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.
How Do You Know When to Sell?

How Do You Know When to Sell?

“It depends,” is a normal lawyer response to just about any question. So, it is no surprise that was a response recently when a client asked me, “When do we sell our property?”  

I wasn’t attempting to be coy or sarcastic; I was setting up the following advice that I give anyone who has a rental property. The first principles of real estate investing are that investors own a property in hopes of making profits, be those monthly rental payments that provide recurring revenue or profits from the sale of appreciated property. Thus, determining when to sell a property will depend on the goals set for your company.

           

Recurring Monthly Rents

For the investor who has purchased a property for a good price and makes a tidy monthly profit on rental income, the inflection point of rental income to property value must be assessed. Said another way, when the value of the property as a whole far exceeds what the rental income could be, then it would be time to consider selling that property for the appreciated value and taking profits. As an example, consider the following:

Bob buys a three-bedroom, two-bathroom house for $200,000 in a nice suburb outside of a metropolitan area in year 1. Good schools, low crime, and property values are climbing at a rate that shows the area will continue to be a great bedroom community. Bob is charging a tenant $2250 in rent a month, and the property has performed well. Here are the numbers for Bob each month:

Loan Amount: $160,000

Down Payment: $40,000

Insurance per Month: $100

Interest Rate: 3.5%

Term: 15 years

Monthly Payment: $1,143.81

Rent – Loan Payment = ($1,106.19 x 12) = $13,274.28 per year

Bob is making approximately $13,000 a year in profits. In year 5, the property value has increased to $295,000. Bob has taken depreciation on the property under Section 179 of the tax code, he has been able to deduct ordinary business expenses under Section 162 of the tax code, and his monthly profit has been consistent. These factors have provided Bob with a nice year-end profit for his investment.

However, the area cannot sustain rental rates of $3000 per month for the same three-bedroom, two-bathroom house. Thus, if Bob sells his property for $295,000 in year 5, he will recoup his initial $40,000 down payment, plus the delta between the purchase price and the sale price of approximately $95,000 (less real estate agent fees, if any, of approximately $17,700 for a total of 6% commission). So, at the end of the transaction, Bob will receive about $117,300 at closing, which is about 10 years of rental payments at the current rental rates. This is a good time to sell this property. 

The key takeaway from this example is that the recurring monthly rents would not keep up with the property value for Bob to continue to make a profit that is in line with the market; thus, this would be a good time to sell. If Bob could have raised rents every year for 5 years to achieve a monthly rent of $3000 per month, then Bob would be wise to retain the property until the inflection point dropped off.

 

Buy for Appreciation

When an investor buys a property for the goal of a fix and flip, a BRRRR, or for forced appreciation, the calculus changes for when to sell that rental property. When is that going to happen? That is completely dependent on the investor.

When an investor buys a property that is not cash flowing well and is not what most investors would consider a good investment and the investor turns it into a good investment, then the appreciation tipping point is identified when the rates are sufficiently set at market rates. The following example illustrates this point:

Bob buys a quadplex in an area that is just outside of a city that is seeing good economic growth. The property is in need of some repairs, and good management will allow for rent increases. Bob buys the property for $300,000. Each unit is rented for $550 a month for a total rental income of $2200 per month.

Bob has planned to turn each unit at the end of the current tenants’ individual lease term. When a unit turns, Bob replaces carpet with luxury vinyl laminate flooring, replaces cabinet pulls and doorknobs, and paints the walls. Bob then increases the rent for that unit by $100 a month in year 1. Each year thereafter, Bob increases the rent by 10%.

Year 1: $650

Year 2: $715

Year 3: $786.50

Year 4: $865.15

Year 5: $951.66

By year 5, Bob has a rental income of $3,806.64 per month. The market appreciation for the property is now $450,000. Thus, the cap rate for this property is:

 $45,679.68/ $450,000 = 0.10

These numbers are not exact, but are for illustration purposes.

Not only is the property cash flowing well, but the value of the property has also increased to an extent that the investor has created value that otherwise would not have been possible if he had simply waited for market appreciation.

Bob increased the rents by $401.66 per unit per month since purchasing the property. If the investor bought this property to increase its value, he has achieved that goal. Between his cash flow and his purchase price, this investor has achieved significant appreciation for this quadplex. Would it now be a good time to sell this property?

Again, it depends! Bob won’t really see the value of the forced appreciation until he sells. Forced appreciation is generally a one-time benefit of the property. By increasing the value of the property through rent increases, Bob will make his money on the sale. So, Bob should sell the property now.

 

Closing Thoughts

When does selling your property make sense? Well, it depends on you and why you bought the property. If you bought a 20-unit apartment complex, cleaned it up, stabilized rents, and raised rents to a point that the property is cash flowing well in year 2 or 3, then your timeline for selling the property is completely dependent on you.

Good luck out there and remember to set your goals when you purchase the property and work your plan.

 

About the Author:

Brian T. Boyd, JD, LLM

 

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Tips for Growing a Real Estate Business with Family and Friends

Tips for Growing a Real Estate Business with Family and Friends

Rome Lingenfelter is a commercial real estate mogul who loves teaching others so that they gain financial freedom. He began investing a few years ago with his wife. His process entails fixing, flipping, and wholesaling, with a major focus on the multifamily market. He is anxious to give people helpful tips towards growing a real estate business with family and friends.

Lingenfelter was not always involved with commercial real estate. His first position was managing a national grocery store chain. After 16 years in this type of work, he stepped away and dove into real estate. His wife joined him, and the rest is history.

Rome explains that his wife is his perfect partner. She is an expert at negotiating deals. He prefers to act behind the scenes with things like calculating numbers and deciding on contracts. They both left their jobs to create a business that allowed them to spend more time together and with their son.

 

Getting Family Involved

Rome’s pre-teen son Max is also becoming a helpful part of the family business. He explains that he and his wife play to Max’s strengths. Since he is an only child, he has excellent adult communication skills. Therefore, he has been involved with door-to-door sales and has advanced to social media. Also, he has helped with some of their rehabs.

Rome understands the importance of getting a solid grasp on financial matters. He found the game Cashflow 101 to be extremely helpful. He began playing with his son from a young age. This is a free online game that makes learning how to invest fun while teaching investment strategies in different scenarios. They have been involved with local REIAs as well.

 

Challenging Properties

Rome has been in commercial real estate for almost a decade. Through the years, there have been many challenging properties. He cites one transaction that was particularly ugly. During one of his flips, he had a third partner. It was an expensive Portland property with a value of approximately $1 million. His partner claimed that the numbers were too good to pass, so they borrowed money for a down payment. Long story short, things fell through. Rome ended up losing half of his money on top of owing interest on the deal.

 

Learning From Past Mistakes

While revisiting this deal gone sour, Rome discusses all the things that he has learned from past mistakes. To begin, he emphasizes that it is always important to have the correct numbers before entering a deal. Also, he no longer takes out large loans to use as down payments. He gives the tip that it is better to walk away from a transaction than to get into one that shouldn’t be had.

 

Challenges of Growing His Company

Overall, Rome notes that marketing is a big challenge. Also, he explains that it is challenging to get things up and running. Luckily, he is able to find deals. However, he notes that things get very busy with just him and his wife. It is not uncommon for them to have multiple projects in the works. However, it becomes difficult to get everything out to the market. This is rough, especially since the market is where the money is located.

Rome has decided to take time and to concentrate solely on marketing efforts. He understands the necessity of getting his systems running smoothly. He intends to hire a virtual assistant so that it is possible to break up the business’s processes. In this manner, not just one person is responsible for everything.

 

Lingenfelter’s Corporate Experience Is Key

To repeat, Rome spent many years in a management position for a large grocery store chain. He explains that it is essential for each person to understand his or her role and to remain focused. When he began in the real estate business, he let his hands-on personality cloud his judgment. He learned quickly that it is essential to observe the big picture and to step back from jobs that require outside hires.

Another crucial aspect of business is customer service. He states that one of the most important tips to any business owner in real estate is to take care of people. He reiterates that many individuals get stuck on the numbers and explains that future deals come from perseverance.

 

Top Real Estate Investing Advice

Rome says that the biggest tip about buying property is practicing due diligence. Part of due diligence is making a checklist, especially when buying real estate in an unfamiliar area. For example, when a seller gives information about a septic tank or another part of the property, it is important to follow up and to make sure to check facts.

Rome was once burned on a transaction where he needed to replace a bad septic system. He never took the time to check it out, and it required expensive repairs that cost him dearly during the resale process. On a different note, Lingenfelter explains that it is essential to have an accountant and a lawyer available to answer questions and to offer protection.

 

Giving Back

Rome recognizes the need to give back to the community and to encourage other entrepreneurs to do the same. He offers financial education to budding businesspeople and teaches how to think like an entrepreneur rather than an employee.  He hopes to grow his passion and ignite it in others. Through his advice and example, Rome hopes that it is easier for others to begin growing a real estate business with family and friends.

 

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How to Close More Deals in a Competitive Market

How to Close More Deals in a Competitive Market

How I Closed $20 Million in 100 Days, After Buying Nothing in 2020

In early November, we were able to close on our latest acquisition, 104 units in Louisville, KY. This marks our second acquisition within 100 days, after closing on 81 units in late July. Considering we did $0 in apartment acquisitions in 2020, it may be surprising that we were able to close $20 million worth of apartments within just over three months.

This was not by design, but we did make some key changes to start seeing more consistent results. We were intentional about the kind of deals we wanted to close moving forward and this required a revised approach along with a renewed strategy. As I look back on these changes, there were three things that were key to seeing better results as apartment investors.

 

Get Advice

Tom Brady has a throwing coach. Steph Curry has a shooting coach. Serena Williams has a swing coach. And while I’ve had a real estate coach and other advisors for over four years, I didn’t feel like I needed a coach. After all, I had been a general partner in close to $90 million in apartments, hosted a number-one rated multifamily podcast, and even coached other successful multifamily investors.

But I was missing something, and it showed in the results. It was easy to assume others were simply overpaying for deals. However, this would be equivalent to Brady relenting to Father Time, Curry submitting to double teams, or Serena caving to the pressures of motherhood. Just as these greats rely on their coaches to overcome these obstacles, I had to leverage my advisors to seek guidance.

It’s not enough to have a coach or mentor, but you actually have to engage them with your challenges. My advisors helped me identify holes in my game that allowed me to take corrective action.

 

Get Creative

It’s a cop-out to say the market is just too hot or too competitive. The truth is there are deals to be made in every market. Yes, it may be more competitive today than it was five years ago, but every market faces tough competition when it provides so many benefits.

Investors like myself have been preaching the perks of apartment investing and people have been listening. This has led to increased demand. Current owners have no real motivation to sell, and this led to limited supply. The result is higher prices that miss the return expectations for most investors — and a lot of frustration. Instead of blaming the market for a lack of deals, successful investors are finding problems and creating their own deals.

One way to create a deal is to find a property that is being mismanaged or mis-marketed. Mismanaged properties are easy to spot. These are the ones where rents and occupancy are well below market averages. Mis-marketed properties are harder to find. This can include properties that are unlisted, expired listings, or missing key details that would entice buyers.

There are mismanaged and mis-marketed properties in every market. These properties just need an investor to create a deal.

 

Get Aggressive…

…with your actions — not with your underwriting. There’s a difference between being busy and being productive. We certainly had been busy over the last two years. We spent a lot of time talking to brokers, investors, and vendors. We analyzed deals each week and made offers when we felt we had a competitive bid. We made “best and final” multiple times, but there seemed to always be someone willing to pay more or offer better terms than us.

Instead of stretching on our offer, we decided to take a different approach. I call it being patiently aggressive.

Patient with the results. Aggressive with the actions.

We started by casting a wider net. This included an approach to expand our markets, see more properties, analyze more deals, and make more offers. We also connected with more investors and potential partners. And while we got aggressive with our daily actions, we didn’t force deals. Instead, we remained patient in the results.

 

Final Thoughts

With the insight from my advisors, a focus on creating (not finding) deals, and our patiently aggressive approach, we came across more opportunities. This ultimately led to the acquisition of our 81-unit and 104-unit properties within 100 days of each other. And this approach could help lead you to your next deal.

If you are looking to spark your apartment investing, review these factors and see where you might have blind spots. Comment below to tell us if this was helpful and share more about what’s holding you back on your investing journey.

 

About the Author:

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

 

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How to Purchase 150 Properties in Just Two Years

How to Purchase 150 Properties in Just Two Years

In many investors’ eyes, being able to purchase and sell 150 properties in the time span of a couple of years would require the expertise of a skilled investor. However, Steven Pesavento has accomplished just that, and he is a self-described beginner in the real estate investing world. Despite the label that he has assigned himself, Steven has a considerable amount of experience under his belt and met with Joe Fairless to share that experience with others.

 

Hiring the Right Team

Steven Pesavento states that he has been able to scale his investment activities as well as his learning curve through the use of a large team. While he resides in Denver, he actively invests in Raleigh and Minneapolis, and he has boots on the ground in both of those locations. Specifically, these are professionals who are actively involved in putting properties under contract. Operations are also scaled on the marketing side through activities like pay-per-click campaigns, direct mail, and direct response marketing.

In addition to scaling his operations, Steven was fortunate enough to learn what he describes as a decade of investment experience in only a few months. He modeled his entire operation after a group of skilled multifamily and commercial investors, including Justin Williams, Mike Simmons, Bill Allen, and Andy McFarland.

This savvy investor has recognized the value of hiring a team of talented individuals. While he has learned a lot from others, he understands that he is not an expert in many areas of the purchase and sales processes. He focuses on sales and building systems, and he hires individuals who are more skilled in project management, marketing, and acquisitions to deal with those aspects of the operation. While many investors are a one-man operation, Pesavento has been able to grow rapidly because of his team-building approach.

Steven recognizes that his approach involves many overhead expenses that are not present with a one-man operation. However, he sees the value in his method. By hiring someone to set appointments for $20 per hour, for example, he has been able to free up his time to spend on his core competencies. He admits he and his partners could have worked hard to do the same work. However, he now enjoys a better quality of life and has a streamlined operation as a result of his approach. Eventually, his operation may be able to mostly run itself, and this can produce residual income for him in the future.

 

Learning through Experience

As Steven has ramped up his business, he has faced numerous challenges. One of the most significant challenges has been the need to learn from mistakes quickly and on the fly. For example, if your CRM goes down while your team is fielding 200 calls per week, you must have a backup plan in place in order for the system to keep moving.

Pesavento’s operation thus far has consisted of approximately 40% flipped properties. He has a 50-50 equity partner in both Raleigh and Minneapolis. The partner in each area is tasked with identifying investment opportunities to purchase, ensuring the profitability of each deal, and being hands-on with the renovations.

Because of the volume that they are operating with, Pesavento and his partners have lost money on a handful of deals. One of those deals was a home in Raleigh that they purchased for $280,000. They anticipated putting in $40,000 in repairs, but the total expenses were double that. In addition, they anticipated counting the square footage of the basement in the value, and that did not pan out. Ultimately, they lost $14,000 on the deal. On the other hand, Pesavento and his partner gained valuable market knowledge and experience through that transaction.

 

Adapting to Regional Differences

Steven works with the same lenders for most of his transactions. Because of this, he views them as a type of partner in the deal. For most scenarios, he has been able to pay the points and interest at the end of the transaction rather than in the middle of the project. The points and interest rate paid vary by location. Commonly, he is paying up to 3% in points and up to 12% in interest on North Carolina transactions, for example.

The cost of financing is only one of several differences between the deals Pesavento works on in Minnesota and North Carolina. For example, underground storage tanks are common in North Carolina. If the tank leaks, it is difficult to get financing. However, it is expensive to remove leaking underground storage tanks. Because of this, savvy real estate buyers in North Carolina must know to inquire about the tanks. This is particularly true when they work with sellers who sell their houses off-market. In some cases, Pesavento’s team has used metal detectors to identify the presence of these tanks. While the effort is exhaustive, it can save a tremendous amount of money. Pesavento states that it costs as much as $20,000 to remove a tank and remediate the soil.

Steven has not run into such extensive challenges in Minnesota. In fact, the most significant challenge he has run into is finding deals that make financial sense. Altogether, he believes that Minnesota is a great market to invest in.

 

Final Thoughts

In hindsight, Pesavento has learned that going after your dream is essential for success. Whether you invest in multifamily opportunities or you purchase other types of real estate, you learn by doing. While you can and should prepare yourself through mastermind opportunities and mentoring, you will learn a tremendous amount by going through the process repeatedly.

 

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3 Proven Ways to Find a Multifamily Deal

3 Proven Ways to Find a Multifamily Deal  

The multifamily market is sizzling right now — you know that, I know that, everyone knows that. Good for owners but challenging for buyers trying to find deals that pencil. As such, I figured it could be helpful for you if I shared three proven ways to find a multifamily deal.

Before we get going, I’m making a couple of assumptions. They are:

  • You are educated on multifamily investing and have the right team in place to execute the business plan.
  • You know your market incredibly well so that when you come across a good multifamily deal you can act quickly.
  • You’ve got a CRM and you’re not afraid to use it. Actually, scratch that, you’ve got a CRM and are using it! 😊

If the above assumptions about you are correct, then let’s proceed. If not, then you’ll want to get the above things addressed first.

Okay, here are three ways to get multifamily deals in any market.

 

1. Create Property Management Partnerships

I asked my Best Ever Facebook community how they found their most recent multifamily deal and sales agent and investor Slocomb Reed said, “I found my deal by networking with property managers to get ahold of opportunities before the owner officially sells. I got my offer accepted a week before it hit the market. It’s a 26-unit building in Cincinnati.”

On my first handful of deals, I partnered up with a property management company. Not only did they help with liquidity, net worth, and experience (things I didn’t have when I started), but they also brought deal flow from their relationships. We closed on multiple deals as a result of that relationship.

 

2. Hire a Qualified Director of Acquisitions

When seeking a director of acquisitions, you want to make sure the person brings pre-existing relationships to the table, and they need to have done what you’re looking to hire them to do. This might seem obvious to some people, but I’ve seen this mistake happen over and over again.

For example, I’ve seen people hire directors of acquisitions who have been on the lending side and know the underwriting through and through, but they can’t bring broker relationships to the table. That’s a big mistake because relationships and track record are what wins deals in a competitive market. Relationships with brokers aren’t built overnight, but you can benefit from strong broker relationships overnight by bringing on someone who already has them.

Bring on a qualified director of acquisitions and give them ownership in the first handful of deals if that’s what it takes — whatever you need to do. But having relationships with sellers, members of sellers’ companies, and brokers is what’s going to set you apart when finding deals right now.

Another tip for finding an all-star acquisitions person is simply to ask the brokers you’re speaking to who they would recommend. When you hire that person, you establish an in with that broker — and probably other brokers.

But what if you’re just starting out and don’t have a salary to pay the acquisitions person?

Well, you can still put a job posting up. List compensation as negotiable, and then bring prospects in as partners, because you never know. Perhaps they have been making a high salary for years and have saved up a good amount, but there’s no opportunity in their current company to get equity ownership in deals. They may have lots of contacts but need someone like you to help them with other pieces of the puzzle. You might be reaching out to them at the perfect time, and suddenly, you’ve got built-in connections through your new partner.

 

3. Commit to Finding Deals

You’ve got to be more than simply interested in finding deals — you need to be committed. If you’re saying to yourself, “There’s just no deals out there at all. I can’t find anything,” that’s because you’re not committed. You’re probably looking for a shortcut instead of executing the right strategy.

There are three categories of people that will help you find deals: owners, brokers, and vendors.

 

Owners

It’s imperative to start attracting owners and building a database. You can send direct mail to owners or find their contact information through skip tracing and text message or call them. But what do you say?

You want to add value to their life. For example, if you have an in-person or virtual meetup, you could reach out with a direct mail piece and say, “Hey owner, do you want to learn how to increase NOI in the XYZ market because others have applied the same strategy? Attend my meetup.” You can start attracting owners this way.

Additionally, if you want to hyper-target a certain owner, you could ask them to speak at your meetup and then build the relationship that way. You’re giving them something of value, which is crucial to do before you ask about buying their property.

 

Brokers

You should implement a multistep follow-up process with brokers. Most investors sporadically follow up with brokers because they don’t have a system in place. Investors looking for deals should use a CRM along with strategic follow-up ideas.

Here are three ways to add value to a follow-up:

  1. You can be a power connector. Judy Robinett wrote a great book called How to Be a Power Connector, which involves introducing brokers to people they want to be introduced to. You just have to know a little about what the broker is looking for. For example, perhaps the broker has a kid who is looking for an internship. You could be resourceful and offer to introduce their kid to some people you know who are looking for interns.
  2. Send them alcohol. One investor I know landed a deal after sending a bottle of wine to a broker.
  3. Pay them as a consultant to give you advice on a certain market. You might mention in conversation that you have money burning a hole in your pocket.

Also, if you don’t get a multifamily deal that the broker was marketing, you could send a gift basket (or note, or whatever they might like based on what you know about them) to the broker to leave off on a positive note — you never know when another opportunity may arise. I got this last idea from J Scott when discussing this topic during this podcast episode.

 

Vendors

Take every opportunity to reach out and network with multifamily vendors. First, make a list of all the multifamily/apartment vendors in your market. Then, reach out to them and build relationships with them. They could be the key to finding your next multifamily deal.

Do you think a commercial restoration company that cleans up flooding at properties could know of some motivated sellers? You bet.

 

Final Thoughts

We live in an instant gratification society. This is helpful for Googling if that funky-looking caterpillar on your porch is venomous, but not so much when trying to build a business the right way. Because a lot of investors want instant results and, when they don’t give them, they give up. That’s not how this (or any) business works.

We must put instant gratification aside in order to find the right strategies, execute them, and continue to optimize. The above 3 strategies work. They are proven, and if you stick with them, you will find some of your best-ever deals.

 

For more on apartment syndication, check out the Best Ever Apartment Syndication Book.

 

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The Decision Tree Problem — Part 2

The Decision Tree Problem — Part 2

This blog post is the second part of a two-part series — see The Decision Tree Problem Investors Face in a Hot Market for part one.

If you cannot identify and close on a 1031 exchange, then you may want to consider a DST. A DST is a Delaware Statutory Trust. These trusts allow passive, fractional ownership in real estate while qualifying as a “Like-Kind” exchange replacement property under Section 1031 of 26 USC.

Some of the benefits of a DST are that it allows you to invest in institutional-grade properties, provides you with diversification, provides passive investment, helps you realize income and appreciation, is tax-advantaged, and is an excellent alternative to the 1031 exchange if you cannot identify and close within the time restrictions.

This investment generally allows a relatively low minimum investment, thereby allowing investors access to institutional-grade properties that they otherwise could not invest in on their own. These asset classes range from multifamily properties to hotels to TNL office space, student housing, and the list goes on. Such investments are not typically open to mom-and-pop investors.

Additionally, the above-listed property types provide a passive investment. No more hands-on management. By lifting this burden off of the investor, those investors are now free to use that time more efficiently in their investment activities with the knowledge that their money and properties are in the hands of professional management. This benefit leads to the next benefit of passive investment.         

With professional management, the investor is now truly a passive investor. What had traditionally been very active and hands-on investment participation has now become the job of a professional management company to handle the day-to-day tasks of property management and care. Professional management also leads to stable operating cash flow that often leads to immediate cash flow for investors.

The tax benefits mirror those of a 1031 exchange, thereby allowing the investor to avoid the capital gains treatment on the profit and depreciation recapture.

Alternatively, there is the option of the real estate investor to take the cash at closing and pivot to other investments. Such investments include short-term rentals, multifamily properties, and syndication deals. All of these options are navigable in their own way. For example, pivoting to short-term rentals will likely yield higher returns but will require more maintenance and realize more wear and tear on your property. This may not matter if the investor leverages up into a higher valued property and utilizes the cost segregation depreciation to offset the capital gains and depreciation recapture. Speak with your CPA about crunching those numbers.

The point of this post is to provide this community with out-of-the-box thinking about taxes, depreciation recapture and to remind you all that at the end of the year, sales do not have to be as stressful as you might think. There are alternatives that will provide you with the benefits of real estate investing that you have enjoyed to date. As always, meet with your lawyer and CPA to discuss your options. There are always options.

Good luck out there!

 

About the Author:

Brian T. Boyd, JD, LLM, www.BoydLegal.co

 

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The Decision Tree Problem Investors Face in a Hot Market

The Decision Tree Problem Investors Face in a Hot Market

Today’s market is red hot for those with inventory, but that creates a double-edged sword for the seller. On the one hand, a hard-earned profit is likely being made. On the other hand, inventory is low out there, and that creates a decision tree problem that many people are facing right now. Let me explain that problem and what that decision tree looks like.

Here is the hypothetical: You have held your property (or properties) for a few years now, and with the current market, you are making a nice profit on your current sale. That’s great — congratulations on jumping in and doing the hard work to manage your investment in real estate.

It’s late October when I write this, so for purposes of this hypothetical, you are closing on Friday, October 22, 2021. The money will hit your account on that day. From this deal, you are going to pocket a cool $250K profit. With most banks, you can leverage this amount to buy up to $1,250,000 of real estate as an investor. This is great!

Now the decision tree.

 

A.) If you are going to do a 1031 exchange, you have 45 days to identify a property and 180 days to close. This saves you capital gains taxes and recaptures of depreciation. A great tool. You can identify something within 45 days — not get under contract, simply identify some properties to buy. You think you can do that, don’t you?!

Here are the problems this current hot market is facing. With COVID-19 still a factor in our economy, investors are pumping funds into rental properties and real estate investments of all kinds, commercial and residential. The net effect of this activity is to provide you amazing gains on your recently sold real estate, but now you are buying the same or similarly situated property at retail prices. Deals are scarce, multiple offer scenarios are common, and cash is king. You have $250K in cash, not $1,250,000. And you have 45 days to identify to conform to the 1031 exchange requirements. Can you do it? What do you do?

 

B.) You have made $250K and have chosen to NOT use a 1031 exchange to find another investment. So, now you have a little over 60 days to find a property and close on that property. However, you must buy a property valued enough to offset the capital gains needed (if you cost segregate your new purchase to wipe out the capital gains) and the depreciation recapture. Your buying power is still that listed above, but you have really only bought yourself until December 31, 2021, to close on the new property. You are in the same seller’s market and are still facing a low inventory market. Can you do it? What do you do?

 

This decision tree is the dilemma faced by investors closing in the third quarter of 2021. In my next article, I will address some answers to this decision tree.

 

About the Author:

Brian T. Boyd, JD, LLM, www.BoydLegal.co

 

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Is the Multifamily Market Softening?

How Software Can Improve Your Real Estate Investing Efficiency

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

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

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

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

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

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

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

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

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

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

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

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

 

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From No Real Estate Knowledge to Over $40 Million AUM

From No Real Estate Knowledge to Over $40 Million AUM

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

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

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

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

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

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

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

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

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

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

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

 

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The Quest for the Holy Grail of Real Estate Investing

The Quest for the Holy Grail of Real Estate Investing

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

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

 

High Rate of Return

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

 

Minimal Effort

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

 

Low Risk

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

 

Defining the Holy Grail

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

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

 

Minimizing the Likelihood of Loss

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

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

 

Collateral

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

 

Management Team

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

 

Cautious Underwriting

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

 

Diversification

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

 

Finding the Holy Grail

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

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

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

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

 

About the Author:

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

 

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Gaining a Leg Up in a Changing and Competitive Marketplace

Gaining a Leg Up in a Changing and Competitive Marketplace

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

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

 

Investing in Relationships

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

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

 

Mastering Time Management

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

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

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

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

 

Achieving Mental Clarity

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

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

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

 

Choosing Your Top Three

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

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

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

 

Final Thoughts

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

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

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

 

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5 Ways to Select Multifamily Properties

5 Ways to Select Multifamily Properties

When you’re learning how to make your money work for you, it’s only natural that you’d consider real estate investing. For beginner investors and new real estate enthusiasts, the multifamily property sector continues to hold great appeal. Smart investors recognize that multifamily real estate investing offers tantalizing yields and beginners view multifamily properties as excellent cash flow opportunities.

Other residential real estate investors view this asset class as the natural progression from a single-family home or rental property. Multifamily investments are a great way to generate passive income, boost tenant cash flow, and bolster your bank accounts. But, of course, this is all dependent upon your ability to find the right multifamily properties for your investment portfolio.

When you’re looking for an investment opportunity — in real estate or another market — you must know how to vet your multifamily prospects. So, whether you decide to work with some real estate pros or you’re interested in a real estate investment trust (REIT) that offers multifamily portfolio options and stock market trading, here are some of the best ways to find top multifamily opportunities.

 

1. Choose your multifamily property type.

To better narrow down your results and get more relevant multifamily listings, it’s effective to narrow down the type of multifamily unit you’re looking for. While multifamily is its own investment type, some subclasses include duplexes, triplexes, apartment complexes, and other housing types. When you’re trying to decide on a real estate opportunity or multifamily property, you should consider your current experience, your general risk tolerance, and how much money you’re able to invest in a rental property.

To determine which multifamily housing options make sense for your investment strategy, you should also refine your commercial real estate or multifamily property real estate goals. For example, depending on your personal finance, your borrower history, and your experience as a property manager, you may want to consider fix-and-flip opportunities (much like you’d do with a single-family property or single-family home), or you could hire a property manager and delegate landlord tasks, tenant communications, rent collection, and maintenance.

If you choose to work with a property manager, it’s helpful to contact a financial advisor to discuss how these expenses, lender fees, mortgage payments, and down payment amounts could impact your financial stability. For individual investors looking to generate rental income, deciding on a property type and reviewing your personal finance goals is the first step towards multifamily property success and can help you find the right opportunities.

 

2. Work with a real estate agent.

For those that don’t want to be as involved in the multifamily housing search, a real estate agent can help you in the long run. Realtors can educate you on each type of investment opportunity, help you learn the amount of money you can afford to put down, connect you to lenders, and help steer you away from higher-risk situations. For instance, if you’re trying to make the jump from homeownership to apartment building management, a realtor can help you understand that the cons might outweigh the potential of a higher return.

Realtors can also facilitate long-term success. Working with an agent is a good way to generate a better return on your investments, mitigate investment risk, and find residential and commercial properties that align with your financial goals. With MLS access and real estate industry knowledge, a simple reason to work with a realtor is that they’re typically incredibly well-informed about market conditions.

Though realtors aren’t always potential investors or silent partners, you can work with an agent to network, connect to property owners, and potentially open up off-market rental real estate that isn’t currently on the local housing market. So, to make money work for you, build wealth, and make sound investment decisions, working with a multifamily realtor is a sensible choice.

 

3. Network to the best of your abilities.

For some homeowners, individual investors, or borrowers, networking can seem like a hassle. After all, working with different sellers, lenders, individual investors, and potential partners can take a long time. However, it’s often an essential next step when trying to find the best multifamily property opportunities, no matter your financial situation. If you already work with renters or you manage a duplex, condo building, or similar multifamily property, you should consider joining a landlord association if you haven’t already. Doing your due diligence can cut down on the amount of time you, your spouse, and your partners have to spend on multifamily networking and connect you to top opportunities in your area.

If you’re lucky, multifamily networking will provide the same steady appreciation as one of your investments. It’s one of the smartest ways to connect to other landlords, property managers, and investors, many of whom will eventually want to sell their multifamily properties as part of a retirement plan, retirement fund, or other financial situation. When you have these established contacts, it’s easier to negotiate the purchase price of any rentals and other upfront costs.

 

4. Drive around your local neighborhoods.

One of the easiest ways to find a multifamily property and start generating additional income is to browse your local markets in person. Instead of relying strictly on real estate websites and multifamily property searches, start making your money work for you by driving around your preferred neighborhoods. In most cases, you’re liable to see “For Sale” or “For Lease” signs throughout many multifamily and commercial spaces. Depending on the property, you may be able to negotiate low interest rates and collect stronger dividends from your investments.

Many listings you’ll see out and about may require some degree of renovation, which is particularly appealing for fix-and-flip projects. Necessary renovations can lower mortgage expenses, down payments, and interest rates, which is always helpful in a seller’s market. Any chance you get to save money (think of it as free money) or keep funds in your savings account or checking account is a win for a prospective investor.

 

5. Search for off-market multifamily real estate listings.

Sometimes, to find the best multifamily property deals, you need to be more proactive. As you’re learning the ins and outs of the multifamily investment space, there will likely be a time when on-market listings aren’t enough for your financial goals. As your credit score grows and your paycheck expands, you’ll probably want to consider building your real estate portfolio. Often, the best way is to find multifamily properties that fit your criteria and look up the owner through public directories. With a little bit of info, you can hopefully find ways to make in-person contact and discuss any investment opportunities. If you’re directed to an LLC or business listing, look up that listing directly.

You can always keep their information and wait if a person isn’t ready to sell. This goes for single-family homes, too. In the real estate industry, circumstances change more frequently than you’d think. Since most real estate investing is a numbers game, it’s about casting a wide net, following up on leads, and closing on valuable investments. While you may only close a few deals out of every 100 contacts, these high-value multifamily property investments can bolster your checking account, help you build wealth, and grow an emergency fund.

Once you’ve found the right multifamily properties, you can lease out spaces, research amenities that millennials and Gen-Z tenants crave, and find ways to fill property vacancies.

 

About the Author:

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

 

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Investing in and Managing More Than $2 Billion in Real Estate with Alexander Radosevic

Investing in and Managing More Than $2 Billion in Real Estate with Alexander Radosevic

Alexander Radosevic currently owns and manages more than $2 billion in commercial real estate, but he was not born into money. In fact, he started working at his family’s retail store when he was eight years old, and he has had his nose to the grindstone since that time. This Beverly Hills-based property investor spoke with Joe Fairless about some of his experiences and his strong desire to give back to others who aspire to rise up as successful investors.

Long before Alexander Radosevic launched his investing business, Canon Business Properties, he worked in commercial finance at Lehman Brothers. Some of the many property types that his business manages and owns today are hotels, retail, industrial, and residential real estate. The company is also active in construction, construction management, and debt financing. One of the reasons he made the transition from a financing executive to an active entrepreneur and investor is because his current side of the business is far more lucrative.

While Alexander was propelled into commercial real estate through market conditions, a passion for earning, and motivation from those who were already active in the industry, he had to find the right property to invest in. He identified 2.5 acres of land in Laughlin, Nevada before the area was the mecca that it is today. Upon selling the property, he turned a profit. That profit was seed money for his future real estate investments.

One of his first major projects was the rehabilitation of an abandoned, fire-damaged bakery in South Central Los Angeles. This 40,000-square-foot commercial building had been damaged in the 1994 riots, so Radosevic saw both risk and reward as he ventured into it. He could only obtain 40% loan-to-value financing, so he had to come up with 60% upfront. He ultimately cleaned up the building, converted it into a nine-unit warehousing and manufacturing property, and turned a great profit.

When Alexander Radosevic reflects on what has helped him grow his business from a fledgling startup to its current level of success, he quickly cites due diligence. Specifically, he focuses his research on his personal investments and for his clients on financing, management, marketplaces, and cash flow. These are researched in relation to what he or his clients want to achieve through the deal. Digging deeper into marketplaces or locations, he focuses on retail properties in Los Angeles and Beverly Hills. For industrial properties, he has a wider scope and looks at properties in major cities close to airports. While Radosevic focuses on a variety of commercial property types, his investing activities in industrial properties have consistently been among his most lucrative over the last 15 years.

As a recent example, Radosevic identified a great opportunity in the construction of small boutique hotels. After an extensive search, their client found the perfect piece of land on the coast of California. It was originally zoned for a different use, and it took them several years to get their rezoning request approved. This process was in combination with challenges related to the Coastal Commissions regulations and interests.

Radosevic states that many people may have thrown in the towel at some point in the lengthy process, but persistence is key in these situations. His client specifically benefited from his team’s experience in hotel development and operation. With this in mind, Radosevic believes that professional expertise in niche areas is sometimes critical for getting deals done.

The project is still in the works as they are trying to get approval for 131 hotel rooms, and they are currently only approved for 101 rooms. He anticipates that the project will take another four years before the details are finalized and construction is complete.

Alexander Radosevic has worked on many projects that have yielded a tremendous profit in far less time. In fact, one of his earlier projects was 32 acres in San Diego. He intended to carve the land into small acreage estates and create a 16-home residential community. When he asked a client to help him develop the land, however, the client advised him to create the parcels, lay utilities, install streets, and sell the individual parcels. Ultimately, he was able to turn a $130,000 profit on each parcel he sold without spending the time and effort to build on them because of the advice he received.

When Radosevic looks at real estate investing on a larger scale, he talks about buying and holding land longer than what other people may hold it for. He says there is often a rush to sell a property and trade up, but there may be a multifold profit if you hang onto that property for a little longer.

When he looks for land investment opportunities, he specifically looks at the top five U.S. markets for living and working. These are areas with true growth and where financing is usually readily available. More than that, the properties are in demand, so they are usually relatively easy to sell when he is ready to do so. However, when he looks at other property types, he has other criteria as well. Industrial properties, for example, are most ideal in areas close to airports and in areas that have tax benefits.

Alexander Radosevic attributes his success to hard work, his focus on due diligence, and plenty of luck. He built his multibillion-dollar business from the ground up, and he has a passion for helping other aspiring investors establish their roots as well. Specifically, he strives to offer one-on-one guidance to those who work for him or to those he comes in contact with in various capacities on details.

Going forward, Radosevic will continue to apply the principles that he has developed to his efforts, such as a focus on due diligence and market research, as he continues growing his commercial real estate business and helping others.

 

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3 Questions to Ask Before Investing

3 Questions to Ask Before Investing 

Is this a good deal?

This is one of the questions every investor is trying to answer when evaluating real estate. There are calculators and rules of thumb to help people answer this question. However, the answer for one investor may be completely different for another. Many investors like to use key metrics like IRR, cash on cash, or equity multiple to determine if a deal is good, but we’ve already talked about why you need to stop using return projections for these decisions.

Let’s illustrate this with a quick example. Say you are evaluating an opportunity to invest in a multifamily property that was built in 2010 in a growing market. It is 94% occupied and has projected returns of 15% IRR, 8% annual cash on cash, and a 1.9 equity multiple.

Is this property a good deal?

Before you answer, understand that the question should be: Is the property a good deal for me?

Just because others think an investment is a good deal doesn’t mean it’s a good deal for you. Whether you make decisions based on a formula or your gut, you need to answer key questions first. Once you answer these, you will be able to decide if a deal is good for you.

 

1. Why am I investing?

Yes, I know you’re investing to make money, but you need to dig deeper if you want to be able to evaluate opportunities. What are you trying to solve? Are you looking to live off of monthly cash flow? Or is your primary goal to build long-term wealth? Maybe you just want extra income to pay for vacations, tuition, and other expenses.

If you want passive income, you may be disappointed with an investment that requires you to be actively involved, no matter what returns you are getting. Too many investors get into real estate for financial freedom and wind up with a second job instead. The clearer you are on the problem you want to solve, the easier it will be to find good deals.

 

2. What’s the business plan?

Once you are clear on your goals, determine the business plan for the properties you want to explore. Are you looking to buy and hold rentals? Are you looking for value-add properties? Or are you looking for a flip or distressed property to rehabilitate?

Each strategy has its pros and cons and should align with your investing goals. The business plan to carry out this strategy is critical to each deal. This is what separates a good deal from a bad deal. Good deals have a clear business plan and proof of concept for execution.

Let’s use our example property here. If the business plan is to perform cosmetic upgrades when residents move out, we can keep occupancy high, while bumping rents on the unit turns. We may be confident because three comp properties have similar finishes and amenities and are achieving the projected rents.

 

3. What could derail the business plan?

The last of these questions requires understanding the risk involved in the business plan. You need to understand what can derail the plan, how these risks can be mitigated, and your comfort level with the risk. If you’re doing a buy-and-hold investment, the biggest risk may be incurring a major repair. The best way to mitigate this is to have proper insurance and cash reserves set aside.

Going back to our example property, what if we’re not able to get the rent increases we hoped for? First, the ability to achieve these rents should have been confirmed in the business plan, but if something was missed or changes, you want to make sure you have a Plan B or other ways to mitigate the risk. You may decide to focus on the most important upgrades and only perform those instead.

Identifying the risk in the business plan allows you to proactively address it, making it easier to sleep at night. There isn’t a metric or formula that can calculate the importance of peace of mind. Maybe we should call it the new IRR for Inner Rest and Relaxation. When deciding if a deal is good for you, this IRR may actually be the most important metric.

 

About the Author:

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

 

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

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

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

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

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

 

Real Estate Cash Flow Strategy Overview

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

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

 

Reasons Investors Opt for Cash Flow

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

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

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

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

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

 

The Downside of a Real Estate Cash Flow Strategy

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

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

 

Real Estate Appreciation Overview

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

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

 

How Much Does Real Estate Appreciate on Average?

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

According to an article on Millionacres:

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

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

 

Reasons Investors Opt for Real Estate Appreciation

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

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

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

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

 

The Downside of Relying on Appreciation

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

 

Depreciation

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

1. Physical depreciation — caused by wear and tear.

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

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

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

 

Cash Flow vs. Appreciation: What Investors Say

Tyler Cauble
President, The Cauble Group

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

 

Riley Adams
CPA, Owner of Young and the Invested

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

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

 

Dustin Olson
Principal Broker & Owner, Venture DO LLC

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

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

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

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

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

 

Parker Webb
Principal, FTW Investments

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

 

Julius Mansa, M.Fin.
Investment Analyst and Lecturer

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

 

Jonathan Barr
Principal, JB2 Investments

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

 

Final Thoughts

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

 

About the Author:

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

 

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Need an Exit Strategy? The Deferred Sales Trust Might Be the Answer

Need an Exit Strategy? The Deferred Sales Trust Might Be the Answer

Can the Deferred Sales Trust work for a primary home sale? The answer is yes. While many individuals utilize Deferred Sales Trusts (DSTs) to defer millions of dollars in capital gains taxes when selling investment real estate, DSTs are also being used to sell businesses and even primary homes. This is particularly popular in California, which is notorious for its high capital gains tax rates and rapid home value appreciation.

The Deferred Sales Trust is based on the U.S. Tax Code (IRC 453) that allows deferment of capital gains on highly appreciated “property” using a traditional “installment sale.” One of the most appealing features of the DST is that it may be used to sell not only real estate, but also other highly appreciated assets like public stocks, private stock, bitcoin, Ethereum, businesses, or a primary house.

 

DST & Selling a Business

The Deferred Sales Trust can help business owners defer capital gains taxes whose businesses are not tied to real estate. The Tax Cuts and Jobs Act of 2017 (TCJA) redefined and limited “like-kind swaps” of real property when using a 1031 exchange, which had a significant impact on 1031 exchanges. Furthermore, the IRS stated, “exchanges of personal or intangible property such as vehicles, artwork, collectibles, patents, and other intellectual property generally do not qualify for nonrecognition of gain as like-kind exchanges.”

When it comes to capital gains tax planning, the narrowing of the definition of what counts as a “like-kind exchange” has left business owners with fewer options. Since the DST is based on U.S. Tax Code 453 rather than 1031, business owners who aren’t tied to real estate (i.e., rental property, hotel, or commercial property) can sell their business and defer 100% of their capital gains taxes and depreciation recapture as long as the mortgage on the sale is not above the adjusted basis.

 

Selling Your Primary Home with the DST

According to recent U.S. Census Bureau data, the current median house price in the United States is $374,900, making the Section 121 exclusion a great alternative for most homeowners wishing to save money on capital gains when selling their primary dwelling. Section 121 currently enables taxpayers to deduct up to $250,000 in gains ($500,000 for married couples filing jointly) if they have resided in the house for two of the previous five years. When comparing the current exclusions to the amount their house has appreciated into the millions, many homeowners who have resided in their homes for more than 20 years feel stuck.

When selling a primary residence, the Deferred Sales Trust has no limits on how much capital gains tax it can defer, assisting homeowners with any gains above the current Section 121 limits. The following are the fundamentals of using a DST to sell a primary residence:

  1. The seller sells their primary residence to a DST (business trust that only does business with you) and in exchange receives an installment note.
  2. The DST (new owner) sells the property to the buyer. The seller is still in a deferral state since no actual or constructive receipt of the sale proceeds has taken place.
  3. Funds are invested and cash flow is paid back to you over time.

 

Two Questions to Determine If the DST Is a Good Fit For You

1) Do you have highly appreciated assets of any kind you would like to sell, delay the tax, diversify the money, and then invest in tax-deferred real estate or securities?

2) What would it mean to you to convert your highly appreciated asset — which may not be producing or providing enough cash — to cash flow from passive or active real estate, or other investments?

 

Happy investing! For more information, check out: Why You Should Consider Using the Deferred Sales Trust (DST) Now More Than Ever

 

About the Author:

Brett Swarts is considered one of the most well-rounded Capital Gains Tax Deferral Experts and informative speakers in the U.S. He is the Founder of Capital Gains Tax Solutions, is an exclusive Deferred Sales Trust Trustee, host of the Capital Gains Tax Solutions podcast, and an eXp Commercial Multifamily Broker in Sacramento, CA.

 

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Has Cash Flow Been Dethroned?

Has Cash Flow Been Dethroned?

Cash flow is king.

Well, it used to be king. Now, it might be a lord or duke, but I’m not sure investors see it as king anymore.

In the stock world, share prices for many firms are no longer based on actual profits; instead, they are based on speculation of the earnings the company could produce. Tesla is a great example of a company that is valued based on its profit potential instead of its actual earnings. As of June 30, Tesla was valued at $668 billion with a net income of $1.14 billion for the quarter. For comparison, General Motors was valued at $88.75 billion with a net income of $2.8 billion for the same timeframe. Yes, despite delivering close to 2.5 times more profit, GM is valued 7.5 times less than Tesla.

In real estate, this speculative investing isn’t as dramatic, but investors are drifting away from fundamentals with their eyes on the future possibilities. Many investors have accepted lower cap rates for the opportunity to buy a property where they can create value and deliver future returns. This means that they are willing to pay a premium and receive a lower return if they feel the upside is strong. This approach has gotten so popular in recent years that some investors are only focused on appreciation and dismiss cash flow altogether.

In their minds, cash flow has been dethroned. Appreciation is the new king.

Appreciation is simply the increase of the value of an asset over time. It can be organic, rise with inflation, or be stimulated by new developments and increased demand. However, instead of waiting for values to increase organically, investors look to force appreciation through strategic improvements and efficient operations. The ability to force appreciation is one of the reasons real estate is so attractive to investors. However, appreciation alone comes with great risks. It does not factor in the fundamentals of the investment in the same way Tesla’s value doesn’t factor in the actual profitability of the company. More importantly, it’s based on future assumptions that can easily change.

Market conditions play a major role in appreciation and anything from new developments, policy changes, renter preferences, and yes, global pandemics can impact the appreciation potential for a property. While we invest with appreciation in mind, these factors make it unreliable to serve as the primary reason to invest. It also leaves investors exposed in case of a down market. I know many coastal investors who are losing money on their properties but assume the values will appreciate over time. This is a dangerous and speculative approach.

Savvy investors know appreciation is a complement to cash flow, not a replacement. Together, you get risk mitigation and upside potential. And while they work well as a team, many investors are still going to prefer one of the components when making decisions. Determining which one you should focus on more is a personal decision. However, the fundamentals of evaluating opportunities and the value that can be created need to revert to the cash flow that can be created.

Markets change, preferences change, but the desire to earn a profit will never change. At some point, Tesla will be treated like every other company, judged on its actual performance, not what it could be someday. Apartment investing and commercial real estate are the same way. When reviewing investments, be sure the cash flow is sufficient for your investing goals, and don’t speculate on the appreciation. It’s important, but cash flow is still king (even if it has to share governing powers).

 

About the Author:

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

 

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How to Find Great Commercial Real Estate Deals Outside of Your Market

How to Find Great Commercial Real Estate Deals Outside of Your Market

Where real estate investments are concerned, many investors regularly discuss the elusive off-market deals. By finding commercial real estate deals outside your market, you’re much more likely to face decreased competition, negotiate more effectively, and secure your desired property. So naturally, this can positively increase cash flow, so off-market real estate is a great way to retool your investment strategy.

However, before you start playing the real estate market or setting aside capital for real estate investing, it’s essential to understand how investment properties work and find deals on the correct property type. Whether it’s a rental property, an office building, or another piece of commercial real estate, here’s how to find the best off-market deals.

 

Turn to a real estate agent.

While it’s easy to think real estate agents focus on their buyers, many realtors also maintain seller lists. That way, if market conditions are favorable, a realtor can prod potential sellers into listing their real estate. In some cases, real estate representatives will provide cold calls to property managers, tenants, and landlords to discuss selling real estate. While it’s not always possible to convert someone into a real estate seller, especially if you’re a new investor looking to acquire your first property, a real estate agent can help facilitate long-term real estate investment strategies. This can help you find the ideal rental property or investment property in the United States.

 

Rely on traditional real estate direct mail.

Many successful real estate investors in the United States depend on direct mailing opportunities to acquire property. Pros enjoy these strategies because they typically don’t require much money and can help you develop long-term real estate property strategies. Especially for a new real estate investor, direct mail can lead to higher returns. Mailers can even be a long-term investment as they’re comparatively easy to update, intuitive for beginners, and don’t require a broker.

If you’re interested in a direct mail campaign, the next step is to determine your audience so you can craft a targeted campaign. Then, once you’ve developed an effective mailing list, you can send out mail to single-family homes and properties that you’d like to acquire. No matter the type of real estate, from residential real estate to commercial properties, direct mail can help connect you to adequate buying opportunities in the long run.

 

Contractors regularly network with real estate professionals.

Contractors can help you find unlisted real estate and different property types. This is a good idea for individual investors, and you can even consider limited partnership opportunities to help you hit your investing goals. The only downside is that this requires you to have existing network connections, especially if you want to make an excellent investment. For example, a contractor may be working with real estate developers to fix up a commercial property to sell. If you’re looking for real estate investment opportunities and you have an established relationship, a contractor may be willing to share this information with you.

Successful investors use all different ways to achieve their financial goals, own property and supplement their regular income. Since contractors can help with many types of real estate investing, working with a pro is a great way to bolster your developing real estate investment strategy. It’s also the first step many beginners make when they’re applying real estate investment tips.

 

Network with fellow investors.

Whether you’re looking to spot a great opportunity for homeownership, or you want to debate market analysis and exit strategies, it’s essential to work with fellow investors and limited liability companies. Whether you’re working with a single investor or a firm, you can gain insight into their strategy, real estate tactics, and willingness to sell. Buying and selling within an investor network is a form of “house hacking” that can pay high dividends.

The best part is that this is an intelligent way to get the most out of your property value. You know that fellow investors and flippers understand the importance of an investment property or renovation opportunity and won’t offer as much hassle as other sellers. You can use this strategy for a long time when you’re trying to connect to property owners, find commercial property to generate passive income, or even list your own home. The next step is to leverage your existing network to find listing opportunities and off-market single-family buildings, condos, or commercial units.

 

Wholesalers can help you find off-market deals.

When you want to grow your taxable income, add to your net worth, or develop rental income, you can turn to wholesalers to find potential off-market opportunities. Many wholesalers are using clever tactics to put income properties under contract across the United States. A wholesaler can find smart deals from malls to rental additions, flip the right to purchase, and turn it over to the buyer for a commission fee. While this is an adequate rental income or commercial property strategy, a few cons range from property depreciation to bottom-line impacts.

Wholesalers also regularly sell products that need additional work. To avoid dipping into your emergency fund, it’s essential to determine how much work a wholesaler off-market listing requires. You can find an appropriate lender and interest rate to cover costs when you know how many repairs and renovations a property needs. You can also determine whether or not a property rehab deal is a right fit for your investment portfolio.

 

Auctions often feature hidden gems.

Auctions are one of the best ways to find off-market properties with lower property taxes. There are probably already regular housing auctions in or near your zip code, which makes it much easier to connect to local commercial real estate deals. Much like if you’re working with a wholesaler, you can expect most auction properties to require a certain amount of rehab. Depending on the auction’s location, you can buy an off-market property by paying back taxes or past-due utilities taxes.

When you know how to find the right off-market deals, it’s that much easier to diversify your real estate portfolio, invest in properties that pay regular dividends, and collect the monthly rent of your commercial properties.

 

About the Author:

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

 

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The New Rules of Real Estate Investing

The New Rules of Real Estate Investing

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

 

Going Door to Door

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

 

Persistence is Everything

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

 

Start a Genuine Dialogue

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

 

Be Relatable

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

 

Maintaining a Positive Attitude

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

 

Don’t Dwell on Negative Circumstances

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

 

Learn to Accept Unavoidable Challenges

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

 

Familiarizing Yourself With Unconventional Methods

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

 

Rent-to-Own Real Estate

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

 

Owner-Financed Deals

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

 

Securing Larger Down Payments

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

 

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Top 7 Lessons Learned from The Book on Negotiating Real Estate

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

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

 

1. Information

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

 

2. Motivation

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

 

3. Terms and Contingencies

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

 

4. Delivering the Offer

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

 

5. Tactics

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

 

6. Concession Strategies

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

 

7. Defense

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

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

 

About the Author:

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

 

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Benefits of Buying the LLC That Owns an Apartment Community

Benefits of Buying the LLC That Owns an Apartment Community

The traditional method for buying an apartment community involves the direct transfer of ownership from the seller to the buyer. In this type of scenario, one or both entities may be an LLC or another entity, and the result is the same. The property will transfer at closing to the buyer listed on the sales contract. At that time, the sales price and the change of ownership are recorded and become a matter of public record. While this is the traditional method of conveying property, it is not the only option. In some cases, it also may not be the best option.

Generally, a tax auditor or assessor will review a property’s taxable value every few years or when a sale is recorded. This means that the property may have been taxed at a lower-than-market value before the sale. After the sale, however, the property’s tax bill may shoot up and be aligned with the sales price.

While the new buyer has likely anticipated this increase when creating projections for future operating expenses, this sharp and immediate increase in tax liability may be avoided through a membership interest transfer. A membership interest transfer essentially is a method where the property’s ownership is transferred from one LLC to another LLC. Because the entire transaction is completed within the confines of the LLC’s structure, the purchase price and the change of ownership are not a matter of public record. Nobody who was not involved in the transaction will know what the sales price was or when the transfer took place.

This type of transfer may be advantageous in a few specific scenarios. One of these is a buy-and-flip situation. After you invest your time, energy, and resources into fixing up a rundown property, you want to sell the property for its current market value. You do not want a buyer to be able to see what you bought the property for, how long you have owned it, and what your profit margin will be. A buyer who is privy to such details may have many questions related to repair costs, the value of the improvements that have been made, and other factors. Through a membership interest transfer, these details are not presented to the buyer. The buyer will then make an offer based on the property’s current condition and relevant comps.

In many areas, commercial real estate values are reassessed every three to four years. The exception is if the property is sold. After a sale, the recorded sales price often becomes the taxed value. This means that the new owner’s tax expense could be significantly higher than the seller’s tax expense. If the new sales price could be kept out of public records, such as by buying the LLC, the new buyer could potentially save money on taxes for the first few years of ownership. Because of how considerable tax liability can be, this could save the buyer a sizable amount of money until the property’s value is reassessed.

Eventually, the property’s value will be reassessed even if the membership interest transfer is used. When a bill of sale is recorded, the sales price usually becomes the new tax value. If no recent sale is recorded when it is time to reassess a property’s value, comps and other supporting data must be researched and analyzed. The burden of defining the new value falls on the tax assessor’s or auditor’s shoulders.

Keep in mind that a membership interest transfer may be legal in all states, but you should consult with an experienced real estate attorney about the process and about structuring it legally. Generally, the buyer will establish a new LLC before closing, and the seller’s established LLC will be listed as the sole member of the new LLC. The deed can be recorded prior to closing to avoid conveyance tax, and this is an additional saving to the buyer.

At closing, the membership interest transfer will be executed. In addition, the bill of sale and other documents related to the transfer of ownership will be executed. Funds related to the sale will transfer at that time as well. Because the property will be owned by the new LLC at closing, the commercial real estate financing process is the same.

Some people are worried that buying the LLC rather than the apartment community would impact their tax basis. However, this concern is unfounded. The seller’s tax basis does not transfer to the new entity. Because of this, buying an LLC would not expose you to additional taxes related to the tax basis.

Investing in commercial real estate can be lucrative, and it may be even more lucrative if you can delay a hike in property taxes for a few years or optimize your return when flipping the property. Whether you intend to use a membership interest transfer as part of a fix-and-flip scenario or to mitigate your property tax liability, you should carefully review your specific scenario with your real estate attorney and with your accountant. Understanding the full implications and benefits of a membership interest transfer when investing in a multifamily community is essential in order to reap the rewards and mitigate risks.

 

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Do Lower-Grade Properties Really Cash Flow Better than Higher-Grade?

Do Lower-Grade Properties Really Cash Flow Better than Higher-Grade?

It is commonly believed that when looking at different investment properties, your Class A properties offer the best appreciation, Class B gives a combination of cash flow and appreciation, and Class C and lower are cash flow plays. But is this perception really true?

First, I want to point out that properties and areas are two different things. A Class A area has lots of in-demand amenities, low crime, and the best schools, but you can have a Class B and C property in that great area. Alternatively, a developer can build a great property with all the amenities tenants want and need, but in a very bad area.

Oftentimes, when I see the underwriting on assets ranging from single-family to large apartment complexes to retail strip centers, I see assumptions that do not seem to take into account the class of property or area. In residential real estate, whether it be a single-family rental or large apartment complex, the numbers projected do not consider real-world risks.

 

CapEx and Age

Let’s start with a single-family rental. I often see properties that were built in the 1960s and ’70s utilizing the same CapEx reserves as a property built in the 2010s. Age is one factor leading to a property’s class. Older properties, even if most items have been upgraded, are far more likely to have real issues that newer houses won’t. There are common items, like the roof, HVAC, and cosmetic upgrades. But less common items are water and sewer supply lines, underground drain lines for downspouts, and retaining walls failing.

I am a huge advocate of building a CapEx budget and reserving on a line-by-line basis for every item in a house: estimated cost divided by remaining useful life. I look at newer houses and older ones with the same process; however, new construction will have a longer useful life, since everything has full life left, which means the monthly reserves will be lower.

As a note, I combine my repairs and maintenance and CapEx budgets together, since the two often constitute very similar items. For tax purposes, repairs and maintenance and CapEx are not the same.

 

Tenant Base

A more market-driven aspect of underwriting that is often overlooked is the tenant base, specifically the length of tenancy and turnover costs. In my experience, the lower the rent in a submarket, the harder the average tenant is on the unit and the more frequently they turn over. This churn comes at a very real cost, as wear and tear repairs come out of the landlord’s pocket. And while larger damages can be withheld from a security deposit, there is a level of damage that often occurs in excess of the deposit but is also not worth the legal expense of pursuing a claim against a tenant that does not have the financial means to pay.

This risk can be mitigated through thorough tenant screening and high standards for applicants, in regard to income, landlord referrals, evictions, and the like. But again, lower-rent areas typically have a higher set of less qualified tenants, potentially meaning more vacancy and screening costs.

 

Considering the Odds

At the end of the day, underwriting is all about playing the odds. The odds of having a tenant damage a property are higher in lower-rent areas vs higher-rent areas. The odds of having a tenant with an eviction are higher in lower-rent areas vs higher-rent areas. This does not guarantee that the landlord in lower-rent areas can’t find great tenants, but the odds are stacked against the lower-income landlord.

When fully assessing items like CapEx, vacancy, and tenant turnover costs, many times these lower-rent areas simply equate to the same cash flow as slightly nicer areas, but with more risk. That risk does create opportunities if all the assessed risks don’t actually come to fruition, but for many that are looking for stable, passive income out of their real estate investments, that stability comes from fully accounting for all risks.

 

About the author:

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

 

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A Team Mentality with Mikhail Avady and Sophia Li

A Team Mentality with Mikhail Avady and Sophia Li

It could have been just another day for Mikhail Avady at the Atlanta Technology Village. As a hub for growing startups, Atlanta Technology Village was a frequent stop for MBA students at Emory University. That day, an entrepreneurship professor asked Mikhail if he would be available to give a tour to a group of incoming students. Little did he know, Sophia Li, his future wife, would be one of his tour guests.

After successfully mastering the educational realm, earning a collective three master’s degrees between them, Sophia and Mikhail each have their own flourishing professional career. Sophia is a senior sales engineer for a technology company, while Mikhail is a senior executive at a thriving tech startup creating a dynamic conversational text marketing platform. However, beyond their professional success, their shared passion and ownership in real estate investments allow them to grow and flourish together.

Sophia was the first to take a step into real estate in 2016 by purchasing a single-family home in the Atlanta area at just 25 years old.

“I bought my first single-family rental home partially because of the influence from my parents because I’m from China; Chinese people love real estate a lot,” Sophia said. “I was renting an apartment at that time because my rental property was in the suburbs.”

Shortly after Mikhail saw Sophia’s investments in real estate, he began to explore investment options, as he was looking for a way to diversify his assets beyond cryptocurrency. He had familiarity and comfort with the cryptocurrency market since he had previously started and run a cryptocurrency mining farm. Therefore, real estate was a logical choice for both Sophia and Mikhail to use as a wealth-building asset.

“We wanted to make a slow but consistent investment into single-family, and we didn’t want to overexpose in some of the other assets, so we were looking for other areas of investment,” Mikhail said.“We have some friends that are builders, and it became apparent that the more doors you have, the more you can scale. But we don’t have the time to do any of that. So we thought, ‘Where else can we put money into real estate?’”

Today, they manage both single-family and multifamily syndications. Operating as a team, they evaluate all current and potential investments while bringing their unique points of view and different risk tolerances to the table.

“We have very different risk tolerances,” Sophia said.

“I do our risky stuff; she does our safe stuff,” Mikhail shared. “She keeps me from making stupid investments, and I think sometimes I try to push her into some.”

Aside from their difference in risk tolerance, Sophia and Mikhail are united in their ability to look at real estate from a long-term perspective. So much so, that when they purchased their current home, they planned from the beginning to move out and turn it into a rental property after two years.

That timeline has since moved up as the couple will be welcoming their newest tenant, their first baby, in October.

“When we bought our house, a townhouse, we were considering it not only a primary home but also as a rental after two years,” Sophia said.“That’s why we’re doing a renovation on one of the rentals I bought. We’re going to renovate and move there because it’s a bigger single-family house, while we’re going to rent our current townhouse out. But it’s good because we prepared for this to be a rental.”

Sophia and Mikhail also are aligned in their strategy to diversify their investment portfolio to include passive investing as a vehicle to help them reach their long-term investment goals.

“We have a certain amount of passive income that we want to reach, and this is one of our strategies towards getting there,” Mikhail said.

“I think our long-term goal is probably to have a good amount of passive income, so we don’t need to worry too much about the future, and to have the freedom of choice,” Sophia said. “I feel like I’m most confident about real estate because it’s stable, long-term, and it generates equity.”

 

About the Author:

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

 

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Diversifying Your Portfolio Across Asset Classes & Markets

Diversifying Your Portfolio Across Asset Classes & Markets

Recently, we had the opportunity to sit down with Matt Shamus, who is an experienced real estate investor and a former tech industry worker. He is also one of the founders of Driven Capital Partners, which is a private equity firm that is headquartered in San Francisco. During the conversation, Shamus discussed how his personal investment experiences have emphasized to him the importance of diversifying your portfolio. Because of those experiences, his “best ever” advice is to diversify your portfolio across markets and asset classes.

 

Getting Started

Shamus started investing in real estate many years ago when he was still working at Facebook in San Francisco. He initially got interested in real estate after he sold his mother’s house and turned a large profit. Shamus saw how lucrative real estate could be, so he was inspired to buy older and rundown homes, fix them up and run them as long-term rental properties. Over time, several other people asked him to invest their money in a similar fashion, and this was how Driven Capital Partners was established.

While some investors focus on fix-and-flip deals, Matt Shamus is a long-term investor. His goal is to build a huge portfolio of solid commercial real estate projects that can take him to and through retirement. Even though he is only 35 years old, he is building a portfolio with retirement in mind.

 

Passion for Deals

Shamus has admitted that he and his partner at Driven Capital Partners initially focus on finding deals that they are excited about and that they will devote their own funds to. When they find a deal that they like, they will then offer it to their clients as a passive investment opportunity. However, he and his partner may be passive investors when they are breaking into a new market that they have no prior experience in.

 

Building Confidence

Matt Shamus does more than advise others to diversify their portfolios. He lives by that advice. Through his private equity firm, he controls approximately 700 multifamily units as well as a mixed-use development project and roughly 105,000 square feet of commercial real estate. Because he has extensive experience with a variety of commercial real estate property types and has the confidence to look at opportunities in other markets, he has been able to convert an office building in downtown Santa Barbara into a multifamily project.

This specific property was originally constructed decades ago as an apartment building, and it was later converted to offices to meet the city’s needs. Now, the city has a strong demand for apartment units again. With this in mind, the framework is in place for an easy conversion, and the zoning was already set up before Shamus offered the deal to the investors at Driven Capital Partners. Specifically, Shamus estimates that approximately 20 to 25 passive investors contributed to the deal. Because Shamus values integrity and knowledge, the investors were aware of the risks as well as the potential return for contributing their funds upfront.

 

Leaving Your Comfort Zone

Shamus’s advice for diversification extends beyond property type. He recommends diversifying into different geographic markets and pooling together different teams strategically. Through diversification, he has access to more lucrative deals and is able to assemble stronger support teams when he ventures outside of his comfort zone. However, this does not mean that Matt Shamus jumps into every deal that is thrown his way. In fact, he states that diversification has enabled him and his partner to be very selective. Because they are investing their own funds into every deal and because they intend to hold properties for years or decades, they make sure that the fundamentals are in place.

 

Asking the Right Questions

While Matt Shamus and his partner actively rely on the support teams that they assemble, they do not rely solely on a single answer to their questions. Whether they are vetting a market, a team, or a specific property, they always do their due diligence. Through their diverse range of experiences, they know which questions to ask. They often ask multiple sources to provide answers so that they can develop a well-rounded concept of where the answer actually sits. Adding onto this point, Shamus emphasizes the fact that he needs to feel confident in his team as well as in his partner. In fact, he believes that having a solid, trustworthy partner is the foundation of his success.

 

Learning from Mistakes

Upon reflecting on past mistakes, Shamus described a nightmarish plumbing issue that he attributed to a lack of due diligence and a lack of understanding. At the time, he said that cast iron pipe was increasingly being used in residential projects. One of his first few residential investments used this type of pipe as well, and Shamus seemingly went along with the flow. He closed on the deal without getting a plumbing inspection. Within a few weeks after closing, however, the tenant contacted him to say that sewage water was backing up into the house. This issue may have been avoided if Shamus had simply spent more time understanding the situation and researching the condition of the property.

 

Looking Ahead

Notably, Matt Shamus is most proud of his current development deal. He had the foresight to identify a solid investing opportunity upfront. Because of his extensive experience with commercial investments, he and his partner have taken time to study and research the best use of the property. They still have not determined what that use will be. However, because the property was undervalued and has extensive potential, Shamus is confident that this will be a lucrative deal.

 

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26 Ways to Start Investing in Real Estate

26 Ways to Start Investing in Real Estate

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

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

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

 

1. Wholesaling

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

 

2. Flipping

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

 

3. Rental

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

 

4. House Hack

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

 

5. Residential Multifamily

Investing in a building with two to four apartment units.

 

6. Commercial Multifamily

Investing in a building with five or more apartment units.

 

7. Short-Term Rental

Renting out a furnished property for less than 30 days.

 

8. Vacation Rentals

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

 

9. Turnkey Rentals

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

 

10. Private Lending

Loaning out funds to private investors for a specified return.

 

11. REITs

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

 

12. Syndications

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

 

13. Lease Options

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

 

14. Fund of Funds

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

 

15. Notes

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

 

16. Tax Lien Investing

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

 

17. Raw Land

Acquiring undeveloped land to hold or sell for future development.

 

18. Mobile Homes

Buying and renting mobile home units.

 

19. Mobile Home Parks

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

 

20. Retail

Owning commercially zoned storefronts used to sell products or services.

 

21. NNN

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

 

22. Industrial

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

 

23. Office

A building where companies meet and conduct business.

 

24. Self-Storage

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

 

25. Hotel Investing

Buying and managing hotels focused on short-term accommodations.

 

26. Resorts

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

 

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

 

 

About the Author:

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

 

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Building in the Big Leagues with Brian Noel

Building in the Big Leagues with Brian Noel

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

About the Author:

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

 

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Tips for Success After a Bad First Deal with Jamie Gruber

Tips for Success After a Bad First Deal with Jamie Gruber

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

 

Jumping In at the Wrong Time

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

 

Developing a Larger Perspective

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

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

 

Finding the Right Deal

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

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

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

 

Creating His Own Opportunities

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

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

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

 

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