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!

How to Manage Your Apartment Property Manager

As the asset manager of an apartment investment, one of your main responsibilities is to oversee the property management company.

Here is a blog post where we outline all the GP’s duties after the acquisition.

This blog post will address five frequently asked questions about interacting with and managing the property management company after you’ve acquired a deal and assumed your position as the asset manager.

For all of the FAQs, your property management company may or may not be onboard (for example, they may not send you every report that you ask for), which means you must set expectations with them BEFORE finding a deal. You need to ask the right questions based on the FAQs below when conducting property management interviews.

1 – How often do I interact with the property management company?

You should have monthly performance calls with your property management company at minimum. During the stabilization period (i.e., when you are performing renovations), the calls should be on a weekly basis. Once the asset is stabilized, you can continue the weekly calls, change to monthly calls, or have calls on an as-needed basis.

The weekly performance calls should include you and the onsite manager at a minimum, and ideally the regional manager as well.

During the calls, you will review property reports and key metrics (more on these two things below).

2 – What reports should I expect from my property management company?

You will get what you ask for. If you ask for nothing, you will likely receive nothing or just the bare minimum.

The reports you want to receive on a weekly basis are:

  • Box score: summary of leasing activity, including the number of move-ins and move-outs and unit occupancy status (vacant-leased, vacant-not leased, vacant-ready, notice-leased, notice-not leased, model, down, other use)
  • Occupancy: physical occupancy (percentage of total units occupied) and economic occupancy (rate of paying tenants)
  • Occupancy forecast: the projected occupancy based on future occupancy status (i.e., units that are occupied, units with expiring leases that are leased, and vacant units that are leased)
  • Delinquency report: list of resident delinquent (i.e., past due) amounts
  • Leasing reports: summary of leasing activity (traffic information, leasing information, concession information, marketing information, projection information)
  • Accounts payable: summary of money owed to vendors (including to the management company)
  • Cash on hand: the asset’s liquidity

The reports you want to receive on a monthly basis in addition to the weekly reports above are:

  • Income and expense statements: detailed monthly report with all income and expense line items, as well as the dollar and percent variance compare to the budget
  • Deposits: summary of security deposit information (balance, forfeits, returned checks, refunded)
  • General ledger: summary of all financial transactions
  • Balance sheet: summary of assets, liabilities, and capital
  • Trial balance: summary of all debits and credits
  • Rent roll: summary of all unit information (occupancy status, market rent, current rent, move in, lease start and end, other fees, deposit)
  • Expiration reports: summary of expiring leases
  • Maintenance reports: summary of maintenance issues and costs

Again, make sure you set reporting expectations with your management company BEFORE you have a deal.

3 – How do I obtain these reports?

The simplest way to obtain these reports to is to ask your management company to create custom reports using their management software and have them sent to your email on a weekly/monthly basis.

Another option is to ask for access to their management software so that you can have real-time access to these reports.

If your management company doesn’t use a software or if you don’t like the look of their reports, you can create your own custom spreadsheet and ask your management company to update it on a weekly/monthly basis. Click here to download a free Weekly Performance Review tracker.

4 – What metrics should I focus on the most?

The most important metric to track is the cash flow relative to the projections you presented to your investors. Track the forecasted vs. actuals on the income and expense report, focus on the line items with the greatest variance, and create a strategy to bring those line items back on track during your weekly performance calls.

For the value-add business plan, the number of units renovated relative to your forecasted timeline and the rental premiums demanded are important during the first 12 to 24 months because both will have a large impact on your cash flow.

Additionally, certain metrics, like leasing metrics, capital expenditure costs, and total income, may vary from your projections during the value-add portion of your business plan. For example, the total income may be lower than forecasted after owning the asset for 3 months due to a higher number of move-outs than anticipated. Or, you spent a larger percentage of your capital expenditure budget in the first three months because you are ahead of schedule. So, the key metric during the value-add portion of the business plan is the forecasted vs. actual rent premiums for renovated units.

Other metrics to track that may be the cause of a high income and/or expense variance are the turnover rate, economic occupancy, average days to lease, revenue growth, traffic, evictions, leasing ratio and other metrics from the reports outlined above.

Again, the best strategy is to track the variance on the income and expense reports, strategize with your management company to identify the cause by reviewing the other reports and come up with a solution if needed.

5 – What other things do the best asset managers do?

First, look at your property management company as a partner and screen them accordingly. Are they someone you want to work with for a long-time? Does their track record speak for itself? What are the tenants saying about them? How professional are they when speaking with a potential tenant (you can role play as a potential tenant to find out)? Are they willing to change if needed? Do the employees like working at the company? Are they engaged on social media?

Next, the best asset managers always look ahead. You should evaluate the market, evaluate the competition to compare your property to, track and maximize income growth and expense decline, and ensure tenant satisfaction by checking reviews, social media, and hosting community events.

Also, even though the property management company is your partner, you should watch them like a hawk. Most people focus on the front-end activities, like finding deals, sourcing capital, whether they need to form an LLC, etc. Fewer people focus on the back-end activities, like asset management, which take years and decades to do. So much of the asset’s success and your company’s ability to scale is dependent on your property staff and property management company, so you have to watch them like your career depends on it, because it does. If things don’t work out, don’t be afraid to part ways.

Lastly, visit the property at least once a month in-person. If you invest out-of-state, a great strategy is to ask someone local to mount a GoPro on their vehicle and drive the property on your behalf.

How to Manage Your Apartment Property Manager

Set up frequent phone calls with your property management company, starting with weekly calls.

Request the proper weekly and monthly reports to see how well or poorly the property management company is implementing your business plan. Track the most relevant KPIs, like cash flow variance, number of units renovated, rent premiums, etc.

Properly screen the property management company upfront and continuously evaluate their performance.

Visit the property in person to make sure the reports match reality.

 

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How a Passive Apartment Investor Interprets a Schedule K-1 Tax Report

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

Apartment syndications remain an appealing investment for passive investors due to the myriad of tax benefits—the foremost being depreciation.

Fixed asset items (a long-term tangible piece of property or equipment that is used in operations to generate income and is not expected to be consumed or converted into cash within a year) at an apartment community reduce in value over time due to usage and normal wear and tear.  Depreciation is the amount that can be deducted from income each year to reflect this reduction in value.  The IRS classifies each depreciable item according to the number of years of its useful life.  It is over this period that the fixed asset can be fully depreciated.

A cost segregation study identifies building assets that can be depreciated at an accelerated rate using a shorter depreciation life.  These assets are the interior and exterior components of a building in addition to its structure. They may be part of newly constructed buildings or existing buildings that have been purchased or renovated.  Approximately 20% to 40% of these components can be depreciated at a much faster rate than the building structure itself.  A cost segregation study dissects the purchase/construction price of a property that would normally be depreciated over 27 ½ years—and identifies all property-related costs that can be depreciated over 5, 7, and 15 years.

If the expense of the construction, purchase or renovation was in a previous year, favorable IRS rulings allow taxpayers to complete a cost segregation study on a past acquisition or improvement and take the current year’s deduction for the resulting accelerated depreciation not claimed in prior years.

You can learn more about how depreciation is calculated, as well as the other tax factors when passively investing in apartment syndications, by clicking here.

Each year, the general partner’s accountant creates a Schedule K-1 for the limited partners for each apartment syndicate deal. The passive investors file the K-1 with their tax returns to report their share of the investment’s profits, losses, deductions and credits to the IRS, including any depreciation expense that was passed through to them.

Click here for a sample Schedule K-1.

There are three boxes on the K-1 that passive investors care about the most.

Box 2. Net rental real estate income (loss). This is the net of revenues less expenses, including depreciation expense passed through to the LPs. For most operating properties, the resulting loss is primarily due to accelerated deprecation. On the example K-1, the depreciation deduction passed through to the Limited Partner is $50,507, thereby resulting in an overall loss (negative taxable income).

Box 19. Distributions. This is the amount of equity that was returned to the limited partner. On the example K-1, the limited partner received $1,400 in cash distributions from their preferred return of distribution and profits.

Just because the LP realizes a loss on paper does not mean the property isn’t performing well.  The loss is generally from the accelerated depreciation, not from loss of income or capital.

Section L. Partner’s capital account analysis. On the sample K-1, the ending capital account is $48,093. However, this lower amount doesn’t reflect the capital balance that the limited partner’s preferred return is based on. The $48,094 is a tax basis, not a capital account balance. Thus, this limited partner wouldn’t receive a lowered preferred return distribution based on a capital balance of $48,094. From the operator’s perspective, depreciation doesn’t reduce the passive investor’s capital account balance.

The capital balance is technically reduced by the distribution amount above the preferred return (i.e., the distribution from the profit split), which is a portion of the $1,400 in the “withdrawals & distributions” box. However, operator’s deals are structured in a way so that the LPs continue to receive a preferred return based on their original equity investment amount, with the difference made up at sale.

The majority of the other accounting items on the K-1 are reported on and flow through to your Qualified Business Income worksheet.  The net effect of these items will be unique to each investor based on their specific situation and other holdings.

If you want to learn more about each of the individual sections and boxes, click here to review IRS instructions for the Schedule K-1.

To better understand your own tax implications on any investment, it is important to consult a professional who has an understanding of your overall finances so that they may give full tax advice.  Therefore, always speak with a CPA or financial advisor before making an investment decision.

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Difference Between 2008 and Coronavirus Pandemic on Real Estate Investing

Difference Between 2008 and Coronavirus Pandemic on Real Estate
During a recent conversation with Joe Fairless, Chris Clothier discussed the differences between the 2008 real estate market crash and the coronavirus pandemic’s effect on the real estate market. Clothier, one of REI Nation’s partners, owns between 12 to $15 million in residential holdings and commercial real estate. This article is based on the information shared by Clothier during the interview.

REI Nation

In 2003, Clothier’s family started a company called Memphis Invest in Memphis, Tennessee, and later rebranded it as REI Nation. REI Nation currently manages a $100 million portfolio consisting of over 6000 single-family homes. The company operates in Tennessee, Texas, Oklahoma, Arkansas, and Missouri. Most REI Nation clients engage in passive investing, not wanting anything to do with the day-to-day property management.

The 2008 Real Estate Market Crash

In 2008, some people invested in real estate properties that were not qualified and over-leveraged. These transactions created an unsustainable inflated value of properties. Bear Stearns became one of the earliest casualties of the mortgage crisis that led to the 2008 market crash.

Fannie Mae changed its practices of financing investment properties, reducing the number of properties that a person could finance from ten down to three. Therefore, an active investor who was investing in ten properties could only fund three of them, causing them to cancel the other seven. The canceled transactions were the beginning of what eventually turned into a full-blown crisis in the housing market.

The Coronavirus and the Real Estate Market

The problem created in the current real estate market comes from a mixture of bad news and fear. No one has seen the actual impact that the Coronavirus will have on the market yet. The determining factor will be how rent and mortgage reductions will affect the market. Within weeks after the Coronavirus appeared, investors went from full occupancy in their rental properties to collecting percentages of rent. With the 2008 market crash, investors were able to see it coming, giving them time to prepare. However, the pandemic appeared suddenly.

Planning for the Unexpected

The best thing any investor can do during a market crisis is not rush but to take time to analyze what is happening. The message REI Nation sent to their 2000 clients is that they were preparing daily.

In 2008, there were so many things happening that you had to have a backup plan. Then you needed a backup plan to the backup plan. It didn’t matter if you were the landlord over several properties or a small business owner. Because things were so uncertain, you had to try and plan for every possible scenario.

REI Nation planned as best as it could. No one expected there to be a global pandemic. How could they? However, when involved in active investing, you must have a contingent plan on how to operate in the event something goes wrong.

When you have spent the time planning for the unexpected, you can be confident in your actions. Preparing for the unexpected helps to place investors in the best possible position under any type of circumstances.

Treatment of Tenants During the Pandemic

At the beginning of the pandemic, there was no reason for REI Nation to contact the residents to tell them anything. All residents knew their rent was due on the first of the month, which did not change. So, there was no reason to generate any mass statement about what REI Nation expected.

However, REI Nation did communicate with their residents on an individual basis when they contacted them about their particular situation. They provided residents having hardships with a resource list of places they could turn to for help. When residents could not pay the total amount of the rent, they encourage them to pay what they could. That way, REI Nation could tell the owners that the tenant was doing their best to meet their obligation.

The pandemic entails more than just not paying the rent. Tenants who live in apartments had to abide by rules regarding the use of amenities and social distancing.

Some companies gave their tenants a blanket discount of 15% off their rent. REI Nation did not do anything like that because everyone was not having issues with paying their rent. Over 30% of REI Nation’s residents paid on time. Many of the residents paid early because their bank automatically debits their payments.

REI Nation has a fiduciary responsibility to its owners to make sure they act in their best interest. Therefore, they could not treat all cases the same. In some instances, REI Nation had to work with the tenants. They offered some tenants discounts or asked the owners to work with them.

REI Nation expected the tenants who could pay their rent to do so. Then, they worked with the ones who were not able to pay. For example, if a tenant presented a verifiable hardship and made an effort by paying 10% of the rent, that left 90% unpaid. Even in that scenario, REI Nation handled it on a case-by-case basis.

The company’s goal was not to put anyone out of their home or in further hardship. They also did not want to send a message to all tenants that they did not have to pay their rent. Either on their own or with the help of financial assistance, the tenants paid what they could. Many owners who knew their tenants contributed what they could afford accepted that their revenue for that month would be slightly less.

When Will Investors Notice the Market Effect?

In the future, investors can expect foreclosures on a variety of properties in different neighborhoods. Vacancies will increase, and rents will decrease. During the crisis of 2008, investors saw the effects that the real estate crisis had on the market by 2009 and 2010. Within two years, the 2008 market fall affected everyone.

The coronavirus crisis is entirely different than the one in 2008. However, financially, it’s about to become difficult for people to stay in their homes and avoid foreclosure and evictions. It’s unavoidable. It took about two years for it to happen back then, and it will probably be the same now.

With the Coronavirus, investors know that it is something the country will get through. The faster that happens, the more negligible effect the Coronavirus will have on the number of foreclosures and where they occur. Most likely, an adverse impact on the real estate market will not be widespread. However, the longer the Coronavirus goes on, investors might see damages coming six to nine months down the road.
Hope Versus Uncertainty

The difference between what’s occurring during the Coronavirus and what happened with the 2008 crisis is hope. After the 2008 crisis, there was a fire sale of properties. It should not be that bad after the Coronavirus. During the Coronavirus, some people saved their money, anticipating things to correct themselves. They had no idea the current situation with the virus would exist. If there are distress properties, there will be a lot of competition for them. In 2009 and 2010, there wasn’t any competition for distressed properties because of the economy’s uncertainty.

Any active investor who survived 2008 would advise new investors to expect future investment opportunities. However, no one is hoping for people to have to liquidate their properties. Most people involved in active investing are hoping for a calm recovery and the ability to get out of the crisis without high losses. A person who’s interested in investing in real estate should practice good fundamentals. They should know they can always find good deals and don’t have to hope for a massive crisis to make huge profits.

Planning Is the Key

Everyone should have a plan. Regardless of what stage of the process an investor is at, they must always start planning for the worst-case scenario. It would help if they frequently communicated with their lenders and clients. If there are any lessons from the Coronavirus, it is that no one is in control. No one knows what is coming next in passive investing. So, it is wise to plan for every possible scenario. Having a plan and executing that plan is what will get you through any crisis. It worked during 2008 and 2009, and it will work today.

REI Nation did not have to rush to develop a message to communicate to their clients. That’s because they had already started a regular practice of keeping their clients informed. For the past twelve years, they spoke with their clients to let them know their investment status. When it was necessary to put out a specific message, they placed a video on their website. REI Nation’s handling of the market during the coronavirus crisis thus far can be an example to others involved in active investing.

REI Nation has a blog and video series for investors on its website. The information is available for free to anyone who wants to view it. Clothier is active on social media and sites like BiggerPockets.

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How to Provide Best-In-Class Customer Service to Your Multifamily Residents

Multifamily investing offers the opportunity to profit tremendously when you sell your property, and a well-managed property will also throw off regular income throughout your ownership period. As a commercial real estate investor, you have devoted a tremendous amount of time, energy and money into the purchase of a great property. You want to do what it takes to optimize your return on investment, but successful commercial real estate investing involves more than buying and maintaining properties. Your tenants are the lifeblood of your investment, and they should receive just as much care and attention as property upkeep and number crunching.

Get to Know Your Tenants as People

While your multifamily property is a financial investment to you, it is the place that your tenants call home. Each of your tenants has unique factors to consider related to their lifestyle, finances, interests and goals, and these are often entwined with their living experience in vital ways. When you get to know your tenants as people rather than as names on a lease, you can offer them a higher level of customer service. In the process, you may decrease turnover and improve online reviews. These factors directly feed into a healthy bottom line. How can you serve your property’s residents as customers rather than solely as tenants?

Be More Than a Rent Collector

Your property’s residents will be more likely to renew a lease and to recommend your property to their friends and family members when they feel valued and respected. In many cases, the relationship between a tenant and a landlord is purely financial, and it is entirely dictated by the terms of the lease. You must abide by the terms of the lease, and you must ensure that rents are collected in a timely manner. However, your relationship with your residents should extend beyond the monthly rent collection process. For example, you can send tenants birthday cards or call to check on their unit’s condition periodically. Small gestures like these can go a long way toward developing a positive relationship with your tenants.

Be Proactive

The top brands today stay on top of their customers’ needs, and they anticipate behavior when possible. Your multifamily property is a business, and your tenants are your customers. With this in mind, you need to nurture relationships and proactively anticipate your customers’ needs. For example, reach out to your tenants a few months before their lease expires to give them renewal options. Implement a loyalty program that rewards renewals, transfers and referrals. A high turnover rate at your multifamily property can dramatically erode profits, so creating a reward system that encourages renewals can be cost-effective for your business. At the same time, the benefits of the reward system likely will be appreciated by your customers.

Support Your Residents’ Goals

While some residents may move out of an apartment building that is poorly managed, others will vacate for reasons that are not related to property management at all. For example, they may need a larger space or may be ready to purchase a home. When your tenants decide to vacate, avoid creating stressful and unnecessary roadblocks. Consider collecting moving boxes and other materials from new tenants and offering these to tenants who are vacating as part of your service. Offer to do a walk-through before the tenants vacate so that they can recoup as much of their deposit as possible. You should support your tenants just as much when they are vacating as you did when they were moving in.

Approach Rent Increases Transparently

For the majority of your tenants, their monthly rental payment may be their largest expense. An unexpected increase can create immediate stress and anxiety, and this may be followed by a kneejerk reaction to look for a new and more affordable place to live. From your perspective, maintaining rents at market rates is essential in order to optimize profitability. How can you maintain market rents while also retaining happy tenants? Create a small report for your tenants that shows current market rents in the area. This report should substantiate the rental increase at the time of renewal. If you launch a rewards program for loyal residents, consider outlining any savings that they may enjoy by renewing their lease. This type of detailed and customized report could actually help your tenants to feel positive about renewing their lease at a higher rate.

Be Readily Available

Tenants commonly reach out to their landlord or property manager because they have a complaint or a repair issue that requires prompt attention. In many cases, tenants are provided a single phone number to call for assistance, and landlords may let those calls go to voicemail to screen them for urgency. To tenants, the inability to quickly and easily reach you when they need assistance with their home can be stressful. More than that, it could create the impression that your tenants are a bother to you. To counter this, offer multiple communication channels. In addition to a phone number for verbal communication, offer text communication, an email and a website. Make a point to always answer the phone when a tenant calls and to respond to all other methods of communication promptly.

Cross-Sell with Your Other Properties

Do you own more than one multifamily property? The apartment that a tenant lives in today may no longer meet their needs, but one of your other properties could be a better fit. If you have provided excellent customer service to the tenant throughout his or her residency period, the tenant may be happy to consider relocating to one of your other properties as long as the property meets their current needs. Likewise, consider extending the rewards for your referral program to all of your properties. These practices will help you to maintain higher occupancy rates overall, and the increased options can bolster customer satisfaction.

Ask for Reviews

Your existing tenants will directly impact your bottom line from multifamily investing long after they move out. This is because potential tenants often read online reviews from past tenants to learn about important factors like property management responsiveness, rent increases, property maintenance and more. Because unhappy tenants may be more likely to post reviews than tenants who have loved living in your property, soliciting feedback from satisfied tenants is essential. Consider asking tenants to leave reviews at different stages in their experience. For example, you may ask for feedback about the move-in process after they get settled. You may also ask tenants to leave comments when they renew a lease or after they move out. In addition, use feedback from negative reviews to make improvements.

As is the case with other types of businesses, you will not be able to please all of your tenants at all times. However, because success from multifamily investing is intricately linked to tenant satisfaction, it is essential that you develop a sound customer service policy that touches your tenants throughout their experience. Properly managing tenant relationships may require more time and energy than you initially anticipated. Consider hiring a reputable property management firm if you are challenged in this or other critical areas of commercial real estate investing.

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How a W2 Job Can Make You a Better Commercial Real Estate Investor

Are you interested in starting a residential or commercial real estate investing firm? And, if you are, does it make sense to get a W2 job before you launch your company?

Some businesspeople would say that all the time you spend working for wages is a waste. That’s because it’s time away from building your own business, time away from active real estate investing. Not to mention, making money for someone else can be frustrating and demoralizing for an entrepreneur.

Indeed, this line of thought goes, you simply cannot be an effective investor while you’re working for someone else. Your W2 job will sap you of your energy and focus. Plus, you won’t have enough spare time to study the market.

After a while, your own business goals and appetite for risk may fade into the horizon. You could become comfortable at your W2 job, and you might stay there until you retire.

In reality, though, a W2 position could teach you lessons that will prove valuable for the rest of your career. Instead of being wasted time, that experience could become the foundation of your entrepreneurial successes.

 

W2 Jobs: A Brief Intro

First of all, let’s define our terms. A W2 job is one in which your employer gives you a W-2 form so that you can do your income taxes. It’s a document that states your wages for the year along with how much money has already been taken out for tax purposes.

A W2 job typically involves certain parameters. After hiring W2 employees, companies give them their work schedules and provide them with salaries, benefits, the necessary supplies to do their jobs, and — unless they work remotely — workstations.

In addition, businesses automatically deduct from W2 employees’ wages their payroll, Medicare, and Social Security tax payments.

With that in mind, let’s take a closer look at some of the benefits you could derive from such a position. After reading about them, you might want to start applying for a W2 job as soon as you can.

 

1. An Introduction to Systems

Of course, when you work at a company, you’re exposed to its various operations. You’ll know how the business conducts market research and uses the resulting data to set its financial goals and expectations. You can also find out how its staff creates a business plan, what that plan’s specific terms are, and how the plan gets shared with all stakeholders.

At a real estate investment firm, you’ll see how the team members scour the market for promising leads, how they evaluate a given property, and how they ultimately decide to invest in it or not.

Furthermore, you can study how this firm goes about recruiting and hiring staff members. What criteria do they set for job candidates? Why do they ultimately select one person and pass on another?

Just having lunch with various colleagues can be rewarding. It’s an opportunity to ask questions in a relaxed setting and receive honest feedback.

Absorbing these lessons in the real world can be extremely revealing. It’s like attending a business school where, instead of paying tuition, the school pays you. Even when your employer makes mistakes, you can learn from those errors by figuring out the choices you would have made instead.

Not least, you might go through advanced trainings for free. Many employers offer continuing education classes to their team members, and these courses can supply concrete management lessons on everything from how to scale a business to how to structure a human resources department.

 

2. Learning How to Empower a Team and How to Delegate

One lesson you could learn from your W2 work, one that deserves special attention here, is how to bring out the best in your employees. How do you set up a winning work culture?

After all, giving yourself or a few of your colleagues too much work is a recipe for burnout and failure. You must spread tasks out evenly, entrusting people with the assignments they’re equipped to complete. When you know how to scale a business properly, you can set realistic expectations according to your resources and staff size.

At the same time, you should continually challenge your staff members to learn, grow, and exceed what they believe is possible. When everyone feels fulfilled and challenged by their jobs — and when all employees know that they’re making important contributions — your workplace will be a happy one. And your firm should be successful.

Creating that kind of culture is complex, and it takes a while. You must be in regular communication with your whole workforce, and you must provide each employee with clear instructions, goals, and due dates along with an overall company vision and mission statement. Checking up on progress and respectfully correcting mistakes are essential tasks as well.

Nevertheless, you should always listen to others’ ideas and opinions. When you’re open to constructive criticism, you can course correct before real problems emerge.

Moreover, it helps to step back as much as you can, giving people the autonomy to complete their work and manage their time as they see fit. Finding a happy medium between micromanaging and neglect is tricky but well worth it.

Additionally, it’s wise to provide employees with ongoing professional training so that they can build their skills.

The ideal is an environment that’s both nurturing and demanding, with an emphasis on accountability. By scrutinizing the company that employs you as a W2 wage earner, you can find out what works and what doesn’t. Then you can apply those insights to your own real estate investing firm.

Not least, a W2 job might give you extra empathy. As a business leader, you’ll have a clear understanding of how your decisions affect your W2 employees and their families. Since you were once such a worker yourself, you’ll know what you wanted and needed from your workplace back then.

 

3. The Income

If you live frugally while you’re a W2 employee, you can save or invest a lot of the money you make. Before you know it, those funds will add up nicely. Thus, you’ll have some seed money for your real estate management firm.

Even better, with that cash, it will be easier to convince lending institutions to provide you with business loans and other forms of financing. As a very rough rule of thumb, the more money you have on hand, the more favorable your financing terms could be.

W2 Employment: An Experience Like No Other

On top of everything else, your W2 position could give you even more motivation to succeed at residential or commercial real estate investing.

If you enjoyed your time as a W2 employee, you may be encouraged to create great W2 jobs for other people. On the other hand, if you found this job to be unsatisfying or frustrating, it might make you work even harder at active real estate investing. That way, you’ll never have to take such a job again.

In either case, the time you spend as a W2 worker could become a lasting source of knowledge and inspiration. And, for the rest of your life, you might be telling your friends, family members, and employees stories about those days.

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Webinar Recap: Looking to Note Investing in the Global Health Crisis

The performance of real estate notes was a bellwether for the economy in the last recession, so in this Best Ever Webinar we explored the performance of 1st position and 2nd position notes, how the market has been affected by COVID, and what the data indicates about the real estate market at large.

As a servicer of tens of thousands of first position notes, Jorge Newbery pointed to the $4MM loans currently in forbearance, which are on the precipice of foreclosure after government intervention comes to an end.

The counterargument speared by Kathleen Kramer was that the $4MM homes don’t represent the volume of homes in trouble, but in part those taking advantage of the situation. She also pointed to all-time highs in homeowners equity relative to average debt amounts and record low interest rates that could allow troubled homeowners to be bailed out by refinances.

Jim Maffucio added that we see the unemployment rate dropping and average HHI of homeowners being significantly higher than the last recession where subprime mortgages were provided to low wage earners.

Regardless, all agreed that the amount of unpredictability in the future has returned to normal along with pricing for notes, suggesting that for the time being the market has an optimistic outlook on the future of residential real estate.

What the future holds for commercial notes is a larger question with retail and hotels going to double digit CMBS special servicing rates. Will there be opportunity to buy distressed office notes? Whispers of the opportunity are just beginning and it could be too early to see what the future holds.

Watch the on-demand playback of this webinar and past webinars on our conference platform NOW! Our networking has started for this year’s Best Ever Conference, don’t miss out! Use code WINNERS30 for 30% off your ticket here.

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Interest-Only Commercial Real Estate Loans – Potential Pros and Cons

As the name implies, when you secure an interest-only commercial real estate loan, the monthly debt service is equal to the interest on the principal loan balance. For example, on a $10 million loan amortized over 30 years with a 5% interest rate, the interest-only payment is $41,666.67. Whereas the debt service on a non-interest-only loan would be $54,486.03 (principal plus interest).

Generally, when securing a bridge loan, the debt service will automatically be interest-only. However, when securing an agency loan from Fannie Mae or Freddie Mac, you may have the option to receive one or more years of interest-only payments (even up to the full hold period for the most experienced borrowers).

When securing an agency loan and deciding whether to pay interest-only or pay principal plus interest from day one, here are some things to think about:

Potential Benefits of Interest-Only Payments

There are two main potential benefits to securing an interest-only period for a commercial real estate loan.

First is the higher cash flow during the interest-only period. When implementing a value-add business plan, you are forcing appreciation by improving the physical property and the operations to increase the net operating income. Typically, this process takes at least a year to complete. So, during this value-add period, the net operating income (and therefore, the cash flow) is lower. When you secure an interest-only loan, the lowered net operating income may be offset by the reduced debt service. As a result, you can use the extra cash flow to either reinvest in the property or, more likely, distribute returns to your investors. In fact, one of the best ways to achieve the preferred return during the renovation period is to secure an interest-only loan.

The second potential benefit of the interest-only loan is that you and your investors can receive cash sooner rather than later. The additional cash flow received during the interest-only period helps increase the IRR compared to receiving that cash at sale. Back to the $10 million loan example in the introduction, the difference between the interest-only payment and the principal plus interest payment is $12,819.36. Technically, all payments above the interest amount reduces the loan balance. So, rather than receiving that additional payment during the business plan, you would receive it at sale. Due to the time value of money, that $12,819.36 is worth more when received during the hold period than it would be worth in the future, say once the property is sold in 5 years. In addition, in the event of a massive reduction in property value, you and your investors will be much happier if you were able to receive those additional cash payments, especially if the value of the property is lower than the loan balance that would have otherwise been paid down.

Potential Drawbacks of Interest-Only Payments

There are three potential drawbacks to securing an interest-only loan.

First is that there is no principal paydown. As I mentioned above, this is also a potential benefit due to the time value of money. However, if the plan is to refinance or secure a supplemental loan after implementing the value-add business plan, the proceeds will be lower due to the fact that no principal was paid down during that period. Or, if the market cap rate increases and the value of the property decreases, you may become “underwater” on the mortgage and have to actually pay to sell the asset.

Secondly, once the interest-only period expires, the debt service increases. If you are not implementing a value-add business plan, unless the rental rates increase naturally, your cash flow will take a major hit once your debt service increases. If you are implementing a value-add business plan, you will need to increase the cash flow by an amount that is equal to or greater than the increase in debt service once the interest-only period expires. If you are unable to increase the cash flow as quickly or as high as projected, you may not be able to achieve your projected returns once the interest-only period expires.

Lastly, you may convince yourself to do a bad deal because of the lowered debt service during the interest-only period. For example, you may underwrite standard principal plus interest debt and the deal doesn’t meet your return projections. But if you underwrite three years of interest-only, the deal does meet your return projections. This isn’t a problem as long as you are conservatively underwriting the deal. Since you know the deal doesn’t make sense with a standard principal plus interest loan at the current net operating income, you need to be confident in your ability to increase that net operating income amount before the interest-only period expires.

Conclusion

Overall, interest-only loans are best when you are implementing a value-add business plan. As long as you are conservatively underwriting your deals and are confident in your rent premium assumptions, interest-only loans are a great way to distribute the preferred return to your investors while you are repositioning the asset.

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How to Compensate a Commercial Real Estate Broker

When you decide to list your apartment deal with a commercial real estate broker, the are paid a commission. Unlike residential transactions where the realtor’s fee is essentially fixes, the commission on commercial real estate transactions is negotiable. However, depending on the size of the deal and if it will be listed on-market or kept off-market, there are general guidelines for the commission structure and amount.

The information used to create this blog post is based on an interview I did with commercial real estate broker T Furlow. You can listen to his full podcast episode here.

Here are the three main structures for compensating a commercial real estate broker:

Compensation Structure #1 – Percentage of Sales Price

The percentage-based commission is the most common structure for on-market deals. The percentage generally decreases as the purchase price increases.

Sometimes, the commission is split between the buyer’s agent and your listing agent. This is referred to as co-brokerage split. But it isn’t uncommon for your agent to also find a buyer and receive 100% of the commission.

It is uncommon to see a commission of 6% (the standard fee on most residential transactions – 3% to each realtor), unless it is a very small deal under $1 million. Generally, the commission is 3% to 4% of the sales price. And the commission is capped at a certain amount. It is possible but rare for a broker to receive a commission of $300,000+. For larger deals, the commission can be less than 1% of the sales prices.

Generally, the percentage-based commission is set by the market and the sales price.

The advantage of the percentage-based commission is that your broker or a buyer’s broker is incentivized to maximize the sales price. The higher the sales price, the higher their commission.

The advantage of the co-brokerage split is that it increases the number of potential buyers. Rather than one broker – your broker – finding buyers, any broker in the market can find buyers for your deal. Plus, your broker is incentivized to put forth a greater effort to find a buyer so that they receive 100% of the commission.

Compensation Structure #2 – Flat Fee

The flat fee commission is the most common structure for larger apartment deals.  T considers sales prices of $8 million or more as large deals. Once the sales price exceeds $8 million, a flat fee commission between $150,000 and $250,000 is standard, but may be lower or higher depending on the market.

Flat fee commissions are also common if you want to sell your deal off-market with a broker. Expect to pay a higher flat fee for a large on-market deal than a large off-market deal since on-market deals require more effort on the part of the broker.

Generally, the flat fee is negotiated between you and the broker.

The major drawback of the flat fee compensation structure is that it doesn’t incentive your broker to maximize the sales price. No matter what the sales price is, they are paid the same amount.

Compensation Structure #3 – A Hybrid Structure

A hybrid compensation structure can be negotiated for any sized on-market or off-market deal.

Once you determine a strike price (i.e., the expected sales price), you offer a commission that is slightly below the market commission rate. Then, offer a significantly higher commission on any amount above the strike price.

This compensation structure is better than the percentage-based structure because your broker is incentivized even more to sell the deal above the strike price.

Example

Let’s say you are selling a deal on-market and you determine that the strike price is $42 million.

Compensation Structure #1 – Let’s say that the market commission rate is 0.75%. If the deal sells for $42 million, the broker makes $315,000. If they can sell the deal for $44 million, they make $330,000.

Compensation Structure #2 – Let’s say you negotiate a flat fee of $275,000. If the deal sells for $42 million, $44 million, or even $50 million, the broker makes the same $275,000 commission.

Compensation Structure #3 – Let’s say you negotiate a 0.65% commission up to the $42 million strike price and 5% thereafter. If the deal sells for $42 million, the broker makes $273,000, which is less than Compensation Structure #1 and #2. If the deal sells for $44 million, the broker makes $373,000, which is higher than both Compensation Structure #1 and #2.

This example illustrates why I prefer Compensation Structure #3. If the deal sells at the strike price, you pay the lowest commission. However, if the deal sells above the strike price, you and the broker make more money! So it is a win-win.

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Stopping Self-Destructive Behaviors: Mindset Myth Debunked

Success is 80% psychology and 20% mechanics. 80% mindset and 20% action. 80% thinking and 20% doing. 

What does this mean and why is this principle universally accepted in real estate investing?

Simply put, the amount of time spent on your business is not directly proportionate to the success of your business.

Someone who works 12 hours days is not by default going to be more successful than someone who works 12 hour a month. 

Trevor McGregor, my personal coach, talks about the events leading up to action. First, there is a thought. Then, there is an emotion. Then, there is an action (or no action). 

The actions we take are based on our thoughts and resulting emotions, every single time.

Therefore, our quality of thought (i.e., our mindset) is the only factor that determines our actions. So technically, success is 100% mindset.

Whenever I speak with someone on the Best Real Estate Investing Advice Ever show and the topic of mindset comes up, I always want to know what actions listeners can immediately take in order to improve their all-important mindset.

Recently, I spoke with a guest who provided unique insights into how we can effectively improve our mindsets and ultimately stop self-destructive behaviors. The reason it was unique was because it goes against the conventional wisdom – that we can improve our mindsets by ourselves. No help is required. All we need to do is journal, mediate, or work more and BOOM, our problems are solved.

However, this is impossible. 

As I stated above, all actions are caused by our thoughts. There is no getting around it. Good thoughts lead to good action. Bad thoughts lead to bad action. Therefore, to overcome bad habits, you need to alter the cause – the bad thoughts.

Since all you have are your thoughts, how can you overcome your bad thoughts with your bad thoughts? It is not. Bad thoughts beget bad thoughts beget even worse behaviors.

That is why the help of outside factors is the only way to transition from bad thoughts to good thoughts. 

There are many obvious ways to accomplish this, like books, seminars, and mentorships. But Vahan Yepremyan provided a unique approach during our interview.

He said to ask someone close to you “which of my actions are holding me back from being successful?” Rather than attempting to subjectively determine your had habits, enlist the help of an objective third-party. Ideally someone who knows you extremely well and is more successful than you.

Once you’ve identified your bad habits, you need to determine if the cause of the habits are based on fact or fiction. 

A simple example is public speaking. Let’s say you ask an investor friend “which of my actions are holding me back from being successful?” and they say, “you aren’t picking up the phone enough to cold-call apartment owners” or “you have not started that thought leadership platform yet”.

Your immediate thought is, “well, that’s because I am afraid of speaking to stranger.” 

What is your justification for that fear? And what is the evidence for that justification. 

Maybe you are afraid to say something stupid. Well, have you said something stupid while public speaking in the past? And if so, what were the ramifications? Unless it killed you (which I assume is not true since you are reading this blog post), then your justification is usually based on a fictional, fabricated story, or at best partial truths.

Creating a new story based on reality may be as simple as becoming aware of the false one. Other times, it may require further help from outside factors. Following the example above, you may need to take a public speaking course or ask a friend to punch you in the face if you don’t cold-call a certain number of owners per week.

Overall, all bad actions are caused by bad thoughts. In order to overcome bad thoughts, you need the help of outside factors to identity your bad actions and thoughts. Then, you need to become aware of the story behind those thoughts. 

And the best way to accomplish this is with the help of objective, third parties who know you well and are already successful. They can help you identify the bad habits which you (and your bad thoughts) likely deny and help you create positive thoughts by altering the story.

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Apartment Renovations and Updates to Make This Spring

Spring is in the air and, as homeowners gear up for spring cleaning, it may be in your best interest to do some upgrading at your apartment properties as well.

You might be asking yourself, “Is that truly necessary?”

Yes. It is. The reality is that your biggest enemy as a real estate investor and landlord is a vacancy. In light of this, it is critical that you master the art of getting and retaining good tenants, and one of the best ways to do this is to make your investment property more desirable to renters through apartment renovation efforts.

Your apartment community should be not only functional but also attractive and comfortable. So here’s a rundown on the top renovations and updates to make to your apartment building this spring.

Spruce Up the Kitchens

Updating your apartment complex’s kitchens is one of the smartest apartment renovation moves you can make as a landlord, especially if a kitchen has mismatched appliances. In this situation, you should keep the kitchen’s newest appliance and replace the other older appliances to match them. Matching your microwave, dishwasher, and oven finishes will immediately make the kitchen look more cohesive and functional.

In addition, you can make your kitchens more aesthetically pleasing by sanding and painting your existing cabinets. Then, you can top off your cabinet update with new, sleek hardware that will add a modern touch to your cabinetry. New countertops can also make your apartment units’ kitchens look newly renovated. Take your apartment renovation further by also installing glass tile backsplashes or even contemporary-looking faucets.

Update Your Bathrooms

Another one of the top ways to add value to apartments is to update your complex’s bathrooms. Why? Because many possible renters look for updated bathrooms. Simple fixes, like updating toilets, showerheads, faucets, and cabinet hardware, can be transformational for your units.

Also, if your bathrooms aren’t large, try to maximize the space you do have. For instance, use barn or pocket doors versus regular doors, and consider converting bathtubs into walk-in showers. You could also install shelves to create more storage without taking up large amounts of room. Finally, incorporating new vanities and increased counter space into your apartment renovation can further help to elevate an apartment unit’s bathroom design.

Modernize the Living Rooms

If you’d like to completely renovate an apartment community, consider also replacing the living room carpets or existing flooring with hardwood floors. Hardwood is a popular material used in rentals because it is simple to maintain and looks modern.

You can also create accent walls in your apartment units’ living rooms to make these spaces look more appealing. What’s great about this apartment renovation idea is that it isn’t expensive, yet it will set your living spaces apart from the traditional all-white walls.

If you’ve got a little more money and time, consider also knocking down walls to create more open space, if necessary. The open concept will make your apartment units feel brighter and larger.

Don’t Forget the Outdoors and the Amenities

Be sure to include outdoor upgrades as part of your spring apartment renovation process. For instance, you could complete some landscaping and add new signage. In addition, consider refreshing the exterior of your building with attractive balcony railings or even fresh siding.

Also, be sure to upgrade your amenities to further make your apartment community stand out for all of the right reasons. For instance, renovate the spa/pool area, fitness center, or club room. And consider adding stacked washers/dryers to your units rather than resorting to a community laundry room. In this case, you can convert your no-longer-needed laundry facility into an area for activities or even tenant storage.

The Benefits of Updating

Moving forward with an apartment renovation this spring will certainly make your apartment complex more attractive to prospective tenants, but it carries with it several other benefits as well.

For instance, if you install energy-efficient windows or programmable thermostats, you can decrease your utility costs for future renters. And this can be an attractive selling point. Along these lines, consider also adding energy-efficient light fixtures to your units. Replace any old heating, ventilation, and air conditioning systems with their more energy-efficient counterparts.

Also, by incorporating higher-quality and newer appliances and countertops, you can increase the rental experience in your property, which means that your tenants may want to stay with you longer. In addition, your new products will most likely not require as much maintenance, which will save you both money and time in the long run.

Yet another reason to complete an apartment renovation? You can deduct your renovation expenses at tax time if you’re making repairs with the goal of maintaining your investment property.

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What Does it Really Mean to Have an Entrepreneurial Mindset?

You may think you have an entrepreneurial mindset simply because you’ve fallen in love with the perks that entrepreneurship brings, such as financial independence and, possibly, more free time. In reality, though, being your own boss can bring with it certain challenges you might not have thought of before.

Your stereotypical entrepreneur has several core qualities that simply cannot be denied. If you possess these qualities, then you might possess the spirit of an entrepreneur. And, in this case, pursuing a career as a real estate investor may be the smartest career choice you’ll ever make.

If you’re asking yourself “What does it mean to be an entrepreneur,” here’s a rundown on the key features that make an entrepreneur.

Having an Entrepreneurial Mindset Means Being Scared

If you’re looking at a prospective real estate investment or business partner, it’s good to be the type of person who is scared to make the wrong choice. Why? Because you’ll be hyperfocused and take whatever steps are necessary to make the right decision. In other words, vigilance can become the secret weapon you wield to succeed as an entrepreneur.

Be willing to complete careful and regular market research to find the best deals possible.

Having an Entrepreneurial Mindset Means Being Fearless

If you’re asking “What does it mean to be an entrepreneur,” you may, understandably, think that being fearless and being scared is a contradiction. The reality is that these two emotions can go hand in hand. After all, even though you may not feel 100% confident about a particular real estate deal, for example, you could still see its huge potential and, thus, be willing to pursue it with your resources of money and time.

So, if you’re the type of person who is carefully optimistic, then a career as an entrepreneur may be the perfect fit for you.

Having an Entrepreneurial Mindset Means Liking Challenges

When employees face problems, they often try to get out of these problematic situations as quickly as possible. However, entrepreneurs take on a different approach: They are driven to work harder when they face adversity. That’s because they inherently don’t see things as insurmountable; instead, they see the process of creating and growing a business as a challenge to successfully overcome.

Having an Entrepreneurial Mindset Means Being Flexible

If you’re the type of person who is quick to take action and make a necessary change, then you may find entrepreneurship to be an excellent fit for you.
As an entrepreneur, you should spend some time writing down your business plan on paper. In fact, setting clear goals this way can also be highly beneficial. However, there might be moments in which you’ll simply have to improvise as you embark on your business plan. Being inventive in this way is an excellent skill that will keep you moving forward rather than becoming stuck due to analysis paralysis.

Having an Entrepreneurial Mindset Means Liking Change

If you are averse to change, then a career in entrepreneurship—and especially in real estate investing—is not for you. That’s because fearing change is essentially self-sabotaging behavior.
The truth is, markets are constantly changing, and demand and supply in real estate can especially alter from one season to the next. To excel as an entrepreneur, you must embrace change and be willing to use it to your advantage.

Having an Entrepreneurial Mindset Means Being Resourceful

Being resourceful in real estate investing means knowing how to find out information that you desperately need before jumping on a deal.

For instance, you can join local real estate networking groups or attend real estate conferences to develop an understanding of sales. You could also gain information to help you to decide whether to target commercial real estate or residential real estate starting out. Or, you can talk to real estate brokers in your area to find out which houses for sale might be the smartest investments for you. No matter what it takes, you’ll find the information you need to make your real estate dream work out.

Seize the Day

Now that you know the answer to the question “What does it mean to be an entrepreneur,” it’s time to take a good look at yourself and be honest. Do you have what it takes to succeed as a business starter and manager? In other words, do you have an entrepreneurial mindset?

If the answer is “yes,” then it’s time to get started with living out your purpose and tapping into the potential that has yet to be released like a stream. Fortunately, I can help you to capitalize on your entrepreneurial spirit to generate robust levels of revenue in the real estate industry.

Get in touch with me now to find out more about how you can use your business-oriented mind to thrive in the potentially lucrative real estate field.

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Hud Loan Programs for Apartment Syndicators: Everything You Need to Know

Hud Loan Programs for Apartment Syndicators: Everything You Need to Know

Let’s talk about one of the top loan program providers that apartment syndicators use on their deals: Hud.

Hud can be a great option for apartment deals. We’re going to cover each of their common loan programs, including their permanent, refinancing, and supplemental loans.

Loan 1: 223(f)

The first Hud loan, which is the permanent loan, would be the 223(f). This is very similar to agency loans, except for one major difference: processing time. Plus, the loan terms are actually a little bit longer. So for the 223(f), the loan term is going to be lesser of either 35 years or 75% of the remaining economic life. 

So if the property’s economic life is greater than 35 years, then your loan term is actually going to be 35 years. It’ll be fully amortized over that time period. Whatever the loan term is what the amortization rate will be. If you’re dealing with a smaller apartment community under the $1 million purchase price, then this is not going to be the loan for you.

In regards to the LTVs, for the loan-to-values, they will lend up to 83.3% for a market rate property, and they will also lend up to 87% for affordable. So that’s another distinction of the housing and urban development loans, which is they are also used for affordable housing. There will be an occupancy requirement, which is normal for most of these loans. 

The interest rate will be fixed for this loan, and then you will have the ability to include some repair costs by using this loan program. For the 223(f) loan, you can include up to 15% of the value of the property in repair costs or $6500 per unit. If you’re not necessarily doing a minor renovation, but if you’re spending about $6500 per unit overall, then you can include those in the loan.

The pros of this loan are that they have the highest LTV. You can get a loan where you don’t have to put down 20%; you can actually put down less than 20%. It also eliminates the refinance as well as the interest rate risk, because it is a fixed rate loan, and the term can be up to 35 years in length. You won’t have to worry about refinancing or the interest rate going up if something were to happen in the market. 

These loans are non-recourse as well as assumable, which helps with the exit strategy. There’s also no defined financial capability requirements, no geographic restrictions, and no minimum population. There’s essentially no limitation on them giving you a loan for a deal if the market doesn’t have a lot of people living in it or the income is very low. 

There are also some cons involved when considering a Hud loan. The processing time is much longer than some. The time for a contract to close is at a minimum of 120 days to six or nine months is actually common. Other loan providers have processing times between 60 and 90 days. Hud loans take a little bit longer to process. They also come with higher fees, mortgage insurance premiums, and annual operating statement audits.

Loan 2: 221(d)(4)

The next Hud loan is 221(d)(4). These are for properties that you either want to build or substantially renovate. 

Similar to the 223(f) loan, these loans do have very long terms. The length of the loan will be however long the construction period is, plus an additional 40 years. That is fully amortized. 

This isn’t the loan for smaller deals, because the minimum loan size is going to be $5 million. So if you have a deal that you want to renovate and has got a $1 million purchase price, you’re going to have to look at some other options. 

Similarly, this is for market-rate properties as well as affordable properties, with the same LTVs of 83.3% and 87% respectively. These loans are also assumable and non-recourse as well as fixed interest with interest-only payments during the construction period.

The CapEx requirements for this loan are quite different than the 223(f). For the 223(f), it was up to 15% or up to $6500 per unit, whereas for the 221(d)(4) loan actually needs to be greater than 15% of the property value or greater than $6500 per unit. 

The 221(d)(4) pros and cons are pretty similar to the 223(f) pros and cons. There’s the elimination of the refinance and interest rate risk, because of that fixed rate in a term of up to 40 years. They’re also higher leveraged than your traditional sources. Those longer processing time and closing times can be a pain. There’s going to be higher fees, and you also have those annual operating audits and inspections.

Loan 3: 223(a)(7)

Hud also offers refinance loans as well as supplemental loans for their loan programs. Their refinance loan is called the 223(a)(7).

If you’ve secured the 223(f) loan or you’ve secured a 221(d)(4) loan, you’re able to secure this refinance loan, and it has to be one of those two. You can’t go from a private bridge loan to this refinance loan– that’s not how it works.

The loan term for the refinance loan is up to 12 years beyond the remaining term, but not to exceed the term. If your initial term was 40 years and you refinanced at 30 years, then this refinance loan will only be 10 years, because it can’t be greater than 40 years. 

It will be either the lesser of the original principal amount from your first loan, or a debt service coverage ratio of 1.11 or 100% of the eligible transaction costs. These loans are also fully amortized. The occupancy requirements are going to be the same as the existing terms for the previous loan. These are also going to be assumable and non-recourse with that fixed interest rate.

Loan 4: 241(a)

Hud also has a supplemental loan program available, which is the 241(a). This is only probable if you’ve secured the 221(d)(4) or 223(f). 

The loan term is coterminous with the first loan. Whenever you acquire it, it’s just going to be the length of the remaining loan. You’re essentially just adding $1 million or $5 million to your existing loan. 

Your loan size can be up to 90% of the cost of the property, so essentially a 90% LTV, because you need to have at least 10% of equity in the property at all times. It’s going to be fully amortized. 

They’re also going to base the loan size on the debt service coverage ratio. Because of this, it needs to be 1.45. That’s a ratio of the net operating income to the debt service. Then, the minimum occupancy requirements are going to be the same as whatever the terms are for your existing loan. Like all the loans, they’re assumable, they are non-recourse, and the interest rate is fixed.

And that’s it for Hud loans! What do you think about taking out loans through Hud for real estate purposes? Tell us what you think in the comments below!

Image Courtesy of Pixabay

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Two Common Real Estate Scenarios: Communication and Protection

Two Common Real Estate Scenarios: Communication and Protection

In this blog post, we’re going to be looking at two niche real estate scenarios that can happen to just about any investors.

The first scenario involves dealing with older potential clients and original buildings. If you’ve been in this situation before, you know that it can be quite a delicate process getting older owners to sell.

Communication Issues

Imagine this: You just found a potentially amazing off-market apartment building deal. It has 150 units and a $4 billion portfolio. It was purchased back in 1978, just over the 39-year expiration of the depreciation tax benefits law. The owner is in his late 80’s and purchased these buildings when they were first built at the time. You give him a call and ask him if he has any interest in selling, but he has trouble hearing you. He hands the phone to his caregiver, who abruptly says no and hangs up. What solution is there?

What one should do in this situation is to get curious. Start asking yourself some questions, then draft a letter to them. This is how you can learn more about their situation while introducing yourself to them. This is your chance to say, “I’m not sure where you’re at in this stage of owning these properties, but I can tell you that you might be worried about tax liability when you sell them. I have experience purchasing these types of buildings and I’d be happy to talk about some solutions any challenges you might be having.”

Penning a handwritten letter shows care and integrity. Keep in mind that many people of a certain age are struggling to keep up with the constant innovations and growth in the tech and digital world. A handwritten letter could be a breath of fresh air and a means to communicate that potential sellers may appreciate.

Protection From Embezzlement

Now, think of this scenario: You’re embarking on a general partnership in the real estate industry. It is your first time committing to such a project, and you’ve heard horror stories from colleagues involving embezzlement, fraud, and massive loss of funds. The general partner controls the business plan as well as the financial account connected to the project. You’re wondering how you can protect yourself from them embezzling funds from the operational account, and what auditing protocol you can use to protect yourself as a passive investor from theft.

There are several ways to approach this, but we can look at the most tried and true method.

You can have some checks and balances before the deal is done, which won’t be very much. After the deal is closed, though, you can do a lot more. For this scenario, we’ll look mostly at what a beginner real estate investor can do preemptively to stay safe in a general partnership.

There is no money for a potentially untrustworthy or shady general partner to take before the deal, but you can do some due diligence prior to a deal. If a shady partner is going to steal money from the entity itself, then they would have to do it afterward. This is because that is when the money is physically in the bank account.

Before the deal closes, there are a few things you should do. First off, you should absolutely take the time to look at the overall structure of the deal to make sure that there is at least an 8% preferred return. Make sure that the general partner is getting paid an asset management fee if and only if they are actually performing. If they’re proving themselves and they’re returning the preferred return, they can get that asset management fee. Otherwise, they get nothing.

Obviously, these are things that aren’t going to outright prevent someone from stealing money in a general partnership. When it comes down to it, they’re just small things you can do to ensure that the deal itself is set up in the mutual favor of you and your general partner, so that you have an alignment of interest.

Those are some things you can do before the deal. Another thing you should absolutely be doing before signing on anything with a general partner is to check those references. You can absolutely not go into a general partnership blind with no knowledge of who you’re working with. Even if the hearsay is overwhelmingly positive, you absolutely need to still check in with the partner’s references. By doing so, you’re going to get a really good picture of what the partner is all about.

Call their references and listen to what they have to say. We’re talking about past partners, firms, project managers, any business colleagues or people who have worked with this particular partner. Even if you get glowing reviews, you should then Google your partner. Those are things you’re probably already doing, but it really can’t be optional if you’re a baby real estate investor. You can be seen as an easy target because you don’t necessarily know the signs and symptoms of a parasite real estate partner. When you Google them, look for the partner’s name or firm title. And don’t be afraid to dig deep.

This doesn’t directly answer the question of how to make sure they’re not embezzling money, and we’re aware of that. However, there is some prep work that needs to be done on the front end to mitigate the risk of getting in with a group that is known for criminal activity. Sometimes that front end research is really all you need to check out.

What do you think about these two scenarios in real estate? Have you experienced either situation in your career? Tell us your real estate story in the comments below!

Image courtesy of Pixabay

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FOUR (LITTLE KNOWN) KEYS TO FINDING THE BEST MULTI-FAMILY DEALS IN YOUR MARKET

Four (Little Known) Keys To Finding The Best Multi-Family Deals In Your Market

Finding the best apartment deals can be a bit tough if you have no idea how to go about it.

You find yourself asking questions like:

  • How do I go about it?
  • Do I use a broker or not?
  • Where can I find the best apartment deals?
  • How can I get these deals when I find them?

It’s alright; everyone starts somewhere. And today, you’re going to learn a straight forward, direct approach to finding off-market deals in your area.

Let’s get started!

 

Start on the internet.

Sounds simple right?

That’s because it is…

No matter what your investing criteria, chances are you can find a list of matching properties on ListSource. From there you can skip trace to find the owner’s contact information.

Get in contact with the owners by sending them emails, using cold calls and sending text messages – using multiple contact channels increases your likelihood of getting them on the phone (which is where most real estate deals actually get done).

 

Buy directly from the seller if you can

I interviewed James Kandasamy, owner of Achievement Investment Group, who told us “Both of my first two properties were bought directly from the seller. We use our own strategy to get in touch with the sellers and work directly with them. That’s the primary point on why we were able to get it at a good price/door.”

It’s hard to depend on brokers because they have a responsibility to make sure that they get the highest price for the sellers as well. The best deals will typically come directly from the owner.

There are a lot of sellers out there with problems that they do not want to bring to the market, which makes it easier to get the best price directly from them.

The key is to build a relationship with the seller. Any real estate deal of this type needs to based on trust; without it, you’ll be lucky to get past the front door, much less to the signing table.

How do you build trust with a seller? By being honest and true to your word over time. But beyond that, the way you communicate and carry yourself throughout the deal will have a big effect on whether the seller feels they can depend on you.

As an example, here’s the text James Kandasamy sent directly his sellers;

“Hi, I’m an apartment investor in this region (Central Texas) and I saw your property at XYZ, and I’m interested in buying it. You can sell it directly to me, without any broker’s commission. Would you like to talk further?”

 

You have to be persistent.

Truth is you might have to send over 500 text messages to get a deal. The response you’ll get back will be about 1%.

But all the money is within that 1%. It’s a numbers game, like so much in our industry.

The key to building a stable deal pipeline is persistence in following up and staying in contact with the sellers. Most investors follow up once or twice and lose interest. See this as what it is: an opportunity. A truly dedicated and dogged investor can make headway, even in a crowded market.

 

Be a problem solver.

James Kandasamy advises, “The money you make is a direct correlation to the value you provide. For me, it’s always you have to solve some problem to get extraordinary returns. If you are doing a deal which is stabilized you may get a good deal, but you’ll get a much better deal if there’s a problem in that deal and you’re able to solve it.”

Be a problem solver and you’ll be able to handle deals that other investors will be forced to walk away from.

Let us know in the comments about some of the biggest problems you’ve solved in your deals!

 

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Navigating the Mechanics of an Apartment Deal

Navigating the Mechanics of an Apartment Deal

From the types of roof, electrical wiring, heating and cooling to the parking lot condition, windows and hot water heaters there are alot of checklist items to consider when negotiating your apartment deal.

Nathan Tabor shares his insight into some of the the nitty gritty so you won’t be left in the lurch after closing. Read on to find out what you may not have been thinking about for your ideal setup.

 

Check for city complaints

How do you know if the plumbing is alright? Or the electrical connections are okay?

“So the number one thing on top of my list that I do first when I start due diligence is to go to the housing authority or whoever is writing city complaints and get the last two years’ worth of city complaints. The reason why – I got burned on this.” says Nathan Tabor.

This will give you a general idea as to what issues you’ll be facing. From the housing complaints, you can determine what else is probably wrong with property revealing any expenses you will incur so you can factor them into your deal.

 

Thinking about the roof

The type of roof you have not only impacts your installation and maintenance costs, but plays a part in insurance costs as well.

Let’s look at pitched vs flat roofs. A flat roof is cheaper to install but that’s about as far as the benefits go. A pitched roof has a longer life span and has a more appealing appearance while flat roofs have an institutional vibe. You see a flat roof and the first thing you’re thinking about is a medical facility as opposed to something that feels like home.

Usually, flat roofs cost more to insure because they’re not going to last for very long and also have a greater chance of developing leaks. Not to mention the host of other problems a leaky roof would present in your apartment building.

Nathan on flat roofs: “…[With flat roofs] you’ve gotta climb up there often, make sure that the drains are unstopped… Depending on where you are in the South, flat roofs just make your electrical bills more, because in the summer it’s hotter, and in the winter you don’t get the sun.”

 

Look out for fire hydrants and mailboxes

Nathan sheds light on some other hidden costs:

“Do you know who owns the fire hydrants on the complex you’re getting ready to buy?”

Most folks would never think of this until there’s a gigantic puddle next to the fire hydrant. Sure, you can call the fire department to come over and fix it, but since it’s on private property you could be on the hook for a surprise $6,000 expense.

Nathan on multi-unit aluminum mailboxes: “I just thought hey, it’s stamped on the side of it “Property of the USPS”, they maintain it. Guess what they don’t do? They don’t maintain them.”

When Nathan looked into the replacement cost of a 4’x4’ mailbox seven years ago it was…wait for it…$1,800.

 

Water metering

Having one meter on a multi-unit complex means you’re footing the bill for your tenants no matter who is taking 20-minute showers, outside washing their cars or letting their faucets run. Having individually metered units means you can bill your tenants individually holding them responsible for their own water needs. If you’re looking at buying a complex with a single meter find out the the average cost of the total water bill. Then weigh the cost of conversion and savings over time to help you decide which route you want to take.

What does your due diligence look like? Let us know in the comments.

 

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How To: Creative Financing for Real Estate

How To: Creative Financing for Real Estate

On a recent Situation Saturday segment on the Best Real Estate Investing Advice Ever podcast, Joe Fairless spoke with CEO Todd Dexheimer, CEO of Venture D Properties, LLC about creatively financing in the real estate business. How do you do that? Luckily, we got someone who not only knows how to do that, but he actually did it as well. And the story behind how his latest deal came to be is an all too familiar one to real estate investors.

The latest deal I did, which I think we can spend the most time on, was about 120-unit apartment complex,” Dexheimer said, “and I put it on a contract with the intention to just get regular financing on it. Well, I shouldn’t say regular financing. The property was 78% occupied. So, it was low occupancy, and it needed some work. So, sixty of the units had been renovated to a pretty good standard, but basically, the rest of the units needed a pretty substantial renovation. So, I needed to get either a bridge loan, a local bank loan, or seller financing, and as I went through this deal, I just didn’t want to use a bridge loan because they’re expensive. So, anybody who has done a bridge loan understands the expenses.”

This is very true. While a bridge loan can be helpful in the scope of buying a new property, there are many downsides to this type of financing. You’ll likely have to pay very high-interest rates and APR. Some lenders utilize a variable prime rate that can increase over time as well.

“So I was trying to get local bank financing, but I had kind of three strikes against me. The first strike was the fact that I was out of state. The second one is [that] I’m syndicating the deal, and the third one was the deal wasn’t stabilized. It was 78% occupied. So, three strikes against me. The local banks were very hesitant. I did have one local bank that was semi-interested, but we were running out of time. My earnest money was going to become hard. So, I said, ‘Look. Let’s do seller finance,’ and I approached it at that level, and we ended up working out a deal.”

Seller finance is essentially a real estate agreement in which financing is provided by the seller and included in the purchase price.

There are many benefits for both sellers and buyers when it comes to seller financing. From the buyer’s perspective, selling financing is one of the best alternatives to a standard bank or bridge loan. For real estate newbies who may not be able to pay that standard 20% down payment, it may not be the best option. But for those who are ready to invest, it’s very doable. Sellers can also benefit from seller financing by essentially using the loans as a form of additional income. Seller financing is essentially just real estate investment, just with a personal edge.

What do you think about creative financing strategies? Tell us about it in the comments below.

 

Photo source: Pixabay

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Why Did You Get into the Real Estate Investment Business?

Within the Best Ever Show Community, real estate entrepreneurs gather together to add serious value to one another’s investment strategies. One example of this is our weekly question, to which everyone in the community is invited to respond. Recently, I posed a question regarding the first thing that piqued everyone’s interest in real estate investing. Read on for their common answers!

1 – Taxes

Mark Slasor became interested in real estate investing because of the various investment property tax benefits. More specifically, because of the tax write-offs allowed against his W2 income.

However, tax write-offs, also referred to as deductions, are just one of many tax benefits that come from investing in real estate. Brandon Turner over at BiggerPockets wrote an in-depth article on the tax benefits that come from investing in real estate, which include deductions but also long-term capital gains, depreciation, 1031 exchanges, no self-employment or FICA (Federal Insurance Contributions Act) tax and “tax-free” refinances. For more details on these six tax benefits, you can read his post here.

2 – Control

When compared to other investment avenues, like a 401k, stocks, bonds, money market account, etc., investors have more control over real estate.

The investor decides which of the many strategies to pursue. They select the property. They pick the type of financing. They control the entire real estate investment business plan. Etc. Because of all of this control, the investor has the ability to directly influence the profitability of their investment project.

Jeremy Brown became interested in real estate because of this control factor. He realized the stock market was a lot like gambling. Generally, the value of the stock is tied to factors over which the individual investor as little to no control. Conversely, you have the ability to directly affect the returns of a real estate project.

Chris Mayes became interested in real estate for similar reasons. Not only did he love the thought of passive investment income and an early real estate retirement, but also his ability to be actively involved in the investment in order to directly impact the returns.

3 – Opportunities

There are such a variety of opportunities, whether it’s different investment strategies, property types, real estate investment business plans, etc., that investors frequently suffer from shiny object syndrome. “I want to fix and flip houses. But, oh look, what if I kept the house as a rental? Or, I could just skip single-family investing in general and jump straight to apartments. Hmmm. Maybe I should just take my capital and privately invest in a syndication…WHAT SHOULD I DO?!”

For the past 50 or more years, investors have reached the highest levels of success using every real estate investment strategy and investing in every asset type, which far outweighs the drawbacks of shiny object syndrome

Stevie Bear became interested in real estate because of this abundance of opportunities. He was attracted to the innumerable potential avenues to pursue for profitability in nearly any market or economy.

4 – Friends or Family

Some investors were lucky enough to be born into the real estate investment business. Leilani Moore was a property manager for her family’s business, learning the value of real estate investing over the years. Similarly, Barbara Grassey’s father was a real estate investor, and she enjoyed hanging around the fix-and-flip properties he was renovating.

Another personal relationship that leads investors into real estate is friends. Harrison Liu became interested in real estate because of a close friend who had been investing for years. In fact, this friend helped Harrison find his first deal and he’s been investing ever since.

Theo Hicks also became interested in real estate through a friendship. One night, over pizza and videogames, two of his buddies mentioned the value of real estate investing. In particular, they said, “sometimes, I forget I even own the property until I receive a check at the end of the month.” He was intrigued and ended up putting his first property under contract in less than a week.

5 – Infomercial

Infomercials may be a fading industry, but many active investors became interested in real estate from these flashy 30-second advertisements. Robert Lawry II is a perfect example. He saw expert Tom Vu’s infomercial when he was 14 years old. He learned that, once he bought his first investment, he could drive fancy cars, go on expensive boats and, most importantly, meet beautiful girls in bikinis! How do you say no to that?

6 – Financial Independence

Lastly, one of the main reasons why people are attracted to real estate is due to the prospect of financial independence. Purchase enough cash flowing real estate to replace your corporate income and you’re FREE. Stone Pinckney became an investor to pursue financial independence. Dave Van Horn wanted a way out of a dead-end job and a life of mediocrity. Eddie Noseworthy wanted the ability to create his own epic life and have more time to do the things he loves to do.

The Importance of Networking

Whether you’re newly interested in the real estate investment business or you’ve been making deals for years, networking is clearly one of the most valuable aspects of a good investment strategy. Like some of those above, perhaps you have family and friends who are experienced in the biz. Maybe you’ve only read about this investment strategy and read a handful of real estate investment books. Either way, I’m here to help you take your deals to the next level!

Join me as a passive investor on my next big apartment syndication, or apply for my private program!

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Real Estate Horror Stories From Five Active Investors

If you’re in the biz long enough, you may just see and experience just about everything. Some of those experiences are going to be great teaching tools, and that includes real estate horror stories. I’ve collected similar tales from active real estate investors in order to pass them on to you. Read on to learn from others, and maybe you can avoid similar situations.

Michael Beeman and a Rotten Contractor

Michael’s first investment was a large single-family home. The plan was to follow the BRRRR (buy-rehab-rent-refinance-repeat) strategy, as it was a distressed asset that required approximately $25,000 in renovations.

Unfortunately, nothing went according to plan. Because he hired a terrible contractor who botched the renovations, Michael had to tear down everything and start from scratch. As a result, he went $25,000 over budget. While he technically didn’t lose any money, this did wipe out any equity he could have pulled out with a refinance.

Michael did learn a valuable lesson (always screen a contractor), and consequently, a year after this incident, he had built a portfolio of 31 cash flowing units as a successful and active real estate investor.

Glen Sutherland and the Flood

Glen had a troublesome tenant who broke the terms of the lease and wouldn’t voluntarily vacate the premises. He successfully filed for an eviction. But, one week before the scheduled eviction date, the tenant decided to leave. Great news, except for the fact that, on the way out, without Glen’s knowledge, the tenant opened the valve on the hot water heater. By the time Glen realized what had happened, over three feet of water had accumulated in the basement.

Lucky for this active real estate investor, the basement was unfinished, which mitigated the damage. One dumpster, three days of shop vacuuming, and a few dehumidifiers later, the basement was usable again. But, being a tenant-friendly real estate market, Glen was unable to take legal action against the tenant…

Julia Bykhovskaia and the “Philanthropic” Contractor

In this real estate horror story, Julia purchased a fully furnished property with the intention of using it as an Airbnb. It did require a few renovations, so she hired a contractor to perform the work. When she checked in on the status of the rehab, she noticed that all of the living room furniture had vanished. She asked the contractor what happened, to which he responded that someone stopped by and really liked the living room furniture, so he let them take it all – even though Julia explicitly told to keep the furniture.

After a week of screaming and yelling, Julia and the contractor negotiated a solution. She withheld money in lieu of the furniture from the contractor’s payment. As a result, she was able to purchase furniture of a higher quality for the living room.

Theo Hicks and Niagara Falls

Theo’s first deal as an active real estate investor was a value-add duplex in Cincinnati that required around $25,000 in renovations. He closed on a cold and dreary Thursday afternoon in February. His intentions were to begin the renovations that Saturday but decided to take the weekend to celebrate his first deal instead.

Theo showed up on Monday to rip out the carpet and paint the walls. But, once he opened the front door, he heard an unexpected noise – a faint whooshing sound. As he approached the stairwell to the basement, the sound became louder and louder. He walked down the stairs, turned to face the bathroom, and was confronted with a waterfall!

Being his first deal, Theo didn’t understand what the real estate agent meant when she told him to “put the utilities in your name.” As a result, the heat was off the entire weekend. The pipes froze, thawed, and burst, leaving him with a mini Niagara Falls in the basement bathroom.

Grant Rothernburger and the Kentucky Derby

The winner (or I guess loser) of the worst real estate horror story is Grant.

Grant was touring a prospective investment property in Kentucky that smelled like a barn. He walked into the basement and discovered the source of the smell…HORSES! That’s right. There were three horses wandering around the basement. The property was located in a small town, but it was not a rural area. There shouldn’t have been horses in that area in general, let alone the basement.

Needless to say, Grant decided to pursue other investment opportunities, but did walk away with a pretty hilarious story!

Are you an active real estate investor with a horror story to share? Comment below! Want even more actionable real estate advice? Check out these investment books.

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What’s the Best and Highest Use of $20 Million in Real Estate Investing?

Our Best Ever Show Community on Facebook is full of real estate entrepreneurs who love to share ideas. To do so, we post a new question each week regarding various real estate topics, particularly property investment strategies. Our question this week started off with a hypothetical: Someone is handing you $20 million in property for FREE. Which asset class would you choose?

This week’s question was a little different. We conducted a survey in addition to asking for written responses to the question, particularly for those who selected “Other.” The breakdown of the answers regarding the best real estate investment strategies was as follows:

  • Multifamily: 58
  • Self-Storage: 15
  • Commercial offices, retail centers, etc.: 11
  • Other: 5
  • Mobile Home Parks: 4
  • Single Family: 2
  • Urban Mixed Use: 2

Property Investment Strategies Focused on Self-Storage

Mitchell Drimmer is one of the 15 people who selected self-storage, mainly because he has purchased multifamily in the past and is not a fan. He admitted that multifamily may perhaps have a higher cap rate but are nothing but problems day in and day out, especially in “value neighborhoods.” Mitchell hasn’t purchased self-storage in the past. But as an outsider, he says self-storage seems like a business with almost no clients, no hard luck stories from residents, no evictions, no complaints about certain maintenance issues, and very little code enforcement issues. Done properly, at the right price and in a good location, Mitchell believes self-storage is a great property investment strategy.

Ryan Gibson also selected self-storage for similar reasons – it is an asset class with the lowest “resting heartbeat” (no tenants, little maintenance, minimal employees). But, additionally, he picked self-storage because it has the most automation and the highest returns.

Single Family Homes as One of the Best Real Estate Investment Strategies

Brandon Moryl was one of only two people who selected their $20 million to be in the form of single-family homes. In particular, luxury homes. According to him, that part of the real estate market has yet to fully recover, meaning there is the potential for a lot of growth. Additionally, there is less competition in the high-end SFR space compared to your typical $75,000 fixer upper. He also said, “with the stock market killing it and the overall economy rocking, combined with programs like 5% jumbo [loans], that’s is where I would be.” Finally, and maybe most importantly, he says it’s sexy owning million-dollar homes. Indeed!

Niches are the Best Real Estate Investment Strategies

The investors who selected “other” offered more creative or niche property investment strategies.

Danny Randazzo went with a diversified approach. Chibuzor Nnaji Jr. concurred. Danny would look for a deal in each asset class and invest in a few of the most attractive opportunities. “It could be one deal requiring $20 million or it could be a deal in each. Share the love!”

Deren Huang, with the support of Michael Nerby, would invest in NNN, or triple net leases. According to Wikipedia, a triple net lease is a lease agreement on a property where the tenant or lessee agrees to pay all real estate taxes, building insurance and maintenance (the three “nets”) on the property, in addition to any normal fees that are expected under the agreement (rent, utilities, etc.). He said NNN is the true passive investment.

Leaving Real Estate Behind

The last two individuals left behind property investment strategies entirely – at least in part.

Lane Kawaoka selected two answers. He would invest in multifamily because it “it’s the sweet spot in terms of the sharp ratio risk-reward matrix. Not too hot, not too cold…just what the baby bear likes.” However, he would consider accepting the entire $20 million amount in the form of a savings bond and just live off the interest.

Finally, Diogo Marques would forgo real estate altogether and purchase solid, stable companies that he could see operating in 10 years’ time with a 10% to 15% net profit margin annually.

Finding a Property Investment Strategy for You

Do you have a business plan that is not included here? Please leave it in a comment below! Maybe you need help finding the best real estate investment strategies for your unique business model and financial situation. Consider applying to my private program, during which you will receive expert feedback and actionable advice that can help you build your strategy. Additionally, learn how to raise money for your deals and how to choose properties for great returns.

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The Secret to Eliminating Competitors in a Hot Real Estate Market

How do you approach finding, underwriting and acquiring deals when there’s so much competition that you cannot find a deal at a price that will meet your investment return goals?

 

This was the exact situation that my apartment syndication business faced in mid-2017. We had a lot of leads coming in that met our initial investment criteria, but the competition was such that the purchase price kept creeping higher and higher until the deal was projected to achieve returns that were below our passive investor‘s goals.

 

So, what did we do? Like any effective entrepreneur, we went into problem solving mode. More specifically, we reassessed our investment criteria.

 

The four questions we would ask for any deal we came across to determine if it met our investment criteria were:

 

  • Was it built in the 1980s?
  • Are there 150 or more units?
  • Is it in or near a major city?
  • Is there an opportunity to add value?

 

If we didn’t answer “yes” to all four of these questions, the deal would automatically be eliminated from contention. The benefits of setting initial investment criteria is that you don’t spend an inordinate amount of time underwriting deals that do not align with your business plan.

 

Up until mid-2017, we didn’t have much of an issue finding and purchasing properties that met this criterion. However, as of late, we have. In particular, we had a challenge finding apartment communities that were built around 1980, mostly due a high level of competition. So, we decided to adjust our investment criteria to include apartment communities that were built in the 1990s and the 2000s. And as a result, we purchased an apartment community built in the 2000s for the first time.

 

We like to look at properties built around 1980 because we are value-add investors. Generally, anything built earlier than 1980 would be to distressed to fit into our value-add business model. Conversely, anything built later than the 1980s wouldn’t have enough value-add opportunities or wouldn’t be sold at a price that would allow us to meet our investment goals. Or so we thought.

 

After reviewing all the potential deals in our pipeline, regardless of age, we realized that these newer deals – the ones built between 1995 and 2005 – were actually projecting returns similar to those that were built in the 1980s. Generally, since they are newer buildings, the opportunity to add value was lower, but that was offset by the reduction of certain expenses, like ongoing maintenance, management issues, vacancy rates, resident turnover and overall risk.

 

I think the reason why, in our current market, 1980s properties have comparable returns to 1990s and 2000s properties is because value-add apartment investors are conditioned to make the former property type a priority. Most value-add investors (including us at the time) wouldn’t even look at communities built in the late 1990s or early 2000s because they think the numbers won’t work as well because there will be less opportunity to add-value. However, we were able to apply our value-add investing knowledge to a property built in the 2000s and create a business plan that would enable us to achieve the desired returns of our passive investors. Whereas most investors pursuing deals in this age range aren’t looking at them through the value-add lens, we were able to identify areas that could be improved that the other, non-value-added investors had missed.

 

In other words, we leveraged our unique skillset (understanding how to recognize opportunities to add-value) to defeat the competition and be awarded the deal.

 

So, if you are having trouble finding deals that achieve your desired returns, reassess your acquisition criteria. Start looking at deals that fall outside your criteria and see if you can project similar returns. You may end up discovering what we did, which will lower your risk in the deal since it is newer and comes with lower risks and ongoing expenses. Or you might discover that deals in smaller markets, or smaller in size or another investment strategy all together is a better fit.

 

All that being said, our priority is still properties built in 1980. And we’ve only purchased one apartment community outside that range. So, we’re keeping our eyes out for our initial criteria but also now acknowledge that sometimes it makes sense to upgrade, especially when everyone else is looking at the same types of deals as us.

 

What about you? Comment below: What unique strategies have you implemented in your business to out compete your competition?

 

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3 Investing Secrets from a Nation’s Top Broker

As you complete more and more deals, you will begin to accumulate the insider secrets of what it takes to be a successful investor. Once you’ve eclipsed a billion-dollars’ worth of deals, then those secrets are worth billions too!

 

Karen Briscoe, a Principal of the Huckaby Briscoe Conroy Group, is an individual full of billion dollar secrets. Her group has sold over 1,000 homes valued over $1 billion. It’s also been named to the Wall Street Journal Top Realtor Team list. Karen condensed these secrets into a published book – Real Estate Success in 5 Minutes a Day: Secrets of a Top Agent Revealed. In our recent conversation, she provided the top three secrets to her success and how you can apply them to your investing business.

 

Secret #1 – Invest in the up-and-coming markets

 

Karen’s first secret can be explained through the lyrics of a Frank Sinatra song. “One of the top tips that applies to investors in particular is what I call ‘New York, New York’, the song by Frank Sinatra with the chorus ‘If you can make it there, you can make it anywhere’,” she said. “If you look at the fundamentals of a certain market and you find that investors are being successful in that market, then you want to go to the next market [over], or like Wayne Gretzky says, ‘Go to where the puck is going’ – if you want to go where the market is going, then find the markets that have similar fundamentals but are on the edge, or soon to be the next place where everybody wants to be, because that’s where the best values are.”

 

This “New York, New York” strategy is followed by corporate giants like Starbucks and McDonalds. They search for the fundamentals and trends that hallmark an emerging market, set up their locations there and wait for the market to surge.

 

The fundamentals Karen says to looks at are the rental pool, jobs, schools and metro access. Or, for a hack, she said, “you could just apply the Starbucks effect, the Frappuccino effect that is talked about – how there has been found that there’s a halo effect around Starbucks. So, you could maybe go to that next ring around it and look in that area for what is upcoming neighborhoods that could be trending into better values over time.”

 

For a comprehensive guide for evaluating and selecting a target market, click here.

 

Secret #2 – Start a meetup group

 

Karen’s second secret, and my favorite, is to host a meetup or seminar. They type of individuals you’ll invite will depend on your business model and investment niche. As a broker, Karen said, “we’ve done investor seminars in conjunction with local lenders and other professionals like CPAs and financial advisors, because they too have a pool of clients who want to have real estate as part of their portfolio.”

 

There are many ways to structure a meetup group, and I wrote a piece for Forbes outlining a few successful methods. The main way Karen differentiates her meetup from her competitors is that hers is invite-only. She said, “I know that there are many agents that have done seminars that they open up, but we keep it invitation-only, and then that way these professionals are inviting their clients and offering a value-add service for their clients who have an interest in real estate.”

 

Secret #3 – Take Immediate Action

 

Karen’s final secret, which is also her Best Ever advice, is to start now. “There’s a Chinese proverb that the best time to plan a tree was 20 years ago, and the second best time is now,” she said. “I would say the same thing about real estate investing. I think the best time to invest in real estate was 20 years ago, and the next best time is now. I think many people become paralyzed with it, and I’m not discounting the fact that it has a lot of logistics associated with it, but the idea is just find yourself a real estate professional that you trust, find a lender that can work with you on getting financing that you can structure that works for you, and do it.”

 

Conclusion

 

Karen Briscoe, a billion-dollar broker, has three secrets to her success. They are:

 

  • Investing in the up-and-coming markets
  • Hosting an invite-only meetup group
  • Taking immediate action

 

Apply these secrets to your investment, which may require creativity on your part, and replicate her massive success.

 

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Three Ways To Thrive In A Trump Real Estate Market

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

 

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

 

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

 

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

 

 

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

 

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

 

1. Don’t buy for appreciation.

 

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

 

Sounds like a good investment strategy, right?

 

Not necessarily.

 

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

 

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

 

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

 

 2. Don’t over-leverage.

 

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

 

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

 

But there’s also a catch.

 

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

 

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

 

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

 

3. Don’t get forced to sell.

 

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

 

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

 

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

 

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

 

Some common exit strategies are:

 

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

 

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

 

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

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

 

Kim Ades from JF999: World Class Author, Coach, and Thought Leader Sheds Light on Why the Successful RE Pros are Succeeding

 

Best Ever BookAsk and It is Given by Esther and Jerry Hicks

 

Best Ever Deal Kim has Done – “This house, the house I live in.”

 

“I was supposed to buy it, and then it got pulled out from under us and we ended up buying it afterwards at a lower price than out original offer.”

 

“It was a matter of maybe a month or so. A month or so later, with a new agent, things had changed and we found a bit of a loophole that allowed us to get us a lower price.”

 

“The loophole was the size of our balcony. Our balcony is oversized, and apparently because it’s oversized, it had to be ripped down, so we asked them to pay for the tear down theoretically, and they took that amount off the top of the price.”

 

Best Ever Way Kim Likes to Give Back – “Coaching, It’s just what I do.”

 

Biggest Mistake Kim Has Made So Far In Real Estate – Not knowing the tax law

 

“I mentioned to you that I used to own property when I was young, with my first husband (I’m remarried now). One of the things that happened to us is we owned a company together, and as our marriage unfolded, I ended up selling my shares. I didn’t know much about tax law or anything like that, and I made a huge error in the way that I sold my company, and a couple of years after the sale I ended up getting a call from our government (CRA) letting me know that I owed them $300,000 in taxes… So not quite the real estate story you wanted, but still, definitely an investment that kind of blew up on me, and it was a scary time. But luckily, I had the money, so I just paid it off and right after that I just really scaled back. I stopped going to get my hair done at the hairdresser’s, I learned to color it myself. I just took care of things a little bit differently and stopped living very frivolously, and just kind of scaled back until I recalibrated and kind of felt more comfortable again, but it took me a couple of good years until I got back on my feet after that.”

 

“There’s a way that you sell your company where you get a $500,000 tax exemption from the sale of a company, and I didn’t sell it that way, so I didn’t get that benefit, so all of it was taxable. I didn’t know, and because I didn’t pay that on that amount for a few years after that, not only did I incur a tax bill, I also incurred a bill on the money that wasn’t paid.”

 

“[My recommendation is to] speak to an accountant, and even a tax lawyer would be really helpful. Don’t just sell your shares… Understand what you’re getting into and make sure you’re taking the right steps from a legal standpoint and understand what the tax implications are. Taxes are a big deal.

 

Read Kim’s Best Ever advice: The One Characteristic Differentiating a Real Estate Pro and a Real Estate Rookie

Ricky Beliveau from JF1001: A Hidden Wealthy Niche that Involves a Fine Tuned Team

 

Best Ever BookHow I Built This (a podcast, not a book)

 

Best Ever Deal Ricky has Done – First rental property purchase

 

“The first building I ever purchased. I currently own it today – it’s my largest rental property. My purchase price was $930,00 and reappraised for $2.2 million.”

 

“I used FHA Owner Occupant, and in Massachusetts at the time the max one you could get was $816,000 for FHA, and then actually using the paper that I wrote I went to my mother, who had just inherited some money, and I asked her if she would invest in the property with me. So she gifted me $160,000 to get me started on that first property.”

 

“It’s a three-family property. When I purchased it, it was a nine-bed, three-bath; I lived in one of the units and I got my hands dirty and renovated it and turned it into a 12-bed, six-bath.”

 

“I was able to really drive up the rents and drive up the value. And also, I bought it at the perfect time. Boston in 2010 had really plateaued. From 2007 to 2010 it had almost been dead even, and then right in 2010 is when the market started to explode, and it hasn’t stopped since.”

 

Best Ever Way Ricky Likes to Give Back – Mentoring college students

 

“Right now, I’m a member of the Venture Mentoring Network at Northeastern. What that is is it’s startups and college students who have ideas and they’re trying to start their businesses. Right now, I’m mentoring a bunch of college students, trying to help them get their businesses going.”

 

Biggest Mistake Ricky Has Made So Far In Real Estate – Self-managing

 

“Thinking back, one mistake I made from the start was that I tried to self-manage my rental portfolio. I think that you can’t really deliver the high level of service that these tenants need when you’re doing it on your own, at least from my standpoint. I quickly realized that it was a mistake that I was trying to do that on my own, and I was able to correct that by hiring a management company to take over that for me.”

 

Click here to listen to my full interview with Ricky and learn about the hidden wealthy niche – condo conversions

Matt Wood and Mike O’Connor from JF1002: A Unique Way to Pay Investors Using a Property’s Cash Flow

 

Best Ever BookRich Dad Poor Dad by Robert Kiyosaki

 

Best Ever Deal Matt and Mike have Done – “Our 32-unit deal. We picked it up for $640,000 and it just got appraised for $1.35 million. It brings in roughly $18,000/month.”

 

Best Ever Way Matt and Mike Like to Give Back – “We’re pretty involved in our church and we like to get involved with the service aspects there. We do different habitat type builds and stuff like that, so it’s just getting your hands dirty and getting involved.”

 

Biggest Mistake Matt and Mike Have Made So Far In Real Estate – Rushed a Rehab

 

“I would say on 16-unit deal … We basically rehabbed all 16 units; some of them were floor-to-ceiling molds, a good majority of them were. We — I’m not going to say we cut corners, but we rushed the job in some areas, both with our repairs and with our tenant placement to get the thing up and running quicker than we needed to, and I would say that that probably cost us about six months of being at full stabilization, just because tenants were having to be evicted, repairs that we made weren’t holding up… So really going back and actually doing that right the first time would have saved us a lot of time and a lot of money.”

 

Click here to listen to my full interview with Matt and Mike and learn a unique way to pay your investor’s their preferred return

Joel Owens from JF1003: What the Big Box Companies Look for When They Lease Commercial Real Estate

 

Best Ever BookInvesting in Retail Properties by Gary Rappaport

 

Best Ever Deal Joel has Done – $410,000 commission from BiggerPockets

 

“On the brokering side, I have a client that contacted me off of BiggerPockets a couple years ago; he’s one of my higher end clients, and he bought two pieces of properties for about 22 million dollars, and I made about $410,000 in commission on that one.

 

Best Ever Way Joel Likes to Give Back – BiggerPockets forums

 

“I’m a moderator in Bigger Pockets, I’ve known Josh since he started the site a long time ago; we’ve got over 730,000 members now, and I’ve got about 12,000 posts on there, and I usually go on there … I don’t have time to help everybody individually because I’m working with my clients and my own investments, developing deals for myself, but if I can put something on there and then it can stay on there 24 hours a day, seven days a week, and thousands and thousands of people can read it… So I’ll usually try to answer questions or put information on there that people find useful.”

 

 

Biggest Mistake Joel Has Made So Far In Real Estate – Purchasing Multifamily from Fraudulent Owner

 

“There was one deal one time, it was a multifamily building that I bought, it was around 20 units, and it was an owner-financed deal. It was showing that the tenants were all paying, but the owner actually took a home equity line of credit out for their personal property, and they were putting that into the units. Only two were supposed to be vacant, 18 were supposed to be occupied, and you looked through the business bank statements and it was showing that 18 of them were paying, but found out post-closing that half that money was coming from the home equity line of credit. They were taking that and putting it in like they were collecting those rents from those tenants.”

 

“That is considered fraudulent, but an attorney told me that basically I could take him to court and we could spend a year, a year-and-a-half of my life on it, and even if I win and collected a judgement, I’d still have to chase him for the money. I lost about $15,000 on that and spent a lot of my time, effort and energy on it. But it was a good learning experience, and I just learned from that that the residential space – I hate dealing with those types of tenants every day; it’s just not my cup of tea. I just like retail, national tenants backed by thousands of stores; it’s more passive, I can be traveling, I can do whatever and I’m not worried about bigger headaches, residential landlord laws being changed more in favor of the tenants. When you get into business landlord law, it’s a lot more favorable to the landlord.”

 

What would Joel have done differently? – “I’m trying to figure out if someone’s doing something fraudulent. I think I should have looked at the records more; it was many years ago, I was just getting started, and you get excited when someone’s willing to owner-finance something. I should have looked at the purchase price I was paying more, and I should have conducted more tenant interviews, and I should have looked at these files that they presented with the leases and really saw what wasn’t there that should have been there as far as the quality of tenant and the income levels, and everything else… There were probably more red flags, but at that time I wasn’t as seasoned an investor, and so it goes back to it, again — if I had had someone looking at that asset for me that had that deeper level of experience, maybe I would have never gotten into that property in the first place, because they would have known to look for things that I didn’t know to look for at that time.”

 

“It’s the same principle with retail – if someone’s willing to buy something, they need to use somebody or go through someone that has that level of experience that sees a hundred things, versus the three things they might be looking at.”

 

Click here to listen to the full interview with Joel and learn how to lease property to large commercial tenants

 

 

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The One Characteristic Differentiating a Real Estate Pro and a Real Estate Rookie

 

What makes one real estate professional better than another real estate professional. For investors, this may be the most important questions we can answer.

 

Kim Ade, who is the President and founder of Frame of Mind Coaching and was recognized as one of North America’s Top 50 most influential women in real estate, has built a career around answering that question. She began investing in real estate, attending conference and events, and coaching investors in order to learn what drives the best real estate professionals.

 

In our recent conversation, Kim provided the insights she discovered by studying the top performing real estate and business professionals.

 

If I were to ask you, “what do you think makes for a top performing real estate investor?” Are they good at building rapport? Closing deals? Identifying different options available on both the buyer and seller side? Something else?

 

According to Kim’s studies, while all these skills are important, they are not critical. What’s really critical is if a person has a high degree of emotional resilience.

 

Kim said, “As a real estate professional, if you lose a deal, what do you do when that happens? And even as an investor, what do you do when you lose a deal? What do you do when a deal goes south? What do you do when you’re actually losing money on a deal? What do you do? How do you bounce back from that?”

 

The professional who has the ability to bounce back with the greater speed and agility, meaning they have high emotional resilience, is much more likely to succeed.

 

 

Calculating Emotional Resilience

 

To determine a real estate professional’s or your own level of emotional resilience, analyze failures. It’s easy to remain resilient when things are going according to plan. But it’s the losses that allow us to determine someone’s ability to not only move on as opposed to wallowing in a defeat, but to also take a bad situation and turn it into an advantage.

 

For example, Kim said, “Years ago, we used to own this software company, and we went to our first ever trade show and FedEx didn’t deliver our booth. We were a little bit upset, because it was our first trade show, so how do you show up to a trade show and have a booth with no actual booth? There was nothing there, so what we did is we went to Walgreens in the states and we bought a board and some markers and some tape and we made a sign; the sign says ‘FedEx didn’t deliver our booth, so now we’re forced to give you 50% off just to attract your attention.’ Man, there were line-ups at that booth…”

 

Kim didn’t allow this failure to emotionally trigger her. Nor did she remain calm, chalk the tradeshow up as a loss, pack up what little materials she had, and go home. Instead, she went into brainstorming mode and was able to turn a potential devastating situation into a positive and profitable one. What would you have done?

 

Kim said, “you have to move on, and the faster you move on, the better. I will also say that if you can do something with your experience, turn it into a positive somehow, then not only are you just moving on, you’re leveraging it. You’re winning from it. You’re not just losing and learning a tough lesson. You’re actually winning.”

 

The idea is that no matter what, there is always a silver lining. But many people aren’t used to looking for it. Most people just assume a silver lining or opportunity doesn’t exist. But from Kim’s experience, and my personal experience, that just isn’t true.

 

How do you look at things in this silver lining and always seeking out the opportunity way?

 

When Kim teaches people to make this mindset shift, she said “number one is we look at their history. There’s a philosophy and the philosophy is this – we always look for evidence to support our beliefs… One of the things we do is we help someone look backwards and we say, ‘look at all the things that have happened and let’s look at how they showed up.’ We’ll start to show people that they have been involved in a huge number of opportunities over time, but they never thought of it quite that way.”

 

The other thing, Kim said, is looking “at how so many awesome things happen to you all the time, every single day, that we just take for granted. Like this morning – did you have a hot shower? You probably did, and you don’t kind of stop and take notice. Or if you go into a building and you go up in the elevator, do you know how much planning went into that elevator or you, how many people were involved in creating the building, creating the structure that allowed you to get into that elevator that day? We don’t think of getting into an elevator as an opportunity, but it’s pretty massive.”

 

It’s about going from a limited mindset to an abundance mindset. We don’t live in a zero-sum world. There are infinite numbers of opportunities, but if you’re stuck in a limited frame of mind, you just don’t see them.

 

Make the shift!

 

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Happy Memorial Day! The Best Ever Advice from 5 Military Veterans

In honor of Memorial Day, here are 5 pieces of best ever advice from five military veterans I’ve interviewed on my show.

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

 

Mark served in the US Army as a Field Artillery Office where he led troops in Operation Enduring Freedom.

 

Mark is a brokers and real estate investor who focuses on single-family rental portfolios around the country and multifamily in Texas and Oklahoma.

 

Mark’s Best Ever Advice?

 

“Diversification. It’s what I push now to multifamily owners if I have a single-family portfolio listing.”

 

“My dad put all of his eggs into one basket in 2004 through 2006 and ended up getting caught with his pants down with several loans on the books. That was a lesson I learned from him and luckily I didn’t have to learn from myself.”

 

 

Bill Allen from JF905: Flying Planes, Flipping Houses, and Hiring the Right People

 

Bill is an active duty Navy pilot and actually fell into real estate investing due to his constant military moves.

 

In 2016, Bill flipped 13 houses and wholesaled 54 deals while still working full-time.

 

Bill’s Best Ever Advice?

 

“To take really fast action and implement. I’m an implementer. I got this idea in January of last year and I just ran with it. The reason I think I was successful is because I took action and implemented it and did the things that other people won’t do.”

 

“It’s a little bit risky. If it doesn’t work out and I say, ‘Hey, I didn’t have my mind made up that I would continue and quit,’ I could have lost $20,000, but I went in knowing that.”

 

“I don’t think there’s a lot of risk to it. If you take action – risk is that you’re afraid to fail and then you fail and then you quit. If you just don’t quit – you’re going to fail. Just accept it and don’t do the same thing again.”

 

 

Jimmy and Bob Vreeland from JF872: How to SCALE a Private Money Raising Empire and JF786: Over 100 Properties Acquired in 12 MONTHS from LEASE OPTION Masters

 

Jimmy and Bob are graduated of the United States Military Academy at West Point and the Air Force Academy respectively,

 

They currently have over 100 properties in their portfolio under lease option.

 

Jimmy and Bob’s Best Ever Advice? Click here to learn how to acquire over 100 properties in 24 months utilizing the lease-option strategy.

 

 

Shawn Petree from JF464: How He Bought Two 12-plexes with NONE of His Own Money

 

Shawn Petree was in the military, on the construction side, for 10 years in both the Army and the Air Force.

 

Since he began investing in 1997, he has closed over 350 transactions on all types of properties.

 

Shawn’s Best Ever Advice?

 

“Always have an exit strategy.”

 

“When you get a house, you need to know what you are going to do with it. Most people go into fix-and-flips thinking they are going to fix and flip it and sometimes the market will change on you and you can’t sell something if there is a downturn. The lesson I’ve learned over time is to find a property, flip a property first, if you can’t flip it, fix it and fill it.”

 

 

Scott Lewis from JF965: Why He SOLD All He Had, Went to War, then Returns to Develop Land and Syndicate BIG Deals

 

Scott served as an active duty Infantry Office in the US Army where he deployed as an Infantry Platoon Leader in support of Operation Iraqi Freedom.

 

Scott co-founded Spartan Investment Group, which completed 4 projects totaling $2.5M with an average ROI of 36% in 24 months.

 

Scott’s Best Ever Advice?

 

“The best advice is broken down into two categories. One is just starting out, and if you’re just starting out, take some time to learn yourself before you start. There’s some personality assessments out there… DISC and Myers-Briggs are two that are out there. I really recommend you go out and you figure out what type of personality you are. Then once you figure out what type of personality, build your tribe around your weaknesses.”

 

“Myself, I’m a DISC D, that means I’m a driver – I just want to get stuff done, I don’t really pay attention to details. So I went out and I found a partner who is very into details and he’s very detail-oriented. The two of us, plus a couple other members of our team kind of really round that out.”

 

“Once you figure out your team, then start with an education period. Just figure out what asset class you want to focus on, and then go. For those of us that have been out there and have been in the trenches, constantly challenge your assumptions and operating models.”

 

“We recommend a devil’s advocate. The Israeli Mossad, which is their version of the CIA, they call that the 10th man. This person is just the person on the team that disagrees with everything that’s going on. What that does is it ensures that groupthink doesn’t cause you to make a bad decision.”

 

 

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weather and lightning

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

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

 

Joel Sherlock from JF993: How to Build a Fund and Buy BIG Deals in Many Markets

 

Best Ever BookThe Saint, the Surfer, and the CEO by Robin Sharma

 

Best Ever Deal Joel has Done – “I would say that the first time I ever sold my renovation and bought my next flip. I thought I was a genius.”

 

Best Ever Way Joel Likes to Give Back – Charity work

 

“I sit on the board of a children’s charity in Vancouver. We have medical needs disabilities children’s camps. It’s call the Zajac Ranch. Amazing work. I love to be involved in that. Love giving back.”

 

Biggest Mistake Joel Has Made So Far In Real Estate – Rushed Due Diligence

 

“Not enough due diligence. Blinded by excitement.”

 

“Taking pressure from … another agent on the other side. On the surface, it’s like, ‘Hey that’s a great deal. Well you need to make your mind up quick because we have a bunch of other people looking at it. We just ripped through the due diligence really fast and it was a big house. There was a lot of value to it. It was a flip that we did. Luckily, we got our money back, but it was just a far larger project than we initially thought and a traditional due diligence period would have found that.”

 

Click here for the full interview and learn how to build a buying fund of over $2 million

 

Kevin Carroll from JF994: Investing with Your Mastermind Network, Leveraging REALTORS, and a Road Trip with Contractors

 

Best Ever BookRich Dad Poor Dad by Robert Kiyosaki

 

Best Ever Deal Kevin has Done – “Double landed a piece of land here in Idaho. Made an $80,000 commission check. That was pretty nice.”

 

Double landed means Kevin “represented the buyer and the seller.”

 

Best Ever Way Kevin Likes to Give Back – Educating others

 

“By writing the book [A Journey to Financial Independence] and doing podcasts like this, I really hope to show people, your listeners and people out there that this is an amazing industry that we’re in, and I think that we all have a responsibility to figure out a way to become what I like to call a “one hundred percenter”, so have your passive investments – have them pay more to you every month than you need to live. I want to teach people how to do that so that they don’t have to work anymore.”

 

Biggest Mistake Kevin Has Made So Far In Real Estate – Overestimating the sales price and rehab budgets

 

“Usually, when we make mistakes we overestimate what we can sell it for; we think we’ll sell it for 200k and it really sells for 180k. And we underestimate what the repairs are going to be – that’s probably the easiest thing to get away from you. If you have a $30,000 budget and you spend 50k – that’s obviously a problem. But it’s very easy to do, so that’s probably the hardest thing, to stay in budget.”

 

Click here for Kevin’s full interview and learn how to increase your business through a mastermind group and leveraging other realtors

Leonard Spoto from JF995: Defer Your Taxes with the 1031 Exchange!

 

Best Ever BookOlivia the Pig by Ian Falconer (reading it to his daughter!)

 

Best Ever Way Leonard Likes to Give Back – Donating to Charity

 

“We donate to a couple of really good causes that are near and dear to our heart. Hydrocephalus Foundation is one of them, and the Ronald McDonald Fund.”

 

Biggest Mistake Leonard Has Made So Far In Real Estate – Ineffective communication

 

“Not effectively communicating. You think everybody is on the same page, and this just happened to me the other day, where you think everybody is on the same page, but they’re not… So aligning everybody’s goals and making sure everybody understands the goals and making sure that you understand what you think your partners are going to be doing.”

 

Click here for the full interview to learn how to defer capital gains taxes

Dawn Rickagaugh from JF996: How to Buy, Hold, and Sell Seller Financed NOTES

 

Best Ever BookCourse in Miracles by Helen Schucman

 

Best Ever Deal Dawn has Done – “Buying a non-performing diverse note that was in second position for $10,000 and nine months later getting $80,000 when it paid off.”

 

Best Ever Way Dawn Likes to Give Back – Homes for the less fortunate and educating other investors

 

“Creating homes for families who are shut out of the system. They don’t have all cash, they can’t get a bank loan, but they still need stability for our communities and they need a home for the family. So that owner carry thing that I help make happen in my own backyard – that makes me feel good.”

 

“Also sharing information, so people get inspired to do this in their own communities and create those financial solutions just one moment pop to another.”

 

Biggest Mistake Dawn Has Made So Far In Real Estate – Unfounded trust

 

“Trusting a title company to do the right paperwork, to do it right, and then finding out they didn’t, and then I just want to hit myself.”

 

To mitigate the risk, “I read things. I take responsibility for all the documentation and paperwork, the due diligence. I kind of read stuff; just sort of reading things.”

 

Click here for the full interview and learn how to invest in notes via seller financing

 

 

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

 

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

 

That all helps a lot in ranking the show and would be greatly appreciated. And if you have any comments or questions, leave a comment below. Or comment what is your best ever book, personal growth experience, deal, way to give back, or biggest mistake?

 

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