Real Estate Investment Strategies

Since I left the advertising world in 2012, I have built a fruitful career as a real estate investor. The reason I get up and do what I do every morning is simple: I want to help my clients gain the financial freedom they need to live the lives they dream about.

Of course, doing so is easier said than done. To achieve your goals as an investor, you need to be dedicated, and, most importantly, you need to have the right blueprint. That is where I can help.

As I have crafted winning real estate investment strategies, I have gained control of more than $300,000,000 worth of property. To put it another way, I know what I’m talking about when it comes to investing.

And you can be my next success story.

Maybe you want to make real estate investing your career, not just a hobby. You might be interested in knowing how our current political climate affects our industry. Or, perhaps you are a millennial looking to buy your first house, and you want to make sure the volatile nature of the market does not harm your long-term prospects.

To get started, feel free to peruse more than 50 blog posts below on the topic of real estate investment strategies. For more information, check out both volumes of my book and my podcast, Best Ever Show, the longest-running daily real estate investing podcast on Earth.

And if you are ready to get to work, click here to find out how you can invest with me today.

real estate hustle and knowledge

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

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

 

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

 

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

 

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

 

Hustle is More Important

 

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

 

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

 

 

Knowledge is More Important

 

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

 

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

 

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

 

Both are Important

 

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

 

Neither are Important

 

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

 

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

 

 

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thee laws of investing

The Three Immutable Laws of Real Estate Investing

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

 

Or is it…?

 

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

 

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

 

This doesn’t mean that you can blindly invest in any real estate market. To maximize your chances of success, you should always evaluate a market before investing. However, from my experience scaling from a handful of single family rentals to controlling over $300 million in apartments, and from interviewing thousands of active, successful real estate professionals on my podcast, I identified a pattern.

 

I discovered that there are three laws that, when followed, result in a real estate investors ability to thrive in any market at any time in the market cycle. These Three Immutable Laws of Real Estate Investing are 1) don’t buy for appreciation, 2) don’t over-leverage and 3) don’t get forced to sell.

 

Law #1 – Don’t Buy For Appreciation

 

The first of these three laws is don’t buy for appreciation. And in particular, natural appreciation. Natural appreciation is completely out of your control because it fluctuates up and down based on the overall real estate market and economy. Whereas forced appreciation is the bread and butter of value-add investors. Forced appreciation involves making improvements to the asset that either decreases expenses or increases income, which in turn, increases the overall property value.

 

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

 

That’s why you should never buy for natural appreciation. Instead, buy for cash flow. Because when you buy for cash flow (and as long as you have a large supply of renters), you don’t care what the market is doing. In fact, if the market takes a dip, the demand for rentals will likely increase!

 

Law #2 – Don’t Over-Leverage

 

The second law is don’t over-leverage. Although, 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 that money into a stock, you would control $100,000 worth of that stock (you can leverage a stock by investing in options contracts, but there is significantly more risk). On the other hand, if you wanted to invest all of that money in real estate, you could spend $100,000 on a down payment at 80% loan-to-value and control $500,000 worth of real estate. That’s the power of leverage.

 

But there’s also a catch. The less money put into a deal – or more specifically, the less equity you have in a deal – the more over-leveraged you are. Consequently, the higher your mortgage payments will be. In a hot market, over-leveraging may seem like a brilliant idea, but what happens when property value or rental rates start to drop? Well, if you purchase a property with less than 20% equity at close and the market drops by 5%, 10% or 20% (which has happened in the past) by the end of your business plan, you will lose a decent chunk of change at sale – if you even survive long enough to make it to that point.

 

Of course, if you never want to sell and bought a property that cash flows, then it doesn’t matter. However, if you are a value-add or distressed apartment syndicator, you make a large amount of money when we sell, so this needs to be factored in.

 

My advice? Have 20% equity in an apartment deal at minimum. You shouldn’t run into this problem if you are getting a commercial loan from a bank, as they will typically require at least 30% down. However, if you are pursuing a creative financing strategy, you may have the opportunity to purchase an apartment for significantly less than 20% down. Don’t be tempted. Similarly, a bridge loan (a short-term loan usually used to cover the purchase price and renovation costs before securing permanent longer-term financing) may offer a higher loan-to-value ratio. In these cases, have 20% of the total cost (purchase price plus renovations) in the deal.

 

Having 20% equity in a deal isn’t a requirement but failing to do so will expose you and your investors to more risk. Although doing so, in tandem with committing to not buy for natural appreciation, will allow you to continue covering your mortgage payments or avoid having negative equity in the event of a downturn.

 

Law #3 – Don’t Get Forced to Sell

 

The final law is don’t get forced to sell. When you are forced to sell, you will always lose money or won’t be able to maximize your returns.

 

The main reason investors are forced to sell or return properties to the bank is when they speculated and bought for appreciation, or they were caught up in a hot market and were over-leveraged.

 

You could also be forced to sell if you do not have the funds to cover an unexpected expense that occurs during operations. To mitigate this risk, I recommend having an operating budget of at least $250 per unit per year in reserves.

 

Another reason you would be forced to sell is if you have a balloon payment on your loan. A balloon payment is standard for commercial real estate loans. The problem investors have is when they have a balloon payment come due during a down turn in the market and don’t have enough equity in the deal to refinance to cover that payment.

 

A way to mitigate this risk – in addition to not buying for appreciation and not over-leveraging –  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

 

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

 

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

 

4 Ways to Acquire Real Estate with No Money Out-of-Pocket

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

 

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was “how much money do you need to do your first deal?

 

Overall, the responses fell into two camps: no money down and money down, with the former camp winning out by four. 13 investors said $0 was needed for the first deal while 9 said some form of capital was required for the first deal.

 

I think the most interesting and educational aspect of these responses was from the winning camp (the $0 downers), who offered up their creative strategies for acquiring real estate with no money down. A common theme between all of the investors who believe that one can acquire their first deal with no money down is that one’s own money needs to be substituted with something else. There is no such thing as a no money down strategy that doesn’t require a high level of effort to offset the lack of capital.

 

That being said, the poll is closed, the responses are in and here are the four substitutes to your own money that can result in the acquisition of real estate with no money down:

 

1 – Knowledge

 

The first substitute is knowledge. Brandon Moryl said that it is a balance between money and knowledge. If you don’t have the money, you need to compensate with knowledge, and vice versa. Similarly, Harrison Liu said that getting started with no money is the easy part. The difficult part is having a profitable first deal. In both scenarios, the investor who wants to acquire their first deal with no money out-of-pocket is required to invest in their education. That means reading books and articles, listening to podcasts and picking the brain of experienced investors who are actively and successfully pursuing the same investment strategy they plan on implementing.

 

2 – OPM

 

The most popular substitute for your own money is OPM (other people’s money). In regards to fix-and-flip projects, Eric Kottner said you can go in with $0, but you’ll need to have access to funds to cover the down payment and rehab costs. And for rentals, you’ll need to make sure that you have at least one-years’ worth of rent in reserves and the down payment money. But for both of these scenarios, the funds can be OPM.  Ryan Groene said that you can partner up with a private money investor to purchase real estate with zero dollars out-of-pocket, but you will need a little bit of cash to pay for gas to visit properties and to pay for coffee or lunch when meeting with potential partners. Adam Adams says that you need as much money as the deal costs but it doesn’t need to come from you. Finally, Nathan Tabor says you can enter a deal with zero money down by partnering with a private money investor or partnering with the current owner in the form of seller financing. However, most of you won’t be able to snap your fingers and, poof, has access to OPM. But as an apartment syndicator myself, I have documented proven tactics for finding OPM, which you can learn about here.

 

3 – Leverage

 

Another substitute for your own money is leverage. Glen Sutherland purchased his first investment property by leveraging the existing equity in his personal residence. Elliot Milek financed 100% of his first investment property with a line of credit from a local bank. Hai Loc said that you can leverage credit cards. And Robert Lawry II said the someone can acquire their first investment property with $0, especially when all they have is $0. All it requires is leverage, learning and strategy.

 

4 – Resourcefulness

 

The final substitute for your own money is resourcefulness. For example, click here to learn how someone was able to acquire a property with a paperclip in one year! Similarly, Ash Patel said that sometimes hustle is better than money.

 

 

In reality, all four of these strategies require resourcefulness. But what is great about resourcefulness, creativity and hustle is that – unlike money – they are essentially unlimited. As long you are willing to put in the time, anything is possible.

 

 

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Should You Focus on One or Multiple Real Estate Investment Strategies?

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

 

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was “is it better as a real estate investor to focus on one strategy or more than one?”

 

Most, if not all, investors begin their real estate careers by focusing on one investment strategy. Although, some investors will start out with multiple strategies, like fix-and-flipping and wholesaling, or fix-and-flipping and rentals, or a combination of passive and active investing, or acting as a real estate professional (i.e. real estate agent, property management, etc.) while investing on the side. But, since the majority of first-timers focus on one strategy, the question really is, “is it better to continue to focus on your initial investment type or do you expand or transition into another?”

 

Another distinction to make before getting into your responses is between the types of focus. For example, I personal own three single-family homes and have syndicated over $300,000,000 in apartments. Even though I am technically involved in two distinct investment strategies (SFR rentals and apartment syndications), I wouldn’t say that my focus is on SFR rentals. However, for someone who completes 100 fix-and-flips per year while also wholesaling 30 to 50 properties is an example of an investor who focuses on more than one strategy.

 

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

 

Of all the responses, three individuals were of the belief that investors should focus on a single strategy. Brie Jazmin advises that you focus on one strategy and know it very well. Eric Kottner thinks that investors should be highly specialized in one investment strategy. Randy Ramadhin has sampled a few different strategies, found the one that worked best for his particular situation and focuses solely on that. So, it took trying multiple strategies before he came to the conclusion that one great strategy is the best approach.

 

All of the other responses were one the side of focusing on multiple strategies. Although, they did not believe that ALL investors should focus on multiple strategies at ALL the times. For example, Danny Randazzo thinks that, assuming you know your market and you selected a market that has really good growth potential, it I better to expand to more strategies in one solid market instead of expanding into other markets using the same strategy.

 

Two investors think that, before expanding into other investment strategies, you need to master one strategy first. Kris Ontiveros said to focus on one and automate by creating systems (or hiring great team members) before you consider moving onto or expanding into another strategy. And Neil Henderson advises that the average person should only focus on one strategy. But once they’ve mastered it, they can consider branching out from there.

 

Julia Bykhovskaia thinks that, in theory, focusing on and understanding one investment strategy makes sense. However, that is not the case in practice. If real estate is all that you do, you will have multiple goals that one investment strategy cannot achieve (or at least not easily). You need money to both live off of in the here and now, as well as to use to invest in your longer-term strategy. So, if the longer-term strategy is apartment investing, for example, then you might need to supplement your apartment investing strategy with another one, like flipping, wholesaling, short-term rentals, etc., in order to accomplish your shorter-term goals of generating profit to pay the bills and to invest in apartments with. However, on the flip side, the difficult part with this approach is avoiding the real estate “shiny object syndrome” to stay focused and not overextend yourself.

 

Similarly, Ryan Groene thinks that it also depends on your investment goals. Some people see opportunities across many asset classes while others focus on one and still make money. Sam Zell is a rare exception, because he was a top investor across many asset classes for a long time and is still the top owner of mobile home parks.

 

Finally, Ash Patel discovered, due to his experience living through two market crashes, that it depends on the timing. In terms of real estate, single family, multifamily, commercial, industrial and medical all have someone different cycles. Additionally, if you can trade in several non-real estate related investment types, like energy, equities, currency, commodities and – his favorite – startups, you can attempt to exploit those markets too.

 

What do you think? Comment below: Is it better to focus on one or multiple real estate investment strategies?

 

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

 

 

 

The 3 Types of Real Estate “Retirement”

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

 

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was “how much do you need/want to retire?”

 

Of course, this question implies that real estate investors actually WANT to retire, and based on the responses, this is definitely not the case. In fact, real estate investor’s views on retirement can be broken into three categories: 1) I will never retire for investing, 2) I want $X in order to retire and 3) If I reach my financial goals, I will shift my focus to other work.

 

When I asked the Best Ever Community why they initially became interested in real estate, only one response was loosely associated with retirement, which was the desire for financial freedom. Besides the correlation between early retirement and death, I think this is because individuals with a strong entrepreneurial spirit are attracted to real estate, and this spirit seems to never taper off or disappear. In fact, once people get a taste of real estate success, this entrepreneurial drive may even intensify!

 

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

 

Death is My Retirement

 

The most common response was that the investor planned on NEVER retiring. Dan Hanford sarcastically quipped that he didn’t even know what “retire” meant. Matthew Seaton, while wanting a bare minimum of $1 million by the age of 57, would prefer to continue working indefinitely, as the concept of traditional retirement sounds boring and outdated.

 

Dave Roberts needs 10 gazillion dollars in order to retire. This, I assume, implies that he doesn’t plan on ever retiring either – as a gazillion isn’t a real number J.

 

Jeremy Brown kind of specified a dollar figure that he wants to retire, which is three times what he is making now. However, every time his income increases, his goal of “three times what I am making now” remains the same. Scaling in real estate investing and achieving your targets will definitely do that to you!

 

For both Charlie Kao and Stone Teran to retire, it will have to be over their dead bodies – LITERALLY. Charlie envisions himself eventually reducing his working hours, but he will remain in the real estate game until his children bury him. Stone doesn’t have a magic number either. He plans on working until he dies, but with the expectation of working less hours and less strenuously as he gets older.

 

I’ll Take the Cash

 

One investor specified a dollar figure he would need in order to retire. Eric Kottner wants a net worth of $2.5 million and $250,000 per year in passive income by the time he turns 45. However, he didn’t specify if he would continue expanding from there, shift his focus to other entrepreneurial endeavors or enjoy a traditional retirement.

 

Shift in Focus

 

The third category of retirement is when an investor hits a specified “retirement number,” but rather than setting off into the sunset, they give themselves the permission to shift their focus to something else.

 

Melvin Music wants $1,000 per day for the rest of his life. It is more than he needs, but he wants that amounts so that he can “do a lot of good and help out a lot of folks.”

 

Neil Henderson’s bare minimum number is $700,000, assuming his personal residence is paid off and he doesn’t hold bad debt. At that point, he would work to maintain his business, but it would also open up a world of possibilities that would allow him to take greater risks.

 

Lia Martinez wants $5,000 per month, which she is on pace to achieve by August 2018. Outstanding! Then, her plan is to move to Peru and shift her focus to other work while maintaining her current real estate portfolio.

 

Julia Bykhovskaia, having a go big or go home mentality, wants a net worth of $20 million and a passive income of $500,000. Her reasoning for this goal is not to achieve it and be idle. It is because she wants the freedom to do what she wants (personally and work-wise), when she wants and with whoever she wants. Also, to be able to help people that she loves and to contribute to the causes she cares about.

 

What about you? Comment below: How much money do you need/want to retire? Or do you fall into one of the other two retirement categories?

 

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

 

How 5 Real Estate Investors Turned Mistakes Into Cash

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

 

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was “what has been your biggest learning opportunity (or mistake as some say) in your real estate career and what did it teach you?

 

I think Jonathan Twombly, who provided an outstanding answer to this question, said it best: “The only way to gain experience is by making mistakes.” Of course, mistakes are not the ONLY way to learn, and you should never TRY to make mistakes. But the point he is trying to make is that if all of your real estate endeavors go off without a hitch, you may begin to feel like YOU are entirely responsible for that fact. In reality, if you’ve never made a mistake in real estate, not only have you probably been lucky, but a sticky situation WILL arise eventually. When it does, if you have this sense of infallibility, it may be your downfall.

 

Whereas if you have made and successfully overcome mistakes in the past, you have gained the experiential knowledge that will allow you to avoid making that same mistake again or, if you are faced with the same or similar issue, to navigate it successfully. In some cases, facing and overcoming an obstacle may be the best thing to ever happen to your real estate business, as it forces you to reevaluate what you have been doing and determine if you need to alter your approach or entire strategy!

 

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

 

Jonathan Twombly made two big mistakes. The first was not promoting his real estate business early enough and aggressive enough. The market is saturated with real estate entrepreneurs, so branding and promoting of your business is a must if you want to stand out from your competitors. For promotional tips, here are 8 ways to promote your real estate brand.

 

Jonathan’s second big mistake early on in his real estate career was allowing the property management company to put a manager on his property who lacked experience with that asset type, which caused a ripple effect of problems for YEARS, even after they were fired, replaced and long gone. Having one bad year, or even a few months, of management will negatively affect the operations for a long time. A large dip in occupancy results in a dip in revenue, which means you get behind on payables, investor returns, your returns and liquidity. And to make matters even worse, when you have liquidity problems, if an unexpected maintenance or capex issue occurs, you may not have the liquidity or cash flow to cover it, which results in out-of-pocket expenses, capital calls or even foreclosure!

 

In regards to the property management issue, this is overcome by properly screening the property management company prior to hiring them. Here are the best practices for interviewing and screening property management companies. In regards to the vacancy and liquidity issue, Jonathan always ensures that the cash flow on the property is high starting on day one and that he has a large reserve fund on hand to deal with unexpected issues.

 

Similarly, Ryan Gibson’s biggest mistake was hiring the wrong people in general. He learned that good people are what make your business and the world go ‘round. For the best hiring practices, check out our blog category on building your real estate team.

 

Jason Buzi is prime example of someone who realized he was making a mistake, completely changed his business model and benefited greatly as a result. In 2011, he and a friend wholesaled a property to a fix-and-flipper and made $12,5000. The buyers ended up rehabbing the property and netted $400,000. This deal made him realize that he was leaving MILLIONS of dollars on the table, so he started rehabbing properties himself in addition to his wholesaling. Based on this shift, he had his first seven figure year in 2013 and bought a personal residence worth over $1 million free and clear. If you are interested learning how you can net over $1 million per year as a wholesaler, click here.

 

Micki McNie’s biggest mistake was working with and trusting someone she didn’t know. She gave this person $40,000 to do a rehab without having looked at the house herself. As a result, she had a hard time selling the final product because this person didn’t prioritize the repairs and upgrades that actually attract buyers. Projects like updating the mechanicals or installing new windows were not performed. The lessons she learned were to always perform her own due diligence rather than trusting a partner, even an experience partner, to do it. Also, she learned to be much more cautious of new markets that she’s never worked in before. Another solution to the market problem is to use the ultimate guide to evaluating a target real estate market!

 

Lastly, Cheryl Oliphant’s biggest mistake was not buying based on positive cash flow, but for appreciation only. She learned that buying for appreciation is not investing, it’s speculation. In fact, not buying for appreciation is one of the three fundamentals to thrive in ANY real estate market. Click here to learn the other two.

 

What about you? Comment below: What has been your biggest learning opportunity (or mistake as some say) in your real estate career and what did it teach you?

 

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

Do You Want Financial Freedom or to Build a Real Estate Empire?

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

 

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was “would you rather a) spend minimal time per week (5-10 hours) maintaining your business that makes $500,000 per year or b) work 50+ hours per week on your business making $2 million per year and growing?”

 

I really like this question because it is a reflection of the two main reasons why people are attracted to real estate investing: financial freedom or empire building.

 

Real estate investing allows you to build a portfolio that generates enough cash flow to cover your living expenses so that you can quit your corporate 9 to 5 job and do whatever you want with your free time. Real estate investing also provides you with the opportunity to build a multimillion or multibillion dollar company, which allows you to create jobs, donate MASSIVE amounts of money, build a legacy and pass on your wealth for generations to come, and ultimately automate the business over time to gradually increase your free time.

 

Whatever financial or lifestyle goals you have, there is a real estate strategy for you.

 

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

 

Overall, option A (the 5-10 hours per week for $500,000 per year) defeated option B  (50+ hours per week for $2 million per year) 46 to 32.

 

The majority of the people who selected option A did so for similar reasons. They would use the $500,000 per year and the extra 30 to 40+ hours per week to generate more capital.

 

Scott Bower would take the $500,000 and spend some of his free time to learn how to put that money to work to get to the $2 million per year without having to work 50+ hours per week.

 

Similarly, Charlie Kao would select option A because if he was able to generate $500,000 per year while only working 5-10 hours per week, he’d likely have great systems and processes in place that would allow him to scale, if he wanted, in the future. Kimberly Banks Fawcett agreed because she couldn’t help but imagine all the other ideas she’d have time to make a reality with all of her free time.

 

Ryan Groene would select option A, but it would only be his side hustle. He would still work 50+ hours per week in total, with the remaining 35+ hours spent on creating a business that would generate $1.5 million or more per year.

 

Jamie L. Ware likes option A because his time is more valuable than money, and he would use that time to work on other ventures that could potentially add to the pot.

 

Others selected option A because their real estate goals are to achieve financial freedom and enjoy their free time however they want. Eddie Noseworthy would take the $500,000 while working 5-10 hours per week because even though money is important, it isn’t the most important. Finally, Eric Kottner’s whole point in starting a real estate business is to eventually make enough passive income to become lazy, which is achieved with option A.

 

A few people provided a hybrid answer. Joshua Ibarra would start with option B ($2 million for 50+ hours per week of work). But, after 10 years and automating the business, he would reduce his time commitment to 5-10 hours per week while still making $2 million or more per year.

 

Similarly, Ben Steelman would put in the 50+ hours now. Then, he would work towards ensuring that he was the “dumbest” person in his organization by building a great team. This will allow him to achieve his real estate goal, which is to create a business that thrives without him being the day-to-day driving factor so that he can eventually reduce his working hours.

 

Michael Beeman selected option B because if he just maintained a business, he would feel like he is dying. Additionally, he already works 50+ hours 6 to 7 days a week between his full-time job and real estate business and doesn’t have an issue with it.

 

Finally, Carolyn Lorence would go with option B because she loves her real estate business and enjoys creating. That’s because she doesn’t work “in” her business, she works “on” her business. Also, if she is growing her business, she will be able to provide opportunities for others in the process. She’d have a blast with this and make time for all the fun stuff by putting the right systems in place.

 

Overall, people selected the $500,000 per year working 5-10 hours per week so that they could use their free time to generate additional income or just be lazy. And people selected the $2 million per year working 50+ hours per week so that they could work towards automating the process and reduce their work hours.

 

What do you think? Would you rather a) spend minimal time per week (5-10 hours) maintaining your business that makes $500,000 per year or b) work 50+ hours per week on your business making $2 million per year and growing?

 

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$1 million

The 6 Best Uses of $1 Million as a Real Estate Investor

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

 

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was “you’ve just been given $1,000,000. What’s the first thing you do?”

 

Thank you to everyone who responded. While most of us won’t be handed $1 million any time soon, I do believe this is a good thought experiment. How we answer this question can shine a light on our top priorities or help us clarify our real estate goals.

 

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

 

1 – Invest

 

The most common response was to invest the $1 million into some sort of real estate product.  Some answers were general, like finding another deal that adheres to a current investment strategy (Craig Hyson), upgrading from single-family or smaller multifamily investing to apartments (Barri Griffiths, Mark Alexander Davidson) or investing in real estate to live off the interest (Andrew LeBaron).

 

Others had more specific action plans. Justin Shepherd would grow the $1 million to $10 million by investing in a deal with 30% cash-on-cash return, and then rinse and repeat. Justin Kling would use the $1 million for a 25% down payment on a $4 million apartment complex at $50,000 per door. The 80-unit ($4 million / $50,000 per unit) would ideally cash flow $200 per door, which is $16,000 per month or $192,000 per year. That’s enough cash flow to live off of if you ask me. Iqbal Mutabanna would take half and reinvest in his real estate business by purchasing an asset that produces a 10% cash-on-cash return

 

Spencer Leech’s strategy would result in the largest investment. He would find a cash flowing C-class apartment community in a secondary market that is stabilized or required light rehabs. At 75% LTV with 20% of the down payment being private equity and 5% being his $1 million, he’d acquired $20,000,000 in apartment assets.

 

Two other active investors would also invest, but in a non-real estate related product. Deren Huang would lock into a 1-year CD. Glen Sutherland would go to a lender to secure a larger loan to invest with. And Eric Kotter would invest in other real estate investors by offering private lending and transactional funding.

 

2 – Pay Off Debt Obligations

 

Another popular use of $1 million is paying off existing debt obligations. Craig Hyson and Deren Huang would pay off the mortgages on their current investment portfolio, which would drastically increase their cash flow and leveraging abilities. Eric Kotter and Amy Wan would pay off their personal debts. Eric would eliminate all personal debt, while Amy would pay off her and her husband’s student debt. By paying off their personal debt, they can redirect those monthly debt payments into real estate investments.

 

3 – Save

 

One of the less aggressive approaches is to save the $1 million. Eric Kotter would set aside a portion of the $1 million for taxes, and Iqbal Mutabanna (who used $500,000 to invest with) would add $200,000 to a rainy-day fund.

 

4 – Gratitude and Contribution

 

The most altruistic first step after receiving $1 million is to express gratitude or donate a portion of the proceeds. Since someone just gave you $1 million, it only makes sense to pass that on, right?

 

The first thing Jason Scott Steinhorn and Dave Slaughter would do is say thank you to whoever gave them the money. In terms of contribution, Andrew LeBaron would pay tithing, Justin Kling would give away 10%, and Iqbal Mutabanna would use his remaining funds for tithing ($100,000) and donating to charities ($200,000).

 

5 – Strategize

 

A very rational first step after acquiring $1 million is to take some time to strategize and come up with the most effective use of the money.

 

Neil Henderson would make an appointment with his accountant to discuss tax strategies. Nick Fleming would hire a world-class mentor/business coach and start hiring really talented employees, both of which will 10x his business. Charlie Kao would refocus by creating new goals and a new business plan, working towards growing his money long-term. And Deren Huang would make sure he remained level headed and didn’t make any impulsive decisions, because he doesn’t want to live out the reality of many lotto-winners who end up bankrupt after a couple of years.

 

6 – Minor Adjustments to Business or Life

 

Two investors wouldn’t make a massive change. Tyler Weaver would hit up the gym, get a good night’s sleep and have a reasonable breakfast, because he needs a solid state of mind to take good care of his money. Devin Elder wouldn’t make any fundamental changes either. He would just put the money in the operational account of his house flipping business. The only changes he would consider making is to discontinue using private money lenders on a few deals or expedite a few fix-and-flip projects with the extra capital.

 

 

I think all 6 of these strategies are great ways to use $1,000,000, but what do you think? Comment below: If someone gave you $1 million, what is the first thing you would do?

 

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Flowchart planner

What’s the Superior Investment Strategy – SFR Rentals or Apartments?

Real estate is the most exciting investment vehicle because there are nearly an infinite number of way to get started, achieve financial freedom and/or launch a business to create generational wealth.

 

There are many investment types to invest in, but which one is the most conducive to long-term success?

 

Today, I want to determine the answer to this question by looking at two investing strategies in a particular – single family residence rentals and apartment investing.

 

I will define SFR investing as purchasing a single-family home using your own capital and renting it out, and apartment investing as purchasing an asset with 50 or more units and raising capital from passive investors and renting it out.

 

For the purposes of this blog post, I will assume that an individual has set out to achieve a goal of $10,000 per month in cash flow (or $120,000 per year), which will replace their current corporate salary.

 

So, based on this goal, which strategy is superior? Let’s compare both across three important factors: scalability, barrier to entry and risk.

 

Scalability

 

Scalability is how efficiently one can grow their real estate portfolio. The more difficult it is to scale a business using a certain investment strategy, the longer it will take to attain a cash flow goal.

 

Both SFR and apartment investing will allow you to generate $10,000 per month in cash flow, but which strategy will reach this goal the fastest while reducing the number of headaches?

 

For SFR rentals, the average cash flow per property per month is in the $100 to $200 range (depending on the market of course). Therefore, 50 to 100 SFRs are required to make $15,000. We immediately run into a few problems. First, you can only take out a limited number of SFR loans. Once you’ve purchased 4 to 10 homes (depending on the bank use and if they use Fannie Mae or Freddie Mac), you no longer qualify for a standard residential loan. However, a simple solution is to find a local community bank, who – once you’ve established a successful track record – will provide ongoing financing for your deals.

 

Although, you haven’t completely solved your financing problem. How will you afford the 20%, 25% or 30% down payments required to purchase 50 to 100 SFRs? This is the biggest drawback of SFR investing in terms of scalability. If you’re buying all $100,000 properties, that’s $1,000,000 to $2,000,000 in 20% down payments. Even if our sample individual saved up half their corporate salary to cover these down payments, it would take them 17 to 33 years to purchase 50 to 100 SFRs, and that’s assuming everything else goes according to plan. This timeframe can be reduced through refinancing, lines of credit or other creative financing strategies, but it will require a large amount of capital for down payments nonetheless.

 

For apartment investing, since you’re receiving commercial financing, you can obtain an unlimited number of loans (as long as the numbers pencil in for the lender). However, you will run into the same funding problem if you plan on using your own money. That’s where raising private money and syndicating an apartment comes in to save the day!

 

As an apartment syndicator, one of the ways you make money is from an acquisition fee, which is a percentage of the purchase price paid to the syndicator at closing. The industry standard is 2%. Therefore, to make $120,000 in one year, you would need to syndicate $6,000,000 worth of deals. To break it down even further, since an apartment deal generally required 35% down, you must raise $2.1 million from private investors to achieve your annual goal. And that’s not even accounting for the other ways you’ll get paid as a syndicator (i.e. asset management fee, a portion of monthly cash flow, a portion of the sales proceeds, etc.), which you could then use to purchase your own properties or reinvest into future syndications.

 

Technically, you could also raise private capital for SFR investing. However, the problem is that you’ll need to find multiple cash flowing deals at the exact same time in order to attract private capital or make the same amount of money compared to an apartment community. It’s possible but much more difficult to find 50 to 100 SFRs than finding an equivalent sized apartment community.

 

Unless you believe it will take you multiple decades to raise a few million dollars or you win the lottery, apartment investing is more scalable than SFR investing.

 

Winner: Apartment investing

 

Barrier to Entry

 

Barrier to entry means how easy it is to get to the point where you are capable of investing in your first deal. From a personal finances perspective, the barrier to entry is lower for apartment investing than SFR investing. To syndicate an apartment deal, investing your own personal capital will promote alignment of interests with your investors. However, this alignment of interests can be achieved in a variety of different ways (having your property manager invest in the deal, having your broker invest in the deal, having an experience syndicator as a general partner, etc.). Therefore, it is possible to syndicate a deal with zero dollars out of pocket. Although, I always recommend investing some of your own money in the deal for alignment of interest purposes but to also benefit for the profits! Whereas for SFR investing, as I outlined above, you will need to save up millions of dollars to afford the number of down payments required to generate $10,000 a month in cash flow.

 

From an educational and experience perspective, apartment investing has a much higher barrier of entry. No one is going to invest with you if they don’t know who you are or if you haven’t proven yourself to be a credible apartment syndicator. The solution to the former is creating a thought leadership platform. The solution to the latter, however, is more difficult (although, establishing a name for yourself through a thought leadership platform will not happen overnight). From my experience, before you can even entertain the idea of becoming an apartment syndicator, you must have a successful track record in real estate, business, or preferably both. Once that’s established, you need to educate yourself on apartment investing and syndications, which requires a lot of reading and research (but that’s what this blog is for!). Then, you need to surround yourself with credible team members who have an established track record in apartment investing. Only then will you be ready to search for your first deal, which could take anywhere from a few months to a few years! Whereas for SFR investing, as long as you have the money, you can buy a deal.

 

The barrier to entry for apartment syndication is easier from a personal finances perspective, but much more difficult from an educational and experience perspective compared to SFR investing. And there isn’t a way to fast track this process. It will take time.

 

Winner: SFR rentals

 

Risk

 

Investing, in general, will always have risks. However, not all investment strategies are the same in that regard.

 

As I mentioned in the section on scalability, the typical monthly cash flow generated by a SFR is $100 to $200 per month, or $1,200 to $2,400 per year. However, those low margins are very vulnerable to being drastically reduced or wiped out completely. One unexpected maintenance issue (let’s say a broken HVAC system) will cost thousands of dollars. Even minor maintenance issues of a few hundred dollars (replace an appliance, plumbing problems, electrical problems, etc.), when added up over time, will cost thousands of dollars. The same goes for turnovers. Some turnovers are relatively smooth and cost a few hundred bucks. However, if you have to repaint walls or replace carpet/refinish hardwood, those expenses add up quickly. An unruly resident may stop paying rent or violate the lease, and the resulting eviction process can be quite costly. Any one of these scenarios will eliminate months or even years of profits! Some of these risks can be mitigated with proper due diligence, but most of them are just the costs associated with investing in SFRs.

 

For apartments, these risks are spread across tens or hundreds of units. One maintenance issue, one turnover or one eviction has a much smaller impact on your profit and loss statement. Unless you are hit with a large amount of these problems at the same time, the apartment will cash flow. Whereas for SFR investing, you will not be able to benefit from this risk reduction until you’ve created a portfolio of at least 10 to 20 properties.

 

An apartment community is susceptible to risk when you don’t have a solid property management company or you failed to perform proper due diligence on the asset. As long as you have these pieces in place, and you follow the three fundamentals of apartment investing, the asset will not only survive, but thrive – even in a down market or if a handful of major or minor maintenance or tenant problems occur.

 

Winner: Apartment investing

 

Conclusion

 

Apartment investing has a higher barrier of entry. However, once you’ve addressed your education and experience, apartments are advantageous in terms of scalability and risk when compared to SFR rentals.

 

COMMENT BELOW: Which investment strategy do you think is superior between SFR rentals and apartments, and why?

 

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Complex clock and gears

If You Had a Time Machine, What Would Be Your First Investment?

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

 

What better way to add value than to ask you, the community, for your Best Ever advice on a variety of different real estate topics. This week, the question was if you  were starting real estate investing over again, what would be your first purchase?

 

The poll is closed, the responses are in and here are your answers:

 

 

Brandon Moryl

 

Brandon would acquire as many turnkey single-family residences as he could. In his market, Cincinnati, he can purchase a $100,000 turnkey SFR with $15,000 in out-of-pocket costs that rents for $1,250 per month.  Great cash-on-cash return, longer tenants compared to multifamily, and easy to sell.

 

 

Harrison Liu

 

16 years ago, Harrison acquired his first investment – two triplexes situated right next to each other in a class C market. Today, the area is going through gentrification, so the rents have doubled and the property values have tripled. However, being in a C market, Harrison has had a few tenant issues over the years, including two evictions and being taken to small claims court.

 

Therefore, if he was starting over, he would have purchased a fourplex in a B location. Instead of two loans, he would have one. Also, he would have had access to higher quality renters, which means he likely wouldn’t have been taken to small claims court.

 

 

Ryan Murdock & Glen Sutherland

 

If they were starting over, Ryan and Glen would have purchased a three or four-unit property with an owner-occupied loan, living in one unit and renting out the others. Also known as housing hacking, they would have been able to acquire a rental property with little money out-of-pocket (generally 3.5% of the purchase price) and lived “rent free.”

 

 

Devin Elder & Whitney Sewell

 

Both Devin and Whitney said, if they were starting over, they would find a mentor.

 

 

Neil Henderson

 

Neil Henderson would have skipped over the single-family residence and smaller multifamily investments and went straight for a 100-unit apartment community.

 

 

Charlie Kao

 

When Charlie was starting out, he considered purchasing a condo from a bankrupt builder. Originally, the builder was offering the condos for $356,00 to $410,000. However, the people who agreed to purchase the condos couldn’t qualify for financing. So, the builder greatly reduced the sales prices.

 

Charlie was considering a 2-bedroom condo listed at $160,000. If he could go back, he would have purchased that condo, because today the current value exceeds $650,000.

 

 

Robert Lawry II

 

Robert kept it simple and humorous. If he was starting over, his first investment would have been business cards.

 

Make sure you join the Best Ever Community on Facebook. Check the group page every Wednesday and answer the weekly questions for an opportunity to be featured in next week’s blog post!

 

In the comment section, post what your first purchase would be if you were starting over again.

 

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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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wrapped gift

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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If you have any comments or questions, leave a comment below.

 

train with smoke

5 Steps to Become an Unstoppable Real Estate Investor

We’ve all heard the concept “it’s 80% mental and 20% physical,” or some variation applied to nearly every endeavor under the sun – sports, business, relationships, etc. And I’ve even heard some people say that it’s upwards of 90% mental.

 

If that is true, then how we should enhance on our mindset and psychology?

 

Everyone has their go-to technique. But Tina Greenbaum, a peak performance and executive coach and a dynamic optimal performance workshop leader, has created a tried and true five step process – which has improved the mindset of business leaders, athletes, artists, and speakers over the past 30 years – for developing an unstoppable mindset.

 

Tina said, “Any kind of business that you’re going to invest money in, you take a risk. And in order to take a risk, we’re now in the unknown. We take what we call calculated risks, we kind of do our homework and put our money where we think that it’s going to make money for us, but the truth is we don’t know what’s actually going happen tomorrow, none of us do. So, when we get caught up in trying to control the future, we get into trouble.”

 

In order to provide you with the techniques required to successfully navigate the unknown, In our recent conversation, Tina outlined her five-step curriculum for cultivating your mindset.

1 – Focus on what you want

 

Number one, and the foundation to the entire process, is focus. Tina said, for almost everything we do, “We kind of lose focus, we bring it back, we get distracted, we bring it back.” So, the question you need to ask yourself is, what do I focus on? Or, am I focusing on what I am supposed to be? Also, what happens to you when you lose focus? And how do you even know when you aren’t paying attention?

 

A really important concept, Tina said, is “whatever we focus on expands.” So, if we are focusing on the wrong thing, or constantly lose our focus, or are unaware of what we are focusing on, that’s what our experience of life is going to be.

 

To work on honing your focus, Tina said, “as the day goes on, or you’re with family, or you’ve in a business meeting, just notice, ‘How am I talking to myself?’ because you’ve got to be your own best friend.”

 

I find that the remaining four steps are a continuation of this step. They will guide you towards maximizing the amount of time spent focusing on the right things, and minimizing the time spent focusing on the wrong things or being unaware of what it is you’re focusing on, which is the key to the unstoppable mindset.

 

2 – Relaxation to eliminate negative emotions in the moment

 

Next is relaxation. Tina is a firm believer in the mind/body connection. She said, “in order to manage stress, we have to be able to manage our nervous system. And in order to manage our nervous system, we have to know how to do that.”

 

“If our system is on overload, we can’t think clearly. So, if you’re in a negotiation and you want to have your best foot forward, you want to be very grounded and you want to know exactly what you’re taking in, and be conscious of what’s happening internally.”

 

Tina provided a relaxation exercise called the three-step breath that – when practiced repetitively – will allow you to instantly calm down your nervous system when you get anxious, worried, etc. I recommend listening to that part of the podcast here, but here is a summary:

 

  • Place your hands on your belly, breath in through your nose, and allow your belly to fill up. Then, let out all the breath before you take in the next breath. In through your nose, out through your nose.
  • Once you’ve mastered the belly breath, repeat the same process, but this time, the first half of the breath should fill up the belly and the second half should fill up your rib cage. Then breathe out, letting the belly go first, followed by the rib cage.
  • Once you’ve mastered the belly-rib breath, repeat the same process, but this time, the first third of the breath should fill up the belly, the next third is the rib cage, and the finally third is the upper chest. On the breath out, let the belly go first, followed by the rib cage, followed by the upper chest.

 

Tina said, “if you’re starting to feel anxious and you’re not sure which way to go and what you want to say, you just take a moment, nobody will see it; you don’t have to put your hands on your body, just take a nice deep breath, let it go, and all of a sudden now your mind is back.”

 

3 – Use mindfulness to create an emotional vocabulary

 

Three is mindfulness. Tina said, “we operate, automatic, but there’s so much going on; there’s so much under the surface that if you become a student of really being curious [and mindful] about your own unconscious material, your own self, what’s driving you, what’s calling you, what are you scared of? How do I react in a certain situation? What kind of negotiator am I? What is my tolerance for risk? What happens when I feel I am over the line, I’m risking too much?”

 

Again, like relaxation, building up your mindfulness muscle takes practice. You can perform mindfulness mediation, where you sit and pay attention to everything that comes into your awareness. Or, more practically, when you are feeling a strong emotion, anxiety, stress, etc., notice the sensations it gives your body. Then, Tina said, “once I learn to identify what those sensations mean to me, then I’ve got a new language.”

 

4 – Eliminate negative self-talk and take responsibility

 

Four is your self-talk. “Negative self-talk,” Tina said. “Sometimes we get really annoyed with ourselves. ‘Ugh, I can’t believe I did that’, or ‘That was really stupid.’ Or ‘I don’t really have anything to say here.’ There’s a million different ways that we undo ourselves. So again, if we don’t even know how we’re talking to ourselves, then the mind just does what it does – you’ve heard the term ‘monkey mind’, it jumps all over the place. [If] it’s not managed, it’s not controlled.”

 

This brings us back to focus. If we focus on the negative self-talk, we will self-sabotage ourselves – sometimes without even being aware of it.

 

Sometimes, our self-talk may not be negatively directed towards us, but towards others. The example Tina provided was bringing a package to the post office on Saturday at [12:10]pm and getting there to realize it closed at noon. Negative self-talk would be beating yourself up for being the idiot that didn’t realize the post office was closed, blaming the post office for not adhering to your schedule, or cursing the universe. Instead, Tina said, “you could say to yourself … that ‘I take responsibility for my own experience. I am in charge of what happens to me. I’m in charge of what I create.”

 

Taking responsibility for everything negative that happens will ultimately lead you to asking yourself how you may have played a part in creating the dilemma. In the post office example, it is your fault for not looking up the operating hours. Then, once you identify your level of culpability and a solution, now you have a new piece of information you didn’t have before, and you should never face this predicament again.

 

Now, use that concept of taking responsibility, determining how you played a role, identifying the solution and apply it moving forward to everything you do rather than falling down the negative self-talk rabbit hole.

 

5 – Create Powerful Visualizations

 

Finally, create powerful visualizations. Imagine the way you want your life to be and where you want to go. You may not have a clue of how you will get there, but once you have a vision in place, Tina said, “ask yourself ‘is what I’m doing going to take me to that end result? … Am I moving in that direction, or am I way off? Am I just kind of getting lost in making agreements and decisions about things that don’t take me where I want?’… If our whole body and our minds are in alignment and we’re looking at what we want to create – again, everything that we focus on expands – and we use the power of visualization, you can create a visualization and even if it hasn’t happened yet, your brain already has had that experience … and then we walk it.”

 

While you should create visualizations for your overarching vision, this technique has day-to-day applications as well. Tina said, “every time I do a workshop, or I’m getting ready to do a talk, or a lecture, I sit down in the morning and I visualize, ‘what do I want to create? What’s the environment that I want to create? What do I want to have happen?’, and I walk through it step-by-step. And then when I’m actually doing it, it’s like I’ve been there.”

 

Conclusion

 

Mastery coach Tina Greenbaum’s five-part curriculum for creating an unstoppable mind is:

 

  • Focus on what you want
  • Relaxation to eliminate negative emotions in the moment
  • Use mindfulness to construct an emotional vocabulary
  • Eliminate negative self-talk and take responsibility
  • Create powerful visualizations

 

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eliminating competiion in chess match

Eliminate 99% of Your Competition with This Simple Real Estate Investing Strategy

 

How much would your real estate investing success increase if you could eliminate up to 99% of the investors competing for your deals? Daniel Ameduri, who bought his first investment property at the age of 18 years old, accidentally stumbled across such a competition reducing strategy when he was purchasing his personal residence.

 

In our recent conversation, Daniel explained how he leveraged that tactic to grow his investing business. By selecting the correct investment criteria, you can replicate Daniel’s strategy and never have a problem finding a deal again.

 

Step #1 – Identify a Market’s Main Problem

 

The first step for this strategy is to uncover the property type that no one wants to buy. If you know your market well, you should already have an answer to this question. If not, simply ask around. Speak with local investors, wholesalers, or realtors and ask, “what is the property type that nobody else wants to buy? The one that scares away most investors?”

 

In Daniel’s market, and maybe in your market too, the issue that every investor runs away from are foundation problems. He said there’s virtually zero competition for deals with foundation problems because “no one can get a loan. Bam! Right there, you just got rid of all your paint/carpet/blind fix and flippers. They’re gone.” Daniel also said “most people are ignorant of what it takes to fix a foundation. Okay, there you go; you got rid of a ton of cash buyers and a ton of other investors.”

 

Step #2 – Find a Solution

 

Next, you want to determine how you can solve that issue in a cost-efficient manner, which will require investigating and due diligence on your part. For Daniel, he discovered both the problem and solution completely by accident. So, he’s not being boastful or arrogant by claiming that most investors are ignorant of what it takes to address a foundation issue, because initially, he was as well. He said “in Southern California I came across a foundation problem and I ran. In central Texas, I wanted to buy a home for my family to live in, and they said ‘It has a foundation problem.’ Because I didn’t have my investor mindset on, I didn’t run. I became an entrepreneur problem-solver, which that’s what I should have been as an investor. Because I wanted to live in that home, I said ‘Well, I’m going to find out how much it costs’, and to my surprise, the bids were coming in at $3,000, $3,500, and I was like ‘Wow!’ Here I was, thinking this was a $50,000 problem… Because it’s about the logistics – they’re literally digging holes around the property, jacking it up… Typically, if it’s a two-story, it will burst some pipes or break some things, so a lot of times you have to fix the piping as well, which is another $3,000 on let’s say a 2,000-3,000-square foot home. So, I actually originally discovered this whole problem that was solvable with the purchase of my own residence. Then once I knew that, I smelled the blood; I was hungry. I told that very realtor and everyone I could get in contact with – ‘If there’s a foundation problem, from basically all of central Texas to San Antonio, I want to know about it.’”

 

Step #3 – Become the Go-To Person for Those Types of Deals

 

Finally, you want to contact the realtors and wholesalers in your market and ask them to notify you if they come across the type of deal you’re looking for. At first, this will be the specific problem you’ve identified and for which you’ve found a solution. But as your business evolves, you may want to invest in all the deals that investors are running away from, which is what Daniel’s strategy is.

 

When someone asks Daniel what his investment criteria is, he said is response is always “I want what nobody else wants. I want what everybody hates.” That is his standard reply to every realtor, investor, realtor, etc. “I tell them I want to be the guy that buys the things that nobody else wants to buy. I want to get the things that are hated. I don’t care if it’s fire damage or foundation. What are people scared of, what do they hate, what does nobody want, what can no one get a loan for? I’m that guy.”

 

Since you won’t be able to get a loan on these types of deals, you’ll either have to use all cash or utilize the same strategy as Daniel – seller financing. He said, “what I’m doing is I’m approaching that homeowner who cannot sell his house; he is stuck. The only option for him is a cash buyer, that’s what he thinks but what I tell him is ‘What do you ultimately need from this deal?’ That’s where I start the negotiation. Maybe they need $5,000, maybe they need $30,000. If I can be agreeable to that, the rest is easy, because all I have to do is an assumable transaction; I take over the loan and I tell them ‘Look, I need 18 months to fix and flip this house or refinance it. I can get the foundation people almost immediately, I can have the foundation repaired within six weeks, and then I just need to finish the rest of the property.’”

 

“I still have an assumable loan, so I’ve never even applied for a mortgage at this point. I’m simply making the payment of the previous owner, but I am legally on the deed; I am the owner, I just don’t have the mortgage in my name. I continue making those payments, and that distressed seller – he’s long gone. And I then sell the property, and hopefully – and usually it works, in this case; and I say actually always it works so far – I’m able to sell the property in under six months… Paying off that loan, so that guy is happy, and I get to make the cash. I never have to go through the nightmare of an application of getting a mortgage, I never had … to write a $200,000 check to buy the property cash… I usually got into the property for less than $25,000, and probably put another $25,000 to fix it up.”

 

Keep in mind that this is not a no money down strategy. But it also doesn’t require hundreds of thousands of dollars either. Daniel said, “most of the owner-financing deals I have done, you need some cash. You’re going to need anywhere from $5,000 to about $30,000.”

 

Conclusion

 

Daniel Ameduri follows a three-step investment strategy that eliminates up to 99% of the competitors vying for the same deals.

 

The first step is to identify the main issue in a market. That is, the problem that scares away 99% of investors.

 

Next, research the solution, and the cost, to the issue.

 

Finally, notify the wholesalers and realtors in the market of your criteria and become the go-to person for those types of properties.

 

 

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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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5 Tactics to Get Five-Star Real Estate Reviews

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

 

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

 

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

 

1 – Hire a 3rd Party to Manage Reviews

 

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

 

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

 

2 – Free Stuff in Exchange for Reviews

 

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

 

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

 

3 – Send a Satisfaction Survey

 

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

 

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

 

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

 

4 – Be Responsive and Follow Up

 

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

 

5 – Bonus Tactic

 

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

 

 

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

 

 

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

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

 

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

 

Why Do Investors Have Difficulties Letting Go of Properties?

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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Should We Celebrate Closing a Real Estate Deal?

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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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.

 

 

 

calculating property insurance cost

How to Save Thousands of Dollars When Buying Investment Property

Guest post written by: Neva Williamson

 

Buying a home without a real estate agent may seem daunting, but did you know that as many as 20% of all home buying sales are completed without the help of a real estate agent?

 

Thousands of home owners and real estate investors save thousands of dollars on their property investments simply because they were able to avoid using an agent.  With that said, it is important that you purchase a property only if you have the sufficient knowledge and expertise to do so.

 

We are going to touch upon three leading problems you may face when buying a home, and then dig deeper into how to buy a house without a realtor or an attorney.

 

 

Problems You May Face Buying a Home Without an Agent

 

Learning about the pitfalls other investors and homeowners have fallen into will help you avoid making the same mistakes.

 

  • You may overpay for the home

Homeowners are notorious for overestimating the value of their property.

 

  • You are not protected if sellers do not disclose property problems

If a real estate agent is aware of a problem with the home, that problem must be disclosed in almost every state.

 

  • You don’t know how to handle the paperwork

Real estate law is difficult for those inexperienced with it to navigate, and it varies by state, county and city.

 

 

A Buying a House Without a Realtor Checklist

 

Buying a house or property without the help of a realtor is possible as long as you protect yourself by taking the correct precautions.  First and most important:

 

 Learn About the Neighborhood

 

One of the greatest advantages to hiring a realtor is that he or she knows the neighborhood you are interested in.  They have years of experience in knowing what homes sell for right down to the very street the property is on so they will be able to give you a realistic view on the cost of a home as well as be able to negotiate on the price.

 

Price is an important consideration, but be sure to look into other aspects including:

 

  • School districts
  • HOA rules (if applicable)
  • Commutes
  • Property taxes

 

This will also have a significant impact on the value and the re-sale potential of the property.

 

Speak to a Real Estate Lawyer If Necessary

 

Many homeowners and investors want to save, which is why they will look into how to buy a house without a realtor or attorney.  But a real estate attorney is someone who, at least with your first or second purchase, will be your most valuable asset when buying a property.

 

As soon as you are ready to sign the Offer to Purchase, start working with a reputable real estate lawyer in your area.  While the cost of real estate attorney may set you back hundreds to a couple thousand dollars, it is worth the expense to prevent any potential legal troubles down the road.

 

 

Get the Home Inspected and Learn How to Read the Report

 

Have the home inspected by a well-trusted inspector in your area and take time going through the report.  There may be anywhere from 20 to 50 or more points of concern, some of which may be a concern while others – while masquerading as a big deal – are not.

 

Try to obtain as much information as possible from your home inspector about the leading points of concern.  Your real estate lawyer may also be able to shed some light on a few key points.

 

 

Buy (or Have the Seller Pay) for a Title Insurance Policy

 

This is critical as it will ensure that you are able to receive the property’s title free from any liens and encumbrances.

 

Conclusion

 

While hiring a real estate agent to help in the purchasing of a property has become the norm, that does not mean that homeowners and investors can take on the task themselves.  The key is educating yourself so that you are empowered to make the best decisions that make sense for your family and for your financial goals.

 

Learn more about Neva through her YouTube channel: https://www.youtube.com/user/TimeforInvesting

 

 

 

saving money

How Being Contrarian and Not Chasing Trends Can Save You Thousands

 

While chasing hot trends may work as a consumer (i.e. getting the newest technology, clothes style, etc.), it can be a huge mistake as an investor. When chasing a trend as a consumer, worst-case scenario you are out a few hundred dollars. However, chasing a real estate trend can cost you thousands, if not hundreds of thousands of dollars or more.

 

For example, I interviewed a guest on my podcast who got caught up in the massive appreciation trends in Florida leading up to the financial crash and ended up losing over 100 properties.

 

In a recent conversation with lender and investor Ben Shaevitz, this was his best real estate investing advice ever. “My best advice ever for real estate investors would be to not chase a trend,” Ben said. “I think that if you’re chasing hot markets, if you find out that a market’s hot, it might be too late already.”

 

Ben was personally negatively affected by neglecting to follow this advice. He said, “I made the mistake of chasing a trend. I was very young and I had just started making some money, and downtown LA was exploding. I bought a new construction, a condominium with huge HOA fees and a mortgage and a 6.625% [interest rate] amortized over 30 years. It was a mistake.”

 

Ben said if you chase a trend like that, “everyone says ‘oh, this area is blowing up!’ The people that are telling you that got in way before you did, and that’s probably too late.”

 

Ben firmly believes that investors should avoid investing in a hot market, unless you can find a stellar deal (Related: How to Find Deals in a Hot Market). Instead, you want to be a contrarian investor. Find the investment niche or market (within reason) that is not on everyone else’s radar.

 

The first deal I bought with my business partner, for example, was a 250-unit apartment building in Houston. That was in August of 2015. At the time for almost every news organization and newspaper was talking about how oil was never going to come back and that Texas economy was doomed. “If you’re in the oil industry or if you’re in Houston or anywhere near, or even if you have a relative in Houston, you are going to be in trouble,” and similar statements were dominating the Texas news cycle.

 

We closed on that deal in August of 2015 when nobody else was buying there. We bought it for $14.1 million dollars and put in $2 million worth of renovations. In December of 2016, 16 months later, oil is still here and our property appraised for over $21 million. This appreciation can be attributed to multiple variables, but one of the main reasons was we were contrarian investors. We invested in Houston at a time when every single news channel was saying oil was never coming back.

 

While this advice doesn’t apply to all situations at all times, being a contrarian investor and avoiding hot trends can pay off big time. Or in the words of Warren Buffett, “Be fearful when others are greed and greedy when others are fearful.”

 

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burning sparkler

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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commission free

How to Find a “Commission-Free” Real Estate Agent

What if you could have all the advantages of a real estate agent without paying a commission fee?

 

Aaron Hendon, who is a 5-Star Realtor with Keller-Williams Greater Seattle, says you can! In our recent conversation, he explained how to find a realtor that can sell your property above asking price in order to cover the agent commission.

 

Best Ever Advice?

 

Aaron’s Best Real Estate Investing Advice Ever is “get a good realtor partner.”

 

“Don’t go cheap when it comes time to find the professional that’s going to sell that home,” he said. “A good realtor, and if you interview a realtor well, he should be able to get you more money at sale than doing it yourself or doing it with a discount broker.”

 

You may be thinking, well Joe, of course I want to find a great realtor, but I’d still have to pay the 3% commission right? Technically, the answer is yes. However, there is a caveat.

 

Aaron said, “You can absolutely find realtors whose list-price-to-sell price ratio is high enough to cover their commission.”

 

What is the List-Price-to-Sale-Price Ratio?

 

The list-price-to-sale price ratio calculates how much an agent sells a property for compared to the list price. For example, if a realtor’s ratio is 100%, then on average, they sell properties at 100% of the list price. If it’s 95%, they sell properties 5% below list price. And if it’s 105%, then they sell properties 5% over the list price.

 

Let’s say, for example, you are listing a property for $100,000. If you don’t want to pay the commission (3% of $100,000 is $3,000), then you want to find a realtor with a list-price-to-sale-price ratio that results in a sale high enough to cover the commission. For the $100,000 list price, if you’re agent has a ratio of 104% (and the market average is 100%), then they will likely be able to sell your property for $104,000, take a 3% commission of $3120, and you are left with over $100,000!

 

How to Find Out an Agent’s List-Price-to-Sale-Price Ratio?

 

Finding out an agent’s ratio is simple: you just ask. However, Aaron said, “there’ll be people that get insulted, there’ll be people that find you arrogant” for asking the question. Even better! No better way to screen out an agent than for them to get angry at you for asking about their credentials.

 

“What a great way to vet who you work with, because how dare anyone be insulted?” Aaron said. “They’re about to take 2%, 2% of your commission and they’re going to get insulted.”

 

Are you worried about an agent lying about their ratio? Instead of asking, what is your list-price-to-sale-price ratio, instead ask them to show you the listings they’ve sold in the last 12 months, which will accomplish the same thing. “It will show the list price, the sale price, and the days on market,” Aaron said. “If should all be right there for you.”

 

What’s a Good List-Price-to-Sale-Price ratio?

 

Your goal should be to find an agent who has a ratio that is higher than the market average. The key phrase is market average. research yourself and find out what the market is like.”

 

For example, Aaron said, “In Seattle, it’s a super hot market. It’s insane. Multiple multiples over asking price. Two days on market, six, seven, eight, ten offers. It’s crazy. [However], it’s not like that everywhere. Our team does 105% of asking price on average, where the local market altogether is 100% of asking price… It’s not like that in Tallahassee, but you should find out what it is like in Tallahassee. Find out what the over market in Tallahassee is like so that when you compare realtors, you’re comparing them against your market average, not some national average, but you, where you’re selling.”

 

Ask three, four, or five real estate agents for their 12-month sales history, compare the ratios, and move forward with the top agents. At that point, Aaron said, “after you’ve gotten their actual performance, then you could ask the questions, ‘Okay, do I like hanging out with this person? Does this person fill me with confidence? Do they make sense? Do they have integrity? Is this someone I want to do business with?’”

 

In other words, use the ratio to screen out underperforming agents, and then ask follow up questions to select the agent that is the best fit.

 

Conclusion

 

The list-price-to-sale-price ratio is a calculation of how much more or less an agent sells a property for, on average, compared to the list price. If you don’t want to pay an agent commission, then you must find an agent who has a ratio high enough to cover the commission percentage.

 

To find out an agent’s ratio, either ask them what’s your list-price-to-sale-price ratio, or if you are worried they will be dishonest, ask them to provide you with their last 12-month sales history.

 

A good or bad ratio depends on the market average, not the national average.

 

Ask 3 to 5 agents for their ratio, compare, and move forward in the interview process with the agents with the highest ratios.

 

 

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business man in tie

5 Ways to Make Real Estate Your Business Instead of a Hobby

Are you ready to take your business to the next level, or are you still struggling to make that first step into real estate investing? All experienced investors have been in your position at some point in their careers.

 

Fortunately, Bill Bronchick and Bobby Dahlstrom, who are fix-and-flip partners, recently published the book The Business of Flipping Homes, which provides a business approach to the fix-and-flip real estate strategies for all experience levels.

 

In our recent conversation, they provided 5 tips based on their new book and previous real estate experience on getting started as a fix-and-flipper, scaling to the next level, and creating a business, rather than a hobby.

 

 

Tip #1 – Time Commitment

 

Bobby said, “One of the first things that people need to do is realize it’s going to be a time commitment. There’s a lot to learn.” When you’re first starting out, Bobby said, “I think as a minimum, you’re probably looking [at investing] around ten hour a week.”

 

If you don’t have any money, Bobby recommends you invest that 10 hours a week into becoming a wholesaler. “If you go out and identify a property that’s a good deal, then with a little effort you’re going to find someone who will definitely take that off of your hands. So the idea as a wholesaler is you spend your time looking for bargains.”

 

If you want to skip the wholesaling step, and instead work with wholesalers, a real estate agent, or buy properties at auction, Bobby said, “In some ways it takes less time to find a deal, that’s true, but then you still have to manage the actual process of getting it from under contract to closed, to then fixing it up, and then selling it.” Still count on the 10-hour a week time investment, or maybe more.

 

Bill also believed that 10 hours a week is a good place to start. But what if you have a full-time, 9-5 job? Bill said, “I think the approach that people need to have is that after they come home at five o’clock from their regular job, it’s time to go do the second job. Like I said, treat it like a business. You’re setting aside two or three hours a day, and that’s just your second job for a while, and you’re going to have to get your family and friends to understand and accept that.”

 

“At some point,” Bill said, “maybe when you get up to 15 or 20 hours a week, you’re going to have to decide which job is more important. If you’re doing it right, the job that’s more important is going to be the real estate, because it’s going to make a lot more money.”

 

Tip #2 – Build a Trusting Team

 

Next, Bobby said, “You need to surround yourself with other successful people and build a team that you trust, that you can work with on a repeat basis.”

 

Their team consists of an attorney, a contractor, a real estate brokers, a title or escrow company rep, an insurance person, an accountant, and an inspector.

 

You don’t necessarily need to have all of these positions filled before you start looking for deals and making offers. Bill said, “It’s not like you have to have every one of them lined up before you make your first offer, but that’s one of the things you want to do right up front. Start getting your things lined up so that you don’t end up having some bad experience because you’re just rushing to get something done with someone.”

 

The best way to find these team members is by attending local real estate investment groups and asking for referrals. Bobby said, “Almost every city has some type of a real estate organization that’s sort of a creative thinking, like-minded people type get-together scenario. They’ll meet monthly. You can find those online, and sometimes going to some of the seminars, whether they’re free seminars or a paid weekend event… Those kinds of things are a great place to meet other people and [to] just get a sense of what this flipping is all about.”

 

Make sure you are selective when bringing on team members because not all brokers, contractors, etc. are the same. “When you speak to a real estate brokers,” Bobby said, “And I’m a broker, I’m also a contractor… We don’t all think alike and we don’t all have the same experience. It’s not that difficult to become a real estate agent. So you want to start looking for the ones that have worked with investors and ideally own investment properties themselves, so they understand what you’re trying to accomplish.”

 

Tip #3 – How to Approach Your First Deal?

 

After making the time commitment and building a team you can trust, the third thing is, “You have to go out and start looking for your first deal,” Bobby said. “Many people get lost in trying to find the perfect deal, which probably doesn’t exist. You need to find one that makes sense [and] go with that.”

 

To find your first deal, Bill’s Best Ever advice is to make a lot of offers. “I think too many people dance around it, they look at it, they research it, and then they haven’t even made an offer yet,” Bill said. “You can’t buy a property from a seller in a good deal until you find out what the seller’s problem is. You’ve got to sit down with them and get personal and get them to open up. Say, ‘What’s the real reason you’re selling?’ Not because [they] want to sell the house, but there’s some problem attached to that that you need to find and get to the bottom of, and then solve that problem and buy the house. If you solve their problem, you make money.”

 

Keep in mind that the problem may not be a certain sales price they want to hit. It may be speed, whether they need to close quickly or close later. Or it might be terms. Bill said, “you just don’t know. So make lots of offers, but don’t make an offer blind without knowing what the seller’s needs are – their personal needs, not the property needs.”

 

Another piece of advice when you’re approaching your first deal and making offers is to not become personally attached to the property, which is Bobby’s Best Ever advice. He said, “People get really attached to one potential deal, and they try and make it work. They go backwards and forwards and try and make it work, and get all these other people involved when maybe it’s just not a good deal. Or maybe it will be a deal in a year, so you can always leave a verbal offer with the potential seller in a respectful way, maybe they come back to you. That comes back to really making more offers.”

 

People also get emotionally attached in terms of renovations. Bobby said, “They start doing things the way they would want to do it for their own house. If I happen to like light blue interiors for my house – which I don’t – that would be find, but I don’t want to use that in a flip. We want to be a little creative, get most bang for the buck – that’s part of the fun of the business – but don’t try and project your personal case and your personal opinions too strongly into each deal.”

 

Tip #4 – Focus on Cash Flow

 

Bill said, “One of the most important things in a business … is cash flow. You have to make sure that you have enough money to not only run your business on a daily basis, but to fund the deals you’re working on and don’t get all your money tied up to the point where everything is hanging on a couple of deals, and if they don’t go through, you’re broke. It’s like any business. You have to anticipate your expenses and your cash flow needs.”

 

When it comes to looking at cash flow, it’s important to understand the two types of flipping: wholesaling and retailing. “Retailing [is] the traditional stuff you see on TV – Buy, fix, and flip,” Bill said. “Wholesaling [is] more of a short-term deal and selling it to another investor as is.”

 

Focusing on cash flow comes more into play when retailing because you must be able to anticipate your projects. Bill said, “If you’re in the middle of two fix and flips and they went over budget and you’re feeding it and feeding it, and all of a sudden you have to pay other expenses of your business, like your phone in your office and all the things like that, you have to make sure that you have enough cash on hand so you don’t run out of cash for your deals.”

 

Tip #5 – Lessons Learned From Past Mistakes

 

As you begin doing deals, the next tip is to learn from your mistakes. Fortunate for us, Bill and Bobby shared a handful of mistakes they have made.

 

Since we are focusing on cash flow, what are common cash flow mistakes? When performing a fix-and-flip and you are getting a loan, the type of loan you will likely get is a hard money loan. Bobby said, “[Hard money loans] can make sense. You can get in and out quickly. But a lot of times, these hard money loans have a little upfront costs, as you’d expect. They also have, however, a high interest rate and usually a balloon payment in six months or so.”

 

For Bill and Bobby, most of their flips take three to six weeks from purchase to ready to sell, so the hard money loan works perfectly. However, what happens if something goes awry and the deal takes longer? For example, Bill said, “a lot of people do get hard money loans for their fix and flips, and they don’t realize that, let’s say they have a six month loan. After six months, the interest rate goes into default, which means it might step from 12% to 20% [interest]. Then all of a sudden it’s racking up at 20% while you’re trying to get your closing done on the backend, and all of a sudden your profit is eaten up to be nothing or even negative.”

 

Even though it may take a couple of months to complete a rehab and have the property ready to list, there can always be delays. There could be contractor issues, bad weather, or a buyer may say they will buy and then pull out a month later.

 

Since Bobby and Bill are seasoned flippers and have faced this situation in the past, they have a solution. Bill said, “The six months may seem like a long time, but what I recommend people do is make sure if you’ve got a loan that’s due in six months you have the right to buy an extra two or three months. Otherwise you’re either getting hit at the default rate of interest, or potentially foreclosure by the lender and you’re going to lose the house.”

 

Another common mistake fix-and-flippers make is not realizing how long their money will be tied up in a deal. Bobby said, “If you’re trying to juggle more than one deal, it gets complicated because you’re having to get your resources, including yourself, to two different places. It’s usually better, like most things, to start slowly, one deal at a time.”

 

 

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The Four Overlooked Benefits of Real Estate Investing

 

If you look at the story of the Titanic, it hit an iceberg and it sank, killing thousands of people. The captain saw a piece of ice extending out of the water and in an attempt to avert collision, he slammed the ship into the most massive piece of the iceberg – the submerged portion. In other words, he was looking at the obvious, ignored the most important piece of information (i.e. the majority of an iceberg’s mass is underwater), and the outcome was disastrous.

 

Josh Hartman, who has done thousands of real estate transactions across 11 states, compares income-producing real estate to an iceberg. There are obvious aspects of real estate that most investors focus on (i.e. the part of the iceberg you can see), but since income properties are a multi-dimensional asset class, there’s more to it than the money coming in and going out each month (i.e. the submerged part of the iceberg that makes up the most mass).

 

In our recent conversation, Josh explained the other dimensions of real estate investing that are not so obvious and why understanding of these added dimensions is a must if you want to ensure long-term success.

 

Is Real Estate Investing More Than Just Cash-on-Cash Return?

 

The most obvious aspect of real estate investing is cash-on-cash return. So, if this is the only metric you track, then it may seem as if your portfolio is performing worse than it actually is. “There are many other dimensions that are not apparent necessarily to investors that they realize later,” Josh said. “So if they just look at it from a cash-on-cash perspective, and if they have a couple of bad months, if they have a vacancy, if they have a big maintenance issues or a tenant that trashed the property issue, and they gotta spend a bunch of money, they wouldn’t be evaluating holistically.”

 

That’s why it’s important to take all dimensions of real estate investing into account and look at the big picture. “It’s important in real estate and in life in general to step back, like a painter from their canvas, and look at the big picture once in a while,” Josh explained. “Sometimes we have to be looking at the brush strokes, but sometimes we also have to step back and look at the big picture, and that is why real estate investors can feel like they’re losing when they’re actually winning sometimes.”

 

What are these other dimensions of real estate investing that come together to make the entire big picture? First, there is the value of leverage.

 

The Value of Leverage

 

One aspect of real estate investing that isn’t taken into account by the cash-on-cash return is the value of leverage. “That’s one of those things we love as real estate investors,” Josh said. “On most of our deals, [we] have a partner. That partner is called the bank, the lender, whoever finances the property for us. Well, we’re probably only putting in 1/5 of the cost of that asset, and they’re putting in 4/5 of it.”

 

What other investment allows you entrance at 20% of the asset’s value? Rather than put up $100,000 in capital for a $100,000 property, I can technically take that $100,000, spread it across five $100,000 properties, and control $500,000 worth of real estate!

 

Appreciation and Depreciation

 

Another often overlooked benefit of real estate is appreciation and depreciation. “We get appreciation over time, [although] appreciation is not always instant,” Josh said. “Sometimes we have depreciation, but the nice thing is, in those depreciating markets, typically rents will strengthen because people aren’t leaving the renter pool and entering the buyer pool because they don’t have any urgency to.”

 

Depending on your investment market, you can leverage either appreciation or depreciation by adjusting your strategy. “We can either be in a capital gain strategy, where we’re banking on appreciation, or we can be in a cash flow strategy, where we’re banking on upward price pressures on our rents.”

 

Tax Benefits

 

Income property is one of the most, if not the most, tax favored asset class in America. Since taxes are the single highest expenses in our lives, this is a very important and attractive benefit.

 

Josh broke down tax benefits into three major categories:

 

Tax Deductions

 

“If our properties are local, or especially non-local, we can deduct a lot of expenses associated with running our real estate business because it is a business just like any other business where we have business expenses. Maybe some of our travel expenses, maybe some of our cell phone expense, our internet service expense, software that we would otherwise use anyway in our lives. A lot of these things can be expensed off with the properties.”

 

Depreciation

 

“That is really one of the Holy Grails of tax benefits … where we can take and depreciate the property over 27.5 years if it’s a residential property and 39 years if it’s a commercial property. Residential has about a 25% faster depreciation schedule, and if we qualify for the depreciation benefit, it’s a non-cash write-off. As a non-cash write-off, we don’t have to actually spend money to get a tax benefit.”

 

“Every other area of life we have to spend money to get a tax deduction – donate to charity, or spend more money on our business. We get a deduction with income-producing real estate. We could have the property appreciating in value, we could have positive cash flow… In other words, everything could be going great, yet the IRS will still let us use a paper loss, a phantom deduction, to get a tax benefit, and that is an absolutely beautiful thing.”

 

“One of the ways that wealthy people can pay little or even no income tax [is] if they own enough real estate, and [they can] really benefit.”

 

1031 Exchange

 

“We can trade the asset all our life on a 1031 tax-deferred exchange and not pay any tax. If we have a business, if we own stock, and if we sell it, we gotta pay tax before we get to reinvest it. With income property, we can sell it, trade around, move around maybe to different geographies, different product types… A couple of times I’ve exchanged single-family homes for apartment complexes or a mobile home park – I still own those now – and that’s just great, that I get to reinvest everything – the government doesn’t take a cut – and reduce the amount that I get to reinvest.”

 

“I sold a business years ago, and when I sold my business, the government took a cut before I got to do anything else. There was no ifs, ands or buts about it. If I sell a stock, the government takes its share, and then I get to invest what’s left over… Not true with income property, using the 1031 tax-deferred exchange, which is a tremendous benefit.”

 

The Holy Grail: Inflation-Induced Debt Destruction

 

The final overlooked benefit is what Josh refers to as inflation-induced debt destruction. It is a fancy term to describe a hidden wealth creator that occurs behind the scenes (much like the submerged portion of the iceberg) – when you have financing on a piece of income property, that debt is constantly being debased by inflation.

 

Another advantage of putting debt on a piece of income property is that the tenants pay off the loan over time. However, this is minor compared to the big benefit of inflation.

 

Here is an example Josh provided to help explain how inflation-induced debt destruction works:

 

“Say someone buys ten single-family homes and they have one million dollars in leverage or debt against those single-family homes. Maybe the portfolio is worth $1.2 million when they bought it. Now, they will get their mortgage statements right after they buy it, and they can look and see that their loan balance today is one million dollars.”

 

“For easy math’s sake, and just say that if we look at an inflation rate of 5%, … then that million dollars, inflation is basically paying off $50,000/year of our debt for free, every year, in the background.”

 

Josh said, “Most people think they made money because the value of their property went up, but the property really doesn’t go up that much compared to inflation. It kind of keeps pace with it pretty well. The way investors beat inflation is they use leverage. If they have 4:1 or 5:1 leverage ratio, then they outpace inflation by 4:1 or 5:1”

 

However, there is another inflation-related benefit that comes from leverage. Josh said, “Inflation is also reducing the value of that debt because we pay it back in cheaper dollars every year.”

 

For more detailed information on how inflation-induced debt destruction works, listen to my first interview with Jason here: https://joefairless.com/podcast/jf38-dont-you-dare-lose-control/

 

 

Conclusion

 

Don’t be like the captain of the Titanic, overlooking the biggest and most important aspects of your business. In the Titanic captain’s case, he overlooked the fact that the largest part of the iceberg is submerged. As an investor, cash-on-cash return is just the tip of the iceberg. The often overlooked aspects of real estate investing that make up the majority of the benefits are:

 

  • The value of leverage
  • Appreciation and depreciation
  • Tax benefits
  • Inflation-induced debt destruction

 

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BRRRR Strategy real estate investment

BRRRR Strategy: Formula to Buy 5 Rental Properties in 2 Years and Payoff in 7

 

One of the main reasons why people become interested in real estate investing is the allure of financial freedom. Purchase enough real estate to cover your personal expenses and voilà, you’re financially independent. For some, one of the hardest parts may be learning how to calculate if rental property is good investment.

 

There are many strategies and tactics to implement in order to accomplish the feat of financial independence, like Josh Sheets’ integration of personal and professional financing, Fernando Aires’ three principles to achieving financial independence, or committing to this straightforward four step process, among many others.

 

However, the fastest financial freedom strategy I’ve ever come across is Andrew Holmes’ 2-5-7 strategy. He has successfully implemented this strategy, which is a version of the infamous BRRRR strategy (buy, rehab, rent, refinance, repeat) on over 160 properties. In our recent conversation, he outlines, in extreme detail, his exact step-by-step 2-5-7 formula for how he purchases a minimum of 5 properties every 2 years and pays them off in 7.

What is the 2-5-7 Investment Formula?

Andrew’s investment strategy adheres to what he calls the “2-5-7” formula. In 2 years, the goal is to accumulate a minimum of 5 properties and using the cash flow pay them off in 7 years. Andrew said, “The formula doesn’t change, it’s just the number of properties, how much cash flow you want to create, and you scale based on that.”

 

In order to achieve his specific investment goals, Andrew has the following additional requirements at are not necessarily included in the original BRRRR Strategy:

 

  • Deal Location – “Most people, whenever they own rental properties, they tend to buy … in areas that are rather challenging. We have a different philosophy, which is we tend to buy in bread and butter areas, right next to what we would call premium areas. Basically, if premium areas are A, we tend to buy B- or C+.”
  • Minimum 25% equity– “Whenever we’re buying a property, after rehab, it must have a minimum of 25% equity.”
  • Small Ranches– “We focus on buying small, three-bedroom, one and one-and-a-half bath ranches.”
  • $400 to $450 cash flow– “They must cash flow to the tune of $400 to $450 per property after all expenses, including management.”

 

Similar to the BRRRR Strategy, you start with the end goal, which will likely be the amount of cash flow required to cover your personal expenses, your current salary, or your ideal lifestyle, and then reverse engineer your 2-5-7 strategy to determine what market to invest in, how much equity you need (more on that later), the property type, and the monthly cash flow requirement for each deal.

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

Example Deal

Here’s an example deal Andrew provided to see the 2-5-7 formula in action:

 

“Let’s say you’re buying a bread and butter property: three-bedroom, one bath ranch for $65,000. You’re going to put $20,000 to $25,000 into rehabbing the property. You have a carrying cost of another $5,000 to $6,000, so you’re all in cost into the property is somewhere around $90,000.”

 

“This is the most critical part, which to me [distinguishes] investing versus what most people do, and that is the property needs to appraise on a conservative refinance appraisal for $120,000 to $130,000. That’s the key thing – that’s the only way you’re going to be able to get all the capital that you put into the property out, so that you can efficiently recycle the same money over and over and over.”

 

“So the property appraises for about $125,000. The lender is going to give you about 75% of appraised value… That’s the key thing. That’s the benchmark people have to look at. If the property appraises for $120,000 to $135,000, now they’ll give you the $90,000 to $95,000 refinanced.”

 

“So you take that loan, you pay your first lender off – the loan you used to buy the property and to do the rehab – and then you just recycle the same funds. Or if it’s your own money, that’s fine also, but you just repeat that process over and over and over, [with the] goal being you need to get to a minimum of five.”

How to Finance the Properties, Completing the “Buy” Step of the famous BRRRR Strategy?

BRRRR Strategy for apartment investing On the front-end, Andrew explained that there are three major ways he funds his deals:

  • Partnership– “Number one, you can partner with somebody that has the capital and do a 50/50 joint venture. They buy the property, they put up the money for capital [and] you’re the driving force. You’re doing all the work, but you’re giving up 50% of the returns. That’s where I started initially”
  • Hard Money Lender– “The second way to do it is the traditional route, which is you borrow money from a hard money lender, and put in some of your own money.”
  • Private Money– “The third route, which we tend to use the most [is] private money… Join your local REIOs, join the local groups; whichever town you’re in, there are tons of them. There are people that are willing to make loans out of their IRAs, they have personal money, and you end up paying anywhere from 8% to 12% and that’s what we tend to do and that’s what we always try to get people to understand – there’s a lot of money out there where people are willing to loan for the front end of the transaction.”

 

As a multifamily syndicator who sometimes uses the BRRRR Strategy myself, this last option – private money – is my bread and butter. Here are posts on the most effective methods for raising capital from private investors:

 

On the back-end refinance, the biggest challenge Andrew faced in regards to following this take on the BRRRR Strategy and buying 5 properties in 2 years is that most residential lenders will usually only provide up to 4 loans. However, he has found a solution to his problem: commercial loans at small, local banks.

 

“Basically, a five-year balloon with a 25-year amortization. It’s a commercial loan at five, five and a half percent,” Andrew explained. “The speed at which you can scale and grow is much faster.”

 

“We tend to go to the small banks that are in town. Typically, they’ll loan on anywhere from one to five, ten, fifteen, twenty ranches. We’re not going to go to Chase Bank and we’re not going to go to the big lenders, because they don’t really offer these programs for small investors.”

 

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

Meet the Bank’s VP

When Andrew walks into a small bank to get a loan and implement his BRRRR Strategy, his goal isn’t to speak with a teller or a manager or a loan officer. He wants to go straight for the bank’s Vice-President. “You always want to go and directly talk to the VP. Typically, at these small banks, the VP is pretty much the main guy there, and that’s the person you want to approach.”

 

When approaching a conversation with a bank VP, the first thing Andrew does is explains, in two minutes or less, his business plan. A condensed version of his two-minute elevator pitch is, “Hey, we’re buying foreclosure type of properties or investment properties that are rentals. When we come to you, they’re going to be purchased, they’re going to be already stabilized (they like that word) and there’s already an existing tenant. We do two-year to three-year (minimum) leases only; we don’t do short-term leases.”

 

Next, Andrew explains he has his version of the BRRRR Strategy, the 2-5-7 formula, as well as his philosophy of aggressively paying down the properties in 7 years. Then, he goes into more details and shows the VP a couple of successful past deals. However, if you’re brand new, just show them a property or two that you have in the works.

How to Find Local Banks

A great resource for finding a local bank in your target market is https://www.bauerfinancial.com/home.html. Also, Andrew advises, “whatever community you live in, I would draw a 10 to 15 mile radius around it, and then start with the ones that are closest to wherever you’re going to buy properties. Especially if it’s in a B-market, a C+ type of market, then the banks that are local in that area, they have depositors from that particular area and they need to make a certain amount of loans in that particular market. So that’s the first place to start.”

Advantages of Local Banks

Besides the ability to provide more loans than a standard bank, Andrew said local banks have three additional advantages:

 

  • Building Relationship– “As you start developing relations, as you start having credibility with a particular bank, they’ll scratch their arms a little bit, but in general, the place to start always is the community banks – they want to have a relationship; it’s a relationship sort of lending, and they really like that word. If you go in and say, ‘hey, we want to develop a relationship with you’ and you tell them that you’re going to put your rental deposits in their bank, they’re all over that because that’s really what in the long run they’re looking for.”
  • Flexible Loan Qualifications– “They don’t have stringent criteria. For people who may not have a W-2 income, they’ll work with 1099. If somebody doesn’t have a W-2 or 1099, but has retirement income, they’ll work with. If somebody doesn’t even that but has some assets, a good portfolio in the stock market, or just cash, they’re much more forgiving and they’re not as sensitive, even in the department of credit scores.”
  • Loans to Business Entity– “As you work with these commercial banks, you can buy properties in your LLCs, you can buy properties in your S Corps, you can buy companies under a trust.”

 

Related: How a “Rich Dad Advisor” Directs Investors to Transfer Title to an LLC

Conclusion

Andrew follows the 2-5-7 investment formula (which is similar to the BRRRR Strategy): purchase a minimum of 5 properties in 2 years and pay them off in 7 years.

 

The three ways Andrew finances his deals on the front-end are partnerships, hard money, or private money loans. On the back-end, he refinances the properties with a commercial loan from a small local bank. When walking into a bank, Andrew goes directly to the Vice-President and explains his business plan.

 

For those interested in following this strategy or just want to find a small local bank, visit: https://www.bauerfinancial.com/home.html. The three main advantages, among many others, of using a small local bank is the ability to form relationships, flexible loan qualifications, and loaning to your business entity.

 

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If you have any comments or questions regarding how to calculate if rental property is good investment, please comment below.
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first home advice

A Millennial’s Guide to Buying Your First Home

 

Are you a millennial that is ready to dive in and make you first home purchase? Lauren Bowling, a millennial and award-winning blogger and editor behind the personal finance site “Financial Best Life,” recently took the dive into real estate investing and made many costly mistakes. In our recent conversation, she outline the mistakes she made and the lessons she learned, as well as provided a guide for first-time, millennial investors so that they can avoid falling into the same expensive and time consuming traps.

 

Do All The Research You Can Prior to Closing

 

Lauren’s first piece of advice for first homebuyers or investors is, “do all the research you can do, not only on just the purchase itself, but what you’re going to do after.” In order to explain why she provided this advice, I’ll provide some context – what happened on Lauren’s first deal?

 

Lauren’s first investment was a three-bed, two-bath property in an up-and-coming area in a southwest suburb of Atlanta, which she purchased for $65,000. Her business plan, she said, was to “really get a great deal, buy low, and eventually, in 5 to 10 years, sell high so I can really make my first home purchase make money for me.” After closing, Lauren put in $70,000 in renovations, lived in the property for 3 years, and then rented it out. Currently, the property rents for $1325 a month, which nets her $500 a month in profit.

 

$500 profit a month? Sounds like a 360-windmill slam-dunk, especially for a first deal! However, when we dig a little deeper, that doesn’t turn out to be the case.

 

“First of all, it was a complete gut job,” Lauren explained. “It was a massive renovation that I undertook, not only as a first time homebuyer, but also as a first time renovator. We’re talking stripping things down to the studs, which was just such a huge project to undertake. I was 26 years old. I was a young, single woman and I had no clue what I was doing, which was a prime opportunity for a lot of vendors to come in and take advantage of my inexperience and kind of present themselves as trusted advisors and then bait and switch me.”

 

After major renovations were completed, as well as $70,000 later, Lauren is still fixing things to this day. “It’s the gift that keeps on giving.” She also explained, after the major renovations were completed, “I had another contractor come in and bid some things. He said ‘you spent $70,000 for about $40,000 worth of work.’ The other $30,000 of stuff still needs to be done, not only as a landlord, but also if I want to eventually sell the house.”

 

The lessons that Lauren learned in order to avoid overpaying for renovations and finding the right contractor:

 

  • Put in a contingency into your rehab budget,
  • Research as much as you can to determine exactly what you’re going to do once you close the property
  • Obtain multiple contractor bids to see if she’s getting price gouged
  • Most importantly, ask TONS of questions. “I definitely could have asked a lot more questions … even if I already know the answer. I think the process of asking questions let’s people know you’re paying attention.”

 

For more on finding the right contractor:

 

Which 203k Renovation Loan Should I Use?

 

To purchase the property and pay for the renovations, Lauren used a 203k-renovation loan. She said, in regards to a 203k-loan, “it’s a loan product where you can lump in your costs to renovate in with your mortgage so you’re making one payment every month. It’s a good program. It’s a great way for people to raise money to fix homes … especially as a first-time buyer. Maybe you have money saved up for a down payment, but not enough saved for the project and the fixes.”

 

For Lauren’s deal, the purchase price was $65,000 and her rehab costs were $70,000. So instead of getting a conventional loan for $65,000 and paying $70,000 out-of-pocket, she was able to get a loan for $135,000, which covered both expenses. That is an upfront cost difference, assuming a 3.5% down payment for an owner-occupied loan, of $67,550 ($72,275 – $4725).

 

When Lauren was pursuing the 203k-loan, she learned that there are two different types. “There’s the streamline 203k, which is less than $35,000, which is for more cosmetic fixes. Then there’s a full 203k-renovation loan, which is for those bigger projects like what I did.”

 

Which 203k-loan option does Lauren recommend for first-time homebuyers or investors? The streamline. “I definitely recommend for first-time buyers, only do a streamline 203k because that keeps you out of the bigger projects [so you won’t be] in over your head.” In other words, the 203k streamline forces the investor to keep renovations under $35,000 and to avoid risky projects that require major renovations since those are the homes that are more likely to result in budget creep.

 

Related: The Most Commonly Overlooked Expenses in Real Estate Investing

 

Advice for Millennial Homebuyers

 

Lauren specifically focuses on providing financial advice to the millennial generation. Besides being a millennial herself, the main reason she focus on millennials, she said, is “I think given all the factors, [like] the recession and the student loan crisis, millennials are in a very interesting place financially so they need a different type of advice than what their parents got or even the generation that comes after is going to get.”

That being said, Lauren provided two, millennial specific pieces of advice:

 

  1. Get Student Debt Under Control:

 

  • “You can’t really talk about buying a home as a millennial without first talking about how millennials can get debt, if they have it, under control… [So] first, it’s about getting your debt under control. Maybe not paying it off entirely, but to the point where you can accommodate both a mortgage and a loan payment.”
  • For those unfamiliar with the student debt crisis: According to Student Loan Hero, Americans owe over $1.3 trillion in student loan debt, spread out among over 44 million borrowers. The median monthly student loan payment for borrowers between the ages of 20 and 30 is $351. The average Class of 2016 graduate has $37,172 in student debt, which is up six percent from the Class of 2015.
  • Visit Lauren’s blog for more details on how to manage student loan debt: http://financialbestlife.com/blog/

 

  1. Shop Around for Interest Rates

 

  • “The second thing I see a lot of millennials not doing is a lot of comparison shopping for different interest rates. I think a lot of millennials will go with whoever their parents told them to get a mortgage with or maybe a friendly recommendation, which is fine, but you lose out on a lot of money if you don’t shop for interest rates and take the lowest one.”
  • “There’s lots of website where they can go, like Lending Tree is a place where you can just plug in your information and see the ballpark of what you’re qualifying for. Then, if you want to see what your home bank will offer you, [go in] and say ‘hey I got this offer from this other place,’ and do it that way just so you have in mind your credit score and what you’re looking at. If you go with just your first offer, you don’t know how much money you’re losing on the table.”
  • For example, let’s say you are purchasing a $200,000 property. The difference between a 3.5% interest and 3.75% interest loan that is amortized over 30 years is over $10,000!

 

Conclusion

 

The lessons Lauren learned after spending $70,000 on $40,000 worth of renovations on her first investment property are:

 

  • Put in a contingency into your rehab budget
  • Research as much as you can prior to close
  • Obtain multiple contractor bids
  • Ask tons of questions to contractors, brokers, and lenders

 

Of the two 203k-renovation loan types, Lauren recommends using the streamline option, which covers renovations up to $35,000. This forces the investor to keep rehab costs under $35,000, so they will be less likely to take on riskier rehab projects.

 

For millennials who are looking to purchase their first home, either for personal or investment purposes, get your student debt under control and make sure you shop around for interest rates

 

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business presentation

4-Step Approach to Effectively Network at a Real Estate Event

 

 

 

In-person meet-up groups, conferences and other business events, if approached correctly, can be one of the best places to form life-long business relationships. In order to get the most out of an event, it’s important to go in with a plan, of which there are essentially two approaches: the broad approach or the hyper-focused approach. Do you handout as many business cards and have as many quick conversations as possible, or do you spend time with the one or two entrepreneurs with the goal of forming a personal connection that hopefully results in a mutually beneficial relationship?

 

Every entrepreneur has their preference, and I’m sure people have achieve success with both. However, from my experience of attending countless real estate events, here is the four-step approach that I have found to be the most effective.

 

#1 – Create one new relationship

 

Between the broad and hyper-focused approach, I find the latter to be the most effective. At real estate events, I go in with the outcome of building one friendship per day. I don’t see how many business cards I can hand out. I don’t try to meet as many people as possible. I focus on creating one solid, personal relationship.

 

If it’s a multiday event, I build one relationship per day.

 

As long as I leave the conference with my new friend, I consider it a success, regardless of the immediate business outcome.

 

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

 

#2 – Ask personal questions

 

By approaching real estate events in this manner, we are playing the long-game. We are taking the time to actually learn about what this person has going on from both a business and personal perspective. The majority of the conversation should be you learning about their goals, and most importantly, why they are attending the event.

 

That last part is the money question. Why did you come to this event and what are you trying to get out of it?

 

#3 – Follow up on LinkedIn

 

When the conversation ends, I’ll take some quick notes on how this person answered the money question. Then, when I get home after the conference, I send them a colleague request on LinkedIn, along with a personal message.

 

Related: The 4 Key to Building Relationships Via Social Media

 

That’s very important. I don’t just add them as a colleague. I take it one step further and send them a personal note based on why they attended the event and what they intended on getting out of it.

 

The reason for this personal note is to stand out in a sea of basic colleague requests and if I go back to their profile years later, I will remember how I met them and what we talked about.

 

I meet so many people that I usually forget how I initially met someone, so this personal note technique acts as my external memory bank. LinkedIn does an amazing job keeping track of messages that people send back-and-forth all the way back to the message sent with the initial colleague request.

 

#4 – Offer to add value to their business

 

After adding them on LinkedIn and sending them a personal note, I determine if I can add value to this person now. If we aren’t at comparable phases in our businesses, I usually end with a personal message. However, if it makes sense for me to add value now, what I usually do is connect them with someone in my network who is focused on whatever they are trying to accomplish (which I uncovered by asking the money question at the event).

 

That ends my structured approach to networking at real estate events, at which point I have a new relationship and have hopefully been able to add value to their business. Now I simply repeat the process for each event I attend.

 

Next time you attend an event, try this approach. Again, it is more of a long-term play, but based on my personal experience, I’ve gotten a ton of value out of it and I hope you do as well.

 

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

 

 

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sight unseen

3 Tips For Investing in Real Estate Sight Unseen

 

Out-of-state investing in general is a hard investment strategy. Never visiting the property before buying…that’s harder. Investing in a property you’ve never seen AND renting it out while still never seeing it…that’s even harder!

 

How can it be done? Fat to the rescue!

 

Fat Taylor is a hands-off investor who bought two of his properties sight-unseen, and three years later, he still hasn’t been to either. In our recent conversation, he provided three tips for how to successfully buy real estate sight unseen.

 

 

Investing Sight Unseen Tip #1 – Get Your Mind Right

 

Before you even begin to pursue investing in properties sight unseen, Fat believes you must adopt the right mindset. “If you’re going to stress about [buying sight unseen], it might not be for you. If you’re able to take the emotion out of it and [are] able to put your trust in other people’s hands, it can be great.”

 

Personally, Fat found this mindset quite easy to adopt. He said investing sight unseen “was a little bit easier… because when you go to a property, for me, it’s hard to take out the emotions and it’s hard to not have it be perfect.” In other words, if you are a perfectionist, buying sight unseen may be your best real estate investment option.

 

“When I look at a place, I think of how I would want to live in it,” Fat explained. “Some of these lower income houses, they need so much work that it’s not possible to fix it up to where I would want to live in it personally.” This is a trap many newer investors fall into. You have to realize that you’re not buying a property for you. You’re buying a property for the ~40% of the population that doesn’t own a home, which can be due to a multitude of reasons. “There’s a lot of people whose standards and costs of living are different than mine,” said Fat. “For me, it was easier to take the emotion out of it by not going to see the property first.”

 

 

Investing Sight Unseen Tip #2 – Put Checks and Balances in Place

 

Obviously, when buying properties sight unseen, it’s not a random selection process. You must have checks and balances and systems in place in order to mitigate your risk.

 

Here a few examples of checks and balances Fat has in place that allows him to successfullt invest remotely without ever seeing the property in person:

 

  • Personal Familiarity with the Area: “[I invest] in an area I was familiar with because I grew up in the same area,” which is Louisiana.”
  • Friends and Family Near By: “I had one of my best friends who was already living in that same city and investing in that city.” Also, “my mom was pretty close by so she drove by the [properties]. My friend that was an investor [did as well].”
  • Trusted Boots on the Ground: “Because my friend was investing there, he had a trusted property manager that [he] was already starting to do investing business with. I essentially put my trust in other people.” Fat continued, “I put my trust in the real estate agent to find a place and then I told the property manager where it was. He was familiar with the area, [and] he was able to go check it out. Then of course I had a property inspector go in there and give me a full report. Between the property manager guy talking to the property inspector and looking over the report, who basically says, ‘I can rent it out.’ If [the property manager] can rent it out, then [I] go ahead.”

 

Having a combination of personal familiarity with an area (you’ve lived there for an extended period of time), relationships with people who are near by, and putting your trust in a credible, boots on the ground team enabled Fat to purchase two investment properties in Louisiana without ever visiting them.

 

 

Investing Sight Unseen Tip #3 – Automate to Become Hands-Off

 

The two properties Fat purchased sight unseen are located in Louisiana.

 

The first property Fat purchased for $63,5000 and he believes it currently rents for $750 a month. “I say believe because I’m so hands off that I honestly don’t have any of this stuff off the top of my head,” Fat said. “The property manager, he essentially had his team go in and do all the work, which I think was about $2500 worth of work, but I didn’t have to pay it upfront. He waited until it was rented out and started taking payments to pay off the $2500 out of rent.”

 

Fat purchased his second Louisiana property sight unseen for $38,000 and it rents for $550. This one didn’t require any immediate repairs or improvements. But if it did, the property manager would have followed the same procedure as the first property – paying for rehabs upfront and then paying himself back by taking a percentage of rents each month.

 

The property manager follows the same procedure for ongoing maintenance costs as well. “Together on my two Louisiana properties – I combine those on one spreadsheet – I think last year was a loss of about $1300. I think that was largely due to a couple months where there were some pretty hefty repairs,” Fat explained. However, for all those repairs, he said, “the property manager takes that out of the rent before he deposits the rent into my account, so what I show is not a bill for $500 for whatever. I just see less on my income for those.”

 

What’s the advantage of handling repairs and maintenance in this manner? “Doing it that way is just another way I’m able to stay hands off and have a little bit less stress on my end when dealing with things because [the property manager] takes care of hiring the people to go there. I don’t even know that anything happens until after it’s completed.”

 

By automating or being hands off for both the initial renovations, as well as the ongoing maintenance, not only does Fat decrease out-of-pocket expenses, he saves a substantial amount of time and the headache that comes from dealing with contractors as well.

 

 

Conclusion

 

Fat has three main tips for investors who want to purchase properties sight unseen.

 

First, you must have the right mindset. If the prospect of buying a property and never seeing it emotionally triggers you and/or stresses you out, then this isn’t the investment strategy for you. However, if you are a perfectionist, it may be worth investigating further.

 

Next, you must have checks and balances in place to mitigate your risk. Three examples are: 1) have familiarity with the area, 2) have friends and family near by, and 3) create a trustworthy, boots-on-the-ground team.

 

Finally, automate as much as possible, especially the initial and ongoing asset management process. This is mostly accomplished by hiring a great real estate agent and property management company that you can trust.

 

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

 

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

 

That all helps a lot in ranking the show and would be greatly appreciated. And if you have any comments or questions, leave a comment below!

 

 

Guide to Automatically Wholesaling Over 20 Real Estate Deals a Month

Wouldn’t it be extraordinary if you could create an automated wholesaling process that pumped out hundreds of leads and tens of thousands of dollars a month with minimal ongoing effort? David Dodge, who has over 8 years of real estate experience working with fix-and-flip and buy-and-hold investors, has implemented such a process. In our recent conversation, he explained how teaming up with local wholesalers and automating his marketing and leads process allows him to consistently wholesaler over 20 deals a month.

The Wholesaling Team

 

Initially, David was a solopreneur. Eventually, he teamed up with three other local wholesalers to start a larger wholesaling operation. “Our business is actually unique,” David explained. “I have three partners… One guy’s been [wholesaling] for 30 years, one guy’s been doing it for 10. I’ve been doing it for 8 and my other partner’s been doing it for about 4.”

 

Why did they team up? The main reason was economies for scale. David says, “We were all sending letters to the same people. We got together and said ‘hey guys, let’s build a business so we’re not really competing with each other, but also it will allow us to instead of each spending $3,000 a month on marketing, we could put it in a big pot and hit more avenues.’ That’s what we did.”

 

Combined, David says, “[currently] we’re spending $8,000 a month on marketing. 80% of that is direct mail – mostly letters and we do a little bit of postcards. The other 20% of our marketing budget goes towards online advertising.” All four were spending thousands of dollars a month mailing to the exact same investors, so teaming up saved them all a lot of both money (~$12,000 a month to ~$8,000 a month) and time.

 

With the four partners having different skill sets and experience levels, they broke the responsibilities up accordingly.

 

  • “[Two partners] are really focused on listed, [on-market] properties,” David said. “Those guys are sending a ton of offers.”
  • To aid in the on-market operation, they also hired a few interns. “We also have a couple of interns that work for us and they’re 100% commission. All they do all day is just scrap the MLS and scour it for the most part and send offers to properties that have been on the market for a long-time or just have certain keywords that we look for.”
  • David and the fourth partner focus on the off-market deals operation, which are the people that call in from their direct mail and online campaigns.

 

They’ve been in business for about 7 months, and at the time of our conversation, they were on pace to complete over 20 deals in February 2017.

 

Related: All You Need to Know About Building a Solid Real Estate Team

Wholesaling is All About the Follow Up

 

The advice is cliché, but David believes the follow up is key to success in wholesaling. David elaborated, saying “we are doing 15 to 20 deals a month and I can foresee us in 4-6 months doing a minimum of 20. Maybe even closer to 20 a month because every month we’re getting hundreds of leads that come in. Sometimes we’ll get 10 to 15 a day! They may not like our offer… 9 times out of 10, maybe 19 out of 20 really, they’re going to say ‘no you guys are crazy.’ So we have a follow up schedule where we’ll call, text, or email every week or two. Some people are on a 6-month follow up schedule… As you get more and more leads in your CRM, you just got to stay consistent and keep calling them. Eventually, people’s motivation changes for a million different reasons.”

 

In other words, those 9/10 or 19/20 “no’s” don’t mean, “no, I won’t ever sell.” It’s more like “no, we don’t want to sell right now.” But by continuing to follow up on a consistent basis, you’ll be top of mind so when they are motivated to sell, you’ve increased your chances of getting the deal.

 

Related: Use This Follow-up System and Have 30% More Offers Accepted

 

The Automating the Wholesaling Process

 

Another important aspect of the wholesaling process is answering the phone and screening the leads. David has outsourced this process by training virtual assistants (VA). “We’ve hired some virtual assistants… [They] are great because they answer the phone on the seller side, they vet the deals for us, they provide us a MAO, and if it’s a deal, they’ll send us comps and set the appointment. If it’s not a deal, we put it into a follow up schedule [discussed above].”

 

What is MAO? MAO is the acronym for maximum allowable offer. “A MAO is a very simple formula,” David explained. “MAO equals your ARV, which is your after-repair value, and then you multiply that by a multiplier. Typically, you’re going to start at 0.7. If it’s a good area or a hot area, you can go higher – 0.8 to 0.85. If it’s a warzone, you go down to 0.3.” ARV and the multiplier are the first two parts of the formula. The next two pieces are repairs and assignment fee, which are subtracted from the ARV times the multiplier. Here is the formula in it’s entirety:

 

MAO = ARV*(multiplier) – repairs – assignment fee

 

“Our VA’s have been trained on how to run that report,” said David. “It’s very simple: somebody will call up with a property on 1012 Part St., for example, and they’ll be motivated to sell their house. The VA will run comps – they have access to the MLS – and they’ll determine what the property will be worth after it’s all fixed up (the ARV). Then they’ll do the multiplier and subtract out repairs, which you can do very easily based on square footage or maybe they’ll send one of us out to go do a repair estimate. Then [they] will subtract that out and subtract out our fee, which can be anywhere from $2,000 to $30,00, depending on the neighborhood, the house, all that type of stuff. Then we’ll make our offer.”

 

Automating the phone calls and MAO calculation enables David and his three partners to focus the majority of their time on finding deals!

 

Example Wholesaling Deal

 

David purchased a house for $160,000 a few weeks ago that was 4 days lead to close! The VA’s calculated a $300,000 after-repair value and $80,000 in repairs.

 

At first, the sellers were not too pleased with the $160,000 offer price. When hearing an offer, David explained, “People in the beginning always think ‘you guys are crazy. You’re trying to steal my house!’ or ‘you guys are trying to pay me 60 to 70 cents on the dollar for my house.’” But, David says that’s the name of the game. “We’re investors. We don’t pay retail, period. But, we pay as-is, we buy cash, and we close fast!”

 

Back to our example and how David handled the seller’s initial objections: “I went out and met with the seller,” David stated. “I said, ‘ listen. You can hire an agent and they may or may not sell this property for you. I hope they do, but there’s no guarantee. They aren’t the one buying it. They’re just trying to make a commission. Then you’re going to have seller concessions. You’re going to have appraisals. You’re going to have inspections. Good luck. However, if you just want to walk away, I’ll give you $160,000 and we can close by Friday.’” This conversation occurred on Monday of that same week.

 

The sellers were four kids that inherited the property and after they looked at their options, they decided to take the money and run. “It was a win-win,” David said. “We got the house at a great price. They got cashed out in a week and they didn’t have to deal with it anymore.”

 

Now it is David’s responsibility to wholesale the deal. He sent the deal out to his buyer’s list at $180,000 and will hopefully make $15,000 on that deal.

 

 

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

 

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

 

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Faith

How Faith Will Ruin Your Real Estate Business

Chris Clothier, who is a Partner for a group of passive investment companies that specializes in purchasing, renovating, leasing, and managing passive portfolios for single-family property investors, which manages just over $400 million in real estate assets, is one of many speakers who will be presenting at the 1st annual Best Real Estate Investing Advice Ever Conference in Denver, CO February 24th to 25th.

In a conversation with Chris all the way back in 2014, he provided his Best Real Estate Investing Advice Ever, which is a sneak preview of the information he will be presenting at the Best Ever Conference.

What was Chris’s advice? When screening potential business partners, including brokers, agents, property management companies, etc., never take anything on faith.

Faith =/= Success

 

Chris has been an entrepreneur all of his life. He and his family have founded a combined nine different companies. Each of the nine has achieved over $10 million in annual revenue. Of those nine, three has reached over $50 million in revenue and one company, which is his current endeavor, has over $100 million in annual revenue. The point is, Chris has accomplished, experienced, and seen a lot in the business realm, which makes his Best Ever advice that much more powerful.

From being involved in nine multi-million dollar businesses, Chris described his Best Ever Advice: “Before you do business with somebody, I tell investors all the time [to] take nothing on faith.”

“Make sure that you check, double check, and do your due diligence,” Chris continued, “even as you begin to get to know someone. Don’t take anything on faith. That’s when investors get hurt.”

This advice applies to newer investors, as well as experience investors who already have a standard of excellence that has brought them their success. “Always make sure that the standard you’ve come to expect remains the standard you receive. Never, ever begin to take anything on faith.

The Tactics

 

What are some tactical ways for investors to check, double check, and perform due diligence on potential business partners? It’s quite simple actually. Chris said, “Number one … Ask them!”

“If you’re going to do business with somebody, … they have a certain level of experience, and they’ve been around for the last 8 to 10 to 12 years, ask them [two questions]: ‘What’s the biggest mistake they’ve made in real estate?’ ‘What are they doing to keep you from making that same mistake.’”

Chris finds that there are three typical responses to these questions, which will allow you to qualify or disqualify them from working with you.

  1. No Answer: “What you’ll find is that if they can’t answer the question, they’re not trustworthy in my opinion.”
  2. Vague: “If the answer they give is very meaningless, it’s not a mistake, [and/or] it’s something small and harmless, they’re probably trying to hide something from you or they just don’t have the experience level that matches what they say they have.”
  3. Honest: “If they get brutally honest, they lay it out there, and they tell you that ‘this is the mistake I’ve made,’ ‘this is where I’ve been,’ and ‘this is how you avoid it,’ you’ve probably found somebody pretty good.”

If you receive a response like 1, no answer, or 2, vague response, RUN! However, if they provide a brutally honest answer, as well an explanation of how to avoid the mistake in the future, Chris says, “[That’s] somebody worth investigating a little deeper and [somebody to] go a little more in-depth with.”

Conclusion

 

Chris’s Best Ever advice is to never take anything on faith when screening for potential business partners. This is one of the main reasons why investors fail.

To accomplish this, Chris recommends that you always ask two questions: (1) What’s the biggest mistake you’ve made? and (2) What will you do to avoid making that mistake again.

There are three standard responses you’ll receive: (1) no answer, (2) a vague response, or (3) a brutally response. The only person you should pursue further is the individual who provides the brutally honest response, while avoiding all others!

 

Want to learn more about screening potential business partners, as well as information on a wide range of other real estate niches? Attend the 1st Annual Best Ever Conference February 24-25 in Denver, CO. It’s the only real estate investing conference whose content and speakers are curated based on the expressed needs of the audience. Visit www.besteverconference.com to learn more!

 

Related: Best Ever Speak Brie Schmidt Sneak Peek How to Avoid the Shiny Object Syndrome in Real Estate Investor

Related: Best Ever Speaker Kevin Bupp Sneak Peek Lessons Learned From Losing Everything During the Financial Crash

Related: Best Ever Speaker Theresa Bradley-Banta Sneak Peek Don’t Invest in Real Estate on Unfounded Optimism and Emotions

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business investment strategy

Don’t Invest in Real Estate on Unfounded Optimism and Emotions

“Luck is when opportunity meets preparation.” – Seneca

 

Theresa Bradley-Banta, who is a multi-award winning real estate consultant, author, and speaker, and an active real estate investor, experienced asset manager, and owner-operator of single-family rentals, multifamily properties, and international single family development projects, is one of many speakers who will be presenting at the 1st annual Best Real Estate Investing Advice Ever Conference in Denver, CO February 24th to 25th.

 

 

I interviewed Theresa on my podcast a few years ago and she provided her Best Ever advice, which is a sneak peak of the information she will be presenting at the conference. Her advice addresses the question why shouldn’t you invest based on unfounded optimism and emotions?

 

 

Originally published in the Best Real Estate Investing Advice Ever: Volume I

 

Theresa’s Real Estate Background

 

Theresa got started in real estate in 2004 by purchasing and managing rental properties. In 2005, she attended a national wealth-building seminar with her husband and decided to add passive real estate investing to her portfolio. At this seminar, they came across two investment groups whose services they ended up utilizing for their first out-of-state investments. These investment groups identified properties in Ohio and New York, purchased them using Theresa’s funds, and then conducted a majority of the work (renovations and management), making for strictly passive investing.

 

Theresa’s experiences working with these investment groups shed some light on two issues. First, the difficulties faced when investing out-of-state. Secondly, as a passive investor, Theresa did not have a lot of say in what was happening. The combination of these two issues led her to decide to invest in her own backyard, working primarily as a renovator and flipper of residential real estate.

 

Over the last 12 years, Theresa has been involved in many aspects of the real estate business. She has flipped properties from $50,000 to $2.5 million across the nation. She founded Theresa Bradley-Banta Real Estate Consultancy, which has won 11 American and International Real Estate Rewards. Theresa is the author of “Invest in Apartment Buildings: Profit without the Pitfalls.” In 2006, Theresa was involved in her first out-of-country business endeavor in the capacity of an investor and advisory group founder for a development deal in Mexico.

 

Mexico Development

 

The Mexico deal was a residential development project outside of a resort area. The project involved developing the land into lots that were used for building residential residences for either vacation homes or people’s second homes. This deal came about during an annual wealth-building seminar that she attended in Mexico. During this seminar, members of the wealth-building group tossed around the idea of a development project over margaritas. One of the members at the table had built a home in Mexico and lived there for half the year and another woman knew someone who was currently doing developments in the area. Due to the experienced members at the table, they decided to move forward with the project.

 

Theresa was able to get in on the ground floor by leading the advisory group that oversaw the covenants and restrictions for the development, which will eventually be the Home Ownership Association (HOA). Up to this point, HOAs had been a pain during the other investments that Theresa had done, so being on the other side was a very illuminating experience.

 

There are international challenges that make ownership in Mexico different than ownership in the United States, so the education piece on what is or isn’t allowed is very important. Since she had met so many good people that knew the Mexico laws, had already developed real estate in Mexico, and had experience living in both the United States and Mexico, Theresa had a team with the education and experience that gave her the confidence to move forward with this deal.

 

Don’t Invest on Unfounded Optimism and Emotions

 

Theresa was obviously excited about the prospect of investing in Mexico, but she made sure that she did her due diligence and was surrounded with an experienced team before making the decision to move forward. She did not invest based on her excitement alone because Theresa’s best advice is to “never invest on unfounded optimism and emotions.”

 

For example, let’s say you find a deal on a 2-bedroom rental where the numbers look great and you really want to close on the property. Your real estate agent advises against the purchase because 4-bedroom rentals are in demand in this market, not 2-bedroom rentals. You erroneously believe that the property is in demand and respond by saying “I am optimistic things will change. I am optimistic it will be better.” Theresa thinks this is a huge mistake.

 

Advice in Action #1: Don’t invest on unfounded optimism. Just because the numbers make sense, does not mean the deal automatically makes sense. Be patient, perform your due diligence, and make an educated decision on whether or not to move forward.

 

Another example is when people fall in love with a property or have an emotional attachment to a property. Theresa was looking at a building on the East Coast with a client that was the coolest building. It was an old school house that was converted into apartments and had a “cool factor” because of the layout, space, staircases, foyers, etc. The numbers were solid, and the current owner said nearby schools would provide perfect potential tenants. However, tenants with numerous collection issues and late payments currently occupied the property.

 

At this point, Theresa’s client was in love with the property and was enthusiastic on making an offer, but Theresa took a step back, and went to the local police to get a police report. The police stated that the tenants in that market will likely never change, at least not in the next five to ten years, making it a very high risk deal to do.

It is easy to say that a property is so cool that you can just picture the right tenants in there. If you only go on this optimistic assumption, when you are the owner, you will find that you can’t easily change that market. From Theresa’s experiences, she finds that it might take 5-10 years before you see any significant changes, so the tenants who were living there when you closed the deal will be type of tenant you find in that market for quite a while. As a result, you will have some serious problems on your hands.

 

Advice in Action #2: You can only reposition a property so much. There a certain things you can change about real estate, but location is not one of them. If you purchase a property with the optimism that you will somehow be able to change the market, you will run into some serious issues.

 

There are times you can influence the direction of a neighborhood through community service efforts, getting involved in local government or other methods, but it’s an uphill battle. If you decide to do that, then I commend you for taking that approach, but I don’t recommend running your numbers assuming it will turn around.

 

 

Want to learn more on buy-and-hold investing and a wide range of other real estate niches? Attend the 1st Annual Best Ever Conference February 24-25 in Denver, CO. It’s the only real estate investing conference whose content and speakers are curated based on the expressed needs of the audience. Visit www.besteverconference.com to learn more!

 

 

Related: Best Ever Speak Brie Schmidt Sneak Peek How to Avoid the Shiny Object Syndrome in Real Estate Investor

 

Related: Best Ever Speaker Kevin Bupp Sneak Peek Lessons Learned From Losing Everything During the Financial Crash

 

 

Lessons Learned From Losing Everything During the Financial Crash

“What would you attempt to do if you know you could not fail?” – Robert Schuller

 

Kevin Bupp, a Florida-based real estate investor, top iTunes podcast host and serial entrepreneur with over $40 million in real estate transactions, is one of many speakers who will be presenting at the 1st annual Best Real Estate Investing Advice Ever Conference in Denver, CO February 24th to 25th.

 

 

I interviewed Kevin on my podcast a few years ago and he provided his Best Ever advice, which is a sneak peak of the information he will be presenting at the conference. This advice includes:

 

  • How to use partnerships to quickly scale your business
  • Lessons learned from losing everything during the financial crash

 

Originally published in the Best Real Estate Investing Advice Ever: Volume I

 

Kevin Bupp’s Real Estate Background

 

When Kevin was 19 years old, he was introduced to real estate investing by a local investor, David, who he met through a mutual acquaintance. David told him what he was doing in real estate, how he spent his spare time, and provided an overall sense of the lifestyle he lived as a full-time investor. Kevin was very intrigued.

 

As a result of Kevin’s interest in investing, David invited him to attend a 3-day real estate seminar in Philadelphia. David had already purchased two tickets, but his business partner couldn’t attend, so the timing could not have been more perfect! At the seminar, Kevin was able to network with new and experienced investors and also learned how to invest in single-family residences as a wholesaler and fix-and-flipper. After leaving the seminar, Kevin was pumped up and excited about the prospect of taking the knowledge he had gained, and using it to get out in the real estate market to make some money.

 

Learning Through Mentorship

 

The first item on Kevin’s agenda post-seminar was to focus on how to do his first deal, so he reached out to David for advice. Since David had previous experience investing in real estate, he decided to take Kevin under his wing. David wanted Kevin to learn the ins and outs of real estate investing before spending any money so he didn’t make any (or as many) mistakes. Kevin literally followed David around for a year, gaining first hand knowledge on what life was like for a full-time real estate investor. Kevin went to his home office every day, and watched what David did, listened to him talk on the phone, went to see properties, and looked at some of the apartments that David owned.

 

After a year, Kevin decided it was time to pull the trigger and purchase his first property. He found an old, dilapidated property in Harrisburg, PA, purchased it for $26,000 and put in an additional $10,000 in renovations. Kevin funded the project with private money he raised from one of David’s investors. He sold the property for $59,000, making a profit of $5,000, which was about as much money he was making in a year working in his current job.

 

Advice in Action #1: Not only did Kevin learn the ins and outs of real estate investing from his mentor, but he was also able to raise $36,000 in private money from one of his mentor’s investors. Gaining knowledge is not the only benefit from having a mentor. If they are active in the market, they will also have a network of other real estate professionals they can send your way. Commit to finding or hiring some sort of mentor and you will benefit in a many of ways.

 

Scaling Quickly By Starting a Business and Partnering Up

 

Kevin continued doing fix-and-flips as well as a few wholesale deals on the side while finishing up the last two years of community college in Pennsylvania. Upon graduation, he decided to try his luck in a new market, so he quit his job and moved down to Florida. As soon as he arrived, Kevin started pounding the pavement and got involved in two real estate investing clubs. Through these efforts, he found the good areas of town, determined what he wanted to focus on, and discovered the best way to make money in this new market. It took about 8 months of research and networking before Kevin found his first fix-and-flip deal.

 

By continuing to fix-and-flip and network, Kevin became familiar with who the active movers and shakers in the market were and what types of investment strategies they were using. Through these experiences, he was able to form two partnerships, both of which allowed him to quickly scale his real estate business.

 

Partnership #1 – Mortgage Brokerage Firm

 

One year after making the move to Florida, Kevin partnered up with an entrepreneur who owned a mortgage brokerage firm that already employed 12 full-time loan officers. Together, they originated millions of dollars in loans each month, primarily within the sub-prime niche, and sent out 100,000 pieces of direct mail every month.

 

Partnership #2 – Investment Group

 

Kevin had also built a relationship with an experienced investment group in Sarasota. He knew this investment group because he had wholesaled and bought some deals from them in the past. Kevin and this group decided to put their brains together and ended up combining their efforts and partnering up. When Kevin initially met this group, they were doing 10 to 15 deals a month. After the partnership was formed, they were buying 20 properties a month. Their main strategy was long-term buy-and-hold rentals, with the majority of the homes being SFRs, along with a few smaller multifamily properties. By 2007, the partnership had a combined portfolio of 500 SFR rentals. Kevin was not a full partner because this investment group already owned a number of SFRs before he joined, but he was still able to amass a personal portfolio of 100 properties.

 

Advice in Action #2: Both Kevin and this investment group benefited from partnering up. For Kevin, he was able to scale his business to 100 properties, and the investment group was able to purchase an additional five to ten properties each month. It is extremely difficult to quickly scale a real estate business all alone, so if you plan on building a real estate empire, partnering up with another investor or real estate group is very advantageous. However, make sure that you perform your due diligence up-front, because choosing the wrong partner or entering a partnership at the wrong time can get you into a lot of trouble.

 

The Effects of The Financial Crisis

 

Up to this point, everything was going great. Kevin had two successful partnerships and was making a ton of money, but when the market crashed in 2007-08, it started to go downhill fast. First, Kevin sold off his ownership in the mortgage company. This was before the crash was at full force so everything was going okay, but he sold his stake to his partner, who ended up going out of business a year later. Kevin’s other partnership was the one that affected him the most.

 

Leading up to the crash, Kevin and the investment group wanted to mitigate their risk, so they committed to purchase SFR rental properties for no more than 65% of market value. When the financial crisis occurred, not only did property values plummet, but the rental market crashed as well. Homebuilders who had built brand new homes were unable to sell, so they were forced to hold on to them and rent them out. Unfortunately, these brand new properties were renting for the same price as the 20 to 30 year old homes Kevin and the investment group owned. As a result, they ended up giving 90% of their properties back to the banks.

 

One would think that someone purchasing properties at 65% of the market value would be able to sustain a crash. However, due to four main factors, this was not the case:

 

  1. The taxes and insurance rates are much higher in Florida compared to the relatively low rates found in the Midwest.
  2. Kevin and the investment group had 500 properties, mostly SFRs, spread across 7 different counties that stretched 200 miles north to south, so they had a large property management company with a lot of inefficiencies.
  3. Many of the markets in Florida had economies revolving around real estate. Once the market crashed, construction workers, real estate agents, and other real estate related employees lost their jobs and their source of income. Kevin and the investment firm were losing tenants and people were leaving Florida faster than they were coming in.
  4. Property values decreased more than 50%, and in some areas, as much as 65%. Properties they purchased at 65% ARV for $60,000 were selling for $35,000 in 2010.

The typical home Kevin and the investment group purchased was a 3 bedroom, 1.5 or 2 baths SFR that would cash flow $150 to $200 a month. Even though they were never paying more than 65% ARV plus repairs, after accounting for the four factors above, there was a very small margin to make a profit. A cash flow of $200 per month ($2400 per year) is very easy to lose, if there is turnover. If anything happens, even something as minor as a tenant tearing up the carpet, the repair expense alone would eliminate any profit expected for that year.

 

Advice in Action #3: Take a look at the four main factors that resulted in Kevin losing 90% of his portfolio and see if any of these apply to your real estate business:

  • Are you investing in an area with higher than average taxes and insurance rates?
  • Is your portfolio spread across a large region?
  • Do you know who the main employers are in your market? Does your market have a few large industries or is there a diverse spread of different industries?
  • When the market crashed, how much did the property values in your market drop?

If you find that one or more of these factors apply to your business, what can you do to mitigate these risks moving forward?

Looking back, Kevin believes experiencing the market crash was a good thing, although he didn’t know this at the time. After giving back 90% of his properties, he spent the next few years licking his wounds. He was stuck in a funk and didn’t see the light at the end of the tunnel. Eventually, Kevin took a step back, re-evaluated his life, and instead of being negative and saying “poor me,” he decided to put his focus on something else until he was ready to get back into real estate. As a result, Kevin started a few other businesses, a sports apparel company and a printing company, both of which are still running to this day.

 

Lessons Learned From Losing Everything

 

As time passed, Kevin began reflecting on his experience of going through the real estate crash and losing everything. He realized he had learned a lot about himself and about real estate investing in general, and figured out what he could have done differently. The answer: investing in cash flow rich properties. Looking back, Kevin wishes he had focused more on multifamily properties and learned many lessons, including:

 

  • Invest in multiple larger properties that are closer together. This will spread out your risk and eliminate the inefficiencies of a large property management company. The amount of time and effort it takes to purchase 150 SFRs is also much higher compared to purchasing one 150-unit building with the same type of returns.
  • Out of the 90% of the properties he gave back to the bank, not a single one was a multifamily property. They all survived the crash.
  • Don’t get stuck in your comfort zone. Kevin continued to purchase SFRs because that is what he knew, instead of getting out of his comfort zone and pursuing multifamily investing.
  • Don’t focus on appreciation. Kevin calls appreciation “funny money.” It is not spendable unless you sell it at the right time. Don’t buy based of the expectation that the market will continue to increase indefinitely, year over year.
  • Understand your investment criteria before deciding to purchase. Figure out the return on investment you want and commit to only purchasing properties that meet your criteria.
  • Don’t overleverage. Kevin and the investment group would wait until they had 10 to 15 homes. Then they would take a commercial line of credit, pull the money out, and purchase more properties. When the market crashed, they were unable to obtain lines of credit, so everything fell apart.

Advice in Action #4: The main takeaway is to focus on cash flow. If you are buying for cash flow, you are getting an asset that will continue paying you month after month, no matter what happens with appreciation. Buy for cash flow and have the appreciation be the icing on the cake.

 

 

 

Want to learn more on buy-and-hold investing and a wide range of other real estate niches? Attend the 1st Annual Best Ever Conference February 24-25 in Denver, CO. It’s the only real estate investing conference whose content and speakers are curated based on the expressed needs of the audience. Visit www.besteverconference.com to learn more!

 

Related: Best Ever Speak Brie Schmidt Sneak Peek How to Avoid the Shiny Object Syndrome in Real Estate Investor

 

 

sparkler

How to Avoid the Shiny Object Syndrome in Real Estate Investing

“I do not regret the things I’ve done, but those I did not do.” – Rory Cochrane

Brie Schmidt, who is buy-and-hold investor with 90-units and owner of a brokerage company, is one of many speakers who will be presenting at the 1st annual Best Real Estate Investing Advice Ever Conference in Denver, CO February 24th to 25th. Check out her custom music video below.

Also, Brie has had multiple appearances on my podcast, with the first being over two years ago. In our first conversation, she provided her Best Ever advice, which just scratches the surface of what she will be presenting at the conference. This advice includes:

  1. A creative financing method for newbie investors
  2. A step-by-step approach on raising money for your deals
  3. Why you need to set your investment criteria and stick to it, no matter what
  4. How to avoid the shiny object syndrome

Originally published in the Best Real Estate Investing Advice Ever: Volume I

 

Brie’s Background

 

Brie got started in real estate when she obtained her real estate license in 2004. After a little less than a year, she realized that she hated being a real estate agent. Brie didn’t like dealing with first-time homebuyers or the emotional buyers. Therefore, in 2005, she left real estate and took a corporate sales job. She always kept her license as a back-up plan so if anything were to happen with her corporate sales job, she knew she could always go back into real estate.

In 2010, Brie and her husband began searching for their first property in Chicago. They quickly discovered that it was actually cheaper to purchase a 2800 square-foot three unit multifamily than it was to purchase a 1500 square-foot single-family residence. They decided it made sense financially to go the multifamily route with the intentions to eventually convert it into the home of their dreams.

When they initially purchased the property, Brie never thought she would end up becoming a real estate investor. However, being a landlord ended up being a lot easier than she had expected. As a result, during the next four years, Brie and her husband acquired additional units, bringing their total to 59 units. In 2015, she started working with partners and acquired an additional 21 units, bringing her total to 80 units.

 

Creative Financing for Newbie Investors

 

Since Brie and her husband planned on living in the three-unit property, they were able to obtain a 3.5% down FHA loan. The property was recently rehabbed with granite countertops, stainless steel appliances, and other amenities, so the initial and ongoing expenses were very low. After putting two tenants in place, they were able to live for free because the rent they collected every month covered their monthly expenses.

Advice in Action #1: If you are looking for a way to get into the real estate game, but do not have a significant amount of money saved up, consider following Brie’s entry strategy. Find a two to four unit multifamily property and commit to living in one unit and renting out the others. This enables you to qualify for a 3.5% down FHA loan. You will be able to get your first property for very little money down and you will be able to live for free or at a discount since the tenants are covering the mortgage. If the property requires major repairs, no problem. Another loan program, the 203k FHA loan, allows you to include the renovation costs in the loan. You will put down 3.5% of the purchase price plus renovations instead of having to pay for the renovations out of pocket.

With the one and a half year break between purchasing the first and second properties, Brie and her husband were able to save up a significant amount of money, which they used to purchase the additional 24 units with conventional residential and commercial loans. At the moment, Brie says “if we were looking to buy at the same pace, I think my husband would kill me!” She had to promise her husband that there would be a stopping point because he was afraid that she would never stop. Unfortunately, they were in the situation where they were financially tapped out and couldn’t continue to fund deals personally. Brie and her husband were planning to acquire another 8 to 10 properties in 2015, so they had to brainstorm creative methods to finance these purchases.

After speaking with family and friends, she discovered that her brother had a significant amount of equity in his personal home. Due to Brie’s prior successful deals, her brother was confident enough to agree to pull the equity out of his house and give her the money to invest for one year. Brie will use this money as a down payment assuming that she can pay her brother back in a year. The loan is only going to cover a portion of the down payment. The remaining balance of the down payment will be covered with money Brie and her husband accumulated from their jobs and the income from the other properties in her portfolio.

Brie’s current market is Milwaukee, Wisconsin. The last deal that she purchased was a package of properties. Brie purchased them for slightly over $500,000 with a gross rental income of a little over $12,000 per month. This results in around a 14% cap rate. If she can replicate this deal, the resulting cash flow, in combination with the cash flow from her other properties, would be enough to pay back the loan.

Advice in Action #2: You will eventually get to a point in your real estate career where you are either tapped out of funds or have obtained the maximum amount of conventional loans. This is an obstacle that a majority of investors will face, but it doesn’t mean your real estate career is over. In the same way that Brie was creative and was able to obtain a loan from her brother, you will also need to use your creativity to overcome this hurdle.

  • Create a list of everyone you know
  • Sort them into different categories (family, friends, works, etc.)
  • Next to each of their names, write down how much money you believe they would be willing to invest.
  • The goal is to get one person from each category interested in investing
  • Once you get one person interested, you can name-drop that person to the other people in that category.

It is important to keep in mind that if you personally only have enough funds to cover a portion of the down payment, you can still use the method above to cover the rest.

Instead of creating a document, you can email info@joefairless.com and put “Investor Spreadsheet” as the subject. You will receive the spreadsheet that I use to raise millions of dollars for my apartment communities.

 

Know Your “Floor” and Stick With It

 

Brie’s best advice ever is to “know your floor, and stick with it.” A floor is an investment rule that you set which you commit to never going breaking. Your floor can be quantitative (i.e. cash on cash return, cap rate, price point, rehabs over $XX, XXX, etc.) or qualitative (foundation issues, neighborhood class, property type, etc.). She is personally facing this situation, since she is looking for a property to use her brother’s loan on, and as a broker, she goes through this with her clients all the time.

Since Brie took the loan from her brother with the understanding that the loan had to be repaid in a year, she has to be picky, know her market, and stick to her 14% cap rate floor when seeking out potential deals. However, she is very excited to buy something so she can be done with it and take a break for a while. As a result, she is finding herself looking at properties that are below her floor. In reality, Brie knows that she needs to walk away from it and stick to her floor. Even if it is a smaller buy than expected, she still needs to stick to those numbers, even if it is an emotionally difficult thing to do.

Brie also has to reinforce this advice with her clients all the time. This includes working with first-time homebuyers or people looking to purchase a multifamily and live in one unit while renting out the others. Sometimes they are so excited to officially become a homeowner or a real estate investor, they stretch the numbers, tweak the deal, and lie to themselves in order to make the numbers work to justify the buy. Joe was guilty of doing this on his first multifamily deal. It is a lesson that he only needed to learn once.

When setting a floor, everyone has different objectives. It can be a wide variety of things since each market and situation is unique. Therefore, it really depends on the person. For Brie, she has set her floor at a 14% cap rate in Milwaukee and a 10% cap rate in Chicago. For her clients, their floor may be a property that fits within a specific budget, or a multifamily that allows them to have the tenants cover the mortgage so they can live rent-free. The point is: you have to decide what your floor is, stick to it no matter what, and know how to walk away and be patient for the next one.

Advice in Action #3: Do you know what your floor is? If so, great, commit to sticking to it. If not, sit down and figure out what your floor is:

  • Write down what your real estate objective is.
  • Figure out what criteria a property needs to meet in order for you to meet this objective.
  • Write down the following statement, inserting your objective and your floor into the blanks: “I know that my real estate objective is __________. In order to reach this objective, I must buy a property that is above my floor, which is _________. I commit to sticking to this floor. If a property is below _________, then I need to walk away.”

Sometimes, looking for real estate can be frustrating. It took Brie and her husband 7 months to find their first property and it was an exhausting experience. They were worn down and wanted a deal so badly that they probably would have taken almost anything, so they had to take a step back. They had to remind themselves that they couldn’t compromise their goals. If the numbers are bad and the property is bad, then the deal is bad, and you have to walk away.

 

Avoid Shiny Object Syndrome

 

There are many different opportunities in real estate. The longer you are in the industry, the more people you get to know, and the better your track record gets, the greater variety of opportunities you get presented with. It is incredibly important for you to stick to your floor, know exactly what approach you are going to take, and not to get distracted by shiny objects.

Here’s a situation that Brie faced when she got an inspection report back on a property in Milwaukee. The inspector discovered that the whole basement had structural foundation issues, which would require a significant amount of money to repair. After adding this expense and re-running the numbers, Brie saw that if the costs came back as expected, it would still be a profitable deal. However, since the cost was just an initial estimate, the numbers could more than double if the issue turned out to be more severe. More importantly, Brie doesn’t buy properties that involve structural issues or mold problems, so she was able to avoid falling into the “shiny object syndrome” trap and walked away.

Advice in Action #4: To put this situation into perspective, Brie was quoted $20,000 as the price to rebuild the basement. If you were to purchase a $100,000 property at 20% down, you would also need to spend $20,000.

  • Would you rather invest $20,000 to fix a foundation problem or would you rather use that money to invest in a $100,000 property?

If you find yourself falling into the “shiny object syndrome” trap and are contemplating spending a large portion of money on something, ask yourself:

  • Is there a better investment I could make with this same amount of money that would result in higher returns?

Maybe you could use it as a down payment, or to update the kitchens of another one of your rental units, etc.

 

 

Want to learn more on buy-and-hold investing and a wide range of other real estate niches? Attend the 1st Annual Best Ever Conference February 24-25 in Denver, CO. It’s the only real estate investing conference whose content and speakers are curated based on the expressed needs of the audience. Visit www.besteverconference.com to learn more!

exercise by the beach

A Karate Master’s Unconventional Approach to Real Estate Investing

 

The longer you’ve been in the real estate game, the better you become at identifying the differences between smart, successful investing strategies and the ones that are a fad and that result in failure.

 

Sensei Gilliland has over two decades of real estate investing, so he has done it all – the great strategies and even the not so great ones! In our recent conversation, he summed up decades worth of real estate experience into one simple piece of advice: have an unconventional approach to real estate investing.

Summing Up a Decades Worth of Experience

 

Sensei summed up his over two decades of experience in one piece of simple advice as: there is always an unconventional way to acquire properties and deals that can reduce or eliminate your risk.

 

How does one think unconventionally? Sensei says, “I would get away from conventional thinking. Become that archeologist and start digging for unconventional ways, because conventional ways is where all the masses [are].”

 

What’s the big deal with following the masses? “Typically, when there’s a mass of people, then you’ve got your competition,” Sensei said. “I also tend to find that wherever the masses are, they’re always wrong, so I like to veer off and go in the other direction and say, ‘where is less competition? What can I do that is different.’”

 

You can easily find examples of unconventional companies, like Uber, a transportation company that doesn’t own car, and Airbnb, a real estate company that doesn’t own any real estate. These types of businesses, Sensei said, “have gone a totally unconventional way and real estate investors can do the same thing.”

 

Turning the Conventional in the Unconventional in Real Estate

 

Let’s take wholesaling, which seems to be the most conventional real estate investing strategy there is. In wholesaling, it is all about equity. Since rehabbers need to buy deals with existing equity and since wholesalers supply deals to the rehabber, they must find deals that have significant existing equity. If the deal has no equity or is on the edge, then what would be a conventional wholesalers course of action? Most likely, they would pass up on the deal.

 

Related: How to Net Over $1 Million a Year Wholesaling Real Estate

 

When Sensei first started wholesaling, he had this conventional approach. If a deal didn’t have equity, he would move on to the next deal. But eventually, Sensei says, “I discovered all these deals that I have that are just on the fence but aren’t making sense as a rehabber. Well, who is picking up those deals? What can we do with them?” His conclusion – learn about the purchase-option side. Purchase options are strategies like lease-options, sandwich lease-options, subject-to financing, and land installment contracts. Now, instead of passing on these sub-standard, no equity deals, Sensei could “turn around and gobble them up” since he now understood the purchase-option strategy. “There are a lot of different strategies that we can use to where we can pick up properties that lack equity, have no equity, or are upside-down in equity, and still put those properties under-contract and flip them out and make some money off of it. That’s where the masses are not.

 

Sensei attributes his ability to adopt this multi-strategy approach to allowing him to survive the great recession. “Real estate is cyclical, so when the market is good, it’s great for the wholesalers and rehabbers. When it starts to shift…those deals become a little bit more difficult. Then the wholesalers and the rehabbers tend to fall off…and they come back when the market is good again. It’s important that you have a balance in your arsenal to where [you can say], ‘hey, if it doesn’t work as a wholesale deal, I can definitely make a deal out of nothing and pull money out of thin air.’”

 

Related: Guide to Automatically Wholesaling Over 20 Deals a Month

 

Have Multiple Income Streams

 

Sensei’s Best Ever advice is to never rely on one source of income. Sensei started out as a rehabber – income stream #1. Once he understood that markets constantly change, he “didn’t want to be that one linear investor where I only know how to rehab.” That is when he picked up wholesaling. Sensei could cherry-pick the best deals to rehab himself and wholesale the rest – income stream #2. Once those two income streams were performing well, he learned about purchase-options – income stream #3. At that point, Sensei says, “everybody wanted to learn about what I was doing, because they saw all the changes that were happening in my life for the better, and then that’s where I started offering my educational course and consulting course” – income stream #4. He was also offering rental properties – income stream #5.

 

With five different income streams in five different real estate niches, Sensei is able to balance out his risk. He also has income streams across multiple industries. Real estate is his main source of income, but he also owns other types of businesses. “I find that if you like to have a balanced real estate portfolio, you also have to have a balanced income source.”

 

Related: The Importance of Diversification in Passive Real Estate Investing

 

Conclusion

 

Be unconventional and don’t follow the masses. Sensei’s unconventional approach to wholesaling was educating himself on purchase-options so that he could flip deals with little, no, or upside-down equity, while the conventional wholesaler only executes on deals when they have significant equity.

 

Sensei’s Best Ever Advice is to never rely on one source of income. In doing so, you decrease your risk during ever-fluctuating market conditions, and increase the number of deals and opportunities you can take action on.

 

shuffling cards

Simple Trick To Boost Your Real Estate Investing Profit Per Hour


Congratulations! You have landed a smoking hot deal. But what is the next move? Do you wholesale? Fix-and-flip? Buy-and-hold? Depending on your current investment strategy, the answer may be a no-brainer. However, have you ever taken a step back and asked yourself, “How efficient is my real estate strategy?” Are you getting the most bang for your buck or are you simply running on the momentum of your past? Justin Silverio, who owns an investment company that focuses on rehabbing and wholesaling, was running on this momentum until he realized how inefficient his business actually was. In our recent conversation, Justin explained how one simple mindset change resulted in substantially boosting his profit per hour output and overall efficiency of his investment business.

 

 

ROT (Return on Time)

 

 

When Justin first started out, the question that guided his investment approach was, “what exit strategy is going to get me the most amount of profit?” If a lead came in, and after analysis, Justin determined that the resulting profit from a fix-and-flip is $80,000 and the wholesale profit is $40,000, then he would opt for the fix-and-flip option. He never looked at both profit AND the time commitment. However, once Justin adopted this approach, his business changed substantially. Enter ROT.

 

The metric ROT is Return On Time, and the calculation is simple:

 

ROT = Profit / Time

 

Continuing with the previous example, and taking “time” into account, the most effective exit strategy changes. Let’s say that the time investment for the wholesale deal is 6 hours. Then, the ROT equals $40,000 divided by 6 hours, which comes to around $6,600 per hour. On the other hand, a fix-and-flip will require hundreds of hours of time. So, the ROT equals $80,000 divided by a conservative 100 hours, which comes to $800 per hour. Which one would you choose?

 

As a result of adopting this new “time oriented” mentality, Justin has decided to flip higher-end homes and wholesale lower-end homes, as opposed to his old strategy, which was to flip the majority of the deals. The higher time investment of flipping is worth it on high-end homes, due to the larger spread – and let’s faces it, flipping is fun – but not quite worth it on the lower-end projects.

 

 

How Market Changes Affect Higher-End vs. Lower-End Projects

 

Besides ROT, there is another reason why Justin decides to flip the higher-end properties and wholesale the lower-end properties. When market cycles change, he finds that it tends to impact the lower to middle markets first and the higher-end markets a little bit later. Justin ran an analysis on the change in property values from 2006 until today. The results showed that properties in the lower to middle markets decreased substantially in 2008 and still haven’t gotten back to the 2006 values, whereas the higher-end home prices did not dip down as much.

 

This is advantageous when doing projects in higher-end markets because if the market dips, Justin can see the affects in the lower to middle-markets and adjust accordingly.

 

Moving forward, when analyzing properties and determining an exit strategy, look at not only what is going to result in the most profit, but also what is going to give you the higher ROT. Just this minor tweak changed the course of Justin’s business and has enabled him to make a lot more money in much less time.

 

skyscraper in a storm

Blueprint to Successfully Invest in ALL Market Conditions

 

The real estate market is constantly evolving and going through a cyclical process. One year it is a buyers market, and the next year it is a sellers market. Some markets have high appreciation rates and others are cash flow machines. Depending on the current market phase, an investor can only be successful in a handful of strategies. However, Adam Whitmire – who has over 15 years of investment experience – discovered a way around this dilemma. As long as an investor is well versed in the strategies that work, no matter what the market conditions are, they can stay active and successful. In our recent conversation, Adam explained what investment strategies work best in which markets, and how to successfully evaluate a market to determine which strategies to apply.

 

The four investment strategies that Adam has in his repertoire, which allows him to invest in any market, are fix-and-flipping, new construction, and multifamily buy-and-hold. After putting together a matrix of 240 different metrics from throughout the country, he was able to identify which market conditions are best for each of the four strategies.

 

 

When to Fix-and-Flip or Build New Homes

 

The best investment strategies for primary markets are fix-and-flips or new construction. The main metric that determines a primary market is growth, in regards to population, job, and economical growth. Examples of primary markets that Adam currently invests in are Dallas, Houston, Orlando, and Atlanta.

 

When there is a market that everyone wants to live in, it results in a supply and demand issue. If you have a lot of people wanting to live in a small geographic area – high demand and low supply – prices will appreciate. In order to meet that demand, older homes must be rehabbed and resold, or new supply must be created. Therefore, that is where fix-and-flippers and developers come in to save the day.

 

Adam has found it challenging to produce a large amount of volume for fix-and-flipping, so if your goal is to complete a few deals, fix-and-flipping in a primary market is your best option. However, if you are like Adam and are looking to take your business to the next level, you will want to focus on new construction.

 

 

When to Buy-and-Hold SFRs and Multifamily

 

The best markets to follow the buy-and-hold strategy are secondary and tertiary markets. The two main metrics that determine a secondary or tertiary market is a strong rental base and job diversification – jobs aren’t coming in from a single industry.

 

In terms of demand, these markets aren’t stagnating or declining. They just aren’t growing as quickly as the primary markets. As a result, there is a trade off between appreciation and cash flow. If you have a large geographic area and people aren’t coming in, you are not going to have a lot of appreciation. Therefore, rather than seeing the 5-8% appreciation that is common in primary markets, there will be 1-2% appreciation, but you will see solid cash flow and less competition instead.

 

 

Where to Find Market Data

 

Now that we live in The Age of Information, data is all over the place. There are a lot of different companies that will even do all the market research for you. Although, the majority of that data is consolidated from the Census and other government websites, so while Adam will go to these sources for economic and geographic data, that only gets him so far. Therefore, in order to get a deeper look at a specific market, first, he will go to the local MLS and public records. This data allows him to understand, in real time, what properties are currently trading for.

 

However, even data tables and spreadsheets aren’t enough to paint an authentic picture of a market, so to really get to know what an area is like, you have to actually visit it. Before purchasing a deal, Adam will spend at least a full week browsing the market, talking to local business, brokers, property managers, and looking at newspaper articles and clippings. He wants to know what is going on in the community, where the tax dollars are being spent, and most importantly, what the market feels like.

 

Only after completing the minimum of a week in a new market will Adam feel comfortable investing and making money in that location. At that point, he has collected all the data and feelings, so all that is left to do is interpret the Intel. If everything looks good, he will start implementing a strategy.

 

 

exit strategy

The Guide to Selecting the Ideal Real Estate Investment Exit Strategy

Are you a one-sized fits all investor, sometimes trying to fit a square peg into a round hole? Or do your real estate strategies depend on the situation, whether it be on a deal-by-deal basis or based on the ever changing market conditions? If the former describes your investment strategy, then this post is for you!

 

Ron Carlson, who does 15 to 20 transactions per month, asks, “what is the exit strategy here?” before purchasing any deal. In our recent conversation, Ron explains how he determines upfront what exit strategy he will follow for a given deal – wholesale, owner-financed, fix-and-flip, or wholetail.

 

Wholesale Exit Strategy

 

Ron has had many bad experiences buying and rehabbing high-end or historical houses, which he labels as anything worth over the $200,000 to $250,000 price range. When working within and above this price range, one must deal with a different type of buyer, perform a higher quality rehab, and pay higher closing costs. Therefore, for any high-end or historical property, Ron will automatically plan on wholesaling it. While it is probably a good deal overall, since it doesn’t meet his cookie cutter strategy, it isn’t a good deal for him.

 

Another situation where Ron will wholesale a deal is if he is low on funds. One of the first things he looks at when determining an exit strategy is, “how much capital do I have on hand” and “how much capital will this project require.” If he doesn’t have enough capital, then he will wholesale the deal.

 

Sometimes, Ron will take the expected project timeline into account as well. A deal, for example, may be within his ideal price range, and he may have enough capital to cover all the expenses. However, if the project will take too long, in order to avoid having his capital tied down, he will decide to simply wholesale the deal instead.

 

Finally, if Ron needs a quick profit, wholesaling a deal will be the first option.

 

 

Owner-Financed Exit Strategy

 

When Ron obtains a deal that is under $120,000, the most ideal exit strategy is to sell via owner financing. This $120,000 is specific to his locality, and it will vary depending on the local market you are investing in.

 

In Ron’s market, the down payment that individuals can typically paying for an owner-financed deal is 10%. Ron also finds that people have a hard time coming up with anything over $12,000 in cash, meaning that the typical buyer can afford a 10% down payment on a property worth $120,000. However, this $12,000 is typically the individual’s entire savings. Therefore, buyers are most comfortable expending $6,000 to $10,000 for a down payment, so properties that are sub-$100,000 are a lot easier to sell via seller financing.

 

Fix-and-Flip Exit Strategy

 

Ron will fix-and-flip properties that are within the $120,000 to $200,000 price range. When doing fix-and-flips, he likes to rehab the properties to a higher degree than the comparable properties because he wants to sell them fast. Ron has found that if he puts in an extra $2000 to $3000 into a property, it will sell 2 to 3 months faster than if he didn’t perform the higher quality rehab. The expenses that result from holding a property for those extra 2 to 3 months is approximately $2000 to $3000. So, Ron nets the same profit while unloading the property a few months earlier, which is advantageous for many reasons, one being that his capital is returned so that he can invest in additional deals.

 

 

Wholetail Exit Strategy

 

Ron describes wholetailing as putting “lipstick on a pig and throwing it back on the market.” Therefore, what differentiates a fix-and-flip and wholetail scenario is the condition of the property. Ron will follow the wholetailing exit strategy for properties in the same fix-and-flip price range – $120,000 to $200,000 – that don’t require a full cosmetic rehab or don’t require a rehab at all. The property needs to have good bones and be in livable condition, without any structural, roofing, foundation, electrical, plumbing, or HVAC problems. Essentially, Ron must believe that it will pass for an FHA or conventional loan in the as-is condition. If a property meets this criterion, the first option is to wholetail it, and a fix-and-flip as the back up plan.

 

Typically, Ron will put such a property on the market for 30 to 45 days. Depending on the feedback, he will keep it on longer. If it is getting a lot of showings or if people seem to be agreeing with the price, then he will go past the 45-day mark. However, if the feedback is negative, or if he is getting a ton of lower offers, he will pull it off the market and revert to the back-up plan – fix-and-flip.

 

 

Note: All of these price ranges and percentages are based on Ron’s specific market. Therefore, modifications are required for higher-end and lower-end markets. Ron’s advice – “adjust with the market and find out who has the cash.”

 

 

 

profit

Make Your Profit Before You Close

 

With over 40 years of real estate development experience, completing over 100 residential units and working with over $100 million in real estate project funding, Brian Barbuto knows a thing or two about what it takes to be a successful investor. In our recent conversation, Brian provided his Best Real Estate Investing Advice Ever – make your profit before you close.

 

Related: How a Billion Dollar Real Estate Developer Qualifies a Deal

 

If you have any amount of real estate experience, I am sure that you have heard this advice before. However, it is an easy insight to forget, especially for newbie investors. Always remember that your profit is made when you start the real estate process, not when you exit it. Obviously, you have to build your expectations around the exit strategy. But, before committing to any investment, you have to look at it from the level of the “buy.” The best exit strategy is almost meaningless if you neglect to buy the property at the right price and terms.

 

Make Your Profit on the Acquisition

 

Technically, in regards to creating equity, when buying real estate there are really only two possible scenarios:

 

  1. Immediately generate equity
  2. Potentially generate equity after doing something i.e. development, rehab, etc.

 

According to Brian, if you find yourself in the second situation, it is not a good deal. However, if you find yourself in the first situation, than it is a great deal. This is a fairly straightforward rule of thumb to follow.

 

Every time that Brian closes escrow on an acquisition, he makes money. Brian project plan’s day 1 is not the day of closing like most investors. Instead, most of the work is done while he is in escrow. As a result of this pre-close planning, when he buys something, the minute he closes escrow, the property value is substantially higher than what he paid for it.

 

Follow in Brian’s footsteps and focus on figuring out how you can always make your money in the acquisition. Take your time. Get your planning in place as early as possible so that if you decided to sell the project the day after closing, you could make a profit.

 

How Much Equity Is a Good Deal?

 

There is not an ideal “percent equity” that you want to achieve to make sure that you have a good deal. Every deal acquisition is different. For example, let’s say that you are conducting your due diligence on a property listed at $900,000. It requires zero renovations, but you have a buyer lined up that is willing to purchase the property from you for $1.2M. Therefore, you come up with 2 different offers:

 

  • Offer #1 – $900,000 all cash
  • Offer #2 – $1M, buyer carries 90% of the financing, you bring $100,000 to the table

 

The better offer really depends on your current real estate strategy and goals. However, even though Offer #1 will result in a higher net profit ($300,000), Offer #2 results in a substantially higher ROI (200% vs. 33%) and comes with less risk ($100,000 down vs. $900,000). If you were the buyer, which offer would you prefer?

 

The point is that the deal structure and terms are always different; therefore, the expectations and returns are always different. But regardless, the main principal is always the same: make your profit before you close.

 

director's chair

What You Can and Can’t Do with the Self-Directed IRA

 

We have all wonder what you could and couldn’t do with a self-directed IRA. Fortunately, Kaaren Hall has come to our rescue. Kaaren is the President of uDirect IRA Services, LLC, where she has helped thousands of Americans invest their IRA into assets such as real estate, land, and private notes. In our recent conversation, she outlined the 4 main rules for what you can’t do with a self-directed IRA.

 

What Can You Do?

 

One of the pivotal definitions of the self-directed IRA is that one can invest in assets that are outside of the stock market, also known as uncorrelated assets. Therefore, the IRA account can be used to invest in many different types of assets, including:

 

  • Real Estate
  • Loan someone money to purchase real estate
  • Performing and nonperforming debt
  • Private stock
  • Precious metals
  • Land

 

What Can’t You Do?

 

When the IRS came up with the IRA rules back in 1974, they never stated what you could invest in. They only stated what you couldn’t invest in. The types of things you can’t invest in are very important because most of us are used to investing with cash. Self-directed IRA investing is not the same. It is its own little universe and has its own rules. According to these rules, you cannot commit a prohibited transaction. Therefore, it is a game of keep away from prohibited transactions.

 

1st Self-Directed IRA Rule

 

The first rule of the self-directed IRA universe is that you cannot have personal benefits from your IRA. For example, you cannot transfer money from your IRA into your personal checking account to buy a flat screen TV. The self-directed IRA is all about saving for later, not for spending today.

 

2nd Self-Directed IRA Rule

 

The second rule of the self-directed IRA universe is that you can’t buy, sell, or exchange assets between the IRA plan and people that are disallowed to your IRA. Disallowed people are your ascendants, descendants, and your and their spouses. Below is an example list of disallowed and allowed individuals:

 

  • Disallowed – parents, grandparents, your spouse, your children, your grandchildren, and all of their spouses
  • Allowed – aunts and uncles, nieces and nephews, brothers and sisters, and cousins

 

For example, you cannot use an IRA to purchase a property that your daughter will live in. However, there is nothing that disallows your niece from living in the property instead.

 

3rd Self-Directed IRA Rule

 

The third rule of the self-directed IRA universe is that you cannot have one of those disallowed people offer goods, services, or facilities to the plan. For example, Kaaren had an account holder bring them a purchase agreement for a property. When reviewing the document, they found that the broker of record was his father. This broke the rule because a disallowed person – his father – is providing services. The father was also asking for a commission. However, whether he would do it for free or charge a commission, a disallowed person cannot offer services and cannot benefit from the IRA.

 

4th Self-Directed IRA Rule

 

The final rule of the self-directed IRA universe is that you can’t invest in collectables or life insurance policies. Examples of collectables are fine wines, baseball cards, art, collectable coins, diamonds, etc.

 

Consequences of Committing a Prohibited Transaction

 

If the IRS says that you have committed a prohibited transaction, you will face financial Armageddon. This means that your entire IRA balance can be dispersed to you as a taxable event!

 

 

The Four IRA Rules Summarized: (1) One cannot personally benefit (2) Cannot sell, buy, or exchange with disallowed persons (ascendants, descendants, an spouses) (3) Disallowed persons cannot offer goods, services, or facilities (4) Cannot invest in collectables of life insurance policies

 

 

undercapitalized

How to Never Go Into a Real Estate Deal Undercapitalized

 

Mark Walker is a single family and multifamily investor that built a multi-million dollar portfolio in less than four years. He had an amazing first year, acquiring 22 properties with an average cash-on-cash return of greater than 20%. In our recent conversation, he explained how he was able to achieve such high returns by being laser focused on his capital expenditures.

 

Mark says that can invest capital expenditures in two different things:

 

CapEx #1: Things that are going to increase rent or decrease expense (both expected and unexpected)

 

CapEx #2: Things that are required but don’t directly affect your bottom line (again, both expected and unexpected

 

CapEx #1 Example

 

Mark is in the process of completing renovations on a 64-unit apartment building in Denver, CO. His plan was to spend $5,000 per unit ($3500 on the interior and $1500 on the exterior) for a total of $320,000 on rehabs. As a result, he expected to increase the rent from $0.91 per sqft to $1.00 per sqft by the end of the first year. However, things went much better than expected! Prior to reaching the one-year mark, he was able to increase the rents to $1.03 per sqft.

 

His initial plan was to only renovate half the units, but after seeing the large jump in rent, he reevaluated. As a result, he decided to use the left over capex budget, as well as some personal capital, to rehab the remaining units. If everything goes smoothly, he will see the average rent increase to $1.12 per sqft.

 

The number one improvement that resulted in the ROI jump was upgrading the appliances. When he purchased the property, all the appliances were over 20 years old. After spending $1000 on upgrading to new stainless steel appliances for each unit, he was able to increase the rents by $50. That is an ROI of less than 2 years.

 

CapEx #2 Example

 

An example of this type of capex expense is deferred maintenance. When Mark planned for these issues, he went in with the understanding that he wasn’t going to see as strong of an ROI. However, it is something that he had to spend money on because if ignored, it will eat away at his rent increases that came from the CapEx #1 investment.

 

For unexpected capex repairs, it depends on the situation. Sometimes, everything goes according to plan. However, for Mark’s 64-unit apartment building, this wasn’t the case. When the city came in to perform their inspections, they told Mark that he needed to re-plaster the pool. It started out as an unexpected $6000 investment, but once he “peeled back the onion,” it turned into a $15,000 item.

 

The lesson that Mark learned from the unexpected pool expense was that you always have to worry about the city. When the city comes to do their inspections, they are almost always going to find something new. They can and will force you to spend the money to immediately correct the issue. Therefore, proper planning is a must in order to mitigate your risk!

 

It is really these unexpected CapEx #2 investments that you have to look out for. No matter how good your due diligence, you are going to discover something that you didn’t know about. Or something will break during the rehab process. You must be ready for those things. If not, you are taking a much greater risk, but more importantly, you are cutting off the properties maximum potential.

 

Never Go Into a Deal Undercapitalized

 

Mark’s best ever advice is to never go into a deal undercapitalized. The pool example is one of the reasons why. That $15,000 was paid out-of-pocket. Fortunately, he didn’t stress out about it because he budgeted for the unexpected. However, he has seen countless people go into deals undercapitalized. When they get hit with a big-ticket item, like a pool, it sets them back big time.

 

Two tips that Mark provided on how to ensure that you are going into a deal with the proper capex budget are the following:

 

  • When you are doing your due diligence, determine what the capex investment needs to look like in order to realize your return. You must do this for both types of capex investments, but especially for the unexpected items. As an example, Mark didn’t blindly decide to spend $1000 on appliances without determining the ROI he would see.
  • If you are able to find a loan that gives you loan to cost (i.e. capex are rolled into the loan), then you can plan for both of those, build them into your capex budget, and the bank will allow you to make those investments with your loan. Essentially, you are paying 20 cents on the dollar for repairs. In doing so, the extra 80 cents saved will mitigate the damage if you happen to be hit with a big ticket item.

 

 

business owner with empty pockets

New Approach to Successful No Money Out-of-Pocket Investing

Fabian Calvo has closed on thousands of real estate transactions and has completed tens of millions of purchase and sales in over 30 markets. In our recent conversation, he provided two specific examples of no money out-of-pocket real estate investing and explained the importance of failing in real estate investing.

 

It wasn’t until after listening to a “no money down” real estate course every day for a few months that Fabian began his investment career. Prior to investing, he was a broker. He was great at finding deals and selling them to investors. However, after listening to the no money down course, he changed his approach. Instead of selling the great deals to investors, he asked if they could partner up on the deal. Fabian would bring a deal to an investor, explain how much money could be made via fix-and-flipping or buy-and-holding, then asked if they would put up the capital if he would manage the deal.

 

Fabian’s approach was well received. The investors didn’t have the time or desire to find or manage deals, but they still wanted to invest in real estate. Therefore, they had no problem putting up the money while Fabian had no problem managing the project since he would have zero money out of pocket. After successfully following this strategy once, from there, he kept replicating it over and over. The following are two of Fabian’s favorite “zero money out-of-pocket” deals:

 

No Money Out-of-Pocket Example #1 – Apartment Building

 

Property Description

  • 12-unit apartment complex
  • Incredible location in Florida
  • Backed up to a 90 ft canal

 

The Situation

  • Property was falling apart, a real disaster
  • Only 2 units were occupied
  • Out-of-state owner
  • Sent the owner a FedEx letter stating his expressed interest in purchasing the property
  • Got the property under contract
  • Brought on 2 other investors to fund the deal and he would manage the entire project

 

The Numbers

  • Purchased for $75,000 per unit ($975,000)
  • 30% down payment – Came from investors
  • Construction loan – rehab costs were included in the loan
  • Renovations were $300,000

 

The Results

  • Converted the apartments into condos – One of the investors had previous experience converting apartments into condos
  • Pre-sold ½ the units within 3 weeks of completing the exterior remodel
  • Sold six 1 bedroom condos for $185,000 and six 2 bedroom condos for $250,000
  • Fabian had a 25% ownership stake, plus, he made $30,000 from broker commissions

 

The Key Point

  • Finding really good real estate deals will unlock many opportunities – In Fabian’s case, the opportunity unlocked was meeting legitimate investors that have cash and are looking for deals.
  • Since he had sold the two investors several deals in the past, both parties had the confidence to go into business together on a per-deal basis moving forward

 

No Money Out-of-Pocket #2 – Apartment Building Notes

 

The Property Description

  • 20 unit apartment complex
  • Located in Florida

 

The Situation

  • Property was in foreclosure
  • As-is value was around $500,000
  • Current property owner lived in California and held two mortgages totaling $1.2 million
  • Spoke with the owner on the phone and he was interested in doing a short-sale
  • Fabian put the property under contract and presented the deal to an investment firm that he knew was on an apartment building buying spree
  • He ended up settling with the first (current owner) and second mortgage holders

 

The Numbers

  • Purchased the note for $475,000
  • Paid second mortgage holder $5,000 to release the lien on the property
  • Paid the owner $10,000 to sign over the deed

 

The Results

  • Investment firm purchased property for $600,000
  • The $475,000 mortgage, and $5,000 and $10,000 settlement fees were taken out of the $600,000
  • Fabian netted $100,000 in under 40 days with no money out of pocket

 

Key Points

  • This is a more complex deal with a lot of moving parts. That being said, this is the type of deal structure that you would want to work up to. Fabian had 11 years of real estate experience when he completed this deal. However, he had only been investing in mortgage notes for 6 months.
  • The relationships that he formed during his 11 years were the reasons why he was able to complete such a complex deal with no money out of pocket

 

Saying Yes to Failure

 

Fabian’s best ever advice, especially for those who want to invest in real estate with no money down, is that you must be willing to fail. He failed a lot, but through failure, he learned a great deal of priceless lessons. If he wasn’t willing to fail, he believes that he would have never actually pulled the trigger and started pursing deals. Real estate is an investment class that requires rejection and failure. Therefore, you must be willing to walk through the fire if you want reach the lucrative success at the end.

 

 

multi-dimensional

Multi-Dimensional, Consulting Investment Strategy to Triple Your Business

In my conversation with Peter Vekselman, who completes 5 to 10 deals per week in 6 different markets, he provided the lessons that he learned from losing EVERYTHING and then gaining it all back. His secret was transitioning from a one-dimensional investing approach to a multi-dimensional, consulting business model.

 

Lessons From Losing Everything and Gaining It Back

 

Peter’s main lesson learned from losing everything is that real estate is a business of decision-making:

 

  • Do I hire this guy or do I hire that guy?
  • Do I offer this price or do I offer that price?
  • Do I work with this realtor or do I work with that realtor?
  • Do I invest in this neighborhood or do I invest in that neighborhood?

 

The mistake that created Peter’s early struggles was that he was making all of his decisions off the cuff. He didn’t have anyone to run his decisions by. He didn’t have a mentor. He didn’t have anyone that he could go to that was more successful than him. As a result, during his first 6 months, every single decision he made was incorrect. He bought in the wrong areas. He paid the wrong prices. He had the wrong contractors. He hired the wrong realtors. He worked with the wrong lenders. However, once he had made all the incorrect decisions, by default, he now had all the RIGHT answers moving forward.

 

You must have a basis understanding of what the correct decisions are before you haphazardly get into real estate investing. Peter is a huge proponent of getting out there and taking action. However, you need to have a prior level of expertise so that you don’t make the same mistakes that he did and end up having to start from scratch. We all get our education one way or another. Either by making the wrong choices and learning from our mistakes – which is the hard way – or by getting your education upfront and learning from the mistakes of others. Which method do you prefer? Ultimately, the choice is yours!

 

One-Dimensional to Multi-Dimensional Consulting Approach

 

After getting all of his early mistakes out of the way, Peter was able to develop a very efficient marketing program. He was consistently receiving 500 to 600 seller calls every day. However, the problem was that he had a one-dimensional, inefficient approach to negotiating the deals. All of the negotiating was occurring on the phone. With 600 sellers calling in every day, Peter didn’t have the resources to hire 600 reps to meet with 600 sellers in their living rooms face-to-face. On top of that, he was only offering the sellers one option; with that option being the Peter would personally purchase the property.

 

Now, Peter has transitioned to a multi-dimensional, consulting approach. First, instead of conducting negotiations on the phone, he began utilizing real estate agents that would go inside potential seller’s homes and meet with them face to face. Secondly, Peter began offering the sellers two options: (1) He will buy the property on the spot or (2) He will help them sell he property.

 

Going into negotiations and saying “I am the best and greatest real estate agent” doesn’t work. Sellers hear that all the time. Also, going in and saying “I am an investor and I want to buy your property for 50 cents on the dollar” doesn’t work. Sellers get scared and turned off by this approach. However, by going in with an all encompassing, consulting approach, saying “we know that we can help you. We have multiple options and you, Mr. Seller, are going to be in charge of those options,” has been a game changer for Peter’s business. His investment business tripled and his retail business, which was virtually nonexistent before, went through the roof. He attributes the entirety of this success to transitioning to the multi-dimensional, consulting approach.

 

Win-Win Scenario

 

With his new multi-dimensional, consulting approach, Peter has created a win-win scenario for himself and his agents, plus for the sellers.

 

For Peter,

  • He is able to cherry pick the best deals, which he will rehab and sell for a profit.
  • His investment business has tripled
  • He gets to do what he loves, which is adding value to the lives of his employees and his customers

 

For His Real Estate Agents

  • They have a continuous pipeline of prospective sellers to meet with face-to-face due to Peter’s marketing system
  • They get paid regardless of which option the seller selects. If Peter decides to purchase the property, the agent receives a fix commission within one week. If they list the property for the seller, they receive the regular commission

 

For the Sellers

  • The seller wants one thing – to sell the property. They have the ability to make that happen because Peter will either buy it himself or help them sell it
  • Due to Peter’s consulting approach, the sellers get to meet with the agents face-to-face, instead of a faceless voice on the phone.

 

How can you add multiple dimensions to your current real estate business model and create a win-win scenario for yourself, you employees, and your customers?

 

investment strategy

Focus on One Investment Strategy and Don’t Chase Rabbits

 

In my conversation with the Craig Haskell, who owns over 7,200 units that he obtained via syndication, he explained the number one mistake the real estate syndicators make: they chase rabbits. He also provides the two lessons that he learned from chasing rabbits and the importance of focusing on one real estate strategy.

 

Based on mistakes that Craig has seen many investors make, including himself, is chasing rabbits. Many investor strategies are analogous to going on a hunting trip and shooting at everything that moves. Craig believes the culprit is a lack of focus. Investors are in the market trying to find deals and make the numbers work, but don’t really know what they are looking for. If you want to be a successful real estate investor, you need to be focused and can’t chase rabbits.

 

Example of Consequence of Chasing Rabbits and Having No Investment Strategy

 

When Richard first arrived in Phoenix to begin his investment career, he didn’t have strategy. He was simply chasing rabbits, looking at any and all deals. Eventually, he caught a rabbit, purchasing an apartment building known as Red Rock. However, this was back in 1991, and the Phoenix economy was less than ideal. The prior year, over 34,000 units were built. There was a ton of supply and very low demand, with an average vacancy rate of 20%. As a result, Richard struggled to fill the building. Even after he fixed up the property, he had a hard time competing with other local apartments, which were offering a lot of concessions (free rents, TVs, etc.).

 

Everything turned around after Richard asked himself, “Who is going to live in this apartment and actually stay?” After searching for the type of tenant that was shopping around, he determined that the main demographic was a Hispanic, B and C tenant. The next question he asked was, “What must I do to get Hispanic B and C tenants to live in and stay at my apartment?” After conducting additional research, he found the answer. He concluded that his target demographic, Hispanics, was extremely family and community oriented. Therefore, he created a community center, a playroom, and started an English class at a local church. As a result, he was able to take his occupancy rate from 70% to 92% and raise rents by 25% in 3 months!

 

Two Lessons Learned From Chasing Rabbits

 

Focus on one investment strategy and don’t chase rabbits – While Richard was able to salvage the Red Rock situation, if he would have had an investment strategy from the beginning, he wouldn’t have purchased the building. It didn’t have an area to convert to a soccer field. It didn’t have a large enough area to create a BBQ pit, basketball court, or volleyball court to provide a park atmosphere. These are the types of amenities that his target demographic demanded.

 

Your investment strategy has to solve a problem. Find a problem and then build your business plan around solving it. For Richard’s Red Rock example, he determined that there wasn’t an apartment community in the area that catered to Hispanics, so he created one. Again, Richard didn’t discover this problem until AFTER he purchased the property, but things happened to work out. However, they could have just as easily gone awry. Therefore, it is important to identify the problem first, create a strategy, and then purchase a property.

 

Bonus Investment Strategies – Additional Problems to Solve

 

For office space investors

  • The Problem – Due to multiple reasons, there is currently a huge flood of medical issues occurring
  • The Solution – Buy small office buildings and reposition them towards the growing demand for medical space (doctors offices, medical supply stores, pharmacies, etc.)

 

For retail space investors

  • The Problem – People buy most of their stuff from online retailers. As a result, many brick and mortar retailers are struggling or closing their doors.
  • The Solution – Buy retail buildings and reposition them towards tenants that provide services that cannot be purchased online. (Dentists, perishable foods, haircuts, etc.)

 

For apartment investors

  • The Problem – There isn’t a mainstream lifestyle like there has been in the past. People have a ton of different lifestyles.
  • The Solution – Based on your target market and demographic, buy apartment buildings and reposition them to senior housing, student housing, green housing, Millennial housing, etc. They will pay more for a community that specifically accommodates to their specific lifestyle

 

Buy properties, reposition them towards your target niche, and create a lifestyle that they can’t get anywhere else.

 

 

line of mail boxes

Success Blueprint: How to Find Tax-Delinquent Properties & Contact The Owners Via Direct Mail

 

In my conversation with the active wholesaler, fix-and-flipper, and buy-and-hold investor from York, Pennsylvania, Mikk Sachar, he explained his process behind how to find tax-delinquent properties and provided his favorite deal source – delinquent tax lists.
In his market, Mikk has found that it is extremely challenging to find quality deals through the standard realtor channel. Therefore, he doesn’t find any of his deals through that channel, including the MLS and REO properties. Instead, Mikk finds the majority of his deals through direct mailing. Here, I outline his strategy of buying homes with delinquent taxes.

 

His Best Real Estate Investing Advice Ever is to select 1 to 3 different sources that you want to work with and mail them consistently. Mikk has mailed a wide-range of sources, including pre-foreclosures, short sales, foreclosure notices from the courthouse, probate, and non-owner occupied list. However, his favorite source, where he has found the most success, is delinquent tax lists.

How to Find Tax-Delinquent Properties

Mikk loves mailing to delinquent tax lists. The county that he invests in has a tax sale twice a year – one in the fall and one in the summer. Any owner that is behind on their taxes at least 2 years is on the tax sale list. That list, for York County, is actually readily and freely available online! With this delinquent tax list, he has access to all of the property addresses, as well as the owners’ names. The only additional step is to determine whether or not the address listed is the owner’s actual mailing address. However, this is quite simple: just follow the tax record trail to find the owner’s mailing address. Once Mikk has the owner’s actual mailing address, he sends them a quick letter.

Mailing to Delinquent Tax Lists

The owner is about to lose their home to a tax sale and they have been getting notice after notice in the mail for years. If someone comes in and offers them even the slightest opportunity to make a little money, they will give them a call. Therefore, one of the greatest tips for how to find tax-delinquent properties is to keep the direct mail content simple and to the point. Here are two different letter types that Mikk sends to delinquent tax owners:

 

Yellow Letter“Hello (owner’s name). My name is Mikk. My wife and I would love to buy a property in your area. Please call me: (123)-456-7890.”

 

Post Card“Hey Joe. My name is Mikk. I am looking to buy a property in your zip code 12345. I see that you own the property at 123 Main St. Please give me a call. I am willing to pay you cash. I am looking to buy a house in the next 30 days and only have a limited amount of funds. Please call me as soon as possible before I commit my funds to another property: (123)-456-7890”

 

As you can see, the content of the yellow letter is extremely simple, while the postcard content gives a sense of urgency to the owner so that the chances of them calling are increased.

Talking to Owners on Delinquent Tax Lists

home real estate for sale When a delinquent tax owner calls, the first question that Mikk will ask is, “Can you tell me about your situation?” Then – and this is Mikk’s trick – he just shuts up and lets them talk. Eventually, they will tell him everything that he needs to know, so he just shuts up and takes notes. As you learn how to find tax-delinquent properties, remember that silence is key during this stage.

 

After the owner has said their piece, the next two questions that Mikk asks are, “In a perfect condition, what do you feel your home is worth” and then followed up with, “In a perfect world, what is the asking price that you’d hope to get for the property.” The purpose of these two questions is to determine the owner’s level of motivation.

 

For example, if the seller feels that their home would be worth $100,000 in perfect condition, but are hoping to get $98,000, then they are likely unmotivated. However, if they feel that the property would be worth $100,000 in perfect condition, and they are willing to take $50,000, then the next words out of Mikk’s mouth are, “When can I come see the property?” Mikk finds that, the larger the difference between what the owner feels the house costs when it’s fixed up and what they are willing to take, the more motivated the owner is.

Consistency is Key

We’ve discussed the first half of Mikk’s Best Ever Advice related specifically to how to find tax-delinquent properties, select 1 to 3 different sources that you want to work with and mail to them, but the second half of the advice is that consistency is key! Don’t just perform 1 direct mailing campaign and get annoyed when there is a 3% response rate. Instead, mail to them once, then mail to them the next month and reference the first letter. For example, your second letter can say, “Hey Joe, it’s Mikk again. I sent you a postcard about a month ago. I am still looking to buy a house. I would love to buy yours. Give me a call.” If they still don’t respond, you know what to do right? Mail to them again!

 

Mikk finds that most people that perform poorly with direct mail will conduct one mailing blast and then give up. On the other hand, if people continue down the road, mailing month after month, they will build rapport and relationships with homeowners purely through postcards. And their response rate will be much better. Therefore, if you are going to start a direct mailing campaign, Mikk recommends that you commit to sending out 5 to 7 mailers to each address over a one year period.

 

How will you use Mikk’s advice? If there a tip you have for buying homes with delinquent taxes or if you’ve succeeded using Mikk’s strategy, please let us know in the comments below!

exit sign

10 Exit Strategies to Buy 10 Homes a Week


In my conversation with Rich Lennon, who is a real estate investor that is focused on buy-and-hold, but is also active in a wide range of other investment strategies, he explains how educating himself on all possible exit strategies allows him to purchase 1 property per week. Ultimately, by the end of the year, his goal is to use the strategies to increase his weekly deal acquisitions from 1 to 10.

 

Rich’s Best Ever advice is to educate yourself on all the possible and different exit strategies. When he first started purchasing homes, he believed there were only a handful of exit strategies. However, as he become more involved in the real estate business, he was able to educate himself on other potential exit strategies. As a result, he discovered 10 different exit strategies that can be applied to any give home. In no particular order, here is a list of exit strategies Rich uses:

 

  1. Flip
    • Acquire the property
    • Perform rehabs
    • Sell on the retail market
  2. Rent
    • Acquire the property
    • Rent to a tenant for a specified period of time
  3. Seller Financing
    • Acquire the property,
    • “Sell” on the retail market,
    • “Finance” the property for the buyer and essentially become the bank
  4. Notes (Top 7 Answers About Real Estate Notes)
    • Create notes,
    • Sell your notes on the secondary market with properties
  5. Rent-to-own
    • Same as “Rent”, however, provide the tenant with an option-to-buy
  6. Wholesale
    • Get the property under contract,
    • “Sell” the contract to a qualified buyer in one of multiple ways
  7. Create mortgage wraps (Wikipedia – Wraparound Mortgage)
    • Form of seller-financing
  8. Joint Venture (Nuts and Bolts of Real Estate Joint Venture Partnerships)
    • Acquire the property
    • Fund the deal with a “partner”
  9. Entities (Land Trust Traps for the Unwary Investors – Part 1, Part 2)
    • Rich purchases all of his properties in land trusts
  10. Tax Advantages

 

The main benefit of learning all the different exit strategies is that it gives you the ability to buy more properties. Therefore, you can entertain more deal opportunities instead of just being a cookie cutter investor.

 

Take the time to follow the links provided above, educate yourself on the different exit strategies, and see which one (or multiples) that you can begun to pursue more aggressively

 

directional sign

Use This Follow-up System and Have 30% More Offers Accepted

In my conversation with Doug and Andrea Van Soest, who own a rental, fix-and-flip and wholesaling business, they provided their best real estate investing advice ever. Following this advice has enabled them to create a 57 door, $8.5 million rental portfolio and complete over 300 deals. The advice? Follow-up, follow-up, follow-up!

 

Follow-up, Follow-up, Follow-up!

 

You can get leads and you can make offers, but if you don’t have a follow-up process for after an initial offer is rejected, then you are missing out on a lot of deals. For Doug and Andrea, they can attribute 30% of their 2015 deals to their extended follow-up process. If you just look at their $8.5 million rental business, which is their second most profitable business behind fix-and-flipping, 30% is $2.55 million! That is a HUGE chunk of their business that might not have been if it wasn’t for their commitment to following up.

 

The Follow-up Process

 

If Doug and Andrea make an offer to a potential seller, the seller’s information is inputted into their follow-up system. The seller will stay in their system if:

 

  1. Their offer is rejected for whatever reason
  2. The seller has not sold the property

 

Over the next 14 months, as long as the seller still owns the property, they are going to hear from Doug and Andrea 35 times from a combination of the following 4 communication methods:

 

  1. Email
  2. Voicemails
  3. Direct mail post cards
  4. Text message

 

35 communications multiplied over hundreds of potential sellers is a lot. Doug and Andrea do not have the time or man power to send out that many manual emails, texts, voicemails, or post cards. Therefore, Doug and Andrea have create an automated follow-up system that is a compilation of 4 different software programs:

 

  1. Podio – main CRM system for customer contact information
  2. Call Loop – automated text messaging and voice mail sending that are sent out on a periodic basis
  3. AWeber – automated email follow ups
  4. Click2Mail – simple post card sending

 

Which of these 4 follow-up methods can you add to your current real estate business in order to work towards having 30% more of your offers accepted?

 

calculator and pencil

You’ve Got to Live and Die by the Numbers!

In my conversation with Josh Weidman, who is an experienced property manager, buy-and-hold and fix-and-flip investor, and currently operates a successful turnkey real estate company, he provided his best real estate investing advice ever, which comes from the knowledge he has attained through an accumulation of his many experiences, positive and negative: you’ve got to live and die by the numbers!

 

When Josh first got into real estate, he was convinced by wholesalers and home owners, on more than one occasion, to put properties under contract based on future projects that were supposed to be coming to the area. “This property is going to worth so much money because they are building a casino around the corner,” is an example of a line from a homeowner that convinced Josh to purchase a property. Unfortunately, and as you can guess, no casino was ever built…

 

Once Josh learned his lesson from being misled on multiple occasions, he began making decisions based on the numbers alone. However, this didn’t stop him from continuing to make mistakes. Instead of looking at the numbers, contractor bids, and today’s market values for what they actually were, he fudged the numbers to make the deal work. He would tell himself that he could complete a renovation for $5,000-50,000 less than the contractors bid or that he would be able to sell the property for the highest price that has ever been paid for in the neighborhood.

 

A specific example was a deal that had 3 walls and no roof. The rehab costs came back at $125,000. However, Josh convinced himself that he could get it done for $85,000. He made an offer and purchased the house. And sure enough, the rehabs ended up costing the original $125,000.

 

Flashing forward to the present, these mistakes are behind him. And, from these mistakes he has learned a valuable lesson: you will be much more successful in real estate investing in the long-term by saying “this is what the property is worth today, and based on the cost of expenses today, here is my offer.”

 

Even when looking in emerging markets, you still need to buy based on today’s numbers, meaning what the house will sell for today if you renovated it and put it on the market. You never know what tomorrow may bring. Real estate is a cycle that has its ups and downs, so you have to invest today based on today’s numbers, not the hypothetical future projections.

 

Remember that it is an investment. You are not buying a house to move into, so take the emotion out of it. Look at the numbers and if they don’t work, then the deal won’t work and you need to walk away!

 

Are there times where you fudged the numbers or listened to a seller’s fairy tale and ended up paying a price?

 

stream

How You Should Diversify Your Income Streams

 

In my conversation with James Like, he provides his best real estate investing advice ever: Create multiple streams of income within the real estate industry, which is a strategy that works whether the market is blazing hot or Antarctica cold.

 

Obviously, since James is providing this advice, he follows it in his own real estate business. He has created seven different streams of income:

 

1. Real Estate Commissions

 

His first stream of income, which is also his least profitable, is real estate commission. James has collected commissions from selling over $30 million in real estate, with the majority being single-family residences. Since real estate commissions require the most amount of time and overhead, James has brought on other agents to his brokerage, passes the majority of the business on to them, and does a 50/50 commission split.

 

2. Property Management Fees

 

Property management fees are James second steam of income. Similarly to his real estate sales business, James has brought on people to help with this business, so it is fairly passive income. His fee structure enables him to collect 10% of the rental income and 50% of lease-ups for the 40 properties that he currently manages, while his expenses go towards covering the employees’ salaries.

 

3. Buy-and-Hold Income

 

His second largest stream of income comes from the 8 buy-and-hold properties that he currently owns. James uses private money, and on occasion, local banks to fund his deals, depending on the market interest rates and availability of private money from his investors. For the 8 rental properties that James owns, he was able to purchase them with zero money down, even the properties with traditional financing.

 

  • If James purchases are property with private money, the money he raises covers the entirety of the purchase price, and he pays back the private money loan at 6-8%.
  • If James purchases a property using a bank, he pulls equity out of a property that he has paid off completely and uses it to fund the down payment.

 

And since James has a property management company that is relatively self-sustaining, his buy-and-hold investments are managed and the income is strictly passive.

 

4. Fix-and-flips and wholesaling

 

His fix-and-flip business, which includes wholesaling, is the most profitable stream of income.

 

5. Developing

 

Since flipping is becoming more difficult due to increasing costs and competition, James recently added developing as another income stream. He is set to close on two pieces of land and should begin development around August.

 

6. Construction

 

His 6th income stream is also a recent addition, construction. James has partnered with the contractor that is taking care of his flips and repairs on his rentals and created a construction company. This provides James with savings on his projects and income by doing rehabs for other clients.

 

7. Consulting

 

Finally, his 7th income stream is consulting, where he leverages his experiences to help others achieve their real estate goals.

 

Which of the 7 streams of income can you begin to work towards adding to your real estate business?

 

people with hobbies

How to Make $20,000 Per Month By Investing in Assisted-Living Residences

 

In my conversation with Gene Guarino, who specializes in transforming residential homes into assisted living facilities, he explained the MASSIVE returns an investor can attain by adopting an assisted-living business model.

 

The main reason Gene why decided to specialize in assisted living was because he believes that it will be the next mega trend for the next 20 years. The target demographic for this business model is huge, including the 77 million Baby Boomers and the 10,000 people turning 65 years old everyday. Currently, Baby Boomers aren’t in assisted living residences; however, they are going to be moving into senior housing in droves over the next couple of decades.

 

Another reason Gene why decided to specialize in assisted living was due to the advantages it has over fix-and-flipping and buy-and-hold SFR investing. For example, let’s use an actually property that Gene is currently pursuing: a 6,400 square foot 3-bedroom, 4.5-bath ranch in an upper-middle class neighborhood.

 

Fix-and-Flip Scenario – If he were to flip the property, it would definitely be awesome and fun. However, once he sells the property, he is technically unemployed and will have to do another flip.

 

Buy-and-Hold Scenario – If he were to rent the property out to a family, once they decide to move out, whether it is after one, two, three years or longer, it will result in at least a month of downtime. Add in the turnover costs, repairs, etc., and then at best, he would have made $100 to $200 per month after real expenses.

 

Assisted-Living Scenario – If he were to take the property and convert it into an assisted living residence, he would be able to net $5,000 to $20,000 per month after all of the expenses.

 

For Gene’s real life scenario, he plans on dividing two of the large bedrooms into two and three bedrooms. The master bedroom is enormous, so he will convert it into 5 bedrooms. Finally, the master closet is so large, it will be another bedroom, bringing the total bedroom count up from three to ten! Since the property will be licensed for ten people, and with Gene charging $4,000 to $6,000 per person per month, which is above the national average since Gene makes his properties above average, all expenses included (room and board, food, housekeeping, caretakers salaries, etc.), he will be netting thousands of dollars per month in income.

 

This business model does require a few additional steps, like licensing and rules that vary state-by-state and city-by-city, having to potentially divide up bedrooms and add bathrooms, the need for grab bars, wide doors, smooth floors, etc., and the hiring of caretakers. However, the huge return on investment far outweighs the small amount of extra effort required in order to have the assisted living property up and running!

 

real estate money questions

One Question to Successfully Navigate Sticky Situations

In a conversation I had with Rock Thomas, who is an author, speaker, and owner of four Keller Williams franchises, he laid out a sticky situation he found himself in early on in his career, and he explained the one question that he asked himself, which allowed him to begin seeking out solutions instead of wallowing in his own fear: What is great about this situation?

 

The sticky situation Rock faced occurred when he had a high profile listing appointment, but he had no means of transportation to get there! He was supposed to have a meeting with a client that was not only selling their current residence, but they were also going to upgrade to a much larger home, so there was $35,000 in commissions on the table.

 

Rock remembers something that one of his mentor’s told him about how to handle sticky situations: “always direct your focus to resources instead of non-resources.” It is really easy to say, “(insert your go to expletive), why is this bad situation happening to me?” and play the victim role. However, Rock believes that this is fine to do for maybe a few seconds, but then you’ve got to go into resourcefulness mode. A nice analogy Rock used was the following:

 

Imagine that you are a top star in the NBA and you’ve just had something go against you, like you missed a fairly easy shot. What is your best next move? Are you going to go to the bench and sulk? Or are you going to ask yourself “what is great about this?” and how will I come back full force?”

 

Hopefully you would choose the later. In Rock’s situation, when he initially asked himself “what is great about this situation?” he responded with “absolutely nothing! I am going to lose the sale!” However, after a few minutes of pouting, he then asked himself, “what could be great about this?” which he responded by saying, “well, there could be a way to figure this out!”

 

Therefore, Rock ran over to his neighbors and convinced them to keep an eye on his daughter. Then, in his three-piece suit, Rock hopped on his bike, pedaled furiously to the property, hid his bike in the bush, wiped the sweat off of his brow, and walked up to the door as if everything was completely normal. Since he was so highly motivated and jacked up, he knew that there was no way that he was going to go through all of this and not get the listing. As a result, he got the listing, sold the house, and sold them another property! And all it took was six words: what is great about this situation?

 

At the end of the day, when we face any sticky situation, we can chose to either focus on the resources that will make things happen for us or we can play the victim. If you want to make things happen, add these two questions to your repertoire when the going gets tough:

 

  1. How can I make this happen?
  2. Who else has faced a similar situation in the past and what would they have done?

 

If you can successfully answer these questions, you will end up getting the result that you need. If you continue to use these questions to get you out of sticky situations, you will begin to become a master of them, and your life will change dramatically!

 

commerical real estate strategy

Strategy to Sell Tens of Millions of Dollars Worth of Real Estate

In my conversation with Phil Henn, who has been the top producing broker at a New York City based brokerage for over 12 years, he explained how he obtains high quality leads that has resulted in him being able to sell tens of millions of dollars worth of real estate annually! His secret is to build solid relationships with the financial advisors and asset managers at local financial institutions.

 

Early on in his career, a more seasoned real estate broker provided Phil with the best advice he has ever received, which ended up being the main springboard for the massive success he has achieved. Phil learned that the best way to expand his day-to-day business was by building relationships with financial institutions. Many financial institutions have private wealth divisions, which handle high net-worth domestic and international clients. These high net-worth individuals not only rely on the financial advisors and asset managers for investing advice, but also, who they should use as attorneys, brokers, etc.

 

Therefore, Phil focused on building relationships with these advisors and managers at a handful of financial institutions in New York that also had a global presence, with the goal of becoming the broker that they referred their clients to. Instead of seeking out these buyers himself, Phil goes into financial institutions and gives in-person presentations. Phil has learned that the most effective presentations are the ones that are smaller and extremely direct and clear, rather than ones that are longer and more detailed. He presents in PowerPoint form and includes details on his brokerage’s past and consistent successes, charts and graphs to show the New York City market’s growth during the last 5, 7, and 10 years, as well as a few other factors, and then let’s the numbers speak from themselves.

 

Phil has learned that it is important to not be afraid to directly ask for business, so at the conclusion of his presentations, he makes his intentions clear and the lenders will typically pass on their domestic and international client’s contact information so that Phil can start the relationship building process.

 

At this point, Phil’s work has just begun. His quickest turn-around, from initial contact to cash in pocket, has been 2 years. Therefore, when applying this technique, like many other successful real estate techniques, don’t expect to see massive results over night. This is a long-term real estate strategy. However, if you stick with it, you will have the potential of doing tens of millions of dollars worth of real estate transactions every year!

 

business bar graph

Why the IDEA Behind a Deal is the Factor Most Strongly Correlated with Success

I had an amazing conversation with Stephen Roulac, who is a scholar from Harvard, an author, a startup advocate, and investor. He has a track record in systems development in the real estate business and he explained to me that the dominating factor that drives your returns is the idea behind the deal.

Through his research, Stephen discovered that the amount of value created and the returns obtained in a real estate transaction are directly correlated to the idea behind the deal. While factors like arranging financing quickly, getting approvals, managing the construction budgets, setting up marketing and sales, and finding great property management all need to be solid, the real money is made from the idea! Simply put, deals that work come from good ideas, while deals that don’t work had bad ideas behind them.

 

A good idea behind a deal comes from the combination of the answers to 3 main questions:

  1. What markets do people want to be in?
  2. What property types work best in the specified market?
  3. What business model works best in the specified market?

A decent property in a strong market will way outperform the best property in a weak market. For example, Stephen had a client that purchased the best office building available in the Los Angeles market. It was in a good location, had beautiful finishes, great architecture, and the best tenants. However, they neglected to determine if the property type and business model were an effective investment vehicle in the LA market at the time (it wasn’t), and as a result, the client lost a lot of money on the deal.

 

To effectively select the correct idea, Stephen advises that you take the time to perform a Strategic Market Selection. With a Strategic Market Selection, you want to determine what is going to best drive the market performance by answering the following questions:

  1. What are people looking for in that market?
  2. What do they want?
  3. What is important to them?

Since Stephen is investing in very large deals, the factors that his target clients are looking for are highly urbanized, the presence of technological innovation, and lifestyle design.

For investors looking to purchase SFR’s or small multifamily, the target clients will more than likely be looking at factors like the quality of schools, access to transportation (both public transportation and walkability), and sense of community. Keep in mind that is will vary depending on the market, and the respective property types and business models that works best.

 

Once you determine what your target cliental is looking for, what they want, and what is important to them, you then want to find which markets offer those. List out all of the different markets available that meet this criterion, and then pick the best one that fits your specific goals. Finally, within that selected market, evaluate each property you are confronting, give them a score based off of your target clients criteria, rank them from highest to lowest and start putting in offers!

slug on the road

Moving at a STEADY Pace is the Secret to Real Estate Investing Success

How much education do you need prior to investing in your first deal? After investing in my first deal, how soon until I should buy a second, third, etc.?

 

These are two extremely important and common questions asked by the newbie investor. Move too quickly and you’ll make mistakes. Move too slowly and you’ll miss out on lucrative opportunities.

 

Kevin Amolsch, who is a highly creative real estate investor, believes he has discovered the investment approach that is just right. In our conversation, he explained the importance of moving at a steady pace, and the resulting consequences of failing to do so.

 

Kevin’s best real estate advice is to move at a steady pace. Let’s unpack this advice and address the two important points: move and steady pace.

 

Kevin believes move is the most important word in this statement. He finds that many newer investors get caught up in the education trap. They read book after book, blog after blog, and attend seminar after seminar, but they never actually take any real action. While education is essential for an investor’s foundation of knowledge, you don’t need to know everything before you start moving and doing deals. Instead of waiting until you know everything (which is never going to happen anyways), attempt to implement what you learn along the way. No matter how much education you get, you are going to make mistakes regardless, so as mistakes occur, simply correct them, learn from them, and then keep on moving forward.

 

Want to learn how you can monetize your mistakes? Listen to my interview with Sam Ovens, who helped create 9 millionaires with this one simple trick:

 

Now the next question is, after getting started, how fast or slow should I be moving?

 

The second part Kevin’s advice is to make sure that you are moving at a steady pace. When 2007 rolled around, Kevin had mastered the move portion of advice. However, instead of moving at a steady pace, he was struck with the “Ready, Fire, Aim Syndrome.” “Ready, Fire, Aim Syndrome” is essentially when you just go after it, guns a blazing, at an extremely quick pace. While this is great if you are an Olympic sprinter trying to shatter the 100-meter world record, it is not so great for a real estate investor that is in it for the long haul.

 

Adopting this “Ready, Fire, Aim” mentality early in his career really hurt him.

Related: How to Avoid the Shiny Object Syndrome in Real Estate Investing

 

Kevin had quickly amassed a portfolio of 35 properties because his goal was to create a huge real estate empire…Or so it seemed. The

three goals and milestones he set for himself were:

  • How many homes he was going to purchase in a month or a year?
  • How many of those houses was he going to keep?
  • How many was he going to sell?

 

This may be the way you are setting your real estate goals as well, so you may not see it as a problem. However, Kevin soon learned how ridiculous and dangerous these types of goals are.

 

He said, “If your goals are based strictly on the number of transactions you make, you will ultimately end up doing bad deals in order to get to your goal.”

 

If the market were to take a tumble, like it did in 2007, and you are stuck with a bunch of bad properties that are highly leveraged, you are going to be in trouble. This is the exact situation that Kevin faced. He ended up with all these properties that were not that great and were purchased with no money down loans. Once interest rates started creeping up and rents started going down, which is the signal to sell and start unloading properties, he couldn’t because he was so over-leveraged. As a result, he ended up losing a couple properties and had a really stressful couple of years.

 

The main lessons Kevin learned from this situation is to avoid the “Ready, Aim, Fire Syndrome” by moving slowly, instead of full speed ahead, in order to mitigate the chance of getting in over your head, and potentially losing everything you’ve taken the time, effort and money to build. Also, don’t fudge your numbers or change your investment criteria (like pursue zero money down loans, unless that is a part of your strategy) just to complete more deals faster. Finally, think of your business in terms of decades, not months or years, and focus on long-term growth vs. taking shortcuts for short-term gains.

 

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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.

 

When Do You Walk Away From a Deal? When This Happens.


I will always follow the “don’t let a deal die on your side of the table” philosophy. There is really never a reason to not offer SOMETHING to the seller.

Or, at least that’s what I used to think.

This week I was sent a deal for a 351-unit apartment community in Dayton, Ohio. I was told it is a distressed property and only 95 out of 351 are rented. The other units need rehab.

Ok, I’m cool with that. I’ve got team members that can turn that puppy around.

Seller wants 2.8MM for it and it’s been on the market for about a year.

Hmm, ok, something sounds fishy. Why has it been on market so long? But I still moved forward because perhaps it was just an unrealistic seller and now, after having property sit on market for so long, he/she will be more reasonable.

So I offer 1.9MM to get the ball rolling. They counter at 2.3MM.

Hmm, ok, sounds like we’re getting close here. I happen to be in Cincinnati at the time so I decide to take the short trip up to Dayton to view the area and the property. That way I can make a more informed offer.

When I visit areas one of the many things I look for is a McDonalds. And, I want to see how new the McDonalds is. Because if there’s a new McDonalds nearby that tells me some smart Fortune 500 people identified the area as growing. It ain’t the end-all, be-all but it’s a good indicator.

So, where do I begin about this property….

First off, the night before I leave I google the area and there’s a drive-by shooting 2 blocks from the property. And, as I’m driving around the neighborhood of the property there ain’t no Micky D’s anywhere.

So I arrive at the property and notice an iron rod fence that is destroyed. Apparently a drunk driver plowed through it and they haven’t fixed it yet. The most impressive part is the fence is on a 10 foot hill.

Anyway, as I walk up to the leasing office I notice a NO GUNS sign. I’m glad it’s there although later I’d be wishing I was packing some heat. When I tell the leasing agent that I’d like to rent an apartment they tell me point blank “you don’t want to live here.”

Hmm, yeah, you’re right I don’t but I tell her “well, I would like to see what you have available.” They don’t have anything available now but will be able to get me a good deal in about a month. I ask where it would be and they say “we’d put you right next to our office because the closer you are to us the less drama there will be.”

I have a feeling “drama” is code for something.

Still, that wouldn’t deter me from buying the place. As long as the numbers make sense. I know the seller bought it for 1.1MM cash so they don’t have mortgage on it. That means opportunity for me because we could do some owner financing.

Well, turns out they only have 45 apartments leased and none available now because of “renovations.” I tour a “renovated” apartment and…it…is…d.i.r.t.y. They even show me an apartment that just had someone move out – it was TRASHED. I was shocked they would be showing it to a prospective tenant.

The 45 apartments thing is a BIG deal because the 1.9MM offer price was based on having 95 units rented which is what the proforma indicated.

Mentally my offer price just dropped 50%.

At this point I’ve only seen the renovated apartments and still need to get a sense of what the other apartments look like and, specifically, how much work is needed to get them to rentable conditions. While talking to the property manager he lets slip the following bomb:

“The owners live in California and are trying to sell but haven’t been able to yet. They need to figure something out because the City of Dayton just mailed us our last warning on our windows with broken glass. Starting next month we’re getting fined $500 per building for every building with broken glass. There are 49 buildings so that is…(he punches in the numbers on his iphone calculator) a $24,500 fine…per month!”

“Why don’t you just board up the windows,” I ask.

“We’re going to have to but that’s going to cost over $100,000,” he says.

Damn. These owners are in trouble. But still, I’m a glass is half full kind-of-guy, so I see this as opportunity to get a better deal.

So here’s what I know at this point:

–        Super motivated owners who are bleeding money

–        Management staff that’s not good

–        Out of state owners

Sounds like a perfect storm to do creative financing. But, I need to determine one very important thing:

–        How much does it cost to rehab the community and how much will I make after it’s done?

The property looked like a Hollywood movie set where they just shot a riot scene and then excused all the cast members for the evening. It needed everything major. Parking lot, roofs, HVAC and everything in between.

I did a napkin estimate of 4M – 5M renovations.

Ok, fine. So what would it be worth after the rehab?

Well, the property is the largest in its submarket and the submarket’s average occupancy is about 85%. That means the much smaller properties are having a hard time leasing and if I have 351 units ready to be rented I’m going to have a VERY HARD TIME (i.e. impossible) renting them out.

It’s called “absorption”. Yeah you’ve got 351 units but that doesn’t mean people want to live in that area! Plus the rents on the existing 45 units were already very low.

I determined that if we did the 5M rehab then it might, MIGHT be worth 8M IF we could get it 85% occupied. And I just didn’t see any way of making that happen.

So, when do you walk away from a deal?

  1. If the seller isn’t realistic about their property’s worth after you do your due diligence
  2. If the cost and time to rehab the property is more than the after repair value

I scooted out of there having learned a very good lesson.

As far as the property goes? If I were the seller I’d recognize I made a bad investment because I didn’t know the area. Because that’s the key to all of this. If the area was ok or growing then you could make it work with a rehab. But the area simply won’t support the amount of rehab that’s required.

I’d actively market it everywhere and tell people to name their price. I’d take whatever I could get. Including, but not limited to, a 6-piece chicken nugget from the McDonald’s in the neighboring town.