How to Instantly Gain Credibility with Passive Investors on Your First Deal

How to Instantly Gain Credibility with Passive Investors on Your First Deal

Syndication School’s recent lesson covers the important matter of raising capital by lining up passive investors. This is one of the more challenging aspects of syndication for new syndicators. Finding investors is one thing. Convincing them to invest with you is another thing. How can you establish solid credibility with these individuals so that they are willing to put their money on the line?

One idea is to establish one or more thought leadership platforms. The Best Real Estate Investing Advice Ever Show and Syndication School are great examples of platforms. Other similar ideas are to publish a blog or to start a YouTube channel. These all present you with the opportunity to showcase your expertise in a professional way. On a more personal level, you can host a meetup group in your area or online. The downside associated with using a thought leadership platform to gain credibility is the amount of time and energy that you must put into developing the platform. It may take years before you can use such a platform to showcase your expertise fully.

Another idea that may require less time is to create a strategic partnership. This may be with a person or an entity, such as a property management company. Even if you have not yet closed your first apartment syndication deal, your partnership will indicate that other major players in the industry know and trust you. Ideally, the property management company will have a great reputation and will be the company managing the new project after closing. Another idea is to partner with a multifamily professional, such as a consultant or a property owner. This person may not work in the same market or be affiliated with the project. However, he or she may be well-known and have credibility.

Your best option may be to rely on a property management company to generate credibility. This is because the management company will directly be involved in the deal after closing on a daily basis. There are four distinctive ways that a property management company may partner with you. One of these is to get the management company to take on a general partner position and to sign onto the loan. This option may work well if you lack the personal credentials to be approved for the loan and need more experience behind you. The property management company may also add liquidity and net worth to the loan application that facilitates loan approval. Generally, a property management company will be compensated in the form of a one-time guarantee fee or an ongoing ownership fee.

Another idea is to sign up a property management company as a limited partner rather than as a general partner. With this strategy, the property management company would have a financial interest in the property and would receive compensation based on the compensation structure for other limited partners involved in the deal.

A third option is for the property management company to bring on its own investors to add to the deal. With this option, the property management company may either be a limited or general partner. Often, the other investors have a passive or limited interest. This option is great because it brings more capital into the deal and adds another layer of credibility. Any time a property management company signs on a deal, it has a vested interest in running the multifamily project optimally. When it brings other investors on board, the management company’s reputation and relationships are at stake. This serves to further align the management company’s interests.

If you are unable to establish a good relationship with a property management company in these three preferred options, a final option is to simply give the management company equity in the deal. This is less ideal, but at least the management company has an ownership interest in the deal. By taking this approach, you are putting an experienced entity on the loan. If you proceed with this option, it may be most advantageous to give the management company a general partner interest. This is because it puts an experienced entity in direct control over the project’s operation.

Once you have established one of these methods and have a property management company on board, you can fully leverage the relationship. As you discuss your opportunity with passive investors, you can indicate that you are a credible person to invest with because of your relationship with an experienced management company. That management company is also a direct owner and investor in the deal. Because of this, the management company has a direct interest in the success of the investment as well as a direct role in its daily operations. More than that, if the management company will be a general partnership, it can strengthen your credit profile when you are applying for a multifamily loan. Often, those who are new to apartment syndication have trouble finding investors who are willing to sign on and with qualifying for a mortgage. These strategies cover both challenges.

You should be aware of the fact that your selected property management company will essentially be married to you on the loan. If you are unhappy with how they manage the property, your only options would be to buy them out or to sell the investment. With this in mind, it is crucial that you research management companies carefully before proceeding.

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

 

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The Pros and Cons of the Two Most Common Investment Tiers

The Pros and Cons of the Two Most Common Investment Tiers

Joe Fairless and Theo Hicks provide real estate investors who are learning the syndication ropes with valuable insight and advice via their Syndication School podcast. Recently, they have delved into the advantages and drawbacks of offering two investment tiers to passive investors.

The most common type of compensation structure offered with multifamily syndication deals is a preferred return system with a profit split. As an example, an investor may receive an 8% preferred return. On top of this, the investor would receive a 50% profit split on additional returns. Of course, there are variations to the return and split based on the IRR threshold.

While this compensation structure is profitable and appealing to many investors, it is a one-size-fits-all tier structure. Individual investors may have different investment objectives than accredited or more sophisticated investors. Specifically, one type of investor is looking for cash flow or a return that beats the stock market’s return. The other type of investor wants a lump sum return within a few years without the need for regular cash flow. When you offer a one-size-fits-all investment structure, your investment opportunity may not be appealing to a full block of potential investors.

To appeal to the broader range of investment objectives, some syndications are now offering Class A and Class B ownership options. With pros and cons to both options, it is important to understand more about them. Class A investors notably take their return behind the investment’s debt. This means that the property’s debts are paid, and the Class A investors then take their cut. Because of this, Class A investors generally enjoy a higher return than Class B investors do. On the other hand, Class A investors do not enjoy a profit split. They do not see a return greater than the agreed-upon amount through the sale of the property or if the property becomes more profitable. They share taxation benefits with Class B investors.

Notably, a Class A investor in an apartment syndication deal generally has a higher minimum investment than a Class B investor. Because Class B investors yield a lower monthly return and make a smaller investment, they sit behind Class A investors. However, both types of investors sit ahead of the general partners. Notably, this means that Class A investors get their chunk of the return first.

For those offering apartment syndication investment opportunities, the appropriate rate to offer these investors will be below the total return on the investment. Generally, they receive between 7% and 10%, and Class A investors receive the higher return. It is important to adjust these figures according to the property’s return so that the entity can afford to pay all investors as agreed. Notably, the general partners may have a different percentage split, so using multiple investment tiers can get complicated. This may be particularly true if you have numerous investors participating in the apartment syndication.

It is important to note that investors do not always receive their agreed-upon return in regular intervals. For example, there may be a year when the property can only pay a 5% return one year rather than a 7% return. That difference will carry forward and will be due through future operations or at a capital event, such as the sale of the property. Because Class A investors receive their cut first, it is more likely for Class A investors to receive their full return on a regular basis. However, in exchange for the possibility of not receiving a full return regularly, Class B investors get a profit split at capital events on top of their agreed-upon regular rate of return.

Given the unique structures of these investment opportunities, Class A investors receive a guaranteed, capped return on their investment. Class B investors may receive a lower regular investment with higher upside potential through capital investments. This means that Class A investors are usually those who are interested in generating regular cash flow from their real estate investments. Class B investors are usually accredited investors who are looking for a higher overall return without the need for regular cash flow. Because there may be a different minimum investment amount for Class A and Class B investors, the tiered structure could be more appealing to those who want to invest a smaller amount of money.

Some investors, however, may want to enjoy the benefits of both investment tiers. If this is the case, they may be able to make an investment in both classes. This gives them the ability to enjoy gains from ongoing profits and from capital upside. Notably, the fact that both options are available to investors through a tiered structure may attract more interest overall. At the same time, your multifamily syndication project is open to a larger pool of potential investors. This may make it easier to pull together all of the capital needed to move a deal forward.

Both tier classes have their strengths and drawbacks. A tiered investment structure enables investors to optimize the benefits that they are most interested in. Because each multifamily syndication project is unique, it is important for real estate investors to carefully analyze the numbers before determining the most advantageous investor split for their next deal. To learn more about syndications from Joe Fairless and Theo Hicks, check out the Best Ever Apartment Syndication Book and listen to additional lessons through Syndication School today.

 

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From Non-Profit Work to Real Estate Investing

From Non-Profit Work to Real Estate Investing

How Ellis Hammond Discovered His Superpower as a Real Estate Investor

Before he got into real estate, Ellis Hammond honed his brand-building skills as a fundraiser in the non-profit sector. When he realized he needed more money to finance his dreams and care for his family, he looked for options in real estate investing. He began his wealth-building journey by reading books and listening to real estate podcasts, including the Best Ever Show with Joe Fairless.

After learning the basics of investing, he dipped his toe in the water with a few single-family properties in his home state of South Carolina. As his confidence grew, Ellis looked for his next challenge, finding it in San Diego, California, where he invested in a duplex. Ellis lived with his family in one unit of the property while leasing the other unit for a profit, but he quickly found the limitations of this strategy.

 

Getting Started with a “Home Hack”

The “home hack” strategy involves purchasing a multifamily property and then living in one of the units while renting out the others for income. While Ellis made money with his first home hack and recommends this strategy to beginning investors, he discovered its limitations when he tried to scale up his income for a better quality of life.

A home hack isn’t a scalable source of income because it requires daily personal time and attention. To make money with a home hack, an investor has to personally live on the property and handle the maintenance, interior decorating, and landscaping for the duration of the investment.

Ellis first saw the limitations of this strategy while gardening in his backyard. He’s not an avid gardener, he says and doesn’t like shoveling dirt. It occurred to him that, as an investor, he should be using his time and skills more effectively by leveraging his comparative advantage, or what he calls his “superpower.”

 

The Search for a Mentor

With his talent for networking and fundraising, he knew he could deliver a big value to sponsors in real estate syndication. They often have excellent number-crunching skills and a knack for finding properties but typically lack interest in brand-building. Networking and brand-building were the superpowers Ellis could bring to the table.

While he was confident in his knowledge of real estate, Ellis wanted to find a mentor to guide him through the learning process. He began his search for a mentor by attending conferences and introducing himself to every sponsor he could find. With his outstanding communication skills, it wasn’t long before Ellis found the mentor he was looking for.

Part of Ellis’s superpower is his ability to educate himself simply by reading books and listening to podcasts. To listeners of the Best Ever Show, Ellis recommends two books that particularly inspired him. They’re Mindset: The New Psychology of Success by Carol Dweck and Switch On Your Brain: The Key to Peak Happiness, Thinking, and Health by Caroline Leaf. These books helped Ellis find a winning attitude that has persisted throughout his real estate investing career.

 

How Ellis Got Started in Apartment Syndication

Once he knew that he wanted to go into property syndication, Ellis got to work doing what he does best: building relationships. He introduced himself to sponsors who could use his networking and fundraising expertise in their operations. His goal was to find a mentor to teach him about investing in multifamily properties while managing his investments and locating profitable deals. He knew his effort would be fruitless unless he could bring significant value to the arrangement, so he extensively vetted each mentor before introducing himself.

Ellis credits his success in real estate to the due diligence he performs before approaching each sponsor. He’s created a checklist for others to follow when vetting property deals for themselves. Ellis explains that, so far, this checklist has helped him avoid bad investments and deals that might have been poorly suited to his strengths. He offers a copy of the checklist to anyone who signs up for it on his website.

 

Ellis’s Advice About Bringing Value to Property Syndication

The world of property investment is diverse. People with various talents work together to create value in places where none previously existed. For example, Ellis’s first home hack could generate around $100,000 in equity over an 11-month period because it had excellent potential when he found it. He explains that he and his wife “found the ugliest house on the best block in town” and invested their time and money into beautifying it for renters.

As he learned about property investing, Ellis began to understand the importance of using his strengths to bring value to investors and others in the market. With his gifts for fundraising in the non-profit sector, Ellis already had valuable skills to offer a potential partner.

Through years of honing his communication skills, Ellis learned how to speak to people in a compelling and meaningful way. Moreover, he knew how to build a brand while serving an audience with honesty and authenticity. As he educated himself about apartment syndication, he looked for a mentor who could find great real estate investments while making full use of Ellis’s existing fundraising network.

 

Creating Synergy with Other Investors

During his search, Ellis saw that most sponsors were excellent managers who were comfortable handling daily operations but not as good at networking or fundraising. However, networking and operations management are equally essential functions of any successful property syndication. They require skills ranging from public speaking to bookkeeping, and few people excel in all areas.

In a successful operation, a diverse group of people must combine their strengths to minimize their weaknesses. Ellis uses the word “synergy” to describe this all-important personal chemistry. It’s a harmony of personalities that enables cooperation within a group of people. Ellis found that synergy with a Texas-based syndication sponsor who became his mentor.

With his personal network and brand, Ellis believed he had the perfect pitch for a prospective mentor. He found his niche in property syndication as a communicator and fundraiser, and now he encourages others to discover their investing superpowers.

 

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Choosing the Type of Real Estate You Want to Invest In

Choosing the Type of Real Estate You Want to Invest In

Congratulations! You are choosing to think about investing in real estate. I am glad you got to this point in planning for your future. Real estate is a great place to grow wealth by making your money work for you. In fact, if done correctly, you can amass great wealth. This is not meant to replace your own homework and research, rather it is meant to give you a jumping-off point.

I talk with people weekly about real estate. I invest personally and I advise people about their investments. You see, I am a lawyer, and while I am not your lawyer, people come and see me about the matters below on a regular basis. I hope you find some good nuggets in here and they help to launch you into a great success.

 

Choosing What Kind of Real Estate You Want to Invest In

The first step to investing in real estate is figuring out that you want to. Good job! You know you want to invest in real estate. That part is now behind you. But, how do you do it? My intention is not to point you in any direction, rather it is to give you information about how YOU can decide what direction YOU want to go.

In this short outline, I want to introduce you to commercial and residential real estate — they are similar but very different. For the purposes of this blog post, I want to focus on residential real estate and the kinds of rentals, how you rent those out, and what other ways to invest in real estate exist for you.

 

Commercial

Commercial real estate is basically anything that is not residential, meaning you are not living in it. While you may think you live at work, you actually do not. Commercial real estate is anything that is held for business or commercial purposes. A good example would be the fast-food restaurant down the road. That building and the land on which it sits is commercial space.

There are many types of commercial properties out there. There are retail spaces, office spaces, mixed-use (office and residential), mixed-use (retail and office), industrial, storage, hotels, and on and on. Each type of property is unique in and of itself with different classes for office (A–C), and air-conditioned or not for storage.

Commercial real estate has different tax treatments for depreciation and 1031 exchanges or like-kind exchanges. It is important for you to understand that things work differently in commercial real estate than they do in residential real estate. While this is a primer for the new residential real estate investor, just know this area can be complex and very competitive.

 

Residential

Residential real estate is often where most new investors find themselves when they start investing in real estate. Whether someone inherits a house from a relative; outgrows their current house, buys another one, and decides to keep the old one to rent out; or they have found themselves in a situation where the opportunity was just right; most new investors find themselves involved in residential real estate.

There are myriad types of residential real estate out there. Anything that people live in can be rented out. Just think about that for a minute with apartments, mobile homes, houses, duplexes, triplexes, quadplexes, condominiums, fifth wheels, and on and on.

 

STRs

Short-term rentals (STRs) have been made famous by companies like Vrbo and Airbnb. These companies have amassed fortunes by allowing the average person like you and me to rent out our homes or other properties to the general public. There are other platforms out there that provide the same service, but for ease of reference, these are the ones that have found their way into the public lexicon.

STRs provide better returns than most long-term rentals (LTRs) because of the unique price points they are able to charge per night of stay. This unique animal has become a popular alternative to hotels with price points ranging from very inexpensive to quite costly depending on the level of finishes, location, rooms, and amenities available to the guests.

Many STRs have drawn the ire of city councils and homeowner associations (HOAs). The reasoning for such conflict ranges from unruly guests using properties as bachelor and bachelorette party pads to the properties not being designed for typical residential uses with small closets and little cabinet space in the kitchen. These issues act as double-edged swords to the investors that build properties specifically for STR usage. However, depending on the capital investment and the return on that investment, many STR investors find this area of the residential investment market very lucrative.

Below are some of the types of properties that STR owners rent out on a regular basis and locations for you to look into for your own research.

  1. Cabins — Gatlinburg, Tennessee; Big Sky, Montana
  2. Apartments — New York City, New York; Chicago, Illinois
  3. Condos — Destin, Florida; Scottsdale, Arizona
  4. Houses — Nashville, Tennessee; Lake Tahoe, Nevada

 

LTRs

LTRs are a slower and steadier way to make money over time. Compared to STRs, LTRs make a lesser amount of money each month as tenants pay their rent. That being the case, there is usually less wear and tear on the property and market fluctuations do not correlate to larger losses in revenue, e.g., COVID-19. Further, LTRs normally do not have a conflict with city councils and HOAs.

Below are the two types of LTRs that real estate investors discuss most frequently:

  1. SFRs — Single-family rentals, which are stand-alone structures that usually house one family unit.
  2. MFRs — Multifamily rentals, which are usually duplexes, triplexes, quadplexes, apartment buildings, and mobile home parks.

 

Fix-and-Flip

Fix-and-flip investing is when a property is purchased, usually for a discount of the market rate. That discount provides the investor the opportunity to “add value,” a term the real estate investor comes to know well. Adding value to a property increases the market value of the property and allows the investor to increase the profit made on the sale of the property.

There are several television shows that focus on fix-and-flip investors. Typically, the investor will purchase a run-down property, and over the course of 30 minutes to an hour, they will deconstruct the property and sell it to a new owner for a tidy profit. This type of investing can be very profitable if done properly.

Bear in mind that if you do this type of investing, controlling your costs is imperative. Remember, unless you are going to do all the work yourself — a daunting task for even the most experienced investor — you will have to pay contractors and sub-contractors to perform services such as electrical, plumbing, drywall, roof repair, pest control, etc.

 

BRRRR

BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. This house hacking idea is brilliant in its simplicity. Not something recommended for the first-time real estate investor, this is a good way to achieve quicker financial gains over a shorter period of time.

For example, say Pat buys a property for $70,000 in an area where comparable homes are selling for $130,000. The rents in this area are $1,300 per month. Pat’s house could earn him the same rent if he made some improvements to the property.

Pat buys the house for $70,000.

Pat puts $30,000 down on the house.

Pat has closing costs of $3,500.

Pat takes a mortgage for 15 years at 4.5%.

The monthly payment is $332.

Pat makes the following improvements for $30,000:

  • New appliances in the kitchen (refrigerator, oven, dishwasher, and microwave) for $6,000.
  • Replace first-floor carpet with luxury vinyl planking (LVP) for $7,000.
  • Update 2.5 bathrooms with paint, new lighting, two new fiberglass shower/tubs, and LVP flooring for $12,000.
  • Landscaping for $2,500.
  • Paint the exterior of the house for $2,500.

With these improvements, Pat has invested $100,000 in this property. It is now ready to show to potential tenants for a rental rate of $1,300 per month. Once this property is rented for $1,300 per month and can show approximately six months of rental history, Pat goes to his bank and refinances the property.

Through the refinance process, the bank appraises the house at $130,000. Pat takes a mortgage for 70% of the loan to value (LTV) of the property and is provided a 15-year mortgage at 4.5% with closing costs of $3,500 for a monthly payment of $791.

He is provided a check at closing for $91,000. This represents Pat’s original $30,000 down payment back, $30,000 in improvements, and $31,000 in equity handed back to Pat. Pat made $31,000 back and the tenant who is paying $1,300 a month is paying Pat’s mortgage of $791. Pat is grossing $509 each month from this property. This example does not account for depreciation, appreciation, property taxes, and insurance.

Through some searching and identifying the property, Pat was able to find a good property to invest in and turn the property into a cash-flowing rental while getting his money back and making some money along the way. This type of investing requires diligence on the part of the investor that is not required of those investors who buy turnkey properties that are rent-ready when purchased.

 

Good luck out there!

 

About the Author:

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

 

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11/15—3 Must-Haves for Passive Investing in Syndications

3 Must-Haves for Passive Investing in Syndications

Passive investing in real estate syndications is an excellent way to build wealth without the headaches of being a landlord. For busy professionals, this could be a better option than flipping a house as a side hustle or managing your own rental portfolio on nights and weekends. To be successful at passive investing, savvy investors need to determine what they want (and don’t want) to see in a deal.

Recently, I interviewed Lee Johnson who has invested in 21 real estate syndications. He has worked with multiple groups and has some hits and misses in his portfolio. We talked about what he’s learned and what he looks for in a multifamily syndication deal. What stood out are the three must-haves for his investments: market growth, a preferred return, and a solid debt service coverage ratio.

 

Market Growth

Every real estate professional has heard that location is the #1 rule of real estate. And while location is critical, many people simply focus on population growth and miss the real key factors that indicate success for a multifamily investor.

When I launched Target Market Insights, the show’s focus was to uncover insights to help investors find the best places to invest. Population growth is one key metric to review, but there are other factors to determine when selecting a market. Along with the population, pay attention to increases in jobs and rent. Job growth and rent growth indicate a healthy market with strong demand, factors that bode well for real estate investors.

It’s worth noting that these metrics can only provide a look back, not necessarily the picture moving forward. Therefore, it’s important to understand the underlying factors driving a market to determine if the trends are likely to continue.

 

Preferred Return

A preferred return is a return hurdle that must be met before general partners participate in profits. This provides an incentive for the general partners to deliver on returns, otherwise, they will not make a profit. Typically, these range from 6% to 12%, with a 7% or 8% preferred return being most common.

A preferred return is not a guarantee. It is also not the return amount you should expect annually. It is simply the hurdle that must be met before the GPs get their share of the equity. Every deal does not have a preferred return and in these cases, returns are split based on the equity percent. With a preferred return, investors get paid first, and the GP team profits only after crossing the hurdle.

 

DSCR

Debt service coverage ratio is a common metric that lenders use to measure the income remaining to cover the loan after accounting for expenses. Typically, banks want to see a 1.2 or 1.25 DSCR, meaning that the net operating income (NOI) is 1.2 times the debt service. The higher the DSCR, the more cash there is available to cover the loan payments. A lower DSCR indicates the property may struggle to cover the mortgage.

For distressed properties or heavy value-add deals, a lower DSCR is expected. These properties will not usually qualify for traditional loans as lenders see these as higher risk. With greater risk typically comes greater upside, so it’s not a reason to disqualify a deal just yet. You simply want to understand these risks, how they are being mitigated, and that the reward justifies the additional risk.

Understanding where there is risk in an investment is the first step to determining if a deal is right for you. Paying attention to market dynamics, along with the deal structure and in-place cash flow are great places to start. Be sure to talk to potential partners to understand their investment philosophy and make sure it aligns with your investing goals. Whether you have done 20+ deals or you are looking for your first, developing criteria for investing will enable you to make sound investments and stay in control, even as a passive investor.

 

About the Author:

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

 

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From Just Over Broke to Thriving with Andy Cason

From Just Over Broke to Thriving with Andy Cason

A simple gift from his father opened up the world of real estate investing for Andy Cason. Since 1998, Andy has been a full-time respiratory therapist making a comfortable living. But upon the realization that he needed to have a financial plan in place to afford college for his two sons, he remembered the book his father had given him: The Real Book of Real Estate: Real Experts. Real Stories. Real Life.by Robert Kiyosaki.

One chapter into the book, Andy decided that the entire real estate concept wasn’t for him as it felt vastly complicated. But he continued to hear about the substantial financial gains real estate investing could offer from the radio and friends. The continuous discussion made the concept more attainable for Andy.

“The way we were operating was just over broke. It wasn’t sustainable if we wanted to have a nice vacation or two every year and afford college without any worries,” Andy said. “I knew I was going to have to start taking this real estate stuff seriously, and that’s when I started looking into it more, but I never dreamed of syndications or apartments until a few years later.”

Like many investors, Andy began his real estate education with single-family homes. He acquired his first single-family property at the beginning of 2017, and his portfolio soon began to grow substantially as he acquired an additional four single-family properties.

As he started to feel comfortable with active investments, Andy grew interested in finding other investment opportunities to expand his portfolio beyond single-family homes.

“I kept wanting to get a duplex here and there, but people scooped them up before I could get to them. So, I just sat with the single-family homes and continued to learn. I started to listen to various podcasts and use Bigger Pockets.”

Starting with the resources he had, Andy started investing in 506(c) syndication deals at an unaccredited level. With his equity mainly tied to his single-family properties, Andy closely managed his newly diversified portfolio to move closer to the accredited investor status. To fully maximize his earning potential with multifamily syndications, he sold some of his single-family properties.

As Andy continues to balance the different needs of active and passive real estate investments, he is still learning which asset type he prefers. However, he firmly believes that syndications are a vital component of his real estate success.

“I don’t know if I prefer one type of investment over the other. I think I might prefer syndications better in the future, but the jury is still out. The first syndication I had didn’t cash flow as well, but the appreciation is looking good,” Andy said. “I think going into single-family homes was perfect to start, but as I get older, I can see all of my investments turning into syndications.”

An often overlooked component of success for any real estate investor is their ability to keep themselves organized and focused. Throughout his time investing, Andy learned that staying organized is critical to success and reaching his wealth generation goals.

“It’s probably a basic thing, but I’ve learned over time how to be better organized,” Andy reflected. “I think the paperwork and the tax preparation with my CPA are what I’m still learning the most about.”

The overall purpose of Andy’s real estate journey began as a way to fund the traditional expense of college. Due to Andy’s due diligence and forward-thinking with his real estate investments, his sons will not only be positioned to have college tuition covered, but they’ll also have the option of attending private preparatory education.

“It’s not clear how easy it’s going to be, but there’s a statement that says you overestimate what you can accomplish in one year but underestimate what you can accomplish in 10 years. I think that’s going to hold true,” Andy shared. “I think I can see being ahead of the game as far as getting into college and making it easier since I started going into syndications.”

 

About the Author:

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

 

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Is the Legal Fee for the Deferred Sales Trust Worth It?

Is the Legal Fee for the Deferred Sales Trust Worth It?

When it comes to selling a highly valued business, cryptocurrency, or property, owners naturally focus on the costs of selling, which can run into the tens of thousands or even hundreds of thousands of dollars. At the end of the day, we all want to maintain and safeguard what we’ve worked so hard to achieve. Sellers who are considering using the Deferred Sales Trust™ (DST) occasionally comment that the additional legal fee to set up the DST is too high; however, after spending time looking at the numbers in detail, most sellers discover that the “opportunity cost” of not implementing the Deferred Sales Trust is substantially higher upfront and over time. Take a look at the following two cases as an example.

Case #1

A married couple ready for retirement plans to sell their $1 million asset and will owe $250,000 in capital gains tax. The remaining funds will be reinvested to provide a consistent stream of income until retirement. The DST “one-time” legal fee to set up the trust structure would be 1.5% of the sales price, or $15,000 in this case. The seller only pays this cost if they sell and utilize the DST. What is the “opportunity cost” of not implementing the DST for these sellers in terms of “time value of money”?

The capital gains tax of $250,000 would be the initial cost of not employing a DST, leaving $750,000 to reinvest. What good would it do these sellers to have an extra $250,000 to invest utilizing the DST? Let’s imagine the $250,000 was conservatively reinvested to provide a 5% income stream: the breakeven point to cover the $15,000 legal charge in slightly over a year. From this point forward the seller’s legal fee has been recouped and an additional $12,500 in income will be generated each year!

Another benefit of not employing the DST in this deal is the possibility of being in a lower tax rate. This is accomplished by not accepting the entire amount of money at once, but rather paying it out in installments over time. For income beyond $628,301, the existing federal tax bracket rates (married taxpayers filing jointly) would be taxed at a rate of 37%. Assuming these sellers are currently in the 24% tax rate, not taking advantage of the DST would result in a 13% increase in their total income for the year. (2021 IRS Tax Brackets) When looking at the cost from this perspective, the breakeven threshold could be reached as soon as taxes are paid.

Not employing the DST in this deal would also bring on the possibility of having too much equity inside of their taxable estate. Let’s say the married couple’s net worth is over $22 million. The net proceeds being inside of their taxable estate would cost the estate 40% should no other planning be done. The DST solves this by removing ownership of the asset in a creative way at the close of the transaction and thereby removing the equity from the taxable estate.

 

Case #2

Another married couple in California used the Deferred Sales Trust to help them sell their $5 million Colorado multifamily property without a 1031 exchange. The biggest stumbling block for this couple was capital gains and estate tax, which was estimated to be roughly 32% of their profit and 40% of their total equity in the property (assessed on the future passing of their estate).

This was computed by adding the following to their $5,000,000 profit:

  • State of Colorado (where the property was located) capital gains tax rate of 4.63%.
  • Federal capital gains tax rate of 20%.
  • Medicare tax of 3.8%.
  • Depreciation recapture of approximately 3%.

Total combined around 32% of $5 million = $1.6 million in capital gains tax liability 😬

Estate tax of approximately 40% of $5 million = $2 million 😬😩

The couple was not ready to sell if it meant a $1.6 million tax bill at the close of escrow and another $2 million estate tax at the passing of their assets to their children. In order to solve the above tax challenge, they needed to defer this capital gains tax and eliminate the estate tax once and for all. To solve their tax problem, this couple decided in January of 2021 to complete a Deferred Sales Trust Plus.

The “opportunity cost” in the above scenarios for not using a DST would cost these sellers much more than the “one-time” legal fee upfront. In making any financial decision, looking at the upfront costs is important, but be sure to factor in the “value” (return) and other “benefits” as well.

 

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

  1. Do you have any highly appreciated assets (Bitcoin, CRE, primary home, business, carried interest) that you’d like to sell, delay the tax, diversify the money, and then invest in tax-deferred real estate or securities?
  2. What would it mean to you to convert your highly appreciated asset — which may or may not be providing any or enough cash flow — to cash flow from passive or active real estate or other investments?

 

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

 

About the Author:

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

 

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Should You Hire a Property Manager?

Should You Hire a Property Manager?

“Master your strengths, outsource your weaknesses.” This is a quote from Ryan Kahn, founder of The Hired Group.

Property management might not seem like a task anyone would naturally take a fancy to. There are lots of mundane tasks and unforeseen occurrences to deal with. This is why many landlords, especially in multifamily, hire a property manager or property management company to oversee their real estate investment(s).

In an ideal world, investors would be perfectly capable of keeping their properties profitable and expanding their portfolios at the same time, but in the reality that we live in, a property manager is likely your best bet against physical drain and mental burnout.

Prior to the twentieth century, property owners usually took it upon themselves to manage their own properties. It was cost-effective and since housing was in such demand, they only had to do the minimum to keep the houses standing. Tenement houses with poor ventilation, bad (if any) plumbing, and generally unsafe living conditions were all too common in those days.

Things started to change around the beginning of the twentieth century, however, when residential slums became so rampant that the federal government had to take notice. There was a crackdown on negligent landlords and new policies were put in place to ensure houses had a somewhat standard level of livability. By the end of the First World War, the cities had become a hub for middle-class occupations and rich tenants.

Things changed during the Great Depression. Property owners were forced to default on their payments and the banks had several properties they couldn’t manage. This situation gave birth to the first iteration of property managers, caretakers. Their job description was to keep the properties clean and well-managed and to see that the tenants were well taken care of. Promotion and apartment leasing was still the responsibility of the owners.

The advent of the Institute of Real Estate Management (IREM) and the post-World War II railway system changed the scope of property management. That was when property managers first emerged as we know them today.

 

What do property managers do?

A property manager is an individual or firm hired on behalf of the owner to oversee, manage, maintain, and administer a real estate rental. The exact responsibilities may vary but generally, a property manager is responsible for collecting rent, attending to the tenants’ complaints, finding new tenants, leasing vacant apartments/units, overseeing maintenance, and carrying out light repairs. Based on Investopedia’s definition, “a property manager acts on behalf of the owner to preserve the value of the property while generating income.”

Property managers are usually employed by investors who are either too busy or just not inclined to manage the properties themselves.

 

Benefits of hiring a good property management company

There are a number of benefits you can derive from working with a property management company with a proven record of turning out a profit on real estate properties:

 

More free time

Managing a property yourself requires you to be available 24/7 to attend to tenant complaints as well as leasing inquiries. Working with a property manager allows you to take time off for yourself. Rather than spending your weekend resolving plumbing issues, you can take some time to unwind, relax with some friends or work on expanding your portfolio.

 

The experience of a seasoned property manager

Working with a good property management company affords you years of experience in managing real estate. This company, if they’ve been in the industry for long, is likely to have established, proven methods for dealing with certain issues. A good property manager comes with an in-depth understanding of housing laws and landlord-tenant policies. This knowledge might prove vital in helping you avoid legal problems and lawsuits.

 

Efficient rent handling

A good property management company usually has a reliable process for collecting rent regularly and with little friction. When the rent is not forthcoming, the property manager usually has the authority to carry out evictions.

 

Shorter vacancies

Marketing is one of the many responsibilities of a property manager. A good property manager knows how to advertise vacant homes and makes sure they are occupied as quickly as possible. They also know how to find good, long-term tenants and keep them satisfied, so that they are more likely to renew their leases.

 

Tenant screening

A professional property manager knows how to screen out bad tenants and select only those who will pay their rent when it is due and present fewer problems generally.

 

Property management services cost

Property managers generally charge their primary fees in two ways: a fixed monthly fee or a percentage of the total rent collected. This percentage may be up to 10% of the total monthly rent collected.

There are other secondary fees such as setup fees, late payment service charges, eviction fees, leasing fees, maintenance fees, and so on. A property management company may include all or some of these fees in a single overall management service bundle. More commonly, you may be required to pay for the separate management services as they are needed.

Here is a list of some fees you will likely be required to pay and their breakdown:

 

Fixed management fee or monthly rent percentage

Some property management companies choose to collect a flat rate per month instead of a monthly percentage. This rate is usually charged based on the size of the home, locations, and the overall services offered. This fee usually hovers around $100 per month. This route is preferred if the property is vacant.

Most companies collect a monthly percentage ranging between 8% and 12% of the monthly rent instead. Gross monthly rent of $2000 would incur a management fee of $160 based on a percentage fee of 8%.

 

Setup fee

Property management companies often charge a setup fee of about $300–$500. This fee is charged to set up your account with the company. It may include inspection costs and the costs of notifying the tenants about the new management.

 

Leasing fee

The leasing fee, also known as the tenant placement fee, is a fee charged by the property manager to lease vacant property to the tenant. Some companies charge half or all of a full month’s rent; others opt for a flat fee, while some don’t charge a special rate for leasing.

 

Late payment charges

When tenants defer the payment of their rent, the landlord might decide to collect a late payment fee. Property management companies usually collect 25%–50% of the late fees.

 

Maintenance fees

A maintenance fee is charged monthly and may be included in the monthly management fee. It is important to discuss with your property manager and arrive at an understanding of what routine maintenance is appropriate given the age of the building. This allows you to set aside a fund each month for maintenance. This usually excludes major repairs as those are paid for separately.

 

Eviction fees

Property managers often charge a couple of hundred dollars for handling evictions. This fee is charged for every eviction and includes the associated court costs.

 

What should you look for when hiring a property manager?

There are certain key qualities you should look out for when hiring a property manager to oversee your real estate property.

 

Trustworthiness

This is perhaps the most important quality of a property manager. A lack of trust will not only affect communication and relations between the landlord and manager but will also impact the tenants negatively. A trustworthy property manager is crucial to a successful real estate investment.

An untrustworthy PM may present you with a shady contract that appears to save you money but costs more in the long run. This is one reason why you should always go over the fine print carefully.

 

Tenant marketing and retention

A good property manager should be able to occupy vacant units within two to four weeks. Your best bet is to find someone who is excellent at advertising, knows their way around multiple channels, and is capable of highlighting the best features of a home.

Advertising doesn’t amount to much if the tenants don’t stay for the long term. Your property manager should be capable of making the tenants satisfied and comfortable by resolving their complaints and attending to their requests. This will serve to make the tenants more willing to renew their leases.

 

Background and qualifications

Some states require property managers to be licensed real estate agents. It is definitely worth it to run a background check to confirm your hire is right for the job. The property manager also has to be experienced with your specific property type. An experienced manager will be able to deal with the intricacies associated with the rental and turn up a higher profit for you.

 

Tenant screening process

Ask your prospective property manager how they screen tenants. Tenant screening is a process that must be gotten completely right so you don’t fall foul of the Fair Housing Act. The ideal property management company has an established process for screening applicants. This process must cover the same questions, background checks, and prerequisites for every applicant.

 

Average monthly fee

Whether you’re paying a flat rate or a monthly percentage, maintenance and miscellaneous fees can often rack up your management expenses. You should try to find out what other fees may occur along the line and do your best to have them included in the monthly payment, especially if they are recurring.

 

Active real estate portfolio

The company managing your property should have a stake in the real estate market, preferably the one you’ve invested in. Evaluating the success of their investment should tell you if they can adequately provide the services you require.

 

Tech stack

Technology has evolved to catch up with the breakneck speed of property management. A good PM knows how to seamlessly integrate tech into their service offerings.

According to Chuck Hattemer of Poplar Homes (formerly Onerent), your ideal property manager is someone “who knows how to leverage the data about your property to make precise and proactive recommendations.”

 

Drawbacks of hiring a property manager

Expense

While it is true that price should be no object for a good investment, the cost of hiring a property manager can sometimes be so exorbitant that it outweighs the benefits. Some property management companies further complicate matters by refusing to be upfront with fees. Managing your property personally may appear to be the cost-effective option and it may very well be, if you have the experience and a small number of homes (one or two) to oversee. Alternatively, you can opt to negotiate down to the last penny and make sure you’re aware of every fee ahead of time.

 

Lack of involvement

A property manager allows you to spend less time on the property. This frees up your schedule and allows you to invest your time and attention gainfully.

The downside to this is a property manager can’t really treat your personal investment the same way you will. They probably have more properties they manage.

 

Should you hire a property manager?

So, when should you consider hiring a property management company? You should reach out to a property management company if:

  • Your portfolio contains a considerable amount of multi-unit rental properties.
  • You’re not bothered about the cost and the likely expenses.
  • You prefer putting your time into other ventures.
  • You don’t live close to the property, and you are not interested in moving.
  • You prefer a hands-off approach to management.

A good property manager can save you a lot of time and effort. You may or may not need one depending on the size of your portfolio and your preferred approach to management, but you can’t go wrong with a reliable and seasoned property manager.

 

About the Author:

Agnes A Gaddis is a specialist writer for real estate SAAS companies. She is a contributing writer for Credit.com, CXL, Getresponse, and Inman news. She’s a big fan of caramel coffee and mystery novels. Get in touch with her on Twitter @Alanagaddis or visit her website, agnesgaddis.com.

 

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7 Metros Where Rents are Growing the Fastest

7 Metros Where Rents Are Growing the Fastest

Since the pandemic began, apartment rents have been growing across the country at a staggering rate. According to The Business Journal and RealPage, the top 30 metros have seen rents grow by 10% since Q1 2020. Some markets experienced more explosive growth, jumping by more than 20% during this time. Even markets like Detroit and St. Louis grew 12.9% and 11.3%, respectively.

It’s unlikely that this level of growth is sustainable, so it’s still important to focus on the fundamentals driving each market. This includes population and job growth, along with new apartment developments. The markets that had these factors in their favor outperformed the 10% average.

On the other side, high-priced, coastal markets are still recovering and have not reached their pre-pandemic rents. New York-White Plains has seen rents drop by 1.5% since Q1 2020. San Jose-Sunnyvale-Santa Clara, CA has lost 6.6% in rents, while San Francisco-Redwood City has seen rents drop by 12.4%.

The good news is these markets are beginning to recover. However, some residents have no plans to return to high-priced markets. Forward-thinking employers are offering remote work, giving employees the option to live anywhere. And this location flexibility gives businesses more negotiating power with local municipalities. Recently, Tesla announced that it was leaving California for Texas as a result of its policy concerns. It’s worth noting how other companies respond and the impact it has on demand and rent growth going forward.

For now, check out seven U.S. metros with the fastest-growing rents. And be sure to view the full list from The Business Journal.

 

7. Sacramento-Roseville-Arden-Arcade, CA

Rental Rate Change Since Q1 2020: 19.8%

 

6. Salt Lake City/Ogden/Clearfield, UT

Rental Rate Change Since Q1 2020: 19.8%

 

5. Las Vegas-Henderson-Paradise, NV

Rental Rate Change Since Q1 2020: 22.5%

 

4. Riverside-San Bernardino-Ontario, CA

Rental Rate Change Since Q1 2020: 22.6%

 

3. Jacksonville, FL

Rental Rate Change Since Q1 2020: 23%

 

2. Tampa Bay-St. Petersburg-Clearwater, FL

Rental Rate Change Since Q1 2020: 23.7%

 

1. Phoenix-Mesa, AZ

Rental Rate Change Since Q1 2020: 26.2%

 

About the Author:

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

 

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Save Time and Money by (Smartly) Putting Your Money to Work

Save Time and Money by (Smartly) Putting Your Money to Work

Putting your money to work effectively while mitigating risk is an important goal of today’s real estate investors. Dan Kryzanowski is an experienced commercial real estate investor and hard money lender. Notably, he is Executive Vice President at Rocket Dollar. In addition to focusing on managing his own real estate investments and carving out a wonderful life for his family in Austin, he helps other investors achieve similar goals and save time in the process.

Specifically, through Rocket Dollar, Kryzanowski helps individuals save time and energy by showing them how to tap into their self-directed IRA or solo 401(k) account for investment capital. In fact, he states that self-employed individuals who have 1099 income can defer as much as $62,000 annually, and this doubles for married tax filers. With this money, individuals can create a healthy income stream by developing a real estate portfolio with investments in multifamily, self-storage, and more.

While several other companies offer a seemingly comparable service as a custodian to a self-directed IRA account, Dan Kryzanowski and Rocket Dollar stand apart. Rocket Dollar is not a custodian. It provides checkbook control for IRA accounts. In addition, it offers services for solo 401(k) account holders. For only $15 per month, Rocket Dollar helps individuals optimize the power of their investment accounts and save time in the process.

According to Dan Kryzanowksi, there are two primary types of investors. One group of individuals does extensive due diligence. Then, the investors prefer to make the investment and move on to the next opportunity. Often, these are the investors who initially give Rocket Dollar control over an initial tranche of $100,000. The second group of individuals is investors who are venturing into the water slowly and perhaps for the first time. These investors may be more willing to initially invest up to $25,000. Kryzanowski also recognizes that some investors are first-time syndicators who are trying to raise funds from their network of colleagues, friends, and family. For these individuals, Rocket Dollar provides a short snippet that can be inserted into email canvassing efforts. This snippet talks about how investors can use their self-directed IRA or solo 401(k) funds to make the investment.

Rocket Dollar’s business model is simple. It collects a flat $360 annual fee, which equates to approximately the cost of a monthly Netflix subscription. This is the company’s fee to cover its administrative costs, and the fee is flat regardless of the size of the portfolio or the complexity of its investments. This annual fee is primarily how Rocket Dollar raises revenue. As part of the service that it offers to subscribed members, Rocket Dollar hosts webinars, podcasts, and other types of informational sessions. These are designed to help investors make well-informed decisions with a high level of confidence.

While Rocket Dollar educates individuals about their options, it does not offer financial advice. It specifically helps investors to see the time-saving benefits associated with checkbook control as a means for diversification. Dan Kryzanowski sheds light on the fact that Rocket Dollar is specifically affiliated with between 300 and 500 partners that offer real estate investments, such as syndications. However, Rocket Dollar is affiliated with partners outside of the commercial real estate realm as well.

Dan Kryzanowski delves into the fact that there are $10 trillion invested in IRAs alone, but only $100 billion of these funds are in self-directed IRAs. While self-directed IRAs have been available for almost five decades now, relatively few individuals are taking advantage of them. He acknowledges that individuals who have greater control over how their retirement assets are invested may have a greater return. However, individuals keep their money locked up in a traditional IRA with a relatively minimal number of investment options until they are at least 59.5 years old. Putting your money to work as soon as possible through a checkbook IRA allows individuals to take control of their finances.

Awareness and knowledge are two obstacles that prevent many people from taking advantage of a checkbook IRA. These are prime objectives that Rocket Dollar strives to address through its educational and support services. The concept of IRA investments has largely gone under the radar with regard to social interaction. Kryzanowski specifically strives to create a buzz about this investment opportunity through education.

Outside of Rocket Dollar, Dan Kryzanowski is an avid investor. He has a multifamily property near the commuter corridor in Seattle as well as 10 single-family rentals. He sees Seattle’s commuter corridor as a great place to invest in because of the stability of Amazon and other major employers in the area. Regardless of whether he is investing in commercial real estate himself or as a hard money lender, he looks heavily at the location as well as the individual. He specifically mentions a multifamily investor who has consistently made payments on an 8% note for the last 15 years. He has also invested as a silent equity partner in five restaurants, and he recommends taking advantage of these opportunities in smaller investment amounts through crowdfunding platforms.

When Kryzanowski reflects on his overall professional and investment activities, he stresses the importance of putting your money to work while also saving time. Time is a limited resource, so he enjoys helping others put their money to work without the burden of filling out form after form to make an investment. At the same time, he is willing to accept a slightly lower return on investment on a quality hard money loan scenario because of its simplicity.

In hindsight, Dan Kryzanowski stresses the importance of knowing real estate laws before making investments. He lost a healthy sum of money on a residential real estate investment in Austin years ago simply because he did not understand local laws. He also advises splitting your investment funds between debt and equity for enhanced portfolio management.

 

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Using Credit Loans for Real Estate Investments

Using Credit Loans for Real Estate Investments

There are a ton of possibilities when investing in real estate. In addition to the types of investments you can make, such as a single or multifamily property, you also have options for funding your investments. One of those options is credit loans.

 

What Is a Credit Union?

First things first, let’s go over what a credit union is. A lot of people don’t really understand the distinction between credit unions and banks.

In America today, over 100 million people belong to credit unions. Some people belong to them simply because they worked for a particular organization, or their parents signed them up. Others join credit unions for the benefits they can provide for their members.

Essentially, a credit union is a cooperative financial institution. It is owned by its members and run by an elected board of directors. Not only does this give members greater control over interest rates and other factors affecting their bottom line, but it also gives them access to credit loans with more favorable terms.

Since credit union members often have real estate investment needs, credit unions fund a variety of residential and commercial property investments.

 

Why Use Credit Unions?

There are several benefits of using credit loans to fund property ventures. One benefit, in particular, is the lack of a pre-payment penalty. That’s right; no credit union in the country is able to assign or enforce pre-payment penalties.

Credit loan rates are attractive as well. Credit unions are typically able to offer lower interest rates than banks, but now rates are lower than ever. Since you are not locked into a loan when working with a credit union, you can take advantage of this declining rate market.

 

Do Credit Unions Provide Loans for Apartments?

Yes, credit unions provide loans for multifamily apartments, single-family dwellings, warehouses, office space, and nearly every type of property. Credit unions also network with other credit unions across the country. This means if you want to do something, chances are there is a credit union willing to work with you.

For example, let’s say you have a 20-unit building currently rented and stabilized, but you want to make some renovations to increase its value and profit potential. The odds are in your favor of finding a credit union to back your rehab costs. Of course, its current as-is value, as-completed value, and the renovation costs will be taken into consideration.

 

How Do I Qualify for a Credit Loan?

Unlike the big banks, funds, and investment companies, credit unions actually want to know who they are dealing with. This is true whether you are just starting out or have already executed several profitable property deals. They want to know your story.

They also want you to get to know them. Whether it’s a five- or seven-figure loan request, you can speak to whomever you want to get your questions answered, and in many cases, even meet the CEO.

Of course, credit unions will also want to look at a property’s financials. However, this is only one aspect of what they’re looking for. Rather than just granting or denying a loan request based on cold, hard numbers, credit unions also want to get to know you, the investor, and discuss what you are looking to do.

 

If I Have Several Loans, Can I Get a Better Rate?

Just like regional and community banks, credit unions offer better loans and more loan opportunities to investors they know and have already done business with.

Think of it like an eighth-grade dance. You and the person you asked to the dance start off nervously staring at each other and not knowing what to do. After a while, you get to know each other and get warmed up, so things go much more smoothly.

The relationship you have with a community bank or credit union works much the same way. The better you get to know one another, the better the rates you’ll receive, the more refinancing opportunities you’ll have, and so on.

Another nice thing about credit unions in particular is the cooperative community aspect of their framework. Unlike banks, credit unions work cooperatively together to provide funding capabilities beyond the individual local credit union you might be working with.

 

Are Loan Programs Available for Someone Who Already Owns a Property?

While credit loans are available for purchasing properties, they are also available for anyone looking to refinance or pull equity out. In fact, nothing makes them happier than to have someone come in and say, “I have this property. It’s stabilized. Here are the financials. This is the tenant.” In these cases, you can usually get an answer and be in and out the door in no time at all.

Ultimately, it all comes down to what works for you and what works for them. Credit unions don’t lend in a box. Since they are lending their money off of their balance sheets, they are able to sit down with investors and try to work out a sensible solution for both parties.

 

Is There a Type of Property or Person Credit Unions Won’t Lend Money To?

Credit unions will lend to just about anyone for nearly any type of property. While there are some credit unions that won’t finance a hotel and others that won’t lend money for a restaurant or strip mall, there are plenty of other credit unions that will.

The key to being approved for a credit loan is showing how you are going to pay it back. Of course, the numbers have to work, and the deal has to make sense, but it really comes down to relationships and showing your ability to repay your debts.

 

How Do I Find a Credit Union to Work With?

There are three credit unions for every bank in the U.S. today. With so many out there, it’s difficult to know which ones do what in your area and will finance your specific property or project.

To save yourself some time, consider reaching out to MBFS or another Credit Union Service Organization (CUSO). When reaching out and discussing your situation with them, it’s like reaching out to dozens of credit unions.

 

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The New Rules of Real Estate Investing

The New Rules of Real Estate Investing

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

 

Going Door to Door

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

 

Persistence is Everything

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

 

Start a Genuine Dialogue

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

 

Be Relatable

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

 

Maintaining a Positive Attitude

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

 

Don’t Dwell on Negative Circumstances

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

 

Learn to Accept Unavoidable Challenges

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

 

Familiarizing Yourself With Unconventional Methods

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

 

Rent-to-Own Real Estate

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

 

Owner-Financed Deals

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

 

Securing Larger Down Payments

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

 

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4 Tips to Raise More Money From Passive Investors

4 Tips to Raise More Money From Passive Investors

Have you ever found yourself asking: How could I raise more money from passive investors for real estate investing? If so, you’re definitely not alone. It’s one of the industry’s most common questions.

To help you out, here are four proven strategies for earning more funds from passive investors. If you can incorporate all four of these techniques into your work, your syndicate should keep thriving.

 

1. Launch a Thought Leadership Platform

Your network, also known as a sphere of influence, is one of your most valuable assets. Grow it, and you’ll almost certainly grow your business. You’ll have more leads and more opportunities, and more people will be eager to invest with you.

A thought leadership platform is the best tool for growing your network. Examples of effective platforms include blogs, podcasts, and video channels. Real-life events can work, too. Interview formats are often ideal for these platforms. You can invite experts to share their knowledge, and you’ll attract many of their fans when you talk with them.

Flourishing thought leadership platforms share two qualities. First, they’re consistent; new content gets released at regular intervals.

They also focus on unique topics. They’re not bland, generic, or overly broad. For a marketable topic, try to incorporate an intriguing aspect of your life. For instance, if you are or ever were a schoolteacher, you might focus on how educators can invest on the side and how they can teach real estate lessons in the classroom.

Remember that a thought leadership platform is a long-term proposition. It will almost certainly take time — maybe a year or longer — to see impressive results. A good place to start, though, is with people you already know.

That group could include friends, family members, coworkers, neighbors, classmates, and the people you see at church or the gym. And those individuals might recommend your platform to people they know. Some of these people may even be willing to invest in your syndication projects.

In addition, make sure you’re posting your content on large and popular distribution channels like Facebook, LinkedIn, YouTube, and Bigger Pockets. Such channels make it easier for web searchers to discover you.

 

2. Ask Positive Questions

The words we use impact the way we think and vice versa. Thus, if we often use negative phrasing, we tend to think negatively. And negative thinking limits our options, sometimes on a subconscious level.

Maybe you’ve asked yourself and others questions like these:

• Why aren’t I more successful?
• Why can’t I ever find good leads?
• Why do my syndication attempts always fail?

Because these queries focus on negative concepts, they reinforce in your mind a certain idea: that you won’t ever succeed.

Therefore, if you’re talking with an expert or just doing your own research, it’s much more productive to pose positive questions. Ask about proactive steps you can take, questions like the following:

• What’s the first thing I should do to raise capital for a particular deal?
• Where can I go in my community to find outstanding leads?
• Who in my sphere of influence could help me attract new investors?

When you put forth such questions, you get solid information that you can use right away.

More than that, these questions put you in the frame of mind for business success. Instead of making you feel defeated, they can empower and energize you. They remind you that you are in charge of your destiny and that you have the resources to improve your situation at any time.

 

3. Make Your Own Opportunities

Once you’re asking good questions, you’re ready to create great opportunities. Never sit back and wait for passive investors and deals to come to you. Go out and find them.

If you’re in need of funds, for example, go to as many conferences, meetup groups, Bigger Pockets forums, and other networking events as you can. Contact leading industry bloggers and other online influencers as well. Over time, your network should grow considerably, and your investment income should do likewise.

In the same way, deals are waiting for you. Of course, you can employ old-school methods such as cold calls and direct mail. And, once again, it pays to be an enthusiastic networker. Reach out and build relationships with as many local property owners as possible. You’ll get inside intelligence that way, and those people just might call you first when they’re ready to sell.

 

4. Find Complementary Partners

A business partner can be extremely helpful. When you join forces with someone, your sphere of influence will immediately double. You can accomplish twice as much in a given week or month. You can motivate one another to ever-greater heights. And, if you choose the right person, your weaknesses will no longer hold you back at all.

That’s because the ideal business partner is someone who’s good at what you’re not so good at. As a result, the two of you can both focus on your strengths, leading to a more formidable operation overall. For example, if you’re a whiz at underwriting but not so hot at marketing, seek someone who’s a genius at the latter.

Naturally, finding such a person requires introspection. You have to honestly and objectively assess your past performance to figure out what you do well and less well. Also, never feel bad about any weaknesses. Everyone has professional weaknesses, and being able to recognize them is, well, a strength.

Finally, all of these methods have something in common. They’re not one-offs. Instead, they’re behaviors for the long haul. They’re techniques that can win over passive investors year after year. In that way, investing in success really is a way of life.

 

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The $5 Billion Plan for Your Apartment Syndication Business

The $5 Billion Plan for Your Apartment Syndication Business

In late 2020, I achieved one of my original long-term apartment syndication goals: $1 billion under management. A large portion of that $1 billion (a little under $300,000,000) was added in 2020. At the same time, the podcast I created, Best Real Estate Investing Advice Ever, and the Best Ever brand in general, continues to thrive.

Both accomplishments were truly a team effort, and they required constantly evolving and employing new ideas to stay at the top of our game. Here are the five ideas we’ve implemented in our business in the past 18 months to continue to grow our syndication business and the Best Ever brand.

 

1. Protect yourself from the biggest liability you’re currently not paying enough attention to.

For 99 percent of syndicators, the biggest liability is compliance. Sure, they work with attorneys to create their investment documents (emails, investment summaries, PPM, operating agreement, subscription agreement, etc.) and entities. They will also ask their attorneys questions as they arise. The liability is due to the questions that aren’t asked, which puts them at risk.

Our solution: Hire an in-house compliance person. This is a legal expert who knows what questions to ask to cover your blindside.

 

2. Bring the best out of your team.

When you are starting a new company, it is usually just you, your business partner, and maybe a few other people, like virtual or executive assistants. Job duties aren’t very defined since everyone is wearing a lot of hats.

Eventually, as you begin to grow, you bring on more team members and roles and responsibilities become more defined.

When it is just you and your business partner, compensation is usually tied directly to the number and size of deals completed. But once you bring on salaried employees, how each team member’s performance impacts the success of the business begins to blur. Also, their compensation isn’t directly tied to the number or size of deals. As a result, what motivates you and your business partner/s isn’t the same thing that motivates your salaried employees (i.e., the number and size of deals).

Our solution: Create a single key performance indicator (KPI) for each team member. That way, they know exactly what is expected of them and are motivated to exceed that KPI to receive a bonus.

 

3. Enjoy better deal flow, deliver better and more stable returns, and create more sanity.

Most, if not all, syndicators start off raising money for individual deals. They usually have a list of passive investors who have previously invested in a deal or expressed interest in investing. Once a deal is identified, the opportunity is presented to this list. While the syndicators secure commitments, they work with their attorneys to create the deal documents and form the entities. After the deal is purchased, the search for a new deal begins.

There are a few drawbacks when it comes to scaling a business by raising money for one deal at a time. First, it limits your deal flow, because you are usually hyper-focused on a unique asset class in a single market. Second, it is riskier for passive investors, because their entire investment is used to fund a single opportunity. Lastly, there is more pressure on you, because of the race to raise all the money between contract and close.

Our solution: Create a fund instead of doing single asset purchases. Creating a fund will increase your deal flow because you can be more flexible with the types of assets you target. It generates better and less risky returns because funds are spread across multiple deals and markets and less capital sits idle. And it creates more sanity for you because the money is committed before a deal is identified.

 

4. Get better results on your thought leadership platform and in your commercial real estate business.

Something we focus on a lot at the Best Ever brand is the importance of a thought leadership platform. It is one of the best ways to build a reputation as an expert in your industry, which increases your credibility and ability to attract passive investors.

When you are first starting out as a syndicator, you are likely the main (or only) source of content. You are writing, editing, and posting blogs. You are planning and hosting the meetups and conferences. You are scheduling guests, recording, editing, and posting the podcasts. You are the owner of one or more social media accounts. However, as your brand begins to grow, it can become a full-time endeavor. Eventually, you will get to the point where the time spent on maintaining and growing your brand is taking away from your focus on the real estate business. Either the brand suffers, or the business suffers.

Our solution: Transition your thought leadership platform to other people once it matures. This is more than just outsourcing editing. This means having people who create the content, as well as an editorial director to manage all the moving pieces. They will focus on growing your brand, so you can focus on growing your real estate investing business.

 

5. Overcome the success paradox.

Feedback from others is one of the best ways to improve and become a better real estate entrepreneur. However, the more successful you become in business, the less likely you will receive constructive criticism from your team members.

Our solution: Ask three people in your circle to provide you with honest feedback. Also, identify an event that occurred at least a month ago that didn’t go according to plan and think about how you were responsible for it taking place. Lastly, create a Google Form and ask your team members to provide you with anonymous feedback.

 

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Forging an Entrepreneurial Mindset

Succeeding in business is about a lot more than simply coming up with a good idea and putting it into action. To really succeed, an entrepreneur must develop the attitudes and mental habits that will allow their business to flourish. Whether you’re getting started in commercial real estate investing or scaling your existing company, you need to work on yourself to create a winning mindset.

 

The Importance of Developing the Right Mindset

From raising money to building a team, there are many aspects of running a commercial real estate business that require mental fortitude. You simply can’t win in today’s competitive market without embodying the attitudes that are conducive to success. A closed-minded or arrogant entrepreneur will always lose out to a humble and open-minded competitor.

 

How to Build an Entrepreneurial Mindset

A positive mindset isn’t something you should expect to have innately. It’s not that some entrepreneurs are blessed with the right attitudes while others are doomed to failure. You can proactively cultivate a better mindset by learning about the types of attitudes that prove beneficial.

By examining your own mental habits and seeking to improve them, you can become better at management, investor relations, or any other area of business. Here are five possible areas for improvement.

 

Don’t See Transactions as Inherently Confrontational

Whether you’re trying to buy or sell a commercial real estate deal, you need to keep in mind that business transactions are not, by definition, confrontational. Remembering that the other party is not your adversary will help you build trust. It will also remove any sense of anxiety you might otherwise feel.

If you approach every interaction as a confrontation, you’ll create tension where it doesn’t need to exist. Some salespeople imagine that they’re on one side while the potential buyer is on the other. This makes them think they have to trick or beat the other person in order to come out on top.

Alternatively, a salesperson could recognize that they’re simply helping another human being solve a problem. Instead of being on different teams in direct competition, they imagine themselves and the buyers as teammates working together towards a common goal. You can apply this same mindset to all negotiations and discussions involving your business.

 

Strive for Outcome Independence

It’s important to remember that most business ventures have a probability of success rather than a certainty of a positive outcome. Your job as an entrepreneur is to determine whether a particular initiative is likely to work. From there, whether the move actually pays off won’t have an effect on the soundness of your decision. You made your choice according to the potential risk/reward ratio, not because you knew the endeavor would prove successful.

This attitude can be termed outcome independence. A smart entrepreneur should realize that the outcome of a move doesn’t have to define the move itself. Even if a commercial real estate deal or negotiation ends in failure, you can learn from the episode without considering it a mistake.

Take, for example, a commercial real estate investor cold calling property owners. This is an attempt with zero risk and a very high reward. The worst thing the people could do is say “no,” or one of the owners could be willing to sell their property. Even if the investor gets nothing but negative responses over the course of an afternoon, they shouldn’t view the effort as a failure. This represents an outcome-independent mindset.

 

Always Learn From Your Mistakes

Whenever a business project fails, you owe it to yourself to learn from the experience. This is what allows you to grow as an entrepreneur and a person. Any failure left unexamined is an opportunity that goes wasted.

The potential lessons within a project are a major part of the project’s value. Whatever the result of the endeavor, you’ll still have a chance to learn from the experience. One way to think of this dynamic is in terms of 50/50 goals. With every goal you set, only 50% of the success is based on whether or not you actually achieved what you were hoping for. The other 50% comes from the ability to draw some lessons from the experience.

Consider the example of a failed negotiation. Even if you didn’t finalize the deal you were expecting, the endeavor will still be 50% successful if you come out of it smarter and stronger. Not only will developing this mindset make you better at self-improvement, but it will also help you stay motivated. With 50/50 goals, total failure is practically impossible.

 

Fail as Early and Quickly as Possible

Failure is inevitable in business. Some ideas aren’t as good as you thought they were, and some ventures simply don’t work out. While you shouldn’t let failure get you down, you should do everything you can to mitigate the damage. One way to do that is by making your failures as short-lived as possible.

Imagine, for example, that you are running a company that has just launched a new product. As demand exceeds expectations, you press your supplier for more units, unsure of whether they will be able to keep up. If you stick with the supplier even as they barely manage to fulfill your orders, you’re setting yourself for eventual failure when demand finally outstrips the suppliers’ capacities. Instead of delaying the inevitable, consider asking the supplier to provide a massive amount of units right away. When they say they can’t fulfill the order, you’ll have identified the point of failure early enough to change course.

Drawing failure out will only compound the damage. Learning from failure is important, but that doesn’t mean you want your failures to become year-long courses. Learn the lessons as quickly as possible, then abandon the failure before the costs rack up.

 

Don’t Try To Master Everything

While all entrepreneurs would like to be amazing at everything and micromanage every aspect of their companies, such an ambition simply isn’t feasible. The best managers know how to delegate tasks in order to maximize efficiency at every level of a company.

If there are certain tasks that you’re simply not very good at, don’t hesitate to hire someone else to do the job. There’s a reason that division of labor is a fundamental component of contemporary society. Nobody’s perfect at everything, and only vanity would keep you from making use of others’ expertise.

It can also be worth it to outsource tasks that you’re actually quite good at in the interest of freeing up your time. As a manager, you should be focused on strategy and upper-level operations. You are the company’s architect, which means pounding nails and sawing wood isn’t the best use of your time no matter how great a carpenter you may be. If you can outsource a daily task to someone who can do 70% as good of a job as you, it is still worth it. You’ll make up for the loss in efficiency by giving yourself time to work on bigger ideas.

 

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Six Investing Strategies to Thrive in 2021

Six Investing Tactics to Thrive in 2021 and Beyond from Real Page Chief Economist

COVID-19 changed the commercial real estate investing landscape in 2020. Heck, Boise, ID, of all markets, experienced the greatest rent growth one year into the pandemic of 16%.

Now that we are over a year into the pandemic-induced recession, many commercial real estate experts are offering their advice on how you need to change your investing approach. One firm that is leading the way in providing such insights is Real Page.

Greg Willet, Chief Economist at Real Page Inc., was a featured speaker at this year’s Best Ever Conference. In his presentation, he outlined six investing and operational strategies to implement in 2021.

 

Tactic #1 – Throttle up your sun belt assets

One of the best strategies for 2021 is to get in front of the renter demand by focusing on markets that performed well throughout the COVID-19 pandemic. ApartmentList.com is a good resource that tracks rents across the nation on a monthly basis.

Many markets in the Sun Belt region (southern US from southern California to Florida) performed well since the onset of COVID. In fact, with the exception of the major MSAs in California and Texas, New Orleans, Nashville, Orlando, and Miami, basically all Sun Belt markets experienced rent growth rates greater than the national average of 1.1%.

Also, don’t rule out the Midwest. Outside of Chicago, Minneapolis, and Cleveland, the other Midwest cities posted positive rent growth rates in 2020 (most exceeded the national average, too). Demand is not as strong as it is in the Sun Belt regions, but low supply in the Midwest will drive demand in 2021.

 

Tactic #2 – Don’t bank on flight-to-quality

Historically, when a recession occurs, top-tier Class A products discount their rents. As a result, “flight-to-quality” occurs – the lower rents of Class A products attract renters which boosts occupancy. However, during the COVID-induced pandemic in 2020, these rent discounts did not result in an uptick in demand to the extent experienced in previous economic recessions. Instead, renters have had the tendency to move down and downgrade to Class B and Class C products to save money. This trend was also expedited by stay-at-home orders with people moving from expensive urban areas to the less expensive suburbs for more space at a lower rate.

 

Tactic #3 – Explore a low-capital value-add strategy

Similar to not banking on “flight-to-quality,” don’t pursue large value-add opportunities either. Hold off on the bells and whistles and focus on maintenance issues and the appearance of the asset. In doing so, the asset will be more affordable to a larger group of renters.

Another benefit of this approach is your ability to turn around a vacant unit faster (or keep the existing resident) with a lower quality upgrade. This will boost occupancy and support resident retention at lease expiration. Plus, the lower quality upgrade will leave money on the table for a future buyer.

 

Tactic #4 – Measure what is working now

It is the right time to adjust the recipe for your operational “secret sauce.” You do not want to be doing what worked well in the past. You want to be doing what works well now. For example, testing and measuring the success of technology at your properties.

Millennials overtook Baby Boomers as the US’s largest population in 2019. So, pay attention to what young adults are doing and how it impacts the types of units that are in demand. Then, determine how this impacts your marketing needs because certain marketing strategies are better and worse based on what is in demand.

The bottom line is to measure everything to see what is different now compared to two years ago.

 

Tactic #5 – Focus on renewals

Since the onset of COVID-19, there has been large variability in renewal rates across the country. However, you must make it a priority to hang on to the good residents who are making their full payments on time. Taking a hit on rent on a renewal lease might be a good thing if it is a high-quality resident.

Pay attention to the type of units with lower and higher renewal rates and ask yourself, “Why aren’t they renewing?”. It may not be the rental rate or other fees, so focus on the non-pricing factors, like maintenance and customer service.

 

Tactic #6 – Take back control of your brand

Know what you are selling and who the target for your product and message is in this marketplace. The overall message should focus on service, appearance, ease of living at the property, the location – don’t focus on price.

 

Six Tactics to Thrive in 2021

Focus on the markets that outperformed the national average in 2020, especially the Sun Belt and Midwest.

Consider avoiding top-tier, Class A+ and Class A products since many renters elected to downgrade to Class B and Class C in 2020.

Instead, consider a low-cost value-add strategy focused on addressing deferred maintenance and appearance issues.

Test out new operational strategies to determine what works today because what works now didn’t work two years ago.

One of the best operational strategies of 2021 is to retain your high-quality residents, even if it means not increasing their rent at renewal.

Focus your asset’s branding and marketing on lifestyle-related factors instead of pricing factors.

 

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business people weather rate changes

Buy with Conviction!

After graduation from the University of Michigan with a J.D., Sam Zell worked as a lawyer for one week before realizing that being a lawyer was not for him.  Would you believe that before his graduation in 1966, he was managing over 4,000 doors (with fraternity brother Robert Laurie) and outright owned 150 units?  When I learned Zell had quit after just one week as a lawyer, I thought it odd that someone would go through all the work to obtain the J.D., only to walk away so quickly. Why? He saw something and he knew something!

If Sam Zell is a new name to you, take the time to enjoy learning about this colorful and creative entrepreneur. Zell built a veritable real-estate empire with a watchful eye on the legal and compliance departments of companies he visits.  After an interview with “LA Observed” in 2008 where he used some “salty language” an internal company memo commented, “Sam is a force of nature; the rest of us are bound by the normal conventions of society.”  The point being salty language by guests is tolerated, for employees – it’s out of bounds. Zell is an astounding entrepreneur and is as colorful as he is creative.

For “the rest of us” who may never attain the stature of Sam Zell, we may never see the opportunities he saw in the 70s, 80s, and beyond.  However, we are still faced with similar decisions.  Decisions such as which of the core four do we like most?  Where are interest rates headed, and with what impact?  What about the economy, the new administration, oh, and what about that tech stock your friend told you to buy?

Let me remind you of a few tidbits you likely once knew, but like many of us, may have forgotten. Alan Greenspan was coined “Maestro” in Bob Woodward’s book Maestro published in the Fall of 2001.  Why?  After the tech bubble burst, he reignited the economy by lowering interest rates in a dramatic fashion. Greenspan manufactured an artificial yet undeniable force of liquidity and recreated the “Risk On” trade. Team Bernacke and Yellen (our two Federal Reserve board chairs who served the Fed from 2006 – 2018 collectively after Greenspan) continued with this theme and continued large asset purchases at the Fed’s discount window and QE everything.

This does have unintended consequences, however. Does anyone recall a brief moment in time in 2019 when the Fed took its foot off the gas pedal and slowed their purchase of asset-backed securities and the overnight repo rates jumped to 10%?  The Fed subsequently responded and ramped up their asset-backed security purchases to bring the repo rate back down.

After an extended period (going on 20 years plus) of on-again off-again quantitative easing by the Fed, many of us are tempted to look in the mirror and pontificate about the shoulda, woulda, couldas in life that might have been. “I should have put more money into real-estate.  But now it’s too late because interest rates are going to go up and the run has happened.” Right?  Not so fast.

Last summer the Department of Labor (DOL) made a change to how retirement plan administrators (think 401(k) and 403(b) plans) are allowed to invest the assets they manage in their target-date retirement funds.  To affirm this, take a moment to do an internet search for “US Department of Labor Information Letter On Private Equity Investments”. Retirement plan administrators are now permitted to invest a reasonable amount of the assets in their target-date funds in private investments.

Typically, before interest rates went to zero, an age-old rule of thumb for investors was to take the investor’s age, put a percent sign behind it, and that’s the percent of the investor’s portfolio that should be allocated to bonds. Do you think the typical 55-year-old has 55% of their 401k in bonds?  My guess is no. The stock market has been good, and bonds have such low yields, there’s no sizzle.  And, when interest rates go up, bond values go down. It’s difficult for an investor to get excited about bonds.

A compelling argument can be made for syndicated real-estate private investments. Syndicated self-storage assets, for example, are definitely on the come-up. In a deep value-add storage deal, the annual increase in Net Operating Income (NOI) divided by the cap rate is the increase to the property’s value. (Deep value-add meaning increasing the rentable square foot by a large percentage.)  In other words, an 80,000 square foot expansion may add $5-6 million to the property valuation.  These types of private investments may have a five-year cumulative preferred return of 7%, a 50 – 50, GP – LP waterfall split, and an IRR of 14-15% with an Equity Multiple of 1.8 – 1.95.  This is much more compelling than buying treasury bonds or corporate bonds with Yield to Maturities in the low single-digit range.

Here are some questions and I challenge you to think and write down your answer before looking below. In 1982, when Paul Volker broke the back of inflation by hiking interest rates, what was the P/E ratio of the stock market then, how high did the Federal Funds rate go, and what is the stock market P/E ratio today? With the increase in M2 liquidity in our economy, and the recent jump in yield for the 10-year government bond (Feb – March 2021) – what does that tell you about the potential for inflation going forward?

In 1982, the stock market had been in a 14-year sideways moving bear market.  The P/E ratio of the market was 7, the Fed Funds rate got to 18 and the P/E ratio of the market today is in the mid to upper 30’s.  The point – stocks may easily fall in an inflationary environment.

If stocks are richly priced and can repeat the ~50% loss they had in the last two cycles (2000-2002, 2008-2011) would the retirement plan administrator be wrong to replace part of the bond allocation AND part of the stock allocation with private investments like syndicated value add storage assets?  If the P/E ratio got to 7 in the last interest rate hike cycle, where do you think it’s going to go this cycle? I’m not saying the 401(k) administrators will do this, but I am saying they may.

I recently picked up the March 2021 copy of Investment Advisor magazine and read an article about the current allocation of the Target Date fund allocations to private investments. Of 138 Defined Contribution plans they asked, each of which has at least $100 million in assets, 9% have already incorporated Private Investments in their funds.  Real estate private equity is the highest allocation with real-estate private debt, with hedge funds, private equity, and liquid alternatives following behind. That strikes me as quite a move since last summer.

So, Sam Zell is a real estate baron and a brilliant one at that.  You and I may never have the swagger of Zell, but we can still buy with conviction in the face of likely higher interest rates.  Why?  That’s for you to say. Just know that there is at least one fellow real estate investor out there who predicts defined contribution institutional money is coming to syndicated real estate, and a lot of it!

About Ted Greene: 

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

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My 5 Takeaways from BEC2021 Day 1

Four Steps to Build a Team That Lasts

Liz Faircloth, The Real Estate InvestHER

Step 1: Map out where you want to go: Determine your short-term (1 year) and long-term (3 and 5 year) goals. Define an overall vision.

Step 2: Take a personal inventory: Spend half a day figuring out everything you bring to the table from a credit (asset and liabilities), time, experience, skills, personality, and leadership perspective.

Step 3. Determine WHO you need to meet your goals and vision: Based on your business model, figure out the major roles you need to fill. Based on what you bring to the table, determine which roles you will fill and which roles you need a team member to fill

Step 4. Find people to gain alignment and diversity: The biggest mistake when building a team is lack of alignment (values, goals, expectations, entrepreneurial spirit) and lack of diversity (personality, risk, tolerance, skill set, experience). Leverage personality assessments to identify hires who complement your skills and gaps, and who are in complete alignment with your value.

Seven Lessons Learned With $2.8 Billion of Real Estate During COVID

Jillian Helman, RealtyMogul

Lesson #1. Play defense before an economic crisis, not during a crisis: Three things to do during economic expansion to prepare for economic recessions: underwrite well and don’t do deals that don’t met your underwriting criteria; have a strong property management team in place; have open conversations with your lenders to ensure they will pick up your call during a recession.

Lesson #2. The proforma is always wrong: When creating your proforma for a new opportunity, have a minimum contingency budget of at least 10%, scale back the number of units you expect to renovate and lease, assume an exit cap rate that is 1% greater than cap rate at purchase, and increase vacancy and bad debt to stress test.

Lesson #3. Take a breath and be deliberate: Jillian’s top priorities are the health and safety of residents and team, keeping occupancy up, and shoring up cash reserves. This involved taking a deep breathe and deliberating to determine how to best focus on these priorities. She decided to halt renovations, rent increases, and all nonessential repairs.

Lesson #4. Don’t be afraid to innovate: For example, Jillian began using virtual, self-guided tours.

Lesson #5. Do experiments and test the market: In the example above where Jillian experimented with virtual tours, the conversion rate was higher than in-person tours with a leasing agent. Since the experiment works, she doubled down.

Lesson #6. Be a stellar communicator: Provide detailed monthly updates to investors, communicate what you are proactively doing, and be available and receptive to investors.

Lesson #7. Take a position: During COVID, this started by overcoming fear. Then, Jillian took an offensive position, assumed the world wasn’t ending, that the world would recover, and that data supported that investing still made sense.

How to Bulletproof Your Mind for Extraordinary Real Estate Success in 2021

Trevor McGregor, Trevor McGregor International

Your mind is like a fertile garden. Whatever you plant, the soil will return, and your thoughts are the seeds. Plant positive powerful thoughts. To avoid too many weeks growing, you must stand guard at the door of your mind.

The two things that happen during the prime years of your life: The prime years of your life are between 25 to 65 years old. This is when you have the most opportunity as well as when the most regrets are formed.

TFEMAR: a thought turns into a feeling; feeling into an emotion; emotion into motivation; motivation to take an action; the action has a result. Therefore, your thoughts equals your results.

The 4S Success Formula: To be successful, you need to be in the right state, have the right story, the right strategy, and the right stands. Your state is your physiology, focus, and language. Your story is your identity – you are either a victim or a victor. Your strategy should be based on a character trait integration – what would so-and-so successful person do?

Why We Are Currently in an Upcycle

John Burns, Burns Real Estate Consulting

High demand 

  • Consumers made $1.03T more than usual last year due to government stimulus 
  • Consumers spend $535B less than usually last year, despite spending more on goods
  • Consumers saved an additional $1.6T in 2020 compared to 2020
  • Most homeowners and potential new home buyers are far better off financially today than a year ago
  • Google search has risen 56% for new homes, 9% for new homes
  • Millions of workers no longer need to commute

Low supply:

  • Home listings are down over 40% YoY
  • New supply has fallen – 10% fewer communities to sell from YoY
  • Unsold new homes dropped 69% YoY

High demand + low supply = 2021 housing boom

Three Things it Takes to Make the Inc 5000

Defining your culture: Start with your why. why do you do what you do? Why do you go to work in the morning? Then, transcribe your why into a one or two sentence mission statement to inspire you and your team to show up.

Next is to know where you are going and what the end state looks like. This is your vision – what does success look like to you.

Third is to define your values. These are the behaviors you want to see in your organization.

Last is to avoid the say-do gap. Be care that you don’t say one thing and do another, because then your culture isn’t believable.

Developing your plan: Understand what you are going before you do it, but set a time limit. A good rule of thumb is to understand and education yourself for 90 days, develop a plan for 90 days, then go out and take action.

A good strategic plan includes three goals, three to five objectives, and multiple key results over a three year period.

Assemble your team: First, understand your strengths and weaknesses. This is best accomplished by asking your friends, and especially your spouse. Then, find people who fulfill your weaknesses.

When hiring people, focus on their character more than their competencies. You can teach competencies but you cannot teach character. Then, focus on experience but understand their track record to ensure they were successful because of skill and not luck.

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Top 5 Takeaways From BEC2020 Part 2

BEC2021 is less than 24 hours away!

Yesterday, I wrote a blog post that highlighted the top takeaways from the first day of last year’s conference, giving you a behind-the-scenes look at what to expect Thursday, Friday, and Saturday.

In this post, we will focus on the top takeaways from day 2.

The Life of a Champion

Best Ever Conference 2020 Speaker: Andre Reed, Buffalo Bills Hall of Fame Wide Receiver

Andre Reed, NFL Hall of Fame

Value your huddle: Everyone on your team needs to be on the same page. Everyone needs to know what the game plan is and everyone needs to execute the game plan. Everyone needs to respect each other and listen to each other’s input and feedback. Champions lead by influence, not authority.

Know your role: Champions know what they are the best at and what everyone on their team is the best at. Everyone focuses on their strengths for the betterment of the team.

You win some and you lose/learn some: Champions know that things will not always go according to the plan. They know how to handle things when everything goes wrong and make it out the other side stronger.

Champions aren’t randomly made: Being a champion is not based on luck. It is not a shake of the 8ball. It comes from hard work and following the three lessons above.

Multifamily is the Most Lucrative Real Estate Investing Strategy

Speakers: Mark and Tamiel Kenney – Co-Founder, Think Multifamily

Mark and Tamiel Kenney

Multifamily is the best asset class to invest in.

Multifamily has better economies of scale. You can secure nonrecourse debt on multifamily whereas you are personally liable for the recourse debt secured on single family.

You can hire a 3rdparty to manage multifamily whereas you’ll likely self-manage your SFRs.

The value of multifamily is based on performance whereas the value of single family is based on comps.

You can go bigger faster with multifamily.

Demand for multifamily isn’t going away. Traditionally, people transition from renting to buying when they get married and start a family. Currently, millennials are delaying marriage and starting a family, so they are renting longer.

As a syndicator, you can truly make money with $0 down through the acquisition fee, the ongoing asset management fee, and the profit splits. The limited partners must invest money to make money.

Three Secrets to Achieving a $100M+ Net Worth

Speaker: Richard Wilson – CEO, Family Office Club

Richard Wilson, Family Office Club

1. Play a unique game: Come up with a way to separate yourself from your competition. You need a hook. Are you offering a unique product? Or you marketing in a unique way? You need to figure out what you can do to differentiate yourself from the pack.

2. Create a barrel of fish: One of Richard’s competitors sold their family office for $500 million. The business revenue didn’t support the $500 million valuation. Rather it was the network that was being purchased. Revenue is great but having a barrel of fish – a strong network – is even more powerful and profitable.

3. Find a choke point: When you find a situation in business where you or someone else struggles and you have a way to relieve that, it can be very profitable. Find out what someone’s pinch point is and create a business that solves that problem.

How to always hire the right team member

Speaker: Scott Lewis – Spartan Investment Group

Scott Lewis, Spartan Investment Group

Hire team members with experience, which is a combination of skill and luck. Focus on the skill sets your business needs and hire people with those skill sets. Team members must have good character so that they are ethical and responsible when a deal goes bad. Create a culture with a mission, a vision, and values to attract team members who align with that culture.

Three questions to ask potential team members are 1) what is your leadership philosophy, 2) tell me about a deal that went sideways and what you did, and 3) what is your due diligence process.

#1 Way to Quickly Create More Content

Speaker: Neal Bawa – CEO and Founder, Grocapitus

Neal Bawa, Grocapitus

You don’t scale by adding more content. You scale by repurposing content.

Neal’s objective is to repurpose every piece of content at least 10 times. If he records a 1-hour podcast, he will create 1-minute videos and post them to YouTube. The best YouTube videos are pushed to investors and put into an ebook. The podcast and 1-minute videos are also shared on Facebook and LinkedIn. Etc.

To hear more actionable advice from veteran commercial real estate investors, make sure you attend BEC2021 this week. Click here and use the code WINNERS30 to get 30% off your ticket.

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Top 5 Takeaways From BEC2020 Part 1

The Best Ever Conference in 2020 was packed full of actionable investing advice from real estate pros.

In preparation for BEC2021 this week, I wanted to circle back to the top takeaways from last year’s conference for a sneak peek at what to expect from the 2021 line-up of speakers.

In this post, we will focus on the top takeaways from day 1.

Timeless Economic Advice for Real Estate Investors

Speaker: Glenn Mueller – Denver University

Glenn Mueller, Denver University

The three main drivers of real estate demand are population growth, GDP growth, and employment growth. Compared to previous periods of expansion, these three factors were lower during the post-2008 recession, pre-COVID period. Additionally, these factors are nearly identical to the interest rates (i.e., the costs of real estate). As a result, the most recent expansionary period has been more stable and exceeded the typical 10-year periods of expansion in the past.

The three metrics that run real estate cycles are vacancy, rent growth, and income. When vacancy is low, rents increase. When rent increases, income also increases. Since these are the factors that run the real estate cycles, you should be analyzing them on a frequent basis. And the best place to stay up-to-date on these metrics is CoStar. Either purchase a CoStar subscription yourself or leverage a relationship with a broker who has their own subscription.

Lastly, industrial has been the best asset class in the past five years (as well as during the COVID recession). Why? Because of the Amazon and Walmart effect. Amazon’s online business and the resulting increase in Walmart’s online business has benefited the industrial asset class the most.

Multifamily Underwriting Secrets of $2 Billion Real Estate Crowdfunding Expert

Speaker: Jilliene Helman – CEO, RealtyMogul

Jillian Helman, RealtyMogul

The proforma (your income and expense projections) is always wrong.

Secret #1: To minimize the “wrongness, ”always includes a minimum 10% contingency budget. For example, if you expect to spend $10,000 per door in renovation, budget for $11,000 per door.

Secret #2: Use a cap rate at exit that is at least 1% greater than the cap rate a purchase.

Secret #3: Reduce the number of units renovated and re-leased per month. Four to six units per month, sometimes up to eight, is a more realistic assumption.

Secret #4: Increase the vacancy and bad debt during the renovations period. Expect more tenants to leave because of the chaos that comes from the construction process. Also, someone who can afford a $600 rent may not be the same demographic that can afford a $800 rent, so expect a lot of tenants to skip

How a Billion Apartment Syndicator “Wins” Every Year

Speaker: Joe Fairless – Co-Founder, Ashcroft Capital

Joe Fairless, Ashcroft Capital

To accomplish more every year, have a thorn. A thorn is a negative experience that you can draw upon to propel yourself forward. Joe’s thorn was losing money on his first deal, among other things that went wrong with the deal and around the time of the deal.

The three components of a thorn are that it needs to cut deep, it fades over a certain period of time, and the need to document what happened.

If you don’t have a thorn, manufacture one. If you need to manufacture a thorn, you need to know what the quantifiable objective is for the manufactured thorn. For example, if you don’t read one paragraph every day for a week, you have to hold dog poop in your hand and lick it. (that’s right – I said dog poop).

Three Alternative Investments to Create More Revenue

Speakers: Dan Handford – Managing Partner, PassiveInvesting.com, Roni Elias – TownCenter Partners, Jeremy Roll – President, Roll Investment Group, David McAlvany – Precious Metal Portfolios

Dan Handford, PassiveInvesting.com; Roni Elias, TownCenter Partners; Jeremy Roll, Roll Investment Group; David McAlvany, Precious Metals Portfolios

1. Litigation: Roni makes money with a publicly-traded litigation company. Each fund has 1000 cases and he has a 90% win rate on 25,000 cases. The IRR on the funds are in the 60%+ range. For example, a personal injury fund could make a 16% IRR in less than 16 months and then 50% or higher over time.

2. ATMs: Jeremy invests in ATMs. The investment funds have a four year payback period and seven year term. The funds result in a fixed cash-on-cash return of 24.5% and an 18% IRR.

3. Gold: David invests in precious metal portfolios. He likes these investments because they are not tied to the financial markets. If the overall economy worsens, his investments thrive.

The Principals of Peak Performance

Alex Racey, First Principles of Performance

The first principles of performance are eat, sleep, move. These three principals are all tied together. If you are suffering in one, you suffer in all three and your performance suffers as a result.

Most people fall into one of the following three performance categories.

First is “kick the can.” This is someone who was a star athlete in high school or college. They shifted 100% of their focus from athletics to their job. They make a lot of money but their physical, mental, and emotional health is lacking. They tell themselves that they will eventually refocus on their fitness.

Second is “head in the sand.” This is someone who is overwhelmed by the number of fitness routines and diets and say, “screw it” and decide to ignore them all.

Third is “all good.” They work out and eat well but ignore ongoing pain and issues, like joint pain, back issues, etc. Alex says this is the category he falls into.

To optimize your performance, you must optimize your eating, sleeping, and moving. Alex says the best approach is to Google metabolic flexibility for eating, sleep hygiene for sleeping, and minimum effective dose for moving.

To hear more actionable advice from veteran commercial real estate investors, make sure you attend BEC2021 this week. Click here and use the code WINNERS30 to get 30% off your ticket.

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Speaker Preview – Best Ever Conference

We started The Best Ever Conference so that we can keep learning, particularly from others in the field, to stay inspired, and to celebrate our genuine love of REI.

The Best Ever Conference remains more focused than ever on cultivating community, incubating real relationships, and helping individuals actualize their goals. The Virtual 2021 BEC will combine wellness and career innovation in tandem with speakers who are charting new paths in their respective industries. We’re committed to sharing the honesty in career triumphs and slumps, as well as providing attendees with tangible information and action items to take home.

We are excited about our 30+ speakers and wanted to highlight a few:

“There’s been a lot of speculation as to where the housing market is headed in 2021 and beyond. I think the data makes it pretty clear what we can expect, and I’m excited to share it at the Best Ever Conference!”

~ Kathy Fettke
Co-CEO
RealWealth

Kathy Fettke, Co-CEO of RealWealth

Topic: 2021 Housing Forecast with Kathy Fettke

Many real estate investors are wondering how recent changes in leadership will affect our economy and the housing market. Will there be a surge of evictions once the moratoriums are lifted? Will homeowners in forbearance default on their loans? Will rents increase or decrease? While there has been a tremendous amount of uncertainty in the markets, Kathy Fettke thinks the data makes it pretty clear where the housing market is headed.

 

Trevor McGregor, Coach & Business Strategist

Topic: Mindset Mastery for Real Estate Investors – How to Bulletproof Your Mind for Extraordinary Real Estate Success in 2021

There’s an old saying that says, “Success Leaves Clues” and if you’re a Real Estate Investor who is looking to get the Competitive Edge in scaling your business, finding more deals and making more money, you’ll definitely want to watch this presentation.

 

David Toupin, Partner of Obsidian Capital and CEO of Real Estate Lab

Topic: Building A Social Media Content Engine

We all know that social media is a powerful tool that we should all be using in 2021. Many people have because multi-millionaires from social media use alone. It is the future of branding and marketing, and it is here to stay. This presentation will focus on teaching you how to create your brand on social media, how to build a strong following, and eventually how to monetize that following in multiple ways. In order to explode your presence on social media, create a brand, and monetize your following in 2021, you will need to create a content engine.

 

Greg Willett, Chief Economist of Real Page Inc.

Topic: Market-Driven Strategies for Investment and Operations

Apartment sector performances are shifting substantially in some parts of the country, leading investors and operators to re-evaluation priorities and practices. Greg Willett shares some of the key market dynamics that RealPage sees ahead and offers suggestions on how to take advantage of the opportunities those changes will bring.

If you haven’t bought your tickets already, there is no time like the present. Use code BLOG15 for 15% off when you purchase your tickets at www.BEC2021.com. You will also receive an Ambassadors Code in your confirmation email you can share with friends and family and earn $50 back for every ticket purchased using your code. See you there!

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Top 6 Winter Hunting Trips

Are you looking for a new way to spend a little of your generational wealth? Have you considered winter hunting? The snow-capped scenery can be gorgeous, and the experience is often peaceful and reinvigorating. Plus, it’ll give you a respite from your passive investing and other wealth building activities.

Hunting can actually be easier in the winter. There are no mosquitoes, and you can walk across icy lakes and rivers instead of going all the way around. You can also follow animals’ footprints in the snow.

Below are some enchanting hunting destinations, places that make investing in winter gear well worth it.

1. Alaska: Black Bears and Lynxes

The lynx, a wild cat with a striking black tip on its tail, dwells in Alaska’s deep, pristine forests. In fact, it’s Alaska’s only native cat. The lynx is itself a hunter, favoring the snowshoe hare for its meals.

Around Anchorage, the lynx population has grown in recent years, and some residents have had close encounters with these beasts. In the state’s southeastern region, however, lynxes are still rare. Thus, that part of Alaska forbids lynx hunting.

Black bears are the smallest bears in North America, but they loom large in many hunters’ hearts. During the warmer months, these bears are active, often running around and sometimes climbing trees. In the winter, black bears typically rest inside caves and other enclosed spaces.

 

2. Montana: Elk and Mountain Lions

Often seen traveling in herds, Montana’s elk belong to a subspecies called Rocky Mountain elk. Their distinctive antlers are long and intricate.

Unfortunately, these elk have posed a threat to many farmers in recent years. Some elk have ruined crops and infected livestock with disease. Thus, hunters play an important role in controlling Montana’s elk population.

For their part, mountain lions mostly live in western Montana, a region that offers these solitary animals expansive forests. Mountain lions have soulful eyes and elegant bodies, but beware. They’re dangerous and best suited for experienced hunters. They frequently kill elk and deer, and they’ve been known to attack people on occasion.

 

3. Wyoming: Antelope

Wyoming has a wealth of antelope, more than any other U.S. state. The antelope there are pronghorns, animals you’ll only find in the western half of North America. They resemble deer, and they have horns rather than antlers. Pronghorns are tan with white patches.

In addition, Wyoming is a great hunting destination because, if you’d like, you can enjoy other winter sports while you’re there. The state’s skiing, ice climbing, and dog sledding opportunities are outstanding. After a visit, you might feel like buying some Wyoming real estate with your generational wealth!

 

4. North Dakota: Coyotes and Red Foxes

Almost anyplace you go in North Dakota, you’ll find coyotes nearby. And they’re particularly numerous in the southwestern part of the state. They live in forests, on prairies and hills, and sometimes near cities.

Coyotes are closely related to wolves, and they look like smaller versions of their wolf cousins. Indeed, a coyote has a pointed snout and a bushy tail.

Coyotes can be tricky to hunt because they’re so evasive; their sharp eyesight and sense of smell help them sense approaching danger. You might have more luck at night since these animals are nocturnal.

How does a fox hunt sound? North Dakota’s red foxes are large and attractive canines. They’re abundant throughout the state, but they really love hilly areas. In fact, they prefer making their homes on top of small hills. Red foxes usually live with a mate and raise one litter per year. They hunt alone, however, often feasting on rabbits, mice, and other small animals.

Red foxes don’t hibernate, so you’ll see them roaming around all winter. Like coyotes, they’re nocturnal, and they spend much of the night hunting.

 

5. Bison: North Dakota

North American Bison covered the Great Plains two hundred years ago. Once estimated at approximately 40 million, the North American bison was reduced to about 1,000 by 1890 for its hides and skins. Fortunately, thanks to American sportsman funding conservation efforts, these creatures have been restored in the North American ecosystem.

Bison hunts can vary greatly based on a hunter’s preferences. Are you wanting a trophy bull hunt or a young cow for more tender meat? Are you longing for a wilderness experience or a ranch style hunt? Are you using a modern rifle or traditional weapons such as bows?

After deep deliberation and no matter your selection, bison may be the perfect hunt for you this winter season.

 

6. Maine: Bobcats

For a special challenge, try hunting bobcats in Maine. They live in thickly forested areas, and they tend to isolate themselves. It can be easier to locate bobcats in the winter as the snow makes it harder for them to find food. As a result, they’ll venture a greater distance to get their meals, sometimes coming close to cities and suburban real estate.

Bobcats look a great deal like lynxes. They often have a wealth of dark spots or stripes along with a black-tipped tail.

Be aware that bobcats are hard to find in northwestern Maine. Therefore, it makes sense to avoid that part of the state during a bobcat hunt.

Finally, before hunting in a certain state, don’t forget about checking the local regulations and investing in the right licenses.

With the proper permits, you can savor an invigorating winter hunt, an icy adventure you’ll never forget. Indeed, being able to afford such an experience is a great reason to study passive investing and other wealth building strategies.

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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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