Author Archive
New Year Resolutions
Posted on January 6, 2015 byHappy New Year! I know a lot of you are looking for a “break out” this year and some are looking to continue their multifamily growth in 2015. No matter what your goals for the year are, they all begin with one very important concept… Focus!
At the beginning of every year most people make crazy resolutions that they never keep. We make resolutions to eat better, get on a crash diet, start that extreme workout program etc. While these resolutions start with the best intentions we usually don’t follow them through or at least not to the extent we had planned on.
In the business world this is what I call the battle of the “Comfort Zone” vs “Shock Zone”. This can probably be applied to our daily lives as well. When I first became a real estate student I realized a very important lesson. The need for FOCUS! Read More→
Takeoffs Are Optional, Landings Are Mandatory!
Posted on December 5, 2014 byThe sky was clear and it was a nice warm summer afternoon. My flight instructor had just stepped out of the small trainer airplane and left me alone for the first time. I was just about to taxi the plane out and to do my first solo flight as an aviation student. I was terrified and exhilarated at the same time. Just before my instructor closed the door behind him he leaned back in and gave me one last lesson that I will never forget. “Remember kid, takeoffs are optional but landings are mandatory.”
This was a great aviation lesson and an equally valuable business lesson. When flying a plane we need to make sure everything is ready before takeoff. Do we have enough fuel? How is the weather between here and where we are going? Do we know where we are going? Once you leave the ground there are no timeouts. You don’t get to pull over and walk home once you are in the air. You will land that plane in one piece or in many but either way you will land. Years later I realized that doing a real estate deal is no different. You can chose to close or not to close but once you do buy the deal you are in it for the long haul.
The point I am making here is, that like safely landing an airplane, our exit strategy for our deal is just as important. Some people say “you make money when you buy”. I wholly disagree with this statement. You may create value when you buy but you don’t make money until you exit the deal profitably. Saying that you make money on the purchase is a cliché that I find to be dangerous. This is like saying as long as I get my plane into the air everything else will take care of itself. I hope you would not get on a commercial flight after hearing the captain saying that. Trust me, your investors and partners will not want to hear you say anything like that either. Read More→
Getting Sponsored
Posted on November 11, 2014 byMultifamily real estate can be one of the most profitable real estate business models but it can also come with some barriers to entry. Qualifying for a loan to buy apartments can be challenging but not impossible. One of the major misconceptions today is that a bank will lend only on the value of the property and will not look at your personal financial standing for the loan qualification. This simply is not true. A lender will always look at the financial wherewithal of the borrower. The good news is that you can have partners that bring some of the things that you may not have and help you to qualify for a loan.
What I am discussing here is what we call a “Sponsor”. A Sponsor is a partner that brings the needed qualifications that will help you get the loan and the deal done. Sponsors can bring many things to your business besides money and net worth. They can bring experience too. Let’s start with the money side first.
Most banks and lenders will want you and your team to have a net worth greater than the loan amount. If you want to qualify for a $1,000,000 dollar loan then you and your team will need to be worth at least $1,000,000. If you don’t personally have that much net worth then you will need to bring on a partner or partners that do have it, in order to satisfy the lender. Net worth is a gray area that will ultimately be judged by the lender, but for this conversation I will give you some guidelines from the loans I have done. Read More→
A Few Horror Stories
Posted on October 7, 2014 byTo maintain the spirit of the season (Halloween) I thought I would tell you about a few of the mistakes that I have made in the real estate business and share the lessons with you.
Know the value of something before you buy it!
My first mistake was to pay way too much for my first deal. It was a duplex. The numbers worked as far as cash flow was concerned but I never researched my comparable sales in the area. I paid twice what everyone else had bought duplexes for. It cash flowed so I was able to operate but that killed any exit strategy of selling or refinancing. Cash flow is great but you must always have an exit strategy before you buy. Make that a part of your deal analysis.
If something is cheap… there is probably a reason.
I have bought some tough properties in some tough areas. I have been successful with them but I also managed them myself. Learning the art of management has been great but it has also been a tough road and has kept me from buying more deals sometimes. What I have learned is that if you want to a reposition a deal you need to make sure it is in a good area. Most of the repositions I have done were in areas of town that were not so great. When you see an apartment complex that is selling for a good price you need to analyze the deal with your eyes wide open. Sometimes properties are selling at a discount because they need physical repair and sometimes they are selling cheap because they need repair and are in bad area. When looking at reposition deals pay close attention to the demographics of the area the deal is in. Look at the median income of the area. Is there job growth? What is the vacancy of the other properties in the area that are like yours? Look at the rent roll in the delinquency column. Are they actually collecting rent? You don’t want to do reposition deals in marginal areas even if you can buy them cheap. Your property is only as strong as the tenants you can rent to. No matter how much work you do to the property…if you can’t collect the rent it’s not a good deal. Read More→
The Art of Partnerships
Posted on September 8, 2014 byWhen most people start out in the real estate business they don’t have all the money they need to buy all the properties they want to buy. I may be describing you and I am certainly describing myself when I got started. If you don’t already have all the cash you will ever need to buy properties then you will need to meet the right people (investors and sponsors) to help you get your investing going.
Meeting great people is just the beginning to creating great business partnerships but it certainly is not the only aspect of the art. Here are some things to keep in mind when networking.
Friends are great but there is much more to a successful business partnership than just liking someone or getting along with them. I am friends with all of my close partners but the relationship didn’t start that way. When you first meet a new contact you should be asking yourself two questions.
What do they bring to this relationship?
What do you bring to this relationship? Read More→
No One Cares
Posted on August 7, 2014 byThis is one of the most powerful business lessons that I have learned. That may not be what you were expecting to read but let’s face it…its true. No one cares about you, your business, your services or you in general. The one thing that people always care about is their own problems and finding solutions to those problems. Now let’s put that into the real estate world.
Whether you are interested in commercial real estate or single family homes…people still only care about solving their own problems. They don’t care about your investment or doing business with you or what deal you may be working on. They care if you can solve a problem for them and that is the root of becoming wealthy in the real estate business. If you can master the art of creatively solving problems then the financial doors to financial freedom and cash flow will swing wide open for you. If you view real estate and the world at large as a place to serve yourself, the doors to wealth will stay firmly shut. You may be able to force your way into the business world with self-serving actions but why? Why not have all the people who have what you want just simply give it to you and say “thank you” when you take it?
Everything you want in the real estate world is likely to be owned or controlled by someone else. There is no more free land in the world waiting for you to run out and stick a flag in it. Everything is owned. Now you job is to go out and get those sellers and owners to “give” you what you want. You do this by solving problems. Here are some very common problems in the real estate world today. Read More→
Got Private Money?
Posted on July 7, 2014 byPrivate money is the holy grail of the real estate business today and the art of raising it can make or break your business. One of the biggest mistakes that I see new investors make is that they wait until they have a good deal to start raising private money. Most people think that all they need to do is find a good deal and the money will just show up. If you have a good deal you may get lucky and be able to quickly find private equity, but “luck” is not a solid business practice.
First rule of private money is you must always be looking for it. Once you have a deal it’s far too late to start raising money. Planning for funding is one of the biggest areas that you need to consistently be working on. People invest in you first and the deal second.
Networking is the backbone to raising private capital. Relationships are the key to networking so in short relationships = Money. You must always be building relationships if you want to be good at raising private money for your deals. Relationships can take time to find and form so time is of the essence. Get started now! Don’t wait until you have a deal. If you are intimidated about speaking to potential investors about doing business with you then that is a sign that you don’t have your real estate education in place as well as you should have. If you know your business, it’s not hard to talk about it. If you’re nervous then keep studying until that nervousness gets replaced with an excitement to talk about what you are trying to do. It will happen. Read More→
Creative Due Diligence
Posted on June 9, 2014 byDoing proper due diligence on a property before you buy is an extremely important part of being a successful real estate investor. In this article I will show you some tips for getting your due diligence done with a creative twist.
One of the most important parts about due diligence is getting it done by the right person or right group of people. One of the best tricks I have found is to get my contractors to do it for me and do it for FREE!
I have good relationships with the contractors in my market (you should too). Building a team of loyal contractors to help you grow your real estate business is very important. Here is a short list of the “must have” contractors on your team. Read More→
Your First 90 Days in Real Estate
Posted on May 6, 2014 byAre you just getting started in real estate or are you thinking about getting in? This article is to help you get off to a great start in the business.
Step 1
What are you trying to buy? Do you want to start small such as single family houses or smaller multifamily such as 2-4 units? Maybe you want to go big early and get into commercial real estate such as apartment buildings or self-storage. Whatever your goal is, you need to start with an education. Find material on that type of asset that will teach you the basics of what you need to know.
Step 2
Know your market. Now that you know what you want to buy, you need to know where you are going to buy it. You need to decide on a market or city. My suggestion is to start in your own backyard. I define “backyard” as the area within a 1 hour drive from your home. The closer to home you can start the better. The more travel you have to do to get to your property, the more obstacles will get in your way. The cost of travel goes up (possibly plane tickets) the farther away from home you get as well. Lenders and investors get a lot less comfortable with your deal as the distance from you increases.
Once you have picked a market you will need to study that area. Here are some things to know… Read More→
A Fresh Start
Posted on April 8, 2014 byHave you hit a wall with looking for deals? Are you having trouble finding deals that make financial sense or that will cash flow at all? Are you having trouble getting started with your multifamily investing business? Not sure where to get started? If this is the case, I can help you with a fresh start. If you are just beginning then this article will help you to avoid a lot of unnecessary frustration and to jumpstart your investing career.
What size deal should I start with? This is one question most people ask when they get started in multifamily investing. Let’s take a close look at the answer.
To qualify for a commercial loan these days most lenders want to see that you and your partners have the net worth equal to or greater than the loan amount. So if you are looking at a $1,000,000 dollar deal then you plus your partners must have a collective net worth of about $1,000,000. Notice I said “collective” net worth. That means you can have $0 net worth and use the value of your partners to cover it.
Next step is to decide what your net worth is plus the net worth of the people closest to you, ones in which you think will join you in a multifamily deal. This may be family, friends or close business partners. Once you decide what your collective net worth is, you have the first piece of a formula that will lead you to success. Read More→
Real Estate Investor or Business Owner? Do You Know The Difference?
Posted on March 10, 2014 byAre you sitting on a ton of cash and you are not sure what to do with it? Do you need to find a real estate investment to put all that cash into? Are you struggling to find a deal that will give you a good ROI on all that cash you have laying around? Or does this describe you…?
Do you need to find some cash to do your real estate deals? Are you trying to figure out how to get your deals funded? Are you looking for partners to help with the cash to get started or perhaps you are looking for a “no money down” deal to get you going?
If the second description is you then you are not a real estate investor…you are a real estate entrepreneur! You are a real estate business owner, not an investor and there is a BIG difference. An investor is someone that fits the first description. An investor already has a lot of cash and needs to put it into a deal to get a return on all that money they have laying around.
Most people don’t realize that they are real estate entrepreneurs and are not actually real estate investors at all. This is one major mistake that most new real estate entrepreneurs / investors make and it can definitely lead to early failure in the real estate business. Read More→
Get Seller Financing
Posted on February 10, 2014 byBuying and rehabbing distressed properties can be a lucrative business but it can also be risky. Rehabbing and flipping often generates quick checks but may also take some upfront cash to get the deal done. Here are some tips for rehabbing property with seller financing so you keep more of that cash in your own pocket.
If a property is in need of repairs or it won’t cash flow at that price the seller is asking then you may have difficulty getting a bank loan for the deal. Get the seller to finance the deal. Create an offer that will give the seller the price they need but only if they will carry back the loan on the property in a first position mortgage.
If a seller will carry back the loan then you will likely need to pay the asking price or close to it. Your offer must create value for the seller. The majority of the time when a seller carries back a note on a property they are usually more concerned about the price they are getting than the terms of the loan. This can be in your favor. Create an offer that is close to or at full price but with an interest rate and terms that will allow for small payments and bigger cash flow. One example would be making a full price offer with interest only payments. The full amount of the loan would be due when you sell or refinance the property. The risk here is that you don’t pay down any of the loan amount but it would be much easier to cash flow. This works well if the market is appreciating quickly. You can cash flow the deal and then flip it in a few months for a big check. Read More→
Master Lease Options 101
Posted on January 4, 2014 byLease options have made a big comeback in today’s market. They are great ways to take control of real estate without using banks or lenders. They are also a great way to fix up a distressed asset that a bank won’t lend on. Once you have the property up and running, you can then sell for quick cash or refinance for a long term hold.
A master lease option is a set of two contracts that give us the right to control the operations and the sale of a property. The term “master” is typically given when you are doing this in multifamily and is just a lease option when doing single family deals. The master lease gives us the right to “rent” an entire property with the right to sublet the units. By implementing the master lease we can effectively take control of the property and all of its operations. We can also control the cash flow!
The master lease side of the agreement is what will allow you to fix any problems the deal may have before you sell it or refinance with a lender. You essentially become the new owner without having to actually purchase the property. This will allow you to hire new management to take control of the deal and to implement your plan of action. Read More→
How Many Units to Retirement?
Posted on December 6, 2013 byDo you have a solid plan to have your real estate investing be your vehicle to retirement? Do you know how many units you need to own to quit that J.O.B (just over broke)?
Not having a solid plan of action is one of the biggest mistakes I see new investors making. Most people know that they want to be full time investors and they want the passive income from real estate to replace their working income but they never really form a solid plan to get to that goal. In this article I will help you do just that! Create that retirement plan!
The first step is to decide how much money you need to live on each month. Not how much money you need to be really rich but just how much money you need to cover your monthly expenses and be free from having to earn a paycheck. Most people I speak to say this is $10,000 a month. Read More→
Negotiate Like a Pro
Posted on November 6, 2013 byHave you ever made a great offer, had it accepted and then for some reason it just fell apart? This is an all too common occurrence in the real estate business. The most common reason for this is an improper negotiation prior to the acceptance of an agreement. If you view a real estate negotiation as “win/lose” situation, then you probably got the buyer or seller to agree to something that they really weren’t comfortable with. They said “yes” in the heat of the moment, to relieve themselves of the pressure of the negotiation but then had second thoughts when they went home and thought about it. A good negotiation creates value for both sides. This is the best way to get both parties to honor the agreement all the way to a closing. Here are some tips for your next negotiation.
Gather Data! Gather Data! Gather Data! This is so important it’s probably worth mentioning again. Try to find out what the real interests of the other side are. Why is someone selling? Are they burned out? Do they need to have all cash? Are they in a hurry to close? How motivated are they to sell? Read More→
5 Tips to Getting Your Next Deal Funded Creatively!
Posted on October 9, 2013 byFunding in the real estate business can be one of the biggest barriers to entry and one of the biggest headaches! Here are some tips to help get your next deal funded.
Remember that the only thing that sellers really care about is solving their problems. Make your offers a solution to their problems. Do your homework on the seller and the property. Find out why they are selling and if the property is distressed in any way (deferred maintenance, low occupancy, etc.). Make an offer that solves the seller’s problems. An example might be using a master lease option to take control of a distressed property, fixing it up and then refinancing or selling it.
- Use master lease options. A master lease option or lease option is a set of two contracts that give you the right to control the property (master lease) and an option to purchase the property for a set price and for a set amount of time. A master lease option will allow you to take control of the operations of the deal and give you time to stabilize the property. Once that is done you can exercise your option to purchase or sell the option to a new buyer for quick cash. Read More→
Got Funding? Get Creative!
Posted on September 6, 2013 byFunding can be one of the largest barriers to entry in the real estate business. I remember the very first time I walked into a lenders office and tried to discuss funding for my first apartment complex I wanted to buy. My experience (or lack of) was immediately brought to my attention not to mention my complete lack of liquid assets (NO CASH!)
That day was quite sobering as I left that office although I was still determined to break into the real estate business. Which was a fortunate attitude seeing as I had quit my job as a pilot to go into real estate full time two weeks earlier.
What followed was the next 8 years of survival in the business and ultimately an almost 400 unit portfolio. I survived the Great Recession by mastering the techniques of creative financing such as seller financing, master lease options and raising private capital just to name a few.
If you are just starting out or whether you have been in the real estate business for a while, you always want to complete each transaction with as little cash out of your own pocket as necessary. The more cash you keep in your pocket the more options you keep open to yourself. Remember; Options = Cash! Read More→
Rehabbing with Creative Financing
Posted on August 6, 2013 byIf you have looked at more than a few deals over the last year you have undoubtedly seen a distressed asset. Repairs needed, low occupancy, bad management (or tenants) are some examples, just to name a few. From single family to large apartment complexes there are distressed assets in all types of real estate these days. Fortunately they can be hidden goldmines if you know how to get financing. Most lenders are not lending on distressed assets, making it harder to close these deals, let alone mitigate the needed repairs.
My favorite way to deal with this is with a master lease option or seller financing. If you can get the seller to give you control of the property then you can do the fix-up and flip it for cash or keep it for cash flow!
Either way you structure the deal, the idea is to limit the cost of getting into the deal because you will have repairs and other expenses to overcome while you get the property cash flowing. Here are some tips for getting started with a rehab property using creative financing. Read More→
Be Valuable
Posted on July 5, 2013 byOf all the creative financing techniques I use to build my business, the one that made me the most money and will make you the most money is the art of being valuable. Creative financing is one of the fastest ways to get started in the real estate business. This can include things such as seller financing or a master lease option. No matter what tactics you use, it always comes back to creating value for your buyers.
The first thing you want to do when you are getting into business is to decide what it is you bring to the table. What things do you have that others will value? Once you figure out where your worth is then you must decide how you will trade that worth for what you want. In most cases you are trying to trade your value for entry into a real estate deal but remember, the real estate business is more than just closing a deal. There is partnerships, private money, experience etc. All of these things have value and you will want to focus on gaining as many of these skills as you can. Read More→
Working With Brokers and Agents
Posted on June 10, 2013 by“What’s the best way to find deals?”
This is the number one question I get asked by my real estate students. The answer is in the title. Most people new to the real estate business these days are looking for a “magic bullet” system that will bring them all the good deals they can handle. Unfortunately it doesn’t usually work that way.
There is no better way to consistently produce viable real estate deals than through quality relationships with commercial brokers and agents. No owner of a commercial property is going to go out to the road side and put up a “For Sale by Owner” sign and hope a qualified buyer happens to drive by. They are going to find a great broker and list the property with them.
I tell my students “You are trying to buy a property that is not for sale yet.” Good deals don’t stay on the market long. If you call an agent and they have something for sale, chances are it’s not a good deal. Your job is to build a relationship with this agent or broker so that when a seller walk in the door with a hot deal…you immediately get a call! Read More→
