of the belief that investors should focus on a single strategy. Brie Jazmin advises that you focus on one strategy and know it very well. Eric Kottner thinks that investors should be highly specialized in one investment strategy. Randy Ramadhin has sampled a few different strategies, found the one that worked best for his particular situation and focuses solely on that. So, it took trying multiple strategies before he came to the conclusion that one great strategy is the best approach.

 

All of the other responses were one the side of focusing on multiple strategies. Although, they did not believe that ALL investors should focus on multiple strategies at ALL the times. For example, Danny Randazzo thinks that, assuming you know your market and you selected a market that has really good growth potential, it I better to expand to more strategies in one solid market instead of expanding into other markets using the same strategy.

 

Two investors think that, before expanding into other investment strategies, you need to master one strategy first. Kris Ontiveros said to focus on one and automate by creating systems (or hiring great team members) before you consider moving onto or expanding into another strategy. And Neil Henderson advises that the average person should only focus on one strategy. But once they’ve mastered it, they can consider branching out from there.

 

Julia Bykhovskaia thinks that, in theory, focusing on and understanding one investment strategy makes sense. However, that is not the case in practice. If real estate is all that you do, you will have multiple goals that one investment strategy cannot achieve (or at least not easily). You need money to both live off of in the here and now, as well as to use to invest in your longer-term strategy. So, if the longer-term strategy is apartment investing, for example, then you might need to supplement your apartment investing strategy with another one, like flipping, wholesaling, short-term rentals, etc., in order to accomplish your shorter-term goals of generating profit to pay the bills and to invest in apartments with. However, on the flip side, the difficult part with this approach is avoiding the real estate “shiny object syndrome” to stay focused and not overextend yourself.

 

Similarly, Ryan Groene thinks that it also depends on your investment goals. Some people see opportunities across many asset classes while others focus on one and still make money. Sam Zell is a rare exception, because he was a top investor across many asset classes for a long time and is still the top owner of mobile home parks.

 

Finally, Ash Patel discovered, due to his experience living through two market crashes, that it depends on the timing. In terms of real estate, single family, multifamily, commercial, industrial and medical all have someone different cycles. Additionally, if you can trade in several non-real estate related investment types, like energy, equities, currency, commodities and – his favorite – startups, you can attempt to exploit those markets too.

 

What do you think? Comment below: Is it better to focus on one or multiple real estate investment strategies?

 

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How the General Partner Makes Money from an Apartment Syndication

The types of fees and the range of each fee will vary from syndicator-to-syndicator. But every fee that is charged should be directly tied to a task that is explicitly adding value to the apartment deal.

 

In order to identify the fairness and reasonableness of the GP compensation structure, you need to understand 1) the types and standard ranges of the general partnership fees for the industry, 2) what tasks they are performing in return for those fees and 3) if each of those fees promotes alignment of interests between the LP and GP.

 

There a lot of different fees that the syndicator could charge, but here is a list of the seven fees that you will come across most often. An important disclaimer to make is that this is not a list of the fees that every syndicator will charge every single time. Rather most syndicators will mix-and-match the types of fees that charge, depending on the project.

 

1 – Profit Split

 

Depending on the type of LP compensation structure, the general partnership may earn a portion of the remaining profits after the preferred return is distributed.

 

For example, the LP may receive an 8% preferred return and the profits thereafter are split between the LP and GP. This split can be anywhere from 50/50 to 90/10 (LP/GP)

 

If the LP invested $1,000,000 into a property that cash flowed $100,000 for the year, assuming an 8% preferred return and a 50/50 split thereafter, the LP would receive $80,000 as a preferred return, plus another $10,000 as a profit split. Then, the GP would receive the remaining $10,000.

 

The profit split promotes alignment of interests because the GP is financially incentivized to operate the apartment community such that the annual return exceeds the preferred return. Because if they don’t, they are missing out on an opportunity to make money. Then for the passive investor, when the annual returns exceed the preferred return, the LP receives a higher annual distribution and – since the net operating income is directly tied to the property value – a higher distribution at sale.

 

On a related note, you want to confirm that at sale, the profit split is calculated based on the remaining profits AFTER the LP’s initial equity is return. Also, when the GP is outlining the LP return projections, you want to confirm that those projections are net of the GP fees. This means that you want to make sure that the projections they show you are AFTER the GP has taken their fees, because if not, the actual returns will be less than what they are showing you.

 

2 – Acquisition Fee

 

Nearly every apartment syndicator will charge an acquisition fee. The acquisition fee is an upfront, one-time fee paid to the GP at closing. The acquisition fee ranges from 1% to 5% of the purchase price, depending on the size, scope, experience of team and profit potential of the project.

 

Think of the acquisition fee as a consulting fee paid to the GP for putting the entire project together. It is a fee that pays the GP for their time and money spent on market research, creating a team (lawyers, CPAs, real estate brokers, etc.), finding the deal, analyzing the deal, raising money, securing financing, performing due diligence and closing.

 

3 – Asset Management Fee

 

The asset management fee is an ongoing annual fee paid to the GP in return for overseeing the operations of the property and implementing the business plan. The asset management fee is either a percentage of the collected income or a per unit per year fee. The standard percentage range is 2% to 3% while the standard per unit per year is $200 to $300.

 

The range of the asset management fee is usually based on the business plan. If the plan is to perform interior renovations and exterior renovations/upgrades, a higher asset management fee may be justified, because the GP will be heavily involved in ongoing oversight of the business plan. But the opposite is true if the property is already stabilized and up-to-date from day one. In other words, the more effort and time required by the GP, the higher the asset management fee. And since the asset management fee is directly tied to the collected revenue, if the business plan isn’t implemented effectively, the GP doesn’t maximize what they could make, which helps with alignment of interests.

 

Additionally, there is a higher alignment of interests with the percentage-based fee as opposed to the unit-based fee. Since the percentage-based fee is tied to the actual collected income, the lower the collected income, the lower the asset management fee. So, the GP is incentivized to maximize the income, which in turn will maximize your returns. Whereas the unit-based fee is a flat fee that remains the same regardless of the amount of collected income.

 

For another level of alignment of interest, the GP will put the asset management fee in second position behind the preferred return. That means that if the preferred return isn’t distributed, they won’t receive the asset management fee. Not every GP will have a compensation structure with the asset management fee in second position. So, for the ones that don’t, the alignment of interests is lower than that of the GP that does.

 

4 – Refinance Fee

 

A refinancing fee is a fee that is paid to the GP for the work required to refinance the property. Of course, if the business plan doesn’t include a refinance, the GP will not charge such a fee.

 

At the closing of the new loan, a fee of 1% to 3% of the total loan amount is paid to the GP. However, to promote alignment of interests, this fee should only be charged if a specified equity hurdle is reached. For example, the return hurdle may be returning 50% of the LP’s initial equity. If only 40% is returned, while that is still beneficial to the LP, the GP will not collect the fee. Therefore, this type of refinance fee structure incentivizes the GP to maximize the property value such that they will hit the equity return hurdle at refinance. And the LP benefits by receiving a large portion of their equity back and – again, since the property value is directly tied to the net operating income –  higher ongoing returns.

 

5 – Guaranty Fee

 

The guaranty fee is typically a one-time fee paid to a loan guarantor at closing. The loan guarantor guarantees the loan. The GP may bring on an individual with a high net-worth/balance sheet to sign on the loan to get the best terms possible. Or, the GP may sign the loan themselves, collecting the fee or deciding to forgo it.

 

At close, a fee of as low as 0.5% to 1% and as high as 3.5 to 5% of the principal balance of the mortgage is paid to the loan guarantor. The riskier or more complicated the deal, the higher the guaranty fee. If the GP doesn’t have a good relationship with the loan guarantor, that individual will charge a higher fee as well. In some instances, the GP will offer the loan guarantor a percentage of the GP (10% to 30%) in addition to the one-time upfront fee.

 

Also, the size of the fee depends on the type of loan. Generally, there are two types of debts: recourse and nonrecourse. Recourse debt allows the lender to collect what is owed for the debt even after they’ve taken collateral. Nonrecourse debt does not allow the lender to pursue anything other than the collateral (with a few exceptions or “carve outs,” like in instances of gross negligence or fraud). So, the guaranty fee will be higher for recourse loans compared to nonrecourse loans.

 

Since the loan guarantor is personally guaranteeing the loan, this promotes alignment of interests. Because if they project fails, the GP is personally liable.

 

 

6 – Construction Management Fee

 

The construction management fee is an on-going annual fee paid to the company overseeing the capital improvement process. If the GP has a hands-on role in the renovation process or if the GP has their own property management company, they may charge a construction management fee.

 

This fee ranges from 5% to 10% of the renovation budget, depending on the size and complexity of the improvement plan.

 

For some syndicators, this fee will be built into the asset management fee, while others will charge a construction fee on top of the asset management fee. When a GP charges both an asset management and construction management fee, it may reduce your ongoing returns, especially while renovations are being performed.

 

7 – Organization Fee

 

The organization fee is an upfront fee paid to the GP for putting together the group investment. This fee ranges from 3% to 10% of the total money raised, depending on the amount of money raised.

 

For some syndicators, this fee will be built into the acquisition fee, while others will charge an organization fee on top of the acquisition fee. When a GP charges both an acquisition and organization fee, your overall return may be reduced.

 

 

These are the seven type of fees you will most commonly come across as a passive apartment investor.

 

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The 3 Types of Real Estate “Retirement”

Each week, we post a new question to the Best Ever Show Community on Facebook. The Best Ever Show Community is a place where real estate entrepreneurs of all stripes and sizes can come together to interact with each other, me, and the guests featured on my podcast with the purpose of everyone helping each other reach the next level in their businesses and their lives.

 

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was “how much do you need/want to retire?”

 

Of course, this question implies that real estate investors actually WANT to retire, and based on the responses, this is definitely not the case. In fact, real estate investor’s views on retirement can be broken into three categories: 1) I will never retire for investing, 2) I want $X in order to retire and 3) If I reach my financial goals, I will shift my focus to other work.

 

When I asked the Best Ever Community why they initially became interested in real estate, only one response was loosely associated with retirement, which was the desire for financial freedom. Besides the correlation between early retirement and death, I think this is because individuals with a strong entrepreneurial spirit are attracted to real estate, and this spirit seems to never taper off or disappear. In fact, once people get a taste of real estate success, this entrepreneurial drive may even intensify!

 

That being said, the poll is closed and here are your responses:

 

Death is My Retirement

 

The most common response was that the investor planned on NEVER retiring. Dan Hanford sarcastically quipped that he didn’t even know what “retire” meant. Matthew Seaton, while wanting a bare minimum of $1 million by the age of 57, would prefer to continue working indefinitely, as the concept of traditional retirement sounds boring and outdated.

 

Dave Roberts needs 10 gazillion dollars in order to retire. This, I assume, implies that he doesn’t plan on ever retiring either – as a gazillion isn’t a real number J.

 

Jeremy Brown kind of specified a dollar figure that he wants to retire, which is three times what he is making now. However, every time his income increases, his goal of “three times what I am making now” remains the same. Scaling in real estate investing and achieving your targets will definitely do that to you!

 

For both Charlie Kao and Stone Teran to retire, it will have to be over their dead bodies – LITERALLY. Charlie envisions himself eventually reducing his working hours, but he will remain in the real estate game until his children bury him. Stone doesn’t have a magic number either. He plans on working until he dies, but with the expectation of working less hours and less strenuously as he gets older.

 

I’ll Take the Cash

 

One investor specified a dollar figure he would need in order to retire. Eric Kottner wants a net worth of $2.5 million and $250,000 per year in passive income by the time he turns 45. However, he didn’t specify if he would continue expanding from there, shift his focus to other entrepreneurial endeavors or enjoy a traditional retirement.

 

Shift in Focus

 

The third category of retirement is when an investor hits a specified “retirement number,” but rather than setting off into the sunset, they give themselves the permission to shift their focus to something else.

 

Melvin Music wants $1,000 per day for the rest of his life. It is more than he needs, but he wants that amounts so that he can “do a lot of good and help out a lot of folks.”

 

Neil Henderson’s bare minimum number is $700,000, assuming his personal residence is paid off and he doesn’t hold bad debt. At that point, he would work to maintain his business, but it would also open up a world of possibilities that would allow him to take greater risks.

 

Lia Martinez wants $5,000 per month, which she is on pace to achieve by August 2018. Outstanding! Then, her plan is to move to Peru and shift her focus to other work while maintaining her current real estate portfolio.

 

Julia Bykhovskaia, having a go big or go home mentality, wants a net worth of $20 million and a passive income of $500,000. Her reasoning for this goal is not to achieve it and be idle. It is because she wants the freedom to do what she wants (personally and work-wise), when she wants and with whoever she wants. Also, to be able to help people that she loves and to contribute to the causes she cares about.

 

What about you? Comment below: How much money do you need/want to retire? Or do you fall into one of the other two retirement categories?

 

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How 5 Real Estate Investors Turned Mistakes Into Cash

Each week, we post a new question to the Best Ever Show Community on Facebook. The Best Ever Show Community is a place where real estate entrepreneurs of all stripes and sizes can come together to interact with each other, me, and the guests featured on my podcast with the purpose of everyone helping each other reach the next level in their businesses and their lives.

 

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was “what has been your biggest learning opportunity (or mistake as some say) in your real estate career and what did it teach you?

 

I think Jonathan Twombly, who provided an outstanding answer to this question, said it best: “The only way to gain experience is by making mistakes.” Of course, mistakes are not the ONLY way to learn, and you should never TRY to make mistakes. But the point he is trying to make is that if all of your real estate endeavors go off without a hitch, you may begin to feel like YOU are entirely responsible for that fact. In reality, if you’ve never made a mistake in real estate, not only have you probably been lucky, but a sticky situation WILL arise eventually. When it does, if you have this sense of infallibility, it may be your downfall.

 

Whereas if you have made and successfully overcome mistakes in the past, you have gained the experiential knowledge that will allow you to avoid making that same mistake again or, if you are faced with the same or similar issue, to navigate it successfully. In some cases, facing and overcoming an obstacle may be the best thing to ever happen to your real estate business, as it forces you to reevaluate what you have been doing and determine if you need to alter your approach or entire strategy!

 

That being said, the poll is closed, the results are in and here are the responses:

 

Jonathan Twombly made two big mistakes. The first was not promoting his real estate business early enough and aggressive enough. The market is saturated with real estate entrepreneurs, so branding and promoting of your business is a must if you want to stand out from your competitors. For promotional tips, here are 8 ways to promote your real estate brand.

 

Jonathan’s second big mistake early on in his real estate career was allowing the property management company to put a manager on his property who lacked experience with that asset type, which caused a ripple effect of problems for YEARS, even after they were fired, replaced and long gone. Having one bad year, or even a few months, of management will negatively affect the operations for a long time. A large dip in occupancy results in a dip in revenue, which means you get behind on payables, investor returns, your returns and liquidity. And to make matters even worse, when you have liquidity problems, if an unexpected maintenance or capex issue occurs, you may not have the liquidity or cash flow to cover it, which results in out-of-pocket expenses, capital calls or even foreclosure!

 

In regards to the property management issue, this is overcome by properly screening the property management company prior to hiring them. Here are the best practices for interviewing and screening property management companies. In regards to the vacancy and liquidity issue, Jonathan always ensures that the cash flow on the property is high starting on day one and that he has a large reserve fund on hand to deal with unexpected issues.

 

Similarly, Ryan Gibson’s biggest mistake was hiring the wrong people in general. He learned that good people are what make your business and the world go ‘round. For the best hiring practices, check out our blog category on building your real estate team.

 

Jason Buzi is prime example of someone who realized he was making a mistake, completely changed his business model and benefited greatly as a result. In 2011, he and a friend wholesaled a property to a fix-and-flipper and made $12,5000. The buyers ended up rehabbing the property and netted $400,000. This deal made him realize that he was leaving MILLIONS of dollars on the table, so he started rehabbing properties himself in addition to his wholesaling. Based on this shift, he had his first seven figure year in 2013 and bought a personal residence worth over $1 million free and clear. If you are interested learning how you can net over $1 million per year as a wholesaler, click here.

 

Micki McNie’s biggest mistake was working with and trusting someone she didn’t know. She gave this person $40,000 to do a rehab without having looked at the house herself. As a result, she had a hard time selling the final product because this person didn’t prioritize the repairs and upgrades that actually attract buyers. Projects like updating the mechanicals or installing new windows were not performed. The lessons she learned were to always perform her own due diligence rather than trusting a partner, even an experience partner, to do it. Also, she learned to be much more cautious of new markets that she’s never worked in before. Another solution to the market problem is to use the ultimate guide to evaluating a target real estate market!

 

Lastly, Cheryl Oliphant’s biggest mistake was not buying based on positive cash flow, but for appreciation only. She learned that buying for appreciation is not investing, it’s speculation. In fact, not buying for appreciation is one of the three fundamentals to thrive in ANY real estate market. Click here to learn the other two.

 

What about you? Comment below: What has been your biggest learning opportunity (or mistake as some say) in your real estate career and what did it teach you?

 

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value add apartment

27 Ways to Add Value to Apartment Communities

Of the three main apartment syndication strategies, two (value-add and distressed) involve making improvements to the physical property or the operations in order to increase the revenue or decrease the expenses, resulting in an increase in the value of the apartment.

 

Regardless of whether you decide to pursue the active or passive apartment investing route, understanding the various ways to “add value” is a must.

 

As an active apartment syndicator, it is your job to identify the value add opportunities in a prospective deal in order to create a business plan that maximizes the projected returns for your passive investors.

 

As a passive investor, you need to be capable of analyzing a distressed or value-add syndicator’s business plan in order to determine if the opportunities identified are conducive with the property type, market, resident demographic, etc. and if they will result in an increase in revenue and/or decrease in expenses.

 

Five syndicators looking at the same apartment deal will create five different value-add business plans. Therefore, the ability to identity value add opportunities has a direct impact on not only the return projections but also the syndicator’s ability to even acquire the property in the first place. Generally, the most creative syndicator will underwrite the highest projected returns and, as a result, be able to find more deals that meet their investment criteria.

 

I break down the value-add opportunities into two categories – simple and advanced. Simple opportunities are more creative, require little to no capital or effort to implement and can be add to most sized apartments. Whereas advanced opportunities require more capital and more effort and usually only make financial sense on larger projects, with some only making financial sense on luxury apartment communities. However, the opportunities in both categories will result in an increase in property value and allow the community to standout against its competitors.

 

Simple Opportunities

 

1. Add washer and dryer: install washer and dryer units into all or a select number of units and charge a monthly premium. Another option is to create a laundry room and install coin-operated washers and dryers.

 

2. Stainless steel appliances: if the units have dated or black/white appliances, such as refrigerators, dishwashers, microwaves and/or stoves, upgrade to new stainless-steel appliances and charge a rental premium.

 

3. Appliance upgrade packages: for units that already have newer or nicer appliances, charge a rental premium.

 

4. Appliance rentals: offer rentals for common items like vacuums and carpet cleaners. This will also reduce the expenses associated with turnovers.

 

5. Upgrade light fixtures: installing new light fixtures is a quick and inexpensive way to make for a more aesthetically pleasing unit.

 

6. New hardware: Of course, units with new cabinetry in the kitchen and new vanities in the bathroom will demand a higher rent. However, a more inexpensive way to update the look of the kitchen and bathroom is to install new hardware, which includes new cabinet/vanity handles, sinks, toilets, faucets, showerheads, etc. Additional new hardware upgrades are new door handles and installing curtain rods.

 

7. Ratio Utility Billing System (RUBS): Implement a RUBS program, which bills back a portion of the water, sewer, trash, electric and/or gas expenses to the residents.

 

8. Parking: Rather than implementing the more advanced parking upgrades, charge a monthly or yearly fee for a guaranteed or premium location parking spot.

 

9. Pet fees: charge a one-time deposit or monthly fee for residents with pets. This strategy is best for apartments that already allow pets but do not collect a fee.

 

10. Location/view premiums: Each unit has its own unique view and location, with some being better than others. For units with better locations and views, charge a rental premium. Examples are first floor units, units near the front of the community or amenities, units with a view of a body of water or fountains, units with better surrounding greenery, etc.

 

11. Bike rack rental: depending on the market and resident demographic, install bike racks and rent them out for a monthly fee. Bike racks are best when the resident demographics are Millennial or Gen X.

 

12. Clubhouse rental: for large communities that have a clubhouse, offer to rent it to residents for special events at a flat fee.

 

13. Upgrading property management software: use the latest and greatest property management software to accurately calculate the market rents to ensure you are charging the correct rental rates.

 

14. Short-term leases: depending on the market, offer short-term leases or offer furnished units and list them on services like AirBnB or work with a corporate housing provider.

 

Advanced Opportunities

 

15. Demographic based amenities: construct specific amenities based on the demands of the renter demographic. From a generational perspective, Millennials prefer a resort-style living experience. They value convenience and flexibility so they will often seek apartment communities that offer high-tech amenities and services. These include free coffee in the common areas, high-speed Wi-Fi, in unit USB charging ports and a modern fitness center with fitness classes offered. Gen Xers also prefer high-tech home furnishings, but also concierge services and family-friendly features like playrooms, playgrounds and areas that offer family-friendly activities. Additionally, Gen Xers want easy access to washers and dryers and fenced in backyards. Finally, Baby Boomers demand larger living spaces (both individual units and common areas), state of the art fitness centers and common areas that offer fitness classes and social gatherings.

 

16. Patios or balconies: build patios for the ground level units and/or balconies for the non-ground level units and charge a rental premium.

 

17. Fenced-in yards or patios: increase privacy by constructing fences around the yards or patios of all or a select number of ground level units and charge a rental premium.

 

18. Carports: build a select number of carports and charge a monthly or yearly fee.

 

19. Extra rooms: add extra bedrooms, bathrooms, dining rooms, living rooms, sunrooms, etc. by erecting walls in larger units or building additions onto existing units.

 

20. Dog Park: if the apartment community has a large amount of unused green space and depending on the renter demographic, fence in an area and create a dog park. But don’t forget the poop bag stands!

 

21. Storage lockers: install storage lockers in the clubhouse and rent them out for a monthly or yearly fee.

 

22. Vending Machines: buy or rent vending machines and install them in the common areas.

 

23. Billboards: depending on the traffic and building codes, install billboards on the grounds and lease them to local businesses.

 

24. Daycare, after school or summer programs: attract the family demographic with the convenience of a childcare facility for daycare or after school/summer programs.

 

25. Coffee shop or convenience mart: I’m not talking about building a Starbucks or CVS/Walgreens. Just a small shop or cart that offers coffee and/or snacks, similar to those found in hotel lobbies.

 

26. Fitness center: update or construct a fitness center and offer free fitness classes like yoga, aerobics, spin, etc.

 

27. Miscellaneous: other advanced/luxury upgrades that can be offered for free (i.e. with the costs built into the rents) or a monthly/annual/one-time fee include a car-sharing service, 24-hour concierge, cooking classes, dry cleaning/laundry service, free Wi-Fi, iCafe, package delivery management, personal shoppers, pet grooming, rock-climbing wall, rooftop terrace, spa/massage center, tech/business center and a wine cellar.

 

 

Whenever you are analyzing a prospective apartment deal, run through this list of 27 simple and advanced upgrades to determine if they make financial sense based on the property type, market and renter demographic, which is accomplished by ensuring that the required capital investment is returned, and then some, during the projected holding period. And always make sure the projected rental premiums are confirmed by the property management company and are supported by the rental comps in the area.

 

What do you think? What value-add opportunities are missing from this list?

 

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active vs. passive

Active Vs. Passive: Which Is the Superior Real Estate Investment Strategy?

 

Originally featured in Forbes here.

 

When the average person thinks of real estate investing, they might imagine a billionaire who develops massive commercial properties, or an HGTV fix-and-flipper who turns a profit by converting a run-down property into someone’s dream home. With this mental representation, it’s no wonder more people aren’t real estate investors.

 

Obviously, this isn’t the case in reality. There are thousands of different real estate investing strategies from which to choose. The difficult part — aside from shedding the false belief that real estate investing is only for the rich —  is identifying the ideal investment strategy that fits one’s current economic condition, abilities and risk tolerance level.

 

Generally, entry-level investment strategies fall into two categories: passive and active investing. The question is, which one is best for you?

 

For our purpose here, I will define active investing as the acquisition of a single-family residence (SFR) with the goal of utilizing it as a rental property and turning over the ongoing management to a third-party property management company. Alternatively, passive investing is placing one’s capital into a real estate syndication — more specifically, an apartment syndication — that is managed in its entirety by a sponsor.

 

In order to determine which investment strategy is best for you, it is important to understand the main differences between the two. Based on my personal experience following both of these investment strategies and interviewing thousands of real estate professionals who have done the same, I’ve discovered that the differences between passive and active investing fall into three major categories: control, time commitment and risk.

 

Control

 

As a passive investor, you are a limited partner in the deal. You give your capital to an experienced sponsor who will use that money to acquire and manage the entire apartment project. You have no direct control over any aspect of the business plan, so you are putting a lot of trust into the sponsor and their team. However, this trust is established by not giving your money to a random, unqualified sponsor but through an alignment of interests. For example, the sponsor will offer you a preferred return, which means that you will receive an agreed-upon return before the syndicator receives a dime. Therefore, the syndicator is financially incentivized to achieve a return above and beyond the preferred return.

 

As an active investor, you can directly control the business plan. You decide which investment strategy to pursue. You decide the type and level of renovations to perform. You decide the quality of tenant to accept and the rental rate to charge. You determine when to refinance or sell. With for passive investing, all of the above is determined by the apartment syndicator.

 

Time Commitment

 

As an active investor, the advantage of more control comes with the disadvantage of a greater time commitment. It is your responsibility to educate yourself on the ins and outs of single-family rental investing. Then, you have to find and vet various team members. Once you have a team in place, you have to perform all the duties required to find, qualify and close on a deal. After closing, as long as you have a good property management company, it should be pretty hands-off. Although, if (really, when) something unexpected occurs, you’re responsible for making those decisions, which can come with a lot of stress and a lot of headaches.

 

Of course, it is indeed possible to automate the majority, if not all, of the above tasks. But that requires a certain level of expertise and a large time investment to implement effectively.

 

Passive investing is more or less hassle-free. You don’t have to worry about any of the actions described above. You just need to initially vet the apartment syndicator and vet the deal. From there, you simply invest your capital and read the monthly or quarterly project updates.

 

Risk

 

You are exposed to much less risk as a passive investor. You are plugging into an already created and proven investment system run by an experienced apartment sponsor who (preferably) has successfully completed countless deals in the past. Additionally, there is more certainty on the returns. You will know the projected limited partner returns — both ongoing and at sale — prior to investing. And assuming the syndicator conservatively underwrote the deal, these projected returns should be exceeded.

 

Active investing is a much riskier strategy. However, with the higher risk comes a higher upside potential. You own 100% of the deal, which means you get 100% of the profits. But, you also have to bear the burden of 100% of the losses. For example, a turnkey rental will likely cash flow a few hundred dollars a month depending on the market. The costs associated with one large maintenance issue or a turnover could wipe out months, or even years, of profits. A value-add or distressed rental has a huge upside potential. However, a common tale among distressed or value-add investors, especially the newer or less experienced ones, is projecting a certain renovation budget but finding an unexpected issue during the rehab process that drastically increases their budget, resulting in a lower or negative overall return.

 

Additionally, failing to accurately calculate a post-renovation unit’s rental premium will also result in the reduction or elimination of profits. While these profit reduction or elimination scenarios could technically occur with a passive investment, the risk is spread out across many investors, and a sponsor with a proven track record and a qualified team will mitigate these risks.

 

Real estate investing is for everyone, not just the moguls of the world. However, not all investment strategies are the same. It’s important to understand the pros and cons associated with each to determine which strategy will set you up for success.

Do You Want Financial Freedom or to Build a Real Estate Empire?

Each week, we post a new question to the Best Ever Show Community on Facebook. The Best Ever Show Community is a place where real estate entrepreneurs of all stripes and sizes can come together to interact with each other, me, and the guests featured on my podcast with the purpose of everyone helping each other reach the next level in their businesses and their lives.

 

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was “would you rather a) spend minimal time per week (5-10 hours) maintaining your business that makes $500,000 per year or b) work 50+ hours per week on your business making $2 million per year and growing?”

 

I really like this question because it is a reflection of the two main reasons why people are attracted to real estate investing: financial freedom or empire building.

 

Real estate investing allows you to build a portfolio that generates enough cash flow to cover your living expenses so that you can quit your corporate 9 to 5 job and do whatever you want with your free time. Real estate investing also provides you with the opportunity to build a multimillion or multibillion dollar company, which allows you to create jobs, donate MASSIVE amounts of money, build a legacy and pass on your wealth for generations to come, and ultimately automate the business over time to gradually increase your free time.

 

Whatever financial or lifestyle goals you have, there is a real estate strategy for you.

 

That being said, the poll is closed, the results are in and here are the responses:

 

Overall, option A (the 5-10 hours per week for $500,000 per year) defeated option B  (50+ hours per week for $2 million per year) 46 to 32.

 

The majority of the people who selected option A did so for similar reasons. They would use the $500,000 per year and the extra 30 to 40+ hours per week to generate more capital.

 

Scott Bower would take the $500,000 and spend some of his free time to learn how to put that money to work to get to the $2 million per year without having to work 50+ hours per week.

 

Similarly, Charlie Kao would select option A because if he was able to generate $500,000 per year while only working 5-10 hours per week, he’d likely have great systems and processes in place that would allow him to scale, if he wanted, in the future. Kimberly Banks Fawcett agreed because she couldn’t help but imagine all the other ideas she’d have time to make a reality with all of her free time.

 

Ryan Groene would select option A, but it would only be his side hustle. He would still work 50+ hours per week in total, with the remaining 35+ hours spent on creating a business that would generate $1.5 million or more per year.

 

Jamie L. Ware likes option A because his time is more valuable than money, and he would use that time to work on other ventures that could potentially add to the pot.

 

Others selected option A because their real estate goals are to achieve financial freedom and enjoy their free time however they want. Eddie Noseworthy would take the $500,000 while working 5-10 hours per week because even though money is important, it isn’t the most important. Finally, Eric Kottner’s whole point in starting a real estate business is to eventually make enough passive income to become lazy, which is achieved with option A.

 

A few people provided a hybrid answer. Joshua Ibarra would start with option B ($2 million for 50+ hours per week of work). But, after 10 years and automating the business, he would reduce his time commitment to 5-10 hours per week while still making $2 million or more per year.

 

Similarly, Ben Steelman would put in the 50+ hours now. Then, he would work towards ensuring that he was the “dumbest” person in his organization by building a great team. This will allow him to achieve his real estate goal, which is to create a business that thrives without him being the day-to-day driving factor so that he can eventually reduce his working hours.

 

Michael Beeman selected option B because if he just maintained a business, he would feel like he is dying. Additionally, he already works 50+ hours 6 to 7 days a week between his full-time job and real estate business and doesn’t have an issue with it.

 

Finally, Carolyn Lorence would go with option B because she loves her real estate business and enjoys creating. That’s because she doesn’t work “in” her business, she works “on” her business. Also, if she is growing her business, she will be able to provide opportunities for others in the process. She’d have a blast with this and make time for all the fun stuff by putting the right systems in place.

 

Overall, people selected the $500,000 per year working 5-10 hours per week so that they could use their free time to generate additional income or just be lazy. And people selected the $2 million per year working 50+ hours per week so that they could work towards automating the process and reduce their work hours.

 

What do you think? Would you rather a) spend minimal time per week (5-10 hours) maintaining your business that makes $500,000 per year or b) work 50+ hours per week on your business making $2 million per year and growing?

 

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How to Create the Largest Real Estate Meetup in Your Market

In a previous blog post, which you can read here, I provided meetup three case studies that can be used as a guide, or replicated entirely, for creating your own meetup group in your market.

 

However, at the 2018 Best Ever Conference, I had an insightful conversation with Adam Adams, who created the largest meetup group in Denver. I walked away from that conversation with the four creative tactics he uses to quickly and continually grow his meetup group.

 

If you’ve already established a meetup group, no problem! Because these can be applied to both starting a meetup group from scratch or massively scaling an existing group.

 

1 – Host a Weekly Meetup

 

The first tip was to host a weekly meetup group, as opposed to monthly or bimonthly. The main assumption behind this tactic is that the more meetups you host, the faster it will grow. Therefore, by hosting weekly meetups, your group will grow 4 to 5 times faster!

 

This tactic is most effective when you are starting a meetup from scratch. The exception would be to ask the members of your existing meetup group for their thoughts on increasing the meeting frequency. Or, if you are in a larger market, you can continue hosting your monthly meetup group, but also start hosting three other meetup groups at different submarkets or neighborhoods across the city.

 

Also, this tactic is most effective when your meetup structure either involves inviting a speaker or is such that people have a reason to attend more often than once a month.

 

For example, one of the meetup case studies I outlined in a previous meetup blog post was on an investor who hosts his meetup more frequently than once a week (4 times a week). Even though most of the members only attend a few meetups per week, his success proves the weekly meetup concept.

 

On the other hand, each of Adam’s weekly meetups feature a guest presenter. Since you need to book a new speaker each a week, this structure requires a little more effort on your part. However, the reason why putting forth his extra effort is worth it ties into tactic number 2…

 

2 – Invite a Speaker

 

Inviting a guest speaker to present valuable information to the group is not only advantageous because it will naturally attract more people, but also because you can leverage the speaker to proactively attract even more attendees.

 

Out of all the tactics, this is Adam’s most creative. Let’s say you invite a multifamily investor to give a presentation on five ways to find off-market apartment deals. Once they’ve confirmed, go online, find local multifamily groups/networks and personally invite members of those groups/networks to that specific meetup.

 

On Meetup.com and Facebook, find the local multifamily group and message the most recent 30 to 50 members. On LinkedIn, either follow a similar approach or search for local individual professionals that are involved with multifamily and send them a message. On BiggerPockets, perform a search to find members who are local and involved with multifamily and invite them to your meetup.

 

Regardless of which approach you follow, you will send the same message. If you have a multifamily speaker, the message should say, “Hi. I host a real estate investing meetup group in (insert your city). At our next meeting, we have a multifamily investor that will be presenting on how to find off-market deals. I saw that you are involved in the multifamily niche and thought that you would find value in attending. Do you want me to send you a link so you can sign up for the meeting?”

 

Don’t just send them a link. Instead, ask them if they want you to send them the link. Adam has tried both strategies and found that messages where he asks to send the link have a higher response and conversion rate.

 

3 – Cap the Event Size

 

Another minor, yet extremely effective, strategy is to place a cap on the number of people who can attend the meetup. If you are posting your meetup on Meetup.com, you will have the option to limit the number of available spots.

 

The purpose of capping the event size is two-fold. One, it promotes scarcity. When someone visits the meetup page and sees that there are only a few spots remaining, they are more likely to sign up.

 

The other reason is to have a meetup that always reaches capacity. Now, you may be asking, “Well how do I determine the number of spots to offer in order to reach capacity?” Adam’s answer is that you don’t have to! Let’s say you are hosting your first meetup group. Once you create the invitation, set the number of available spots to 10. If the event sells out, you can manually move the people on the “waitlist” to the “attending list” or you can increase the number of spots. However, on the day of the meetup, before leaving your house, edit the number of available spots so that it equals the number of people attending. In doing so, you will technically always reach capacity.

 

The reason why you want to always reach capacity is so you can leverage that fact when inviting guest speakers. What invitation sounds more attractive, A or B?

 

  1. “Hi. I host a weekly meetup group. We currently average 10 members per meeting. Would you be interested in being our featured speaker next week?”
  2. “Hi. I host a weekly meetup group. Every meeting has completely sold out! Would you be interested in being our featured speaker next week?”

 

Positioning your meetup as always reaching capacity will increase its desirability in the eyes of potential speaker, which will also increase the chances of them accepting your invitation.

 

4 – What Happened and What Will Happen?

 

The last tactic is to continuously contact the members of your group. However, this doesn’t mean bombarding their inbox with useless emails. Only contact the members when you have a new piece of information to share. Adam broke down the times that it’s relevant to contact members of your meetup group into two categories: what has happened and what will happen.

 

For example, at each meetup group, take a lot of pictures. The next day, post those pictures to your social media page, tagging those in attendance and thanking them for coming. Or, if you had a presenter, write a quick blog post that recaps the top takeaways.

 

When you book at new speaker, send a message out to the meetup members, notifying them on who the presenter is and what they will be speaking on. Send a reminder a week and a day before an upcoming meetup. If you come across a piece of real estate content that will add value to your members businesses, send them a link.

 

The purpose of these messages is to create a sense of community. Because with a strong sense of community, members are more likely to continue coming back and are more likely to invite their friends or business colleagues.

 

 

Huge thanks to Adam Adams for providing these tips, and I am looking forward to hearing your success stories after you’ve applied these tactics to your meetup!

 

The 12 Greatest Mentors of All-Time

Each week, we post a new question to the Best Ever Show Community on Facebook. The Best Ever Show Community is a place where real estate entrepreneurs of all stripes and sizes can come together to interact with each other, me, and the guests featured on my podcast with the purpose of everyone helping each other reach the next level in their businesses and their lives.

 

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was “you can choose ANYONE to mentor you, dead or alive. Who would it be and why?”

 

To attain your ultimate real estate or business goals, interacting with an actual mentor is vital – or, at the very least, it will aid in increasing the probability of succeeding or expediting the speed in which you achieve massive success.

 

However, an alternative or complementary strategy is to study the unique individuals, past and present, who accomplished greatness. By analyzing the lives of such people, we can determine the habits and strategies the resulted in their success and apply those to our businesses. And what better way to compile a list of history’s greatest minds than by learning about the mentors of active, successful real estate entrepreneurs!

 

That being said, the poll is closed, the responses are in and here are the answers:

 

If you know me, you already know my answer – Tony Robbins. He distills complicated psychological and mindset advice into simple and digestible tidbits and is an AMAZING motivator. If you haven’t yet, I highly recommend reading his best-seller, Awaken the Giant Within.

 

Tim Rhode chose Gandhi because he quietly led a successful movement and did not lose his soul in the process. External success is important, but internal success may be of equal or even greater importance. Click here to purchase Gandhi’s autobiography to learn about how he developed his philosophy that changed an entire country.

 

Grant Rothenburger chose Napoleon Hill for his psychological and mindset advice. A “Tim Ferriss” of his time, Napoleon compiled the principles of the multimillionaires of the 19th and 20th centuries into his world-famous book, Think and Grow Rich, which you can purchase by clicking here. Although, I am sure you’ve read it at least once in your life!

 

Dylan Borland provided a unique answer. He selected Nikola Tesla so that he could get his hands on the plans for Tesla’s perpetual energy device. Of course, I am sure Dylan would reinvest the billions of dollars in profit back into real estate. Nonetheless, click here to purchase a copy of Tesla’s autobiography for a glimpse into the mind of a creative genius.

 

Devin Elder chose Jesus Chris, as he couldn’t think of a more impactful figure in history.

 

Mitchell Drimmer chose Winston Churchill, a Prime Minister of the United Kingdom in the 20th century, because he was resolute. Click here to purchase his autobiography in which he explains how he overcome adversity and major setbacks during the first 30 years of his life.

 

Lennon Lee selected a mentor who is still living – Tim Ferriss. Through Tim, he would get curated bits and pieces of advice from a tribe of mentors. I think Lennon was implying that Tim’s newest book, Tribe of Mentors, is a must read!

 

Eddie Noseworthy picked Rob Dyrdek, who is probably most commonly known for his successful reality TV shows like Rob & Big, Rob Dyrdek’s Fantasy Factory and Ridiculousness. Eddie chose him because Rob seems to squeeze every inch of fun out of the day while being a super successful entrepreneur. Eddie also likes that fact that he has been successful in multiple industries that most people might say he has no business in, which is a testament to his drive and determination.

 

Paul Hopkins chose Richard Branson, because he has started multiple billion-dollar companies and he lives life on the edge. In his autobiography, Losing My Virginity, Richard provides a blueprint to how to balance achieving massive levels of business success and living life to the fullest.

 

Amber Peel went with Beyonce because of her admirable authenticity and legendary work ethic.

 

Going back to the grave, Ryan Groene selected John D Rockefeller. Even though many see him as a negative oil tycoon, Ryan selected him because to amass such an empire, you must know a little something (or a lot of something) about business. Rockefeller’s biography, Titan, is very popular amongst entrepreneurs.

 

Lastly, we have Randy Ramadhin, who chose John Willard Marriott because his legacy is worldwide and will endure for generations. In his autobiography, he shares both the story of and the recipe for the success of Marriott International, one of the world’s leading hotel companies.

 

What do you think? Comment below: you can choose anyone to mentor you. Who would it be?

 

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8 Step Process For Selling Your Apartment Community

You’ve acquired a new asset, completed your value-add business plan and have been distributing higher than projected returns to your satisfied investors – or if you’re just an apartment investor, to yourself –  for the past few months.

 

You think your investors are satisfied now? Well, they are going to be ecstatic when they receive that massive distribution upon sale! So, when and how do you sell your apartment community?

 

One of your responsibilities as an asset manager is to evaluate the market in which your property is located on an ongoing basis. Once you’ve stabilized the asset, completing all of the value-add projects, estimate the property value at least a few times a year. Find the current market cap rate and, using the net operating income, calculate the value of the asset.

 

Even if your business plan is to sell in five years, don’t wait until then to evaluate your asset. You may be able to provide your investors with a sizable return if you sold, or refinanced, before the end of your initial business plan.

 

If you get to the end of your business plan and the market conditions are not such that you can sell the asset and meet your investors return expectations, don’t be afraid to hold onto the property longer.

 

When the market conditions are right, here is the 8-step process to sell your apartment community:

 

 

1 – Be Mindful of The Sale

 

As you are approaching the end of your business plan, or when you determine that it makes financial sense to sell earlier, be mindful of the sale. The value of the asset is dependent on the market cap rate (which is outside of your control) and the net operating income. In order to maximize the value, you want to maximize the net operating income, which means maximizing the income and minimizing the expenses.

 

Once you’ve made the decision to sell, don’t start certain projects if the payback period extends past the sale’s date. For example, if you plan on selling in three months, it doesn’t make sense to renovate a unit for $5,000 to get a $100 rental premium.

 

Consider spending a little bit more money on marketing to increase occupancy. Offer more concessions than you usually would to increase rental revenue. Pursue collections a little harder than usual.

 

Overall, look at your profit and loss statement and see which income and expense line items can be improved in the months prior to listing the asset for sale.

 

 

2 – Send Your Lender a Notification of Disposition

 

When you decide to sell, you will need to notify your lender. To do so, you need to send them an official notification of disposition. This is typically two months prior to listing the apartment for sale to the public. Work with your experienced attorney to draft the notification and send it to your lender.

 

Depending on the loan program you used, you may have a prepayment penalty. Keep that in mind when deciding to sell, because a large prepayment penalty will drastically reduce your sales proceeds.

 

 

3 – Request a Broker’s Opinion of Value

 

Based on your evaluations of the market, if you are confident that you can sell your apartment at the price you need in order to get the returns you want, the next step is to find a listing broker. It’s easy to write down a value that makes you happy, so you’ll want to get a relatively unbiased second opinion without having to shell out a few thousand dollars for a full appraisal.

 

You want to find a broker who is the best fit to sell the property. Loyalty is important in this business, so I recommend using the same broker who represented you when you purchased the asset. But, there might be reasons why you want to go with someone else. If that is the case, reach out to two or three of the best brokers in the market and ask them for a Broker’s Opinion of Value (BOV). Send them whatever information they request (T12, rent roll, etc.).

 

When you receive their opinion of value, ask them a few follow-up questions. You need to be confident that they can sell the property at that value. Ask them questions like:

 

  • What valuation approach did you use?
  • What types of buyers do you typically sell to? What size and price range do they invest in?
  • Why do you feel confident that those buyers will purchase this asset at this price?
  • Have you sold similar assets recently?

 

Based on the value and follow-up questions, select a broker to list the property.

 

 

4 – Start a Bidding War

 

Over the next six weeks or so, your broker is going to create the offering memorandum and market the apartment to the public to whip up a whole lot of interest. Interested parties will come visit the property and follow the same approach that you did when you purchased the property – talk to the property manager, tour units, inspect the exteriors, analyze rent comps, run the numbers, and submit an offer. The goal is for your broker to create a bidding war in order to push up the offer price and get you the highest offer price possible.

 

 

5 – Screen Out Newbies with a Best and Final Call

 

Once you stop accepting offers, you will review the submissions and have a best and final call with the top offer or offers to qualify the buyers.

 

You want to know about their track record, funding capabilities and proposed business plan to gauge their ability to close. Ideally, you sell to a sponsor with a large track record. You don’t want a newbie that has to back out of the deal during the due diligence phase because they cannot fund the deal, did poor underwriting, etc.

 

 

6 – Negotiate a Purchase Sales Agreement

 

Select the best offer and negotiate a purchase sales agreement (PSA). Have your experienced attorney draft a PSA. Don’t let the buyer draft the PSA, because you want to start the negotiation with terms closest to where you need them to be, and not the other way around. Send them the PSA for their attorney to review. You’ll likely go back and forth to negotiate the terms of the contract, with the end resulting hopefully being reflective of what was in their letter of intent.

 

This negotiation process typically takes about a week. Sometimes longer, but usually not shorter.

 

7 – Fulfill Obligations During Due Diligence

 

When the negotiations have concluded and both you and the buyer have signed the PSA, the due diligence period begins. The buyer will be required to adhere to the schedule agreed upon in the PSA (i.e. they have X number of days to perform due diligence, Y number of days close, etc.). And you owe them whatever it is you agreed to in the PSA (i.e. they can come to the property with 24 hours’ notice, they can look at your bank statements, financials, leases, marketing material, etc.).

 

Best case scenario is that nothing comes up during the due diligence period and you sell the property at the price and terms defined in the PSA. If something does come up, there may be additional negotiations back and forth with the seller on either the terms, purchase price or both.

 

Once the due diligence is completed, the buyer will work with the lender and title company to finalize things in preparation of closing.

 

 

8 – Close and Distribute Sales Proceeds

 

A few days prior to the officially closing date, you will sign the hundreds of execution documents. Then, on the day of closing, you will be wired the sales proceeds.

 

Distribute the sales proceeds to your investors according to what you and your investors agreed to. They will then go from satisfied to ecstatic and will be ready to start the process all over again!

 

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$1 million

The 6 Best Uses of $1 Million as a Real Estate Investor

Each week, we post a new question to the Best Ever Show Community on Facebook. The Best Ever Show Community is a place where real estate entrepreneurs of all stripes and sizes can come together to interact with each other, me, and the guests featured on my podcast with the purpose of everyone helping each other reach the next level in their businesses and their lives.

 

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was “you’ve just been given $1,000,000. What’s the first thing you do?”

 

Thank you to everyone who responded. While most of us won’t be handed $1 million any time soon, I do believe this is a good thought experiment. How we answer this question can shine a light on our top priorities or help us clarify our real estate goals.

 

That being said, the poll is closed, the responses are in and here are the answers:

 

1 – Invest

 

The most common response was to invest the $1 million into some sort of real estate product.  Some answers were general, like finding another deal that adheres to a current investment strategy (Craig Hyson), upgrading from single-family or smaller multifamily investing to apartments (Barri Griffiths, Mark Alexander Davidson) or investing in real estate to live off the interest (Andrew LeBaron).

 

Others had more specific action plans. Justin Shepherd would grow the $1 million to $10 million by investing in a deal with 30% cash-on-cash return, and then rinse and repeat. Justin Kling would use the $1 million for a 25% down payment on a $4 million apartment complex at $50,000 per door. The 80-unit ($4 million / $50,000 per unit) would ideally cash flow $200 per door, which is $16,000 per month or $192,000 per year. That’s enough cash flow to live off of if you ask me. Iqbal Mutabanna would take half and reinvest in his real estate business by purchasing an asset that produces a 10% cash-on-cash return

 

Spencer Leech’s strategy would result in the largest investment. He would find a cash flowing C-class apartment community in a secondary market that is stabilized or required light rehabs. At 75% LTV with 20% of the down payment being private equity and 5% being his $1 million, he’d acquired $20,000,000 in apartment assets.

 

Two other active investors would also invest, but in a non-real estate related product. Deren Huang would lock into a 1-year CD. Glen Sutherland would go to a lender to secure a larger loan to invest with. And Eric Kotter would invest in other real estate investors by offering private lending and transactional funding.

 

2 – Pay Off Debt Obligations

 

Another popular use of $1 million is paying off existing debt obligations. Craig Hyson and Deren Huang would pay off the mortgages on their current investment portfolio, which would drastically increase their cash flow and leveraging abilities. Eric Kotter and Amy Wan would pay off their personal debts. Eric would eliminate all personal debt, while Amy would pay off her and her husband’s student debt. By paying off their personal debt, they can redirect those monthly debt payments into real estate investments.

 

3 – Save

 

One of the less aggressive approaches is to save the $1 million. Eric Kotter would set aside a portion of the $1 million for taxes, and Iqbal Mutabanna (who used $500,000 to invest with) would add $200,000 to a rainy-day fund.

 

4 – Gratitude and Contribution

 

The most altruistic first step after receiving $1 million is to express gratitude or donate a portion of the proceeds. Since someone just gave you $1 million, it only makes sense to pass that on, right?

 

The first thing Jason Scott Steinhorn and Dave Slaughter would do is say thank you to whoever gave them the money. In terms of contribution, Andrew LeBaron would pay tithing, Justin Kling would give away 10%, and Iqbal Mutabanna would use his remaining funds for tithing ($100,000) and donating to charities ($200,000).

 

5 – Strategize

 

A very rational first step after acquiring $1 million is to take some time to strategize and come up with the most effective use of the money.

 

Neil Henderson would make an appointment with his accountant to discuss tax strategies. Nick Fleming would hire a world-class mentor/business coach and start hiring really talented employees, both of which will 10x his business. Charlie Kao would refocus by creating new goals and a new business plan, working towards growing his money long-term. And Deren Huang would make sure he remained level headed and didn’t make any impulsive decisions, because he doesn’t want to live out the reality of many lotto-winners who end up bankrupt after a couple of years.

 

6 – Minor Adjustments to Business or Life

 

Two investors wouldn’t make a massive change. Tyler Weaver would hit up the gym, get a good night’s sleep and have a reasonable breakfast, because he needs a solid state of mind to take good care of his money. Devin Elder wouldn’t make any fundamental changes either. He would just put the money in the operational account of his house flipping business. The only changes he would consider making is to discontinue using private money lenders on a few deals or expedite a few fix-and-flip projects with the extra capital.

 

 

I think all 6 of these strategies are great ways to use $1,000,000, but what do you think? Comment below: If someone gave you $1 million, what is the first thing you would do?

 

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What is Your Ideal Passive Apartment Investment?

Last updated 9/28/18

 

After reviewing the differences between active and passive real estate investing, assessing your current economic condition, ability and risk tolerance level, you’ve decided to passively invest in apartment syndications.

Great! You are one step closer to investing in your first deal. So, what’s next?

Similar to determining your ideal general investment strategy (i.e. active vs. passive), you need to establish your ideal passive investment. And in order to establish your ideal passive investment, you need to know what your options are first. In particular, you need to learn about the different types of apartment syndications in which you can passively invest your money and the benefits and drawbacks of each.

Generally, apartment syndications fall into one of three categories: turnkey, distressed or value add.

 

1 – Turnkey Apartment

Turnkey apartments are class A properties that require minimal to no work after acquisition. These properties are fully updated to the current market standards and are highly stabilized with occupancy rates exceeding 95%. Therefore, the turnkey business model is to take over the operations and continue managing the asset in a similar fashion to the previous owners. No renovations. No tenant turnover. Nothing fancy.

Of the three apartment syndication strategies, investing in turnkey apartments has the lowest level of risk. The property is fully updated and fully stabilized at acquisition. The risks associated with performing renovations, which include overspending, unexpected capital expenditures, bad contractors, incorrect rental premium assumptions, etc., and turning over a large percentage of tenants are minimized. Additionally, the asset will achieve the projected cash flow from day one, because the revenue pre- and post-acquisition remains the same.

The drawbacks of the turnkey apartment syndication strategy are the lower ongoing returns and the lowest upside potential compared to the other two apartment types. Because the property is fully updated and stabilized, there isn’t room to increase the revenue of the property. Therefore, the ongoing returns are and remain in the low to mid-single digits. Additionally, since the value of the asset is calculated using the net operating income and the market cap rate, unless the overall market naturally appreciates, the property value will remain the relatively stable. As a result, there is little to no upside potential at sale. Most likely, you will receive your initial equity investment back with minimal to no profit.

 

2 – Distressed Apartment

On the opposite of the end of the spectrum is the distressed apartment. Distressed apartments are class C or D assets that are non-stabilized with occupancy rates below 85% and usually much lower due to a whole slew of reasons including poor operations, tenant issues, outdated interiors, exteriors, common areas and amenities, mismanagement and deferred maintenance. Generally, distressed apartment syndicators will take over and, within a year or two, stabilize the asset by addressing the interior and exterior deterred maintenance, installing a new property management company, finding new tenants, etc. Then, they will either continue their business plan to further increase the apartment’s occupancy levels and/or rental rates or they will sell the property.

The major advantage of passively investing in a distressed apartment is the upside potential at sale. Once the asset is stabilized the revenue – and therefore the value – will increase dramatically, resulting in a large distribution at sale.

The drawbacks of distressed apartments compared to the other two types are being exposed to the highest level of risk and receiving the lowest ongoing returns. The high upside potential at sale also comes with the risk of losing ALL of your investment. There are a lot of variable to take into account with a distressed apartment, which means there are a lot more things that could go wrong. Additionally, since the asset is not stabilized at acquisition, there will be little to no cash flow – and maybe even negative cash flow. That means you won’t receive ongoing distributions unless the syndication structure is such that you receive interest on your investment before the sale.

 

3 – Value-Add Apartment

Lastly, we have value-add apartments. Value-add apartments are class C or B assets that are stabilized with occupancy rates above 85% and have an opportunity to “add value.” Generally, the value-add apartment syndicator will acquire the property, “add value” over the course of 12 to 24 months and sell after five years.

Adding value” means making improvements to the operations and physical property through exterior and interior renovations in order to increase the revenue or decrease expense. These renovations are different than the ones performed on a distressed apartment. Typical ways to add value are updating the unit interiors to achieve higher rental rates, adding or improving upon common amenities to increase revenue and competitiveness like renovating the clubhouse or pool area, adding a dog park, playground, BBQ pit, soccer field, carports or storage lockers and implementing procedures to decrease operational costs like loss-to-lease, bad debt, concessions, payroll, admin, maintenance, marketing, etc.

Compared to the other two apartment types, value add apartments have a lower level of risk, the highest ongoing returns and a high upside potential at sale. At acquisition, the property is already stabilized and generating a cash flow. So, at the very least, the property will continue to profit at its current level and your passive investment is preserved. That also means that you will receive an ongoing distribution (typically around 8%, depending on the syndication partnership agreement) during the renovation period. Once the value add projects are completed, the ongoing distribution will increase to the high single digits, low double digits and remain at a similar level until the sale. Additionally, the increase in revenue and decrease in expenses from the value add business plan will increase the overall value of the asset, which means there is the potential for a lump sum distribution at sale.

 

What’s Your Ideal Passive Investment?

Your ideal passive investment will be in an apartment type with the benefits and drawbacks that align most with your financial goals.

Are you content with tying up your capital for a year or two with minimal to no cash flow and willing to risk losing it all in order to double your investment? Then I would consider passively investing with an apartment syndicator that implements the distressed business plan.

Are you more interested in capital preservation and receiving a return that beats the inflation rate? Then I would consider passively investing with an apartment syndicator that purchased turnkey properties.

Are you attracted to the prospect of receiving an 8% to 12% cash-on-cash return each year with the prospect of a sizable lump sum profit after five or so years?  Then I would consider passively investing with an apartment syndicator that implements the value-add business model.

 

Want to learn how to build an apartment syndication empire? Purchase the world’s first and only comprehensive book on the exact step-by-step process for completing your first apartment syndication: Best Ever Apartment Syndication Book

Do Real Estate Investors Need Good Sales Skills?

Each week, we post a new question to the Best Ever Show Community on Facebook. The Best Ever Show Community is a place where real estate entrepreneurs of all stripes and sizes can come together to interact with each other, me, and the guests featured on my podcast with the purpose of everyone helping each other reach the next level in their businesses and their lives.

 

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was “is it important to have good sales skills as a real estate investor?”

 

Thank you to everyone who responded.

 

The poll is closed, the responses are in and here are the answers:

 

An overwhelming majority (26 out of 30) active investors said good sales skills are very important as a real estate investor.

 

One of the dissenting views was Harrison Liu, who believed good sales skills were somewhat important. In particular, he believes location trumps sales skills. Someone with zero or minimal sales skills will have more success investing in a good location with a good school district compared to a sales superstar that invests in a challenging neighborhood. Here is a blog post with a guide to evaluating and finding such a location.

 

However, he does believe the marketing skills are required in the current market in regards to finding, renting and selling deals. Whether marketing and sales are two-sides of the same coin is a conversation for another day.

 

Joe Cornwell held an opposing opinion for slightly different reasons, using Donald Trump as an example. He said “Trump doesn’t have to sell any of his units anymore, and he is arguably one of the most ‘famous’ real estate investors ever.” In other words, once you build up a large enough portfolio of cash flowing rental properties, buying new assets or selling off parts of your portfolio are no longer a requirement. Therefore, sales skills are not always needed.

 

However, as a counterpoint, does an investor need good sales skills to generate leads and find qualified buyers and/or renters to acquire enough properties to reach the point where their portfolio is so large that they no longer need to utilized those sales skills? In my opinion, and in the opinion of 26 other active investors that responded to the poll, the answer is yes.

 

For example, Nick Armstrong said “I think building your sales foundation builds your negotiation skills, which is obviously a must in my opinion.” Negotiations occur more often than just at the offering table. If you are performing renovations, you are negotiating with contractors. If you are a passive investor, you are negotiating with a syndicator. If you are a small rental or apartment investor, you are negotiating with your tenants and/or property management company. And as a real estate investor in general, you will negotiate with lenders, brokers, city officials, business partners, among others – property even your significant other as well.

 

To put it another way, in the words of Dale Archdekin, “I think that true sales skills are really people skills. The ability to hear and be heard. So, if you as an investor are dealing with people, then YES, it’s a good idea to have sales skills.”

 

In regards to raising money for apartment syndications, I commonly hear a similar question: “Can I raise money if I’m not good at sales?” My short response to the question is STOP BEING SELFISH! Watch this YouTube video for my full reasoning behind this answer.

 

Want to learn how to hone your sales skills? Here are over 25 blog posts on that topic.

 

What do you think? Comment below: Is it important to have good sales skills as a real estate investor?

 

Subscribe to my weekly newsletter for even more Best Ever advice www.BestEverNewsletter.com

 

 

Why Did You Become a Real Estate Investor?

Each week, we post a new question to the Best Ever Show Community on Facebook. The Best Ever Show Community is a place where real estate entrepreneurs of all stripes and sizes can come together to interact with each other, me, and the guests featured on my podcast with the purpose of everyone helping each other reach the next level in their businesses and their lives.

 

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was what was the first thing that piqued your interest in real estate investing?

 

The polls are closed, the responses are in and here are your answers:

 

1 – Taxes

 

Mark Slasor became interested in real estate investing because of the various tax benefits. More specifically, because of the tax write offs allowed against his W2 income.

 

However, tax write offs, also referred to as deductions, are just one of many tax benefits that come from investing in real estate. Brandon Turner over at BiggerPockets wrote an in-depth article on the tax benefits that come from investing in real estate, which include deductions but also long-term capital gains, depreciation, 1031 exchanges, no self-employment or FICA (Federal Insurance Contributions Act) tax and “tax free” refinances. For more details on these six tax benefits, you can read his post here.

 

2 – Control

 

When compared to other investment avenues, like a 401k, stocks, bonds, money market account, etc., investors have more control over real estate.

 

The investor decides which of the many strategies to pursue. They select the property. They pick the type of financing. They control the entire business plan. Etc. Because of all of this control, the investor has the ability to directly influence the profitability of their investment project.

 

Jeremy Brown became interested in real estate because of this control factor. He realized the stock market was a lot like gambling. Generally, the value of the stock is tied to factors over which the individual investor as little to no control. Conversely, you have the ability to directly affect the returns of a real estate project.

 

Chris Mayes became interested in real estate for similar reasons. Not only did he love the thought of passive income and an early retirement, but also his ability to be actively involved in the investment in order to directly impact the returns.

 

3 – Opportunities

 

There are such a variety of opportunities in real estate, whether it’s different investment strategies, property types, business plans, etc., that investors frequently suffer from shiny object syndrome. “I want to fix and flip houses. But oh look, what if I kept the house as a rental? Or I could just skip single-family investing in general and jump straight to apartments. Hmmm. Maybe I should just take my capital and privately invest in a syndication…WHAT SHOULD I DO?!”

 

For the past 50 or more years, investors have reached the highest levels of success using every investment strategy and investing in every asset type, which far outweighs the drawbacks of shiny object syndrome

 

Stevie Bear became interested in real estate because of this abundance of opportunities. He was attracted to the innumerable potential avenues to pursue for profitability in nearly any market or economy.

 

4 – Friends or Family

 

Some investors were lucky enough to be born into the real estate business. Leilani Moore was a property manager for her family’s business, learning the value of real estate investing over the years. Similarly, Barbara Grassey’s father was a real estate investor, and she enjoyed hanging around the properties he was renovating.

 

Another personal relationship that leads investors into real estate are friends. Harrison Liu became interested in real estate because of a close friend who had been investing for years. In fact, this friend helped Harrison find his first deal and he’s been investing ever sense.

 

Theo Hicks also became interested in real estate through a friendship. One night, over pizza and videogames, two of his buddies mentioned the value of real estate investing. In particular, they said “sometimes, I forget I even own the property until I receive a check at the end of the month.” He was intrigued and ended up putting his first property under contract in less than a week.

 

5 – Infomercial

 

Infomercials may be a fading industry, but many active investors became interested in real estate from these flashy 30-second advertisements. Robert Lawry II is a perfect example. He saw guru Tom Vu’s infomercial when he was 14 years old. He learned that once he bought his first investment, he could drive fancy cars, go on expensive boats and, most importantly, meet beautiful girls in bikinis! How do you say no to that?

 

6 – Financial Independence

 

Lastly, one of the main reasons why people are attracted to real estate is due to the prospect of financial independence. Purchase enough cash flowing real estate to replace your corporate income and you’re FREE. Stone Pinckney became an investor to pursue financial independence. Dave Van Horn wanted a way out of a dead-end job and a life of mediocrity. Eddie Noseworthy wanted the ability to create his own epic life and have more time to do the things he loves to do.

 

How about you? Comment below: Why did you initially want to become a real estate investor?

 

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Flowchart planner

What’s the Superior Investment Strategy – SFR Rentals or Apartments?

Real estate is the most exciting investment vehicle because there are nearly an infinite number of way to get started, achieve financial freedom and/or launch a business to create generational wealth.

 

There are many investment types to invest in, but which one is the most conducive to long-term success?

 

Today, I want to determine the answer to this question by looking at two investing strategies in a particular – single family residence rentals and apartment investing.

 

I will define SFR investing as purchasing a single-family home using your own capital and renting it out, and apartment investing as purchasing an asset with 50 or more units and raising capital from passive investors and renting it out.

 

For the purposes of this blog post, I will assume that an individual has set out to achieve a goal of $10,000 per month in cash flow (or $120,000 per year), which will replace their current corporate salary.

 

So, based on this goal, which strategy is superior? Let’s compare both across three important factors: scalability, barrier to entry and risk.

 

Scalability

 

Scalability is how efficiently one can grow their real estate portfolio. The more difficult it is to scale a business using a certain investment strategy, the longer it will take to attain a cash flow goal.

 

Both SFR and apartment investing will allow you to generate $10,000 per month in cash flow, but which strategy will reach this goal the fastest while reducing the number of headaches?

 

For SFR rentals, the average cash flow per property per month is in the $100 to $200 range (depending on the market of course). Therefore, 50 to 100 SFRs are required to make $15,000. We immediately run into a few problems. First, you can only take out a limited number of SFR loans. Once you’ve purchased 4 to 10 homes (depending on the bank use and if they use Fannie Mae or Freddie Mac), you no longer qualify for a standard residential loan. However, a simple solution is to find a local community bank, who – once you’ve established a successful track record – will provide ongoing financing for your deals.

 

Although, you haven’t completely solved your financing problem. How will you afford the 20%, 25% or 30% down payments required to purchase 50 to 100 SFRs? This is the biggest drawback of SFR investing in terms of scalability. If you’re buying all $100,000 properties, that’s $1,000,000 to $2,000,000 in 20% down payments. Even if our sample individual saved up half their corporate salary to cover these down payments, it would take them 17 to 33 years to purchase 50 to 100 SFRs, and that’s assuming everything else goes according to plan. This timeframe can be reduced through refinancing, lines of credit or other creative financing strategies, but it will require a large amount of capital for down payments nonetheless.

 

For apartment investing, since you’re receiving commercial financing, you can obtain an unlimited number of loans (as long as the numbers pencil in for the lender). However, you will run into the same funding problem if you plan on using your own money. That’s where raising private money and syndicating an apartment comes in to save the day!

 

As an apartment syndicator, one of the ways you make money is from an acquisition fee, which is a percentage of the purchase price paid to the syndicator at closing. The industry standard is 2%. Therefore, to make $120,000 in one year, you would need to syndicate $6,000,000 worth of deals. To break it down even further, since an apartment deal generally required 35% down, you must raise $2.1 million from private investors to achieve your annual goal. And that’s not even accounting for the other ways you’ll get paid as a syndicator (i.e. asset management fee, a portion of monthly cash flow, a portion of the sales proceeds, etc.), which you could then use to purchase your own properties or reinvest into future syndications.

 

Technically, you could also raise private capital for SFR investing. However, the problem is that you’ll need to find multiple cash flowing deals at the exact same time in order to attract private capital or make the same amount of money compared to an apartment community. It’s possible but much more difficult to find 50 to 100 SFRs than finding an equivalent sized apartment community.

 

Unless you believe it will take you multiple decades to raise a few million dollars or you win the lottery, apartment investing is more scalable than SFR investing.

 

Winner: Apartment investing

 

Barrier to Entry

 

Barrier to entry means how easy it is to get to the point where you are capable of investing in your first deal. From a personal finances perspective, the barrier to entry is lower for apartment investing than SFR investing. To syndicate an apartment deal, investing your own personal capital will promote alignment of interests with your investors. However, this alignment of interests can be achieved in a variety of different ways (having your property manager invest in the deal, having your broker invest in the deal, having an experience syndicator as a general partner, etc.). Therefore, it is possible to syndicate a deal with zero dollars out of pocket. Although, I always recommend investing some of your own money in the deal for alignment of interest purposes but to also benefit for the profits! Whereas for SFR investing, as I outlined above, you will need to save up millions of dollars to afford the number of down payments required to generate $10,000 a month in cash flow.

 

From an educational and experience perspective, apartment investing has a much higher barrier of entry. No one is going to invest with you if they don’t know who you are or if you haven’t proven yourself to be a credible apartment syndicator. The solution to the former is creating a thought leadership platform. The solution to the latter, however, is more difficult (although, establishing a name for yourself through a thought leadership platform will not happen overnight). From my experience, before you can even entertain the idea of becoming an apartment syndicator, you must have a successful track record in real estate, business, or preferably both. Once that’s established, you need to educate yourself on apartment investing and syndications, which requires a lot of reading and research (but that’s what this blog is for!). Then, you need to surround yourself with credible team members who have an established track record in apartment investing. Only then will you be ready to search for your first deal, which could take anywhere from a few months to a few years! Whereas for SFR investing, as long as you have the money, you can buy a deal.

 

The barrier to entry for apartment syndication is easier from a personal finances perspective, but much more difficult from an educational and experience perspective compared to SFR investing. And there isn’t a way to fast track this process. It will take time.

 

Winner: SFR rentals

 

Risk

 

Investing, in general, will always have risks. However, not all investment strategies are the same in that regard.

 

As I mentioned in the section on scalability, the typical monthly cash flow generated by a SFR is $100 to $200 per month, or $1,200 to $2,400 per year. However, those low margins are very vulnerable to being drastically reduced or wiped out completely. One unexpected maintenance issue (let’s say a broken HVAC system) will cost thousands of dollars. Even minor maintenance issues of a few hundred dollars (replace an appliance, plumbing problems, electrical problems, etc.), when added up over time, will cost thousands of dollars. The same goes for turnovers. Some turnovers are relatively smooth and cost a few hundred bucks. However, if you have to repaint walls or replace carpet/refinish hardwood, those expenses add up quickly. An unruly resident may stop paying rent or violate the lease, and the resulting eviction process can be quite costly. Any one of these scenarios will eliminate months or even years of profits! Some of these risks can be mitigated with proper due diligence, but most of them are just the costs associated with investing in SFRs.

 

For apartments, these risks are spread across tens or hundreds of units. One maintenance issue, one turnover or one eviction has a much smaller impact on your profit and loss statement. Unless you are hit with a large amount of these problems at the same time, the apartment will cash flow. Whereas for SFR investing, you will not be able to benefit from this risk reduction until you’ve created a portfolio of at least 10 to 20 properties.

 

An apartment community is susceptible to risk when you don’t have a solid property management company or you failed to perform proper due diligence on the asset. As long as you have these pieces in place, and you follow the three fundamentals of apartment investing, the asset will not only survive, but thrive – even in a down market or if a handful of major or minor maintenance or tenant problems occur.

 

Winner: Apartment investing

 

Conclusion

 

Apartment investing has a higher barrier of entry. However, once you’ve addressed your education and experience, apartments are advantageous in terms of scalability and risk when compared to SFR rentals.

 

COMMENT BELOW: Which investment strategy do you think is superior between SFR rentals and apartments, and why?

 

Subscribe to my weekly newsletter for even more Best Ever advice www.BestEverNewsletter.com

crying woman

Overcoming 6 Obstacles Faced by Aspiring and Growing Real Estate Investors

Each week, we post a new question to the Best Ever Show Community on Facebook. The Best Ever Show Community is a place where real estate entrepreneurs of all stripes and sizes can come together to interact with each other, me, and the guests featured on my podcast with the purpose of everyone helping each other reach the next level in their businesses and their lives.

 

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was what is the biggest obstacle you face with either beginning investing or growing your investing business?

 

Instead of simply listing out your responses, we decided to provide you with the answers as well!

 

1 – Tracking Passive Investors

 

Allison Kirschbaum is an established real estate investor who is trying to scale her business. Her biggest obstacle is keeping track of all the new investors her company meets without having them fall through the cracks.

 

There are many CRM providers who offer tracking services, but they can be quite costly, especially if you are just starting out. That’s why I created my very own investor tracker, which I am willing to give out FOR FREE. Not only does this spreadsheet allow you to keep track of potential and current investor information, but it also automatically creates data tables to track the cities with the most investors (in terms of people and dollars) and the sources that generate the most investor leads. You can even use it for tracking the money raising process for a specific apartment deal.

 

If you are facing a similar obstacle as Allison, email info@joefairless with the subject line “Money Raising Tracker” to receive my custom investor tracker spreadsheet.

 

2 – Finding Deals in an Expensive Market

 

Two investors are finding it difficult to locate qualified deals in their local market. Sarah May lives in the highly competitive Denver market, and Killian Ankers also lives in an expensive real estate market. Both are open to investing in an out-of-state market, but would prefer to remain local, because they know their home markets like the back of their hands.

 

My company faced a similar obstacle in mid-2017. My target market is Dallas, TX, which was and remains highly competitive. Our solution was to get creative. We found an on-market opportunity that was highly publicized and marketed by a broker, which resulted in an ever-increasing price. Instead of walking away from the deal, we had our broker reach out to the owner of the apartment community across the street, and we were able to negotiate and put the property under contract at a significant discount! If we had only purchased the on-market opportunity, it wouldn’t have made financial sense. But due to the cost saving associated with purchasing two apartment communities on the same street, we were able to close on both.

 

On the other hand, if you do decide to pursue investment opportunities in a market outside where you currently reside, finding credible, experienced team members is a must! This process begins by selecting and evaluating a market, and then interviewing and hiring a property management company and a broker.

 

3 – Shiny Object Syndrome

 

Micki McNie is facing an obstacle to which everyone can relate – focusing on a single real estate strategy. Shiny object syndrome befalls investors of all experience levels. The near infinite number of potential investment strategies can paralyze an aspiring investor. Then, the longer you’re in the industry, the more people you build relationships with, which naturally results in being presented with a greater variety and volume of new and exciting investment opportunities.

 

How does the aspiring investor decide which investment strategy to initial pursue? Well, I think you need to identify the root of the problem first. Are you truly struggling with selecting the best investment strategy or are you just using that as an excuse to not take action? If it is indeed the former, pick the investment strategy that aligns most with your current interests and unique skill sets and show up EXTRAORDINARY, always keeping in mind that investors have had success in every investment strategy for the past 50 years! If it is the latter, you need to learn how to identify and crush your fear barriers!

 

How does the established investor avoid chasing after opportunities that are outside of their skill set? Accountability! And if you’ve found that holding yourself accountable is a challenge, outsource that responsibility by either starting a meetup group (social approval is a powerful way to keep you on track) or hiring a mentor.

 

4 – One Person Team

 

Neil Henderson has hit a barrier in growing his business because he’s trying to wear too many hats at once. He’s a loyal employee at his full-time job, father, husband, underwriter, marketer, capital raiser, negotiator and thought leader. Similarly, Vince Gethings struggles with finding the time to operate his business as he adds more units to his portfolio and balances his remaining time between family and work.

 

Whether you want more time to explore other non-real estate related passions or spend more time focusing on the long-term vision of your real estate business, the solution starts with outsourcing and/or automating some or all of your business, in addition to building a solid, trustworthy real estate team.

 

5 – Us!

 

Curtis Danskin believes that the number one obstacle keeping real estate investors from starting and scaling their business is themselves! They know what actions they need to take, but – for whatever reason – chose not to.

 

To overcome this challenge, identify the self-sabotaging behaviors in which you are partaking and implement strategies to rid ourselves of these bad habits.

 

6 – No Experience or Money

 

Scott Hollister lacks the experience, net worth and liquidity to enter the real estate arena. He’s already identified a solution, which is pursuing seller financed deals, but doesn’t know where to get started. In particular, he doesn’t know how to find seller financed opportunities.

 

Fortunately, success leaves clues. Here’s how an active real estate investor was able to close on seven seller financed deals.

 

Another strategy for those who lack capital is house hacking, where you purchase a two to four unit property with a low down payment owner-occupied loan and live in one unit while renting out the other/s.

 

COMMENT BELOW: What is the biggest obstacle that is keeping you from starting or scaling your real estate business?

 

Subscribe to my weekly newsletter for even more Best Ever advice www.BestEverNewsletter.com

 

 

 

 

dangerous stranger on the road

Real Estate Horror Stories From Five Active Investors

Each week, we post a new question to the Best Ever Show Community on Facebook. The Best Ever Show Community is a place where real estate entrepreneurs of all stripes and sizes can come together to interact with each other, me, and the guests featured on my podcast with the purpose of everyone helping each other reach the next level in their businesses and their lives.

 

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was what is your worst real estate story?

 

 

Michael Beeman and a Rotten Contractor

 

Michael’s first investment was a large single-family home. The plan was to follow the BRRRR (buy-rehab-rent-refinance-repeat) strategy, as it was a distressed asset that required approximately $25,000 in renovations.

 

Unfortunately, nothing went according to plan. Because he hired a terrible contractor who botched the renovations, Michael had to tear down everything and start from scratch. As a result, he went $25,000 over budget. While he technically didn’t lose any money, this did wipe out any equity he could have pulled out with a refinance.

 

Michael did learn a valuable lesson (always screen a contractor), and consequently, a year after this incident, he had built a portfolio of 31 cash flowing units.

 

Glen Sutherland and The Flood

 

Glen had a troublesome tenant who broke the terms of the lease and wouldn’t voluntarily vacate the premises. He successfully filed for an eviction. But one week before the scheduled eviction date, the tenant decided to leave. Great news, except for the fact that on the way out, without Glen’s knowledge, the tenant opened the valve on the hot water heater. By the time Glen realized what had happened, over three feet of water had accumulated in the basement.

 

Luckily, the basement was unfinished, which mitigated the damage. One dumpster, three days of shop vacuuming and a few dehumidifiers later, the basement was usable again. But, being a tenant-friendly real estate market, Glen was unable to take legal action against the tenant…

 

Julia Bykhovskaia and the “Philanthropic” Contractor

 

Julia purchased a fully furnished property with the intentions of using it as an AirBnB. It did require a few renovations, so she hired a contractor to perform the work. When she checked in on the status of the rehab, she noticed that all of the living room furniture had vanished. She asked the contractor what happened, to which he response that someone stopped by and really liked the living room furniture, so he let them take it all – even though Julia explicitly told to keep the furniture.

 

After a week of screaming and yelling, Julia and the contractor negotiated a solution. She withheld money in lieu of the furniture from the contractor’s payment. As a result, she was able to purchase furniture of a higher quality for the living room.

 

Theo Hicks and Niagara Falls  

 

Theo’s first investment was a value-add duplex in Cincinnati that required around $25,000 in renovations. He closed on a cold and dreary Thursday afternoon in February. His intentions were to begin the renovations that Saturday, but decided to take the weekend to celebrate his first deal instead.

 

Theo showed up on Monday to rip out the carpet and paint the walls. But once he opened the front door, he heard an unexpected noise – a faint whooshing sound. As he approached the stairwell to the basement, the sound became louder and louder. He walked down the stairs, turned to face the bathroom and was confronted with a waterfall!

 

Being his first deal, Theo didn’t understand what the real estate agent meant when she told him to “put the utilities in your name.” As a result, the heat was off the entire weekend. The pipes froze, thawed and burst, leaving him with a mini Niagara Falls in the basement bathroom.

 

Grant Rothernburger and The Kentucky Derby

 

The winner (or I guess loser) of the worst real estate story is Grant.

 

Grant was touring a prospective investment property in Kentucky that smelled like a barn. He walked into the basement and discovered the source of the smell…HORSES! That’s right. There were three horses wandering around the basement. The property was located in a small town, but it was not a rural area. There shouldn’t have been horses in that area in general, let alone the basement.

 

Needless to say, Grant decided to pursue other investment opportunities, but did walk away with a pretty hilarious story!

 

 

COMMENT BELOW: What is your worst real estate story?

 

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urban multifamily syndication

The Most Unique Way to Find Off-Market Apartment Deals

There are countless ways to find apartment deals, from common methods like brokers to unique approaches like cold calling to meetup groups.

 

However, the most unique approach I’ve come across is a lead generation strategy by James Kandasamy – who I interviewed on my podcast. Using the following seven step process, James found the majority of the assets that make up his 340-unit portfolio, including two apartment communities. What’s his secret? He texts the owners!

 

This process can be used to find any type of deal, whether you are a fix-and-flipper, wholesaler, SFR investor, etc. But for the purpose of this post, you will learn how to apply this approach to finding apartment communities.

 

1. Identify a target area

 

First, select a target market. If you haven’t already, check out this blog post where I outline a step-by-step process for selecting and evaluating a real estate market.

 

2. Identify a property class

 

As a value-add apartment syndicator, I invest in class B property types. If you are a turnkey investor, you’ll pursue class A opportunities. If you are a distressed apartment investor, you will pursue class C or D opportunities.

 

3. Define additional investment criteria

 

For me, my additional investment criteria are the number of units and age of the property. We want properties that are 150+ units and that were built in 1980 of newer. Based on your investment strategy, what factors do you look for in a potential deal (i.e. equity, delinquent taxes, recent evictions, signs of distress, sales date range, etc.)

 

4. Obtain a list of properties

 

Using online resources like the county auditor site or ListSource, create a list of properties using the three pieces of information above (market, property type/class and investment criteria).

 

Additionally, you want to find properties that were purchase 5 years or more ago. James has found that owners who’ve purchased a property in this time frame will have likely built up enough equity to accept a below market offer price because they’ll still make a profit.

 

5. Find the owner’s contact information

 

For properties listed in an individual’s name, you should be able to locate the owner’s contact information when you pulled the list. If it is listed under an LLC name or a property manager, use skip tracing software to get the owner’s phone number and/or mailing address. Here’s a good resource for how to track down owner information, JF1065: How to Track Down Vacant Property Owners with Larry Higgins

 

6. Conduct a marketing campaign

 

Send marketing information to the list of property owners, either via direct mail, phone call or text message. That’s right. A text message!

 

James actually obtained the majority of his deals via text messaging. His initial message is, “Hi. I’m a prominent investor in (insert target area). I saw your property at (insert property address) and am interested in buying it. You can sell it directly to me without any broker’s commission. Would you like to talk further?”

 

Standard replies he’s received and that you can expect to receive are:

 

  • If they are interested
    • You can talk to XYZ member of me team
    • Can I have more information about you and your business?
    • What can you offer me?
  • If they aren’t interested
    • I am not interested in selling right now
    • I am not selling anytime soon

 

7. Follow-up

 

Regardless of the response, follow-up is key. James said that most people will send out one batch of letters and then forget about it.

 

If the owner is interested, you need to obtain the rent roll and the trailing 12 months financials to determine an offer price.

 

If they aren’t interested, James recommends following-up (via direct mail, phone call, or text message) every 3 to 6 months to gauge their interest in selling again, to build rapport and be top of mind for when the owner is interested in selling. It’s all about timing.

 

For every 500 marketing pieces James sends, he receives a 1% response rate. Of the 1%, he will close on less than 0.1%. But as long as you’re persistent and follow-up, you’ll find that 1% of owner’s who are interested in selling.

 

COMMENT BELOW: Do you use or have you come across a lead generation strategy more unique than texting owners?

 

Subscribe to my weekly newsletter for even more Best Ever advice www.BestEverNewsletter.com

 

microphone

12 Go-To Podcasts of Successful and Active Real Estate Entrepreneurs

Each week, we post a new question to the Best Ever Show Community on Facebook. The Best Ever Show Community is a place where real estate entrepreneurs of all stripes and sizes can come together to interact with each other, me, and the guests featured on my podcast with the purpose of everyone helping each other reach the next level in their businesses and their lives.

 

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was what are your favorite real estate and/or personal development podcasts?

 

Many of the responders chose my podcast, Best Real Estate Investing Advice Ever, as one of their favorites, which is an honor for which I am very grateful! However, even though I host a daily podcast, I still enjoy consuming the content produced by other entrepreneurs and am always on the lookout for podcast recommendations.

 

In fact, out of all the responses, only a single person provided the name of one podcast (although I assume they listen to numerous shows), while the overwhelming majority provided a list of their favorite podcasts. Therefore, since the Best Ever Show Community is made up of active entrepreneurs, whether you’re the owner of your own podcast or not, listening to multiple podcasts across a variety of content is correlated to real estate success.

 

The poll is closed, the responses are in and here are your answers:

 

The Brian Buffini Show is Kyle Burnett’s favorite podcast. This is a personal development podcast exploring the mindset, motivation and methodologies behind true success.

 

The Real Estate Guys Radio Show is Maurico Rauld’s favorite podcast. This podcast delivers no-hype education and expert perspectives on real estate in a fast-paced, entertaining style.

 

Simple Passive Cashflow Podcast with Lane Kawaoka is one of Bo Kim’s and Ryan Gibson’s favorite podcast. This podcast, hosted by active Best Ever Show Community member Lane Kawaoka, promotes passive real estate strategies to give the listeners the freedom to quit their jobs and do what they truly want.

 

Happier with Gretchen Rubin is Neil Henderson’s favorite podcast. This podcast is hosted by a #1 best-selling author who, as the title implies, provides good habits that encourage a life of maximal happiness.

 

The Tim Ferriss Show is probably a top podcast for everyone, including Lennon Lee and Ryan Groene. This podcast deconstructs world-class performers from eclectic areas and digs deep to find the tools, tactics and tricks that listeners can apply to their daily lives.

 

Investing in Real Estate with Clayton Morris is Glen Sutherland’s favorite podcast. This is another podcast that offers passive real estate investment strategies to help listeners quit their 9 to 5 jobs.

 

Real Wealth Show with Kathy Fettke is a favorite of Carolyn Lorence, Ryan Gibson and Bill Tomesch. This show also interviews guests who shares advice on how anyone can build enough passive income from cash flowing real estate to quit their day job.

 

Apartment Investing with Michael Blank is one of Harrison Liu’s, Julia Bykhovskaia’s and Carolyn Lorence’s favorites. This podcast’s focus is on all things commercial real estate investing

 

Landlording for Life is Sean Morissey’s favorite podcast. A relatively newer podcast, it offers advice direct towards, as the name implies, landlords.

 

Real Estate Investing For Cashflow with Kevin Bupp is another one of Ryan Groene’s favorite podcasts. This show is for passive and active investors who are interested in learning the industry secrets of commercial real estate investing.

 

Old Capital Real Estate Investing Podcast with Michael Becker & Paul Peebles is one of the favorites of Julia Bykhovskaia, Carolyn Lorence and Ryan Gibson. This show is targeted at new and seasoned multifamily investors who are interested in or are actively acquiring and operating apartment complexes.

 

So Money with Farnoosh Torabi is Paresa Stewart’s favorite podcast. This podcast, hosted by an award-winning financial strategist, brings money strategies and stories straight from today’s top business minds.

 

My recommendation is to pick at least one podcast from this list and subscribe (of course, starting with my podcast :). Because, as I said, it is a trend amongst the most successful real estate entrepreneurs to listen to multiple podcasts to stay up-to-speed and competitive in the ever-changing economic landscape.

 

In the comment section, post your favorite real estate or personal development podcast, either from this list or something new.

 

Subscribe to my weekly newsletter for even more Best Ever advice www.BestEverNewsletter.com

 

 

Best Ever Real Estate Conference

Five Game-Changing Quotes from The Best Ever Conference 2018

Thank you to everyone who made the Best Ever conference a great success – the speakers, the sponsors, the attendees and the Best Ever team. If you were unable to attend this year’s conference, you missed out on some game-changing real estate, business, and personal success advice.

 

Here are just five of the many takeaways from the keynotes, presentations and panel discussions, with much more to come in future blog posts.

 

Scott Lewis Quote

 

Scott Lewis, Spartan Investment Group

 

Scott understands that ample planning is vital to business success. However, as he learned in is time in the military, a plan never survives first contact. When you go to implement a plan and you get an uppercut to the face, you need to either have a backup strategy in reserve or have the resourcefulness to problem-solve on your feet.

 

In other words, for every project, you need a primary plan, a backup plan and a plan in the event that both the primary and backup plans fail.

 

Andrew Cambell

 

Andrew Campbell, Wildhorn Capital

 

You don’t need a doctorate’s degree to become a real estate investor. If that was the case, the majority of the speakers and attendees at the Best Ever Conference, including Andrew Campbell, would be bankrupted. A Proper education, experienced team, proven investment strategy and the willingness to take massive, consistent action trump intelligence, period.

 

Terrell Fletcher Quote

 

Terrell Fletcher, Entrepreneur and Former NFL Pro

 

Terrell attributes his business and NFL success to his love for the day-to-day grind. The majority of our business lives are spent in the pursuit of our desired outcomes.  These are the routines we perform and the actions we take on a daily and weekly basis. Life’s too short to do things that we don’t want to do. So, instead of torturing yourself, direct your time to the things that you love to do (and, ideally, are good at) and find experienced team members to do the things you that you don’t.

 


Trevor Megegor Quote

 

Trevor McGregor, Trevor McGregor International

 

We all have that little voice in our head that tells us why something is difficult or impossible to do. Because where focus goes, energy flows, if you listen to that voice, you will act as if it is telling the truth. In reality, that voice in our head is BS. It is your Belief System. Recondition your belief system from the “I can’t” to the “I can and will” mindset and your business will flourish.

 

Joe Fairless Best Ever Real Estate Conference

 

Joe Fairless

 

Forced appreciation is great, but betting on natural appreciation is a big no-no in my book. When you buy for cash flow, as long as the asset is in the right market, you don’t have to worry about what the overall real estate market is doing. In fact, if the market takes a dip, the demand for your cash flowing rental property will likely increase.

 

QUESTION: Which of these five quotes gives you the most inspiration and/or value?

 

Subscribe to my weekly newsletter for even more Best Ever advice www.BestEverNewsletter.com

 

money investment

What’s the Best and Highest Use of $20 Million in Real Estate Investing?

Each week, we post a new question to the Best Ever Show Community on Facebook. The Best Ever Show Community is a place where real estate entrepreneurs of all stripes and sizes can come together to interact with each other, me, and the guests featured on my podcast with the purpose of everyone helping each other reach the next level in their businesses and their lives.

 

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was someone is handing you $20 million in property for FREE. Which asset class would you choose?

 

This week’s question was a little different. We conducted a survey in addition to asking for written responses to the question, particularly for those who selected “Other.” The breakdown of the answers were as follows:

 

  • Multifamily: 58
  • Self-Storage: 15
  • Commercial offices, retail centers, etc.: 11
  • Other: 5
  • Mobile Home Parks: 4
  • Single Family: 2
  • Urban Mixed Use: 2

 

Mitchell Drimmer is one of the 15 people who selected self-storage, mainly because he has purchased multifamily in the past and is not a fan. He admitted that multifamily may perhaps have a higher cap rate but are nothing but problems day in and day out, especially in “value neighborhoods.” Mitchell hasn’t purchased self-storage in the past. But as an outsider, he says self-storage is seems like a business with almost no clients, no hard luck stories from residents, no evictions, no complaints about certain maintenance issues and very little code enforcement issues. Done properly, at the right price and in a good location, Mitchell believes self-storage is a great business model.

 

Ryan Gibson also selected self-storage for similar reasons – it is an asset class with the lowest “resting heart beat” (no tenants, little maintenance, minimal employees). But additionally, he picked self-storage because it has the most automation and the highest returns.

 

Brandon Moryl was one of only two people who selected their $20 million to be in the form of single family homes. And in particular, luxury homes. According to him, that part of the real estate market has yet to fully recover, meaning there is the potential for a lot of growth. Additionally, there is less competition in the high-end SFR space compared to your typical $75,000 fixer upper. He also said, “with the stock market killing it and the overall economy rocking, combined with programs like 5% jumbo [loans], that’s is where I would be.” Finally, and maybe most importantly, he says it’s sexy owning million-dollar homes. Indeed!

 

The investors who selected “other” offered more creative or niche investment strategies.

 

Danny Randazzo went with a diversified approach. Chibuzor Nnaji Jr. concurred. Danny would look for a deal in each asset class and invest in a few of the most attractive opportunities. “It could be one deal requiring $20 million or it could be a deal in each. Share the love!”

 

Deren Huang, with the support of Michael Nerby, would invest in NNN, or triple net leases. According to Wikipedia, a triple net lease is a lease agreement on a property where the tenant or lessee agree to pay all real estate taxes, building insurance and maintenance (the three “nets”) on the property in addition to any normal fee that are expected under the agreement (rent, utilities, etc.). He said NNN is the true passive investment.

 

The last two individuals left the real estate market entirely – at least in part.

 

Lane Kawaoka selected two answers. He would invest in multifamily because it “it’s the sweet spot in terms of the sharp ratio risk reward matrix. Not too hot, not too cold…just what the baby bear likes.” However, he would consider accepting the entire $20 million amount in the form of a savings bond and just live off the interest.

 

Finally, Diogo Marques would forgo real estate altogether and purchase solid, stable companies that he could see operating in 10 years’ time with a 10% to 15% net profit margin annually.

 

COMMENT BELOW: Someone is handing you $20 million in property for FREE. Which asset class would you choose?

 

Subscribe to my weekly newsletter for even more Best Ever advice www.BestEverNewsletter.com

 

Complex clock and gears

If You Had a Time Machine, What Would Be Your First Investment?

Each week, we post a new question to the Best Ever Show Community on Facebook. The Best Ever Show Community is a place where real estate entrepreneurs of all stripes and sizes can come together to interact with each other, me, and the guests featured on my podcast with the purpose of everyone helping each other reach the next level in their businesses and their lives.

 

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was if you  were starting real estate investing over again, what would be your first purchase?

 

The poll is closed, the responses are in and here are your answers:

 

 

Brandon Moryl

 

Brandon would acquire as many turnkey single-family residences as he could. In his market, Cincinnati, he can purchase a $100,000 turnkey SFR with $15,000 in out-of-pocket costs that rents for $1,250 per month.  Great cash-on-cash return, longer tenants compared to multifamily, and easy to sell.

 

 

Harrison Liu

 

16 years ago, Harrison acquired his first investment – two triplexes situated right next to each other in a class C market. Today, the area is going through gentrification, so the rents have doubled and the property values have tripled. However, being in a C market, Harrison has had a few tenant issues over the years, including two evictions and being taken to small claims court.

 

Therefore, if he was starting over, he would have purchased a fourplex in a B location. Instead of two loans, he would have one. Also, he would have had access to higher quality renters, which means he likely wouldn’t have been taken to small claims court.

 

 

Ryan Murdock & Glen Sutherland

 

If they were starting over, Ryan and Glen would have purchased a three or four-unit property with an owner-occupied loan, living in one unit and renting out the others. Also known as housing hacking, they would have been able to acquire a rental property with little money out-of-pocket (generally 3.5% of the purchase price) and lived “rent free.”

 

 

Devin Elder & Whitney Sewell

 

Both Devin and Whitney said, if they were starting over, they would find a mentor.

 

 

Neil Henderson

 

Neil Henderson would have skipped over the single-family residence and smaller multifamily investments and went straight for a 100-unit apartment community.

 

 

Charlie Kao

 

When Charlie was starting out, he considered purchasing a condo from a bankrupt builder. Originally, the builder was offering the condos for $356,00 to $410,000. However, the people who agreed to purchase the condos couldn’t qualify for financing. So, the builder greatly reduced the sales prices.

 

Charlie was considering a 2-bedroom condo listed at $160,000. If he could go back, he would have purchased that condo, because today the current value exceeds $650,000.

 

 

Robert Lawry II

 

Robert kept it simple and humorous. If he was starting over, his first investment would have been business cards.

 

Make sure you join the Best Ever Community on Facebook. Check the group page every Wednesday and answer the weekly questions for an opportunity to be featured in next week’s blog post!

 

In the comment section, post what your first purchase would be if you were starting over again.

 

Subscribe to my weekly newsletter for even more Best Ever advice www.BestEverNewsletter.com

 

 

 

topographical map

Five Ways To Find Your First Off-Market Apartment Deal

Previously Published in Forbes Here

 

In a previous blog post, I outlined the benefits for both a seller and buyer of completing an apartment transaction off-market, as opposed to on-market through a broker. Although off-market deals are highly attractive on both sides of the transaction, when it comes to ease, they lose the edge.

 

Finding on-market deals is a fairly passive approach: All that’s required is sending a broker your investment criteria and asking them to subscribe you to the “for sale” apartment lists. Then, any current or future listing that meets your criteria will be automatically sent to your email inbox. However, you won’t have control over the number of opportunities you receive. Since it’s solely based on the number of owners who happen to list their property with a broker, you could see a bunch of opportunities one week and then go a few months without seeing any.

 

The more active and beneficial approach is to pursue off-market apartment opportunities. Generally, there are two ways to find these deals: by either speaking directly to the owner or to someone who knows the owner. Your prospecting tactics should only target these two groups.

 

Here are five methods apartment investors use to successfully find and close on off-market deals:

 

1. Direct Mailing Campaigns

 

One of the most well-known tactics for acquiring off-market deals is through direct mailing campaigns. A direct mail campaign consists of sending out a batch of letters to a list of apartment owners with the purpose of sparking a conversation that results in the acquisition of their property.

 

There are two keys to a successful direct mailing campaign. One is your mailing list. A high-quality mailing list will only include owners whose apartment communities meet your investment criteria and who show at least one sign that they’re interested in selling. For example, we only mail to owners who’ve purchased their property five or more years ago. They will have likely built up enough equity to sell their property at below market value while still making a sizable profit and/or they could be coming to the end of their business plan. Another option is only mailing to distressed owners. Indications that an owner is distressed is their inclusion on the eviction court, building code violations or delinquent tax list or living in a state other than the one in which the apartment is located.

 

The second key is your mailing frequency. Decide what frequency you will mail to your list of owners — monthly, quarterly, every six months, etc. — and commit to the system. Sometimes, you may receive a reply on your first mailer, while other times it won’t be until you’ve been mailing to the same owner for a year that you receive interest.

 

2. Cold Calling

 

Rather than sending direct mailers to your list of distressed apartment owners and waiting for the phone to ring, call the owner directly.

 

With cold calling, compared to direct mail, you’ll have more control over the number of conversations with owners. It is also less expensive, as you are avoiding the costs of letters, envelopes and stamps.

 

Cold calling can also increase your conversion rate. With direct mail, if an owner isn’t interested in selling, they won’t reach out. Whereas with cold calling, you can follow-up by sending the owner a letter referencing the conversation, providing your contact information and notifying them that you will call again in X months (2, 4, 6, whatever you decide) to see if they are interested in selling.

 

3. Thought Leadership Platforms

 

A thought leadership platform can be a great source for off-market deals. With an interview-based podcast, blog or YouTube channel, you can form relationships with your guests and build a large audience, conveying to both your interest in purchasing apartment communities. With a meet-up group, you can network face to face with attendees and handpicked speakers who are active in real estate investing.

 

Regardless of the platform you pursue, as a thought leader, you will be reaching and cultivating relationships with both apartment owners and the professionals who know the owners, which are the only two ways to find off-market deals.

 

4. Call “For Rent” Ads

 

Calling the apartment owners of rental listings on online services such as Craigslist, Apartment.com, Zillow, etc. or on “for rent” signs scattered across your local market to gauge their interest in selling is a great way to find off-market deals.

 

If an owner has a unit listed for rent, you’ve automatically identified a pain point. The unit is vacant, which means they are losing money. You might catch them at a moment in time where they are motivated to sell.

 

5. Apartment Vendors

 

Electricians, carpet installers, roofers, plumbers, HVAC professionals, pool repairmen, lawn care professionals, etc. — anyone involved in the servicing of apartment communities is on the front lines and will likely have insider information on communities that are being neglected.

 

First, use their services or refer them to other apartment owners to build rapport. Then, ask them to notify you about potential distressed owners or neglected communities.

 

Overall, I recommend selecting two methods from this list and focusing on generating leads from those for at least six months. We live in a culture of instant gratification where people expect quick or immediate results. In general, that isn’t the reality, and it’s especially true when you’re dealing with million-dollar properties. It takes time to generate apartment leads. It requires constant action, constant tracking and constant improvement.

 

During your six-month trial period, log your results for each of the marketing methods. If one or both of the marketing methods have poor results, either tweak it or try another tactic. All of these tactics have worked, but all of them might not work for you because of your market or because of your unique skill set. You’ve got to find a tactic that aligns with what you’re uniquely good at, which may take some trial and error. Ultimately, it’s not about having five lead sources. It’s about finding the few that work best for you.

 

What is your favorite method for generating apartment or other real estate deals?

 

Subscribe to my weekly newsletter for even more Best Ever advice: http://eepurl.com/01dAD

 

 

library architecture

What’s Your Favorite Real Estate or Personal Development Book?

 Each week, we post a new question to the Best Ever Show Community on Facebook. The Best Ever Show Community is a place where real estate entrepreneurs of all stripes and sizes can come together to interact with each other, me, and the guests featured on my podcast with the purpose of everyone helping each other reach the next level in their businesses and their lives.

 

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was what’s your favorite real estate or personal development book?

 

The poll is closed, the responses are in and here are your answers:

 

Garrett White:  The Compound Effect by Darren Hardy

 

 

Ryan Gronene: Think and Grow Rich by Napoleon Hill

 

 

Lennon Lee of BLD Capital Group, Carlos Altamirano of CFA Investment, Mauricio Rauld and Harrison Liu: The One Thing by Gary Keller

 

 

Whitney Sewell: Never Eat Along by Keith Ferrazzi

 

 

Ryan Gibson of Spartan Investment Group: Tax-Free Wealth by Tom Wheelwright

 

 

Chibuzor Nnaji Jr.: The Go-Giver by Bob Burg

 

 

Danny Randazzo of Randazzo Capital: Mistakes Millionaires Make by Harry Clark

 

 

Dave Van Horn of PPR Note Co.: Leading an Inspired Life by Jim Rohn

 

 

Charlie Kao of MCK Property Management: Maximum Achievement by Brian Tracy

 

 

Justin Kling: Investing in Duplexes, Triplexes and Quads by Larry B. Loftis


Make sure you join the Best Ever Community on Facebook. Check the group page every Wednesday and answer the weekly questions for an opportunity to be featured in next week’s blog post!

 

In the comment section, post your favorite real estate or personal development book.

 

Subscribe to my weekly newsletter for even more Best Ever advice: http://eepurl.com/01dAD

 

location circled on a map

How to Find Private Money Regardless of Where You Live

Last week we closed on our 12th property and our company portfolio is now valued at more than $250,000,000 (click here to see the lesson I learned on my last deal). Since this quarter billion dollar mark is sort of a milestone I thought it would be interesting to look at where my potential and current investors live to see if there is anything interesting we could learn from it.

 

Yes. Yes, there is.

 

Before we look at the stats, let’s define a couple things.

 

I define Potential Investors as investors with whom I have a relationship, are accredited and have expressed interest in investing with me but have not invested yet. Current Investors are accredited investors with whom I have a relationship that are currently investing in my apartment deals.

 

Now let’s dig into the stats of my investor database.

 

Top 5 Cities with the most Current and Potential Investors:

  1. New York City: 18%
  2. Dallas-Fort Worth: 10%
  3. Los Angeles: 9%
  4. Houston: 5%
  5. San Francisco: 4%

 

So, out of all my Current and Potential Investors across the United States, 18% live in NYC, 10% live in DFW, etc. This makes sense for a handful of reasons.

 

First, they are large cities (ex. Population of NYC is 8M+).

Second, I lived in NYC and DFW so have family and friends there.

Third, our properties are in Texas so DFW and Houston investors have a level of familiarity with the market they are investing in. They see the same thing we see in terms of population growth, job growth, economic outlook, etc.

 

Now let’s look at the Top 5 cities with the most Current Investors (removed Potential Investors).

 

Top 5 Cities with the most Current Investors:

  1. New York City: 18%
  2. Dallas-Fort Worth: 11%
  3. Los Angeles: 6%
  4. San Francisco: 5%
  5. Tied- Houston, Miami, Austin and Seattle: 4%

 

Ok, still making sense and for the reasons stated above. Large cities, places I lived, have family and friends residing, and, in three cases, are in the same state as our multifamily deals (Austin, Houston and Dallas-Fort Worth).

 

But here’s where the wrinkle occurs.

 

Let’s look at all the equity my investors have invested in my apartment syndications and what % of the total invested dollars is attributed to each city where investors live.

 

Top 5 Cities with % of Investment Dollars in Deals

  1. New York City: 18%
  2. Cincinnati: 13%
  3. Dallas-Fort Worth: 11%
  4. Miami: 7%
  5. San Francisco: 6%

 

…what in the Cincinnati just happened?!?!

 

Cincinnati isn’t a top 5 city of mine in terms of total # of Current Investors and/or Potential Investors.  In fact, to dig deeper Cincinnati only has 2.5% of my Current and Potential Investors living there. And only 3.5% of my Current Investors living there.

 

I am not from Cincinnati and, in fact, have only lived here for approximately 3 years. So, why does it represent 13% of all the equity invested in my apartment deals? The short answer is because I am actively involved in the local community. But that short answer doesn’t do the real lesson learned justice so let me elaborate more.

 

Here’s how I did it:

 

  • Host a local meetup. The first month I officially moved to Cincinnati (because my wife is from here and she’s the love of my life so I followed her to the city and now we’re here for the long-term) I started a meet-up. If you have time to ATTEND a meet-up then you have time to HOST a meetup. It doesn’t take that much more effort to HOST than it does to simply ATTEND and the rewards for HOSTING are exponentially greater. I did this to make friends in Cincy. I didn’t do it necessarily to generate investor relationships but that’s exactly what it did.
  • Host Board Game and Drinks nights at your house. This Friday my wife and I are having friends of ours, some of which are investors, come over to our house for a night of board games, drinks and dinner. Hosting events at your house as couples, along with couples, is fun and goes a long way to continue to build your friendship with those locally.
  • Consistent online presence that has an interview component to it. Or, in short, my podcast. I interview someone Every. Single. Day. on real estate investing and have released an episode for the last 1,197 days. There are multiple benefits for doing this and I won’t get into all of them but I will focus on one of the benefits and that is that every time I interview someone they then want to share it out to their audience which helps expand my reach. And, if I interview people in my local market that introduces new, local connections to me which can then turn into business relationships since I get to have dinner, drinks, etc. with them. Here’s a post I wrote on the step-by-step process to create a real estate thought leadership platform.
  • Volunteer then become a board member for that non-profit. I had no intention to meet investors when I started volunteering for Junior Achievement. But I have since realized that by volunteering for a cause I feel strongly about (Junior Achievement helps kids in underserved communities learn financial and entrepreneurial skills) I was able to connect with like-minded people and then become friends with them. I got on the board for JA in Cincinnati and have built friendships with people on the board which then turned into business relationship where they invest in my deals. You could take the same approach but make sure you genuinely believe in the cause and are doing it for the right reasons (i.e. helping further the cause’s mission) vs trying to grow your biz, otherwise it will fall flat and won’t be fulfilling for you.

 

By doing these simple things, you can build an investor network in your city that is perhaps stronger than any other network. When people personally know you they are more likely to trust you, recommend you to others, and invest larger. The beauty in this is that it’s helpful for you regardless of where you live.

 

Cincinnati is approximately the same size as St. Paul, Minnesota, Toledo, Ohio, Stockton, California and…Anchorage, Alaska. So, if you live in a city that is larger then there’s really no excuse to not having all the capital you need for your deals. If you live in a city that’s smaller than Cincinnati (300k population) then you can still apply these principles although it might require you to host your meetup in the next largest city next to where you live, that way you get better return on your time.  Regardless, apply these principals and you will quickly build a local investor network than can help you fund your deals.

 

In the comment section below, tell me how you will implement these proven money-raising tactics in your real estate business.

 

Make sure you subscribe to my weekly newsletter for even more Best Ever advice: http://eepurl.com/01dAD

                       

If you have any comments or questions, leave a comment below.

 

buying apartment large buildings over conference call

16 Lessons On Buying Apartment Buildings From Over $400,000,000 in Apartment Syndications

Since completing my first apartment syndication (raising money from private investors to purchase 100+ unit multifamily buildings) a little over threes ago, I’ve completed an additional six deals. Currently, my company controls over $400,000,000 in assets, and I’ve learned some key lessons on how to buy an apartment complex.

 

After completing each deal and buying these apartment buildings, I took inventory on the valuable lessons I learned and made sure that I applied any solutions or outcomes moving forward in order to ensure that each subsequent deal went smoother and was more efficient than the last. In total, I have learned and applied 16 invaluable lessons to my syndication process, which I can attribute to my continued success.

 

From my first deal, which was a 168-unit in Cincinnati, OH, and my second deal, which was a 250-unit building in Houston, TX, I had my first two main takeaways:

Lesson #1 – Get the Property Management Company to Put Equity in the Deal

If you are not managing the property yourself, then have the local property management company you’ve hired put their own money into the deal. This is something I didn’t do on my first deal, which was a mistake, but I did apply it to the 250-unit deal in Houston.

It is true that you will have less equity in the deal when buying apartment buildings this way, but the advantage is that, since the management company has their own skin in the game, it is human nature that there will be much more accountability due to an alignment of interests. If the property management company also brings on other investors on top of putting equity into the deal, that adds another layer of accountability and alignment of interests.

 

When following this strategy, it is even more important that you’ve adequately vetted the property management company. If you aren’t completely comfortable with your selection, then you’ll be stuck with them as both a manager AND a general partner – a double whammy.

 

In return for equity, you can try to negotiate with the property management company for the lowering or elimination of certain fees, such as management fees, lease-up fees, and/or maintenance up-charges.

Lesson #2 – Prime Private Money Investors Prior to Finding a Deal

If you have a good deal when buying apartment buildings, money will find you. But, that doesn’t mean you should wait for the deal before starting the money-raising process. On my first deal, I raised over $1 million and did so after finding the deal. It was, shall I say, a character-building experience. As a result, I don’t recommend to others that same approach.

 

Leading up to my second deal, I prepped the majority of my investors so that, once I had a deal under contract, the money-raising process flowed more smoothly. I still brought on new investors after getting the deal under contract, but overall, the process is much more efficient when you prep investors beforehand.

 

Note: I don’t actually receive money before I have a deal. I only speak to investors about a hypothetical deal, or past deals, in order to gauge their interest level in investing.

 

Here is the exact process I use for priming investors before finding a deal and buying apartment buildings:

 

  • Schedule a meeting with investors
  • Ask questions to learn their financial goals and how they evaluate success with their investments
  • Talk to them about your business (What is your real estate background? What do you invest in? Why do you invest? What is multifamily syndication? Etc.)
  • End the conversation with the following question: “If I find something that meets your financial goals, would you like me to share it with you?”

 

When I’ve asked this question at the end of investor conversations, I’ve never had anyone say no.

 

Moving forward, keep the interested investors (which should be all of them) updated as you look at properties. A simple email will suffice. Then, when you find a property, they are already well aware of how your business operates and how multifamily syndication works. As a result, they are more inclined to invest.

 

My third syndication deal was a 155-unit apartment in Houston, TX, where I took away three more lessons:

Lesson #3 – Go farther faster by playing to your strengths

For my first syndication deal (168-units in Cincinnati, OH), I did it all.

 

  • I found the deal
  • I performed the underwriting
  • I raised all the private money
  • I conducted the due diligence
  • I hired all the team members and was the main point of contact moving forward
  • I closed the deal
  • I was the asset manager.

 

While it was a great learning experience on how to buy an apartment complex, doing it all myself didn’t set the deal up for optimal success. Quite frankly, I am not an expert at many of those duties. For example, I am not a proficient underwriter. I am competent and know how to evaluate a deal and determine if it is good or not. However, I haven’t spent hundreds or thousands of hours focusing strictly on underwriting deals. Like most things, the more you do it, the better you get.

 

So on this deal, I learned that I needed to partner with someone who is phenomenal at underwriting large multifamily deals. Actually, I partnered with this person on my second deal – the 250-unit. This third deal only reinforced the need to do it again moving forward because it allows me to do what I’m good at and allows him to do what he’s good at. Again, we’re both capable of doing each other’s job, but we wouldn’t perform as proficiently.

 

As long as no missteps are made when selecting who to partner with, it allows the business to go farther faster because you are both focused solely on your crafts. Yes, there is overlap (for example, I triple check all the underwriting and review it in detail), but it’s better for someone with lots of experience to be the primary underwriter.

 

In good at buying apartment buildings with accredited investors. What’s something you’re really good at? What’s something you’re not good at? Do more of the former and less of the latter because it’s likely that you enjoy doing what you’re good at, which is why you’re good at it, and vice versa.

 

Lesson #4 – Do something consistently on a large distribution channel

If you are a real estate investor, you’re in the sales and marketing business. Fix-and-flippers, wholesalers, multifamily syndicators, etc. are all in the sales and marketing business. Perhaps passive buy-and-hold investors aren’t, but I’m sure there’s a creative way we could connect them to it. Regardless, since we’re in this business, we must have a consistent daily presence in order to gain exposure and build credibility with our customers/clients/leads.

 

Some large distribution channels (with some ideas for each) are:

 

  • BiggerPockets (official BP blogger, being an admin, posting, commenting, adding value, offering assistance, being insightful)
  • Amazon.com (writing books and publishing them)

 

Related: Self-Publishing Your Way to Thought Leadership, Leads, Money, and Much More

 

  • iTunes (podcasting)
  • YouTube (video blog, tips, interviews, make real estate music videos…?)
  • Facebook (create a community around an in-person event you host and then open it up to a larger audience)
  • Instagram (pictures of renovations before & after)
  • Twitter (proactively answering real estate related questions)
  • Meetup.com (host a frequent meet-up group)

 

Related: The 4 Keys to Building Relationships Via Social Media

 

Whatever you do, do it DAILY.

Do it consistently.

And do it on a large distribution channel.

Many people want the shiny object, the golden nugget, the Super Secret Plan that will let them retire on the beach in Tahiti. I think that’s ridiculous. We live in an instant-gratification culture. The truth is that to make a good living in real estate, you MUST be consistent with strategic, proven actions. That’s it, especially when it comes to buying apartment buildings and selling them later for a profit.

Lesson #5 – There is major power in doing a recorded conference call when raising money

This is going to be a super simple lesson, and you might even say “duh.” If you do, I don’t blame you, BUT it’s something I didn’t do on my first two multifamily syndications. I figured, if you don’t do it either, then mentioning this lesson briefly would help you out when raising money.

 

 Here’s the tip: have a conference call with qualified investors to talk about your deal and record it!

 

When we were in the middle of raising money for this 155-unit apartment community, my business partner and I decided to have a conference call to present the deal to accredited investors. We did a similar call on our previous deal, but we didn’t record it. For this one, however, I did. It was tremendously helpful with raising money for the deal, mainly for two reasons:

 

  1. Most accredited investors are busy making money rather than going out and actively buying apartment buildings, which is why they actually have money to invest in the first place. This helps them listen to the presentation on their schedule.
  2. The questions being asked are from a group of people, which is beneficial to others who are listening but didn’t think of those questions.

 

Here’s how I record the conference call:

 

  • First, I make sure the attendees have the presentation prior to the call so that they can review it and come up with questions.
  • Next, I used freeconferencecall.com (I have no affiliation with them) and simply set up the call.
  • During the call, I have the attendees email me questions. That way, I know who is asking the questions, and I can follow up with them afterward.
  • At the end of the call, we do a Q&A session, and my business partner or I answer all the questions that are asked.

 

As you’re raising money, I highly recommend this simple approach. I’ve personally seen a benefit, and I’m confident you will too!

 

My company’s fourth syndication deal was the largest deal we’d closed. Around the time I closed this 320-unit deal (and still to this day), many people started to ask me how to buy an apartment complex and, more specifically, how they could break into the multifamily syndication business (i.e. raising money and buying apartment buildings with investors). So, I put a list together for anyone who wants to do bigger deals but doesn’t know how to use their special talents (we all have them) to make it happen.

 

So, as the read these six ways to creatively get into the business, try and think about which of these areas appeal to you the most? Which do you want to do? How do you want to spend your time? Remember the earlier lesson, if you’re going to be a successful multifamily syndicator then you’ll need to choose your primary area of focus. If you try to do it all, then you’re doing your investors and yourself a disservice. Why?

 

We all have special talents. We are all wired differently and process information differently. The key is to have a business where you have team members doing what they love to do and what they are good at (surprise, they go hand-and-hand), while you are doing the same. Yes, I have working knowledge of ALL 6 areas, and I recommend you do too before trying to buy apartment buildings. But, you can break in the business by having a specific focus and being strategic about how you leverage that focus.

So, here you go, the 6 ways to break into the apartment syndication biz:

Lesson #6 – Find an Off-Market Deal

By finding an off-market deal, you can bring it to an experienced investor who can close on it. But, before you actually look for deals or bring one to an experienced investor, figure out WHOM you should bring it to and qualify them to ensure you’re not doing unnecessary work. Your time is valuable.

 

To qualify them, make sure they:

 

  • Have closed on similar properties that you’ll be looking for
  • Are willing to structure the agreement in a way that meets your goals (more on this below)
  • Are trustworthy and provide references – don’t enter into an agreement lightly. Any partnership has major implications because you’re bringing in investor money.

 

Should you ask for a one-time fee or equity in the deal? Well, it’s nice to get a fee for finding a deal, but don’t you want the long-term benefits of being in a deal? I would. So while you might need to get a fee on the first couple deals because, well, you need to eat and have shelter, the more you do it, the more you should transition to being an equity partner for finding the deal. Don’t take a single-family home wholesaler’s approach. Rather, take a buy-and-hold investor’s approach because that is what ultimately sets you up for long-term financial freedom.
Practically speaking, if someone came to me with an off-market deal, then I would think it would be worth about $25k – $100k depending on some of the details (i.e. size, how good of a deal it really is, etc.).

 

Related: 4 Legal Ways to Get Paid Raising Capital for Apartment Deals

Lesson #7 – Conservatively Underwrite Deals

By conservatively underwriting deals, you can get into the business by taking your talents to a group (or person) who is getting tons of deal flow and needs help underwriting deals. My business partner and I get a ton of deal flow, so we brought on a couple MBA students at UCLA to help us with the initial underwriting. After they do the initial underwriting, we then take it from there and complete the analysis. We pay them $10k once we close on a deal, and then there’s long-term potential for them to be in on the deals as we grow our business.

So, if you’re a numbers nerd…ahem…numbers guy/gal, then this is a way to break into the industry of buying apartment buildings using syndication deals. I interviewed a 20-year-old who did this and helped close a $2.3M deal. I mean, come one, if a junior in college can do it, then why not you??

Lesson #8 – Negotiate Terms and Get all Legal Documents in Order

Getting a law degree is another way to get into the business. If you’re not an attorney or don’t want to get a law degree, then skip to the next lesson.

Here are some points to guide you along the way:
Seriously, this isn’t the most practical way into the business, but if you already have a law degree, then it might work. First off, the person responsible for the acquisition is likely the one who negotiates the terms, so really all that’s left are the legal documents.

 

Paying the cost of legal on syndicated deals makes more financial sense than bringing an attorney in on the deal as a General Partner in most cases. However, perhaps you can find a group that has grown to the point where it makes financial sense to have an in-house counsel. It’s likely even if you’re an attorney that you’ll need to combine this lesson with other things you bring to the table in order to make for an appealing partner for someone buying apartment buildings and other real estate deals.

Lesson #9 – Raise Capital for a Deal and Be the Ongoing Point Person for Capital Sources

By raising capital for a deal and being the asset manager, you can get into the business by partnering with someone who has a proven track record in the multifamily syndication business. You bring the money, and they bring the deal. If you have a network of high net worth people, AND they think of you as a savvy business person, then this could be your ticket into the business.

Here are some points to guide you along the way:

  • Identify partners that are already buying up apartment buildings and have a successful track record.
  • Get an idea of how much you would make on a past deal of theirs if you raised XYZ amount of money – this gives you some benchmarks for how much you’ll make on future deals when you bring in the money.
  • Make sure the partner has money in the deal – otherwise, what do they have to lose if you bring in your money and your investor’s money and the deal flops? Always have alignment of interests.

 

Remember: if you’re raising money for other people’s deals, you must be on the General Partnership (GP) side. If you are not on the GP side and you are raising money then that’s against the law unless you have a Securities License. Be careful here. Make sure you’re on the GP side if you’re raising money for a deal.

 

I’ve written multiple posts on proven methods successful investors I’ve interviewed are using to raise capital:

 

  1. My Four-Step Apartment Syndication Money-Raising Process
  2. 3 Ways to Raise Over $1 Million for Your 1st Apartment Syndication
  3. A 5-Step Process for Raising BIG Capital For Multifamily Syndication
  4. 4 Principles to Source Capital from High Net-Worth Individuals
  5. 4 Non-Obvious Ways to Raise Private Money for Apartment Deals
  6. How to Overcome Objections When Raising Money for Multifamily Investing

Lesson #10 – Secure Debt Financing

Being a mortgage broker and securing the debt financing is another way to get into the business. If you aren’t a mortgage broker or don’t want to be one, then skip to the next lesson.

 

Even if you are a mortgage broker, similar to lesson #8, you’ll most likely get paid a fee (i.e. commission) instead of being brought on the GP side. That being said, I know of some groups that comprise of mortgage brokers, and they get in the deals by putting in their brokerage fee as the equity in the deal.

Lesson #11 Do Property Management

Become a property manager. As a property manager, you have lots of ways of breaking into the business of buying apartment buildings. Here are some:

 

  • Networking with local, aspiring investors who want to do deals but don’t have the track record. You can bring your team’s track record of turning deals around, and they bring the money for the deal. You have a lot of leverage here because, without you or someone like you, they couldn’t get approved for debt financing (and likely wouldn’t be able to raise the equity).
  • Work with an experienced group, and tell them you’ll exchange your property management fees for being in on their next deal. This could help them sell in the deal to their investors because it shows an alignment of interests. You have less leverage than the above scenario, but you still provide a lot of value.

 

You could even combine a couple methods and raise money for the deal while also trading your property management fees for being in the deal. The more money you raise, the more equity you get in the deal.

 

Or, you could raise money for the deal and get equity but not trade in your property management fees even though you’re managing the deal. Basically, you can slice it a lot of different ways. It’s only limited by your creativity and ability to add value to the deal. Ultimately your ownership should be proportionate to the value you add to the deal.

Bonus Lesson – Some Other Ways to Break into the Business:

  • If you’re a broker then put in your commission to be part of the deal. On my first multifamily deal (a 168-unit), the brokers on the deal put in their commission of $317,500 to become owners with us in the deal. It was a win-win because my group had to bring less money to the closing table, and they got to re-invest their commission into something that had major upside.
  • If you have experience in multifamily investing but don’t want to deal with the headaches of finding deals, you could do asset management for other investors.
  • You could also just do your own deal and all aspects of that deal (i.e. find it, get money for it, get financing for it, get right management partners, do asset management) similar to what I did when I started buying apartment buildings.

My company’s fifth syndication was a 296-unit, as well as our fourth purchase in a 12-month period. For this deal, I had two major discoveries. When I conducted my post-deal analysis, I looked at the investors who invested. More specifically, I looked at if they were new or returning investors, as well as how much each (new vs. returning) investor contributed to the total money raise.

 

For this deal, I found that 69% were new investors, and 31% were returning investors. However, the interesting thing I discovered was that the percentage of capital contributed to total money raise was almost split 50/50 between new and returning investors.

 

  • % contribution to total raise for new investors: 49.6%
  • % contribution to total raise for existing investors: 50.4%

So, here are a couple takeaways for anyone in the biz of raising money for their projects:

 

Lesson #12 – How to Keep Investors Coming Back

Investors new to buying apartment buildings likely won’t invest as much per person as returning investors. On this deal, 31% of my returning investors invested 50% of the total equity raise. However, after the 1st deal, the new investors were no longer new investors! So as long as you deliver and/or exceed expectations, it’s likely the amount invested will increase over time.

Lesson #13 – Top Investor Lead Generation Sources

Always have 3 ways to bring in new investors. Then convert them to returning investors. My 3 largest lead generation sources for new investors are:

Referrals from my current network. I don’t ask for referrals from my current investors or clients, but I do get them. One suggestion is to provide your investors (or potential investors if you don’t have them yet) with content that they can and want to share with their friends. For example, I wrote a book (Best Real Estate Investing Advice Ever: Volume 1) and mailed out TWO copies to each of my investors. I wrote a personal note to the investor on one of the books and told them the other book is for a friend of theirs that they’d like to give it to.

 

My podcast – Best Real Estate Investing Advice Ever Show. My podcast is the world’s longest-running daily real estate podcast. This daily show has provided me with a consistent presence via iTunes and Google searches. Most importantly, it helps people get to know me even though we’re not having a one-on-one conversation.

BiggerPockets. Since joining BiggerPockets, I’ve posted over 2,500 times and have been rewarded 10x over via the new friendships and relationships I have formed.

 

The sixth syndication deal my company closed on was a 200+ unit in Richardson, TX, which is a submarket of Dallas. After adding 200+ units to our portfolio, my company broke the 1,000-unit mark! As for this deal, the lesson I learned is simple. But before I mention it, let me tell you a quick story…

 

I had lunch with someone who asked me to meet with him. He was interested in raising money for fix and flips and was wondering how to go about doing so. He asked me a bunch of questions about where to find investors, what type of paperwork is needed, how to structure the investor conversations, etc., and I gave him answers to all the questions he asked.
He told me at the beginning of our meeting that he also wanted to see what I needed. And, true to his word, at the end of the conversation he asked me, “What can I do to help you out?”

 

I tend to get that question a fair amount of times, so I have three things I tell most people.

  1. Buy my book (all profits are donated to Junior Achievement).
  2. Listen to my podcast and write a review on iTunes
  3. Be on the lookout for off-market deals that are 150+ units

 

I appreciated him asking and was curious which one he’d pick and/or what he would say/do. He said he loved listening to audiobooks and that he would get the audio version of my book after he finished up with two or three other books he was currently listening to. I then had to leave, so we parted ways.
Question: How well did he do at adding value to my life?

 

Answer: To Be Determined. 

 

I sincerely applaud his effort and intention but there was no execution that I could see.

 

Is there a different approach that really impresses the person who you’re attempting to add value to? 

 

Yes.

 

It’s slightly different but has dramatically different results.

 

Here’s how:

 

Even though he’s in the middle of listening to two to three audiobooks, instead of saying “I’ll get to it after I’m done with the other books,” I would say, “I’m going to buy your book and will have it purchased by the time you get in your car in the parking lot!” BOOM.

 

Or, even better, “Joe, hold on one second. I’m ordering your book right now. That way I can write a review by the end of the month.”

 

Holy cow. What a difference that would’ve made from a perception standpoint. Is he spending the same amount of money and time regardless of which approach he takes?

 

Yep.

 

Is there a big ole difference between the perceived value that each of the approaches provides?

 

Oh yeah.

 

THAT leads me to the lesson I learned that was reinforced on this 217-unit deal.

Lesson #14 – Immediately Add Value

 When you have an opportunity to connect with someone, it’s important you IMMEDIATELY add value to his or her life. It takes the SAME amount of time but generates DRAMATICALLY different results compared to if you wait.

 

The 217-unit deal was a syndicated deal. However, it was only with one investor. I met that investor because he reached out to me after hearing me on someone else’s podcast. I was able to get on that other person’s podcast because when we met, I immediately referred him to people who I thought could help him get more business.

 

It’s simple. But lessons don’t need to be complicated in order to be effective.

 

Please note: I am NOT calling out the person I met with. I applaud him for asking what he can do to add value and saying he’ll do it. I’m simply saying there is ANOTHER LEVEL to go in order to be outstanding. And that level is to IMMEDIATELY add the value in order to stand out. 

 

Tim Ferriss said on his podcast, “Be unique before trying to be incrementally better.” That’s exactly the lesson here. People simply don’t follow through with what they say most of the time. Therefore, instead of saying you’ll do something later, just do it then. You’ll be unique and the results can lead to BIG things.

 

The seventh deal was a 200-unit in Dallas, TX. That purchase put my company at over $100,000,000 in assets under management (1,438 units). And per usual, I conducted a post-purchase analysis to uncover any lessons or takeaways.

 

I realized that there’s a way to communicate with investors about deals that really resonates. I boiled it down so I could use it during my investor communications moving forward, and so that others can use it during their deals when they are raising private money.

 

But first, I need to provide some backstory.

 

What’s your favorite book? Mine is Crucial Conversations. The book explains how to navigate conversations when opinions vary and when the stakes are high. The main solution discussed is to come up with a mutual purpose, and then, build up from there.

 

What is the central theme of your favorite book? After looking at my bookshelf, I realized most of my favorite non-fiction books have one or, at most, three central themes. Then, the author uses the rest of the book to simply elaborate or add additional context to those themes.

 

Some examples…

 

  • Four Hour Work Week by Tim Ferriss: optimize your time by creating a system for things that you currently do manually
  • Investing for Dummies by Eric Tyson: Stocks, start-ups, and real estate are the three main ways to invest. Pick which path you want to take.
  • Blink by Malcolm Gladwell: You can make informed decisions in a blink of an eye because of what Gladwell calls “thin-slicing”.

 

So, what does this mean for us as real estate investors who are buying apartment buildings using the syndication structure? It means that if we can boil down our main talking points into central themes, then we can communicate more effectively and get more transactions closed.

Lesson #15 – Three Talking Points when Communicating a Deal to Investors

I’ve identified three themes to talk about ANY deal. They are market, team, and deal. Then, I focus on the top 1 to 2 selling points for each of those categories. Here is how I applied this during my last deal I closed – the 200-unit in Dallas:

 

Market

  • DFW is home to 25 Fortune 500 headquarters and has been a top growth market in the country for years

 

Team

  • My company currently controls over $70,000,000 in apartment communities in Dallas

 

Deal

  • Off-market deal being purchased at 26% below the sales comps
  • Projecting the same rent premiums on upgraded units that the current owner is achieving

 

By organizing your conversation talking points with investors into these three themes, it addresses all the relevant aspects of buying apartment buildings. Of course, you’re going to need to elaborate on each of them, but at least you’re making sure you’re covering all your bases and leading with the most important selling points on the deal.

 

This strategy helped me close on this past deal, and I’ll continue to use it moving forward. You get a lot of value from using it as well!

 

For further details on this strategy, listen to JF857: How to Communicate Succinctly through Complex Deals and In General #followalongfriday

 

More recently, I closed on my eighth and ninth deals, both in Dallas, TX. In fact, they are directly across the street from one another. After closing on these two deals, the value of assets under my company’s control was over $175,000,000. After reflecting on these two deals, I had one major takeaway. But before getting to that lesson, I want to provide some context.

 

There was an on-market deal that was highly publicized and marketed by a broker. My partner and I loved the deal. However, due to competition, the price kept creeping higher and higher, so we weren’t sure if the deal would make financial sense.

 

Directly across the street from this on-market deal was another apartment complex. The on-market deal was over 300-units and the majority of units are 1-bedroom. The property across the street was over 200-units and is primarily 2 and 3-bedroom units. Therefore, the two buildings naturally complemented each other.

 

Fortunately, we have a very good relationship with a broker in Dallas who also happened to know the owner of the apartment across the street. The broker reached out to the owner and, since it was an off-market deal, we were able to negotiate and get the property under contract at a significant discount.

 

At the same time, we were in negotiations for the on-market deal. Since we were purchasing the property across the street at a significant discount, we were comfortable bidding higher on the on-market property because we would have the cost savings that come from economies of scale.

 

One of the savings that results from economies of scale, for example, is the lead maintenance person. Instead of having one person onsite and paying them let’s say $50,000/property, you can split that cost. There are also economies of scale for marketing and advertising, leasing staff salaries and commissions, and property management.

 

Also, since one building is primarily comprised of 1-bedroom units and the other is comprised of 2 and 3-bedroom units, we have a natural referral source. If someone is looking for a 1-bedroom unit, we’ve got it covered. If someone is looking for a 2 or 3-bedroom unit, rather than saying “no can do,” we can send them across the street!

 

Now to the lesson I learned.

Lesson #16 – Find Deals in a Hot Market By Creating Opportunities

In order to find deals in a hot, competitive market, create opportunities. Don’t just look at what the brokers are giving you. Instead, get creative. Look at what else is around the on-market property, and maybe you can package two deals into one transaction.

 

I can almost guarantee nobody on the face of this earth was doing that for this deal. Everyone was looking at the on-market deal, but nobody looked across the street (or elsewhere in the surrounding area) and thought to themselves, “Hmm, I wonder if I could buy that property too?” Because if they had, they might have seen the same thing we saw – a natural opportunity to combine the two deals.

 

I can also tell you that this is the first time we’ve ended up buying two apartment buildings simultaneously. We had to self-reflect and say to ourselves, “Okay. If we get this one deal, then we can definitely pull it off from an equity standpoint, but what if we get two deals? We know we can do one, but can we really deliver on two?”

 

We had to have faith based on our track record of delivering on our previous deals. Lo and behold, we had one investor who had invested with us in the past few deals put up all the equity that we needed for both deals (minus the money that we put in).

 

Overall, it was a learning experience across the board, from how to find deals in a hot market (you create opportunities) and also when to strategically stretch yourself based on the situation at hand.

 

Conclusion

In total, I’ve completed seven multifamily syndication deals in a little over 3 years. Currently, I control six different buildings with a value of over $100,000,000. From these deal, I’ve learned 16 invaluable lessons regarding how to buy an apartment complex real estate:

 

  • Lesson #1 – Get the Property Management Company to Put Equity in the Deal
  • Lesson #2 – Prime Private Money Investors Prior to Finding a Deal
  • Lesson #3 – Go farther faster by playing to your strengths
  • Lesson #4 – Do something consistently on a large distribution channel
  • Lesson #5 – There is major power in doing a recorded conference call when raising money
  • Lesson #6 – Find an Off-Market Deal
  • Lesson #7 – Conservatively Underwrite Deals
  • Lesson #8 – Negotiate Terms and Get all Legal Documents in Order
  • Lesson #9 – Raise Capital for a Deal and Be the Ongoing Point Person for Capital Sources
  • Lesson #10 – Secure Debt Financing
  • Lesson #11 – Do Property Management
  • Lesson #12 – How to Keep Investors Coming Back
  • Lesson #13 – Top Investor Lead Generation Sources
  • Lesson #14 – Immediately Add Value
  • Lesson #15 – Three Talking Points when Communicating a Deal to Investors
  • Lesson #16 – Create Opportunities to Find Deals in a Hot Market

 

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

 

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

 

That all helps a lot in ranking the show and would be greatly appreciated. And if you have any comments or questions related to buying apartment buildings, syndication deals, or anything else investment related, leave a comment below.

tropical real estate location

What the NFL, NBA and NASCAR Can Teach Us About Real Estate

According to HuffPost, the average career length of a professional athlete is only 10 years. That means that by their late-20s, earlier-30s, a professional athlete is forced into finding another career path and, more importantly, a revenue source.

 

Unfortunately, even with the multi-million dollar contracts that are standard today, the statistics aren’t on their side. A Sports Illustrated analysis found that 78% of former NFL players were bankrupt or under financial stress within two years of retirement, and an estimated 60% of former NBA players were broke within five years of retirement. However, the athletes that do overcome the odds and successfully transition into the business realm have done so by using skillsets that are valuable to real estate entrepreneurs of all stripes.

 

On my daily podcast Best Real Estate Investing Advice Ever Show, where I interview and extract the best tactical business advice from investors and entrepreneurs, I asked four professional athletes about their keys to success. Here’s what they shared.

 

Explore New Ideas Fearlessly

 

Carl Banks, a former NFL linebacker, earned the football equivalent of the Holy Grail twice, winning two Super Bowls with the New York Giants. What you may not know is that while still playing in the NFL, Carl was the first athlete to host a post-game radio show, The Carl Banks Giants Report, where he provided an insider’s analysis of his games. Consequently, he was the pioneer of the plethora of pre- and post-game sports panels led by athletes and coaches today.

 

Additionally, upon retirement, Carl took the business world by storm with his involvement in G-III Sports, the largest licensed sports apparel company in the world. However, when starting out, Carl and G-III lost over $3 million worth of licensing business to Reebok. Instead of throwing in the towel, he hustled to gain the business of mom-and-pop retailers. By providing them with such a high level of service, after 18-months, G-III was re-awarded the licensing rights, which – in combination with his newly won mom-and-pop customers – doubled G-III’s business.

 

Carl attributes both his radio and licensing success to his willingness to fearlessly explore new ideas. He told me, “As painful as it can be, don’t be afraid to fail, because entrepreneurism is about exploring every idea you have. It’s about blazing a trail, breaking new ground and having a better idea.”

 

Click here to listen to my full interview with Carl Banks.

 

Give 100% Effort

 

Another Super Bowl winning former athlete who found similar success in the business world is former defensive end Marvin Washington. After he exited the league, he delved into a relatively new business endeavor – a hemp-derived CBD product company Isodiol, where he leads the promotion of their IsoSport line – a hemp-based nutrition line that supports both mind and body wellness in training and competition used by high profile athletes.

 

Marvin became a Super Bowl winning athlete and navigates the ever-changing cannabis industry by his ability to put forth maximal effort, even when things aren’t progressing as quickly or as smoothly as expected. He said, “You have to give 100%. You have to really work hard and apply yourself, because if you think you’re going to work 9 to 5 and have success, you’re misleading yourself.”

 

Tactically, this is accomplished by sufficient planning and visualizations. Marvin writes out a plan for his days the night before so he knows that if he adheres to his schedule, he’ll have a successful day. Additionally, on the weekends, he reviews the previous week to see what he could have done better, which he then incorporates into the next week. Finally, whether it was before a big game or an important business meeting, he performs visualizations. For NFL games, he visualized himself making the right play in specific situations. For business meetings, he visualizes himself going over talking points and getting the proper narrative across to his audience.

 

Click here to listen to my full interview with Marvin Washington.

 

Persistence

 

Unlike most professional sports, there isn’t a defined career progression for becoming a NASCAR driver. Nonetheless, Kurt Busch was not only able to become a NASCAR champion, but he’s also a self-made millionaire through his racing brand. The key to his success was persistence.

 

Kurt told me, “When people are telling you to do this, do that, and yet you know what you’re focused on – that’s persistence. When it takes over your life, that’s when you know you’ve got to go that route.”

 

Similar to NASCAR, there isn’t a predefined blueprint for real estate success. Moreover, real estate investors can face a lot of resistance and negativity from their family and corporate career driven peers. Kurt wants you to know that you aren’t alone. When he was in college, everyone told him that racing was taking over his life and he needed to study more. At his first job, he was told that racing was taking away from his focus and work ethic. Yet, he persisted, which ultimately led to him winning 27 NASCAR races and counting, including the 2017 Daytona 500.

 

Click here to listen to my full interview with Kurt Busch.

 

Empowered by Failures

 

Jay Williams is considered one of the most prolific college basketball players in history, which is reflected by his 2nd overall selection in the 2002 NBA draft. However, his career was ended prematurely after a devastating motorcycle accident. Yet, against all odds, Jay owned this negative experience and used it as something empowering. He pivoted to become a multi-talented ESPN college basketball analyst, motivational speaker and best-selling author.

 

Jay told me, “I think a lot of people run away from bad things that have happened in their life, instead of documenting it, recognizing it, thinking through it and then using whatever experience they’ve been through as a positive driver in their life to push them to be more.”

 

It’s about not letting failures define you and instead, analyzing what went wrong and applying those lessons to the future, which reminds me of a powerful goal setting technique. Instead of a goal’s success relying fully on the outcome, 50% is based on that and the remaining 50% is about identifying systems, skills, techniques or lessons learned from the process of striving for that outcome and incorporating those into your approach for pursuing future goals.

 

Click here to listen to my full interview with Jay Williams.

 

Question: Which of these four lessons can you attribute to your current level of real estate success, and why?

 

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If you have any comments or questions, leave a comment below.

 

physics on a chalkboard

The Ultimate Success Formula for Apartment Syndicators

I attended the Tony Robbins’ Unleash the Power Within seminar and one of my biggest takeaways was the Ultimate Success Formula. If you reflect back on anything you’ve accomplished in your life, no matter how big or small, I can guarantee you that you followed this formula.

 

What follows is the outline of the 5-step formula and how it can be used for finding deals and private money. Although, it can also be easily applied to any business, personal, relationship, fitness or overall lifestyle goal you pursue.

 

1.    Know your outcome

 

First, know what you want. Clarity is power, so you want to be as specific and detailed as possible.

 

As apartment syndicators, our outcome will be a desired annual income. Since we want to be as specific as possible, determine the exact amount of money you need to raise to achieve your annual income goal. Let’s say your goal is to make $100,000 this year. One of the primary ways apartment syndicators make money is with an acquisition fee. The standard fee collected at closing is 2% of the purchase price. To get a $100,000 acquisition fee, you’ll need to close on $5,000,000 worth of apartment buildings. Generally, the amount of equity required to close, including the down payment and closing fee, is 30%. 30% of $5,000,000 is $1,500,000. Therefore, to achieve a goal of $100,000, you will need to raise $1,500,000.

 

To determine the exact apartment purchase price and amount of money you need to raise in order to achieve your annual income goal, email info@joefairless.com and request a FREE Annual Income Calculator.

 

With this approach, instead of having a vague goal, you’ll know the exact number of leads and investor money we need to attract, and can take massive intelligent action (see step 3) to get there.

 

Tony Robbins says “where focus goes, energy flows.” Once you define your outcome and make it your main point of focus, you will begin to – almost automatically – take the right steps and identify the right opportunities to achieve it.

 

2. Know your reasons why

 

Jim Rohn says, “How comes second. Why comes first.” Now that you know your outcome, before formulating a plan of action for how you’ll achieve it, you need to know the reasons why you want to achieve it. Human beings can do amazing things when they have a strong enough why.

 

What are the reasons behind your outcome? Do you want to leave a legacy? Use your earnings to have a positive impact on the world?  Set your children up for success? Whatever the reason is, make sure it is consciously understood and articulated.

 

With a strong why comes a strong emotional attachment to your outcome. And those emotions will be what allow you to celebrate victories and keep you going when you experience setbacks along the way.

 

3. Take massive intelligent action

 

After defining the what and why, the how is to take action. Not a little bit of action. Not a lot of random action. And not sporadic action. But massive, intelligent and consistent action.

 

Massive intelligent action is consistently taking the small steps that, when added together, ultimately lead to the realization of an overall goal and vision.

 

By defining your overall annual income goal, you’re able to reverse engineer the smaller, day-to-day steps required to achieve it. You’ll know how much money you need to raise, which means you know you’ll need at least that amount in verbal interest from private investors.

 

You also know how many deals you need to complete to achieve your goal, which means you can calculate the number of leads you need to generate following the 100:30:10:1 lead process – for every 100 leads, 30 will meet your initial investment criteria (i.e. number of units, age, location, etc.), 10 will qualify for an offer and 1 will be closed on. So, you’ll need to generate at least 100 leads for every transaction. If you’re using direct mail, for example, how many marketing pieces must you send in order to receive the number of leads required to close on an apartment community that would result in you achieving your annual income goal?

 

The goal here is to build habits and routines that become second-nature so that you not only take massive intelligent action automatically, but even begin to crave it!

 

4. Know what you’re getting

 

As you begin to take action towards your goal, it is important to analyze and track your progress. If you aren’t tracking your results, you won’t know if you’re on the right path.

 

A powerful Tony Robbins’ anecdote is about two different boats starting off at the same point. One boat continues on to the destination while the other veers off by just one degree. A few hours later, the two boats are miles apart. Applied to apartment investing, if you are slightly off-track at the start of your journey, the longer you go without recognizing the error, the more off course you’ll be AND the more effort it will require to get you back on track.

 

So, you should routinely check in and see if your massive action is getting you closer or farther away from your money-raising and lead generation goal.

 

5. Change your approach

 

Based on your routine check ins, you may need to make adjustments to get yourself back on course. Or, you may see great results with a certain approach for a while, but it may begin to taper off and plateau, putting you in a rut. When faced with either one of these situations, celebrate the fact that you had the awareness to identified the error and then change your approach.

 

Inspirational Examples

 

Don’t just take my word or Tony’s word for the power of this success formula. Here are four inspiration examples of people who set out to achieve a certain outcome, faced adversity and barriers, changed their approach and ultimately reached a level of success far above that which they initially set out to achieve.

 

  1. Walt Disney

 

At 22 years old, Walt Disney was fired from a Missouri newspaper for “not being creative enough.” One of his early entrepreneurial ventures, Laugh-O-Gram studios, went bankrupt after only two years (but Walt did later credit his time at Laugh-O-Gram as the inspiration to create Mickey Mouse). Also, he was denied by 302 banks for a loan to start Disneyland because he “lacked originality.” But, by the end of his career, he won a record 22 Academy Awards and was in the process of opening his second theme park, Disney World. Today, the Walt Disney Company holds over $92 billion in assets with a market capitalization of roughly $150 million

 

  1. Michael Jordan

 

Michael Jordan was CUT from his high school basketball team, before going on to win an NCAA championship and 6 NBA championships and finals MVPs. He once famously said, “I’ve missed more than 9,000 shots in my career. I’ve lost almost 300 games. 26 times, I’ve been trusted to take the game-winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.”

 

Michael Jordan is also a branding wizard. Between his shoes, the highest grossing basketball film of all-time Space Jam, and his part ownership of the Charlotte Hornets, MJ became the first billionaire NBA player in history, with a current net worth of $1.39 billion.

 

  1. Stephen King

 

Stephen King is an uber-successful author of horror, supernatural fiction, suspense, science fiction and fantasy, selling over 350 million book copies and having many books adapted into featured films, including the number 1 ranked movie on IMDB Shawshank Redemption. But, did you know that when he was 20, his manuscript for Carrie was rejected by 30 publishers, with one saying “We are not interested in science fiction which deals with negative utopias. They do not sell.” He actually threw the manuscript in the trash, before it was retrieved by his wife, who convinced him to resubmit it. Once published, the paperback sold over 1 million copies in its first year, and the rest is history.

 

  1. Harland “Colonel” Sanders

 

In 1955, at the age of 65, Harland Sanders, who was a retiree collecting $105 a month in social security, decided to attempt to franchise his secret Kentucky Fried Chicken recipe. He traveled the country looking for a restaurant interested in his recipe, often sleeping in the back of his car. After 1009 rejections, he finally found a taker. By 1964, there were 600 franchises selling his chicken recipe, and by 1976, he was ranked as the world’s second most recognizable celebrity. By the time of his death, there were 6000 KFCs across 48 countries with $2 billion in annual sales.

 

Conclusion

 

There isn’t a cookie-cutter strategy for being a successful apartment syndicator. We are all investing in different markets and asset sizes with different investors, and we all have different unique talents, strengths and weaknesses, and skills. That’s why there are multiple money-raising and lead generation tactics and strategies available on the resources site. You’ll need to find the techniques that are ideal for your particular situation.

 

So, once you’ve defined your outcome, articulated your why and began taking massive action, analyze your results. Keep doing the things that are working and try out new things for those that aren’t.

 

What are your 2018 goals and how will the Ultimate Success Formula help you achieve them?

 

Subscribe to my weekly newsletter for even more Best Ever advice: http://eepurl.com/01dAD

 

If you have any comments or questions, leave a comment below.

 

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22 Self-Sabotaging Behaviors That Lead To Entrepreneurial Extinctions

Last Updated 9/21/18

 

I frequently come across entrepreneurs who are making extremely poor business decisions. It’s quite obvious that these self-inflicted wounds are undermining their businesses, stunting their long-term growth potential and may even kill their business altogether.

With 8 out of 10 entrepreneurs who start a business failing within the first 18 months, the statistics are already not on your side. Creating a business is hard enough as it is, so we shouldn’t be making it unnecessarily harder.

If you want to avoid an entrepreneurial meltdown and join the ranks for the 20% of entrepreneurs who successfully launch and maintain a business instead, here are the 22 habits to avoid.

 

  1. Don’t read (or listen) to books and applying lessons from those books: Not reading books is a self-sabotaging behavior in and of itself. But it may be even worse if you take the time and effort to read but fail to apply any of the lessons to your business. My advice – after reading each book, have at least one actionable takeaway that you immediately implement in your business. Need a place to start? Here’s a list of my top 14 Best Ever apartment investing books.
  2. Isolating yourself: Because teamwork makes the dream work. You literally have a better chance of winning the lottery than you do launching and scaling a business by yourself. If you are going to isolate yourself, you might as well start buying your lottery tickets now.
  3. Close-minded towards new business practices: With more competition and technology than ever before, what worked for your business last year may already be sub-standard 5 time over. So, if you aren’t open to change, your business will go the way of the dinosaurs.
  4. Don’t like to apply new learnings to your business: It’s one thing to be open minded toward new business practices and ideas. It’s another to actually take action and apply them to your business.
  5. Don’t quickly test things out and kill it if it doesn’t work: Don’t have an obsessive relationship with new business practices and ideas. If it improves your business, great. If not or once it stops, have the awareness to identify that fact and discard it like you would a stale piece of gum.
  6. Don’t attend seminars, meetups, conferences, mastermind groups, etc.: Don’t be a basement dweller or spreadsheet millionaire. Get out of the house and meet other entrepreneurs face-to-face.
  7. Don’t model your success after someone who has “been there, done that” before you: Success leaves clues. And you need to be an expert investigative detective.
  8. Don’t invest more in yourself than you do in your craft: Relationships, tools, software, money strategies, basically everything in your business will come and go, but as unfortunate as it may be, you can’t get rid of yourself. So, wouldn’t it be great if the one thing that’s always there was a Golden Tool rather than just a tool?
  9. Don’t think you can learn something from anyone: Interesting fact: There are over 16 million books in the Library of Congress. Still think you’re a know-it-all? It would be delusional to think you know everything, or even 0.1% of everything. Don’t let an inflated sense of your knowledge be your downfall.
  10. Aren’t easily reachable to your team members: Because if you aren’t easily accessible to your team members, you’ll likely be even less accessible to your customers.
  11. Don’t have perspective when life hits you with a sledgehammer: Whether it’s in your business or in your personal life, major disasters, failures and setbacks are guaranteed to present themselves. The life vest that will save you from drowning is keeping your “why” in perspective.
  12. Don’t have a vision for where you are going: Not only will your “why” help you and your business survive the future sledgehammer attacks, but it will also direct your decisions and actions, pulling you closer and closer towards your desired outcomes.
  13. Don’t connect with people in a meaningful way: Surface level relationships are not satisfying. Moreover, deep meaningful connections enable reciprocal, value add relationships where both parties help each other achieve their business goals.
  14. Don’t want to give before you get: Selfishness sacrifices long-term growth for seemingly short-term wins. Whereas selfless contribution results in short-term satisfaction (because let’s be honest: giving feels good) and 10 to 100-fold payback over the long run.
  15. Aren’t a person who stands by your word: Psychologically, people can easily forget when you met a commitment, but they will NEVER forget a lie.
  16. Simply say you will add value: There’s nothing worse than the person who is a servant in words but a greedy pirate in action. If you’re going to talk the talk, you must walk to walk, because actions speak louder than words. Proactive add value, and then you can talk about it later.
  17. Don’t prioritize relationships over everything else: Since you can’t build a business on your own (see #2), forming and maintaining relationships should be the foundation of the majority, if not all, of your business decisions.
  18. Don’t put in the consistent work, day in and day out: You are rewarded in public for the massive, consistent action you take in private.
  19. Trip over dollars to pick up pennies: Prioritize your time so that the majority of your effort is directed towards the money-making activities. Don’t spend all of your time on the $10/hour or $100/hour tasks while neglecting the $1000/hour tasks.
  20. Let challenges overwhelm you: They always come as entrepreneurs. If you act as if a challenge or failure is the end of the world, then that will be your business’s reality.
  21. Aren’t the most resourceful person you know: You should be able to solve any problem yourself or have the ability to find a solution. Anything less and your success is restricted.
  22. Don’t know your competition can replace you: Don’t obsess over your competition to the point of paranoia. Instead, let it be a motivator that keeps you evolving and at least one-step ahead.

 

What else should be added to the list? What are deadly business mistakes you see entrepreneurs making?

 

Want to learn how to build an apartment syndication empire? Purchase the world’s first and only comprehensive book on the exact step-by-step process for completing your first apartment syndication: Best Ever Apartment Syndication Book

 

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Three Ways An Owner Benefits From Selling Their Apartment Off-Market

Originally Featured In Forbes Here

 

The most common type of real estate transaction is an on-market sale. An apartment owner who is interested in selling their property lists it with a broker, the broker markets the deal to the public, in today’s competitive market a bidding war ensues and the contract is generally awarded to the highest bidder. The more uncommon transaction type is an off-market sale, where an apartment owner who is interested in selling their property does so without enlisting the help of a broker.

 

If you’re an apartment investor who’s looking to expand your portfolio, to find the best deal, focus on off-market opportunities. It is true that an on-market opportunity is much easier to find. However, due to being highly marketed by a broker, the proceeding bidding war will result in an artificially high sale price. Conversely, off-market opportunities can be more difficult to find, but the financial benefits of acquiring an apartment directly from an owner are worth the time investment.

 

If an owner can get a higher sales price by listing their apartment with an agent, common sense dictates that they’ll be resistant to selling it off-market. However, by bypassing a broker and selling directly to a buyer, there are three main ways the apartment owner will benefit. By understanding these benefits, you, the buyer, can put yourself in the best position to negotiate with pure intentions — since both parties will benefit from the transaction — and the better you’re able to communicate these benefits to the seller, the better chance you have of securing a contract.

1. Higher Profit

 

The first benefit an apartment owner has by selling their property off-market is that they will actually achieve a higher profit. That’s because of the cost savings associated with not hiring a broker.

 

Generally, in a real estate transaction, the seller is responsible for paying the broker’s fee. A listing broker charges anywhere between 2% and 6% of the purchase price. Moreover, listing on-market increases the chances of the buyer being represented by a broker who charges the same fee. On a $5 million sale, the seller would lose between $200,000 and $600,000 in pure profit.

 

But, by purchasing the apartment off-market, the seller will benefit by saving between 4% and 12% of the final sale price.

 

2. Faster Closing

 

When an owner is interested selling a property, don’t automatically assume that their primary motivation is to make as much money as possible. If the owner is facing a distressed situation, which could be due to delinquent taxes or mortgage payments, facing many evictions, low occupancy, deferred maintenance or a multitude of other reasons, their main interest may be to unburden themselves of the property as quickly as possible. Even if they aren’t distressed, a faster close means they’ll get their money quicker, which they can then use for other purposes.

 

If an apartment owner lists a property with a broker, the broker will have to create an offering memorandum (OM). The OM is a detailed report that outlines important information about the apartment community — the financials, sub-market information, a competitive analysis and more — that can take weeks, if not months, to complete. Additionally, the time horizon widens if there is a competitive bidding situation. Then, the contract could be awarded to a buyer who, for some reason or another, backs out.

 

Instead of waiting for their broker to complete the OM, as well as to avoid the other potential time-consuming occurrences, the owner can sell off-market. They’ll send their rent roll and trailing 12-month expenses to the buyer, who can quickly underwrite the deal and submit an offer, expediting the closing date in the process.

3. Less Hassle

 

Finally, selling a property off-market has much less of an overall hassle. Again, not every owner is primarily motivated by getting the highest offer price. They may just want the least stressful exit.

 

By selling off-market, there are no open houses or property tours scheduled with several interested parties. There aren’t multiple question and answer sessions with prospective buyers. Random buyers and their contractors aren’t poking around the property and disturbing the tenants. And, there are no rumors floating around about the apartment community being sold to an unknown party, which could negatively affect resident and/or vendor relationships. Instead, the owner has to deal with one buyer, which eliminates much of the hassle of listing on-market.

From the buyer’s perspective, there are three ways that they will benefit by purchasing an off-market opportunity. First, they will save money by avoiding a bidding war and the broker’s interest in finding the highest paying buyer who will close. Second, they have more opportunities for creative financing since they’re working directly with the owner and can identify their pain points and goals for selling. Finally, the overall closing process is faster with the broker out of the equation.

 

But ultimately, an owner’s willingness to sell their apartment off-market will come down to how it will benefit them. If you can sufficiently convey these three benefits — more profit, faster closing and less hassle — to the seller, you’ll succeed in creating a win-win scenario for both parties and add a new apartment to your portfolio.

 

Have you ever persuaded an owner to sell you their property off-market, and if so, how?

 

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apartment community real estate investing

So You Just Closed On Your First Apartment Community…Now What?

You just closed on your first apartment community. Congratulations!

Now what are the next steps?

As the asset manager, and in order to earn the asset management fee, it is your duty to ensure the successful take over and ongoing management of the apartment community. To do so, here are the 11 things you need to do:

 

1 – Implement the Business Plan

As the asset manager, your main responsibility is to ensure the successful implementation of the business plan. This starts by forming an operating budget (often referred to as the pro forma), calculating the projected rental premiums based on your rehab plan (through a rent comparable analysis) – both of which should be completed during the underwriting and due diligence phases – and running these figures by your property management company for approval, all before actually closing on the deal.

Once the management company has confirmed your budget and rental premium assumptions and after you close on the deal, it is your responsibility to oversee the budget. I recommend gaining access to your property management company’s online reporting systems so that you can review the monthly financial statements. You will be comparing the budgeted expenses and projected rental premiums to the actual figures on an ongoing basis, making adjustments when necessary.

 

2 – Notify Investors at Closing

The weeks leading up to closing, my company always prepares a “Congrats! We Closed” email that we will send to our passive investors once we’ve officially closed. The purpose of this email is to not only notify the investors that the deal is closed, but to also set ongoing expectations.

In the email, we explain how often they should expect to receive update emails (we prefer once a month, but quarterly or annual updates are also an option) and the financial statements (we prefer sending the trailing 12-month income and expenses and a current rent roll on a quarterly basis). We will also include links to relevant articles that reinforce the project and/or market.

We will also attach an Investor Guide to this email. The purpose of the investor guide is to proactively address common investor questions about the project. The guide will inform the investors about ongoing investor communication in more detail, tax information, distribution frequency and amount and any other piece of information deemed relevant to the investors.

I strongly recommend preparing both the email and the investor guide before you close so you can send it out immediately.

 

3 – Weekly Performance Review

Before closing the deal, you want to schedule a weekly call with your point person at the property management company to go over and track the property’s key performance indicators. Examples of KPIs to track are, but not limited to:

 

4 – Investor Distributions

On either a monthly or quarterly basis, you will need to send out the correct distributions. Before closing on the deal, make sure you know who will be responsible for sending out the distributions and where they need to be sent. Ideally, your property manager handles the distributions with your oversight and your investors fill out an ACH application so that their distributions are deposited directly into their bank account.

 

5 – Investor Communication

You will be responsible for ongoing communication with your investors. Each month, we provide our investors with an email that recaps the previous month. The information we include in these emails are:

  • Distribution information
  • Occupancy and pre-lease occupancy rates
  • Renovation updates (i.e. how many units have been renovated?)
  • Rental premium updates (i.e. are we meeting or exceeding our projections?)
  • Capital expenditure updates
  • (i.e. holiday parties, resident events, local business or real estate news)

Additionally, on a quarterly basis, we provide the financials (trailing 12-month income and expenses and a current rent roll). Finally, we provide our investors with their tax documentation, the K1, on an annual basis.

 

6 – Managing Renovations

If you purchase the asset with a bridge loan or another loan type that includes renovation costs, you will have constant communication with the lender during the renovation period. You won’t get a lump sum of money upfront for renovations and capital expenditure projects. Instead, you will receive draws from the bank. So, you will be interacting with the lender about the construction draws as you implement your capital expenditure projects.

If you’re renovations are not included in the financing and you’re covering the costs by raising equity from your investors, you’ll have control of the capital expenditures budget and won’t have to go back and forth with the lender.

 

7 – Maintaining Economic Occupancy

Assuming you’re a value-add investor like me, once you take over a property, you will begin to implement our value-add business plan. Since you are performing renovations, you should have already accounted for a higher vacancy rate during the first 12 to 24 months. However, it is your responsibility to make sure you’re maintaining occupancy so that you can hit your return projections.

Hopefully, your property management company is implementing the best practices for maintaining occupancy, like advertising and marketing to local business and competitors, adjusting rental rates as occupancy dips and doing weekly market surveys to determine the market rents. But as the asset manager, it is your responsibility to advise the management company on the speed at which renovations are made. You don’t want to handicap your property management company by forcing renovations. So, don’t be too aggressive with the pace at which you do your renovations.

Generally, you will renovate vacant units (ones that are vacant at closing or due to turnover). Other strategies include offering newly renovated units to residents who are living in nonrenovated units so that you can renovate their unit once they move, or increasing nonrenovated rents to promote turnover. However, if you have a large influx of vacant, nonrenovated units, don’t feel forced to renovate all of them. It’s okay if for every five or six units that become vacant, you only renovate half and lease the remaining units back to the market unrenovated, because you’ll get them next time people move out.

Overall, you want to renovate at a pace that will not adversely affect occupancy rates and make sure your property management company (or whomever is managing the renovations) has agreed to the renovation timeline.

 

8 – Frequently Analyze the Competition

You want to set up a process for doing rent surveys of the competition in the area. The goal of the rent survey is to compare your property’s rental rates to those of surrounding apartments, as well as the overall market rates, to determine if you can further increase your rates while remaining under the leading competitor. Hopefully, this is something your property management company will perform and will provide you with the results and advice on rate increases.

 

9 – Frequently Analyze the Market

You will also want to pay close attention to the market in which your apartment is located. Where are the prices and cap rates at? What would you get if you sold right now, or refinanced? Even if your business plan is to sell in five years, don’t wait until then to look at the market. You may be able to provide your investors with a sizable return if you sold after two years, or three and a half years. But you’ll never know if you aren’t constantly analyzing the market conditions. I recommend determining how much return you’d achieve if you sold at least a couple times a year.

 

10 – Plan Trips to the Property

I recommend visiting the apartment community at least once a month. However, don’t announce every one of your trips. If the management company is aware of your visit, they will have time to prepare and you may not get a true representation of how the property is typically managed. Whereas if you visit unannounced, you’ll see how the property is actually operated on a day-to-day basis.

 

11 – Expect the Unexpected

Finally, as unexpected issues arise (and you can guarantee that they will), you are responsible for making the proper decision to resolve the problem. For example, if you receive a call from the property manager, notifying you that the boiler unexpectedly broke down, you’ll have to decide if you will use money from the operating budget to replace, refurbish or repair it.

 

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3 NFL Lessons That Entrepreneurs Can Bring to Their Businesses

Originally featured in HuffPost

 

We’ve all heard this story: small town guy is drafted into the National Football League and has an outstanding career in the spotlight, making a boatload of money. Then, they retire and lose it all. However, we sometimes hear the exceptional tale of an athlete who made it big in the league, retired and then leveraged the skill sets acquired from the NFL to launch a career as a business person, achieving similar or even higher levels of success.

 

Most people have trouble mastering one area of life, let alone two. So, what is it that differentiates these two types of athletes?

 

As the host of a real estate podcast where I interview guests and share advice, I’ve wondered what some of the sports superstars turned business titans would attribute to their attainment of the highest levels of success in multiple industries. Here’s what they shared with me.

 

Start From the Ground Up

 

Undoubtedly, one of the most famous plays in NFL history was the “Immaculate Reception,” which was caught by NFL Hall of Famer and four-time Super Bowl Champion Franco Harris. After a legendary NFL career, Franco transitioned into the business world. Harris believes that the main reason many NFL athletes fail after retirement is that they try to purchase companies, as opposed to starting at the bottom and building from the ground up. “The advice I provide to NFL players when they’re transitioning out of the league is don’t buy your way to the top. Learn the business. Learn every aspect of the business,” Harris told me.

 

He attributed this philosophy to his ability to successfully scale superfood. Instead of just buying his company and immediately assuming the duties of a CEO, he started off by learning the day-to-day operations. He spent time working in the warehouse, delivering products and unloading trailers in order to truly understand the job duties that made the business function properly.

 

Unless you have access to a large amount of capital, you won’t be tempted to buy your way to the top of a company. But Harris’s experience shows us that going through the day-to-day grind of a startup is meaningful and necessary to scaling and maintaining a business. Moreover, once you do assume a higher-level role, you’ll have a more humble and gracious perspective of the lower-level roles in the company, which will ultimately make you a better leader.

 

Always Stay the Course

 

Former San Diego Chargers running back Terrell Fletcher has cultivated a skill that enabled him to successfully make the arduous transition out of the league: the ability to overcome adversity and stay the course. After a brief stint as an NFL coach and sports commentator, Fletcher found his new identity and purpose as a motivational speaker, author and Senior Pastor of the City of Hope International Church.

 

He said, “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, because those barriers are not there to stop you. They’re designed to make you stronger.”

Facing and overcoming challenges is a vital part of growing as an entrepreneur. In fact, if you aren’t running into barriers in your business, that means that either your goal isn’t big enough or you aren’t taking the risks that are part and parcel of every business person’s journey towards success. And in the long run, you will look back with gratitude on these barriers because of the skills you obtained and the person you’ve become from gaining victory over them.

 

Don’t Underestimate the Value of Teamwork

 

Emmitt Smith is arguably one of the greatest NFL players of all-time. After setting three rushing records (career yards, touchdowns and attempts), winning three super bowls and being inducted into the Hall of Fame, he began to build his off-field legacy as the owner of a real estate investment and development company.

 

A trait Smith learned in the NFL that he’s applied to his business endeavors is teamwork. He said, “Checking your ego at the door and understanding that you do not become successful by yourself. I did not hand the football to myself. I did not block for myself. I did not call the plays. And the same thing applies to business.”

 

Each employee on a business team has their own unique abilities and responsibilities, and when in harmony together, it results in a smooth and successful organization. Moreover, one superstar cannot carry you to the promise land.

 

Additionally, in today’s competitive landscape, having key people who can competently perform multiple functions is extremely advantageous. In football, the best running back can convert on a one-yard fourth down play, but when called upon, he can also catch a quick swing pass or throw a block to avoid a sack. Having a team member who can do high-level strategy and understand the day-to-day operations is a beautiful thing.

 

Interestingly, something that none of the NFL players stated as the main contributor to their business success was the money they earned while in the league. Instead, they found success by learning the day-to-day ground level operations, never giving up and surrounding themselves with a stellar team, which is something that the novice entrepreneur with little or no capital is capable of acting upon immediately.

 

If you transitioned from a full-time, 9 to 5 job into real estate entrepreneurship, what skill sets did you obtained from the former that you successfully applied to the latter?

 

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Episode of Best Real Estate Investing Advice Ever Show

Top 5 Best Ever Blog Posts of 2017

Here are the top-5 blog posts (determined by page views) of The Best Ever Blog in 2017.

 

  1. 16 Lessons From Over $175,000,000 in Multifamily Syndications 
  2. 6 Creative Ways to Break Into Multifamily Syndication
  3. How to Raise $1,000,000 For Your First Apartment Syndication
  4. Formula to Buy 5 Rental Properties in 2 Years and Payoff in 7
  5. 7 Principles for Attaining a $500 Million Net Worth

 

What was your favorite blog post of 2017?

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youtube video playing

Top 5 Best Ever YouTube Videos of 2017

Here are the top-5 YouTube videos (determined by views) from the Best Ever YouTube channel in 2017.

 

1. NFL Legend, Emmitt Smith, Shares His Developmental Real Estate Secrets

 

 

2. Tony Hawk Shares His Not-So-Easy Path to Becoming the Premier Skater Brand

 

 

3. Learn the Secrets that took CNBC TV Star Sean Conlon From Assistant Janitor to Real Estate Mogul

 

 

4. Morning Routines, Tips for Accomplishing Your Goals and Your Questions Answered with Jillian Michaels

 

 

5. How 9 MILLIONAIRES Were Made with This Simple Trick with Sam Ovens

 

 

What was your favorite YouTube video of 2017?

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Real Estate conference guests

Top 10 Best Ever Podcasts of 2017

Here are the top-10 most popular episodes (determined by downloads) of Best Real Estate Investing Ever Show in 2017.

 

  1. How He Bought Over 100 Units in Nine Months with Todd Dexheimer
  2. How This Kid Used GOOGLE to Fund 11 Properties in a Year and a Half! with David Zheng
  3. What Your Financial Planner Isn’t Telling You About Retirement with Charlie Jewett
  4. Defer Your Taxes with the 1031 Exchange! with Leonard Spoto
  5. From Living in Her Parents House, to Complete Lifestyle Freedom Through REI with Julie Broad
  6. How to Buy, Hold and Sell Seller Financed NOTES with Dawn Rickabaugh
  7. He Moved to the US From Israel and Now Owns Over $120,000,000 in Real Estate Internationally!! with Nizan Mosery
  8. Hack Your Brain For Financial Success with Joan Sotkin
  9. Make Enough Money in Real Estate to Quit Your Job!! with Drew Kniffin
  10. Thoroughly Evaluating Multifamily Buildings and Areas Before Your Buy with Omar Ruiz

 

What was your favorite episode in 2017?

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fancy letter

The Real Estate Lead Generation Secrets of a Direct Mailing Specialist

One of the most popular real estate lead generation tactics are direct mailing campaigns. But with its popularity comes a high level of competition. So, to separate yours from the tens, hundreds, or even thousands other direct mailing campaigns in your market, it helps to have a basic understanding of the best practices that experienced investors are implementing across the nation

 

Craig Simpson, who’s the owner of a direct marketing company that is responsible for overseeing 30 million pieces of direct mail sent out over 300 different promotions each year, is a direct mailing expert. In our recent conversation, we discussed the three important factors involved in a direct mailing campaign and the best practices for maximizing your response and conversion rate.

Selecting a Mailing Service

 

Since Craig built his direct mailing service from scratch, he has a behind-the-scene’s perspective on the characteristics of the good, bad and ugly direct mailing services. His advice on selecting a mailing service in your local market is “I would shy away from anybody who uses words like ‘guarantee’ or ‘ensure that you’re going to get the best kind of response rate’.”

 

There isn’t a one-size fits all method to direct mail. It depends on various factors like the target customer, the product, the market, etc. So, if a mailing services is “promising” or “guaranteeing” a certain outcome…RUN! They cannot know whether or not their service is a right fit for you until they understand what it is you’re trying to accomplish.

 

Instead, Craig said, “the things you’re looking for is people who talk about testing, because all direct marketing boils down to a lot of testing.” We will dive into the best practices for testing different mailer strategies and types in the sections below. If you decide to forgo the DIY direct mailing campaign, make sure the direct mailing service you use doesn’t offer guarantees, but focuses on testing instead.

 

Once you’ve selected the ideal direct mailing service, or made the decision to conduct your own campaigns, the next step is to understand the three main factors to a successfully direct mail, which are the list, the copy and the offer.

 

The List

 

The list contains who it is you are mailing to, and is the most important piece of any direct mail campaign. Craig said, “you want to make sure you have a targeted list of prospects that will look like the type of customers you want to go after.”

 

If you’re interested in distress property leads, make sure you have a list of distressed owners. If you’re going after property’s whose owners live elsewhere, make sure you have a list of absentee owners. It may seem obvious, but if you obtain a list from a bad source, you’ll be surprised at how much money you can waste by mailing to unqualified leads. So, make sure you’re getting your lists from reputable sources, like CoStar or the local auditors site.

 

The next natural question is, how often do you mail to your list? Like most things in real estate investing, the answer is that it depends. The frequency in which you send out your mailing campaigns will depend on the quality of your list and your response rate. The standard response rate for direct mailing campaigns is three quarters of a percent. For every 1000 pieces of direct mail, expect 7 to 8 owners to reach out for more information.

 

Let’s say you find a list from a reputable source of 10,00 distressed property owners. Craig said that if you receive the 0.75% response rate and a majority of those responses are very interested owners, you have a great list. With great lists, he recommends sending out mailers once a month. If your first mailer, or second campaign with a good list, results in a response rate of below 0.75% and/or a minority of the owners who do respond are interested in selling, you have a decent list at best. For these types of situations, Craig recommends that you send out direct mailing campaigns once ever 60 to 90 days. Then, if you continue to see poor results, scrap that list or send out mailers on a less frequent basis, find a new one and repeat the process.

 

The Copy

 

The copy is what is it you say in your mailer. The key point here is to create a copy that speaks directly to owner’s needs. Craig said, “When you’re talking to a prospect, you always want to talk about the pain points, the things that they may be struggling with … and then you can address the solution.”

 

If you’re mailing to absentee owners, for example, they will have renters. When formulating your direct mail copy, the theme should be about renters. They’re probably worrying about people destroying the house, failing to pay rent, turnover costs, cost of property management and other renter related headache. So, you can address their pain point by stating that you can take these problems off their hands and put extra cash in their pockets at the same time.

 

Once you’ve converted a few leads into transactions, another unique approach is to include testimonials in your copy. “Offer testimonials,” Craig said, “having past clients that you’ve worked with rave about you and sharing that with others. People are always convinced and encouraged when somebody else has had a good experience.”

 

To determine what does and doesn’t work, test different mailing campaigns. Use different letter types (yellow letter, handwritten, postcards, etc.), copies (i.e. the message), colors, etc. and track the results, ultimately getting closer and closer to the ideal mailer for your specific market and niche.

 

Overall, you want your copy to directly connect with the particular owner’s potential pain points, as opposed to a vague “We Buy Houses” message, and conduct tests on an ongoing basis to see what does and doesn’t work.

 

The Offer

 

The offer, which will be included in your copy, is what it is you want them to do. Do you want them the call, text or email you? Do you want them to visit your website or a landing page? Do you want them to request a free report or consultation? Whatever action you want an interested owner to take, make sure it is clearly stated in your copy. And you can also test out different offers to see which ones result in the highest response and conversation rates.

 

For those of you who have closed on a deal as a direct result of a direct mailing campaign, what the list, copy and offer did you use?

 

Check out the Lead Generation topic section on my blog for more than 25 articles on the Best Ever lead generations tactics and strategies.

 

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social media profile on phone

How a $10 Million Agent Generates FREE Leads With Facebook

Spending hundreds of thousands of dollars on online marketing is a great way to obtain quality real estate leads. However, some real estate professionals – and I would say especially those who are just starting out and are strapped for cash – implement creative strategies to reduce or even eliminate their marketing budget, either out of necessity or to just increase their overall bottom line. But regardless of your experience level or spending capabilities, all real estate professionals and investors should be actively searching for ways to decrease their cost per lead.

 

Trish Williams, an agent and broker out of Las Vegas, started her real estate career in 2014. She devised a FREE marketing tactic which accounts for 90% of her $10 million in real estate transactions. Trish’s primary source of new customers are through referrals from Facebook. Essentially, she offers intriguing content on her personal Facebook page on a consistent basis, building up her credibility, so that whenever someone is ready to buy or sell their home, or personally knows someone who is, she’s the first person they reach out to. In our recent conversation, she explained her process for obtaining referrals through her personal Facebook page. You can apply these techniques to your business, regardless of the real estate niche you pursue.

 

How to grow your Facebook friend’s list?

 

One of the main focuses of Trish’s referral process is to build and grow your personal Facebook friend’s list. The more friends you have, the more potential direct and indirect referrals you’ll receive (as long as you’re posting the right kind of content, which will be discussed in the next section).

 

Besides organic growth, she has two active methods for adding new friends. First is through networking…EVERYWHERE. She said, “Every time when I meet somebody, if I meet you at the grocery store [for example] and we have a conversation, I ask you your name and I’m going to add you as a friend to my Facebook.”

 

Two is through her business page. She said, “I haven’t really figured out how to convert those people or grab them, so I add them as friends. I just add them to my personal page, because I have such a better conversation rate of converting people through that.”

 

Both of these tactics can be applied to any real estate niche. When you’re out and about, talking to people with passion about your real estate business, ask them for their name and add them to your friend’s list. Also, you should already have a business page or group on Facebook, so every time you receive a new like or a new member joins your group, add them as a friend.

 

What should you post?

 

The key to Trish’s referral process is the type of content you post. Since the goal is to establish credibility and trust with your followers, she said, “I’m not marketing. I don’t ever want to sound like a commercial. I’m just talking about what I do.” So, your content should be natural, genuine, authentic and add value, as opposed to gimmicky marketing or obvious advertising.

 

The specific content you post will vary depending on your niche. Since Trish is a real estate agent, her posts simply show what she is doing on a day-to-day basis. One approach she uses is to post pictures. “If I have an experience, if I’m out at a house and it has an amazing kitchen, I’m going to post it. If I see something that has great investment potential, I’m going to post it,” she said. “If I get an award, I’m posting a picture of me with the award, or if something happens – every success I’m posting about.”

 

Another approach that has a great response rate are videos. Trish posts videos all the time. She said, “If I’ve been out door-knocking, I post a video. I show people the yard of the neighborhood or the view of the street. If I’m at a new construction home, grand opening for a model home, I post a video of it.”

 

The video approach is a great way to build relationships without actually having to meet people in person. “People get used to seeing me,” Trish said. “They know me because I’m always posting videos, and they’re not professional videos. Sometimes my hair is crazy or whatever, but I’m still a person and people really like that.”

 

Since it is her personal Facebook page, not everything she posts is business related. She will post things about her personal life too. However, she did recommend that you avoid posting about divisive topics. She said, “I stay out of politics. I stay out of any kind of things that are controversial. I never ever post about anything that has to do with those. I don’t want to alienate people whatsoever, so I always keep a neutral stance, stay positive, and try to be that person that people really want to work with.”

 

When should you post?

 

Trish posts the type of content outline about at least every other day.

 

On top of that, she is on Facebook every day, commenting and liking other people’s content. However, that doesn’t mean she’s mindlessly scrolling through her news feed, liking and commenting on every single post. Remember, the goal is authenticity and genuineness. If you like every post, eventually people are going to catch on to what you are doing. Instead, Trish said, “I take interest in what other people are doing. I see what’s going on in their life and that helps me too to know who may need assistance. I do just make it a habit every day to scroll through, take a few minutes, see what people are doing. Whatever is at the top of my newsfeed.”

Finally, she always reaches out on birthdays. “Just Happy Birthday! If there’s something I know special about them, or what’s going on in their world, I mention it.”

 

Conclusion

 

Trish attracts the majority of her real estate business through Facebook referrals. She accomplishes this by networking to build her friend’s list, then posts genuine, natural content at least every other day, as well as likes and comments on other people’s posts and wishing people happy birthday.

 

Besides being simple and low cost, an advantage of this approach, as Trish mentioned, is that you’re establishing rapport with people before meeting them in person. It’s a completely different conversation when someone already knows you prior to sitting down or jumping on a call with them, compared to being complete strangers and then have to build up from nothing.

 

What FREE marketing tactic have you used with success in your real estate business?

 

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magnifying glass

Find Higher Quality Apartment Leads with This Proactive Marketing Approach

Dylan Borland – listen to my full interview with him here – is a fix-and-flipper turned apartment investor. He currently controls $10 million in real estate and is aiming to control $100 million of the next five years. His best ever advice and what he believes to be the key to his success is his unique prospecting approach.

 

The typical marketing approach for finding off-market deals is building a list of owners, sending out a direct mailing campaign and sitting back to wait for the phone to ring. While there is nothing inherently wrong with this tactic, Dylan prefers to take a much more proactive approach to finding deals. Instead of sending out mailers, he calls the owners directly.

 

Dylan obtains his list from CoStar. It includes the owner’s name, address and phone number. However, it doesn’t really matter where you get the list from, as long as it includes the owner phone number. Click here to download your free copy of 24 Proven Ways to Get Off-Market Deals, or check out all of my blog posts about lead generation to start building a list of motivated sellers.

 

On rare occasions, the CoStar list doesn’t include the owner’s phone number. If that is the case, Dylan finds the phone number by doing a reverse address lookup using either White Pages Premium or Vulcan 7.

 

When Dylan makes the phone call, he opens by saying, “Hey (owner name). I just want to introduce myself. My name is Dylan over at the Borland Group. We’re looking at buying properties in your particular area, and that’s how we found out about yours. We wanted to see if you have any interest in selling?”

 

Similar to direct mailing or any other prospecting technique, the majority of people won’t be interested in selling. But, you are looking for the one that does. All the person has to say is “Yeah, I have a slight interest” or “What would you offer me?”

 

If there is any inclination that they are interested in selling, the next step is to collect the relevant information – profit and loss statements and rent roll –  to underwrite the deal and determine an offer price.

 

Dylan’s prospecting approach is easy and straightforward – just pick up the phone and ask if they’re interest in selling. However, he did admit that it can be frustrating. Generally, 99 out of 100 owners won’t be interested in selling. But, since we are dealing with larger properties, you don’t need to have a high conversation rate. You just need to hit 1 out of 100, or even 1 out of 200, especially since you can easily make 100-200 phone calls in a week.

 

An additional advantage of this strategy is that since you are taking an active approach, you control how many conversations you have, rather than hoping an owner calls you. And then it is also less costly, because you don’t have to pay for letters, envelopes and stamps. Besides the cost of his CoStar subscription (which he pays $350/month through his brokerage), Dylan’s overall marketing budget is $1000 per month. If you find that one deal out of 100, 200 or more, you’ll more than recoup your costs.

 

To add to Dylan’s approach, if a specific owner isn’t interested in selling, don’t give up just yet. Follow-up by sending the owner a letter. Reference the phone conversation, provide your contact information, and tell them that you will reach out again in X months (2, 4, 6, whichever you decide is best) to see if they are interested in selling.

 

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ecommerce packages

A Digital Nomad’s Scientific Approach to Promoting Your Personal Brand

In a well-known study conducted by Psychologist Dr. Albert Mehrabian, our ability to communicate effectively can be broken into three categories: spoken words, voice and tone, and body language. According to the study, when attempting to convey a message, only 7% of your success is based on the actual spoken words, while the remaining 93% is based on our tone and body language.

 

Amber Renae, a civil engineer turned branding expert, applies the conclusions of Dr. Mehrabian’s study to brand building. In our recent conversation, she outlined her three-pronged approach to effectively and efficiently promoting your personal brand to grow your real estate investing business.

 

Why Build a Brand?

 

Ultimately, the idea behind building a powerful brand is that it will allow your ideal customer to find you. How they’ll find you will vary, but generally, it’ll be through your website or social media platform. Once they do, Amber says, “they’ll immediately click over to the other one to see if there’s consistency. If they find that your social channels look like your website, then they start to see consistency. Then, they look for evidence of you showing up in person or in real life – on things like videos, live events, podcasts, speaking engagements, things like that. If all three of those are cohesive and consistent, then they start to depend on you, and once your audience depends on your, they have confidence in you. Once they have confidence, then they start to trust you, and you know what comes after trust…sales.”

 

Therefore, the key to increasing your bottom line is to create a cohesive and consistent online and offline person brand.

 

In order to tip that first domino in the buying funnel (i.e. attracting your ideal customer), Amber teaches a three-pronged approach that focuses on the communication factors that impact 93% of a messages or brands success, which she’s broken down into presentation, performance and publicity.

 

1 – Presentation

 

The first factor of a powerful brand is your presentation. More specifically, it is about forming a unique signature style.

 

Amber said, “some inspired actions that you can start taking today is to just start thinking of yourself through the lens of a personal brand – what makes you unique? What makes you stand out from the competition? What are you doing differently from the rest of the marketplace?”

 

Ask yourself these questions, write out the answers and use them to develop your brand objectives. Then, based on your personal brand objectives, start to think about how you can incorporate them into a signature style that is unique to you.

 

Amber says to take your signature style and apply it “across your body language, your vocal performance, how you engage in conversations and how you treat other people.” You want to be that person who has great body language and who holds themselves with really high confidence and self-esteem, which is accomplished when you have defined a signature style and apply it to your online and offline presentation.

 

2 – Performance

 

The next factor is your performance. A performance is anything you are actually presenting to your ideal audience – podcasting, videos, public speaking, Facebook live, Periscopes, etc.

 

Amber said, “No longer can you just write a blog post or do a social media share and expect that your ideal client is going to find you and connect with you. As a society, we crave connection, and it’s our responsibility as entrepreneurs to create a brand that connects half-way with people. The way that you do that is by creating things like a podcast, videos, doing live streams, etc. Anything that builds authority and thought leadership, because this is the way that you ignite a movement. This is the way that you get trust with your audience.”

 

When “performing,” this doesn’t mean you’re being fake or unauthentic. But since the goal of our brand is to ultimately build trust and gain confidence from our audience, this cannot be accomplished without an online and offline presence. We must use our signature style to get our faces in front of our customers.

 

3 – Publicity

 

Finally, once we’ve identified our unique style and our presentation approach, the last step is to publicize our brand. Building your own platform will be time-consuming, expensive and laborious. But a good short-cut is to leverage other people’s audience, which will get your message spread a lot faster and to a much wider audience.

 

“It’s really just a matter of finding people that are creating great content and reaching out to them and going, ‘Hey, I’m going something interesting. Do you want to connect?’,” Amber said. For an exact process for how to get on other people’s podcasts, for example, read this blog post – The Ultimate Guide to Getting Booked as a Guest on ANY Podcast – which is based on an interview I had with Jessica Rhodes, the founder of a premier guest booking agency.

 

Now that you know the three main factors to focus on, it’s time to build out your thought leadership platform. Here is a link to the “Branding and Thought Leadership” section, which includes multiple posts on creating and growing a thought leadership platform.

 

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location on a map

How to Find Private Money Regardless of Where You Live

Last week we closed on our 12th property and our company portfolio is now valued at more than $250,000,000 (click here to see the lesson I learned on my last deal). Since this quarter billion dollar mark is sort of a milestone I thought it would be interesting to look at where my potential and current investors live to see if there is anything interesting we could learn from it.

 

Yes. Yes, there is.

 

Before we look at the stats, let’s define a couple things.

 

I define Potential Investors as investors with whom I have a relationship, are accredited and have expressed interest in investing with me but have not invested yet. Current Investors are accredited investors with whom I have a relationship that are currently investing in my apartment deals.

 

Now let’s dig into the stats of my investor database.

 

Top 5 Cities with the most Current and Potential Investors:

  1. New York City: 18%
  2. Dallas-Fort Worth: 10%
  3. Los Angeles: 9%
  4. Houston: 5%
  5. San Francisco: 4%

 

So, out of all my Current and Potential Investors across the United States, 18% live in NYC, 10% live in DFW, etc. This makes sense for a handful of reasons.

 

First, they are large cities (ex. Population of NYC is 8M+).

Second, I lived in NYC and DFW so have family and friends there.

Third, our properties are in Texas so DFW and Houston investors have a level of familiarity with the market they are investing in. They see the same thing we see in terms of population growth, job growth, economic outlook, etc.

 

Now let’s look at the Top 5 cities with the most Current Investors (removed Potential Investors).

 

Top 5 Cities with the most Current Investors:

  1. New York City: 18%
  2. Dallas-Fort Worth: 11%
  3. Los Angeles: 6%
  4. San Francisco: 5%
  5. Tied- Houston, Miami, Austin and Seattle: 4%

 

Ok, still making sense and for the reasons stated above. Large cities, places I lived, have family and friends residing, and, in three cases, are in the same state as our multifamily deals (Austin, Houston and Dallas-Fort Worth).

 

But here’s where the wrinkle occurs.

 

Let’s look at all the equity my investors have invested in my apartment syndications and what % of the total invested dollars is attributed to each city where investors live.

 

Top 5 Cities with % of Investment Dollars in Deals

  1. New York City: 18%
  2. Cincinnati: 13%
  3. Dallas-Fort Worth: 11%
  4. Miami: 7%
  5. San Francisco: 6%

 

…what in the Cincinnati just happened?!?!

 

Cincinnati isn’t a top 5 city of mine in terms of total # of Current Investors and/or Potential Investors.  In fact, to dig deeper Cincinnati only has 2.5% of my Current and Potential Investors living there. And only 3.5% of my Current Investors living there.

 

I am not from Cincinnati and, in fact, have only lived here for approximately 3 years. So, why does it represent 13% of all the equity invested in my apartment deals? The short answer is because I am actively involved in the local community. But that short answer doesn’t do the real lesson learned justice so let me elaborate more.

 

Here’s how I did it:

 

  • Host a local meetup. The first month I officially moved to Cincinnati (because my wife is from here and she’s the love of my life so I followed her to the city and now we’re here for the long-term) I started a meet-up. If you have time to ATTEND a meet-up then you have time to HOST a meetup. It doesn’t take that much more effort to HOST than it does to simply ATTEND and the rewards for HOSTING are exponentially greater. I did this to make friends in Cincy. I didn’t do it necessarily to generate investor relationships but that’s exactly what it did.
  • Host Board Game and Drinks nights at your house. This Friday my wife and I are having friends of ours, some of which are investors, come over to our house for a night of board games, drinks and dinner. Hosting events at your house as couples, along with couples, is fun and goes a long way to continue to build your friendship with those locally.
  • Consistent online presence that has an interview component to it. Or, in short, my podcast. I interview someone Every. Single. Day. on real estate investing and have released an episode for the last 1,197 days. There are multiple benefits for doing this and I won’t get into all of them but I will focus on one of the benefits and that is that every time I interview someone they then want to share it out to their audience which helps expand my reach. And, if I interview people in my local market that introduces new, local connections to me which can then turn into business relationships since I get to have dinner, drinks, etc. with them. Here’s a post I wrote on the step-by-step process to create a real estate thought leadership platform.
  • Volunteer then become a board member for that non-profit. I had no intention to meet investors when I started volunteering for Junior Achievement. But I have since realized that by volunteering for a cause I feel strongly about (Junior Achievement helps kids in underserved communities learn financial and entrepreneurial skills) I was able to connect with like-minded people and then become friends with them. I got on the board for JA in Cincinnati and have built friendships with people on the board which then turned into business relationship where they invest in my deals. You could take the same approach but make sure you genuinely believe in the cause and are doing it for the right reasons (i.e. helping further the cause’s mission) vs trying to grow your biz, otherwise it will fall flat and won’t be fulfilling for you.

 

By doing these simple things, you can build an investor network in your city that is perhaps stronger than any other network. When people personally know you they are more likely to trust you, recommend you to others, and invest larger. The beauty in this is that it’s helpful for you regardless of where you live.

 

Cincinnati is approximately the same size as St. Paul, Minnesota, Toledo, Ohio, Stockton, California and…Anchorage, Alaska. So, if you live in a city that is larger then there’s really no excuse to not having all the capital you need for your deals. If you live in a city that’s smaller than Cincinnati (300k population) then you can still apply these principles although it might require you to host your meetup in the next largest city next to where you live, that way you get better return on your time.  Regardless, apply these principals and you will quickly build a local investor network than can help you fund your deals.

 

In the comment section below, tell me how you will implement these proven money-raising tactics in your real estate business.

 

Make sure you subscribe to my weekly newsletter for even more Best Ever advice: http://eepurl.com/01dAD

                       

If you have any comments or questions, leave a comment below.

 

Joe Fairless Podcast Collection

5 Most Popular Best Ever Podcast Episodes for November 2017

Here are the five most popular Best Real Estate Investing Advice Ever podcast episodes for the month of November 2017

 

 

5 – JF1168: Have Your Tenants Pay Taxes, Insurance, and Maintenance! With Dave Sobelman

Triple net leases allow investors to be very close to passive. The three nets; taxes, maintenance, and insurance, are all paid by the tenants. You can imagine the headaches that could save the building owner! While this strategy does offer less risk, it also comes with a little less return on your money.

 

What you’ll learn:

  • The definition of a triple net lease
  • Debunking the stigmas of triple net leases
  • How to increase the value of a triple net lease property
  • How to evaluate a real estate market
  • Best Ever advice for investors who want to pursue triple net leases

 

4 – JF1156: How To Build Wealth Through Single Family Investments With Paul Thompson

When Paul realized that the perfect time to start investing was never going to come, he jumped in! Now doing about three deals per month, Paul is able to help himself, as well as helping others build wealth with passive cash flow.

 

What you’ll learn:

  • How he purchased 9 rental properties in 2 months, and the specifics on a few of those deals
  • How to manage low-income properties
  • Seller-financing case study
  • What to watch out for with seller-financed deals
  • Best Ever advice for those who are looking to do their first deal

 

3 – JF1175: He Buys For Appreciation vs. Cash Flow With Tim Shiner

Tim specializes in high end SFR rentals, and contrary to popular belief, he prefers to buy his properties for the appreciation. He’ll even lose $200 to $300 per month if he believes the property will appreciate and be worth more in the long run. He has another different strategy for when his tenants lease comes to an end.

 

What you’ll learn:

  • The BAD investment strategy
  • How to evaluate a market’s school district
  • Why he buys for appreciation and not cash flow
  • Why and how to get your tenant to buy your property
  • Best Ever advice on the type of property you should buy

 

2 – JF1170: Multifamily Syndication 201: Finding Off Market Properties & Structuring The Deal With Dylan Borland

Dylan has a unique way to structure a syndication, and how to find off market apartment communities. His team has a great system in place, (wholesaled an apartment community for $400k profit) but it didn’t come easy. They prospect properties every day, and you’ll be surprised by how they do it.

 

What you’ll learn:

  • How he structured the acquisition of $10 million worth of investment properties
  • Apartment syndication case studies
  • Is it a bad time to invest in multifamily?
  • How to protect your investments against rising interest rates
  • How to communicate with private money investors after closing on a deal
  • Proactive approach to finding off market deals

 

1 – JF1162: Get Out Of Debt Through Real Estate! With Joe Turney

4 years ago, Joe had a negative net worth (had more debt than income and assets). Joe self-educated himself by reading real estate books and taking online courses. He took another full-time job for one year to gain some capital, after a year of working 16 hours a day, he had enough saved up to purchase his first rental property. Now, 3 years later, Joe has accumulated $2 million class A single family homes.

 

What you’ll learn:

  • His strategy for getting out of the “red”
  • Case study of his first rental investment
  • Definition of a class A single-family home
  • His rinse and repeat strategy for accumulating 20 rental units worth $2 million
  • How he handles renovations and ongoing maintenance of his rentals and fix-and-flip projects
  • The secret to quickly scaling your real estate business
  • How to find single family deals and buy at 70% of the retail value
  • His daily routine
  • Best Ever advice about designing your lifestyle

 

Which Best Ever podcast episode this month added the most value to your real estate business?

 

Subscribe to my weekly newsletter for even more Best Ever advice: http://eepurl.com/01dAD

                       

If you have any comments or questions, leave a comment below.

Greek-inspired building

The 3 Pillars for Building Relationships with High Net-Worth Investors

Any real estate investor can attest to the fact that relationships are one of the keys to growing a business. As an apartment syndicator myself, one of the main ways I have directly benefited from relationships has been my ability to meet potential passive investors.

 

Being a key to our success, we should be actively seeking out tactics and techniques for sharpening our relationship building skills. And if we are raising money for our deals, this should be one of your top priorities – how can we meet potential passive investors?

 

Jason Treu is an expert in this field. He is an executive coach who specializes in teaching his clients how to strengthen their relationship building skills. Through his coaching, his clients have built relationships with industry titans such as Tim Cook, Bill Gates and Richard Branson. In our conversation on my podcast, Jason provide his expert opinion on where to find high net-worth individuals and outlined his three pillars for building relationships with them.

 

How to Find High-Net Worth Individuals?

 

Building relationships, like building a business, is all about strategy. You need to have a plan, which starts with knowing where to go to maximize your chances of meeting the high net-worth individuals or entrepreneurs who can help you along your real estate journey. Jason said, “I’ve found through a lot of research [that] some of the best people to meet are in charities and non-profit groups.

 

Not only are these places where the people in attendance will have money, but they will also likely be altruistic. If it is a nonprofit or a charity, the whole premise is built around giving. “When you’re around people that have the mindset of giving and you build a relationship,” Jason said, “they’re much more open to helping you.”

 

Jason recommends Googling terms like “young professional,” “charity,” and “non-profit,” building a list of organizations and places in your local market and attending the ones that aligns with your interests the most. Go one or two times and determine if you like the people, the cause and spending time there. If you do, get more involved. If the answer is no, find another one and repeat the process.

 

I can back up Jason’s advice with my personal experience. I’ve found that volunteering at local non-profits and charities is an effective, long-term approach to building relationships with high net-worth individuals. And I’ve raised millions of dollars through these relationships. You can read more about my specific strategy here.

 

Additionally strategies that I have found to be an effective ways to meet high net-worth individuals is to attend real estate conferences (more on this below), create a thought leadership platform (to build relationships in your sleep), get interviewed on other people’s thought leadership platforms and start a meetup group.

 

Now that you know where to go, what are you supposed to do when you get there? How do you approach the conversations? Instead of winging it, follow Jason’s three pillars for successfully building relationships: 1) rapport, 2) likability and 3) trust.

 

1 – Rapport

 

First, you need to build rapport. To build rapport, you need to focus on your non-verbal and verbal communication skills.

 

Strengthening your non-verbal skills – like body language – is time intensive, but well worth the effort. Amy Cuddy, a social psychologist, specializes in non-verbal communication. Here is her TedTalk, where she introduces her ideas. For a more in-depth explanation, Jason recommends reading her book “Presence.”

 

Effective verbal communication is all about asking the right questions. When meeting someone for the first time, instead of the standard “how are you doing?,” Jason advises that you ask questions like “what’s the most exciting thing that’s going on in your life right now?” or “what are you passionate about outside of work?” or “what projects are you working on that you’re passionate about?”

 

Jason said that asking these types of questions will “connect them to their emotional side, and we’re all emotionally-driven people.” Have them talk about the thing in which they’re most interested. Then, draw something from your experience or interests to find common ground. Jason said, “that person will instantly like you significantly more because you found some common ground and you’re discussing something that they want to discuss, not what you want to discuss.” At that point, the conversation will flourish naturally.

 

2 – Likability

 

The second pillar is likability. The easiest way to get the other person to like you is just listen. It’s not rocket science. “If you just look at someone and practice being present and don’t worry about who else is walking behind them, around them, you’d be amazed at how the tenor of your conversations and interactions will change, because they can tell when you’re distracted in the back of their mind.”

 

This pillar is simple – when having conversations, act as if the person sitting or standing in front of you is the most important person in the world. Listen intently and then, following the advice in pillars 1 and 3, build rapport and trust from there.

 

3 – Trust

 

Finally, the third pillar for building relationships is trust. The key to building trust is by showing them that you care. The most effective way to show that you care is by adding value.

 

Jason said, “You add value in the conversation in ways by suggesting things like maybe there’s a book, maybe there’s a person you can introduce them to, maybe you can say ‘I may have some ideas, let me follow up’ and then follow up with some ideas. You can also introduce them to people at the event.”

 

For those of you who are extroverted (or want to become extroverted), you can follow one of Jason’s favorite ways to add value to others, which is specific to events or conferences – he introduces strangers to other strangers. He will start a conversation with a stranger and, after asking the questions outlined in the section on rapport, will get the attention of another stranger nearby and say “Hey! You two should meet each other. I think you’d get along.” In doing so, next time he runs into either one of the strangers, they will introduce him to any one they know, or even other strangers. With this tactic, two relationships can turn into 10 or 20.

 

Another level to this approach is to invite a group of strangers out for a meal. Again, this is specific to an event of conference, but it could also work at a charity or nonprofit event or meeting too. “[My] other option is inviting people to go and get together for brunch, for dinner, for lunch, and just inviting a bunch of people along, because everybody wants to meet new people.”

 

Even if nothing comes out of the actual meal (which is unlikely), by being the influential hub that brought all these people together, they will be more open to hearing your ideas and will likely return the favor by inviting you to other events. One of Jason’s friends used this tactic and met the nephew of Jerry Jones, the owner of the Dallas Cowboys. Now, he gets invited to a few Cowboy games each year and sits in the owner’s box!

 

What is your most effective tactic for building relationships? Where do you go and how to you approach conversations?

 

Subscribe to my weekly newsletter for even more Best Ever advice www.BestEverNewsletter.com

 

planning a trip

The Secret To Finding Real Estate Deals In A Hot Market

Originally Published on Forbes.com

 

If you’re having difficulties with finding on-market deals at the price points that meet your investment goals, you aren’t alone. In today’s competitive market, relying on available listings as your sole source of new deals is not viable or effective, as an investment strategy.

 

As of September 2017, the median list price of homes is up 10% year-over-year, while the number of days on market and inventory are down 10% and 9%, respectively, according to research by Realtor.com. In hot markets, these numbers soar far higher. Fewer deals are available, and they are selling faster and at higher prices than just a short year ago. It’s a trend that shows no signs of waning soon. In fact, CNBC recently reported that 2017 will likely turn out to be the fastest housing market on record.

 

The inability to find on-market deals is a frequent concern of my clients and the listeners of my podcast, Best Real Estate Investing Advice Ever. It was also the number one challenge identified at the annual real estate conference I host, the Best Ever Conference, where I survey each attendee to find out the most difficult investment challenge they’re facing and aim to solve specific investment challenges.

 

Finding deals in a hot market is a challenge I have faced and overcome, and now I’m able to help others do the same. Here’s my secret:

 

For every on-market deal an investor comes across, they should reach out to the owner of the surrounding properties and attempt to purchase two properties: the on-market property and an off-market property. More specifically, they should pursue off-market properties that naturally complement the on-market deal.

 

I was sent an on-market opportunity in a Dallas sub-market: an apartment building with more than 300 primarily one-bedroom units. The property’s characteristics fit perfectly into our business plan. However, due to its high publicity and it being marketed by a broker, the building price inched higher and higher. We were not confident in our ability to manage the project in a way that would achieve our investor’s goals.

 

We found that there was another complex directly across the street from this on-market deal: a 200-plus unit building of primarily two-and-three bedroom apartments. Our broker contacted the owner of this off-market building, and after a brief negotiation, we secured a contract to purchase the property at a significantly discounted sale price. We were concurrently in negotiations to purchase the on-market deal and felt secure in offering a higher bid than we otherwise would have if it weren’t for the complementary off-market property across the street. As a result, we were awarded the on-market deal.

 

Aside from finding a deal in a hot market, here are three more advantages of this strategy: 

 

  • Economies of scale: One major advantage to this approach is the cost savings that result from economies of scale. For example, a major apartment building’s expense is the cost of a lead maintenance supervisor. Therefore, rather than paying an on-site maintenance function to manage one property for $50,000 a year, we can split that cost across both properties. Additionally, these economies of scale can apply to many other fixed and variable expenses, including advertising and marketing, salaries and commissions for leasing office personnel, property management teams, etc.
  • Referral source: Another advantage — and the reason why I advise you to pursue complementary properties — is having a natural referral source. This applied to my particular case because the on-market property is primarily comprised of one-bedroom units and the off-market property of two-and-three bedroom units. If a potential resident is interested in a one-bedroom unit, we are covered. If they decide instead that they want more bedrooms, rather than turning them away, we send them to our property across the street.
  • Flexible underwriting: Finally, the most obvious advantage I see is the ability to be flexible with the underwriting to create a competitive offer. Essentially, you are able to tap into the discount you are receiving on the off-market property — in combination with the previous two advantages — to offset the premium paid for the on-market opportunity.

 

So, the advice I offer to those who are having difficulties with finding deals that are compatible with their financial goals is to create your own opportunities. Don’t just look at the on-market listings. Instead, search for properties in immediate areas surrounding the on-market deal, reach out to the owners and work toward packaging two deals into one.

 

Ultimately, because of our willingness to create our own opportunities in this competitive market, we were able to add two cash flowing assets to our portfolio. By following this approach on the next on-market deal you come across, you can too.

 

What is your secret to finding deals in today’s competitive real estate market?

 

Also, subscribe to my weekly newsletter for even more Best Ever advice: http://eepurl.com/01dAD

                       

If you have any comments or questions, leave a comment below.

 

 

paprika plant

8 Ways to Promote and Grow Your Thought Leadership Platform

After you’ve created your thought leadership platform (read here to learn how), one of the next steps is attract your target demographic. Through over a thousand of conversations with business and real estate thought leaders, as well as from building a large following of my own, I’ve discovered the most effective ways to attract people to a thought leadership platform.

 

Here are the top 8 ways to promote your thought leadership platform and grow your audience.

 

1. Build an opt-in page

 

First, build an opt-in page or button for your website. The main purpose of an opt-in is to capture email addresses and build an email list.

 

The key to a powerful opt-in page is the offering. You need to give people a reason to provide you with their email address. A poor opt-in page, for example, would read “Please enter your email address to be sent an update when new content is posted.” Instead, you want to create a piece of valuable content and exchange that for their contact information. For example, on the main page of my website, I have an opt-in banner presented front and center that reads “Free Download of 24 Proven Ways to Get Off-Market Deals” and a button that reads “Get Access!” I’ve also place the banner at the top of certain pages on my website, like the podcast and blog page. Once someone enters their email address, they are automatically sent a document with 24 ways to find off-market deals.

 

Additionally, I’ve created a pop-up opt-in that appears a few seconds after a visitor views a page other than my main page. Currently, the opt-in reads “How do I break into the multifamily syndication business? is the most common question I receive. These 6 amazing powerful ways are proven to get your foot in the door! Are you ready? Don’t miss this!” Again, once someone enters their email address, they are automatically sent a document with 6 ways to break into the syndication industry.

 

As you can see, both of my offerings are related to apartment syndication. That’s because my secondary target audience are individuals interested in becoming apartment syndicators. Therefore, you should create an offering that is specific to your target audience, rather than something general to real estate investing. That way, you’ll know that every email address captured is a qualified lead.

 

If you are an apartment syndicator, your primary target audience are accredited investors. So, you also want to create a lead capture page where accredited investors interested in passively investing in your deals have a way to provide you with their information. For an example, here is the opt-in page I have for my website: www.investwithjoe.com. It can be accessed either on my main page or by Googling Invest With Joe. Considering purchasing a domain name like www.investwith(your name).com. If you aren’t an apartment syndicator, create a separate lead capture form based on your target customer or primary outcome (e.g. a form for home owners who are interested in selling their primary residence).

 

2. Create a BiggerPockets Pro Account

 

A BiggerPockets Pro account is another great tool for promoting your thought leadership platform.

 

First, create a forum signature, which allows you to input your contact information, company name, logo and website/thought leadership platform link. Then, set up forum keyword alerts so that you will be notified whenever someone submits a post that is related to your niche. As an apartment syndicator, the important keywords I have are “market name,” apartment,” “multifamily,” “syndication,” and “accredited.”

 

Whenever you are notified of a new post that contains your keyword, you can submit a reply and anyone who reads that thread will see your response, as well as the link to your website or thought leadership platform. Also, you can start a forum thread of your own, making sure you include the relevant keywords so other apartment investors or syndicators who have keyword alerts setup will be notified and will read your post. Both of these strategies will drive traffic to your website or thought leadership platform.

 

Additionally, you can use the BiggerPockets member blog function to publish or republish your thought leadership content. You can even include crosslinks back to content on your website, but I recommend reading the rules of the blog before doing so.

 

3. Send out a newsletter

 

Generate and send out a newsletter to the email list you’re building from your opt-in forms. Since you are already creating valuable content on a consistent basis, the newsletter is an opportunity to repurpose that content. Depending on how much content you’re creating, you can start with a monthly newsletter, but the goal is to eventually work towards sending out a weekly newsletter.

 

A great tip for increasing the amount of content you create is repurposing previous published content. For example, if your thought leadership platform is a podcast, write a blog post that summarizes the main takeaways from the interview and include both the podcast and the blog post in your newsletter.

 

The service I use to create my newsletters is MailChimp. Click here for an example of my weekly newsletter, where I include all of the new content I created the previous week.

 

4. Promote content through others people’s platforms

 

If are doing an interview-based thought leadership platform, which I strongly recommend, ask your guests to promote your content on their website, social media and newsletter. Just be sure to include links back to your website or an opt-in button to capture email addresses.

 

I’ve found that having your content featured in other people’s newsletters is the best approach. So, when you are reaching out to individuals to be a guest on your thought leadership platform, ask them to commit to publishing the content in their next newsletter or simply sending the link to their email list after the interview has gone live.

 

5. Become a guest on other people’s platforms

 

In addition to having other people promote your content in their newsletter, you can also reach out to other thought leaders and become a guest on their platform – whether it is being interviewed on their podcast or writing a guest post for their blog.

 

I interviewed Jessica Rhodes, the founder of a premier guest booking agency for podcasters, on my episode 1013 of my podcast (click here for the full interview). From this interview, I created a blog post entitled “The Ultimate Guide to Getting Booked as a Guest on ANY Podcast” (click here to read the post) where I outline – as the title implies – how to approach getting on other podcasts.

 

6. Leverage social media

 

The simplest way to promote your thought leadership platform is to publish new content on social media. At first, you can manually publish content across multiple social media sites like Facebook, Twitter, and LinkedIn. Or, if your thought leadership platform is a podcast, the hosting site you use should have a function that will automatically submit a post to the different social media sites each time you post a new episode. And you can do the same on YouTube.

 

As you build up a library of content, you can begin to republish old content. There are many online services that will allow you to create a schedule to automatically post old content at a specified time. Two providers that I’ve had success with are MeetEdgar and SmarterQueue. Currently, I have two older pieces of content scheduled to be posted on Facebook, Twitter and LinkedIn each day, on top of posting a new blog post and podcast.

 

7. Build a Facebook community

 

A great way to not only attract new listeners or viewers, but to also create loyalty with your current followers is to build a Facebook community. For example, I created a Facebook community called “Best Ever Show Community.” It is a place where the Best Ever listeners can interact with me, each other, and my guests.

 

My goal for the group is to create a community where everyone is helping each other reach the next level in their business and lives. Along with that, it is a place where I encourage everyone to ask and answer questions, add likeminded individuals, post any asks or needs they have, share insightful articles, books, videos, podcast, etc., tell us about themselves and their focus and post success stories. Additionally, a few times a week, I will create posts with the purpose of creating conversations within the group. For example, I will ask a question, like “where do most of your deals come from?”, and members of the group will provide their answers. The more interactions and conversations you have, the more valuable the community and the larger it will grow.

 

8. End with a call-to-action

 

Finally, for any content you create, end with a call to action. You should tell everyone listening to your podcast, watching your YouTube video or reading your blog post to perform a specific task.

 

Examples of call-to-actions are:

 

  1. A strong question to promote a conversation in the comment section
  2. A link to a related piece of content
  3. Send them to your website page
  4. Subscribe and leave a review
  5. Opt-in page that offers a valuable piece of content in exchange for their email address

 

For more information on how to increase traffic to your website and customer conversion, read this Q&A with Online Marketing Expert Neil Patel: 6 Ways to Increase Your Website Traffic

 

What have you found to be the best way to promote content?

 

Also, subscribe to my weekly newsletter for even more Best Ever advice: http://eepurl.com/01dAD

                       

If you have any comments or questions, leave a comment below.

 

 

thought bubble and light bulb

The Guide to Creating a Real Estate Thought Leadership Platform

Any long-time listener of my podcast knows that my guests and I constantly stress the importance and strength of creating a thought leadership platform. In fact, I believe that if you want to achieve massive levels of success as an apartment syndicator (or really any entrepreneurial endeavor in general), having an online presence as a thought leader is a MUST. Therefore, I wanted to create a post that outlines why you should create a thought leadership platform and how to actually do so.

 

What is a thought leadership platform?

 

Essentially, a thought leadership platform offers unique information, insights and ideas that will position the owner of the platform as a credible and recognized expert in a specific business niche.

 

Personally, I have and continue to greatly benefit from creating a thought leadership platform. It allows me to build new friendships and business relationships and maintain existing ones. It allows me to stay top of mind of real estate entrepreneurs because I am constantly providing valuable, free information. And it essentially has allowed me to continuously network with people on a global level – even while I am asleep.

 

A thought leadership platform may take many different forms. Examples that other investors and I have found successful are:

 

  • A YouTube channel – interviewing real estate investors and entrepreneurs and/or providing daily/weekly/monthly insights
  • Write a book and self-publish in the Amazon store
  • Create an interview-based podcast and post to iTunes, Soundcloud and other popular podcast platforms
  • Create a blog, posting to your own personal site and leveraging existing platforms like social media sites, LinkedIn, BiggerPockets, etc.
  • Starting an in-person meet-up group in your local market
  • Hosting an annual real estate conference
  • Weekly or monthly newsletter

 

What should my thought leadership platform be?

 

I actually do all seven. However, I didn’t wake-up one morning and say to myself, “I am going to start a YouTube channel, podcast, newsletter, blog, meet-up group and write a book today.” I took it one step at a time, starting with a podcast and pursuing additional platforms once the previous ones were already established. Therefore, I recommend selecting one and using that as your launching point.

 

The key to determining which thought leadership option to initially pursue is simple: ask yourself, “What would I enjoy doing?”

 

For example, if you enjoy writing, start a blog. If you enjoy speaking, but are camera shy, start a podcast. If you enjoy speaking and are good on camera, start a YouTube channel.

 

How to structure a thought leadership platform

 

Once you’ve selected a platform, the next step is to build out its structure, which I’ve distilled into a simple six-step process:

 

Step 1 – What is the goal?

 

Obviously, one of the goals will be to create a thought leadership platform. But what is the larger, overarching goal? How does this goal extend outside simply adding value to your own business?

 

Before doing anything else, brainstorm and create a list of goals. Then, condense that down into a paragraph or two that clearly communicates the intentions of the platform.

 

Step 2 – What is the name?

 

Once you’ve defined a goal, the next step is to generate a name. The ideal name will quickly communicate the goal to your followers.

 

Pick 3 to 5 potential names, and then ask for feedback from friends and colleagues to find the most popular, attractive name.

 

Step 3 – Who is the target audience?

 

Also based on the goal, determine your target audience. Be specific here. Who will benefit most from the information, insights and ideas you will offer? What will be the demographic? What are their interests? Etc.

 

Step 4 – Why will they come?

 

This step is key. Why will anyone follow your thought leadership platform? If you cannot provide an answer to this question, your followers – or lack thereof – won’t be able to either.

 

This question ties into your goal also. Why does your target audience NEED the information you will be offering? What is in it for them? How will they benefit? Why should they consume your content and not the thousands of other thought leadership platforms in the marketplace?

 

Step 5 – How will it flow?

 

What will be the structure of the platform? Will it be interview-based? If so, how will the conversation start? How will it end? How long will it be? Will you have a list of questions you will ask every guest? How often will you produce content? These are the types of questions you should be asking to ensure a successful thought leadership platform.

 

Step 6 – How will it be unique?

 

Last and certainly not least, how will it be unique? For example, naming a podcast “Millionaire Mindset” and interviewing millionaire investors – in my opinion – is too generic. When creating a thought leadership platform, make it unique to your area of expertise. For example, if you have a construction background. Interview landlords that are hands-on and ask for tips on how to increase revenue by being an active investor. Or if you’re in sales, provide tips on applying sales techniques to real estate investing. Or if you are a marketing executive, make a marketing real estate show on how to find more deals.

 

The goal is to be specific and unique. Based on your area of expertise (or interests or passions), see if there is a narrow idea on the types of people you can interview and the types of topics you can discuss.

 

The 3 keys to long-term success

 

After you’ve selected and structured your platform, your work has just begun. Now it’s time to actually start producing content. As you do, there are three important things to keep in mind to ensure long-term success and effectively build a large following.

 

First is consistency. Once you’ve established a posting frequency, whether it’s daily, weekly, biweekly, monthly, etc., make a conscious commitment to stick to it. This will be difficult at first because the only people who will follow your platform are your family and friends – and maybe your dog. Don’t expect to see a massive uptick in followers for at least 6 months, and likely even longer.

 

Next, to increase your chances of reaching your target audience, tap into a large, built-in audience. For example, if you start a podcast, make sure you’re posting to iTunes, Libsyn, SoundCloud, etc. to leverage their existing listenership. Or if you create a real estate blog, post to social media and BiggerPockets.

 

Finally, Tony Robbins says, “Success leaves clues.” Someone out there has already accomplished what you are also trying to do. So, go out, find established thought leaders, extract out their best practices and apply those to your platform.

 

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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If you have any comments or questions, leave a comment below.

 

highrise apartment real estate from the ground

Should an Apartment Syndicator Invest in Their Own Deal?

As an apartment syndicator, you raise money from accredited investors to purchase apartment communities and share in the profit. However, should you rely on private capital to fund the entirety of the deal, or should a portion of the investment come out of your own pocket? Based on my experience as a syndicator and interviewing syndicators on my podcast, I believe a syndicator should invest in all of their deals.

 

First, it benefits the syndicator from a monetary standpoint. By investing their own capital in the deal, they will make the same projected returns as your investors. So, by neglecting to do so, they’re decreasing their overall profits.

 

Secondly, and most importantly, investing in your own deal results in an alignment of interest with your investors. If you have your own skin in the game, your investors will have more assurance in the investment. In fact, it may be a requirement for them to actually invest their own capital.  If you don’t invest in your own deals, why would someone else have the confidence to do so?

 

But what happens if you don’t have enough money to invest in your deals? This was the situation I was faced with on my first deal – I just didn’t have enough money saved up to invest. So, if the reason you aren’t investing in your own deals is because you don’t have enough money, you’ll need to achieve an alignment of interest in other ways.

 

For example, on my first deal, I had the brokerage that represented the seller invest their commission into the deal. Because they had over 20 years of experience and believed in the deal, this made up for my lack of investment in the minds of my investors. Therefore, if you don’t have enough money to invest in your own deal, consider offering the broker/s the opportunity to reinvest their commissions and become a limited partner. Similarly, another option is to have the property management company invest in the deal. They can either invest their own capital or bring on their own private investors. The idea for both of these approaches is to have an experienced party invest to provide your investors with additional faith in the strength of the deal.

 

Another way to show alignment of interests is to invest your acquisition fee into the deal. Generally, a syndicator is paid a fee of 0.5% to 3% of the purchase price at close for finding, analyzing, evaluating, financing and closing the investment. Instead of cashing in on this fee, reinvest it back into the deal. This accomplishes the alignment of interest and will increase your overall profit on the deal too.

 

Finally, offer a preferred return. A preferred return isn’t a guarantee, but it signals to your investors that you believe the deal’s performance will not only achieve, but also exceed the level of preferred return. And to take it a step further, something my company does is we put our asset management fee in second position to the preferred return. If the asset doesn’t achieve the specified preferred return, we don’t collect our asset management fee. If our investors don’t get paid, we don’t get paid.

 

Ultimately, to attract private capital, it boils down to an alignment of interests. You want to show your investors that they take a priority over your interests. Having your own skin in the game is own way to accomplish this, but if you don’t have enough capital to invest in the deal, you must achieve an alignment of interests in other ways, like having the broker or property management company invest in the deal, reinvesting your acquisition fee or offering the preferred return before collecting an asset management fee.

 

How do you show alignment of interest to your private money investors?

 

Also, subscribe to my weekly newsletter for even more Best Ever advice: http://eepurl.com/01dAD

                       

If you have any comments or questions, leave a comment below.

 

Leeza Gibbons and Joe Fairless

Secrets to Starting a Company: Q&A with A-List Celebrity Leeza Gibbons

Leeza Gibbons is an all-around business success. In the entertainment industry, she’s won an Emmy as a daytime television host, has been the co-host for Entertainment Tonight for 16 years, won Celebrity Apprentice in 2015 and has a star on the Hollywood Walk of Fame. As an entrepreneur, she’s been inducted in the Direct Response Hall of Fame and won the Icon Award for crossing the billion-dollar mark and is a New York Times Best Selling author. And finally, as a philanthropist, she started a nonprofit, Leeza’s Care Connect, which supports family care givers.

 

In our recent conversation, Leeza offered up her best practices for not only building and maintaining for-profit and nonprofit businesses, but for becoming a stronger, more resilient human-being as well.

 

How did you come up with the idea for creating your non-profit organization, Leeza’s Care Connect?

 

After my mother was diagnosed with Alzheimer’s, my family and I realized that we didn’t have the education required to effectively battle the disease. And we felt as if we should have been prepared because my mother’s mother died due to the same condition. Therefore, I was determined to create in the world what we wished we had.

 

Common entrepreneurial advice is to create products and services that you yourself want. In following this advice, the creation of Leeza’s Care Connect was able to fulfill our wish and our need for an Alzheimer’s educational service. It is a place for people to learn what the challenges are, where to find support, where to learn the skills to make life easier. Ultimately, it’s where we could really connect people to their own strengths in such a difficult time in their lives.

 

Navigating such a trying time as your mother being diagnosed with Alzheimer’s must have required a lot of resilience on the part of you and your family. What’s your secret for staying motivated in the face of a seemingly all-encompassing challenge?

 

For me, the key component and driver was to really engage my optimism. This advice is applicable to all challenges – both personal and business related. Being optimistic is going to give you the ability to find answers and solutions. You’ll be able to bounce back and fight back quicker than most people who throw in the towel and are pessimistic and negative. And when facing a crisis, such as Alzheimer’s, you’ll be willing to engage with the tools and technologies out there that are designed to help you overcome the challenge at hand.

 

Additionally, I used – and continue to use – mantras. They really help you deal with your feelings when you’re completely overwhelmed with negative emotions. For example, when I was on Dancing with the Stars and surrounded by other female contestants with near perfect bodies, my mantra was “My body is strong and healthy. My body is strong and healthy.” When my mom was sick, my mantra was “I’m doing the best I can. I love my mom. I’m doing the best I can.” Since my family has two generations of Alzheimer’s, my ongoing mantra is, “My brain is sharp. My brain is sharp.”

 

I am a huge fan of Tony Robbins. He says that you always get what you focus on – end of story. If you focus on how you’re failing and how you’re underwater and how you’re overwhelmed, that’s what you’re going to attract. That’s why I believe it’s important to engage in day-to-day life with optimism and build yourself up with positive, affirming mantras.

 

How do you work towards increasing your resilience and bouncing back from challenges or failures quicker than others?

 

Aside from engaging with optimism and utilizing mantras, you need to edit the toxic people out of your life. The truth is that we become like the five people we associate with the most. So, surrounding yourself with the right, handpicked people is very important.

 

Business, and really life in general, is not a solo sport. You really need to form a team and find coaches that will not only help you achieve your goal, but also help you overcome the challenging times. In doing so, you’re to be more invested in your outcome than you’ve ever been before, in part because of the benefits of those with which you’re associated and in part beause you don’t want to let your team, your coach, and yourself down.

 

What advice do you offer to entrepreneurs who want to start a for-profit or nonprofit, philanthropic organization?

 

Often times, when attempting to start something new, we stop ourselves because we convince ourselves that we don’t know enough. So, my advice is to not wait until you know everything – which is never going to happen anyways – and don’t wait until you feel ready.

 

The saying “getting your ducks in a row” is instructive, but it is not true. The mother duck never waits for her ducklings to follow behind her. She just starts walking and the baby ducks fall in line. Similarly, I think that whatever journey you’re starting on, it’s never going to be perfect and you’re never going to feel 100% ready. But just launch it anyways.

 

What is your Best Ever advice for entrepreneurs?

 

Talk less and listen more. Typically, if you look around the room in committee meetings, boardrooms or negotiations, the most powerful person in the room is often not the one talking the most.

 

There’s a lot of strength in silence. There’s a lot of power in the things that we don’t say. Therefore, instead of talking, listen intently. In doing so, you can analyze situations, you can analyze your role in the situation and you can get to know the players around the table a little better.

 

What tips do you have for confronting challenges with resilience and optimism?  

 

Also, subscribe to my weekly newsletter for even more Best Ever advice: http://eepurl.com/01dAD

                       

If you have any comments or questions, leave a comment below.

 

 

 

stop sign

When to NOT Work with a Passive Investor on an Apartment Deal

When I first started raising money from investors to purchase apartment communities, as long as the individual was interested in a passive investment and met the accredited qualifications, I accepted their capital without hesitation. And if you are just launching your syndication career, perhaps you’re doing the same. However, as you begin to gain experience and your list of private investors grows, it is beneficial to be aware of the red flags that may indicate the potential for future disputes and, if necessary, to not add or remove the investor from future new investment offering correspondences.

 

To understand these red flags, it is first important to define the ideal syndicator/passive investor relationship. The typical life cycle of an apartment syndication is 5 years. Therefore, when forming a relationship of this length, I want a passive investor who both trusts me as a person and treats me as a partner, as opposed to considering me as their vendor. Based on my experience from hundreds of accredited investor conversations and completing more than ten apartment syndications, I’ve found that there are two main factors that indicate to me that our relationship will not meet these requirements.

 

Red Flag 1 – Contempt

 

A famous study published in 1998 by marriage researcher John Gottman videotaped newlywed couples discussing a controversial topic for 15 minutes with the purpose of measuring how the fought over it. Then, three to six years later, Gottman and his team checked in on these couples’ marital status – were they together or were they divorced? As a result, they determined that they could predict with an 83% accuracy if newlywed couples would divorce. The study found that there are four major emotional reactions that are destructive to marriages and of the four, contempt is the strongest.

 

If there is contempt in a marriage, it will not last. And I believe that the same applies to business relationships.  According to Dictionary.com, contempt is the feeling that a person or a thing is beneath consideration, worthless, or deserving of scorn.

 

How I identify contempt is based on my initial gut reaction. Do I get the feeling that this person sees me as an equal and as a partner? Or do they look down on me and see me as a vendor? For example, I recently had an email correspondence with a potential investor. He led off the conversation by saying, “My standards are high. My patience for slick marketing is low.” Then, after I provided him some information about my company, including past case studies of the returns I provided to my investors, his reply was, “So what I need to hear is why do some deals with you as opposed to (the company with which he currently invests)?” I felt that this individual’s replies had traces of contempt and politely explained that we wouldn’t be a good fit. If I was earlier on in my career, I would have likely brought this individual on as a partner, but since I already have strong relationships with my current investors, I didn’t find the potential issues worth pursuing the relationship any further.

 

If you are having a conversation with an investor and your gut is telling you that this person holds you in contempt, I would consider passing on the relationship. To set the relationship up for success, only work with investors who treat you as an equal and who want a mutually beneficial partnership.

 

Red Flag 2 – Lots of accusatory questions that don’t convey that they trust me

 

The second red flag I’ve come across is when a potential investor asks a laundry list of questions in an accusatory tone. For example, I have an investor who literally sends me a list of 50 or more questions that are written in an accusatory fashion for every new investment offering. After taking the time to answer each question on multiple deals, they have yet to invest. Because they are asking questions in that manner, regardless of my answer, they will still be suspicious.

 

An important distinction to make here is that I have no issue with my investors sending me a list of questions, no matter how long. In fact, that is encouraged, because the more information I can provide about the deal, the more confidence they will have in the investment. The red flag is when the questions are asked in an accusatory manner. That conveys that they don’t have trust in me and that they’ll likely never invest in a deal. At the end of the day, the key to a successful, long-term relationship is trust, and when my instincts are telling me that there is a lack of trust, I decide to no longer pursue the relationship.

 

Conclusion

 

The two red flags to look for when having conversations with investors is contempt and the asking of a long list of questions in an accusatory tone that conveys that they don’t trust me.

 

Keep in mind that both these factors are highly subjective. Each syndicator and each investor has a different personality and will get along with different types of people. Just because you get the feeling that someone holds you in contempt or asks questions in an accusatory tone does not mean that they are a bad person. However, what it does indicate is that you will have an issue connecting in such a way that builds a relationship that is capable of surviving the course of a syndication deal. So, if either of these red flags arise, be polite, but strongly consider not working with that investor on your apartment deal.

 

If you have had a rocky business relationship in the past that came to an unfortunate end, what did you identify as the cause?

 

Also, subscribe to my weekly newsletter for even more Best Ever advice: http://eepurl.com/01dAD

                       

If you have any comments or questions, leave a comment below.

 

 

social network apps on smartphone

5 Ways to Optimize Your LinkedIn Profile to Attract More Business

Unlike other social media type sites, LinkedIn’s sole mission is to connect the world’s professionals to make them more productive and successful. With a user base of 467 million professional from 200 countries across the global, LinkedIn is the world’s largest professional network. And if you create the optimal LinkedIn profile, you can tap into this vast network of professionals to expand your real estate business.

 

Donna Serdula, the owner of LinkedIn-Makeover.com, leads a team of 40 writers who help thousands of LinkedIn users strategically write their profile to grow their brand. In our recent conversation, she outlined the top six ways you can immediately improve your LinkedIn profile to grow your business.

 

1 – Know your why

 

First, know the reason why you are on LinkedIn in the first place. This may seem like commonsense, but when creating a profile, most people will mechanically fill out the different fields with generic answers and that’s it.

 

“Why are you on LinkedIn? What are you really trying to achieve? What’s your goal?,” Donna said. “Some people are on LinkedIn for a job; others are on LinkedIn for prospecting and sales, and there’s others who are on it for reputation management, to be found and be seen as expects.”

 

Only once you know what you want to accomplish with your LinkedIn profile can you create a profile that directly pertains to that goal.

 

2 – Define a target audience

 

Next, you need to figure out who your target audience is. “Who is going to be reading that LinkedIn profile?,” Donna said. “Once you know who’s going to be reading it, who we need to target for, … we know what we need to say, because it’s not just what we want to say about ourselves, it’s what does our target audience need to know about us?”

 

Your why and target audience are used in tandem to optimize and streamline your LinkedIn profile so that you are attracting the results and professionals that you desire.

 

If you don’t know who your target audience is, here is a blog post I wrote about how I defined my primary target audience to help you get started.

 

3 – Understand your top keywords

 

LinkedIn is more than just a social network. It is a search engine. People use LinkedIn for a specific purpose, which is usually to either find someone who provides a service they need or to provide that service. That means that out there somewhere, someone is using LinkedIn to fulfill a need that your business is capable of solving. However, since they don’t know your name or the name of someone like you, they search for keywords instead. Therefore, you need to determine which keywords your target audience is searching for and make sure you’ve included those keywords in your profile. Additionally, these keywords need to describe what you actually do.

 

Donna said, “I want people to find me if they’re searching for ‘LinkedIn,’ ‘LinkedIn profile writer,’ ‘branding,’ ‘social media,’ – those are the types of phrases that describe what I do, so those are the words that I sprinkled throughout my profile.”

 

You want to always think in terms of your target audience, because sometimes your target audience describes you differently than how you would describe yourself. For example, Donna had a CPA client who thought her top keyword was CPA. However, they realized that her target audience (people in need of a CPA) were searching for bookkeeper, accountant and tax advisor more frequently than CPA. Therefore, you want to be smart and strategic when describing what you do, while always keeping your target audience in mind.

 

4 – Headline and Profile Picture

 

Now that you’ve determined the top keywords for which your target audience searches, you want to optimize your profile’s SEO by including these keywords throughout. Specifically, Donna said, “you want to make sure that you have a great headline – that’s like your tagline; it’s 120 characters and it really should contain more than what the default LinkedIn gives you, which is just your title and your current job, which is boring. So, you want to infuse it with your keywords, you really want to give a benefit statement.”

 

Additionally, since the first thing people will see is your profile picture, you want to use a great-looking picture too. Please no selfies people!

 

5 – Your profile isn’t a resume

 

When writing the rest of your LinkedIn profile, besides the best practice of including the top keywords, avoid reproducing your resume. Donna said, “What most people do … is they look at their LinkedIn profile and they say ‘Well, it kind of looks like my resume. Let me get out that old resume of mind, let me just copy and paste all those fields in there and I’ll be done with it.’” However, if you are on LinkedIn for more reasons than just a job, your resume won’t help much. And if you are using LinkedIn to find a job, a recruiter or prospective employer will be disappointed when they ask for your resume and see that it is the exact same as your LinkedIn profile.

 

“Really look at your profile not as an online resume,” Donna said. “Look at it as your career future. Look at it as a digital introduction. Look at it as a first impression and really write it like a narrative and just give that audience information that makes them respect you, that makes them feel impressed and makes them feel confident in who you are and what you bring to the table.”

 

Conclusion

 

To get the most out of your LinkedIn profile, optimize it in these five ways:

 

  • Know why you are on LinkedIn
  • Defined your target audience
  • Understand the keywords searched by your target audience
  • Input those top keywords into your profile, especially your headline
  • Don’t use LinkedIn as a resume, but as your career future

 

What is it that you are trying to accomplish with your LinkedIn profile?

 

 

Also, subscribe to my weekly newsletter for even more Best Ever advice: http://eepurl.com/01dAD

                       

If you have any comments or questions, leave a comment below.

 

 

 

real estate podcast microphone

5 Most Popular Best Ever Podcast Episodes for October 2017

Here are the five Best Real Estate Investing Advice Ever podcast episodes with the most downloads in the month of October.

 

 

 

#5 – JF1143: How to Be Successful When Just Starting Out with Dan Plant

Worried about his future as a W2 worker and wanting to take more control of his future, Dan started looking into real estate. He started with a flip, then another, and made money on both of his flips. Now with a child, he has moved into multifamily rental properties, still successfully making money there too. A fantastic episode to learn from, especially for the newer investor or completely new investor that needs to hear a newer investor success story. Dan is living proof that with the right mindset and education, you can start investing in real estate and be successful from the beginning.

 

What you’ll learn:

 

  • How Dan made 50% profit on his first two fix-and-flip deals
  • Why and how Dan transitioned from active fix-and-flipping to “passive” rental investing
  • How to approach taking over a rental property when inheriting residents
  • Dan’s Best Ever advice – budget for property management and capital expenditure expenses

 

#4 – JF1127: Josh Dorkin, Founder & CEO of BiggerPockets is Back For Part 2 of Our Interview

In Part One, we learned about the history of BiggerPockets and its founder, Josh Dorkin (click here to listen to part 1). In Part Two, Josh answered the top questions asked by the Best Ever Listeners.

 

What you’ll learn:

 

  • What feature of the BiggerPockets platform does Josh think is most underutilized?
  • When you were considering starting BiggerPockets, what was a number one fear holding you back from starting?
  • How has podcasting enhanced your business and opened up doors and connections that you wouldn’t have had otherwise?
  • What are your morning routines or daily practices that you do on a regular basis?
  • Josh’s Best Ever advice – figure out your why

 

#3 – JF1134: Below Market Rents Make More Money in The Long Run with Chris Heller

Chris is an agent and investor, and uses all his available resources and knowledge to succeed in the San Diego market. From REO’s to MLS listed houses, he’ll look at anything that makes money. He has a unique strategy for pricing his rental units, and it seems to work really well.

 

What you’ll learn:

 

  • The primary way Chris makes money
  • Types of properties Chris has had success investing in
  • How to price your rental rates
  • How to avoid or minimize facing challenges after purchasing an investment property
  • Best performing investment deal Chris has done
  • How to identify a shift in the market
  • Chris’s Best Ever advice – Make sure you get a great buy

 

#2 – JF1129: Buy Cash-Flowing Properties Online with Gary Beasley

Gary created Roofstock with intentions to attempt to democratize the real estate investing world. Not only does his company and the technology help him with his investing, but also helps anyone who would like to invest in single family homes anywhere in the country. They have already negotiated deals with property management companies, an important aspect when 90% of his investors are investing in markets they don’t live in

 

What you’ll learn:

 

  • How to manage out-of-state rental properties
  • How to measure the quality of renovations when purchasing a turnkey property
  • How to qualify a potential resident or requalify a resident you’ve inherited after purchase a rental property
  • The biggest challenges Gary’s faced launching a turnkey rental company
  • Top mistakes Gary’s made in his real estate business
  • Gary’s Best Ever advice – develop conviction around a thesis and then execute, even if other people don’t agree with you

 

#1 – JF1128: How to Purchase 4 to 10 Properties Per Month With Lease Options with Chris Prefontaine

It takes 120 leads just to close 4 to 5 properties. Chris has built an amazing company and team that finds those leads, makes the calls, closes properties, and helps with other aspects of the business. From an online automated bird dogging campaign to a dedicated full-time phone VA. If you want to invest at a high level, listen to this episode and take notes!

 

What you’ll learn:

 

  • How to generate lease-option and seller-financing leads
  • How to find a high-quality virtual assistant
  • How to structure lease-option and seller-financing deals
  • Chris’s long-term wealth building strategy
  • How to convince a seller to do owner-financing instead of selling outright
  • Chris’ Best Ever advice – don’t personally sign the loan and don’t use your own cash on deals

 

Which Best Ever podcast episode this month added the most value to your real estate business?

 

bunch of money in hands

Top 5 Essentials for Raising Private Capital

Written By David Thompson, Thompson Investing

 

After 8 deals and $13 million raised in 18 months, I condensed my top ten tips to five essentials for successfully raising capital.  I continue to learn new things on every deal, but this is the best of the best so far.

 

If you can master the art and skill of raising capital, you have a big advantage.  It’s one of the top 3 skills in demand in this highly competitive and increasingly complex world according to Cal Newport in his book Deep Work.

 

Everyone seems to need capital to grow including startups, businesses, communities, nonprofits, you name it.  Even companies I’ve talked with that have a ton of experiences and rich capital sources are interested in talking with me because at the end of the day, it’s just human nature to grow.  A small firm can also negotiate better win / win terms from the operator’s standpoint versus wall street private equity that often may negotiate less than favorable terms with them.

 

Companies either want to grow bigger, faster, or take advantage of opportunities that often come in bunches instead of at systematic intervals.  Lack of capital stops ideas, companies and people from growing.  If you focus on this one skill you will have folks wanting to partner with you in a variety of areas.  Your goal will be to stay focused, establish key relationships with a few very experienced operators, build your reputation and network of investors by honing your craft and providing them with sound and logical opportunities while taking care of their needs.  So, here are my top 5 essentials for being successful in this area.

 

1) Partner with experts

  • You increase your experience and credibility faster when you are working with partners that are experts in what they do
  • You will be sharing good deals with investors in strong markets behind an experienced team
  • Your learning and development accelerates because experienced partners can share their knowledge. You’ll avoid newbie mistakes that can harm your reputation
  • Your brand becomes more known and credible building on an experienced partner’s track record

 

2) Be Yourself  / Authentic

  • Focus on education with investors as the primary objective
  • Don’t sell or appear needy. You have something that investors want
  • Being knowledgeable increases confidence and the investor will feel that you know what you are talking about. You will be more relaxed and natural when sharing the idea with investors.
  • Keep the message logical and simple. Frame the opportunity around a good market, a good deal with an experienced team behind it.  Share with them what’s driving value creation.
  • Prepare for investor questions: review my blog on 25 FAQs

 

3) Play to your strengths

  • Analyze your network and know where your investors are coming from
  • Focus on getting stronger in the areas of your strengths. Pick the top two areas you are finding most of your investors and develop a more comprehensive plan to further develop those areas
  • Don’t waste time in areas that aren’t working or are not natural paths for you
  • Bonus: Read StrengthsFinder 2.0 (Tom Rath) to help you understand the importance of playing to your strengths
  • Return customers and referrals are 85% of my business now so understand it gets easier over time

 

4) Raise min 25% more than you need

  • Know investors may change their mind for a variety of legitimate reasons such as pending job uncertainty, health or family emergency, unable to get liquid in time, etc.
  • Don’t be surprised when investors change their mind. Be mature and empathetic with the investor
  • Focus on building that long-term relationship so they are ready next time
  • To avoid big investor decommits, take half and put the rest on backup reserve in case you need it
  • Demand and interest increases when folks are put on backup. Psychologically, folks want in more when they can’t get in.  They assume they are missing out on a great opportunity

 

5) Develop a thought leadership platform for long term success

  • Building your brand requires a long-term strategy of developing content and knowledge share
  • Create good content for free and focus on educating others to increase awareness of your brand
  • Thought leadership ideas are blogging, podcast interviews, newsletters, videos, special reports, website, online forum or meetup group participation or start your own meetup group.
  • Most of my new leads today come from my thought leadership platform

 

In summary, building a foundation on these five essential factors will accelerate your capital raising efforts and enable you to add significant value to the partners you work with in your business while building an investor base that has confidence in the ideas you share with them.