Self Storage real estate investing is an attractive alternative to low cap multifamily.
Scott Krone, Managing Partner of Coda Management Group, is an architect and developer based in Chicago, IL. He has experienced the boom, bust of residential cycles.. Recognizing the compressing cap rates in Multifamily as a sign that values would likely not increase, he sold his entire multifamily portfolio. Now his focus is finding underserved markets with unmet demand for self storage and filling this gap.
Before you invest in self storage, it’s important to get educated on the basics. For starters, the property values and capital required to get into self storage is a fraction of what is needed to get in to multifamily. Otherwise the investment works similarly, NOI, cap rates, etc.
Traditional self storage is located near the edge of town Usually a series of one story buildings with exterior entrance for all units surrounded by a perimeter fence.
Scott creates class A self storage facilities in underserved urban markets. The ideal opportunity is an existing building with current zoning in place that allows for self storage. An ideal property is 80 - 100,000 sq ft building with high ceilings. When completed, the user will be able to drive into the facility to load and unload their vehicle, protected from the weather in a safe and secure place.
By purchasing existing structures with zoning already in place, Coda is able to quickly close on a property, renovate and get the facility open to generate income. This is a significantly shorter timeline than what is required for ground up construction, which could literally take years.
The building renovations typically include: new roof, HVAC and lighting. Like any market, understanding the opportunity better than your competition is key to your success. Scott has been able to leverage programs like the Department of Energy PACE program which have provides unique low cost financing for energy savings updates.
The difference between renovating and new construction are staggering.
The risk timeline faced by a developer for a new construction are frightening, especially if you look back a to the last market crash. Consider the risk of what could happen if your project takes longer than you planned and you miss the market opportunity entirely. You could be left with a building that you cannot rent or sell.
Starting with an existing building significantly shortens the time line from start to completion. Depending on your renovation schedule, you can be generating income in a fraction of the time it takes to develop a new construction project.
The numbers really make sense when you compare to the cost of new construction. If you buy a vacant building for cheap and add the cost of renovations, they are a fraction of the cost of new construction. As Sam Zell illustrated in his book Am I Being Too Subtle, when you can purchase an existing building for substantially less than you can build, that’s a good value.
Successful Renovation Conversion Projects
Coda sub contracts the management to REITs with self storage portfolios. These are nationally branded, with all the marketing and systems in place to create a top performing property. Ideally, the REIT becomes the buyer when Coda is ready to sell.
For more go to: https://www.codamg.com/
What are wealthy CRE Professionals doing that most of do not?
Doug Marshall is the principal at Marshall Commercial Funding. Additionally, he is a CCIM, author and a returning guest to CREPN Radio. In this episode, he shares five points he learned from his commercial real estate clients that have changed his financial fortunes significantly for the better. And more importantly, how you too can leverage your relations with your commercial real estate clients.
For the first 24 years as a commercial real estate professional, I was on the never-ending hamster wheel of low paying jobs. I was living paycheck to paycheck. I was just barely getting by financially.
My financial situation went from bad to worse when I decided to make the transition from banker to mortgage broker at the age of forty-six. I was hired by a mortgage brokerage firm as an independent contractor which meant I received no salary and no health insurance. I didn’t even receive a draw. I was totally without a safety net and that first year I made a whopping $7,000. I quickly went through the little savings I had and started borrowing against the equity in my house. To say that time in my life was emotionally painful is a huge understatement.
The next four years I saw steady gains in my commission income but not enough to live comfortably, let alone put money aside for retirement. During my fifth year as a mortgage broker, I came across the Albert Einstein definition of insanity. “Insanity is doing the same thing over again, expecting different results.” I kept asking myself over and over again, “I’ve been working at this company now for five years and I’ve barely scraped by financially. What makes me think my sixth year will be any better than my first five years?” And the honest answer was, I couldn’t expect my 6th year to be any better than the previous five years.
Something had to change
I realized something had to change. After much consideration I decided I needed to take the great leap into the unknown and start my own business. So at the age of 51, I started Marshall Commercial Funding which turned out to be the best business decision I ever made. For the first time in my career I was making good money. Boy that felt really good. But even so I knew there was no way that I was going to retire well.
You see I could do the math and I understood I was too close to retirement to make up for the hard, lean years. I realized it was very likely I may never be able to retire at all.
But I also realized that my clients were doing quite well financially. Their liquidity and net worth were growing rapidly. That is no exaggeration. I have a number of repeat clients and I saw how their financial strength increased dramatically from one year to the next. It was an amazing thing to watch! And I knew at that point that the only way I was going to retire well was if I started investing in commercial real estate. That was the only way of getting off the hamster wheel.
My financial situation improved dramatically
So, twelve years ago I started investing in commercial real estate. And my financial situation has gone from very bleak to very good. Because of my real estate investments, my net worth and liquidity have grown dramatically.
Not only could I retire if I chose to, but I could do so comfortably. The passive income from my rental properties when added to my future Social Security checks significantly exceeds my personal expenses. Today I am one of a small group of investors that owns several rental properties valued at over $50 million. So that’s my story.
Most Americans aren’t going to retire well
Why am I telling you this? I believe that many of you listening to me right now, are either living paycheck to paycheck or you realize that you aren’t going to retire well.
Here are a few recent statistics:
I understand why most Americans would have a difficult time saving for retirement. But those of us who are commercial real estate professionals we have a distinct advantage over most people. Every one of us, reading this, in our own way, contributes to the success of our clients. But there is no reason why we can’t go along for the ride.
And that is what some of us have done. Do you want to know what wealthy CRE professionals do that most of us do not? They invest in commercial real estate. Now throughout this reading, I’m going to ask you to raise your hands or sometimes to nod your heads. I’m doing so because I need your feedback. As practice, by a show of hands, how many of you currently own a rental property?
Which brings me to my first point:
Point #1 – There is real wealth to be created in owning commercial real estate
Those who just raised their hands will tell you owning CRE creates wealth. It’s not a myth. It’s not a get rich quick scheme. It actually works. My book, Mastering the Art of Commercial Real Estate Investing, shows you how to do it. I’m going to give you a couple of tidbits from the book today to get you started on learning how to build wealth and grow passive income.
For those of you who didn’t raise your hand, this is my goal for you today: When you done reading, you’ll know what’s holding you back and you’ll know the steps you need to take in order to achieve financial freedom.
Today I am going to share with you 5 critically important points that have the potential of being life changing. Actually, I’ve already shared the first point: There is real wealth to be created in owning commercial real estate.
The second step to achieving financial freedom is this:
Point #2 – The savings generated from active income, i.e., your day job, will be invested in assets that generate passive income.
So we are all on the same page, let me define what I mean by financial freedom. Financial freedom is achieved when your monthly sources of passive income consistently and substantially exceed your monthly personal expenses. When that day happens you no longer need to work for a living. Congratulations! You’ve stepped off the hamster wheel.
Passive vs Active Income
But notice I said passive income. What is passive income? Passive income is cash flow received that requires little to no effort by the recipient to maintain it. Another name for passive income is mailbox money because it comes in the mail without lifting a finger. Here are some examples of mailbox money.
The source of passive income I believe hands down has the best opportunity for creating wealth and growing passive income is commercial real estate investing.
Active income, on the other hand, comes from performing a service. Your day job is a perfect example of active income. In order to receive a paycheck, you must perform a service. So what you do for a living is a form of active, not passive income.
Two obstacles to investing in passive sources of income
But there’s a problem. We may agree intellectually that we should invest in assets that generate passive sources of income, but most of us will fail miserably to put our plan into action. Why? Because other purchases like a new car, an exotic vacation or a nicer home will tempt us to spend our money elsewhere. If that doesn’t cause you to stumble the next obstacle does: You’ve been brainwashed and incentivized to put your savings into an IRA or 401(k) plan. And what types of assets do you normally purchase for these types of accounts? Stocks and bonds that generate little or no passive income.
The benefit of investing in assets that generate passive income
Some of you are thinking, “Why is it important to generate passive income. I’m very happy with the return I’m getting on my 401(k) or IRA?” Right? Fast forward to the day you retire. If your assets are in stocks, bonds, precious metals, land, art, collectibles (anything that doesn’t generate passive income) how are you going to live off them? You will live off them by slowly liquidating them over time. Right? What happens if you live longer than your assets do? You’re toast. You end up being like the vast majority of Americans who will eventually end up dependent on Social Security, friends, family or charity.
Not so with commercial real estate. You do not live off liquidating your rental properties. You live off the passive income generated from your rental properties. And this passive income slowly builds over time. So when your passive income from your rental properties coupled with your future Social Security checks consistently and significantly exceeds your monthly personal expenses, you have attained financial freedom. In other words, you could live to be 120 and you’ll never run out of money.
So the second step to financial freedom is to invest your savings generated from your day job into rental properties that generate passive income.
The third step to financial freedom is this:
Point #3 - Everything we really want in life is on the other side of fear.
Think about that statement for a moment. Is it true? I believe it is. Remember that first kiss? How about the first time you did anything well? A solo, a speech, an athletic endeavor? Do you remember that fear you felt that gave way to relief? And then to joy? Those are examples of doing something that you really wanted to do well, and you overcame your fear and did it.
I believe the number one reason we don’t invest in CRE is fear. Fear of failure is all about looking foolish in the eyes of your family and friends if things go wrong. I get it. I really do. But it doesn’t have to be this way. Those of us who are reluctant to invest in CRE need to adopt a different mindset of, “You either win or you learn.” In everything we do, we either win (we make the right decision) or we learn an important lesson so next time we have a better outcome. Sometimes your investment is a home run, and sometimes you learn what not to do so next time has a higher probability of being a success.
An example of overcoming the fear of failure
In 2009, a group of like-minded investors banded together to purchase a 56 unit apartment that had been taken over by the bank. Do you remember what was going on in 2009? We were in the depths of the Great Recession. The real estate market was in a freefall. Everybody and their brother was running away from real estate in 2009 and here we were thinking about buying an apartment. What were we thinking!! Had we lost our minds?? Was I fearful? You bet I was! But I kept looking at the numbers and it made sense to me. Eventually I decided to proceed and looking back on it now, it was the best investment I’ve ever made. For every dollar invested we received $6 dollars back in owner distributions or in increased equity. But before I could invest, I had to get over the fear of failure.
Winston Churchill quote
Some of you are being held back from investing because you too are fearful. Winston Churchill said it best when he said, “Success is not final, failure is not fatal; it is the courage to continue that counts.” To succeed in life, we must realize that everything we really want in life is on the other side of fear. Does that make sense?
So the fourth point we are going to discuss is this:
Point #4 - The best way for most of us to invest in CRE is as a passive not an active investor.
How many of you are thinking some like this: “Fear is not holding me back from investing in commercial real estate. My problem is I don’t have the time, the experience or the financial resources to be investing in rental properties. I’ve got a day job that keeps me plenty busy without adding this additional stress to my life.” So who is thinking something like this?
But this is where you’re wrong. Dead wrong. That thinking assumes that the only way to own rental properties is as an active investor. An active investor is the person who makes all the important decisions, what to buy, how much to pay for it, how to finance it and manage it. To name just a few. True, this is one way to own CRE. But many times, the active investor, also known as the managing member of an LLC, or the promoter, or the syndicator or the sponsor, can’t do it without passive investors, also called equity partners, who provide the capital needed for the down payment.
Not everyone can or should be an active investor as it requires someone who has the time, experience and resources that many of us don’t have. But if we want to retire well all of us should strive to be passive investors of commercial real estate.
In the past 12 years I’ve invested in 10 rental properties as a passive investor. My only responsibility has been that I provide some of the equity to purchase the property. I leave all the decision making to my real estate sponsor. I’m more than happy to have someone else make all the decisions while I get my monthly owner distributions. It’s kind of like the best of both worlds, don’t you think?
So the best way for most of us to invest in CRE is as a passive, not an active investor. Does that make sense?
The fifth and final point I want to make is this:
Point #5 - To succeed as a passive investor requires finding the right active investor to invest with.
Be wary of real estate syndicators
Where do you find the “right” active investor? You have two choices. You can go to one of many online crowdfunding sites and choose one. But you must qualify as an accredited investor. But the real problem with using a syndicator from a crowdfunding site is that you have no idea the character of the person you’re trusting with your hard-earned money.
One time I was considering an investment opportunity with a syndicator. On the surface everything looked legit. But I was having problems determining how much money the real estate sponsor was going to invest in the property. They kept sending me pages of details about their proposed offering, but nothing explicitly stated how much they were personally investing in the property. So I point blank asked. The answer: none! Not a penny. So if the property went belly up, it would have no financial impact on them personally. Not only that, they were making handsome fees up front coupled with a very generous fee split with the equity partners when the property was sold. It was a win, win, win for them! This was an excellent deal for the syndicator but they were treating their prospective investors like chumps. They were structuring the deal so they made out like bandits while incurring no personal investment risk if things went badly.
I’m sure there are many fine real estate syndicators that you can do business with. But I have no sure-fire way of determining who is honest and who is a wolf in sheep’s clothing. Who is offering a fair fee split for their services and who is gouging their investors? It’s sometimes hard to tell. The point I’m trying to make is this: I’m wary of syndicators that I do not know personally and you should be too.
The best and easiest way to choose an active investor
But here’s the best and easiest way of choosing an active investor to partner with. And they are right under our noses. They are our clients. For me it was an easy choice to determine who I would trust with my investment money. I do all my investing with one real estate sponsor that I’ve known for about 25 years. He’s not only my client, he has become a friend and a 7 year member of my book club. I know his excellent commercial real estate investing track record. I know that he is a man of integrity and because of that I trust him. So in 2007 I asked if I could invest with him and he gladly said yes. He said yes because I had financed several of his properties over the years and he had come to know that I was good at my craft and someone he trusted and liked. And now when he invests in a new property I am one of the first people he asks to invest with him. Better yet, I’m given first shot at doing his financing.
As a passive investor you let someone else make all the investing decisions except for one: Who do I want to trust with my money? This decision is very important, maybe the most critical of all the decisions you have to make about investing in commercial real estate.
Ask your clients these questions
So how do you go about finding the right client to invest with? It’s really a no-brainer if you’ve been a CRE professional for a number of years. Ask yourself these questions. Of all my clients:
Raise your hand if you have someone in mind? So the next time they contact you to use your services, ask them if you could invest with them. You won’t know if you don’t ask and if you ask I bet they’ll say yes. Why wouldn’t they say yes? They use your services because they consider you the best in the business or they would go somewhere else. Right? And investors who team up with equity partners are always looking for new sources of investment capital. The worst case scenario is they say no. If that happens, don’t take it personally. They have their reasons which probably has nothing to do with you. Instead, go back and review your list of clients and go through the process again. Rinse and repeat until one of your clients enthusiastically says yes.
So the fifth and final point I want to make today is: To succeed as a passive investor requires finding the right active investor to invest with. Does that make sense?
Summary of 5 points
We talked about:
I want to leave you with this final thought: If I can do it, so can you. I wasn’t able to start investing in CRE until I was 55 years old! That’s a very late start and yet I am now able to retire well. So if I can do it, so can you.
Imagine for a moment that you start investing a modest amount this year with one of your favorite clients. As the years progress that small equity investment will grow, slowly at first but before you know it, it will be a tidy sum. Now imagine if you invested a small amount every year between now and retirement so that when you retire you have 20 or more these investments. Where do you think you’ll be financially when it’s time to retire? Yep. You’ll be able to retire in style.
Call to action
This brings us to my original point: I began my talk by expressing my hope that when you walk out of here today that you would know what’s holding you back from achieving financial freedom. If what I’ve said today describes your financial situation, either you’re living paycheck to paycheck or you know that you’re not going to retire well, then I want you to do these 3 things:
This is my 3-step plan for you to become financially free.
Thank you so much for your time and attention.
Source: Fed survey shows 40 percent of adults still can’t cover a $400 emergency expense, Sarah O’Brien, https://www.cnbc.com/2018/05/22/fed-survey-40-percent-of-adults-cant-cover-400-emergency-expense.html, May 22, 2018; 20 Retirement Stats That Will Blow You Away, Matthew Frankel, CFP (TMFMathGuy), https://www.fool.com/retirement/general/2016/01/26/20-retirement-stats-that-will-blow-you-away.aspx, January 26, 2016.
For more go to: https://marshallcf.com/
What is your Real Estate Investment Strategy?
Josh Welch, founder of Three Pillars Capital, started like most investors. Single family properties, one at a time. When he figured how long and hard it would be to grow a portfolio of single family, he knew there had to be a better way. The answer: Multifamily.
Multifamily real estate investing offers multiple strategies. First you have to decide if you want to be active or passive with your investing. Do you go it alone, with partners, or through syndication? These are questions that should be answered before you can really grow.
Josh chose multifamily syndication.
Real Estate investing is a team sport. Three Pillars Capital has a lean team. The members are responsible for Acquisition, Operations, Project Manager, Management and Investor relations. While the General Partner is Three Pillars Capital, its many of its Limited Partners take an active role in the management. The active limited partners do so because they want to learn the multifamily syndication process. Some have aspirations of joining future general partners as fund raisers or potential syndicators themselves.
What better way to learn than by doing?
There is no such thing as the “real estate market”. Every market is a market to itself. Three Pillars is a multifamily syndication firm based in Houston, TX and is solely focused on this one market for now. This intense focus gives them an advantage over any outside investor. They know the market inside out.
Knowing the subtleties of each neighborhood in a market gives you an edge over someone looking at Loopnet from thousands of miles away. When you focus on one market, you know which block is the border that separates a good neighborhood from a rough one.
Boots on the ground gives you insight to the micro trends in the market. Are employers hiring, or laying off? What is the demand for units today? When “For Rent” signs begin to appear, you know it before the reporting agencies declare an uptick in vacancy rate. Is there a local effort to redevelop a neighborhood that will bring the whole neighborhood up? The value of real time boots on the ground knowledge cannot be underestimated.
Three Pillars Capital focuses on Class C multifamily properties with a value add opportunity. The term value add covers a wide range of things. An ideal opportunity for Three Pillars is a property that is in good physical shape, but has been mismanaged. They can easily create additional revenue and value through rent increases and RUBS with these properties. Other desirable opportunities include properties that can be easily updated with a thorough cleaning, floor coverings, paint and fixtures.
Risk is everywhere. As an insurance broker, I am constantly looking at the risk of loss and what can be done to manage it. In most cases, there are three strategies available: Avoid, Minimize, or Transfer.
Going forward, I am asking my CREPN Radio guest to identify the Biggest Risk they face.
Q: What is the Biggest Risk you face?
A: Fear: Fear can be paralyzing. Is the market at the top? Will interest rates rise? What if the market has multiple years of to go and you are not in the market? You miss out. Do your analysis, be disciplined and take a calculated risk. Don’t let the fear over run you to inaction.
For more go to: www.Threepillarscapital.com
Real Estate Investor Books provide tremendous value for knowledge seeking investors.
Consider the bargain found in a book. In all likelihood, the author has taken years and possibly thousands of dollars making mistakes in order to learn the lessons detailed in their book. For a small investment, you can learn from their experience, what not to do and what you need to do to achieve success. For this reason, books are a true bargain.
Scott Hollister is a former teacher, turned real estate agent, mortgage broker & investor. He is also the host of The Book Club Interview podcast. Here he combines his passion for books with real estate investing. Last year, he read one book per week to prepare for interviews with the author for his podcast.
Recent interviews include
Regardless of your particular investment strategy; fix and flip, value add, syndication or buy and hold, each strategy shares investing fundamentals. However where some books dable in a topic, others explore the depth of the subtle important nuances.
The ability to publish a book in 2019 is easier than ever. Now all authors have an opportunity to publish, it does not mean that all books are exceptionally well written. Scott finds the books to be similar to the teachers he had in school. While some teachers are more noteworthy than others, he always came away with at least one kernel of knowledge. The same holds true in the books he reads.
During the course of my interview with Scott, he provided a list of books I had never heard of that he recommend on specific topics.
Regardless if you flip, syndicate, value add or chose to lend money using your 401k, there are some terrific books that dive deep into the topic.
Some of the books that Scott turned to when getting started and has found interesting:
Risk is everywhere. As an insurance broker, I am constantly looking at the risk of loss and what can be done to manage it. In most cases, there are three strategies available: Avoid, Minimize, or Transfer.
Going forward, I am asking my CREPN Radio guest to identify the Biggest Risk they face.
Q: What is the Biggest Risk you face?
A: Biggest Risk: Under estimating the cost to rehab a property and the time needed to complete it.
Solution: Have multiple Exit Strategies incase it all goes bad.
For more go to: The Book Club Interview podcast
Face Book: https://www.facebook.com/bookclubinterview/
Bigger Pockets: https://www.biggerpockets.com/users/MrHollister
Property Management is essential to the profitability of all real estate investments, regardless if you self manage or contract to others.
Jason Hull, founder of DoorGrow.com, helps property managers focus, grow and make their business more profitable. In episode #179, Jason shares his insight into how to identify an exceptional property manager.
If you self manage, have you considered managing for others? Jason shares how you can turn the work you are already doing into a profit center when you do it for other property owners. Property management has desirable business characteristics that every real estate investor seeks: minimal investment required to start, recurring & increasing revenue, clients who rarely leave, and the inside track to true off market deals.
A successful property management company is easy to recognize. For starters, they answer the phone when you call. They are a sales focused organization committed to the growth of the whole organization. Happy clients are the standard. They do not run from crisis to crisis. The experienced team can handle any situation and keep both the property owner and tenants happy. They rely on systems to ensure that success is a constant and they do not recreate the wheel.
If you are struggling or considering taking on property management for others, here are some keys to growing your property management company:
Once you have a solid base operation that is attracting quality owners and tenants, it’s time to prospect for more. Reach out to local investment groups and offer to speak. Groups are always looking for someone that can add value to their members. This is an excellent opportunity to prospect for new clients as a speaker in front of groups. When you present as an expert in front of a group, it leverages your reputation way beyond any outbound cold call will ever do.
For more go to:https://doorgrow.com/
Podcast: Door Grow Show
Face Book: The Door Grow Club
Self Directed IRA is an option available to all investors, yet it is not widely understood.
If fact, every IRA is self directed. It is the custodian that limits your options, ie: stock brokers and wirehouses limit your selection to marketable securities offered. To take advantage of non traditional assets, you need to seek out a custodian that supports investing in non traditional assets.
Employer sponsored plans, ie 401k’s usually have a limited number of investment options that are set the administrators.
Terry White is the founder and CEO of Sunwest Trust, a custodian for almost 10,000 Self Directed IRA’s with an average account balance of $130,000. Sunwest Trust provides an option for investors looking to invest in non-traditional assets. Unlike traditional broker custodians who charge based on the assets under management, Sunwest Trust charges an annual flat fee for their services.
Individual Retirement Accounts, IRA’s, are non employer sponsored retirement plans. You choose the custodian. They can support traditional or non traditional assets.
Employees who leave an employer have two options. They can leave their 401k with their prior employer, or they can roll over the plan to a Self Directed IRA.
The IRS does not provide a list of categories you can invest in. Rather it specifies a few things you cannot invest in. The list is short. It includes life insurance and collectibles.
Again, the IRS does not list all of those potential investors you can invest with. Rather, they specify the those “disqualified” parties which are prohibited: you, for personal use, your ascendents and descendents; your parents, grandparents, children or grandchildren. You are not prohibited from investing in a brother or uncle, etc.
It is crucial that any purchases in your Self Directed IRA be structured properly to avoid potential taxable event or penalties. You must have the purchase and sale agreement signed by your custodian. If you act as the buyer individually, then fund with your IRA, you will engage in a prohibited transaction.
When property is purchased, the custodian does so at the direction of the IRA. The property is then titled to the IRA in care of, the custodian, ie:
All operating income and expenses go through the custodian who deposits, withdraws from your IRA. It is best to use a property manager that pays directly to the IRA.
You are prohibited from using the property personally.
Your IRA can elect to use leverage to purchase a property, provided that the loan is non recourse. Keep in mind, using leverage triggers, Unrelated Debt Financed Income, UDFI. This is a tax. It is equal to the percentage of the income that is attributed to the leverage. Ie; if you put 25% down, and have a loan for 75%, then, 75% of your income will be taxed at Trust rates.
Lending from your IRA is a very clean way to generate substantial gains. Hard money, interest only loans, as long as you don’t loan to yourself, parents, or children, is one of the most popular ways to utilize a self directed IRA.
Each year, the assets or property held in your IRA are reported to the IRS on a form 5498 by your custodian. The non traditional assets, property, are valued at the year end and compared to last year. All income paid to you by your custodian is reported on a form 1099.
When you turn 70 and ½, the IRS requires that you take minimum distributions from your IRA. This requires planning to do properly. Your options include:
A Self Directed IRA is not for everyone. If you do not understand what you are investing in, don’t do it. Get educated, learn the ins and outs, and know what you are doing before you invest.
For more go to:
FREE BOOK: https://www.sunwesttrust.com/contact/
and request Terry’s book,
When all You have is a Hammer
Sunwest IRA is a YouTube Channel
The Multifamily investing learning curve is steep.
Real estate investing has been presented in every way imaginable. But, there is only so much you can learn from a book, a blog or podcast. To propel yourself on the learning curve, you have to invest your money and time in a deal. If you like to learn more from mistakes, go it alone. For those who would rather shorten the learning curve, partner with someone who has learned from their mistakes.
Rama Krishna with Zovest Properties LLC did 5 deals from July to December 2018 and acquired 153 units. His decision to invest in Multifamily was made concrete after realizing the path to real passive income was not to acquire 1000 single family homes.
Prior to investing in a deal, Rama analyzed multiple deals. The goal was to find a value add opportunity that he could partner with friends and family to acquire. After acquiring three separate deals, he learned first hand the difference between a C+ and a D property; effort required to collect rent.
If rent is what drives your revenue, and it’s not easy to collect, that may be the reason the property is offered at a higher cap rate. Now he recognizes the benefit of a stabilized property and rent that is collectable.
Lesson: If you want regular rent, buy higher class properties.
Multifamily investors love to be able to acquire a property and reposition it; increase occupancy, rents, NOI and value. An inexpensive purchase with lots of potential and heavy lifting, renovation can really limit the cash flow if not properly capitalized.
If you acquire a property that needs a lot of work, get firm construction estimates and plan your capital requirements accordingly, especially if you are syndicating. Recognize that a construction loan is expensive, and you have to complete the project as soon as possible so that you can get more competitive long term financing.
The easier path is to find a lite value add property. These are characterized by a property with dated surfaces and undermarket rents. Ideally, you can make units more appealing by spending a small amount to get market rents.
Lesson: Be realistic when underwriting value add reposition play.
Multifamily investing is people game. Prior to closing his first property, commercial real estate brokers would show Rama only properties which were listed for sale. After he was a proven closer, brokers started calling him with off market deals.
Lesson: Be a closer, and the deals will find you.
For more go to:
Invest. Earn. Retire.
408 904 9990
Family offices have been around for generations. Historically, they were associated with Rockefeller, Mellon, or Vanderbilt, families that created generational wealth. They generated their wealth from many different industries. Having created massive wealth, they can invest conservatively. Preservation of capital is the first goal. Beyond that, they focus on the transfer of wealth to the next generation.
Brian DeLucia with Arrivato LLC provides a look from the inside of a family office. His family created its wealth in real estate, and continues to develop multifamily real estate holdings for the family.
Birds of a feather flock together, and so do family offices. There is a club of family offices where families socialize and communicate with each other. They have mutual interest, capital preservation and generational wealth. This common interest aligns their interest, which creates mutual trust in each other. From the trust grows unique opportunities to share and learn from each other.
Each family office is different. Some outsource all of the professional needs. Others handle everything inside, using the family business as a training ground for the next generation to learn the family business to continue the family’s mission.
Some look outside for investment options. If they created their wealth in a particular industry, they may possess a unique skill set that takes generations to learn. This can have tremendous value for investing in similar businesses where others are not experienced nor interested.
Other offices create multiple internal operational companies that allow multiple layers of opportunity to grow for generations. For instance, if a family created its wealth through real estate, they may have a management company, development operation, and together they build additional opportunities for the greater good of the family.
Are you writing a check to charity that is greater than your executive assistants annual salary? If so, it might be time to consider setting up the infrastructure to create a family office.
Traditionally an asset base between $100 to $250 million was considered the point of necessitating the need for a family office facilitate the transfer of wealth to the next generation.
The best way to work with a family office is no different than you would another professional. Build your relationship first. Once you have a relationship and trust is built, you will learn about the interest of the family and if your opportunity is a good fit.
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Passive cash flow from raw land, how can that be?
Mark Podolsky, The Land Geek, has mastered the raw land deal. Since 2001, he has done over 5,200 land flips, all across the United States that produce regular monthly cash flow.
Raw Land has no renters, rehab, renovations nor rodents. There are 3007 counties in the US with billions of acres of land. There is very little competition. In the raw land market place, there are no hedge funds, no DIY TV shows “Flip this Land”, etc.
The average return on investment is 300% on land flips and as much as 1,000% when he sells the land on terms.
Your ideal situation is to find a distressed seller. This is someone who does not live in the state who is delinquent on their property taxes. They are clearly not emotionally attached to this property. To these identified prospects, Mark sends out an offer to buy their property.
The “instant offer” is 25% of market value, including back taxes. He finds that between 3 - 5% of his offers are accepted.
When a potential seller replies, Mark has systemized the due diligence for quick confirmation of
The ideal buyer of your new property is a neighbor to the property. If that does not work, there are multiple online marketplaces, ie Craigslist & Facebook Marketplace that work exceptionally well
Because you are purchasing the property at a fraction of the market value, you are likely purchasing for cash. With no bank or lender to answer to, you the ability to be creative with your sale.
The ideal land flip takes 30 days from purchase to sale.
The perfect sale is when you collect a down payment equal to what you purchased the property for. For the balance, you can use a Promissory Note and Land Sale Contract, which is not subject to Dodd Frank.
A land sale contract does not deed the property to the buyer until the contract is fulfilled. This eliminates the need to foreclose. You can structure the promissory note for the buyer to pay monthly payments equal to a car payment for 84 months with 9% interest.
Need help collecting on your land sale contract promissory note? Mark has created Geek Pay which is available for you to use for payment collection. He has learned to collect multiple forms of payment, checking account & credit cards, to ensure you get your regular payments.
That’s how you create passive cash flow.
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Cash flow from day one is the key to building generational wealth that provides you options regardless of market conditions.
Daniel Ameduri from Future Money Trends has been investing in real estate since he was 18 years old. In a short time, he went from investing in properties that cash flowed to properties he hoped would appreciate in value.
When the market crashed, he lost those properties he was betting on for appreciation. The properties that cash flowed from day one, continued to produce and increased their output while the market was falling.
The lesson was learned. Invest for cash flow and you will be free!
An asset that produces regular recurring cash flow is the goal for any investor looking for a way out of the need for a job. A very simple plan, free from the hocus pocus of the stock market is real estate. For a modest down payment, you can purchase with leverage, a rental property. The tenant pays the rent, the rent pays the mortgage. When the mortgage is paid off, you get all the rent.
Compare this to saving cash, and earning minimal if any interest in the bank. You are way better off to invest in a tried and proven asset class like real estate.
Paid off real estate can be a tremendous base for your retirement future. Simple Retirement plan: purchase multiple single family rental properties. Pay them off. Cash flow for life. The key with real estate is time. So, the quicker you acquire, the sooner you will be free.
Financing. Unless you have an unlimited money supply, you will have to borrow to grow your real estate portfolio. If you have strong credit, and a good W-2 job, you can qualify for conventional financing.
However, if you have lesser credit and financial qualifications, you will have to get creative.
Seller Financing: Look for property and a seller with a problem. A property with a problem will not qualify for conventional financing. The seller’s problem is an opportunity for you to negotiate a low price, and determine what the actual cost to repair the problem will cost. A seller with a problem is more likely to agree to seller financing.
If they do not own the property out right, consider assuming their mortgage. All conventional mortgages have a due on sale clause. However, Daniel has never heard of a performing mortgage be called by the lender. So, this is your chance to take over an existing mortgage. Find out what the seller needs to allow them to move on. Most of the time, it is relatively little.
For a few thousand dollars, you can own a property that has a mortgage, and you get the equity the seller has paid down.
If you don’t want to keep the property, you can sell it. You can offer to carry a mortgage. When the original sellers mortgage is still in place, you create a “Wrap Around Mortgage”.
This is when your sell the property for more than you purchased it for. The new buyer gives you a down payment. You collect their payment, and make the payment on the original mortgage you assumed. The difference between what you collect and the cost to service the first mortgage is yours to keep.
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