Real Estate Investing Advice

Whether you are looking to lease an apartment, flip a house, or become a passive investor, real estate can be a great investment vehicle to help you reach your financial goals and ultimately reach the life you’ve always dreamed of having. But understanding the ins and outs of real estate investing on your own can be confusing as the industry continues to grow and develop. There is so much information out there today, and it can be tough to know where to begin or even how to start.

I’m here to help. Over my years of experience, I have developed industry knowledge and property investment advice to help you to learn more about real estate and important considerations to take before you begin investing. From start to finish, I have covered the real estate investing process so that you have expert tips every step of the way.

Passive Investing, Active Education

Educating yourself and learning as much as you can about the market will help you to make more informed decisions. Here, I cover everything from property management landlords to apartment investing, property taxes, and even general real estate education. My goal is for you to have some of the tools and resources you need in order to reach your real estate investment goals.

To learn more and possibly receive some one-on-one advice on real estate investment and creating an investment strategy, apply to work with me today!

Is the Multifamily Market Softening?

How Software Can Improve Your Real Estate Investing Efficiency

Like many successful sales professionals, Matt Whitermore’s career has developed to meet various needs that he has identified over the years. While he was in college, he worked as a real estate agent connecting renters with property managers and landlords. Today, he is an experienced real estate investor with a wealth of hands-on commercial real estate experience. More than that, he is a consultant for Investor Management Services, a firm that specializes in selling software solutions to syndicators and investment firms.

Through his connections in college with landlords and property managers, he was able to shift gears from being a leasing agent to focusing on selling investment properties. After gaining extensive experience in this space, he jumped into the analytics side of the business to learn the ropes from a different angle. In addition to making the transition from sales to analytics to technology as a means of rounding out his knowledge, Matt Whitermore wanted the flexibility to become a seasoned investor as well. Today, he is looking at investing in a multifamily property in Albany with his fiancee.

The majority of Matt’s professional attention is focused on selling Investor Management Services’ solutions. The solutions offer a variety of resources that ultimately promote investor efficiency. The cost ranges between $1,000 to $5,000 per month depending on the features. These features include everything from an investor portal to a CRM. Subscribers can do everything from accessing K-1s to monitoring their portfolio’s performance.

The solution stands apart from other products on the market with its back-office automation features. For example, it enables different investors in a syndication to monitor their distributions in real time. These calculations are made automatically, so the solution enhances efficiency and ensures accuracy. This unique aspect of the software has been developed based on the review of thousands of operating agreements. Because of this, it is a robust tool that is practical in most syndication structures. It is fully functioning today.

Matt Whitermore describes the main objection that potential customers have with the Investor Management Services solution as cost. Often, this objection is with newer investors who are focused on running a lean ship. However, Matt has noticed that the prevalence of this objection has decreased in recent years as investment managers have been eager to leverage technology.

Matt has been involved with Investor Management Services for approximately 18 months. Since he joined the company, he has seen the solution evolve considerably. For example, some early clients provided feedback on the overall layout of the solution. Investor Management Services took that feedback to heart to make thoughtful updates. Today, it has more than 500 clients, and the solution has a great feedback system. This enables the developer to progressively improve the solution and to add features that its clients ask for.

Most recently, Investor Management Services has focused on evolving the program to meet the more complex needs of funds and larger investment firms. For example, some institutional clients often have a layer of syndicated equity that is not present with other clients. In some cases, investment groups also have an option for investors to exit their position. These are only a few of the situations that add to the complexity of needs that Investor Management Services’ larger clients may have.

While the solution is relevant to large commercial real estate groups, it is equally beneficial to small or one-person operations. Matt Whitermore states that many of the one-person entities that he works with initially are using email and Excel as their primary technologies. With this in mind, the main objection that Matt faces relates to the need for a more advanced product. Because the software solution is scalable from the smallest investor to institutional investors, it is a solution that can grow with a client’s unique needs.

For a smaller client, one person often wears many hats in the operation. The solution promotes investing efficiency by migrating asset management, distributions, and other factors to a single platform. This saves time and energy. More than that, it becomes increasingly important as that small investor grows his or her portfolio.

For both one-man shops and smaller syndications, the solution has a range of other beneficial tools. The ability to portray a professional, established image is essential when these entities are trying to gain investor interest and achieve other goals. The solution enables the easy production of professional investor statements and other documents that have the entity’s logo on them.

When Matt Whitermore talks about the progression of his career, he discusses how important his previous experience with investment sales and analytics has been to his current role. He understands customers’ needs and expectations. At the same time, he understands what his solution offers and how it can help clients achieve their goals. This enables him to bridge the gap and to truly help his clients find a solution that offers true benefits to them.

While many industries have wholeheartedly embraced technology, real estate has been a hold-out in this area. However, Matt states that true investing efficiency is rooted in identifying opportunities that technology offers. This extends far beyond what Excel can do. For example, the Investor Management Services solution has automated functions that are crucial for a waterfall structure and other purposes. These functions are simply not feasible through Excel and they offer true value to investors. Regardless of the size of the commercial real estate investor’s portfolio, there may be ample room to leverage technology more robustly.

 

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From No Real Estate Knowledge to Over $40 Million AUM

From No Real Estate Knowledge to Over $40 Million AUM

Michelle Bosch has been a full-time real estate investor since 2002, and she is a co-founder and Chief Financial Officer at Orbit Investments. Over the years, she has purchased more than 4,000 properties, and the company currently holds more than $40 million in assets under management (AUM). However, she came from humble beginnings.

She immigrated to the United States from Honduras, and her husband is also an immigrant. Michelle spent her first several years in the United States attending business school and working in a professional position. She quickly realized that she wanted a different life experience and turned to real estate. She and her husband had no prior real estate knowledge, so they started investing in land rather than in homes as most other investors do. This quickly led them to own and manage a live auction company that hosted quarterly land sales.

Those profits were used to purchase single-family homes starting in 2009. They purchased homes priced between $30,000 and $50,000, and they rented them out for up to $1,100 per month. They grew their portfolio and branched out to multifamily properties in 2016. To date, they have been involved in three syndicated multifamily deals. However, they continue to work on land deals as their bread and butter.

Specifically, they reach out to landowners who may not be interested in holding their property any longer. Because of technology like Google Earth and others, they no longer need to walk properties. Instead, they focus on identifying properties and lining up buyers for them through their auction platform. The couple has assembled a great team of skilled individuals who share core values and goals.

Because of their current real estate knowledge, Michelle Bosch and her husband focus on three primary types of land. These are infill lots in cities, land in the path of growth, and recreational land in desirable locations. After they identify an area they want to focus on, they buy a list of people who own vacant land. Over the years, they have fine-tuned a prospectus letter. They now just send that same letter out to property owners each time they identify a promising market. Typically, they can get two to three good deals off of a 100-piece mailer. Michelle noted that they only send out 100 letters at a time because they cannot handle more volume. However, she did note that they could handle more volume if they preferred to not provide personalized service and develop a relationship with each buyer and seller.

They also have refined a script for gathering details and gauging interest once a landowner reaches out to them. More than that, they have developed proprietary software to help them screen their calls and to ensure that each caller gets prompt, personalized service. Some of the questions they ask upfront relate to the owner of record, easements, access, utilities, and more. These questions ensure that they are talking to the person who has power over the deal, and they enable Michelle and her husband to quickly gauge value.

When the couple started out, they were relatively new immigrants and had thick accents. They were concerned that their accents would discourage people from working with them. However, Michelle says that was never actually the case. Instead, people loved to talk about their land. Often, the land was inherited or was purchased by an out-of-state buyer who ultimately changed his or her plans for using it.

They have two different purchase processes for the land they find. One process is to pay cash for the land themselves before trying to find a buyer. The other option is to do a double close if they have already identified a buyer. Michelle Bosch and her husband use a variety of platforms to identify buyers. For example, they list land for sale through platforms like LandWatch, Craigslist, Facebook Marketplace, and Zillow.

They utilize a software program linked to Zillow and Trulia to review comps quickly. This enables them to estimate value more accurately without having to walk the land or spend hours conducting research. For infill lots that do not have a lot of comparables available, they often look at the developed value of the land nearby and subtract construction costs. They make an offer that is approximately 20% or less of the land’s researched, present-day value. While some people may be offended by such a low offer, others quickly act on it.

Michelle Bosch and her husband have spent the last few decades building up their real estate knowledge, and they have learned a few things along the way that they are happy to share with others. She wholeheartedly believes that the road to prosperity is rooted in simplicity. You do not need to create a complex deal structure in order to profit from it. She also places emphasis on building a solid team. These are individuals who believe in your goals and who are able to fully support you because of that shared vision.

When Michelle reflects on the past, she said she would look at larger and more valuable pieces of land from the beginning. These enable them to turn a “one-time cash” profit by flipping the land. Otherwise, they can lease it out to get “temporary cash” from monthly payments. When they pull together profits and park the cash in a long-term investment, such as through multifamily syndications, they create passive income. In hindsight, she believes that focusing her goals on building that strategy earlier in life would have made a significant difference in their current situation and opportunities.

 

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The Quest for the Holy Grail of Real Estate Investing

The Quest for the Holy Grail of Real Estate Investing

In the investment space, the term “holy grail” is thrown around quite a bit, implying there exists one perfect investment opportunity that can help you achieve your financial goals. However, while there are certainly many good investment opportunities out there, the term “holy grail” can be a bit misleading — the investment opportunity that is best for one person might not be what is best for another.

So, if you have a little bit of capital saved and are looking to enter the competitive real estate investment space, you might be wondering where, exactly, you should begin. When all else is equal, here are a few of the characteristics we find to be desirable in an investment:

 

High Rate of Return

Naturally, the return — or the amount of money you earn on your principle — is why you choose to invest in the first place. Return is how the market rewards us for taking risks. At a bare minimum, you need your investment to keep pace with inflation, which lately has hovered around 2% to 3% per year. In most cases, you want your return to be much higher. In real estate, 8% to 10% is a commonly cited goal, with some risk-tolerant investors seeking returns that are even higher.

 

Minimal Effort

Once you make an investment, you’re probably not going to want much additional work. A passive investment, as the term implies, is one in which the post-investment effort from the investor is minimal. There is a huge difference in the amount of effort required to simply put money in a REIT and trying to actually buy and sell specific properties.

 

Low Risk

In a speculative market, like real estate, there is always a risk that you might end up losing money. Your willingness to tolerate risk will likely depend on many factors, including your current life situation, the amount of money you have, and your personality type. Before making any investment, whether in real estate or not, ask yourself, “How much could I potentially stand to lose and what are the (reasonable) odds of me losing it?”

 

Defining the Holy Grail

Keeping these factors in mind, it seems the best way to define the holy grail of real estate investing is as an investment that offers high expected returns, minimal effort, and minimal exposure to risk. Usually, risk and return are positively correlated (i.e., more risk means more reward), so finding this exact holy grail can be relatively difficult. However, there are still plenty of instances — particularly in the dynamic real estate market — where there is a bit of a mismatch and returns significantly outweigh the risk.

In many cases, you will need to make quick decisions. But with the need to be decisive, there is also a need to be prudent and make sure the investment you choose is compatible with your investment profile.

 

Minimizing the Likelihood of Loss

Oftentimes, the expected return you’ll receive on an investment is much more speculative than the expected risk. The final return you’ll receive can depend on many factors beyond your ability to control, such as how the geographic market matures, how long a property remains on the market, whether tenants are able to fill a property, and even local legislation.

With expected risk, on the other hand, there are a few things we can typically look for that help signal a low-risk real estate investment:

 

Collateral

The collateral is what will be taken in the event of non-payment. This is the key differentiator between real estate and many traditional investment vehicles. When you invest in real estate, you are investing in tangible, real property, rather than an idea. In real estate, the property itself is usually the collateral, which offers some additional downside protection.

 

Management Team

When making a real estate investment, it is important to work with a competent, transparent, and disciplined management team. These will be the individuals who help direct the project once it is actually in motion, allowing you to put in minimal effort. With better and more experienced management on your side, you’ll be much more likely to have your principal investment protected should any problems emerge.

 

Cautious Underwriting

Depending on the type of investment, cautious underwriting can present itself in many forms such as conservative market assumptions and rent growth, which we could dive into for days. However, for the purpose of this article, we’ll discuss one very important item: leverage. Leverage is a term used to describe how much capital you can access for how much capital you are putting down. If the value of the project is significantly greater than the down payment, this represents a high loan-to-value ratio (LTV), which is considered risky. It might be possible to access a $1M loan for only $50,000 down, but this LTV of 95% is incredibly high, and such a loan should only be entered into upon careful consideration. For commercial projects, stick to investments with an LTV of about 75% or lower.

 

Diversification

Diversification is the surest way for investors to limit the overall risk of their current portfolio. In real estate, there are multiple ways to diversify. The most obvious way is to invest across many different types of property including multifamily, residential, senior living, industrial, self-storage, mobile home parks, triple net single-tenant retail, raw land, and others. Furthermore, you can also diversify by geographic location. Purchasing property in different markets across the country, along with purchasing property in different areas (urban, suburban, rural, etc.) can help protect you from the future unknown.

 

Finding the Holy Grail

Now that you know what to look for — and more importantly, what to avoid — you might be ready to make a significant real estate investment. As suggested, there are several ways to enter the private realm.

A real estate syndication, for example, is an organized group of real estate investors, led by a specific investor in such group (aka a sponsor). The sponsor will be responsible for running the fund and making key decisions, along with communicating with potential investors. Rather than saving to buy a rental property on your own, you can invest in a group that purchases several properties, helping you reduce your exposure to risk and your need to be hands-on.

When comparing funds, there are many things you’ll need to think about. The payout timetable and the types of investments being made by the fund should both be carefully considered. Most importantly, you will want to make sure that the return you are receiving appropriately matches the risk you are being asked to take.

There might not be such a thing as a perfect investment, but with some basic principles in mind, you can move closer to finding the type of investment that’s right for you. In that sense, the holy grail just might be within reach after all.

 

About the Author:

Seth Bradley is a real estate entrepreneur and an expert at creating passive income while still working as a highly paid professional. He’s closed billions of dollars in real estate transactions as a real estate attorney, investor, and broker. He’s the managing partner of Law Capital Partners, a private equity firm focused on multifamily and opportunistic acquisitions.

 

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Gaining a Leg Up in a Changing and Competitive Marketplace

Gaining a Leg Up in a Changing and Competitive Marketplace

Gary Boomershine, who founded REIvault and RealEstateInvestor.com, spoke with Joe Fairless about some of the most valuable insights he has learned throughout his lengthy career. He initially founded RealEstateInvestor.com in 2005 out of necessity to get a leg up in a competitive marketplace. At that time, Gary had spent the last few decades working in IT sales in Silicon Valley, and he had just recently returned to real estate investing.

Today, he is active in buying and selling, flipping, and private lending. Residential homes are his bread and butter, but he has also dabbled in multifamily and other property types. While he was investing in real estate as a full-time job, he launched REIvault as a side project. REIvault is a cold-calling and lead generation service provider. His 250 investor clients compete directly with Offerpad and Opendoor.

 

Investing in Relationships

Gary is currently active with nine masterminds. While he contributes up to $50,000 per year to invest in each mastermind, he professes that this is money well spent. The investment enables him to connect directly with smart, talented, and like-minded individuals who are a source of coaching and inspiration. In addition to talking business with his group members, he gets real-life advice on finding a work-life balance.

While real estate investing with a buy-hold strategy is passive, the process of wholesaling and rehabbing properties constitutes a true business with long hours. By connecting with others who are in a similar place in their lives and in their business activities, he is able to find ways to balance and optimize his time.

 

Mastering Time Management

When Gary Boomershine talks in detail about time management, he describes the 5/10/3 approach to scheduling his day. He wakes up at 5 a.m. every day, and the first five hours of his day are purely devoted to personal time.

Two hours of that time are allocated toward health and fitness with a cardio-based workout. He then takes approximately 90 minutes to journal. This enables him to improve his mental focus on the things that are most important for the day. He specifically talks about how important it is to define goals and to create a plan for achieving them, and this is part of the value he gets out of journaling.

The other 90 minutes of his daily personal time is allocated for various other personal tasks, such as spending time with his wife, doing chores, reading the Bible, and more. At 10 a.m., he focuses on work activities. Starting at 3 p.m., his attention turns to one thing that will drive his business forward.

Gary adopted the 5/10/3 practice from a professional coach who reminded him that we all have the same 24 hours to spend each day. Optimizing that time with the 5/10/3 approach has been effective for Gary to date because it enables him to achieve his goals and to find balance.

 

Achieving Mental Clarity

Gary emphasized the importance of journaling in his daily life. He prefers to write his thoughts down with pen and paper rather than on the computer. Generally, he focuses on what he wants to achieve and how he wants to do it.

Gary rarely revisits his journals. Instead, they provide him with a way to organize his thoughts and to identify the things that he wants to intentionally focus on. More than that, journaling gives him mental clarity so that he can be a great leader in his family and in business. It also enables him to properly leverage the talents of others so that he can focus on activities of more value each day.

He also talks about the difference that the traction principle has made with his business operations in a competitive marketplace. RealEstateInvestor.com has 90 employees who all work remotely. He pulls them all together quarterly for a face-to-face meeting. That brings them all up to speed and gives them focus for the next quarter. He is moving toward using this principle more consistently with REIvault as well.

 

Choosing Your Top Three

Gary Boomershine establishes three things each day that will receive his full attention. On the specific day that he spoke with Joe Fairless, he discussed structuring a creative deal involving an office building with a gym.

He also recorded a video with one of his mastermind group members, Chris Arnold from Multipliers. The video delves into the importance of working old leads regardless of how poor they initially seemed. More specifically, because the market has tightened up, cold callers and direct marketers increasingly need to fine-tune their sales skills in order to be effective in their positions. The video he created provides those marketers and sales professionals with a powerful tool to use in today’s competitive marketplace.

The third thing that Gary focused on that day was planning a family trip to Montana over Labor Day.

 

Final Thoughts

When Gary talks about his best advice for others, he refers to insight from two investment gurus. First, he talks about Robert Kiyosaki’s definition of wealth. According to this definition, wealth is not a fixed dollar amount. Instead, it is achieved when your passive income surpasses your living expenses and enables you to spend your days how you want to spend them.

Second, he emphasizes the value of Warren Buffett’s KISS principle. This principle, which is also referred to as “Keep It Simple, Stupid,” reminds us to focus on the big objectives and not to get caught up in the fine nuances when working in a competitive marketplace.

From his own life, Gary Boomershine has a few other words of wisdom to share. He has learned the hard way to carefully vet potential partners before teaming up with them. More than that, he stresses the importance of giving back in a meaningful way and leading an intentional life that is rooted deeply in your personal goals.

 

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Cash Flow vs. Appreciation: 5 Expert Investors Share Their Insights

Cash Flow vs. Appreciation: 5 Expert Investors Share Their Insights

When investing in real estate, one of the most frequently asked questions is whether it is better to invest for cash flow or appreciation. In this article, we will examine what expert investors have to say about these two investing strategies.

As an investor, you should understand that both strategies are valid and can be combined when evaluating a trade. Therefore, it is important for you to know how to determine the real estate cash flow rate and the property appreciation rate.

With COVID-19 and the consequent eviction moratorium, many investors have had to deal with reduced or negative cash flow while appreciation rates are through the roof. So, should one invest for real estate cash flow or for property appreciation?

 

Real Estate Cash Flow Strategy Overview

A cash flow strategy offers consistent cash, typically in the form of rent, to real estate investors. Over time, the property may also benefit from appreciation. With equity accumulation, an investor could refinance, sell, and use returns from cash flow and appreciation to invest in new properties.

But it is not always as simple as this. In many cases, you choose one or the other. You could have high cash flow when you buy property in a low-cost neighborhood and improve it with some sweat equity. On the other hand, in more developed areas like San Francisco and Washington, D.C., you might find it difficult to find cash flow investments, and therefore have to rely on appreciation.

 

Reasons Investors Opt for Cash Flow

1. If you’re cash-flow positive, rent covers your expenses, e.g., mortgage payment, monthly maintenance fee, insurance, and property taxes, and provides you with extra cash.

2. Conventional loans are readily available for cash flow investors. Cash flow is not only used by investors to evaluate deals. Lenders use it too, as mortgage payments will make up a large part of the property’s costs and will definitely affect your cash flow. Lenders use the debt service coverage ratio (DSCR) to determine if, after mortgage payments, a property will be cash-flow positive. To calculate your DSCR, you need to know your net operating income (NOI).

3. Investors who desire financial freedom, passive income, and early retirement will opt for a cash flow strategy because steady cash flow helps you reach your financial goals faster.

4. Rental property cash flow offers more versatility. Instead of a conventional long-term rental strategy, you could place your listing on short-term rental websites like Airbnb. You could also make monthly income through systems like house hacking. On a larger scale, you could build a portfolio of both multifamily and single-family properties and earn steady rental income.

5. Your cash flow grows over time as you pay down your mortgage and build equity.

 

The Downside of a Real Estate Cash Flow Strategy

It is more difficult to find cash-flow positive properties, especially in today’s market as prices have appreciated at unexpected rates. In many markets, you’ll readily find cash-flow neutral (property profits can only cover running costs) or cash-flow negative (investor spends some money out of pocket on property maintenance) properties.

Also, cash flow depends on market performance and tenant quality. If there is a real estate downturn, real estate cash flow gets hit. And bad tenants will cause you to lose money.

 

Real Estate Appreciation Overview

While there are straightforward approaches and formulas for measuring real estate cash flow, measuring real estate appreciation presents a challenge. This is probably the main reason why many investors opt for a cash flow strategy.

The best way to measure the current market value of your property is to look at comps (comparable properties) in your area.

 

How Much Does Real Estate Appreciate on Average?

On average, appreciation rates for real estate in the U.S. have stayed between 2% and 4%. In a market crash or downturn, property prices could depreciate as they did during the 2008 recession. But in a real estate bubble, as we’re currently experiencing, investors could greatly profit from appreciation.

According to an article on Millionacres:

“Over the past year, the average appreciation of real estate has increased 14.5%, a staggering number compared to historical performance. While many homeowners and real estate investors look to the average home-price valuation as an indicator for future value, it’s important to remember that housing prices and the rate they appreciate can change dramatically year over year — the current average appreciation rate is 14.5%, a stark difference from 4% in 2019.”

As mentioned before, you can combine real estate appreciation with a rental cash flow strategy. Rents typically grow over time, leading to increased cash flow. So, a negative cash-flowing property could turn positive over time and also allow you to make a significant profit through appreciation. Essentially, the way to make money with appreciation is when the property is sold. Hence, it is playing the long game.

 

Reasons Investors Opt for Real Estate Appreciation

1. Appreciation is a conservative way to make money as an investor. Real estate values usually increase over time, so if you make sound investments, you can sell them for a profit. This chart from the Federal Reserve Bank of St. Louis shows how average home prices in the U.S. have grown since 1963.

2. Appreciation is a great way to pass on real estate wealth to younger generations. Hence, lots of people who have already achieved financial independence invest in real estate majorly for appreciation.

3. As a new investor, you can make quick profits via fix-and-flips. You purchase a property and tune it up to make it appreciate in value. Then you sell. You can also buy and hold, make positive cash flow in the interim through rents, then sell.

4. You can defer taxes on real estate sales through 1031 exchanges. Although under President Biden’s new policies, 1031 exchanges would only be available to investors making less than $400,000 in annual income.

 

The Downside of Relying on Appreciation

When relying on appreciation, you’re making a bet on the market. You have to dig into the city plans, study municipal data, and invest in places close to transport facilities. In other words, you have to keep an eye on where and to which areas people are moving en masse. All the same, you might make a wrong guess. No one can predict a market crash or what happens when a pandemic hits. Check out some strategies real estate professionals recommend during a market crash.

 

Depreciation

With both types of rental strategies, you have to worry about depreciation. This PropertyCashin article touches on three main types of depreciation you may have to deal with:

1. Physical depreciation — caused by wear and tear.

2. Functional depreciation — occurs when a function of the building becomes outdated or obsolete. For example, an old multifamily building with no elevator and laundry facilities located in the basement has functionally depreciated in value.

3. External depreciation — the result of an adverse neighborhood or local economic conditions. For example, the closing of a corporate headquarters in one city contributes significantly to the external depreciation of nearby office buildings.

Overall, if you employed an appreciation strategy, you would need to keep your property in pristine condition since you are practically betting on it. And you would most likely have to spend out of pocket on maintenance and tech.

 

Cash Flow vs. Appreciation: What Investors Say

Tyler Cauble
President, The Cauble Group

“We never invest for appreciation since that is out of our control. Our team selects projects where we can create value and force appreciation through value-add or development from scratch. Any appreciation is just icing on top.”

 

Riley Adams
CPA, Owner of Young and the Invested

“I readily admit to any hesitation I may have as a real estate investor for buying properties with the explicit intention of reselling them in the next few years. I say this because of the tremendous growth we have seen and the specter of rising interest rates in the not-too-distant future as the economy recovers and the Federal Reserve attempts to normalize interest rates.

“For people interested in investing in real estate at this time, I would advise caution or a strategy that involves bidding below what it would have cost to buy a home even three months ago. The inability to purchase a home in this market has caused many potential buyers to walk away. This could present some softness in weaker markets, allowing buyers to bid below asking prices, renovate, rent, and ultimately sell for a profit in the future.”

 

Dustin Olson
Principal Broker & Owner, Venture DO LLC

“There are multiple ways to answer your question due to the plethora of variables, and all of them may be viable solutions for different investor strategies. But in general, appreciation (not forced) is hypothetical and dependent on the local market, while cash flow is real and more stable.

“If an investor is focused primarily on appreciation (again, not forced), and ‘hopes’ the property’s value will continue to increase, just because their property increased in value yesterday, then yes, their return may be higher, but they will also have more risk. And many suggest that ‘hope’ is not a viable strategy at all. Typically you will see investors use both metrics, but a property that cash flows with an opportunity for appreciation is a solid investment overall and if appreciation does not happen, you’re still protected by cash flow.

“Now, on the other hand, there are many different variables, but the cornerstone seems to be the investor’s personal financial situation and the desired outcome for the investment. Investors with less capital to invest generally focus more on cash flow, so they can supplement income, but as their passive income grows, their focus tends to shift more into a balance between the two. Some investors even focus primarily on appreciation only as a place to park capital. So, it’s hard to say that one method is better than the other, and many investors use both measures within their investment strategy.

“Keep in mind that the same property with the same purchase price can have very different cash flow scenarios depending on the investor’s location, mortgage rates, holding time, money down, tax protection, deductions, expenses, renovation plans, etc. With all these considerations, most investors should focus on their desired overall return on investment (ROI) or internal rate of return (IRR) to determine if their strategy is best for the given investment, rather than just looking at cash flow vs. appreciation.

“Many investors will also look for opportunities to force appreciation by reducing expenses and increasing income, through renovations, restructuring, rent increases, etc., to eliminate some of the risks around speculated future appreciation. One good thing, though, is that if a property appreciates in value, the rents typically go up, and if your property’s value increases, you may be able to borrow against that equity without even selling, and stack leveraged equity to invest in more investment properties.”

 

Parker Webb
Principal, FTW Investments

“Primarily, we employ a value-added strategy. In today’s market, these transactions are not priced for immediate cash flow, but we typically target 8%–10% cash on cash within 12–24 months of acquisition. For us, appreciation is about adding value by addressing deferred maintenance, improving the look and feel of the properties, improving lighting and security, employing best-in-class management, increasing revenues, and reducing operating expenses. Capitalization rates are very low, and we typically underwrite very conservative reversionary cap rates, which means that appreciation comes down to operations, not financial markets.”

 

Julius Mansa, M.Fin.
Investment Analyst and Lecturer

“I have always been a strong proponent of developing and maintaining long-term passive income opportunities from real estate, especially since net rental yields can often be more predictable than equity markets. While I agree that taking advantage of current market trends can yield excellent short-term capital returns for investors, the net cash flow from rental units can provide an excellent source of income for investors that are seeking to expand their real estate businesses even further.”

 

Jonathan Barr
Principal, JB2 Investments

“I would say: always cash flow — but inevitably, increased cash flow is followed by appreciation.”

 

Final Thoughts

There is neither a winner nor a loser. Both real estate appreciation and real estate cash flow complement each other, especially in situations where it is difficult to predict the future. Owning investment properties that produce income based on both strategies is a good idea.

 

About the Author:

Agnes A Gaddis is a writer for Inman News, Influencive, and the TSAHC (Texas State Affordable Housing Corporation). She has over 7 years of experience writing for the real estate industry. Connect with her on Twitter: @Alanagaddis

 

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The New Rules of Real Estate Investing

The New Rules of Real Estate Investing

Like most endeavors, real estate investing comes easier to those who are willing to change with the times. Whether you’re dealing in commercial real estate or multifamily homes, it’s important to utilize the best new strategies in the game. Adopting tactics from decades ago will deny you the opportunity to maximize profits. If you really want to make the most of your career as a real estate investor, you’ll have to take the newest rules to heart.

 

Going Door to Door

Knocking on doors to speak with people in person might seem like a tactic from the past, but it’s still the most effective way to reach out to potential sellers. While the basic concept remains the same, there are definitely modern insights to consider when deciding how to frame these difficult conversations. Tweaking your strategy to align with contemporary expectations will bring significantly improved results.

 

Persistence is Everything

Knocking on doors is always going to be a low-percentage play. Even the best communicator in the world is turned down more often than not. This means you’ll have to get used to overcoming near-constant rejection. Try to focus on the big picture, always remembering that a single success will offset all the minor failures. Keep your head up and knock on as many doors as you can.

 

Start a Genuine Dialogue

While it’s important to cast your net as widely as possible by knocking on lots of doors, it’s also vital that you adjust your strategy to maximize your success rate. The best way to get potential sellers on your side is by starting a genuine, heartfelt conversation. Invite them to share their concerns and avoid taking an authoritative stance.

 

Be Relatable

You need people to trust you, and that will only happen if they think you’re on their side. This means you need to be warm, friendly, and relatable. Take on the tone of a neighborly advisor rather than that of a pushy salesperson. You might not be able to become their best friend during a five-minute conversation, but you can certainly project kindness, empathy, and goodwill.

 

Maintaining a Positive Attitude

A career in real estate investing is rarely straightforward and never boring. When you’re working with a volatile market and capricious individuals, sudden changes in fortune are inevitable. To maintain success in such a chaotic field, you’ll have to maintain a certain strength of character. Just a few adjustments to your attitude should be enough to preserve the equanimity you’ll need.

 

Don’t Dwell on Negative Circumstances

In the world of real estate investing, there are always some factors that exist outside of your control. Take, for example, the market crash of 2007–2008. Investors of that period had no power over the market’s sudden collapse. Even during the worst of the crisis, there were still commercial real estate deals to be made and multifamily homes to be rented. The investors who were best able to cope with the hardships of the recession were those who chose to ignore the circumstances altogether. Complaining will never get you anywhere, while optimism and perseverance can help you overcome even the most formidable obstacles.

 

Learn to Accept Unavoidable Challenges

When a sudden hardship like a market downturn destabilizes your plans, try to see it as a challenge that could pay off in the long run. You can’t change the circumstances, but you can work around them. You’ll likely become a more talented, versatile investor in the process.

 

Familiarizing Yourself With Unconventional Methods

As with any financial activity, new methodologies and techniques are constantly developing in the world of real estate investing. If you’re unaware of these novel practices, you might find yourself at a competitive disadvantage relative to other investors. If, on the other hand, you master these new techniques, you can use them to your benefit. Knowledge is always among a real estate investor’s most valuable assets.

 

Rent-to-Own Real Estate

While this method has been around for many years, it’s especially important to master in today’s real estate market. Many people aspire to homeownership but don’t have the finances for immediate purchase. Negotiating a rent-to-own deal is a great way to invite would-be buyers into the process while finding sellers a long-term plan for meeting their objectives. In real estate, matching buyers to sellers is often the name of the game. Rent-to-own deals provide another way to do that.

 

Owner-Financed Deals

Owner financing is another great way to bring buyers into the fold. When prospective homeowners don’t have the financial means to take on a mortgage, the seller can finance the sale instead. By offering interest rates higher than a typical mortgage and including a balloon payment in the negotiation, the seller creates a worthwhile deal. The buyer, meanwhile, gains the homeownership they otherwise wouldn’t have been able to afford. This creative tactic effectively pairs eager buyers with determined sellers.

 

Securing Larger Down Payments

Whenever you’re selling properties or working with someone who is, it’s in your interest to secure the largest possible down payment. Many buyers are reluctant to put too much money down at the beginning, but there are plenty of clever ways to raise the initial figure. Clever investors can structure down payments in accordance with a buyer’s specific circumstances. Some buyers, because of their work schedule, might be able to contribute more to a down payment during a certain part of the year. Others might receive a significant refund during tax season that they could then put towards a payment. Taking these factors into account can help land you a higher down payment. Make a point of talking with buyers to see what works for them, and don’t be afraid to get creative. When it comes to securing higher payments, a little flexibility goes a long way.

 

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Top 7 Lessons Learned from The Book on Negotiating Real Estate

Top 7 Lessons Learned from ‘The Book on Negotiating Real Estate’

Negotiating sometimes gets a bad reputation for haggling, but true negotiators know that it’s really just solving differences between multiple parties. Good negotiators are able to focus on terms other than price and great negotiators are able to get the other party to do the same. The Book on Negotiating Real Estate: Expert Strategies for Getting the Best Deals When Buying & Selling Investment Property by Mark Ferguson is a wealth of knowledge for small and large investors alike. Here are my seven takeaways:

 

1. Information

Gather as much information as you can because information is leverage. This may require putting on your detective hat and doing some investigating. It can be as simple as performing a Google search, scouring social media profiles, or looking on the county auditor’s website. When speaking to the other party in person, be sure to listen with intent and build rapport with the other party because people tend to do business with people they like.

 

2. Motivation

Acquire the seller’s motivation and determine if there are motivating factors other than price. In short, you’ll want to learn if there are any pain points as to why the other party is selling, their timeline to sell, the condition of the property, and lastly, price. By asking the right questions, you’ll be able to gauge the seller’s expectations and their willingness to work with you.

 

3. Terms and Contingencies

In a sense, you could make the agreement contingent upon pretty much anything and it’s all deal-dependent. The most common contingencies are the financing and inspection contingencies. With terms, you could get a little more creative. Some general terms include but are not limited to earnest money deposit, seller financing, closing times, and personal property. Before putting together an initial offer, it would be best to make a list of all the terms beyond the price that you’d like to get from the deal and believe the other party would like to get from the deal.

 

4. Delivering the Offer

When delivering your offer, present it in writing because people put more weight on the written word versus something that has been simply discussed. It’s also a good idea to go through the agreement with the other party. Start the discussion with information and ideas that the seller finds agreeable, which allows you to create a positive emotional state leading up to more controversial aspects of the offer. Listen after you present your offer and resist the urge to justify a low price or some term or contingency in the contract.

 

5. Tactics

Plan your negotiating strategy beforehand and tailor the conversation to the other party’s personality because by doing so, you keep them involved and in their comfort zone. Always focus on things that both sides can agree on because by focusing on agreeable issues, the other party will get the feeling that progress is being made. In tough situations, you can always appeal to a higher authority like your partner or your boss, even when they don’t exist. And always remember that no deal is better than a bad deal.

 

6. Concession Strategies

Instead of giving concessions, try trading concessions. Suggesting conditional concessions could also be advantageous. Make sure that you get equal value when you give. And lastly, always ask for a final concession because the other party will learn to stop asking for things once they essentially have what they want or need from the negotiation.

 

7. Defense

Defense is just as important as being aggressive, especially when negotiating against expert negotiators. When you get lowball offers, this is a good time to reject the offer outright to let the other party know you are refusing to engage in a negotiation until they are willing to be reasonable. When your offer is being criticized, the best way to react is to let them know that this deal might not work out. Lastly and most commonly, with threats of competition, the best way to defend is to figure out if the other party is telling the truth and to gather more information in terms of whether they are motivated to work with you and why they haven’t accepted other offers.

Negotiation is a muscle — the more you use it, the stronger it gets!

 

About the Author:

Tanh Truong is a pharmacist by day and an investor by night. A thoroughbred of Cincinnati, he invests locally in high-yielding assets and higher-yielding relationships.

 

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26 Ways to Start Investing in Real Estate

26 Ways to Start Investing in Real Estate

Investing in real estate is a great way to create and protect wealth. Real estate is tangible and can deliver cash flow, appreciation, leverage, diversification, and tax benefits. These tried-and-true perks have stood the test of time, helping ordinary families to become millionaires for generations. And even if you don’t have a passion for real estate, you might be surprised to learn that there are a multitude of investment strategies to fit your goals and preferences.

In fact, there are so many strategies for investing in real estate that some investors struggle to figure out where to start. It’s kind of like being a kid at DQ or Baskin Robbins, trying to figure out which flavor of ice cream you want. All are filled with sugar and cream, but your particular palette may prefer something with crunch, something rich, or extra sprinkles. With investing, it comes down to how active you want to be in the investment, interacting with residents, and the use of the property.

And even if you prefer the familiarity and simplicity of vanilla, it never hurts to glance at some of the other options. To help you consider your full menu of options when it comes to investing in real estate, here are 26 investing strategies to consider for your next deal.

 

1. Wholesaling

Placing a property under contract and assigning it to another buyer for a higher amount or an assignment fee.

 

2. Flipping

Buying a property, fixing it up, and then selling it in a short period of time — usually within 3–12 months.

 

3. Rental

Acquiring a property and leasing it to a resident for monthly income.

 

4. House Hack

Buying a property to live in and renting out the other spaces. Usually for two- to four-unit properties.

 

5. Residential Multifamily

Investing in a building with two to four apartment units.

 

6. Commercial Multifamily

Investing in a building with five or more apartment units.

 

7. Short-Term Rental

Renting out a furnished property for less than 30 days.

 

8. Vacation Rentals

Similar to short-term rentals, these are typically targeted at tourist locations.

 

9. Turnkey Rentals

Buying a recently rehabbed property with a property management company in place.

 

10. Private Lending

Loaning out funds to private investors for a specified return.

 

11. REITs

Real Estate Investment Trusts are publicly traded companies that invest across a portfolio of assets, offering shares to investors.

 

12. Syndications

When a group of investors owns a property, where some members are active (general partners), and others are passive (limited partners).

 

13. Lease Options

Leasing a property with the option to purchase the property from the owner.

 

14. Fund of Funds

Creating a fund to invest directly into other real estate funds.

 

15. Notes

Purchasing the loan on a property so you become the bank and borrowers pay you.

 

16. Tax Lien Investing

Buying the delinquent tax lien on a property and earning profits as the property owner pays interest on the certificate.

 

17. Raw Land

Acquiring undeveloped land to hold or sell for future development.

 

18. Mobile Homes

Buying and renting mobile home units.

 

19. Mobile Home Parks

Acquiring the land which is zoned for a group of mobile homes and charging rent for use of the land and utilities.

 

20. Retail

Owning commercially zoned storefronts used to sell products or services.

 

21. NNN

Triple net lease properties are where an investor owns the building, but the tenant is responsible for all repairs, maintenance, utilities, taxes, and insurance. You often find this for large corporate tenants such as banks, fast food restaurants, and drug stores.

 

22. Industrial

Investing in buildings that focus on product production and logistics such as warehouses and factories.

 

23. Office

A building where companies meet and conduct business.

 

24. Self-Storage

A facility to rent space to individuals to store their personal or business belongings.

 

25. Hotel Investing

Buying and managing hotels focused on short-term accommodations.

 

26. Resorts

Buying and managing venues with short-term accommodations, plus an elevated experience for guests.

 

Certainly, there was at least one strategy that caught your attention, but you still may come back to your flavor of familiarity. If you want to learn more on any topic, be sure to check out the Best Ever Show archives. With over 2,500 episodes, there is a wide range of topics to cover your investing needs.

 

 

About the Author:

John Casmon has helped families invest passively in over $90 million worth of apartments. He is also the host of the #1 rated multifamily podcast, Target Market Insights: Multifamily + Marketing. Prior to multifamily, John was a marketing executive overseeing campaigns for Buick, Nike, Coors Light, and Mtn Dew: casmoncapital.com

 

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Building in the Big Leagues with Brian Noel

Building in the Big Leagues with Brian Noel

Serial investor Brian Noel reflects on why— and how —he made the switch from single-family investments and a corporate career in sales to become a general partner on his own multifamily property.

During 40 years in sales, Brian Noel escalated his role into management positions. At one point, he was managing more than 4,000 people globally, spending much of his time bouncing between airports, and from one hotel to the next. But from day one, Brian had an interest in real estate as an investment strategy.

Real estate investment started for Brian as it does for many investors: in the form of single-family homes. On the hunt for appreciation, the timing of the market in the ’80s and ’90s wasn’t right, so Brian liquidated all his properties and invested in the stock market. After riding the highest of highs, then ultimately crashing into the lows by losing everything in 2000, it was back to the drawing board to find alternative investments to generate additional wealth.

“In 2005, as I’d moved throughout my career to different companies, I wound up with about a half-dozen different IRAs and was trying to figure out how I could consolidate those and seek alternatives beyond just the stock market to invest in,” Brian shared. “I discovered there was something called a self-directed IRA. So I put all of the retirement money I had into a self-directed IRA account and then used that to buy a rental property.”

Brian eventually sold the property and used the equity to purchase eight townhouses and condos.

“Instead of looking for appreciation, I was looking for cash flow… [so that I could] then use the extra cash to pay the mortgage down as fast as possible. Then in 2019, I kept looking at how much money I was paying every month in HOA fees and decided it might be better if I got rid of all these properties and went more into building,” he said.

Today, Brian is a general partner on his own 280-unit Class C multifamily apartment building in Houston, Texas. While his investment journey brought him to this point, it was his experience with the teams of people along the way that made it fulfilling and drove his excitement to continue investing this way.

“There are seven of us on the team. And it’s been an interesting journey to go through this because everybody has different experience levels in multifamily investing. There are a couple of people who are very experienced; they’ve been [general partners] on five, six, seven deals and have gone full cycle on a few deals,” Brian said. “Then there are other people, like myself, who are still what I would consider sort of a new general partner.”

As Brian has experienced growth in both professional and investing aspects of his life, he now finds joy in helping others get started and find their way on their investing journeys.

“I’ve had the chance to build teams, and then I’ve been an individual salesperson going out to focus on my own deals as well,” Brian reflected. “So at one point or another, I’ve kind of done it all, but for me, at this stage of life, it’s fun to be a part of a team and give back and help other people.”

Equally as crucial to building a team is being a productive part of one. Having the opportunity to have been a leader at prominent companies throughout his career as well as being a part of an investment decision-maker group, Brian firmly believes that communication and transparency are non-negotiables that must come with any individual into a team setting.

“When you’re taking other people’s money, you have to be incredibly conscientious about the fact that they’re trusting you with their hard-earned dollars. And, for me personally, I’m more worried about other people’s money than my own,” Brian said. “I also think you’ve got to communicate. And honestly, if you step back and think about it, there’s always something you can say, right? So just staying visible and staying in front of your investors, I think, is very important.”

Brian’s essential enjoyment and passion for real estate are at the foundation of all his investments that allow him to continue building his income.

“You do have to be willing to roll up your sleeves and get your hands dirty. You’ve got to enjoy it and you’ve got to be passionate,” Brian noted. “If you don’t want to do that and you don’t enjoy it, and you’re not passionate about it, then you shouldn’t do it.”

 

About the Author:

Leslie Chunta is a marketing consultant with nearly 15 years of experience in creating dynamic marketing programs and building brands for startups to enterprise organizations. She has worked agency- and client-side with high-growth companies that include Silicon Valley Bank, JPMorgan Chase, SailPoint, EMC, Spanning Cloud Apps, Ashcroft Capital, Netspend, and Universal Studios. www.thelabcollective.com

 

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The Complete Guide to Saving Money While Investing

The Complete Guide to Saving Money While Investing

For most people, it’s important to keep saving money, even while you’re investing. After all, while your investments are a way for you to plan for your future and build your portfolio, you never know when you might need an emergency fund, or some savings tucked away.

When you’re trying to balance your income between expenses, savings, and investments, however, things can start to get difficult. That’s why it’s important to know some critical savings tips that will help you stay on top of your finances, even while you’re pursuing investment opportunities. Here’s what you need to know.

Start by paying yourself.

With every paycheck or direct deposit, it’s easy to start racking up the costs. While this may vary depending on your spending habits and monthly expenses, it’s often easy to push your saving money to the back of the priorities list. After all, when you’re done paying for groceries, utilities, and mortgage expenses, you still want enough money left over, right? But, in most cases, hitting a firm savings goal means finding the right balance. That’s why it’s important to pay yourself first.

Every time you get a paycheck, take a portion of that and immediately place it in your savings account or emergency fund. Otherwise, it’s harder to keep your monthly savings consistent if you leave all your money in your checking account. When you really want to hit a savings goal, the best way is to prioritize savings as much as you can.

Depending on your financial situation, it’s often a good idea to set up automatic bank account transfers. This is an easy way to consistently set aside a small amount of extra cash on each payday.

Plan for unexpected expenses.

Planning for an unplanned expense seems a bit oxymoronic. However, while you might not be able to plan for a specific dollar amount, you can save a general sum of money to give yourself a bit of a safety net in the event of any unplanned expenses, job loss, or financial hardship.

Often, when someone’s facing a financial crisis, the temptation is to forgo ongoing investments in favor of immediate funds. However, with an emergency fund, you don’t necessarily have to compromise your long-term financial stability to pay for medical bills, home repairs, and unexpected emergencies.

Many financial experts agree that your rainy-day fund should account for roughly three to six months of expenses. While you can certainly add extra money or less money, having an emergency fund is a great option to supplement retirement funds, savings, and investment accounts. Again, if you don’t want to spend a lot of time creating a separate account for your emergency fund, automatic transfers might be a good option for your needs. Since a string of unexpected events can impact your financial health, your saving money in an emergency account is a great way to protect yourself in the long run while you continue to build wealth.

Consider a side hustle.

At this point, the side hustle is officially a United States institution. Whether you’re working on getting your credit score to a good place or you’re using a financial planner to help you choose a high-yield savings account, a side hustle or part-time job can go a long way toward helping you meet your financial goals. Plus, as more U.S. industries continue to lift in-person restrictions and encourage business, this is one of the easiest ways to take the next step in your financial journey.

You can take whatever amount of money you earn from your side hustle, passive income opportunity, or part-time job and put it toward your retirement savings, high-yield savings, or another investment or financial product.

If a part-time job isn’t your style, you may want to consider selling things you no longer need. The first step is to look through your belongings, decide what’s worth selling, and list it online. For a simple way to sell clothing and accessories, you can consider popular resale sites. For furniture, decor, and other possessions, you might want to consider local resale groups.

Try to pay off your debts aggressively.

If you have credit card debt, a loan at your financial institution, or any other high-interest debt, it can make it that much harder to build an emergency savings fund and continue investing in your future. It can also limit how much money you put into your online banks and accounts. If you find that your existing debts eat into your general savings goals, you might want to consider prioritizing loan and credit card payments. In some cases, you may want to work with a financial advisor to review your credit report and see what debt you should prioritize. This can help you eliminate high-interest debt, which frees up more resources to dedicate to your investments.

Understand your investment costs.

Every mutual fund, CD, and broker service has its own costs that you need to understand. Whether you’re talking about a retirement savings account or your supplemental investments, it’s a good idea to weigh the costs against your returns; this can help you make better decisions that benefit your overall financial well-being.

For instance, say you’re on a workplace retirement savings plan. If your employer-based plan is too expensive, you may want to consider contributing to the match and then seeking external investment opportunities. As long as you stick within your general investment plan, this can improve your financial fitness.

Are you ready to master saving money while investing?

At Goodegg, we have experience working with investors at all skill levels, and we always think it’s best when you take the time to set and review your financial goals truly. So, whether you need to reconsider your subscriptions and gym membership or you need to diversify your investments to better align with your long-term plans, prioritizing your savings growth and overall financial health is a smart choice. With the right investment decisions, you have the potential to hit your financial milestones that much faster.

If you’re looking for the right partnership, you should consider joining the Goodegg Investor’s Club. With our industry expertise, we give you insight into savings tips, investment strategies, and growth tools that can help you succeed.

 

About the Author:

Annie Dickerson and her partner Julie Lam are founders of Goodegg Investments — an award-winning real estate private equity firm — and creators of the Real Estate Accelerator Mentorship Program. They are authors of the book Investing For Good and hosts of the popular Life & Money Show podcast: https://goodegginvestments.com/

 

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Tips for Success After a Bad First Deal with Jamie Gruber

Tips for Success After a Bad First Deal with Jamie Gruber

In the early 2000s, Jamie Gruber was like many other new real estate investments. At the time, zero-down financing was easy to find, and few people were putting up red flags about a possible market crash. Gruber jumped at the chance to enter the market with an 80% loan followed up by a 20% second lien. While some people who purchased property only a few years before the recession hit in full force were unscathed, Gruber was one of the many people who were burned. Nonetheless, he gained valuable insight from his first deal. He recently joined us to share what he has learned.

 

Jumping In at the Wrong Time

When Gruber purchased his first single-family home in 2005, housing prices in New York were rising quickly, and Gruber was eager to get his feet wet. Because he did not make a down payment, he had minimal equity in the property when the housing market crashed three short years later. At the same time, housing prices in New York plummeted. Gruber’s employer relocated him to Boston, and he was not in a position to either sell the home or to live in it. Essentially, he was forced to ride out the market as a landlord. Thankfully, the rental rate was sufficient to cover the property’s expenses.

 

Developing a Larger Perspective

While some people who have had a poor investing experience may be averse to making future investments, Jamie Gruber had a different perspective. Despite being saddled with this property for several years at a very inopportune time, he and his wife decided to buy a fix-and-flip home in Boston. They turned a reasonable profit on it, and this encouraged Gruber to look at other real estate investments. Their next two properties were two-unit multifamily rentals in New York, and they were successful investments despite being located in another state.

Through these experiences, Gruber regained a sense of comfort and even excitement about the lucrative potential of the market. Gruber saw the potential for investing in multi-unit properties. However, he was not keen on slowly building a portfolio of two-unit properties. The path to giving up his W-2 job could be traveled more quickly if he made larger commercial real estate investments.

 

Finding the Right Deal

Gruber learned his lesson from his first deal. After he decided to lean into commercial real estate, he spent time educating himself before he started looking for a property. Then, he waited for the right deal to come along. The property that he ultimately invested in had incredible upside potential with rates that had not been raised in years. Its elderly owners were eager to sell, and they had perhaps not run it as well as they could have over the last several years. Gruber and his partner purchased the 16-unit apartment complex near Ann Arbor for $750,000 with a 7% cap rate.

This particular property had more upside potential than Gruber initially realized. In addition to being able to raise rents after taking ownership, he was able to collect revenue from pet rents, storage fees, the laundry facility, and more. At the same time, Gruber was able to slash many operating expenses that had gotten out of hand. Nonetheless, this property also had an expensive learning curve.

Gruber had the insight not to raise rents on established tenants sharply. He had a rent escalation plan that would slowly get the units up to market rents without potentially creating a vacancy issue unnecessarily. However, the repair costs that Gruber estimated upfront were significantly below the actual cost. In addition, some of the materials that they thought could be salvaged ultimately had to be scrapped, and labor was much higher than he anticipated. Gruber ultimately put approximately $5,000 per unit into the upgrading and updating costs, and this was more than he was prepared for.

 

Creating His Own Opportunities

Before Gruber found this great investment opportunity, he struggled to get real estate agents to give him and his partner the full attention that they needed. They decided to take matters into their own hands and make something happen. To create a great network of investor contacts and industry professionals, the pair established a multifamily meetup group and a Facebook group. This is how they stumbled upon their 16-unit project, and it is also how they met the other pair of investors who are working with them on their new apartment deal.

This new project is a 22-unit project located in Cleveland. While Gruber will be a remote or hands-off investor, one of the partners will be on-site and responsible for the day-to-day operations. This is one of the reasons why Gruber feels comfortable taking this project on as his second multifamily investment property. Notably, this 22-unit property may also come with a learning curve as the seller has not provided them with solid records.

In hindsight, Gruber says that his best advice for new investors is to network. This is how he found his most recent investment opportunities as well as his partners. Without networking, Gruber would not be in the position that he is in today.

 

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5 Colorado Travel Tips for the 2022 Best Ever Conference

5 Colorado Travel Tips for the 2022 Best Ever Conference

Who’s ready for some après ski? Best Ever Conference attendees often use the conference as an opportunity to vacation in Colorado either before or after the conference. It’s truly the perfect winter adventure to get your team together before or after the BEC, or even for inviting your family and friends to join. Let’s face it, this past year has caused us to pause many of our vacation plans, and we’re all eager to get back out and create some exciting experiences. With that in mind, we’ve put together our top Colorado travel tips to help you make the most of your stay.

 

1. Pack your gear.

If you are planning on venturing outside of Denver, don’t forget to pack your snowboard, skiing, or sledding gear. Some of the most popular ski resort towns in the world are located in Colorado such as Aspen, Breckenridge, Keystone, Telluride, and Vail. These ski towns offer incredible resorts located close to town, as well as shopping, restaurants, and other winter activities.

 

2. Book early.

It’s certainly not too early to book your ticket and travel plans for the upcoming BEC. You won’t want to catch a case of travel FOMO by skipping out on your opportunity to secure your spot and travel accommodations. Hotels and vacation rentals start booking in the summer for the upcoming winter season, and since this year is the year of travel, many vacationers are securing their winter lodging already — especially the ski-in/ski-out homes.

 

3. Remember your lift tickets!

In addition to booking your stay, it is highly recommended to book your lift tickets in advance as their prices are expected to increase throughout the year. Those who purchase lift tickets early always receive the best discounts, and they avoid the risk of waiting until the resorts sell out.

 

4. Explore Denver.

Interested in staying local in Denver? There’s plenty to experience in the Mile High City. Did you know Denver brews more beer than any other city? Denver’s downtown area offers a wide variety of brewpubs, eclectic restaurants, and world-class galleries and museums. Another popular location to explore is the artsy hotspot neighborhood River North Art District (RiNo).

 

5. Snag an exclusive resort discount.

The BEC is offering limited exclusive discounted rates at the Gaylord Rockies Resort for attendees. The Gaylord is extremely convenient for travel as it is just minutes from Denver International Airport. The rustic resort is the perfect retreat for a winter vacation — indulge in tranquility at the resort spa, indoor and outdoor water complex, and lazy river, and soak in the picture-perfect views of the nearby Rocky Mountains.

 

There is so much to look forward to this winter at the BEC, and with these Colorado travel tips in your back pocket, you’re sure to have an incredible time both in and outside of the conference. Secure your spot today by visiting besteverconference.com.

 

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Growing Overseas with Jennifer Bourdeau

Growing Overseas with Jennifer Bourdeau

For some professionals, the opportunity to relocate for a career is an exciting next step on their path to success. However, when Jennifer Bourdeau chose not to relocate for her career in the hotel industry, it led to an even more fulfilling adventure. She had always wanted to obtain an MBA degree, and with a reluctance to move for her job, she decided that the time to earn it was now.

 

Education Abroad

Accelerating her timeline, Jennifer Bourdeau started evaluating MBA programs, not only across the United States but across the globe. She enjoyed travel and realized that she might as well create an experience as she furthered her education. Jennifer landed on a year-long intensive MBA program located in Nice, France. Eleven years later, she remains based in the South of France where she is building her career and future.

“I decided to stay. I thought, ‘Okay. Let me give it a go. I will stay in France and try to find a job,’” Jennifer reflected. “I ultimately found a great job working in the travel industry, but in technology for travel.”

 

Financial Clarity

Jennifer Bourdeau was focused on building her professional acumen and career in France as a business consultant in product marketing, working with teams all across the globe. Throughout this period of growth, she sat down to examine her finances, which she was convinced weren’t enough.

“I took a look at my finances, and I realized that I had financial clarity. I thought, ‘Wow! I’m in a good position.’ Before that, I had always had this scarcity mindset. I didn’t have enough money. I needed to keep saving it,” Jennifer said. “I realized that I’m pretty comfortable right now and I can take some risks. And this aggressive saving that I had been doing had given me some options. One of the options was to say, ‘You know what? I’m going to take a break from the corporate world and try out something new.’”

 

Becoming a Full-Time Investor

At the end of June, Jennifer Bourdeau will be transitioning out of her corporate role and into a role that is solely focused on generating wealth and allowing her to make the most of her time: a full-time real estate investor.

Real estate was something that Jennifer dabbled in before leaving the United States. In 2007, she purchased a home that had significant equity in it. To ensure that she could continue owning it, unbeknownst to Jennifer, she started house hacking to pay the mortgage. Since then, her passion for real estate has only grown.

“When I moved to France, I became a passive landlord. I just rented the whole property with a property manager. I’ve done two new-build villas. We’ve also rented them seasonally. So that created quite a bit of income and a bit of work as well on our side to manage those rentals,” Jennifer shared. “I like active investing because it’s a direct reward and a direct reflection of my efforts. So every penny that is made, it’s because I did something well. Every penny that’s lost is because I did something wrong.”

 

Building a Team

Last year, Jennifer Bourdeau continued to diversify her real estate portfolio by investing in multifamily syndications. As she started in this new arena of investment, she realized that she needed to surround herself with individuals and operators who would help fill in the gaps in her real estate savvy.

“When I discovered passive investing, I had no team. I was so clueless. So I just consumed as much content as I could. I spent a really good amount of time upfront educating myself and learning who the players were in this space,” Jennifer said. “And from there, I started to create a little network. I discovered some investor groups. That is my team— these other investors.”

 

A Better Path to Success

Jennifer’s investor network is now more than one thousand people strong, with several hundred actively engaged in providing insight and best practices along the way.

“Now, my aim is more about creating wealth without creating a job. It’s been valuable to have insights and expertise and learning through sophisticated, experienced investors,” Jennifer reflected. “I just became disillusioned with this boomer’s dream where you go to college, you get a job, you buy a house, you get married, you stay dedicated to a company for so long, and then you retire at 65. I just realized there was a different way, a different path to get where I want.”

 

 

About the Author:

Leslie Chunta is a marketing consultant with nearly 15 years of experience in creating dynamic marketing programs and building brands for startups to enterprise organizations. She has worked agency- and client-side with high-growth companies that include Silicon Valley Bank, JPMorgan Chase, SailPoint, EMC, Spanning Cloud Apps, Ashcroft Capital, Netspend, and Universal Studios. www.thelabcollective.com

 

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Learn From These 6 Investing Mistakes

Learn From These 6 Investing Mistakes

While real estate investing can be incredibly lucrative, these investments come with the risk of moderate or even significant financial loss. Often, investing mistakes are tough lessons that come with a high price tag, but you don’t necessarily have to learn those lessons through your own experiences.

United Property Group Founder Dan Gorman has been investing in real estate for more than 22 years, and he has purchased more than $50 million in commercial real estate. Currently, he owns apartments, office space, and a few restaurants. While Gorman has enjoyed incredible success as an investor, he has also lost an extensive amount of money through mistakes with multifamily and commercial real estate. What can you learn from Dan Gorman?

 

1. Trusting Others With Skin in the Game

When Gorman reflects on some of his biggest financial losses and investing mistakes, he attributes them to not understanding the deals fully and relying on the advice of others. For example, many years ago, he was under contract to purchase a 120-unit apartment complex. The deal was complicated with financing involving bonds, low-income tax credits, and other unique sources of capital. Gorman admits that he did not understand the deal fully. He relied on the advice of others who told him it would be a profitable deal, but those individuals all stood to profit from the transaction. Gorman believes that they were advising him with their own agendas in mind.

Before closing, Gorman rightfully got cold feet. He tried to back out even though he stood to lose a large chunk of money at that stage in the transaction, but his attorney advised him that he could be sued for not following through. Ultimately, Gorman went through with the deal, and he lost a substantial amount of money for many years on end until he sold the property recently.

 

2. Failing to Understand the Transaction

Gorman recalls specifically asking his real estate attorney about one key aspect of the transaction, and his attorney could not explain that component of the transaction to him. In hindsight, Gorman realized that if an attorney who works with real estate transactions on a daily basis could not understand the structure, this should have been a red flag.

He warns others never to get involved with land contracts, lease options, bond financing, and other situations that are over their head. Take the time to understand all aspects of the transaction fully before committing to it.

 

3. Relying on Projections

This particular project was a rehabilitation project that involved putting $2.5 million into the property. The rents were below market value with a two-bedroom unit at the time renting for $650. The projection used by underwriting was $750 per month for these units. Gorman’s attorney advised him that the underwriting projections were too aggressive and that they may not be realistic.

Initially, Gorman saw dollar signs and ignored his attorney’s advice. However, he realized as the closing date approached that his attorney may have been right. This realization came too late because Gorman already had $250,000 of hard money invested in the deal. He has learned to use conservative, realistic projections that are based on actual market data.

 

4. Failing to Understand Contract Terminology

Ultimately, the 2008 real estate crisis led Gorman to go into default on the apartment complex. While he was not behind on payments, the lender backed out of the financing. The only option he realistically had was to file for bankruptcy. However, even though the multifamily property was owned in a protected entity, the bankruptcy triggered defaults in other investments that Gorman owned. Essentially, this one bad deal triggered the collapse of his investment portfolio.

 

5. Not Understanding the Tax Implications

In addition to dealing with the ramifications of bankruptcy and losing money on this 120-unit multifamily complex transaction, Dan Gorman was hit with a huge tax bill when he ultimately sold the property 15 years later. While he sold the property for exactly what he paid for it, he realized a net profit of $1.5 million. This was a surprise to him, and he states that he still does not fully understand how the calculation was made. Because of this net profit, however, he is now struggling to find a way to mitigate his tax liability with only a few months left in the tax year.

 

6. Overlooking Building Permits

This is not the only project that has provided Gorman with major life lessons. One of the more recent lessons that he has learned is tied to an office building that he rehabbed. He met with the building inspector and an official from the fire department to discuss his plans for the project, and they both told him to move forward with it. Through a miscommunication, Gorman believed that a permit was not required to do the work. Now, he is backtracking in an attempt to pull together all of the documents related to the permit. Unfortunately, this opened up a can of worms related to maximum occupancy, usage, and more. The project seemed fairly straightforward initially, but it has become overly complicated because he is dealing with the permit application process midstream.

 

Through his investing mistakes, Dan Gorman believes that residential real estate is easier to invest in than commercial real estate, but both require diligence. He is happy to discuss his investing mistakes with others in the hope that they may learn from them. At the same time, he acknowledges that he still has lessons to learn. Nonetheless, the mistakes that he has made have made him a more conservative, cautious investor.

 

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7/13—How to Find Good Investments When Prices Are High and Markets Are Competitive

How to Find Good Investments When Prices Are High and Markets Are Competitive

How’s this for a success story? In just the last five years, Steve O’Brien and his team at Atlanta-based Arcan Capital have acquired more than 20 multifamily properties. Together, these assets are worth more than $300 million. How has Steve, Arcan Capital’s co-founder and chief investment officer, prospered in such a hugely competitive marketplace?

Well, Steve’s boiled his strategies down to four main pieces of advice. These tips should help you get ahead in the exciting but extremely crowded real estate industry.

 

1. Maintain Your Reputation

To start with, Steve stresses how building a stellar reputation takes a long time, but the results are priceless.

In the real estate community, many brokers and sellers know each other well. And many people discuss the firms they’ve worked with openly and candidly.

Therefore, it’s vital that, when you promise to do something, you actually do it. For example, don’t ever make a bid if you’re not sure you can afford it. If you follow through every time, people in the industry will know it soon enough.

Imagine that you bid on a deal, but two other real estate companies place higher bids. If those two companies are new and relatively unknown — or even worse, if their reputations are weaker than yours — it’s very possible that you’ll win that deal despite your lower bid.

 

2. Data, Data, Data

The only way to build a strong reputation is to really know what you’re doing. And the only way to know what you’re doing is to have thorough and accurate data.

Before you bid on a property, learn as much as you can about it. Study the local renting market as well. What are local renting habits like? What are area renters willing to pay for various options?

On top of that, you should be familiar with practically every contractor in the region. How much do they charge? How does their work compare? Which of them provides realistic quotes?

You should also get permission to tour the property with a trusted contractor. That way, you can find out what renovations are needed and how much they’ll cost.

Similarly, get to know as many maintenance professionals in the vicinity as possible. You’ll want to consult with a few of them to see how much it’ll cost each year to maintain the property.

Consequently, you can make data-driven decisions about which properties will pay off and how much to bid for them. You can be sure that many of your competitors won’t make such insightful choices.

You can also impress sellers and potential investors with the facts you discover during your research stage. For instance, it might be obvious that a certain property needs new windows. However, a contractor could tell you exactly what kind of window and what type of glass would be best.

Later on, when you describe those ideal windows to the seller and to people who might make investments, they’ll probably be impressed. They’ll see that you really know your stuff. And, once again, you’ll gain a distinct competitive advantage.

 

3. Be Honest With Investors

Of course, your investors are key to putting your deals together. And they definitely have lots of options when it comes to residential and commercial real estate. That’s why you should always take care to strengthen your investor relations.

If these people believe that you respect them and care about their opinions, they’re much more likely to partner with you again and again. After all, that kind of relationship isn’t necessarily common in the real estate business.

Therefore, be straightforward about your expectations for each deal. Never oversell. If you explain that, due to current market realities, a certain deal might yield lower returns than previous deals, most of your investors will appreciate your honesty.

Likewise, don’t take any investments for granted. Maybe there’s someone who’s been investing with you for a long time, and that person is always enthusiastic about your work. Even so, don’t assume this investor will automatically go along with your next deal. Instead, sell them on it as though you were collaborating for the first time.

In addition, you can use different methods to keep the lines of communication open. Business reports, informational newsletters, and phone calls are all great ways to keep your investors connected and updated, even when you don’t have a deal to pitch.

 

4. Go Your Own Way

Whenever you can, look for properties with less competition for ownership. You might find, for instance, that dozens of firms are trying to buy one multifamily home, yet there’s a multifamily residence nearby with a less competitive amount bidders. If so, consider that less popular alternative.

The second property may need more renovation or maintenance work. Maybe its estimated return on investment isn’t as high as some investors would like. However, you might be able to get it at a low price. And, if you have relationships with contractors and maintenance pros who’ll give you good deals, you could see healthy profits from that purchase.

This approach is known as the blue ocean strategy: seeking discounts and low-demand options in order to claim new slices of the increasingly competitive market.

 

As you can see, Steve O’Brien’s real estate triumphs have nothing to do with luck. Instead, Steve has grown his company through copious research, informed decisions, honest investor relationships, a reputation for reliability, and the occasional quest for less sought-after properties. These strategies can ultimately benefit anyone seeking to develop a competitive edge in their chosen industry.

 

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Steps to Stop Trading Your Time For Money with Kris Benson

Steps to Stop Trading Your Time For Money with Kris Benson

Kris Benson is like many other investors who are getting their feet wet with residential properties. He dreamed of generating enough passive income from a small empire of residential properties to pay the bills. However, on his journey toward making this dream a reality, he discovered a more efficient and effective way to make far more money through real estate investments.

Today, Kris Benson is the CIO for Reliant Investments, which is part of Reliant Real Estate Management. However, his incredible story began many years ago when he was a sales professional for a payroll processing company, ADP.

 

Growing Up on the Fast Track

Kris Benson did not intend to settle down with a wife and kids early in life. An unexpected pregnancy in his early 20s may not have been in the plans, but this was a pivotal moment in his life. This blessing in disguise actually caused Benson to put his nose to the grindstone very early on, and this ultimately took him on a path toward passive investing. In fact, if he has any regrets, it is that he did not start investing in passive income streams even earlier.

He initially worked for ADP, and he later transitioned to a sales job at Intuitive Surgical. Benson worked long hours and had the same thought that so many other people have. He wanted to stop trading his valuable time for money. The solution that he came up with was to build a solid stream of passive income. While Benson could have started a business, he understood that he was not creative enough to walk along that path. Investing in rental properties was the clear option.

 

Amassing a Small Empire of Duplexes

Benson’s initial investment goal was to slowly build a solid portfolio of two-unit residential properties. He figured that if he had 25 buildings that were producing $200 per unit per month, he and his wife could live a comfortable life without the need for a 9-to-5 job. After he had 22 units across 11 properties, however, he realized this plan was not going to work for him. Even with a great management team in place, he did not want to deal with the stressful hassles associated with residential tenants. He also did not want to endure the stress of purchasing many additional duplexes.

He and his wife decided to divest. They ultimately sold all but one of the buildings. The property that they continue to own is one that Benson’s brother currently lives in. At this point, Benson had capital available to invest, and he was looking for a more effective way to generate passive income.

 

Co-Developing an Apartment Complex

Benson made the move that many others make when they gain more experience and have more investment capital. He decided to invest in an apartment complex. While he does not recall where he heard the advice, he attributes this move to the idea that big deals and small deals require the same amount of effort and time. The difference is that you make less money on small deals. Essentially, Benson believed that the return on an apartment complex would be more aligned with his output.

He teamed up with a partner who he knew from his childhood. While his partner was a construction expert, Benson was the capital investor. The pair built a large apartment complex in four phases. Initially, the project required Benson to put out a $200,000 investment. However, a shortfall in planning required him to front another $270,000 after the first phase was complete. When only a quarter of the property was constructed, he was already committed for almost a half-million dollars. However, he says he never thought about not following through with the other three phases. They made up some of the initial phase’s overage on future phases, and Benson recouped the majority of his capital later through refinances.

 

Transitioning to Storage Investments

Finding additional multifamily investment opportunities was a challenge for Benson. Through his research, he decided to pursue self-storage properties. Specifically, the National Association of REIT Data indicated that self-storage properties had a 17% annual return for the 23-year period between 1994 and 2017. This is compared to a 13% annual return for apartment complexes during that same time period.

Kris Benson used a storage industry publication issued by MiniCo to research the top self-storage operators in the country. MiniCo’s publication listed the top 100 operators, and he personally reached out to the top 30 operators on the list to find investment opportunities. This was how he connected with Reliant Investments. Specifically, he met with Todd Allen, who is one of Reliant’s principal partners. Todd was responsible for finding investors, but he preferred to manage operations. With Benson’s strong background in sales, he was the perfect individual to join the team and head up the equity committee.

He proactively structured a deal with them that allowed him to earn equity in the properties for those he assembled investors for. This ultimately transitioned into an extensive amount of passive income for Benson and his wife. On top of that, Benson also joined the company officially as its CIO.

 

Reflecting on the Past

As he reflects on the past, Benson attributes his success to several pivotal points. While he was stressed by his duplexes, he does not regret starting his journey with them. Getting started is often one of the most difficult parts of real estate investments and investing in his duplexes got the wheels moving in the right direction. He also states that his most successful investment to date is the apartment complex. If he were to give advice to a new investor, that advice would be to educate yourself as much as possible. However, you also need to jump in at some point and be prepared to learn more along the way.

 

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Big Goals in the Big Apple With Melissa Jameson

Big Goals in the Big Apple With Melissa Jameson

With big goals for her professional development and real estate portfolio, Melissa Jameson shares how nurturing the growth in others has helped her thrive in both.

 

On the Move

After growing up in Connecticut, Melissa Jameson decided it was time for a total change of scenery. She moved to California to earn an undergraduate degree in political science from the University of San Diego before crossing the continent again to land in Washington, D.C., where she would work on Capitol Hill while also obtaining her master’s degree from George Washington University.

While in Washington, D.C., Melissa earned a job as an advisor to the Department of Justice, where she worked closely with the FBI and DEA on money laundering investigations. She continued to excel in a constantly evolving field, providing investigative support and specialized knowledge to support active federal criminal cases and help the government “follow the money.” That is, until 2014 when an opportunity presented itself to join PricewaterhouseCoopers’ Financial Crimes practice in New York City— somewhere she had always dreamed of living.

 

Becoming a Real Estate Investor

With her new job away from Washington, D.C., she could now focus on other opportunities. A family property was Melissa’s first entry into real estate and where she started developing a genuine interest in the potential of real estate investments for wealth generation.

“I had always been interested in real estate and then ended up with this family property that I decided to renovate and rent out. And as I started to do that, I realized there’s definitely more money to be made in real estate, and I got my feet wet,” Melissa said. “I realized lots of people were making a lot of money in real estate. I can be doing something here, too, even though I’m obviously working a full-time job. I started getting an interest in buying other properties to rent out, so I started actively investing in Atlanta. I also started passively investing, partnering with operators investing in high-growth areas in the U.S.”

 

Keys to Success

As Melissa has continued to grow her real estate portfolio, she realized that many skills fluidly transfer between the corporate world and the world of a real estate investor.

“Having good mentors is really important, and personally, I’m still trying to develop those mentoring relationships in the real estate industry. I have those mentors more on the corporate side, just because I’ve been in the industry for so long,” Melissa shared. “The network and mentors, in particular, can be so helpful because you can bounce ideas off of them and potentially avoid making the same mistakes.”

Learning from the past is another foundational element that drives Melissa’s investment strategy. In her formative years, she didn’t have financial role models in her life. Healthy money management wasn’t practiced or discussed.

Taking the Lead

Today, she is looking ahead and lives her life in a way that positions herself for a secure financial future, focusing on building a portfolio of diverse financial investments, and taking calculated risks.

“If other people can do this, other people are making money off of it; I had that confidence in myself that I can, too,” Melissa said. “I’m not perfect. I’m still learning and making some mistakes along the way, but it’s just that I have that confidence in myself that I can really learn, that I can make the connection and that I can be successful in this industry.”

With confidence comes support, and whether it is in the professional realm or with a team of fellow real estate investors, giving support is a fundamental element of every successful team. For Melissa, it’s essential to how she’s grown and managed her own team to ensure their continuous success.

“I love leading people. I’m really passionate about it because I like to see people grow and develop, and I love mentoring, building relationships, and building that trust,” Melissa reflected. “At the end of the day, we all want to succeed and we all have the same objective, so I want to make my team feel like I really support them and that I’ll do whatever I can to really help them in whatever ways they need.”

 

 

About the Author:

Leslie Chunta is a marketing consultant with nearly 15 years of experience in creating dynamic marketing programs and building brands for startups to enterprise organizations. She has worked agency- and client-side with high-growth companies that include Silicon Valley Bank, JPMorgan Chase, SailPoint, EMC, Spanning Cloud Apps, Ashcroft Capital, Netspend, and Universal Studios. www.thelabcollective.com 

 

 

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Real Estate Lessons From the Ralph Lauren Story

Real Estate Lessons From the Ralph Lauren Story

I have a unique topic to share with you. You might be wondering from the title, what does Ralph Lauren have to do with real estate? Is he a real estate investor? Did he write a real estate book? Not exactly.

I’ve been reading a lot of biographies lately. Greenlights by Matthew McConaughey, Can’t Hurt Me by David Goggins, and most recently the story of Ralph Lauren: Genuine, Authentic by Michael Gross. The reason I wrote this blog is to highlight a few parallels between Ralph Lauren’s story (the story of building his fashion brand) and investing in real estate. My hope is that you find these lessons impactful and inspirational.

Before we begin, let me ask you a question: When you think about long-term investing, what comes to mind? For me, I think of building something generational. Some people use the term generational wealth.

Said another way, what does money mean to you? If you had a billion dollars in your bank account tomorrow, what does it mean? What would you convert the money into? Would you travel more? Spend more time with family? Be more charitable? Buy exotic cars and houses? Everybody is different — but what would you do?

These are big questions, so we will come back to them at the end of the blog. For now, let’s explore some of the takeaways from Ralph Lauren’s story and relate them to real estate.

 

Leverage Other People’s Expertise to Build a Team

Ralph Lauren is a master at building teams. Did you know Ralph Lauren never went to design school? He didn’t go to college to be a fabric or clothing designer. He doesn’t even do his own sketches for design concepts. What’s the lesson?

Ralph leverages a team of experts who work at their own highest and best capacity to run his company and create designs. Ralph has a gift for finding inspiration and he’s a visionary; in other words, he has the “eye” for design. I’m not underplaying his talent; I am highlighting that he’s built a team and he focuses on his own highest and best potential. He outsources the majority of the other tasks to free up his time.

You and I can do the same in real estate. Take investing in apartment syndication for example. If you are not the expert in all areas of real estate or do not wish to do all the work, you can simply partner with teams who are experts in underwriting, finding off-market deals, property management, construction, and technical analysis. You might consider this investment model so you can focus on your highest and best potential. That’s the lesson; real estate and business are team sports. What role do you want to play in the team? You have a choice.

 

Think Alternatively

Ralph Lauren went against the grain in terms of the fashion industry. In the 1960s, he took a look at what everyone else was doing and he chose to go in a different direction. This same concept can be applied to investing. Most people are investing based on their parents’ advice, mainstream marketing, billboards, and TV advertisements. These outlets mostly suggest that you follow the herd and turn your money over to Wall Street. In other words, put your money in a 401(k) or IRA, and buy annuities, stocks, bonds, and mutual funds. There’s nothing inherently wrong with these investments. As many of you know, I used to work for a very large, well-known brokerage firm to learn this type of investing and stack it up against real estate. You may find, as I did, that there are sometimes superior investment vehicles in the alternative sector.

To think “alternatively” in terms of investing is to think private real estate, private businesses, precious metals, oil and gas master limited partnerships, and so on — typically, investments that are not publicly traded. There are thousands of investment options outside the world of Wall Street.

Ralph Lauren never set out to be a “grand designer.” He didn’t say to himself at an early age, “I’m going to launch a mega clothing line one day.” In fact, he refers to himself and his company as “anti-fashion.” Going against the grain, thinking alternatively, and finding your own way can often be the best approach. As poet Robert Frost might add, “I took the [road] less traveled by, and that has made all the difference.”

 

Start Simple, Then Build From Your Foundation — the Key Is to Start

Ralph Lauren started with a simple idea. He was observing men’s fashion in the 1960s. At the time (generally speaking), everybody was conforming to a standard gray or black suit and black or neutral colored tie. Most everyone shopped at the big box retailers, and there wasn’t much of a “designer’s touch” in men’s fashion.

Ralph started his business by creating a men’s necktie. In the 1960s, men’s ties were typically two-and-a-half inches wide. Skinny ties — think about the TV show Mad Men. Ralph decided to mix things up and he created a four-inch-wide necktie, nearly twice as wide as the industry standard. He also added vibrant colors, patterns, and designs to top it off. Bloomingdale’s (a major NYC retailer) took a gamble and partnered with Ralph Lauren and, lo and behold, the neckties sold. Then customers started realizing, “If I have this necktie that’s vibrant and colorful, I need a new dress shirt that goes with it.” So, Ralph started making men’s dress shirts. Then his customers had a new shirt and new tie — why, they needed a new suit to go with them, right? He expanded into the suit business. And so it began.

As we know, Ralph Lauren today has expanded into women’s clothing, home décor, perfumes and colognes, activewear, watches, and the list goes on. It has become a mega-company, but it has taken decades to get there. The lesson is to take action; start with a single step forward.

How does one begin investing in real estate? Some prefer to start with buying shares of a publicly traded REIT (Real Estate Investment Trust) for as little as $10 per share. I use that number for example purposes, of course — each REIT will be priced differently. Some may be $10 a share, $20 per share, $100 per share; it depends on the company. The point is, it doesn’t take millions of dollars to get started. In fact, this is what my nephews are doing to start their passive income journey, and they’re starting in their teenage years, which is incredible… if they keep it going.

You could invest in single-family homes. This might require $25,000 to $50,000 in the form of a down payment. You could house hack (rent spare bedrooms), flip it, turn it into a vacation rental, or purchase a buy-and-hold rental. You could also invest in real estate syndications as I do. You may have to come up with $50,000 to $100,000 to invest in a private placement offering; however, the passive benefits may be worth it. The bottom line is that everybody is different. Everybody has a different risk tolerance. Do what makes sense to you, start with what you’re comfortable with, evaluate your risk tolerance, and leverage licensed advisors if you need help making a decision or strategizing.

The takeaway is that building a business or investing in real estate is not an overnight success. It can take decades to get where you want to be. The key is to start your foundation, then build from your foundation.

 

Setbacks Are Part of Life — Be a Realist

This next lesson is not as pleasant, but it is necessary to discuss. Setbacks are part of life. There was a point in the 1970s when Ralph Lauren almost lost the business and nearly went bankrupt. It came at a point of rapid expansion. You would think from the outside looking in, that the company was doing great, but the inventory, overhead, and payroll began to exceed the cash flow of the business.

Hopefully, if you and I are investing in cash-flowing real estate, we’re not taking on such risk. At least not that of a venture capitalist running a startup company. There will always be hurdles and setbacks with investing, in business, and in life. There’s always a recession around the corner and not every deal you invest in is going to be a home run. In fact, you might lose money in some deals. That is why diversification is so important. Just be a realist. In other words, you and I can’t bank on consistent 10–15 percent returns for the next 50 years; it doesn’t work that way. Since we know there will be setbacks, let’s plan for them. As Warren Buffett’s business partner Charlie Munger says, “Prepare for the worst, hope for the best.” He refers to himself as a “cheerful pessimist.” Excellent billionaire advice.

 

Design Your Own Path and Live It

The final lesson that I want to share with you is to design your own path and live it. This is one of the most inspirational takeaways from Ralph Lauren’s story. What did he actually do? Ralph Lauren created a lifestyle image for his brand, similar to that of a Hollywood film. He designed an imaginary lifestyle of romance, freedom, abundance, optimism, and a vision of the American Dream, and he sold that vision to his customers. The most inspiring part came after decades of creating this fantasy lifestyle. Ralph began living that lifestyle in real life.

If you have ever seen Ralph Lauren, he wears his own brand, he lives in the houses you see in the photoshoots, and he drives the collector cars you see in the ads. Genuine and authentic. That is the beauty of it all, and also why I’m so passionate about teaching you and others about the benefits of investing for passive income. The purpose is not about money, it is about designing the life that you want to live.

At the beginning of this blog, we explored what money means to you. What would you do if you had time freedom? In other words, if you freed up your time by generating more passive income each month compared to your monthly expenses. I encourage you to get started on your passive income journey if you haven’t already. Get started with designing your life. A life on your terms.

Thank you for tuning in and reading this blog. I don’t blog much anymore, but when I do, it comes from inspiration, passion, and the desire to help you achieve your goals. I hope you found these takeaways and lessons inspirational, impactful and valuable. Until next time…

 

 

To Your Success,

Travis Watts

 

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Commercial Real Estate Tips for Investors Ready to Retire From Their Full-Time Jobs

Commercial Real Estate Tips for Investors Ready to Retire From Their Full-Time Jobs

Many people who invest in commercial real estate do so in hopes that they’ll be able to quit their full-time job. While your day job may fund your initial investments, the promise of a passive income is enticing. Anna Kelley is a real estate investor who made this dream happen. She is also a wife, mother, and author. Wearing all those hats means that her time is limited. She has perfected the art of achieving her retirement goals through real estate investing.

That’s not to say that investing in commercial real estate is easy. You have to put in the work, which involves planning and executing your moves intelligently. Her story uncovers some excellent tips for a commercial real estate investor who wants to transition away from their full-time job.

Start Small

Thinking big is a great idea. But starting small can help you get experience so that you can work out the kinks without bottoming out.

One of the best ways to begin the investment strategy that will take you to retirement is to buy property that you can live in. This would need to be a multi-use or multifamily building. If you can cover your mortgage with the rental fees for the areas that you don’t live in, you’ll save thousands of dollars a year. Then you can put the money that you’re saving on your mortgage into new investments.

Network

Talk to people in the areas where you’d like to buy property. You might find unlisted opportunities. You’ll make sellers aware that you’re in the market. You never know when an opening for a lucrative deal will arise. As you make more acquaintances, word of mouth will help you find new prospects.

Negotiate Better

Negotiating doesn’t mean low-balling people or making senseless offers. It involves poring over numbers, knowing your budget, and understanding what adds value.

Some factors to consider include:
• Rental history
• Current tenants
• Environmental concerns
• Reasons that the owner is selling
• What the competition is doing

One way to test the waters is to discuss a lower offer with the broker. If the owner is willing to drop the price, you know that they have wiggle room. Be patient and see if the listing price drops over time. Then, make your lower offer. It’s more likely to be accepted.

Researching the factors above and knowing the market will help you make knowledgeable points. If you present a clear case for the property’s value, you’re more likely to be taken seriously.

Don’t Chase Cash Flow in the Wrong Market

The research that you undertake to make negotiations will help you make effective decisions. If a property doesn’t have great cash flow now, consider what it would take to improve it. You can’t always add value if the market isn’t favorable.

Also, remember that no one cares about your cash flow more than you. You may think that you can wash your hands of a less-than-perfect deal by hiring a management company to fill the space, collect rent, and reduce expenses. But you’ll likely spend more time and money than it’s worth to keep things profitable.

Consider Syndication

You don’t have to do it alone. Owning a larger property can deliver a larger passive income. But you can’t benefit from that if you can’t afford it.

Syndication allows you to merge resources, skills, and capital. As a syndicator, you can put in time and effort instead of capital. Your investors will provide you with the majority of the funds to launch the investment. You may receive an acquisition fee and a portion of the return when you sell. If you don’t use a third-party management company, you can ask for a property management fee.

Add Value

Most people think about adding value by enhancing the property physically. But flipping a property isn’t just about the upfit. You can achieve a similar result by looking at the operations.

Can you reduce expenses? Can you raise rents? Can you fill vacancies? You can often add value to a commercial property just by managing it more efficiently.

Don’t Underestimate Rehab Costs

It’s important to estimate repair expenses when calculating your budget and negotiating a purchase price. Structural issues aren’t always obvious, though. Some buildings are prone to problems that crop up down the road even if they’re not evident at the time of the sale.

This is where networking and research come in. Work with inspectors, realtors, and contractors who are familiar with the area. They’ll give you a good idea of what to look for now and what to expect in the future. You’ll be able to factor in the expenses associated with those rehab costs to come up with an appropriate offer.

Maintain a Strong Vision

Although commercial real estate can provide you with passive income, you can’t sleep through the process. It takes a great deal of work, determination, and perseverance to achieve your retirement goals. When obstacles arise, your vision will help you press on.

Your vision should include your business plan, which combines a structure for your business operations. It will include your goals and the framework that you’ll use to achieve them. But your vision should also take into account the reasons that you’re putting in the effort. Knowing your “why” will help you endure when the “what” becomes challenging.

A vision doesn’t have to be set in stone. As you progress, you’ll learn more. You may adjust your vision as necessary as you enhance your cash flow, develop more equity, and build capital.

If you plan to retire on your commercial property investments, you should focus on consistent cash flow, low vacancy risk, and optimal leasing contracts. You may not be able to retire today, but creating a solid vision that’s based on research and market analysis can help you execute your business plan and quit your full-time job.

 

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Boost Your Investment Growth in 2022 With the Best Ever Conference

Boost Your Investment Growth in 2022 With the Best Ever Conference

It’s official — the Best Ever Conference is going to be back in person and better than ever in 2022 in Denver, Colorado.

Attendees will have the opportunity to take full advantage of engaging keynotes, workshops, and networking with top real estate investors and innovators, all while forming long-lasting relationships with other high-quality attendees.

Investors eager to boost their growth in 2022 will want to mark their calendars for this game-changing event.

We asked Hunter Thompson, Managing Principal of Asym Capital, to share his thoughts on the Best Ever Conference. “There’s a part of me that wants to try to say, ‘It isn’t REALLY the best ever!’ but, you know what — it actually is,” he said. “When it comes to the caliber of the speakers, the networking opportunities, and the overall energy of the event, it just might be the ‘Best Ever!’”

Hunter added, “If I’m going to take the time out of my schedule to travel to a conference, it needs to be a five-star experience. Best Ever never fails to deliver on that requirement, which is why I attend every year.”

Purchasing a ticket today will allow attendees access to monthly virtual group discussions known as Mini Masterminds, which have already started. These Mini Masterminds provide the opportunity to immediately begin connecting with other attendees and continuously build relationships prior to meeting in person at the conference.

The BEC three-day agenda is going to be packed with next-level value and opportunities for growth. Not one day will be the same.

Want to elevate the experience? There is a limited amount of VIP tickets available. These tickets include everything in General Admission, plus additional exclusive opportunities to meet conference speakers, attend private social events, and more.

To purchase your ticket today, visit besteverconference.com.

 

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The Path to Profit: From Airbnb to Commercial Real Estate Enterprise With Rock Thomas

The Path to Profit: From Airbnb to Real Estate Enterprise With Rock Thomas

If you’re an aspiring property investor but are not ready to buy, you might think you should wait. With the right strategy, however, you can start investing now. We spoke with Montreal-based investor Arvin “Rock” Thomas, who shared his investment wisdom about an opportunity waiting in plain sight.

 

About Rock Thomas

Rock Thomas has built a real estate enterprise that earns over one billion dollars yearly. He has steadily grown the business despite economic and personal challenges. As a neuro-linguistic programming (NLP) practitioner and champion of motivational thought, Rock models a remarkable level of self-discipline.

 

Start in real estate without purchasing property.

Rock stumbled into a lucrative answer to this conundrum when renting out his house while traveling. To his surprise, people paid up to $1,000 per night to stay in his residence located in a ski area. He soon realized Airbnb was a path to profiting from real estate you don’t own.

Unlike multifamily or apartment investing, a short-term rental venture doesn’t require a steep initial investment. The key is to find a residential property in a desirable location. Then, you lease the property from a willing owner and manage the rental as a business.

Your upfront costs include the lease and furnishing the unit. Expect ongoing expenses for utilities and maintenance. Unless you can manage it yourself, you’ll want to budget for cleaning and repair experts.

If Airbnb is potentially so lucrative, why isn’t everyone doing it? Rock stresses the importance of treating it as a business and employing strategy and humility.

To succeed, you want to mind these steps:

  • Find owners willing to let you sublease.
  • Do your homework on the market.
  • Partner with more experienced investors.
  • Master your mind.

 

Get owners on board.

How do you convince a property owner to let you lease the unit for your short-term rental business? Rock notes you should expect to knock on many doors and refine your pitch as you go. Your primary selling point is that the arrangement benefits owners.

As the lessee, you’ll keep the unit in top condition and curate all occupants. You’ll handle normal wear and tear, turnover, and minor repairs without disturbing the landlord. The landlord gains a stress-free experience with guaranteed rent and pristine property.

To successfully woo owners, focus on extracting lessons learned from each encounter. What went well, and what fell flat? You’ll improve your transactions by objectively evaluating them and committing to improving.

 

Do your homework.

Rock emphasizes that success means doing your homework on properties and having a team and system in place. As with any property, location is critical. Units close to public transportation, colleges, and hospitals will attract renters. Unless you have trusted local partners, start near your home so you can manage the rental in person.

You’ll also want to consider the timing. Long weekends are the most popular, and you may struggle to fill the middle of the week. However, urban properties close to employment and tourist spots can draw steady customers.

 

Know your data.

To know what you’re taking on financially, you need to run the numbers. Rock and his team analyze opportunities using a sophisticated system not available to most people. The system helps set daily prices based on fluctuating demand. If you’re considering a property, the software can provide projection data to help you decide.

What if you’re crunching your own data? Rock recommends checking similar listings neighboring your property’s location. Enter different date ranges and other variables to evaluate price and demand. You may be tempted to price low to get a renter, but you could leave hundreds or even thousands on the table by not educating yourself first.

 

Partner with experience.

Rock learned this pricing lesson firsthand, along with the importance of mentorship, when beginning investing. He rented his house for $300 per night to an eager renter and passed on the investing course his friend was teaching. The actual nightly value was $600 to $1,000, so Rock left far more money on the table than the cost of the course.

Rock’s takeaway? Invest in learning from experts, and you’ll make fewer mistakes and escalate your game.

If you’re not handy with maintenance and repair, you’ll want a dependable maintenance expert on call. Handling minor repairs promptly is essential to an excellent tenant experience and fast unit turnover.

Consider how you’ll address common issues such as renters locking themselves out in the middle of the night. For example, remote-controlled keyless entry lets you unlock the front door or garage from wherever you are. In addition, make sure your renters can quickly reach you at any time for home emergencies.

 

Mind your headspace.

As a successful business owner dedicated to personal development, Rock has some candid words of wisdom for the rest of us. Growing up on a farm taught him resourcefulness, a fierce work ethic, and the value of a morning routine.

He notes that many people expend far more energy wishing for different circumstances than doing anything about them. So instead of having gratitude for what the universe has provided, people send the message that its bounty isn’t good enough. As a result, they miss opportunities and live joylessly.

If you aren’t doing so already, stick with a beneficial morning routine to propel the day’s success. For example, Rock starts his day with pushups to remind himself that his mind controls his body.

The bottom line is that to improve your professional performance, first control your mind. As a new investor, you want to start with good data and self-management basics. This way, you’ll prime your short-term rental venture for long-term success.

 

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7 Real Estate Experts on What to Do if There Is a Housing Market Crash in 2022

7 Real Estate Experts on What to Do if There Is a Housing Market Crash in 2022

For realtors and investors, planning ahead is one of those things that separates winners from losers. While odds are that we won’t witness a housing market crash in 2022, what would you do if it did happen?

This article is a sort of fear-setting or worst-case-scenario approach to real estate market predictions. What 2020 clearly showed us is that it’s usually hard to predict the ebbs and flows of real estate. No one could have thought there would be an influx of millennial first-time homebuyers pouncing on homes while the coronavirus vaccine was still in view. Real estate activity in 2020 had a significant effect on the U.S. economy’s rebound. So, I asked some real estate experts the question: If the housing market crashes in 2022, how would you keep your business afloat? Here are the responses I received.

 

Jeb Smith, Broker Associate and GRI with Coldwell Banker Realty in Huntington Beach

“I want to be clear that I don’t believe there will be a ‘housing market crash’ in 2022, but if the market were to change, I would do exactly what I’ve done my entire career, and that’s focus on relationships. As a realtor who receives the majority of his business from past clients, friends, and family, I would continue to nurture those relationships and be a source of information to help guide them through the tough times ahead.

“At the same time, I have experience in selling foreclosures in the last housing debacle and would work on redeveloping those relationships to take advantage of any new opportunities that could arise. I don’t believe you need to change your business model entirely if you’ve been focused on the right things the whole time, so I would just continue to focus on those people that know me, like me, and trust me, and things will be just fine.”

 

Ken McElroy, Real Estate Analyst and Investor

According to Ken, there are four main opportunities for investors right now in the housing market:

 

1. Cost to Build vs. Cost to Buy

“Let me give you an example: Right now we are in the process of buying a property in Katy, Texas. We’re buying two apartment complexes of 648 units in Katy and paying $73 million for both projects. That’s under $130,000 per unit, which equates to $120–$130 per foot. So, I’m buying a property at well below the cost to build. If I was to build another property right next door to that property, it would be well over $200 per foot. In Phoenix, that same exact property we bought in Katy, Texas will cost a little over $200,000 a unit. And of course, we went down to Katy because the rents are not that much different because the property is right across the street from the Texas Medical Center.”

In other words, give more weight to locations where buying real estate is comparatively cheaper than building — employ considerable due diligence.

 

2. Supply vs. Demand

“Take a look at the supply — where are people going? What’s the occupancy? If occupancy is really high in an area or about ready to be high because the area is growing, then that means that your rental demand is going to be there, and rents will grow like we just saw for the last 10 years in Austin, Texas.”

 

3. Follow the People

“People vote with their pocketbooks and their feet — the rider trucks, the U-Hauls, etc. Florida, Texas, and Arizona are good markets right now. But it’s very hard to buy properties in many places because people are moving there right now. And you’re going to see rental rates go up in these places because people are buying properties for investment and renting them for the long term.”

 

4. Cash Flow vs. Capital Gain

“Don’t buy properties for capital gains. This is not the time, for example, to buy a house for $300K and flip it for $400K. You want to make it cash flow. You want to use the strong rental rates so that whatever you buy will put cash in your pocket over the long term and you’re building a primarily tax-free passive income.”

 

Kristina Morales, Realtor, KristinaMorales.com

“Regardless of the condition of the housing market, I am confident that my business will stay afloat. The market is currently hot. However, it is hot for sellers, not buyers. So, when it shifts to a buyer’s market, it will be a hot market for buyers.

“For me, there are a few key things that I plan on doing to position my business for sustainable success. The first key to my business is to continue to invest in the right places — systems, automation, marketing, and people.

“Another key is anticipating market shifts and being nimble enough to skill up and prepare for the new market conditions. For example, if we find ourselves in a market where short sales become prevalent, then I will be sure to prepare myself for this environment.

“The last key is to continually innovate. The client experience is the number-one driving force in my success, and constantly trying to innovate to improve and deliver value to my clients is essential.”

 

Bill Gassett, Realtor and Owner of Maximum Real Estate Exposure

“When markets correct themselves, it is important for agents to be ready to adjust. It is very difficult to go from having to do little work to sell a house to all of a sudden having very few people to work with. In the last significant real estate downturn from 2007 to 2012, there were significant hardships. Numerous homeowners lost substantial equity in their homes. The economy was awful, and people were losing their jobs.

“This led to many financial hardships including foreclosure. As an agent, I began to notice fairly quickly there was a demand for someone who could help homeowners short sell their property rather than letting it go to foreclosure. To keep my business running full steam ahead, I became a short-sale expert.

“While other agents were floundering, my business skyrocketed. Doing short sales in addition to my traditional business, I was doing 80–100 transaction sides by myself. Needless to say, these were some of the best-earning years of my career.

“All great real estate agents need to be able to adjust to their environment. Whether that means learning something new, investing more money back into their business, or doing something different. Change is inevitable. A real estate correction will happen again. It always does. Agents who can recognize this early on will be able to put themselves in a better position not to skip a beat.”

 

Marina Vaamonde, Real Estate Investor, HouseCashin.com

“Experienced housing investors realize that the economy works in cycles and that they have to prepare for slow times. In tough times, cash is definitely king. Investors who recently got into the market have probably not had time to set aside reserves. Even some experienced investors ignore the need for adequate reserves. They had better start now.

“High prices make this a good time to sell properties that you previously bought at lower prices and have held onto. Investors with a sizable portfolio should consider selling some assets to increase their bankroll. Short-term investors with properties that are market-ready are in a good position. If the rapid acceleration of housing prices results in a crash, there will be opportunities for those who have cash to spend.

“Decreased demand will probably not last long. There was already a housing shortage prior to the pandemic. According to Freddie Mac, the U.S. had a housing shortage in 2018 of 2.5 million units. With the right preparation now, a housing investor will still be in business if the housing market declines.”

 

Aleksandr Pritsker, Realtor and Founder of Team Blackstar at eXp Realty

“Realistically speaking, if there’s a market crash, that means investors will start coming in and buying up everything as per previous market crashes. I always make sure to keep my business on a steady diet of all types of buyers and sellers, because you never know what type of market it will be. So, I try to make sure that I’m fully prepared for any market scenario and have the right contacts to be able to thrive and succeed in any market that may come up. You never know what tomorrow will bring, but you always have to surround yourself with the right business people to keep you going no matter what the situation is.”

 

Jordon Scrinko, Realtor, precondo.ca

“The great thing about real estate, in general, is that transactions occur regardless of price action. People have to buy and sell homes for a number of reasons — jobs, relocation, upsizing, downsizing, etc. My experience suggests that in a down market, sellers flock to the realtors who really know their market and produce results, rather than in a frothy market where any realtor will do the trick. Product knowledge is key in a down market.”

 

What is a housing market bubble?

When there’s limited supply and rising demand due to speculation or a deregulated real estate financing market, we have a housing bubble. It appears that currently, we’re in a housing bubble as home buyers overpay on homes in hot markets and investors compete with cash on overpriced homes. A housing bubble typically lasts for four to five years.

According to Wikipedia, “Bubbles in housing markets are more critical than stock market bubbles. Historically, equity price busts occur on average every 13 years, last for 2.5 years, and result in about 4 percent loss in GDP. Housing price busts are less frequent, but last nearly twice as long and lead to output losses that are twice as large (IMF World Economic Outlook, 2003).”

Eventually, price growth rises to a point where there isn’t a demand to sustain it, and it stagnates or falls — i.e., a sharp drop in prices or a housing bubble burst.

 

Will the housing market crash in 2022?

A recent Reuters poll of 40 housing analysts suggested that house values in the U.S. will rise more slowly in 2022. The surveyed analysts estimated that values would rise by 10.6% this year, followed by a gain of 5.6% in 2022. According to the Reuters report: “Beyond this year, U.S. house prices were forecast to moderate and average 5.6% growth next year and 4.0% in 2023.”

Experts believe we’ll see the high home price growth rates reduce to near-normal levels in 2022 and 2023. Another reason why there is probably not going to be a housing market crash in 2022 is that there have been tighter lending standards. A major reason for the 2007/2008 crash was that there was a high rate of mortgage fraud. The mortgage denial rate halved between 1997 and 2003. The cost of lending increased, and the federal reserve loosely supervised banks and lenders, leading to price corrections in many markets. The culmination of these things led to a housing bubble burst.

This led to hundreds of thousands of homes going into foreclosure, multiple subprime lenders declaring bankruptcy, and the real estate market requiring federal bailouts. Based on a survey of 5000 realtors by real estate MarTech platform Real Estate Bees, 56.6% of realtors don’t believe we’ll witness the same kind of foreclosure and short sale swamp that was witnessed in 2008. On the mortgage front, we don’t see the same kind of indiscriminate lending being practiced in the face of new legislation and federal oversight. Yet, there is still uncertainty, since “whatever goes up must come down.” But based on the facts, the housing market crash isn’t about to crash in 2022.

 

Final Thoughts

The key to navigating a housing market crash is having a good strategy in place. During the 2008 housing market crash, realtors and real estate investors who embraced innovative marketing strategies grew their businesses even while the overall market declined. While a housing market crash isn’t expected in 2022, it’s still a good idea to plan for every eventuality.

 

 

About the Author:

Agnes A Gaddis is a writer for Inman News, Influencive, and the TSAHC (Texas State Affordable Housing Corporation). She has over 7 years of experience writing for the real estate industry. Connect with her on Twitter: @Alanagaddis

 

 

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Are You Asking the Right Questions When It Comes to Private Investments?

Are You Asking the Right Questions When It Comes to Your Private Investments?

I am not much for sizzle, glamour, or sensational TV. However, now and again my teenage daughter will put something in front of me that grabs my attention. Have you seen the Nightbirde ditty from America’s Got Talent on YouTube? You should take a moment; it is touching. When competing as a singer on AGT, artist Jane is asked about her life. Her answers are jarring and painful. What follows is amazing.

This grabbed my attention because, without the panelists’ questions of the artist, the performance would have been sensational. But within the context of Jane’s life circumstances, her performance was beautifully profound. My point? The right questions allowed the audience to experience the strength of an undaunted human spirit mired in the most challenging tragedies of human life.

 

Asking the Right Questions

Hitting closer to home, you too must ask the right questions related to your private investments (think self-storage, multifamily, and industrial). The art of finding the right question is critical as you determine value and find facts and truth.

As you approach investment opportunities, you face a significant risk because your assumptions about how the investment will function might not be accurate. Oftentimes in life, the subject matter is awfully complex. How are we to know the right answer when we see it if our assumptions are flawed?

I will return to this point at the end of this article, but let me stress this again: If the assumptions we make about how the asset will function are invalid, we face a meaningful risk in the world of private investments.

 

Unpacking the World of Private Investments

My dear wife Melissa works at a biotech company. When she talks to her colleagues, I do not have a clue what they are talking about other than they are trying to make drugs that cure cancer. Recently at a post-COVID gathering with friends, I started talking about prohibited transactions in IRAs. Melissa gently pulled me out of the weeds, reminding me that a subject matter that is common ground is a better place to spend time socially.

Thank goodness I married up and can rely on her to be my guardrail in life. She was spot on and is better at reading social cues than I am. I was off in the weeds on a topic nuanced with smart-sounding 20-dollar words, enjoying myself as I put on a clinic of technical precision and accuracy. Everybody else was thinking, What a dork.”

I mention this because many areas of life are specialized. And not just a little. The world of private investments can be one of these areas. Let’s focus on a topic that is often confusing to investors and packed with 20-dollar words. Just as Melissa’s world of oncology is a maze of SOPs, tangled multinational partnerships, and real people who are dealing with cancer, the world of private investments also needs to be understood, evaluated, and unpacked.

 

The “Safe” Investments That Led to the Great Recession

Back in the ’80s and ’90s at banks and brokerage firms, investors frequently purchase mortgage-backed bonds. These bonds were called Ginnie Mae, Freddie Mac, and Fannie Mae bonds. These bonds are still around today, but the shine partially faded due to the Great Recession.

Remember 13 years ago (2008–2010) when we first heard about TARP (Troubled Asset Relief Program) from Hank Paulson? He was our Secretary of the Treasury at the time, as well as the former Goldman Sachs Chairman and CEO.

Back then the mortgages were packaged and sold as presumably safe investments. What we discovered in the great recession was that these packaged, mortgage-backed securities were not actually the high-quality collection of mortgages they were presumed to be. Frankly, they contained poisonous high-risk mortgages that subsequently defaulted. Think Countrywide Financial, civil fraud, and Angelo Mozilo. Creepy stuff.

Remember that home mortgages are assets that are bought and sold by various banks, institutions, and entities as their marketability provides the liquidity needed by the underwriter. The underwriting entity can package a tranche of home loans and sell them into the market and go back to new borrowers to underwrite additional loans, then rinse and repeat.

 

Chasing Cash Flow

Investors viewed these packaged loan portfolios as reasonable and safe assets for investment. Investors would frequently purchase GNMA bonds (often referred to as Ginnie Mae) with the anticipation of using the cash flow provided by the asset to service lifestyle needs.

Where it gets tricky for investors is when a mortgage in the tranche is refinanced. Think about it — when a mortgage is refinanced, the lender is repaid their principal as a new lender now carries the note. In the context of a GNMA bond, the investor receives a portion of their original principal back as the borrower is no longer paying interest since the debt has been paid.

To the investor, the sum of the monthly cash flow is higher than the bond’s anticipated yield due to mortgages in the tranche being refinanced. But because the principal was mixed in with the interest payment on the bond, the investor did not care. They just knew they liked the cash flow, and the cash flow was relatively high. Until that is, they realized the remaining principal was less than what was originally invested.

That was when it got tricky. If you expected to receive a payoff of $50,000 at the maturity of the bond, which equaled what you invested, you would be disappointed when you received something less.

 

Your Capital Account

Some private investment syndicators apply a similar approach when accounting for the invested principal. Here is some terminology to be watchful of. Not that the following is wrong, it is just a distinct way of handling things:

“Any capital that is returned on the aggregate is considered a return of capital.”

What this means is that your capital account will be diminished during the life of the investment. That is not to say that your ownership is diminished — just your capital account. So, if you invest $50,000 in a deal with the assumption that you will participate pro rata in the gains at the end of the deal, plus receive your original principal back, you will be disappointed.

In the above scenario, you will most definitely participate in the gains on the investment as your ownership does not change based on the balance of your capital account. It is just that, because your principal is being returned to you during the life of the investment, you will not have a singular event where you receive the original amount invested being returned to you.

Additionally, your preferred return, if contingent on the balance of your capital account, will cash flow less to you each month/quarter based on the decreasing balance of your capital account. This may be significant. Admittedly, cash will build more quickly in an investment where the burden of preferred payments declines. Your ownership remains the same, so you eventually get the bucks. Only you can determine which you prefer.

 

Thinking Beyond the IRR

Remember that the Internal Rate of Return (IRR) calculation of your investment is only one method for measuring performance. Strong IRR numbers can be impacted by providing a return of principal early on. I feel the truest measure of performance of an investment is the equity multiple within the context of the number of years for the life of the investment. In other words, an equity multiple of 2 within 5 years tells me almost everything I want to know. An IRR of 18 only tells me part of what I want to know.

 

Final Thoughts

Now, please re-read the second paragraph of this article. My advice? Before you talk with an investor relations representative about a private investment, compile a list of your assumptions, and during your conversation, ask the representative to validate or contradict those assumptions.

Investors make their best decisions when they are well informed. Talk to your friends and ask for their advice. Spread your investments out in position sizes of 2% to at most 10% of your net worth, and diversify by year of maturity, type of asset, and geographic location of the investment.

 

All my best as you manage the tension between risk and return!

 

 

About the Author:

Ted Greene is part of the Investor Relations team at Spartan Investment Group. Spartan syndicates self-storage assets for investment. Ted has 24 years of experience in the financial services industry as an investment advisor and Chief Compliance Officer. Ted can be found on LinkedIn at www.linkedin.com/in/ted-greene-dontbeafraid or ted@spartan-investors.com.

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6 Tips to Succeed in Uncertain Times

6 Tips to Succeed in Uncertain Times

These have been uncertain times over the past year-plus, and they have made the act of investing in apartment properties much more unpredictable than before. Although there will always be demand for homes, the value of properties such as these will tend to fluctuate even more during uncertain times.

One of the best things that an active investor can do upon investing in single-family apartments and engaging in multifamily investing is taking a close look at what the competition is doing.

For example, consider all of the ways that you can simplify the renting process for the prospective renter. If you can place the entire process online, from providing basic information about your rentals to the signing of a lease, that would be preferred. However, if that is not possible, whether permanently or temporarily, make as much of it as easy to research and complete as possible.

 

Visuals

Having photographs of the property both inside and out is a must-have. Probably around 25 would be the best balance of not too few and not too many.

In addition, consider offering virtual walkthroughs to allow your virtual visitor to experience their prospective new home more fully without needing to leave their screen. This allows them to either be sold on it on the spot or be intrigued enough to want to learn more or see it in person. This can be done through one or more videos or through a more immersive walkthrough experience.

Of course, these online visuals have become especially important over the past year-plus as so many have felt that it is not in their best interest to actually come on-site unless they must. A lack of a virtual walkthrough or a poorly put-together one can turn off prospective renters, particularly if your competition is offering this feature.

Regardless of what visuals you are providing, keep in mind that prospective renters will also want some visuals of what the neighborhood is like and what is nearby. Is it near a park? What is the view like from its windows? As is commonly known among those involved in apartment investing, location is one of the most important features that renters consider.

You may also want to consider uploading a drone-flyover video.

 

Thorough Listings

Another step that you should take as an active investor in these types of properties is being thorough in the text of the listings for each place you own. Well-written, engaging text that both educates and draws in the visitor is preferred. At a minimum, you want some prose there. Not only is this essential to draw the reader in, but it is also important for SEO-related reasons.

Regardless, make sure to include all of the necessary specifics within the listing, such as its price, location, number of bedrooms, type of flooring, if it includes a balcony, if pets are allowed, how much a security deposit would be, and if utility costs would be included in the rent or paid for separately.

This limits the need for potential renters to contact you with questions, saving time for yourself and your staff. It also removes what could be a mental stumbling block that may cause them to move on and consider different properties to rent.

 

Applying, Being Screened, and Completing a Lease

Active investing at a high level also means that you should make the application, screening, and lease completion process as simple as possible. Group those steps together as part of a procedure on your website or, in lieu of that, otherwise simplify them as much as possible.

One of the benefits of investing in a significant number of apartment properties is that you can have one application take care of the application process for all of them. The same goes for screening; the more places that a prospective renter can be simultaneously screened for, the more apt they will be to ultimately decide to rent one that they have been approved for.

The lease-signing step of the process might be the most difficult one to incorporate into your website, and this may require the prospective renter to instead make a trip to your property, but do consider doing this if you can.

 

Metrics

As you progress in this active investing opportunity, it is important to keep abreast of your metrics. For example, keep up to date on how many of your visits turn into applications and, of those, rental agreements. See how those figures vary from apartment type to apartment type and see how tweaking certain aspects of your listings affect these things.

 

Apartments.com

One of the best examples that you should consider mimicking as an active investor is Apartments.com. See what about its design impresses you when you put yourself in the shoes of a prospective renter. Of course, you could also simply use their services for listing your rentals if that ends up making the most sense financially and otherwise from your end.

 

Non-Apartment Properties

Of course, many of these recommendations can be applied to commercial investing and commercial properties as well. Whether you are taking advantage of a multifamily investing opportunity or a commercial investment opportunity, you want to ensure that your properties are being shown in the most positive, informative light possible and that those who want to take advantage of any commercial properties that you own may do so with ease, from the inquiring stage to agreeing on a rental.

 

 

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Is Commercial Real Estate a Good Hedge Against Inflation?

It is commonly talked about that real estate offers a good hedge against inflation. Typically, the value of real estate will align with, if not slightly edge out, inflation rates. But what are the actual drivers, specifically in commercial real estate, that make this true? And are these drivers equivalent among the specific types of real estate: multifamily, retail, industrial, and hospitality?

To better understand the true nature of any inflation hedge, we need to look to where the returns of real estate are generated:

  • Income/cash flow
  • Sale value/cap rate

The sale value will have a direct correlation to the net operating income, but outside forces — meaning market cap rates — will have a direct impact as well.

 

Income/Cash Flow

Inflation will typically have an upward pressure on rents. More rent means more income. More income means higher sale value. Therefore, commercial real estate is a good hedge against inflation. But if you unpack that between asset types, can an operator truly realize higher rents? Most office, retail, and industrial leases are five years or longer, and oftentimes have predefined renewal rates for even longer terms. When you get into anchor tenants, it is not uncommon to have 20-year leases. These types of leases do provide surety of income, particularly from credit tenants, but in a high inflationary environment, the owner cannot adjust rents mid-lease term, so, therefore, they cannot realize the upward pressure on rents. Leases on vacant units can reflect current market conditions, but this could have a minimal impact on NOI, depending on the size of the unit.

Now, when compared to multifamily and hotel assets, these have much shorter leases. The typical residential lease is 12 months, and a hotel “lease” is often one day to a week. Due to the shorter length of the lease, the apartment or hotel owner has more frequent opportunities to adjust their rental rates, allowing these assets to better realize higher rents due to inflation.

Regardless of asset type and the ability to capture current income, commercial real estate carries the inherent value of future cash flow. So, a property in an area with historical trends of strong rent growth will still sell for more than comparable assets in areas with lower rent growth expectations.

 

Sale Value/Cap Rate

The sale value of commercial real estate is calculated as net operating income (NOI) divided by a capitalization rate, or cap rate. The cap rate, which is represented as a percent, can create very large swings in value. For example, if an asset generates $5 million of NOI and the market cap rate is 10%, that creates a $50 million value. If the market cap rate drops to 8%, the value is $62.5 million. Many core assets, particularly in the favorable asset classes of multifamily and industrial, trade in the 3%–5% range. The same $5 million NOI property trading at a 4% cap rate is valued at $125 million. Drop the cap rate to 3.8% — so, only a 0.2% change in cap rate — and you have a property worth $131.6 million, or $6.6 million more than at a 4% cap rate.

So how does inflation affect cap rates, and ultimately sale values? Historically, cap rates will move with interest rates. As interest rates go up to stave off inflation, the cost of capital for borrowers goes up, and therefore the returns needed from their investments need to increase as well. And an increased cap rate lowers the overall value.

The balance here is that oftentimes, interest rate increases are a reaction to inflation, not a leading indicator. Therefore, there is the ability for rents to rise, and for NOI to rise at a fast rate, to counterbalance the rise in cap rates.

 

The Wildcard Factor

While income and cap rates are fairly easy to measure, demand is not. Historically, investor sentiment moves towards hard assets in markets showing high inflation. This increase in demand helps keep values high for those hard assets: real estate, gold, oil, and even collectibles.

So, while capital market effects can often imply a decreased value, the natural demand that comes from inflation helps increase the demand and often balances out rises to cap rate.

 

Overall, real estate — specifically commercial real estate — has proven to be a strong investment option. In good economies and bad, real estate continues to show its resilience through its ability to create current cash flow and retain long-term values.

 

About the Author:

Evan is the Investor Relations Manager for Ashcroft Capital. As such, he spends his days working with investors to better understand their investment goals and backgrounds. With over 13 years in real estate, he has seen all sides of real estate from acquisitions to capital raising on the equity and debt side, to operations, and actively invests himself. Please feel free to connect with Evan here.

 

 

 

 

 

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10 Tips for Your First Apartment Syndication Deal

Getting into multifamily syndication can be one of the most lucrative areas of commercial real estate, but it can also be quite intimidating. You’re not only responsible for your own money and success, but you also have other investors entrusting you with their finances.

We recently spoke with Mo Bloorian, a 25-year-old investor who has acquired over 100 units in just two years. Mo’s best-ever advice is to just get started. Don’t worry about your age or experience level — if you want to get into syndication, you’ll make it happen. Read on for more of Mo’s best tips for doing your first apartment syndication deal.

 

1. Don’t Wait — Just Get Started

Mo can be an inspiration to everyone. Many of us feel that we’re too young and too unfamiliar with the real estate business to get started. We may make excuses that we’ll invest when we’re a little more secure in our careers and when we’ve taken the time to learn more.

Mo did the opposite. He jumped in and he’s been learning as he goes. He started as a real estate agent and then used some of his equity to buy a duplex. From there, he was hooked, and he’s been taking risks ever since. Mo’s bold attitude has helped him get successful quickly.

 

2. Sometimes You Have to Look Outside Your City…

If you live in an area where multifamily syndication is difficult to turn a profit, you may need to look outside your city. Some cities and regions are just naturally better for multifamily properties. If you, like Mo, live in an area like New York City, it may be too expensive for you to invest.

Instead, Mo started looking in upstate New York. He found the properties to be much more affordable and he did really well on turning a profit. Just start widening your search circle until you find an area that will be profitable.

 

3. …But Stay Within Driving Distance

While some apartment syndicators will work with commercial real estate from all over the country, Mo prefers to stay within driving distance from where he lives. His properties are all only a few hours’ drive for him.

He suggests keeping your properties relatively close, especially if you’re working closely with management or if you’re involved with value-add properties. For active investing, you need to be able to visit the property in person. When there’s an issue, sometimes the best way to handle it is to take care of it yourself. You can have a more hands-on approach if it’s somewhere you can reach in a few hours.

 

4. Look for Hidden Gems

While some properties are an obvious win, there are some that are hidden gems. These properties often seem like they’re in such disrepair that they’d be too much trouble to renovate. However, don’t just overlook a property without giving it a chance.

You may be surprised that some properties that look awful may just need some simple repairs and some changes in management to give you a significant value-add.

 

5. Network and Cultivate Strong Friendships

One of Mo’s biggest accomplishments comes from networking with other young professionals who are passionate about investing. He made it a point to connect with others and learn as much as he could from them. As a result, he was tipped off about some of his best deals.

Investing is difficult to do completely alone. If you are willing to work with others, you’ll often be considered when they have new deals come up. You may even find out about prospects before others if you’re friends with the right people.

 

6. Work With People Whose Skills Complement Your Own

While it’s great to have friends who share your interests, you also want people who can complement you when it comes to active investing. Mo and his partner each handle different parts of their business and each play to their own skills.

You’re not going to be great at every aspect of being an active investor. Instead of trying to do it all, surround yourself with people who excel at the areas where you don’t. You’ll have a much greater chance of success. Focus on what you do best and find talented people to handle the rest.

 

7. Management Skills Are Important

There will be times when the people you’ve hired to manage, maintain, or renovate properties aren’t quite meeting your expectations. If you want your investment to be worth it, you’ll have to step in and manage the situation.

 

8. You Don’t Have to Break the Bank to See a Return on Value-Add Properties

Many investors think that value-add properties involve spending tens of thousands of dollars in order to increase their profit on a property. However, Mo feels that in many situations, you’ll only need to sink a few thousand into each unit to get a really good return.

Focus on the areas that’ll make a big difference, like the kitchen and baths. If you can improve these areas, you can definitely increase the rent.

 

9. Consider Using Local Banks

When you’re just getting started, you may not have a lot of equity. It can be difficult to get larger banks to lend you money. Instead, you can work with local banks. Local banks are much more willing to take risks on a new investor.

 

10. Build Trust With Your Investors

When you’re working in apartment syndication, it’s imperative that your investors trust you. You can gain trust with a proven track record. You can also be upfront about everything. Your investors will appreciate your honesty and will be more likely to work with you in the future.

 

Final Thoughts

As an active investor, getting your first syndication deal can be challenging, but you can be successful. Remember to find the right people and play to your skills. Above all else, follow Mo’s top advice: jump in as soon as possible and start making money.

 

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