Real Estate Investing Blog and Resources

Investing in real estate can be intimidating when just starting out or trying to better understand general industry terms, particularly when it comes to the topic of real estate investing, which covers a wide variety of areas including: property management, banking, land, financing options, budgeting, rental agreements, selling, buying, and so much more. Following a real estate investing blog like this one and reading as many investment advice books as you can will be invaluable in helping you keep up with what’s going on in the market and the latest industry perspectives.

The More You Know

The more information that you have when it comes to a potential real estate investment option, the better. Having more data on the subject will allow you to make smarter, and more informed, decisions. Depending on your short term and long term investment goals, there are a variety of real estate options available today to help meet your needs.

Real Estate Investment Advice

No matter where you are in your investment journey, it is always helpful to get advice and tips from experienced real estate professionals and investors. Whatever your question or area of concern, know that there are resources available to help you augment and enhance your real estate knowledge.

Real estate can be a powerful tool used by passive investors to build massive wealth. Learn more about general real estate investing and explore helpful resources.

Investing in Apartments Has Been Life-Changing

Investing in Apartments Has Been Life-Changing

In my opinion, multifamily real estate (apartment investing) can be one of the best ways to grow your wealth. So much so, that my wife and I decided to sell our primary residence years ago and put 100% of our equity into apartments, along with the majority of our investment portfolio.

For those of you who follow Robert Kiyosaki and the Rich Dad Poor Dad philosophy, you know that Kiyosaki is famously quoted for saying “your house is not an asset” meaning your primary residence is not an investment, because it doesn’t produce cash flow each month — quite the opposite in fact as you pay for expenses, taxes and upkeep. That is, unless you house hack, which is topic for another day.

Not only does an owner-occupied home leave you less mobile, it also ties up your money so you can’t use it for investments. In other words, the more you pay down your mortgage, the more you trap your investable cash.

 

A few thoughts on multifamily real estate in 2021: 

  • 75 million+ Baby Boomers are retiring
  • Many of today’s apartment complexes can be converted to retirement communities
  • A large number of millennials aren’t buying homes
  • Institutional and main street investors are searching for yield in today’s low interest rate environment

Multifamily investing can be a great way to build wealth, while helping fill the need for affordable housing, senior living and millennials choosing to rent by lifestyle choice.

 

 

HOW WE INVEST

My wife and I partner with experienced multifamily firms and invest in what’s called a real estate “syndication” or a real estate private placement. This means we, along with other investors, “pool” our money together to purchase large assets that we otherwise would not be able to afford on our own; a 300-unit apartment complex for example. The general partner (or multifamily firm) and their teams will manage the property and renovate the building by adding modern updates and improved amenities such as, in-wall USB ports, smart thermostats, storage lockers, improved landscaping, updating the clubhouse, gym, pool, or covered parking spots; depending on what the property is needing. The goal is to modernize the apartment building to today’s standards and increase the rents to the market level throughout the process.

The value or price of an apartment building is primarily derived from the NOI (net operating income), which is the total collected rents and income minus expenses to operate the property. When the net operating income increases, the value of the complex increases at a multiplier of this number. For example, let’s say you increase the annual net operating income on a property by $100,000 a year and a property in that market sells around a 10x multiple of the NOI. A $100,000 rent increase can bump the purchase price up by approximately one million dollars. This could be higher or lower depending on the market.

 

EXAMPLE

Let’s take a 300-unit apartment building as an example. Rents increase by $28 a month, per unit x 300 units ($28 x 300 = $8,400 monthly x 12 months = $100,800). For resale purposes, these $28 rent increases implemented across all units, could result in the property value increasing by nearly one million dollars. This type of value-add is much more scalable compared to a single-family home renovation.

Whether you invest individually in multi-family or with reputable firms, it can be a great way to generate cash flow, while helping improve communities along the way. My wife and I have dedicated the past 6 years to investing primarily in this asset class for these reasons. Cash flow investing can provide the ability to focus more on what you love and the freedom to focus less on what you don’t enjoy. At the end of the day, we all deserve to focus our time and energy on what makes us happiest.

 

To Your Success,

Travis Watts

 

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Top 10 Markets to Buy Multifamily in 2021

Each year, PwC and the Urban Land Institute releases their annual Emerging Trends in Real Estate report. The report “provides an outlook on real estate investment and development trends, real estate finance and capital markets, property sectors, metropolitan areas, and other real estate issues through the United States and Canada.”

To create the forecast report, PwC interviews and surveys thousands of active real estate professionals.

One of the multifamily-related highlights of the report is a list of “buy/hold/sell” recommendations. For each US real estate market, real estate professionals are asked to provide their recommendation to multifamily investors.

Should you buy multifamily in the market? Should you hold current multifamily investments in the market? Or should you sell your current investments in the market?

Here is a breakdown of the 10 cities with the most “buy” recommendations for 2021.

1. Raleigh/Durham, NC

  • Buy: 72%
  • Hold: 20%
  • Sell: 8%

2. Tampa/St. Petersburg, FL

  • Buy: 68%
  • Hold: 30%
  • Sell: 2%

3. Salt Lake City, UT

  • Buy: 67%
  • Hold: 27%
  • Sell: 6%

4. Austin, TX

  • Buy: 62%
  • Hold: 26%
  • Sell: 12%

5. Boston, MA

  • Buy: 60%
  • Hold: 32%
  • Sell: 8%

6. Boise, ID

  • Buy: 60%
  • Hold: 34%
  • Sell: 6%

7. Nashville, TN

  • Buy: 59%
  • Hold: 37%
  • Sell: 4%

8. Charlotte, NC

  • Buy: 56%
  • Hold: 36%
  • Sell: 8%

9. San Antonio, TX

  • Buy: 55%
  • Hold: 35%
  • Sell: 10%

10. Columbus, OH

  • Buy: 55%
  • Hold: 45%
  • Sell: 0%

 

In addition to the 10 markets above, at least 50% of survey respondents provided a “buy” recommendation for five additional cities – Washington, DC (54%), Fort Lauderdale, FL (53%), Atlanta, GA (53%), Phoenix, AZ (52%), and Inland Empire, CA (51%). A minority of survey respondents provided a “buy” recommendation on all other markets in the US.

Final thoughts: “What should I do if my market isn’t on this list? Should I sell? Should I invest somewhere else?

I think that it depends. Just because a market isn’t on this list doesn’t mean it is a bad market. But it might be!

Also, just because your market is on this list doesn’t mean EVERY deal in that market is a good deal.

Overall, the target investment more is important but it is not the end-all be-all. What is more important is how you buy. To learn more on how to buy right, click here to learn about my three immutable laws of real estate investing.

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12 Most Downloaded Best Ever Podcast Episodes of 2020

2020 was an unusual year for real estate investors with the onset and continued presence of the coronavirus pandemic.

Going into 2021, there is still a lot of uncertainty around the real estate market. What will be the impact of the new stimulus package – was it enough? How long will the eviction and foreclosure moratoriums last? How will the new presidential administration affect the real estate industry?

We want to ring in the new year by providing you with the Best Ever advice that will help you thrive in 2021, regardless of the answer to the aforementioned questions. That is, the most popular episodes on the Best Real Estate Investing Advice Ever Show.

Here are the most downloaded episodes of each month for 2020.

January – JF1960: Starting A Real Estate Investing Business & Growing to 245 Units

  • Guest: Colin Schwartz, Founder of Brick Town Management
  • Guest Bio: Colin Schwartz has been a real estate investor since 2017. At the time of the interview, he owned 245 rental units with another 70 units under contract.
  • Top quote: “If you’re not constantly learning, you’ll soften a little bit.”
  • What you will learn: how to scale a real estate company with your own money and through partnerships.

Click here to listen to the full episode (or read the transcript)

February – JF1989: Learn The Difference Between Preferred & Cash-On-Cash Return

  • Guest: Theo Hicks, Host of Syndication School
  • What you will learn: detailed explanation of the differences between the preferred return and the cash-on-cash return figures presented to passive apartment syndication investors.

Click here to listen to the full episode (or read the transcript)

March – JF2016: Sacrificing Short-Term Satisfaction For Long-Term Happiness

  • Guest: Mark Owens, MarkOwens.com
  • Guest Bio: Mark has been an active, full-time real estate investor for 17 years. At the time of the interview, he owned and self-managed over 100 units and completed approximately 200 wholesales. His 100-unit portfolio consists of single families and 7 to 18 unit multifamily properties.
  • Top quote: “Manage your properties like a business, not a hobby.”
  • What you will learn: how to overcome the biggest enemy stopping you from being happy and successful – the desire for immediate gratification.

Click here to listen to the full episode (or read the transcript)

April – JF2047: 2008 vs. Coronavirus

  • Guest: Chris Clothier, partner at REI Nation
  • Guest Bio: Chris has been a real estate investor for 18 years. At the time of the interview, his company REI Nation managed an $800M portfolio consisting of single-family properties. He also personally owns $12M to $15M in residential and commercial real estate.
  • Top quote: “You need to be in planning mode. You have to plan for the 10 things that could happen.”
  • What you will learn: the biggest differences between the impacts of the 2008 economic recession and the coronavirus pandemic on the real estate market.

Click here to listen to the full episode (or read the transcript)

May – JF2075: Part-Time Real Estate Investor Benefits

  • Guest: Erik Schaumann, ETS Enterprises LLC
  • Guest Bio: Erik has been a part-time real estate investor since 2012. He started investing while working for the Shell Oil Company full time. At the time of the recording, he had over $1.7M asset under management, which included 9 single family properties and multiple syndication investments. Because of his passive cash flow, he was able to retire from his W2 job after 20 years to travel the world with his wife and 6 children.
  • Top quote: “Be realistic in what you are going to need. What is that final number? Be real, don’t overshot it because if you leave your job there are always ways to make money.”
  • What you will learn: how to quit your full-time W2 job through real estate investing.

Click here to listen to the full episode (or read the transcript)

June – JF2111: Going From a Duplex to 89-Units

  • Guest: Brock Mogensen, principal at Smart Asset Capital
  • Guest Bio: Brock has been a real estate investor for two years. During that time, he purchased a duplex, 89-unit apartment, 20,000 sqft of retail space, and 18,000 sqft of office space.
  • Top quote: “Partner with people that lack your strong suit and vice versa because I think those are the best partnership – where each can complement each other.”
  • What you will learn: how to get started in commercial real estate syndications with little experience and while still working a full-time W2 job.

Click here to listen to the full episode (or read the transcript)

July – JF2158: When Is The Best Time To Get Into Multifamily

  • Guest: Travis Watts and Theo Hicks, hosts of Actively Passive Investing Show
  • Top quote: “Everybody has an opinion, but the only opinion that matters is yours when it comes to choosing your future, where you want to go, what you want to. So try blocking out the noise, go inside, and decide what’s right for you”
  • What you will learn: how to know when it is the right time for you to start investing in real estate.

Click here to listen to the full episode (or read the transcript)

August – JF2168: Infinite Wealth Creation

  • Guest: Jim Oliver, founder of CreateTailwind
  • Guest Bio: Jim is the founder of Create Tailwind, a wealth coaching company that has helped thousands of individuals and business around the US create their own wealth and be their own bank.
  • Top quote: “Infinite banking is about the process of acting like your own bank, not the product.”
  • What you will learn: how to become your own bank and buy real estate with whole life insurance.

Click here to listen to the full episode (or read the transcript)

September – JF2201: The Hands-Off Investor

  • Guest: Brian Burke, president and CEO of Praxis Capital and author of The Hands-Off Investor
  • Guest Bio: Brian is the president and CEO of Praxis Capital, a vertically integrated real estate private equity firm. In the past 30 years, he has acquired over half a billion dollars in real estate, including 3,000 multifamily units and 700 single family properties. He is also the author of “Hands-Off Investor,” which is catered to the passive investor to teach them the ins and outs of investing.
  • Top quote: “Don’t take on too much debt.”
  • What you will learn: how to choose the right sponsor with which to passively invest, and the top tactics for asset management.

Click here to listen to the full episode (or read the transcript)

October – JF2232: Self-Made Millionaire

  • Guest: Willie Mandrell, WillieMandrell.com
  • Guest Bio: Willie is a self-made multimillionaire real estate investor, broker, coach, lecturer, and author. He has been investing in buy & hold rentals for 13 years. At the time of the interview, his portfolio consisted of over 40 units worth $10 million.
  • Top quote: “What helps me is I wake up every morning with the same focus.”
  • What you will learn: how to raise money for real estate and whether to raise money as equity or as debt.

Click here to listen to the full episode (or read the transcript)

November – JF2266: Hidden Investing Secrets

  • Guest: Holly Williams, The Hidden Investing Expert
  • Guest Bio: Holly spent 25 years in the advertising industry as an executive while slowly dabbling in real estate. She has two decades of real estate investing experience and owns properties in New York, Texas, Mississippi, and the Carolinas.
  • Top quote: “Through multifamily syndication, I’ve grown beyond my wildest dreams and it’s changed my life.”
  • What you will learn: the financial and investing secrets of the top 1%.

Click here to listen to the full episode (or read the transcript)

December – JF2287: Raising Capital Using Crowdfunding Platforms

  • Guest: Chris Rawley, CEO of Harvest Returns
  • Guest Bio: Chris has been an investor for over 20 years. He is a full-time real estate investor and CEO of Harvest Returns, a platform for passive investment in agriculture. He also owns single family, multifamily, and commercial properties and income producing agriculture.
  • Top quote: “If you’re putting together a syndication, before you go and pay an attorney a lot of money, just look into crowdfunding platforms.”
  • What you will learn: how to use a crowdfunding platform to raise money for syndication deals.

Click here to listen to the full episode (or read the transcript)

What was your favorite Best Ever podcast episode in 2020?

Let us know in the comments below.

And here’s to continued success and growth in 2021.

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Real Estate in the Post-COVID Era

Tired of COVID? Wondering what will happen in real estate Post-COVID?

COVID, COVID, COVID. It seems like that is all we hear about. Well, that and the craziness of the election.  When COVID-19 hit the previously optimistic real estate industry, it hit hard and the industry went pessimistic in a matter of days. There is a disconnect on pricing between sellers and buyers. Lending activity is still slow to recover because of the uncertainty of the economy. It does sound a little dire, I know. But not all real estate is considered equal. Commercial real estate, particularly multifamily in the larger cities, have been more resilient.

As the economy recovers, the federal government still plans to keep interest rates near zero until 2023 in an effort to stimulate growth and there continues to be an  interest in investing in commercial real estate because of its diversification benefits. That being said, there is still a rocky road ahead. What is the outlook for the real estate market? There are alot of predictions floating around so we decided to get to the heart of the matter. 

On December 16th at 1 p.m. ET, we are hosting a live debate on who the winners will be in 2021. Net Sellers or Net Buyers? 

We have invited Brandon Kramer, Senior Associate and Associate Director of Marcus & Millichap, Anna Dwyer, Senior Acquisitions Associate for City Line Capital, Josh Satin, Vice President of Acquisitions for Gelt Inc., and Scott Lebenhart, Director of Acquisitions with Ashcroft Capital to debate what real estate investors should expect through the end of 2020 and into 2021.

It has been proclaimed for years that it is a buyers market. But the dynamics have shifted with the pandemic and it is affecting both sellers and buyers. Who will be the ultimate winner? 

Register HERE to attend the virtual debate and get insight on what to expect.

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10 Ways to Promote and Market Your New Book

Whether you are a multifamily investor, fix-and-flipper, real estate agent, or any type of real estate professional, publishing an ebook or hard copy book is a powerful way to grow your business.

The main reason why is because whenever you publish a book, you instantly increase your credibility and reputation in the eyes of customers (buyers, sellers, investors, etc.).

“Wow, they’ve written a 450-page book on how to complete an apartment syndication. They must be experts.”

By positioning yourself as an expert with your book, you build trust with your customer at an accelerated pace. And as Bob Burg says in The Go-Giver, “All things being equal people will do business with, and refer business to those people they know, like and trust.”

He is a real-world example of the power of writing a book: I recently interviewed Max Keller of “Deals Chasing You.” On the podcast. He wrote the book on senior housing. When he sends direct mailers to generate senior housing leads, he includes a note that if they call, he will send them a free copy of his book. As a result of this simply tweak to his marketing, he quadrupled his response rate.

Writing a book = increased credibility = increase trust = more business.

We have previously written about the logistics on writing a book, which you can read here.

The purpose of this blog is to outline the best ways to promote your new book before and after it is published to ensure a successful launch, getting the book in front of as many of the right people as possible in order to maximize its impact on your business.

When creating a marketing strategy for a new book, it is important to keep top of mind that there are three parties involved in the publication of a new book:

  • The authors: you and any co-authors or ghost-writers
  • The end customer: the people who will purchase and benefit from your book
  • The contributors: anyone who contributed to the information in the book, including editors, formatters, the person who wrote the foreword, people who give testimonials, people who are features in the book, people who provided advice that was included in the book, etc.

Therefore, when you are thinking about strategies for promoting your book, how to tap into the self-interest of each party must be top of mind.

Each of the following strategies benefits either the end customer, the contributors or both. Obviously, the authors benefit regardless from the book sales.

We marketed our most recent publication, Best Ever Apartment Syndication Book, in 10 ways, which I will outline below. However, one strategy that we didn’t utilize for our syndication book but do plan on utilizing for the book we are currently working on (the working title is Best Ever Passive Investor Handbook) is giving the book away for free.

This is the strategy Max Keller implemented (discussed above). Giving a book away for free adheres to something we consistently talk about here – adding value for free.

When Max Keller receives inbound calls from prospective senior housing leads, he not only sends them his book for free but also directs them to the chapter or chapters that will address a specific problem or challenge they are facing. By going above and beyond for these callers before they’ve even expressed interest in selling allows him to receive exclusive deals with no other active buyers or competitors.

Max says his goal is to give away 1 million books!

This is even something that can help you generate book topics. Do you receive the same questions repeatedly from customers? Right a book on the subject. Whenever you receive an inquiry, rather than answering the question (or in addition to answering the question), offer to send them the book for free.

As I mentioned above, we plan on utilizing this strategy for the passive investing book we are working on. Passive investors ask similar questions when presented with opportunities or when initial inquiring. Therefore, we are writing the go-to book on passive investing and will send a copy to investors.

In addition to sending the book for free, here are 10 other ways to promote a new book:

1. Social Media

One of the first ways to start promoting a new book is on social media. In fact, you can start marketing your book on social media before you’ve written a single word.

Here are some examples of social media posts ideas pre-launch:

  • Announce the topic of the new book you are writing
  • Ask for feedback throughout the process, like titles, questions to address, cover designs, etc.
  • Provide frequent updates on your progress (i.e., outline is done, first chapter is done, 50% done, etc.)
  • Provide advice on writing a book that you have learned along the way.

As an example of this last point, we created a post where I posted a few lessons he learned on how to effectively overcome writer’s block.

The purpose of pre-launch promotion activities is to engage your audience and would-be purchasers in the process of writing the book. That way, they feel as if they have a stake in the book since they were involved in its creation process. Plus, they are aware of the book and what will be included far in advance, which increases the chances of them buying (and maybe even promoting the book themselves).

Once the book is published, you can create a post on social, announcing that the book is now available for purchase. On Facebook, you can create a paid advertisement for the book. A 30 to 60 second spoken video explaining what people will learn from the book is the most effective type of Facebook advertisement.

You can also use social media to share some of the other promotion strategies I will outline below.

2. Pre-Order Page

Another effective pre-launch promotion strategy is to allow buyers to pre-order your book.

How to tactically setup pre-orders will depend on how you publish your book. If you are working with a publisher, they will likely need to be the ones who setup the preorder process. If you are self-publishing on Amazon, click here for the process we used to set up preorders.

Once the preorder page is live on Amazon (or somewhere else, again, depending on the publisher), you promote the page on social media.

3. Book Page

Creating a book page on your website is another way to promote your book. The timing of the book page can coincide with the preorder page going live.

Here are examples of the book pages we created for our three books:

Your book page needs to answer the question, “why should I buy this book?” Therefore, it should give would-be buyers an exclusive look, a sneak peek into the valuable information they obtain.

4. Free Giveaways

One of the benefits offered to those who pre-order the book, and something that should be presented front and center on your book page, is a free giveaway.

The free giveaway should be one or more resources above and beyond, yet related to, the book.

For example, for those who pre-ordered our Best Ever Apartment Syndication Book, they received eight free documents. We asked people to email us their receipt of purchase and in return we emailed them the documents.

I think this is the best strategy for promoting a new book. People are more incentivized to pre-order the book because of the fear of missing out (FOMO). Therefore, while writing your book, constantly think about excel calculators, PDF guides, eBooks, etc. you can create and give away.

So that people continue to purchase the book after it is published, you can still giveaway completely different documents or a portion of the ones given away to those who preordered.

Another twist on the free giveaways is to create a contest where people can win a free signed copy of your book. For example, when Theo and I used to do weekly Follow-Along Friday podcast, we did a Best Ever Trivia Question of the Week. The first people to email us (or comment on the YouTube video) the correct answer received a free, signed copy of our first book.

5. Reviews

For the people who organically find your book (i.e., people who are not already in your audience) will make their purchase decision on the reviews – both the quality and quantity. Therefore, you want to obtain many quality reviews as fast as possible after launch. The most effective way to accomplish this is to get reviews before the book is published.

You don’t want fake or generic reviews. These turn off would-be buyers. Instead, to ensure that the reviews are genuine, send a PDF of the book to people before it is published and ask them. Tell them when the book will be published and ask them to leave a genuine review within a few days of launch. Then, once the book is launched, follow-up with that person to make sure they left the review.

They benefit because they get access to your book before it is public for free.

For the Best Ever Apartment Syndication Book, each person on our team was responsible for getting at least five reviews and then following up to make sure those reviews were posted.

Once the book is published, you can generate even more reviewed by leveraging another free giveaway. For the Best Ever Apartment Syndication Book, those who left a review and emailed us a screenshot received a free document.

We were able to generate over 300 reviews for the Best Ever Apartment Syndication Book using this strategy.

6. Testimonials

Obtaining and putting testimonials in your book and/or on your book page is a great way to get other people to promote your book. Therefore, for whatever you are writing about, get at least five people who have already benefited from the advice in the book to write a testimonial. Or, even better, get one person who is well known. For example, I was able to get a testimonial from Barbara Corcoran of Shark Tank on my first book and Brandon Turner on my second book, which were featured on the front cover of the book.

They benefit by having their name and business included in a best-selling book. You benefit because you can use the testimonials to promote the book.

You can include the testimonials on your book page too. Then, people who view the page will not only learn what they will learn by reading the book, but also how the advice has already helped someone else achieve success.

Additionally, the people who wrote the testimonials are more likely to share the book on their social media and other platforms, allowing you to tap into their audience.

7. Foreword

You can use the foreword to promote your book in the same way as the testimonials. Except the person who wrote the foreword is even more likely to share the book with their audience. The foreword is usually multiple pages long compared to a one or two sentence testimonial, and their name is oftentimes included on the cover.

For example, Master Platinum Coach and former Tony Robbins’ Master Coach Trevor McGregor wrote the foreword to the Best Ever Apartment Syndication Book. As a result, we were able to get our book and name out in front of his high performing, large audience.

8. Other Contributors

In addition to the people who wrote the testimonials and foreword, anyone else who contributed to the book can be a promotion source.

This was how we were able to get exposure for our first two book – Best Real Estate Investing Advice Ever Volume I and II. For both books, each chapter was dedicated to a real estate professional I interviewed on my podcast. Once the book was published, nearly all of them shared it with their audience. And why wouldn’t they? The book was basically a biography of their investing careers and their Best Ever advice.

Other contributors that can promote your book, as I mentioned in the introduction, are:

  • Editors: the proofreader and/or copy editor may share the book with their audience to promote their own editing services
  • Designers: the people who designed the cover and/or any interior designs may also share your book to promote their own design services
  • Acknowledgements: anyone who helped in any other way with the book are usually included in the acknowledgments section. Since their name is included in the book and they benefited the creation of the book, they may share it with their audience

Overall, the more you can include other people in the book, the more potential promoters you have once the book has been launched.

9. Your Thought Leadership Platforms

Using a similar approach to promoting your book on social media, you can promote your book on all your thought leadership platforms, like your newsletter, podcast, blog, or YouTube channel.

Once the book is published, you can do a mini-series about the book. For example, Theo and I did a 10-part podcast series summarizing the Best Ever Apartment Syndication Book.

10. Other People’s Thought Leadership Platforms

Another way to tap into other people’s audiences is to promote your book on their platforms. The simplest approach is to be interviewed on someone else’s podcast. You would want to make sure you request that the episode air the week of the book launch.

In addition to providing a sneak peek into the content of the book, offer to giveaway a free document to anyone who buys the book or provide an exclusive discount code.

Once the interviews are live, share them on your social medial and other thought leadership platforms.

In Conclusion – Be Creative

My last piece of advice for promoting your book is to be creative.

The examples above are the things we did to market our three books. But there are countless more ways to increase the exposure of your book. So, for each of the 10 categories, brainstorm other ways you can leverage them to promote your book.

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How to Create a Compelling Property Management Incentive Program

As an apartment syndicator, your most important team member is their property management company. The property management companies main responsibilities are to manage the day-to-day operations and implement your business plan.

However, what if – due to market conditions or lack of skill on the part of the property management company – the your net operating income projections aren’t being met? Occupancy is low. Collections are struggling. Rental premiums aren’t being met.

One strategy to turn operations around, or to avoid operational challenges all together, is to create a property management incentives program.

Why Create an Incentive Program?

An incentive program creates an alignment of interest between you and the property management company. The better they perform, the more money you, and your investors, and they make.

What is an Incentive Program?

An incentive program is an agreement between you and the property management company in which the property management company is given an objective, and if they complete the objective, they are rewarded.

Two Types of Incentive Programs

Incentive programs fall into one of two categories. 

  • Type 1: Incentive programs that begin at acquisition and end at sale. 
  • Type 2: One-off incentive programs that end after a fixed amount of time.

Examples of Type 1 Incentive Programs

The most obvious and common is a program in which the objective is to effectively manage the property and the reward is a property management fee equal to a percentage of the collected income. Plus, they aren’t fired.

Other objectives are investing their own money in the deal, acting as a loan guarantor, or bringing on their own investors. The reward for all three is more equity or cash flow.

You can also create type 1 incentive programs for key performance indicators, or KPIs. For example, the objective is to grow total revenue by a certain % each year. Or maintaining or exceeding a specified occupancy rate. 

Just make sure the objective results in alignment of interest. For example, a bad objective is to grow the occupancy by a certain percentage each year, because there is a maximum occupancy rate. Once they achieve high-90’s, it will become impossible for them to achieve their objective without first sabotaging occupancy so that they can then increase occupancy again to receive a reward.

Examples of Type 2 Incentive Programs

Type 2 incentive programs are used when you want to target a specific KPI that is underperforming. For example, if occupancy drops below 90%, you can create an incentive program. The objective is to achieve a specified occupancy rate within a specific time frame (i.e., achieve 95% occupancy within two months). 

Once the desired objective is achieved, they receive a reward and the incentive program expires.

Type 1 vs. Type 2 Incentive Programs

Both incentive programs can be beneficial.

The type 1 incentive programs create alignment of interest from the start. Whereas the type 2 incentive programs can be used during the business plan to improve a specific lagging KPI. 

However, you need to be careful and mindful when creating incentive programs. For example, if you set an occupancy-based type 1 incentive program (i.e., maintain 95% occupancy), the management company can accomplish this goal by offering unnecessary concessions to increase occupancy. Or for a “number of new leases”-based incentive program, the management company can let in unqualified renters to inflate the number of new leases.

Therefore, type 2 incentive programs are the ideal option for KPI-based objectives. If a KPI is lagging, target it with an incentive program. Whereas the type 1 incentive programs are ideal for non-KPI-based objectives, like effectively managing the property, investing in the deal, etc.

Other Best Practices

The objective of the incentive program needs to be realistic and attainable. For example, an objective to raise occupancy from 85% to 100% in two weeks is too unrealistic. A good strategy to ensure that the incentive program is practical is to plan a brainstorming session with key members of the property management team and discuss objectives and rewards.

Also, be creative with the rewards. They can be financial based, like a gift card or bonus. However, other reward ideas are dinners with you or someone in your company, an extra paid vacation day, a free education or training course, a special trophy or plaque, etc. 

Lastly, the best incentive programs do not punish property management companies for failing to achieve the objective. If they miss the mark on an incentive program, don’t reduce their management fee. However, this doesn’t mean that you NEVER punish (i.e., fire) a property management company

Overall, incentive programs are a great way to create extra alignment of interests with your property management team and can help you target specific KPIs that are lagging behind.

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The Best Time to Get into Multifamily – How To Decide

A large part of how I give back is by giving my time to others. I spend each week speaking with investors across the nation on 15-minute phone calls. Needless to say, this has been a transformational way to gain education and perspective from thousands of highly educated people. In exchange, my goal is always to add value to others by sharing free resources and lessons that I have learned along the way.

A Common Question I Get From Prospective Investors:
“Is this the right time to invest in multifamily apartments?”
My Answer:
“Is it the right time for you?”

I remember in 2009 when I bought my first piece of real estate, I was ready! The media and news were promoting a broken economy, massive job losses, and a collapsed stock market, but I knew that I was ready to start a pursuit in real estate. Had I asked 100 other people what they thought, I would have likely received mixed responses. Most people at that time would have likely said something to the tune of “I would wait and see what happens…” In other words, they were not ready.

I remember when I made the leap from single-family investing to multifamily investing in 2015. Once again…I knew I was ready to get started. But was it the right time? Cap rates were slightly higher and cash on cash was slightly higher as well. Does that mean that today it’s too late? In 2015, the media and news were reporting on North Korea issuing a nuclear warning to the US and it was about to be an election year in 2016 with a lot of uncertainty in the market. Gurus like Robert Kiyosaki and Peter Schiff were calling for a MASSIVE meltdown in the economy and stock market. But I was ready to start a new pursuit as a passive investor.

Is It The Right Time For You?

You are in control of your destiny. You have the power and freedom to decide whether or not something is right for you and whether or not the timing is right. Everyone has an opinion, but the only one that matters is your own. Don’t be persuaded by the media or by others when it comes to your future. Take some time to outline your goals and create a plan of action and then go for it when YOU feel ready.
“If you keep waiting for the right time, it may never happen. Sometimes you have to make the most of the time you have.” ― Priya Ardis

To Your Success
Travis Watts

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An Investor’s Secret to Doing Large Apartment Deals with No Experience

The more investors you speak with, the more you realize that a lot of the traditional real estate advice simply is not true. 

For example, “you need to have experience in order to do large apartment deals.” 

The main reason? We are told that sellers and brokers prefer to work with established apartment operators because their proven track record increases the probability of a close. Whereas a sale is more uncertain when working with a less experienced apartment investor, or one who has not taken a large deal full cycle in the past. 

Therefore, we are told to focus on smaller deals (single family rentals, duplexes, triplexes, quadplexes, etc.) to build a reputation of being a closer and someone who can successfully manage multifamily properties. 

However, I have spoken with countless real estate investors who have gotten into the large multifamily space without following the above advice. They didn’t slowly acquire larger and larger properties. Instead, they either made gigantic leaps or skipped the smaller properties and started off investing in large multifamily properties.

For example, I was able to go from single family rentals to a 150+ unit apartment community.

Another example is Hamza Ali, who Theo interviewed on my podcast, Best Real Estate Investing Advice Ever. He currently owns 1,000 doors in Houston, TX. 

Hamza Ali of Gray Spear Capital is an example of an investor who went straight to multifamily investing. He acquired a 24-unit apartment community from a broker without any previous multifamily experience. 

How was Hamza able to win over both the seller and the listing broker?  

He brought a large, local multifamily investor to broker meetings.

Once Hamza decided to pursue larger multifamily deals, he joined a local apartment meetup group. At the meetup, he met a local apartment operator who owned 1,000 units in the Houston, TX area. After establishing himself as someone who was serious about buying apartment communities, he invited this larger apartment operator to broker meetings.

One of the broker meetings was with an individual Hamza met at the meetup. This is the broker who sold Hamza his first deal – the 24-unit.

After putting the 24-unit under contract, the large apartment operator even walked the property with him.

Overall, Hamza was able to leverage someone else’s experience to close on his first apartment deal with no multifamily experience. 

The large apartment operator didn’t have an official role in the deal. He didn’t sign on the loan nor was he given a stake in the deal. However, by attending broker meetings, he was implying to the brokers that Hamza was a trustworthy individual who would be able to close.

If Hamza attended the meetings alone, chances are that we isn’t awarded the deal. But the presence of a well-known, big-time apartment player instantly increased his reputation in the eyes of the brokers.

 

Now, Hamza applied this strategy to winning over apartment brokers with no apartment experience. However, the concept can be applied elsewhere.

Want to raise money from passive investors but lack experience? Bring a big-time player onto the General Partnership.

Having trouble finding this big-time player? Do what Hamza did, which is to start attending local meetup groups. Even better, start your own. The strategy at the meetup group is to establish yourself as a serious real estate professional. Show up to every meetup on-time. Ask educated questions. Offer valuable information to others. Maybe even offer to work for free for the big-time player from which you want assistance.

Thousands of investors have skipped the beginning or intermediate steps and jumped straight to large multifamily investing. Almost all of them did so by leveraging the experience and reputation of an established operator.

If you use Hamza’s strategy, you will be on your way to building a 1,000 or more unit apartment portfolio.

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Top Regrets of the dying

The Top Two Regrets of The Dying – How To Buy More Time

It’s funny when you stop to think about it. Who doesn’t want a nice car, brand new clothes, a beautiful house in a high-end neighborhood and a vacation home for weekend getaways? All these things can be categorized as having “stuff”.

While stuff can certainly be nice to have, don’t get me wrong; we need a certain amount of it, but what if you could have FREEDOM instead of more stuff? Which would you choose?

“You can have anything you want… But not everything you want.” – Susan Fussell

Would you choose a new car or a big house over your own life? Of course not. Then why is it that so many people are on the pursuit for stuff rather than the freedom of time?

A Powerful True Story

A woman named Bronnie Ware was a nurse in 2009. She worked in a terminally ill care unit with people living out their final days in life. Bronnie decided to ask her patients about their top regrets in life. She first published the results initially as a blog post, then later wrote a book on the topic, but I’ll get right to the point. The top two regrets were:

· I never pursued my dreams and aspirations

· I worked too much and never made time for my family

Moral of The Story

Passive income is not about money or obtaining more stuff. It’s about having FREEDOM and the ability to spend your TIME on the things you LOVE and focus LESS of your time on the things you dislike doing.

How Passive Investing Works

The first step in the journey to financial freedom is having more income than expenses. But what if you had more PASSIVE income than expenses? Meaning money that comes in each month without having to exchange your time and effort for it. This is the true definition of financial freedom.

Wealth is measured in time, not dollars – Robert Kiyosaki

I believe the reason that more people pursue stuff rather than freedom is simple. There is hardly any education on the topic of “Time Freedom”. Which is achieved through building passive income streams.

How To Buy More Time

Passive Investing is often misunderstood. Here are two simple examples of passive investing. *This example is for educational purposes only. Actual returns and yields may vary depending on investments you choose*

#1 You invest passively a high-dividend paying stock or REIT that distributes a 10% annualized return.

#2 You invest passively in real estate syndications (80% of my portfolio – FYI) which distribute rents and other revenue from the property. For simple numbers, we’ll say 10% annualized as well.

Investing $100,000 in each of these asset types would look like this:

Stocks/REITs: $100,000 x 10% = ($10,000 passive income)

Syndications: $100,000 x 10% = ($10,000 passive income)

Neither of the asset types above require your time or labor in exchange for the income they provide. Instead, they allow you to be a passive investor so you can spend less time working for money and more time on the things you enjoy the most.

While $20,000 is certainly helpful, most people living in The United States and the Western World could not retire on this amount of income. The real benefit comes when you have MORE passive income than you have living expenses. See example below:

Stocks/REITs: $500,000 x 10% = ($50,000 passive income)

Syndications: $500,000 x 10% = ($50,000 passive income)

Having $100,000 per year in passive income could certainly afford, at the very least, an option to work part-time and free up 50% of your time. For some, this amount of money could mean full retirement, depending on lifestyle expenses.

The Journey to Financial Freedom Begins with Your Mindset

How much of your time and money are dedicated toward acquiring “stuff” and how much time and money are being dedicated toward passive investments? Passive investing can yield returns that are much more powerful than money itself. TIME is our greatest asset in life.

You may delay, but time will not. – Benjamin Franklin

To Your Success

Travis Watts

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Can You Digitally Invest In Real Estate?

Can You Digitally Invest in Real Estate? – How to Leverage Technology in 2020

Welcome to the digital world of real estate. Though it’s not an entirely new concept, it can be done 100% online…if you choose to embrace a digital model.

Do you remember…

  • Driving local neighborhoods looking for properties?
  • Meeting with brokers and realtors to walk the properties?
  • Going to your rental properties to show them to a potential resident?

Those days are still here…but they are completely optional. Today you can also…

  • Take virtual tours of properties and read through detailed property overviews
  • Leave walkthroughs and broker meetups to a General Partner or Sponsor Team
  • Leave resident showings to a professional property management company

The digital model I am referring to is investing in apartment communities through a syndication. Real estate syndications are a way for investors to “pool” their capital together in order to invest in properties much larger than most can afford or want to manage on their own. For example, let’s say a 300-unit apartment building requires an $8,000,000 down payment. This property could be purchased by 80 individual investors who each invest $100,000 and then share in the profits.

A Quick Story

I made a life-changing decision in 2015. From 2009 to 2015 I was actively investing in real estate, buying my own properties, managing my own properties, and building my own network. The problem was, the more I expanded my real estate portfolio, the less time I had. I had set out in 2009 with a goal to one day acquire 50+ single-family homes and retire with the “good life”. Before reaching 20% of my goal, I was already burning out and I was increasing my stress levels with each property I acquired. Was I building a life of freedom or a part-time job?

The Break-Through

After a mental reboot and several months of educating myself on how to become a passive investor, I finally found the solution; investing in syndications. More importantly, it was exciting to learn how to reap the benefits of real estate that I loved so much (the debt leverage, the tax advantages, the cash flow and the appreciation) without having to be hands-on and without having to trade time in exchange for money. Partnering with an experienced team and leveraging their resources opened a new world for me. The best part was, it was much easier than what I was doing already.

The Digital World of Real Estate

After switching investment models, I began to realize the impact digital tools can have on your real estate success. For example, the ability for a California-based investor to meet a New York-based Syndicator over a Zoom call. Or the ability to attend a webinar or conference from the comfort of your home, or the convenience of using Google Maps to drive out of state neighborhoods to vet out investment opportunities. Over the years, I developed a passion for helping investors learn how to scale their real estate portfolios digitally and passively, so they too can benefit from the power of “Time Freedom” which has had a major impact on my life and the lives of many others.

What Is Time Freedom?

Time Freedom is the ability to do what you want, when you want, as much as you want with your time. It is essentially having freedom over your time, but it is not for everyone. If you are looking to create more time in your life and focus on the things you love doing and reduce the time you spend on the things you do not enjoy doing, then it might be worth pursuing. It has been an enlightening journey to be an educator on this topic and to help others achieve success. Feel free to reach out anytime if you or someone who know would like to learn more about passive investing and how it could benefit your specific situation.

“Being Rich is Having Money; Being Wealthy Is Having Time” – Stephen Swid

To Your Success In 2020,
Travis Watts

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How to Dispute Property Taxes on an Apartment Community

Did you know that property taxes are the single most expensive operating expense you will pay as a real estate investor?

Additionally, the annual tax amount is highly variable depending on the purchase price, purchase timing, and the previous owner’s recent business plan.

For example, if you are acquiring an asset that recently went through a value-add renovation program, expect the tax rate to go up significantly at your first assessment. Or, if you perform an extensive value-add renovation program, expect the annual taxes to go up significantly at your first assessment.

However, you don’t have to blindly accept the new tax amount. In fact, after each tax assessment, you are allowed to dispute the new tax amount by filing an appeal. And I’m going to show you how!

After a recent tax assessment, here is the seven step process to determine if you should appeal your new tax amount and, if so, how:

 

Step 1. Calculate Net Operating Income (without Taxes)

In order to determine your tax rate, you need to determine the assessed value, or market value, of your property. Most tax assessors use a modified version of the capitalization/income approach. That is, they use the net operating income excluding the property tax and a loaded cap rate to calculate the market value of the property.

So, the first step is to determine the net operating income excluding the taxes.

But which net operating income should you use? Since you are appealing your recent tax assessment, you should use the current net operating income at your property.

 

Step 2. Calculate the Loaded Cap Rate

Next, you will need to calculate the cap rate the assessor will use to value your property. You can obtain this loaded cap rate by asking the tax assessor. The loaded tax rate is the market cap rate plus the effective tax rate. You can locate the effective tax rate on the county auditor/assessor site. If you want to know the market cap rate used by the assessor, simply subtract the effective tax rate you found on the assessor/auditor site from the loaded cap rate provided by the assessor. Typically, these rates are expressed as mills. Every 10 mills equal 1%.

 

Step 3. Calculate the Market Value

Divide the loaded cap rate by the net operating income excluding taxes to calculate the market value of the property.

If, for some reason, the assessor uses a different method to calculate the market value (i.e., cost approach, sales comparison approach, or something else), then you will need to determine the market value following that approach. But the above method, the modified income approach, is most common.

 

Step 4. Calculate the Total Assessed Value

The total assessed value is what the taxes will be based on. You can find the assessment ratio for your market on the county auditor site. For example, in Hamilton County, Ohio, the assessment ratio is 35%. Multiply the market value by the assessed value to calculate the total assessed value.

 

Step 5. Calculate the Property Tax

To calculate the annual property tax, multiply the assessed value by the tax rate. Again, you can find the tax rate for your market on the county auditor/assessor site. Typically, the tax rate is expressed as mills. 1 mill is equal to 0.1%.

Multiply the tax rate percentage by the total assessed value to calculate your property taxes

 

Step 6. Call the Tax Assessor

If the property taxes you calculated are less than the property taxes you received in the assessment, the next step is call the tax assessor to discuss your computation.

You may be able to resolve your differences without going through a formal appeal process. Most likely, the dispute will be over the net operating income used, as the tax rates and capitalization rates aren’t typically up for negotiation.

 

Step 7. File a Formal Appeal

If you are unable to come to an agreement with the tax assessor’s office, the final step is to file a formal appeal. You can determine the appeal application deadline by either visiting the county auditor/assessor site or by calling the tax assessor’s office

This is the process for determining the tax rate at your property and filing an appeal on your own. Another option is to work with a property tax consultant who specialize in apartments. They will provide you with their opinion on the property taxes. Generally, they will provide you with a report that includes a best case, most profitable case, and a worst-case property tax scenario.

Additionally, you may also want to consider hiring an attorney who specializes in property tax appeals to argue on your behalf.

 

Are you an accredited investor who is interested in learning more about passively investing in apartment communities? Click here for the only comprehensive resource for passive apartment investors.

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

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

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

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

Loan 1: 223(f)

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

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

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

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

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

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

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

Loan 2: 221(d)(4)

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

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

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

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

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

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

Loan 3: 223(a)(7)

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

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

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

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

Loan 4: 241(a)

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

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

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

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

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

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Two Common Real Estate Scenarios: Communication and Protection

Two Common Real Estate Scenarios: Communication and Protection

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

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

Communication Issues

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

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

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

Protection From Embezzlement

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

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

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

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

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

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

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

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

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

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

Image courtesy of Pixabay

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11 Best Markets to Invest in Assisted Senior Living Facilities

If you are a loyal Best Ever Listener and attended the Best Ever Conference 2019, you have heard and seen Gene Guarino of the Assisted Living Academy discuss the power of investing in senior housing.

During my interview with Gene, he explained why he believes that assisted living facilities will be the next mega trend over the next 20 years, in part due to the fact that over 10,000 people turn 65 years old every single day.

To learn more about the business plan for this strategy, check out Gene’s interview or this blog post about how to make an extra $5,000 to $20,000 per month by investing in senior housing.

If you are interested in pursuing this “booming” investment strategy, here are 11 metropolitan statistical areas to target. These are the MSAs with a total population over 500,000 that had the greatest increase in senior population (65 years and old) between 2010 and 2016:

 

11. Colorado Springs, CO

Wikipedia

65 years and older population growth 2010 to 2016: 37%

 

10. Santa Rosa, CA

Shutterstock

65 years and older population growth 2010 to 2016: 37%

 

9. Cape Coral-Fort Myers: 37%

The Florida Living Magazine

65 years and older population growth 2010 to 2016: 37%

 

8. Las Vegas, NV

Wikipedia

65 years and older population growth 2010 to 2016: 37%

 

7. Houston, TX

iStock

65 years and older population growth 2010 to 2016: 39%

 

6. Durham, NC

Livability

65 years and older population growth 2010 to 2016: 41%

 

5. Atlanta, GA

GrandView Aviation

65 years and older population growth 2010 to 2016: 41%

 

4. Charleston, SC

10Best.com

65 years and older population growth 2010 to 2016: 42%

 

3. Boise, ID

Idaho Statesman

65 years and older population growth 2010 to 2016: 43%

 

2. Raleigh, NC

Design Milk

65 years and older population growth 2010 to 2016: 44%

 

1. Austin, TX

65 years and older population growth 2010 to 2016: 51%

 

Are you an accredited investor who is interested in learning more about passively investing in apartment communities? Click here for the only comprehensive resource for passive apartment investors.

Source: Census.gov
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basketball player slam dunking

March Madness: Ranking Best Ever Show Community Investors as Players

Inspired by March Madness, we asked our Best Ever Show Community of investors, “What was the highest level of basketball you ever played?” Come to find out, we actually have a very extensive range of experience within our group of investors. As investor David Schwan said, “We could put on a real estate investor version of the Harlem Globetrotters vs. Washington Generals.”

We’re not saying we could walk-on to Duke’s powerhouse tournament team, but we do have a few standouts who, with a time machine of course, could make up the BEST EVER Fab Five.

The Best Ever Starting Five based on experience:

Nathan Tabor – The MVP of this list, Nathan dominated Division II teams in North Carolina back in his day. Unfortunately, the shorts back then were borderline NSFW so we can’t see what that kind of dominance on the court looks like, but, fortunately, we can read about it.

John Fortes – The only other college athlete on the list, John was a Division III basketball player in the Northeast. Today, when not focusing on his investments, John is making his way to Division 1 as a referee.

Ben Lovro – Not only was he varsity in High School, Ben’s AAU team won the State Championship three years in a row! Ben has an inspiring life story and is now a big-time real estate investor.

Theo Hicks – If you listen to the Best Ever podcast or have read any of the Best Ever books, you know how smart Theo is with real estate investments. What you might not know is that he might also be the most athletic investor in the group. Just look at those hops! Theo was an All-Conference honorable mention at his high school.

Theo Hicks

Joe Stevie – Joe is a 1,000-point scorer for his high school in Latonia, Ky, with pictures to prove it. Joe also had major ups in his day!

Joe Stevie

Coming off the bench:

  1. Slocomb Reed – Played through high school and then won an intramural championship in college.
  2. Daniel Kwak – Daniel played through his sophomore year of high school.
  3. Kyle Stevie – Joe’s brother. Kyle, played basketball through 9th grade before changing focus to football which he played (or “rode the bench,” as he says) through college. Before retiring his basketball jersey for good, Kyle was MVP on his 8th grade team. Nowadays, he probably can’t beat you on the court, but he’ll beat you on the mat with his BJJ and Muay Thai skills!
  4. Kris Bennett – Played until 9th grade.
  5. Brandon Moryl – Played into high school. Brandon says his highlights can still be found on ESPN.

Reserves:

  1. Grant Warrington – Grant played until 9th grade with the only proof being a picture which fondly entertains his family.
  2. Evan Holladay – An 8th grade intramural league player.
  3. Cody Rubio – Cody played up to 8th grade until the coach politely asked him to focus on anything else. He found inspiration as a relatively short guy to learn and perfect the Kareem Sky Hook and the Dirk fade away.
  4. Jay Helms – Self-proclaimed Uncle Rico of 8th grade
  5. Joe Fairless – Joe made it to the 7th grade C team before retiring from the hardwood. Rumor is he’s been studying apartment syndication since that day.

Maybe next year kid:

  1. David Schwan – He was the last pick in 7th grade.
  2. Eric Kottner – As a 6th grade hooper, Eric says he might have earned a participation trophy.
  3. Grant Rothenburger – Grant says he couldn’t even make the team in 6th grade and is still barely getting picked at the YMCA.
  4. Whitney Sewell – Started playing in 4th grade and played through….. 4th grade! Whitney’s long venture into basketball included not taking the ball out of bounds and running to the other end to score. He figured it out when everyone yelled at him to give the ball back.
  5. Neil Henderson – Played in a mysterious time before camera phones (whatever that means). So, he has no evidence, but swears he was once picked SECOND to last on the third-grade playground once.
  6. David Park – Mostly just as a pick-up basketball player.
  7. John Casmon – John played in multiple leagues, including church, intramurals, and YMCA. John says he only averaged 3.4 points per game but I’ll bet he’s a real journeyman from playing in three different leagues!
  8. Dino Pierce – Self-proclaimed “Bitty Basketball” player. Dino laced them up in the summers as a kid and went from dud to stud in his time on the court.
  9. Vinny Squillace – Played about 10 games of basketball throughout his life but enjoys the team aspect of basketball.
  10. Garth Kukla – Garth says he has a mind for basketball but a body for real estate investing so he chose the right career. However, don’t challenge him to a game of horse, Garth has made 87 free throws in a row.
  11. Chuck Russell – All we know about Chuck’s playing days is that he played it the same way he played football – tackle. Luckily, he chose the field over the court!
  12. Taylor Loht – #27 on this list but top of our martial arts list. LIke Kyle Stevie, Taylor prefers to practice martial arts over basketball and he has his Blue Belt to show for it!

Are you an investor with experience on the court? Tell us about your skills in the comments below or in The Best Ever Show Community.

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Best Ever Real Estate Influencers

The Landscaper Turned Real Estate Investor: Best Ever Influencers Alex Holt and Ash Patel

Most people have someone who’s made a positive difference in their life. Real estate investors are no different. This Best Ever Influencer series will take a look at how real estate investors have influenced a fellow investor – and how the act of influencing changes both parties.

The inaugural article looks at Alex Holt, a beginning investor eager to learn the ropes, and Ash Patel, a Cincinnati commercial real estate investor who is showing him the way.

 

Ash Patel (left) and Alex Holt (right)

 

Sometimes one piece of advice – just a tiny suggestion – is enough to profoundly change someone’s life. And like a well-timed crash of cymbals at the symphony, the recommendation must arrive at the precise moment to affect change.

Take Alex Holt and his Cincinnati landscaping business. It was hard work (grunt work, some might say) but his business was doing OK; he even had a couple of employees during the busy season.

Yet deep down Alex knew there was more out there for him than mowing lawns.

It turns out that “more” was right in front of his eyes every day. Literally. “I would say three or four years ago the light bulb went off: ‘Hey, you’re making these houses beautiful on the outside – you should see about the inside,’” Alex said.

After talking with some fix ‘n’ flip investors whose yards he maintained and YouTube-ing real estate investing, Alex decided, “Man, I can do this!”

And that’s how Alex became interested in real estate investing.

But being interested in real estate investing is not the same as having the time to get good at it, as Alex was soon to learn.

 

You Reap What You (Don’t) Mow

Although he didn’t know it at the time, Alex needed some big picture advice, something that would allow him to climb down off his riding mower and chase after his dream. The man who delivered it was commercial real estate investor Ash Patel, who Alex met at a Joe Fairless Cincy Best Ever Real Estate Mastermind Meetup.

Ash is a second generation American from Indian parents. Even though the money was good, Ash grew tired of being in IT, realizing that the only reason he entered the field is that it was expected of him.

Alex is all about the work, the grind to get things done, yet Patel’s first piece of advice to his new mentee was to grind less and know your worth. The suggestion caused him to step back from his landscaping business and reassess it. He realized his value was worth a lot more than being a $12 an hour lawn mower.

So he took Patel’s advice to pay someone else to mow lawns and moved the business closer to more lucrative clients.

Once the duo decided they wanted to work together, the question became how to start the partnership. Should they dive in headfirst and buy a commercial building? Or be prudent and start small? Prudence won out.

Alex and Ash thought they were choosing the easy way to begin their collaboration by buying a $9,000  fix ‘n’ flip opportunity (Ash fronted the money) in a not-so-great area of Cincinnati’s Price Hill neighborhood. What they could not have known that a year-long series of serious issues with the property would cause it to turn into…

 

The Nightmare on Elm Street

The problems that Alex and Ash ran into were so numerous as to be almost comical. Stephen King couldn’t have designed the horrors that the duo had to endure with the seemingly cursed piece of property.

Alex’s tedious game of whack-a-mole with an array of major problems went on for more than year. “It was like every time we fixed one thing in this house, something else broke because it was 100 years old,” Holt said.

Instead of a “For Sale” sign, the house should have come with a “Buyer Beware” warning label. They bought the house knowing it had several code violations and “tons of issues” with inspections, Ash said. Adding to the challenges: the house’s owner was in jail (he was later deported), creating more delays.

Alex, who has an earnest way of speaking and a slight Southern accent despite being Cincinnati born and bred, spent countless hours at the house.

“We ended up pretty much gutting and rebuilding the entire house,” he lamented.

 

 

First came a new roof. Next was a new furnace. And the constant inspections played havoc with their deadlines – and their budget.

The worst part? Since the house was not in a desirable location, a Class D area according to Alex, they probably wouldn’t recoup all of the money they put into the house.

Just when they were about to sell, the unthinkable happened. The incredulity was apparent in Ash’s voice as he explained.

“And then, when Alex had finally sealed the deal and found a buyer, it turns out our house is six inches over the property line,” he said. So instead of being to sell the albatross of a house, the duo was forced to hire a lawyer and try to find a quick solution. The neighbor decided to play hardball, reneging on an agreement to settle the issue for $1,000.

That solution was an easement rights agreement giving Alex and Ash the six inches in exchange for $1,400 cash. “And I had to drive two hours at 10 o’clock at night to meet him or else he was going to be going away and we couldn’t see him for weeks,” Alex said.

With the last obstacle cleared, they were finally able to sell the house for $37,000. Considering everything that happened, losing only $8,000 on the house could be considered a moral victory.

 

 

These things never happen to Jonathan and Drew Scott on Property Brothers. “Yeah,” said Alex. “It was not supposed to be anything long and dramatic.”

That the experience was long and dramatic may have cemented the pair’s future working relationship.

 

You’ve Got a Friend in Me

So after a nightmarish deal on their first try, the million dollar question is why would Ash continue to partner with Alex? One reason could be that Alex’s first stab at real estate reminded him of his own stumble-filled initial endeavor. As a way to offset taxes, he bought a run-down, three-story, mixed use building and discovered it needed major repairs.

“I had no idea what I was doing,” Patel said.

He figured it out eventually, but it was a painful learning experience. The willingness to help others avoid that type of struggle may have had its genesis in that brutal first deal.

“Because of all the mistakes I’ve made and learning things the hard way, and because I didn’t ask for a mentor, I overly exert myself out there and I’m willing to mentor anybody that wants to learn from me,” he said. “One of my rules is I will match your effort.”

He’s found a willing pupil (and partner) in Alex, who yearns to prove his worth to his mentor. Ash hasn’t just influenced Alex’s real estate career – he’s helped shape his life by showing him how to think differently, perhaps more strategically, about the world.

Alex is just sick about how what was supposed to be a quick deal dragged on for more than a year. He’s stunned (and very grateful) that Ash is still willing to work with him.

“It’s one of those things that before you go to bed at night it haunts you – and I mean that literally,” Alex said.

“It’s also a deeper connection,” Alex added. “You know, I would say he’s a friend. I know his family and we’re tied in in different ways so it’s personal.”

For his part, it’s obvious Ash admires the way Alex has managed the chaos surrounding their first deal. Despite the sinkhole of time that the house turned into, Alex never wavered in his commitment to the deal – or to Ash.

“There’s no money to be made anywhere here for him, but the fact that I was willing to take a chance on him and the fact that I’m losing money on this house, he just stayed in there and continues to just work,” Ash said.

So, despite not making anything on their first deal, would Ash do another deal with Alex? Yes, he said without hesitation, but with a “little more oversight. Because I know that he’s already proven that he’ll just continue to work, he won’t give up, and he’ll do whatever it takes to get things done.”

And the next thing to get done is another deal. Alex and Ash are looking at purchasing a 3 bedroom, 3 bathroom house for $60,000, putting another $35,000 into it and hoping for a sale price in the mid $140,000s. This time, with Ash’s influence, the landscaper turned real estate investor thinks that he has learned enough that it won’t take a year to sell it.

 

Written by Robert Springer, an Oregon-based freelance write. He has more than 10 years’ experience writing about real estate investing. Say hi to Robert at rtspringer@gmail.com. 

 

Are you an accredited investor who is interested in learning more about passively investing in apartment communities? Click here for the only comprehensive resource for passive apartment investors.

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Top 10 US Cities with Largest Proportion of High-End Apartment Buildings

Have you noticed that over the past few years, the majority of the new apartment construction in the market you live in and the market you invest in have been luxury apartment buildings? Massive, thousand unit plus low, mid, and high-rise buildings with all the bells and whistles?

The data supports this observation as well.

In 2017, 79% of all new apartment construction in the US were luxury rentals (defined as class B+ or higher). This number increased to 87% in the first six months of 2018. In fact, 100% of new apartment construction were luxury rentals in many cities across the US.

Here are the top 10 cities in the US with the largest total percentage of new apartment construction being luxury rentals from January 1, 2017 to June 30th, 2018:

 

10. Fort Worth, Texas

City skyline and bridge lit up at dusk

Flickr

 

% New Construction Luxury Apartment Buildings 2017: 100%

% New Construction Luxury Apartment Buildings 2018: 100%

Total Share of Luxury Apartment Buildings: 31%

 

9. Denver, Colorado

Pink sky behind city skyline at sunset

Visit Denver

 

% New Construction Luxury Apartment Buildings 2017: 88%

% New Construction Luxury Apartment Buildings 2018: 93%

Total Share of Luxury Apartment Buildings: 32%

 

8. San Antonio, Texas

Blue, clouded sky above city skyline with lit up buildings

Shutter Stock

 

% New Construction Luxury Apartment Buildings 2017: 85%

% New Construction Luxury Apartment Buildings 2018: 96%

Total Share of Luxury Apartment Buildings: 33%

 

7. Nashville, Tennessee

City skyline and a bridge with river reflections

LVST Global

 

% New Construction Luxury Apartment Buildings 2017: 95%

% New Construction Luxury Apartment Buildings 2018: 92%

Total Share of Luxury Apartment Buildings: 34%

 

6. Dallas, Texas

Purple swirled clouds and deep blue sky above skyline at dusk

Southern Illinoisan

 

% New Construction Luxury Apartment Buildings 2017: 100%

% New Construction Luxury Apartment Buildings 2018: 100%

Total Share of Luxury Apartment Buildings: 35%

 

5. Houston, Texas

Lit up high-rise buildings and deep blue sky at night

Wallpaper Up

 

% New Construction Luxury Apartment Buildings 2017: 98%

% New Construction Luxury Apartment Buildings 2018: 100%

Total Share of Luxury Apartment Buildings: 36%

 

4. Boston, Massachusetts

High-rise buildings and bridge lit up over a river at night

Silversea

 

% New Construction Luxury Apartment Buildings 2017: 100%

% New Construction Luxury Apartment Buildings 2018: 100%

Total Share of Luxury Apartment Buildings: 37%

 

3. Las Vegas, Nevada

Las Vegas hotel pool and hotels lit up at dusk

Las Vegas Review Journal

 

% New Construction Luxury Apartment Buildings 2017: 100%

% New Construction Luxury Apartment Buildings 2018: 80%

Total Share of Luxury Apartment Buildings: 38%

 

2. Austin, Texas

Aerial view of Texas State Capitol building and surrounding buildings

TripSavvy

 

% New Construction Luxury Apartment Buildings 2017: 65%

% New Construction Luxury Apartment Buildings 2018: 88%

Total Share of Luxury Apartment Buildings: 45%

 

1. Charlotte, North Carolina

Night view of lit city buildings behind a fountain

TripSavvy

 

% New Construction Luxury Apartment Buildings 2017: 87%

% New Construction Luxury Apartment Buildings 2018: 100%

Total Share of Luxury Apartment Buildings: 50%

 

The benefit of purchasing multifamily in an area with a large percentage of luxury apartment buildings is your ability to market your buildings as “luxury experience without the luxury cost.”

If you cannot invest in these thousand unit luxury apartment buildings with nearly every amenity imaginable, purchase a smaller multifamily instead. Upgrade the interiors to luxury status and then offer the same types of amenities by partnering with local businesses. For example, partner with a local fitness center, offering a discounted membership fee to your residents. Apply the same concept for all the amenities offered at your competition.

This will allow you to attract the luxury resident demographic because you will offer rental rates lower than the new luxury construction in the area while still allowing your residents to live in a luxury unit and have access to all the luxury amenities they desire.

 

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

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How Important are Cap Rates?

7 Active Real Estate Investor Opinions on the Importance of Capitalization Rates

The capitalization rate (or cap rate) is a specialized aspect of real estate investment. That’s why I posed the following question to several leading real estate investors: How strongly do you consider cap rates when evaluating deals?

Here are seven active investors’ opinions on how important capitalization rates are in real estate investing:

  1. Ryan Groene said “I like to treat (cap rates) like I treat my trash . . . it normally ends up in the garbage.” As a value-add manufactured housing investor, a deal with a low or even negative in-place NOI doesn’t have a cap rate that translated into other important metrics like cash-on-cash return, internal rate of return, debt, and capital required. However, he says that cap rates are more important on the sale of the property. He bases the exit cap rate on the historical cap rates for manufactured housing, which is between 8% and 10%. Overall, he cares about cap rates, but it will not stop him from investing in a deal with a 1% cap rate if the terms are great and he hits his desired returns.
  2. Garrett White is of a similar opinion. He doesn’t place much emphasis on in-place capitalization rates in real estate deals (i.e., the cap rate based on the current net operating income), because, depending on how much value-add is present, he can buy a property at a really low cap rate and still make it a solid deal. Cap rates mean the most to him on the exit. To determine the exit cap rate, he looks at the range of the historical cap rates rather than the 10bps per year expansion rule that is common.
  3. Elisa Zhang only considers the entry cap rate in order to compare it to the exit cap rate. For most of her deals, the exit rate is set to be at least 1.5% to 2% higher than the entry market cap rate of similar deals in the same submarket.
  4. Tyson Cross also agrees with Ryan, Garrett, and Elisa. He said that the capitalization rates in real estate is one of the most misused metrics in commercial deals and is widely thought of as the standard for measuring properties. In reality, the importance of the cap rate is varied based on the property type and location, and you should put more emphasis on the cap rate upside after executing your business plan (i.e., the exit cap rate or cap rate at refinance).
  5. Todd Dexenheimer also believes that the cap rate is a misused metric, but for opposite reasons. To him, cap rates have been downplayed in the current market and are very important when the market shifts to a buyers’ market. Commercial real estate is generally valued based on cap rates, so he says that not considering cap rates when evaluating deals is a mistake. With that said, he also added that you need to factor in many things when looking at a deal and that a good deal varies from investor-to-investor based on their personal goals. These important factors include cash-on-cash return, cash flow, internal rate of return, debt service coverage ratio, the overall business plan, market factors, and the likelihood of being able to achieve the projected results.
  6. Ash Patel also believes that cap rates are important, specifically on non-commercial real estate that is fully leased and triple net leases. If the non-commercial real estate is partially vacant, the cap rate should reflect the current occupancy. For gross leases and value-add, cap rates should be considered more of a benchmark.
  7. Gwyeth Smith, who admittedly is just starting out, fell somewhere in the middle. He understands capitalization rates in real estate shouldn’t be used as the only factor to qualify a deal, but it still has its uses. For example, he used the cap rate as a negotiating tool on a recent deal. However, the most important factor to him is the debt service coverage ratio, because if the deal meets Fannie Mae qualifications, it validates his underwriting to a certain extent.

If you’d like more information regarding entry and exit cap rates, the best real estate investment strategies, and so much more, tune into the Best Ever Show daily!

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Joint Venture vs. Syndication Real Estate

What is the Difference Between a Joint Venture (JV) and Syndication in Real Estate Investing?

You’ve completed a handful of real estate investments on your own and are now ready to take your business to the next level by forming partnerships and raising capital to fund larger project.

Congrats!

However, before moving forward, you need to know what type of partnership you are allowed to legally form. That is, you need to know the difference between the two most common partnership structures: joint venture (JV) and syndication.

Before we dive into the differences between these two structures, a quick disclaimer – I am not an attorney and am not offering legal advice. I am offering general information for educational purposes. Ultimately, you need to consult with a real estate and securities attorney to determine which structure is right for you.

 

Is it a Joint Venture or Syndication?

Now that we got that out of the way, to determine whether you are forming a JV or a syndication, you need to take the Howey Test.

The Howey Test was created by the Supreme Court for determining whether certain investments qualify as “investment contracts” (or securities). The four parts of the test are:

1.     It is an investment of money

2.     There is an expectation of profits from the investment

3.     The investment of money is in a common enterprise (that is, investors pool their money or assets together to invest in a project)

4.     Any profit comes from efforts of a promoter or third-party

“It is an investment of money” holds true for syndications and JVs. Same with “there is an expectation of profits from the investment” and “the investment of money is in a common enterprise.” The main distinction comes down to part four – “any profit comes from efforts of a promoter or third-party.” If this is true, then it is an investment contract where you are selling securities and is therefore a syndication. If this is false, then it may be a JV.

 

If it is a Joint Venture…

…then the investors have an active role in the ongoing management of the project. There role must be more than just the right to vote. They must have a defined role and you must be able to prove that they actually fulfilled those duties.

A JV is when two or more individuals or companies pool resources to accomplish a common goal and where all parties involved are managers in the deal. An example would be a general partnership on a syndication. Another example is if two individuals come together and do a fix-and-flip where both members have an active role in the project.

Since everyone is a manager in the deal, all parties have unlimited liability. Also, no single individual can make decisions on behalf of the group. It must be by majority or unanimous rule.

Compared to syndications, JV partnerships are much less expensive to form.

Overall, a JV is a partnership where all members have defined and active roles in the ongoing management of the real estate project.

 

If it is a Syndication…

…you are selling securities and must register with the Securities and Exchange Commission (SEC) and are regulated by securities law.

While the general partnership aspect of the syndication is a JV, the partnership between the general partnership and the limited partnership (i.e., passive investors) is a syndication. Unlike a JV, the syndication adheres to the fourth part of the Howey Test – “any profit comes from efforts of a third party,” with the third-party being the general partnership. The investors do not have an active role in the ongoing management of the project and are completely passive.

Compared to JVs, syndications partnership are more expensive to form since you must register with the SEC and create the supporting documentation with the help of a securities attorney.

Overall, a syndication is a partnership where the investors do not have active roles in the ongoing management of the real estate project.

Here is aguide a created that goes over what an apartment syndication is in more detail.

It is vital that you consult with a securities attorney before forming a partnership to purchase real estate. If you form a JV when a syndication is the proper structure, or vice versa, the resulting non-compliance with securities laws can cost tens, if not hundreds, of thousands of dollars in litigation fees, result in SEC fines, and even jail time.

 

Are you a newbie or a seasoned investor who wants to take their real estate investing to the next level? The 10-Week Apartment Syndication Mastery Program is for you. Joe Fairless and Trevor McGregor are ready to pull back the curtain to show you how to get into the game of apartment syndication. Click here to learn how to get started today.

 

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people bumping fists

4 Leadership Qualities to Maximize Growth learned from the Global Leadership Summit

I attended the Global Leadership Conference this summer in Chicago, where emerging and experienced world-class leaders, such as John Maxwell, share their fresh perspectives on leadership and success.

Here are my top 4 takeaways from the event:

1 – The Abundance Mindset

How can I get a bigger picture? Seeing more was everything, always looking at the bigger picture. But today it is also about seeing that vision before others. I want more before and more more in the bigger picture mindset. We have to know that there is more more. Essentially think abundantly!

In order to think abundantly there are two things that help develop this mindset: Creativity and Flexibility.

Creativity thinking is where there is always an answer.

Flexibility is the acknowledgement that there is sometimes more than one answer.

There is more BEFORE in front of you and more BEYOND ahead of you.

 

2 – Finding a Process

It is important to dissect success. John Maxwell discusses this 5 step cycle of action to create such a process. Those 5 things are:

  1. Test
  2. Fail
  3. Learn
  4. Improve
  5. Re-Enter

This autopsy of success allows you to have a mindset that he refers to as an advance attraction mentality.

 

3 – Intentionally grow every single day

The “how long will it take” mind frame for growth should change to “how far can I go” with my growth. When you grow and keep expanding your mind INTENTIONALLY every single day. Put yourself in places where people will inspire you. Intentionally put yourself in places where your mind expands.

 

4 – The Vision Gap

Always have a vision gap. Well what does that really mean? This vision gap refers to the space between what you ARE doing and what you COULD be doing. It is about seeing more than you are doing and seeing it before others see it, which will allow you to bring out the best in leading others. A key factor to this is having the right people in your circle.

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Labor Day greetings

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

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

 

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

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

 

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

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

 

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

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

 

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

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

 

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

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

 

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

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8 Step Process For Selling Your Apartment Community

You’ve acquired a new asset, completed your value-add business plan and have been distributing higher than projected returns to your satisfied investors – or if you’re just an apartment investor, to yourself –  for the past few months.

 

You think your investors are satisfied now? Well, they are going to be ecstatic when they receive that massive distribution upon sale! So, when and how do you sell your apartment community?

 

One of your responsibilities as an asset manager is to evaluate the market in which your property is located on an ongoing basis. Once you’ve stabilized the asset, completing all of the value-add projects, estimate the property value at least a few times a year. Find the current market cap rate and, using the net operating income, calculate the value of the asset.

 

Even if your business plan is to sell in five years, don’t wait until then to evaluate your asset. You may be able to provide your investors with a sizable return if you sold, or refinanced, before the end of your initial business plan.

 

If you get to the end of your business plan and the market conditions are not such that you can sell the asset and meet your investors return expectations, don’t be afraid to hold onto the property longer.

 

When the market conditions are right, here is the 8-step process to sell your apartment community:

 

 

1 – Be Mindful of The Sale

 

As you are approaching the end of your business plan, or when you determine that it makes financial sense to sell earlier, be mindful of the sale. The value of the asset is dependent on the market cap rate (which is outside of your control) and the net operating income. In order to maximize the value, you want to maximize the net operating income, which means maximizing the income and minimizing the expenses.

 

Once you’ve made the decision to sell, don’t start certain projects if the payback period extends past the sale’s date. For example, if you plan on selling in three months, it doesn’t make sense to renovate a unit for $5,000 to get a $100 rental premium.

 

Consider spending a little bit more money on marketing to increase occupancy. Offer more concessions than you usually would to increase rental revenue. Pursue collections a little harder than usual.

 

Overall, look at your profit and loss statement and see which income and expense line items can be improved in the months prior to listing the asset for sale.

 

 

2 – Send Your Lender a Notification of Disposition

 

When you decide to sell, you will need to notify your lender. To do so, you need to send them an official notification of disposition. This is typically two months prior to listing the apartment for sale to the public. Work with your experienced attorney to draft the notification and send it to your lender.

 

Depending on the loan program you used, you may have a prepayment penalty. Keep that in mind when deciding to sell, because a large prepayment penalty will drastically reduce your sales proceeds.

 

 

3 – Request a Broker’s Opinion of Value

 

Based on your evaluations of the market, if you are confident that you can sell your apartment at the price you need in order to get the returns you want, the next step is to find a listing broker. It’s easy to write down a value that makes you happy, so you’ll want to get a relatively unbiased second opinion without having to shell out a few thousand dollars for a full appraisal.

 

You want to find a broker who is the best fit to sell the property. Loyalty is important in this business, so I recommend using the same broker who represented you when you purchased the asset. But, there might be reasons why you want to go with someone else. If that is the case, reach out to two or three of the best brokers in the market and ask them for a Broker’s Opinion of Value (BOV). Send them whatever information they request (T12, rent roll, etc.).

 

When you receive their opinion of value, ask them a few follow-up questions. You need to be confident that they can sell the property at that value. Ask them questions like:

 

  • What valuation approach did you use?
  • What types of buyers do you typically sell to? What size and price range do they invest in?
  • Why do you feel confident that those buyers will purchase this asset at this price?
  • Have you sold similar assets recently?

 

Based on the value and follow-up questions, select a broker to list the property.

 

 

4 – Start a Bidding War

 

Over the next six weeks or so, your broker is going to create the offering memorandum and market the apartment to the public to whip up a whole lot of interest. Interested parties will come visit the property and follow the same approach that you did when you purchased the property – talk to the property manager, tour units, inspect the exteriors, analyze rent comps, run the numbers, and submit an offer. The goal is for your broker to create a bidding war in order to push up the offer price and get you the highest offer price possible.

 

 

5 – Screen Out Newbies with a Best and Final Call

 

Once you stop accepting offers, you will review the submissions and have a best and final call with the top offer or offers to qualify the buyers.

 

You want to know about their track record, funding capabilities and proposed business plan to gauge their ability to close. Ideally, you sell to a sponsor with a large track record. You don’t want a newbie that has to back out of the deal during the due diligence phase because they cannot fund the deal, did poor underwriting, etc.

 

 

6 – Negotiate a Purchase Sales Agreement

 

Select the best offer and negotiate a purchase sales agreement (PSA). Have your experienced attorney draft a PSA. Don’t let the buyer draft the PSA, because you want to start the negotiation with terms closest to where you need them to be, and not the other way around. Send them the PSA for their attorney to review. You’ll likely go back and forth to negotiate the terms of the contract, with the end resulting hopefully being reflective of what was in their letter of intent.

 

This negotiation process typically takes about a week. Sometimes longer, but usually not shorter.

 

7 – Fulfill Obligations During Due Diligence

 

When the negotiations have concluded and both you and the buyer have signed the PSA, the due diligence period begins. The buyer will be required to adhere to the schedule agreed upon in the PSA (i.e. they have X number of days to perform due diligence, Y number of days close, etc.). And you owe them whatever it is you agreed to in the PSA (i.e. they can come to the property with 24 hours’ notice, they can look at your bank statements, financials, leases, marketing material, etc.).

 

Best case scenario is that nothing comes up during the due diligence period and you sell the property at the price and terms defined in the PSA. If something does come up, there may be additional negotiations back and forth with the seller on either the terms, purchase price or both.

 

Once the due diligence is completed, the buyer will work with the lender and title company to finalize things in preparation of closing.

 

 

8 – Close and Distribute Sales Proceeds

 

A few days prior to the officially closing date, you will sign the hundreds of execution documents. Then, on the day of closing, you will be wired the sales proceeds.

 

Distribute the sales proceeds to your investors according to what you and your investors agreed to. They will then go from satisfied to ecstatic and will be ready to start the process all over again!

 

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Five Ways To Find Your First Off-Market Apartment Deal

Previously Published in Forbes Here.

In a previous blog post, I outlined the benefits of completing an apartment transaction off-market for both a seller and buyer, as opposed to on-market through a real estate broker. Although off-market real estate deals are highly attractive on both sides of the transaction, when it comes to ease, they lose the edge.

 

Finding on-market deals is a fairly passive approach: All that’s required is sending a real estate broker your investment criteria and asking them to subscribe you to their email list. Then, any current or future listing that meets your criteria will be automatically sent to your email inbox. However, you won’t have control over the number of opportunities you receive. Since it’s solely based on the number of owners who happen to list their property with a real estate broker, you could see a bunch of opportunities one week and then go a few months without seeing any.

 

The more active and beneficial approach is to pursue off-market real estate opportunities. Generally, there are two strategies regarding how to find off-market deals:

  • Speaking directly to the owner
  • Speaking to someone who knows the owner.

 

Your prospecting tactics should only target these two groups.Here are five methods you can use, whether you’re buying your first apartment building off-market or your 20th:

1. Direct Mailing Campaigns

One of the most well-known tactics for acquiring off-market real estate deals is through direct mailing campaigns. A direct mail campaign consists of sending out a batch of letters to a list of apartment owners with the purpose of sparking a conversation that results in the acquisition of their property.

 

There are two keys to a successful direct mailing campaign:

 

Mailing List: A high-quality mailing list will only include owners whose apartment communities meet your investment criteria and who show at least one sign that they’re interested in selling. For example, we only mail to owners who’ve purchased their property five or more years ago. They will have likely built up enough equity to sell their property at below market value while still making a sizable profit and/or they could be coming to the end of their business plan. Another option is only mailing to distressed owners. Indications that an owner is distressed is their inclusion on the eviction court, building code violations or delinquent tax list, or living in a state other than the one in which the apartment is located.

 

Mailing Frequency: Decide what frequency you will mail to your list of owners — monthly, quarterly, every six months, etc. — and commit to the system. Sometimes, you may receive a reply on your first mailer, while other times it won’t be until you’ve been mailing to the same owner for a year that you receive interest.

 

Related: The Ultimate Guide to a Successful Direct Mailing Campaign

2. Cold Calling

Part of learning how to find off-market deals is becoming proactive. Rather than sending direct mailers to your list of distressed apartment owners and waiting for the phone to ring, call the owner directly (or follow the unique approach of this apartment investor and cold-text the owner instead!).

 

With cold calling, compared to direct mail, you’ll have more control over the number of conversations with owners. It is also less expensive, as you are avoiding the costs of letters, envelopes, and stamps.

 

Cold calling can also increase your conversion rate. With direct mail, if an owner isn’t interested in selling, they won’t reach out. Whereas, with cold calling, you can follow-up by sending the owner a letter referencing the conversation, providing your contact information, and notifying them that you will call again in X months (2, 4, 6, whatever you decide) to see if they are interested in selling.

 

Related: How to Get a 57% Response Rate on Your Direct Mail Campaigns

3. Thought Leadership Platforms

A thought leadership platform can be a great source for off-market real estate deals. With an interview-based podcast, blog, or YouTube channel, you can form relationships with your guests and build a large audience, conveying to both your interest in purchasing apartment communities. With a meetup group, you can network face to face with attendees and handpicked speakers who are active in real estate investing.

 

Regardless of the platform you pursue, as a thought leader, you will be reaching and cultivating relationships with both apartment owners and the professionals who know the owners, which are the only two ways to find off-market deals.

4. Call “For Rent” Ads

Calling the apartment owners of rental listings on online services such as Craigslist, Apartment.com, Zillow, etc. or on “for rent” signs scattered across your local market to gauge their interest in selling is a great way to find off-market real estate deals.

 

If an owner has a unit listed for rent, you’ve automatically identified a pain point. The unit is vacant, which means they are losing money. You might catch them at a moment in time where they are motivated to sell.

5. Apartment Vendors

Anyone involved in the servicing of apartment communities, including electricians, carpet installers, roofers, plumbers, HVAC professionals, pool repairman, lawn care professionals, etc, is on the front lines and will likely have insider information on communities that are being neglected.

 

First, use their services or refer them to other apartment owners to build rapport. Then, ask them to notify you about potential distressed owners or neglected communities.

 

Related: Lead Generation Blog Category

 

Overall, I recommend selecting two methods from this list and focusing on generating leads for your off-market real estate deals from those for at least six months. We live in a culture of instant gratification where people expect quick or immediate results. In general, that isn’t the reality, and it’s especially true when you’re dealing with million-dollar properties. It takes time to perfect how to find off-market deals and generate apartment leads. It requires constant action, constant tracking, and constant improvement.

 

All of these tactics have worked, but all of them might not work for you because of your market or because of your unique skill set. You’ve got to find a tactic that aligns with what you’re uniquely good at, which may take some trial and error. During your six-month trial period, log your results for each of the marketing methods. If one or both of the marketing methods have poor results, either tweak it or try another tactic. Ultimately, it’s not about having five off-market real estate lead sources. It’s about finding the few that work best for you.

 

If you want advice on buying your first apartment building or you’d like to passively invest in one of my lucrative apartment syndications, contact me. Additionally, discover how you can make money by investing in apartments as part of your own business strategy by reading my new text, Best Ever Apartment Syndication Book.

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How to Find Private Money Regardless of Where You Live

Last week we closed on our 12th property and our company portfolio is now valued at more than $250,000,000 (click here to see the lesson I learned on my last deal). Since this quarter billion dollar mark is sort of a milestone I thought it would be interesting to look at where my potential and current investors live to see if there is anything interesting we could learn from it.

 

Yes. Yes, there is.

 

Before we look at the stats, let’s define a couple things.

 

I define Potential Investors as investors with whom I have a relationship, are accredited and have expressed interest in investing with me but have not invested yet. Current Investors are accredited investors with whom I have a relationship that are currently investing in my apartment deals.

 

Now let’s dig into the stats of my investor database.

 

Top 5 Cities with the most Current and Potential Investors:

  1. New York City: 18%
  2. Dallas-Fort Worth: 10%
  3. Los Angeles: 9%
  4. Houston: 5%
  5. San Francisco: 4%

 

So, out of all my Current and Potential Investors across the United States, 18% live in NYC, 10% live in DFW, etc. This makes sense for a handful of reasons.

 

First, they are large cities (ex. Population of NYC is 8M+).

Second, I lived in NYC and DFW so have family and friends there.

Third, our properties are in Texas so DFW and Houston investors have a level of familiarity with the market they are investing in. They see the same thing we see in terms of population growth, job growth, economic outlook, etc.

 

Now let’s look at the Top 5 cities with the most Current Investors (removed Potential Investors).

 

Top 5 Cities with the most Current Investors:

  1. New York City: 18%
  2. Dallas-Fort Worth: 11%
  3. Los Angeles: 6%
  4. San Francisco: 5%
  5. Tied- Houston, Miami, Austin and Seattle: 4%

 

Ok, still making sense and for the reasons stated above. Large cities, places I lived, have family and friends residing, and, in three cases, are in the same state as our multifamily deals (Austin, Houston and Dallas-Fort Worth).

 

But here’s where the wrinkle occurs.

 

Let’s look at all the equity my investors have invested in my apartment syndications and what % of the total invested dollars is attributed to each city where investors live.

 

Top 5 Cities with % of Investment Dollars in Deals

  1. New York City: 18%
  2. Cincinnati: 13%
  3. Dallas-Fort Worth: 11%
  4. Miami: 7%
  5. San Francisco: 6%

 

…what in the Cincinnati just happened?!?!

 

Cincinnati isn’t a top 5 city of mine in terms of total # of Current Investors and/or Potential Investors.  In fact, to dig deeper Cincinnati only has 2.5% of my Current and Potential Investors living there. And only 3.5% of my Current Investors living there.

 

I am not from Cincinnati and, in fact, have only lived here for approximately 3 years. So, why does it represent 13% of all the equity invested in my apartment deals? The short answer is because I am actively involved in the local community. But that short answer doesn’t do the real lesson learned justice so let me elaborate more.

 

Here’s how I did it:

 

  • Host a local meetup. The first month I officially moved to Cincinnati (because my wife is from here and she’s the love of my life so I followed her to the city and now we’re here for the long-term) I started a meet-up. If you have time to ATTEND a meet-up then you have time to HOST a meetup. It doesn’t take that much more effort to HOST than it does to simply ATTEND and the rewards for HOSTING are exponentially greater. I did this to make friends in Cincy. I didn’t do it necessarily to generate investor relationships but that’s exactly what it did.
  • Host Board Game and Drinks nights at your house. This Friday my wife and I are having friends of ours, some of which are investors, come over to our house for a night of board games, drinks and dinner. Hosting events at your house as couples, along with couples, is fun and goes a long way to continue to build your friendship with those locally.
  • Consistent online presence that has an interview component to it. Or, in short, my podcast. I interview someone Every. Single. Day. on real estate investing and have released an episode for the last 1,197 days. There are multiple benefits for doing this and I won’t get into all of them but I will focus on one of the benefits and that is that every time I interview someone they then want to share it out to their audience which helps expand my reach. And, if I interview people in my local market that introduces new, local connections to me which can then turn into business relationships since I get to have dinner, drinks, etc. with them. Here’s a post I wrote on the step-by-step process to create a real estate thought leadership platform.
  • Volunteer then become a board member for that non-profit. I had no intention to meet investors when I started volunteering for Junior Achievement. But I have since realized that by volunteering for a cause I feel strongly about (Junior Achievement helps kids in underserved communities learn financial and entrepreneurial skills) I was able to connect with like-minded people and then become friends with them. I got on the board for JA in Cincinnati and have built friendships with people on the board which then turned into business relationship where they invest in my deals. You could take the same approach but make sure you genuinely believe in the cause and are doing it for the right reasons (i.e. helping further the cause’s mission) vs trying to grow your biz, otherwise it will fall flat and won’t be fulfilling for you.

 

By doing these simple things, you can build an investor network in your city that is perhaps stronger than any other network. When people personally know you they are more likely to trust you, recommend you to others, and invest larger. The beauty in this is that it’s helpful for you regardless of where you live.

 

Cincinnati is approximately the same size as St. Paul, Minnesota, Toledo, Ohio, Stockton, California and…Anchorage, Alaska. So, if you live in a city that is larger then there’s really no excuse to not having all the capital you need for your deals. If you live in a city that’s smaller than Cincinnati (300k population) then you can still apply these principles although it might require you to host your meetup in the next largest city next to where you live, that way you get better return on your time.  Regardless, apply these principals and you will quickly build a local investor network than can help you fund your deals.

 

In the comment section below, tell me how you will implement these proven money-raising tactics in your real estate business.

 

Make sure you subscribe to my weekly newsletter for even more Best Ever advice: http://eepurl.com/01dAD

                       

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

 

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