Questions to Ask When Evaluating an Apartment Building Deal

Let's discuss how to quickly evaluate an apartment building deal. With so many deals available, it's crucial to determine which ones are worth your time. Here are five essential questions you should always ask:

1. What is the net operating income (NOI)?
2. What is the asking price?
3. What is the upside potential?
4. What is the deferred maintenance?
5. Why is the seller looking to sell?

Let's delve into a bit more detail about these questions:

First, it's important to find out the NOI. This is crucial information because it helps determine what type of income the property generates and what expenses are being incurred. You will need to verify their income and expenses later, but for now, use the figures they provide.

Next, take the NOI and divide it by the asking price to determine the cap rate (the financial return of the property if you paid all cash).

For example, if the NOI is $35,935 and the asking price is $650,000, then the cap rate is 5.5%. This is a good rate for a property located in a desirable area.

If you don't know the asking price or are attempting to determine what you should offer, then you will need to find the market cap rate for similar properties in that area. One option is to ask brokers or property management companies.

For example, if the NOI is $550,000 and the market cap rate is 9%, then a fair price would be $6,111,111.

Here are some rule-of-thumb assumptions that can help you run some numbers if you don't have all the information:

• Assume between $3,000-$3,500 expense per unit per year if no expenses are given.
• Assume a 25% down payment, 5.5% interest rate, amortized over 25 years with a 10-year balloon payment if you have no idea about debt service.

NOTE: these assumptions are not always accurate, and should be used initially to run some numbers and determine if the deal meets your buying guidelines. To truly analyze the deal, you will need to obtain concrete information from the seller.

Now that you know the basic financials of the property, it's time to dig deeper. Here are the top three questions that you must always ask about the property:

• What is the upside potential?
• What is the deferred maintenance?
• What is the seller's motivation?

Here's what we didn't cover in this post: Market fundamentals. Investing in the right market is the most important variable for success. Buying in a bad market can result in failure. This is a longer conversation for another day, but it's important to know that the above post assumes that your market is performing well.

Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.

Negotiating Tips that have Worked Against Me

Throughout my career, I’ve been involved in many negotiations, both in real estate and in general full-time job circumstances. In this article, I'll share three negotiating tactics that were used against me and worked. But don't worry, I'm not here to scare you! I just want to give you some pointers so you can be better prepared for your next negotiation.

They are so damn likable.

Problem: Do you find it tough to negotiate against someone you really like? It can be awkward at first because you may not want to offend them, but there’s some serious business that needs to be addressed.

Solution: Stick to the facts. Facts are emotionless. They do not contain trigger phrases like “this is unacceptable,” “but it’s not fair,” “but I’ve worked really hard on this,” “but I’ve been here so long,” or curse words. When you maintain a calculated and logical approach to the negotiation, your stance cannot be disputed.

They demonstrate they have more knowledge on the topic than you (and gray hair helps)

Problem: The opposition may have more experience in the industry, more knowledge about the topic, and may be older. When they talk, it’s clear they know more about the topic than you do. This can be a daunting situation.

Solution: Align yourself with people who have the knowledge and experience you lack, and bring them in to actively participate with you. If that’s not possible, dismiss any irrelevant information and focus only on the outcome. Think of yourself going 1000 mph and all the stuff they are saying are the blurry objects. They might say a lot of stuff, but only focus on the info that will get you to your outcome. It requires concentration, but it works.

They devalue your contribution (e.g. payment, time, thoughts)

Problem: The opposition may undervalue your contribution and indicate that they are losing money on the deal. However, they still go through with the transaction and somehow stay in business and are happy with the outcome.

Solution: Create a list of five reasons why the opposition should do the deal. This helps you understand from their perspective why it is favorable. You can choose to bring up those points or just keep them in your head. Regardless, remind yourself of the value you’re bringing to the table. They wouldn’t be having this conversation with you if they didn’t agree you bring value. Whether it’s money or time, you are adding tremendous value to this arrangement, and don’t let them tell you otherwise.

What are some negotiating tactics that you’ve seen work?

How to Find a Property Management Company for Your Real Estate Investing Team

Real estate investing can be a lucrative business, but managing properties can be a hassle. That's why many investors hire a property management company to help them with the day-to-day operations of their rental properties. However, finding the right company can be a daunting task. Here are two ways to find a property management company for your real estate investing team.

Referrals from Other Investors

One of the best ways to find a property management company is to ask for referrals from other investors. Real estate investing is a tight-knit community, and many investors are more than happy to share their experience with property management companies. Reach out to local real estate investment clubs or associations and ask for recommendations. You can also ask for referrals from real estate agents or brokers who specialize in investment properties.

When asking for a referral, be sure to ask about the company's experience, their fees, and their communication style. It's also a good idea to ask for references from current or past clients. Once you have a few referrals, do your due diligence and research the companies further. Check their reviews online and ask for a copy of their contract to review.

Online Directories

Another way to find a property management company is to use online directories. There are several directories available that specialize in connecting investors with property management companies. These directories allow you to search for companies based on location, services offered, and fees.

Some popular directories include All Property Management, Buildium, and Cozy. These directories typically have a vetting process for the companies listed, so you can be assured that the companies you find are reputable. However, it's still important to do your own research and read reviews before making a final decision.

Conclusion

Finding the right property management company for your real estate investing team can take some time and effort. However, by asking for referrals from other investors and using online directories, you can narrow down your options and find a company that fits your needs. Remember to do your research and ask the right questions before making a final decision. With the right property management team in place, you can focus on growing your real estate portfolio and increasing your profits.

5 Signs That You Should Walk Away From a Property Deal

Real estate investing can be a lucrative business, but it's not without its challenges. One of the biggest challenges is knowing when to walk away from a property deal. It's important to recognize the signs that a deal may not be worth pursuing before investing your time and money. Here are five signs that you should walk away from a property deal.

1. The Property Has Serious Issues

If the property you're considering has serious issues like structural damage, mold, or a faulty foundation, it's best to walk away. These issues can be costly to repair and may make the property difficult to sell in the future. Unless you're prepared to take on a major renovation project, it's best to look for a property that's in better condition.

2. The Numbers Don't Add Up

Before investing in a property, it's important to crunch the numbers and make sure the deal makes financial sense. If the numbers don't add up, it's best to walk away. This could mean that the property is overpriced, the repairs are more expensive than anticipated, or the rental income won't cover the expenses. It's important to be realistic about the potential profit and make sure the deal is worth your investment.

3. The Seller Isn't Cooperative

If the seller isn't willing to provide the information you need, won't allow you to inspect the property, or is unresponsive, it's best to walk away. A lack of cooperation from the seller can be a red flag and may indicate that they're hiding something or aren't serious about selling the property. It's important to work with a seller who is transparent and willing to work with you.

4. The Property Is In a Bad Location

Location is key when it comes to real estate investing. If the property is in a bad location, it may be difficult to find tenants or sell the property in the future. Factors like high crime rates, poor school districts, and a lack of amenities can all make a property less desirable. It's important to consider the location carefully before investing in a property.

5. You Have a Bad Feeling About the Deal

Sometimes, your intuition can be a powerful tool in real estate investing. If you have a bad feeling about a deal, it's best to trust your instincts and walk away. This could be a sign that the deal is too good to be true, the seller isn't trustworthy, or there are hidden issues with the property. It's always better to err on the side of caution and avoid a deal that doesn't feel right.

Conclusion

Walking away from a property deal can be difficult, especially if you've invested time and money into the process. However, it's important to recognize the signs that a deal may not be worth pursuing and to trust your instincts. By avoiding bad deals, you can save yourself time, money, and headaches in the long run.

3 Ways to Raise $1,000,000 for Your First Apartment Syndication

If you're interested in raising money for real estate investment opportunities, it's important to understand why people invest passively. Don't worry, we've got you covered!

Before starting the process of raising over 1,000,000 for an apartment syndication deal, I thought people would invest in my deal primarily for the returns, whether cash-on-cash returns, internal rate of return, equity multiple, or simply an annual amount. Silly me! While returns are necessary, they're not the most important factor. People invest based on trust. They trust you as a person and as a businessperson. They trust you with their money because they know you or people who know you and can vouch for you.

If you want to successfully raise real estate investment capital, you need to gain potential investors' trust. Here are three ways to get started:

1. Time

Establishing a relationship with investors takes time, but don't worry, you got this! For your first syndicated deal, your investors will most likely have known you for at least a couple of years. You don't yet have a track record. Once you establish one, it will be easier to get strangers to invest with you because of your proven track record.

The more expertise you have (see way #2 below), the less time you'll need to establish relationships with those who provide real estate investment capital.

2. Expertise

The more expertise you can demonstrate, the easier it is to raise money. BUT, WAIT. There's a catch.

You must demonstrate your expertise in a way your potential investor understands. Your knowledge is irrelevant. What's important is what's relevant to your investors and how you communicate it to them.

A doctor needs information communicated differently than an engineer, a small business owner, or someone who has invested in real estate before. Your success lies in recognizing how to communicate the information to each audience based on their background and needs.

You can display expertise even if you haven't done the specific thing you're raising money for. Another way to build credibility as an expert (and gain more real estate investment capital) is to create a thought leadership platform. For example, Kathy Fettke leveraged her thought leadership platform, a podcast, to raise $5 million in one week! Other platforms besides a podcast can be a blog, a YouTube channel, a newsletter, an ebook, or a meetup, but there are numerous other ways to become a thought leader. Be creative and find something that complements your strengths, unique abilities, and of course, that you like to do!

3. Personal Connection

The idea that people only invest with their analytical mind is false. We invest with emotion. We go in with preconceived notions and tend to look for things that confirm those notions.

Try this exercise: look around your room and, for the next 30 seconds, find everything that's red. Look red. Find red. Look red. Find red.

Now, write down all the things you saw in the room that are blue.

While looking for red, you probably noticed things that were reddish-brown or orange-ish red but counted them as red. We don't find things we're not looking for.

The point is we find what we seek. Those who provide real estate investment capital do the same thing. If they have a preconceived notion about you and the investment, they'll look for ways to confirm it. So, it's important to establish a solid personal connection with them.

You can do this by finding out what they care about and seeing if you can align with that in a genuine way. If you don't know what they care about, ask them this magic question:

"What's been the highlight of your week (or weekend)?"

That will uncover some things that are top-of-mind for them. They might say "making a business transaction," which will tell you that it's important to focus on the numbers and profitability. Or, they might say, "finally being able to get away with my family," which will indicate that time is precious, and you should emphasize the "passive investment angle" with them.

Isn't Real Estate Investing Risky

I recently went out to eat with an old friend and was asked about my job. I shared that I work as a real estate investor, where I raise capital from investors to buy apartments. My friend asked if it was risky, and I agreed that it can be a lot of responsibility and carry some risk. However, upon reflection, I realized that I had not fully answered the question.

When it comes to risk, it's natural to focus on the potential negatives. But it's important to also consider the potential benefits and opportunities that may arise. In fact, taking risks can lead to great rewards and positive outcomes.

In my daily decision-making process, I weigh the pros and cons of each option and assess the potential outcomes. For instance, when deciding whether to indulge in a Snickers bar, I consider the fact that it's unhealthy but also that it tastes good and is free.

Similarly, when considering whether to pursue a business venture that involves raising funding from investors to purchase apartments, I evaluate the potential risks and rewards. While there is always a chance of failure, there are also great opportunities to provide investors with a conservative opportunity to earn more money, establish strong relationships with investors and team members, educate others about the real estate investment process, and have more time with my family. To mitigate risks, I ensure that I am surrounded by an experienced team and continue my education in the field.

When asked about the risks involved in my job, I emphasize that there is always a degree of risk, but there is also the potential for significant rewards.

How Real Estate Investing Can Generate Cash Flow

Introduction

Real estate investing has become a popular way to generate passive income and build wealth. Unlike other investments, real estate offers various ways to generate cash flow. In this blog post, we will discuss three ways that real estate investing can generate cash flow.

Rental Properties

One of the most well-known ways to generate cash flow in real estate is through rental properties. This involves purchasing a property and renting it out to tenants. The rental income generated can provide a steady stream of cash flow each month. The amount of cash flow generated depends on various factors, including the location, size, and condition of the property, as well as the rental rates in the area.

To maximize cash flow from rental properties, investors should aim to keep the vacancy rates low and ensure that the rental income covers the expenses, such as mortgage payments, property taxes, maintenance costs, and property management fees. Investors can also consider making improvements to the property, such as upgrading the appliances or adding amenities, to attract more tenants and increase the rental income.

Fix-and-Flip Strategy

Another way to generate cash flow in real estate is through the fix-and-flip strategy. This involves purchasing a distressed property, renovating it, and selling it for a profit. The profit generated from the sale can provide a significant cash flow injection.

To ensure a successful fix-and-flip strategy, investors should conduct thorough research on the property's location, condition, and potential resale value. They should also have a solid renovation plan and a realistic budget to avoid overspending. Investors can also consider holding onto the property as a rental property after the renovation is complete to generate even more cash flow.

Commercial Properties

Investing in commercial properties is another way to generate cash flow in real estate. Commercial properties, such as office buildings, warehouses, and retail spaces, can provide higher rental income than residential properties. They also offer longer lease terms, which can provide a steady stream of cash flow for several years.

To maximize cash flow from commercial properties, investors should conduct extensive research on the location, market demand, and tenant quality. They should also ensure that the property is well-maintained and meets the tenants' needs. Investors can also consider diversifying their portfolio by investing in a mix of residential and commercial properties to generate multiple streams of cash flow.

Examples of Real Estate Investors Generating Cash Flow

Real estate investing has been a successful strategy for many investors. For example, Robert Kiyosaki, author of "Rich Dad Poor Dad," built his wealth through real estate investing, including rental properties and commercial real estate investments. Barbara Corcoran, a real estate mogul and investor, built her fortune by investing in and developing residential properties in New York City. John Jacob Astor, one of the wealthiest Americans of his time, made his fortune through real estate investments, including vast amounts of land in New York City.

Conclusion

Real estate investing can be a profitable way to generate cash flow. Investors can choose from various strategies, such as rental properties, fix-and-flip, and commercial properties, to generate passive income and build long-term wealth. However, real estate investing involves risks, and investors should conduct thorough research and due diligence before investing their money.

By following a solid investment plan and having a long-term outlook, real estate investors can generate significant cash flow and achieve their financial goals.

Additional Thoughts

In addition to the strategies mentioned above, real estate investors can consider other ways to generate cash flow. For example, they can invest in real estate investment trusts (REITs), which allow investors to own a share of a portfolio of properties. They can also participate in crowdfunding, which allows multiple investors to pool their funds to invest in a property. By diversifying their portfolio and considering different investment options, real estate investors can maximize their cash flow and achieve their financial objectives.

10 Current Trends of Multifamily Investing in Texas

Introduction

Multifamily investing in Texas has continued to grow and evolve in recent years, with investors constantly looking for new ways to maximize their returns. In this blog post, we will discuss the top 10 current trends of multifamily investing in Texas, including the rise of secondary markets, the impact of technology, and the growing importance of sustainability.

1. Rise of Secondary Markets

McAllen, Texas is a secondary market considered for multifamily investing.

While many investors tend to focus on the major markets such as Dallas, Houston, and Austin, there has been a growing interest in secondary markets such as San Antonio, Fort Worth, and El Paso. These markets offer investors more affordable entry points and potential for higher yields, as well as strong population growth and job markets.

Here are five secondary markets in Texas that are worth considering for multifamily investing:

1. San Antonio
2. Fort Worth
3. El Paso
4. Corpus Christi
5. McAllen

2. Impact of Technology

Virtual tours and 3D floor plans are used to give prospective tenants a realistic and immersive view of the property, even if they are not physically present.

Technology has become increasingly important in the multifamily industry, with investors using platforms such as real estate crowdfunding, digital marketing, and virtual tours to streamline the investing process. As more renters rely on technology for their housing needs, investors must adapt to stay competitive and attract tenants.

3. Growing Importance of Sustainability

Sustainability has become a major factor in the multifamily industry, with investors looking for ways to reduce their carbon footprint and attract eco-conscious tenants. This includes implementing energy-efficient features such as solar panels and smart thermostats, as well as using sustainable building materials and promoting green living practices.

4. Focus on Affordable Housing

As the demand for affordable housing continues to rise, investors are looking for ways to provide quality housing options at affordable prices. This includes investing in workforce housing and partnering with government programs to provide subsidies and tax incentives.

5. Emphasis on Amenities

Amenities have become a key factor in attracting and retaining tenants, with investors offering a range of amenities such as fitness centers, pools, and coworking spaces. As the competition for tenants increases, investors must continue to innovate and offer unique amenities that align with their target demographic.

6. Importance of Property Management

Effective property management is crucial for the success of multifamily investments, with investors relying on experienced and reputable property management companies to oversee their properties. This includes ensuring high tenant satisfaction, minimizing turnover rates, and maximizing rental income.

7. Shift towards Value-Add Investing

Value-add investing has become increasingly popular in the multifamily industry, with investors looking for properties that offer potential for value appreciation through renovation and improvement projects. This strategy involves identifying properties with untapped potential and implementing improvements to increase their value and rental income.

8. Impact of COVID-19

The COVID-19 pandemic has had a significant impact on the multifamily industry, with investors facing challenges such as rent collection, tenant retention, and property maintenance. However, the pandemic has also highlighted the importance of multifamily investments as a stable and reliable asset class, with many investors continuing to see strong returns despite the economic uncertainty.

9. Growth of Co-living

Co-living has emerged as a popular housing option for young professionals and students, with investors recognizing the potential for high yields and low vacancy rates. Co-living involves renting out individual bedrooms in a shared living space, with communal areas such as kitchens and living rooms shared among the tenants.

10. Expansion of Student Housing

The student housing market has continued to grow in Texas, with investors targeting college towns such as Austin, College Station, and Lubbock. This market offers investors the potential for high yields and stable occupancy rates, as well as the opportunity to provide quality housing options for students.

Conclusion

Multifamily investing in Texas continues to evolve and adapt to changing market trends and demographic shifts. These 10 current trends highlight the importance of staying informed and flexible as an investor, and the potential for strong returns and long-term growth in this dynamic industry.

The Power of a Multifamily Investment

Financial freedom. Generational wealth. Leaving the rat race. Taking control.

These are all sayings you frequently hear when it comes to real estate investing. If you are like me and more analytical in nature, you nod your head quickly and say “Sure, sure, show me the numbers”.

Today we look at a hypothetical investment over a 15-year period to show the competitive return profile of a representative multifamily real estate investment. Annual returns and cash yields displayed are approximate industry averages and used for demonstration purposes.

A typical real estate syndication will require a minimum investment of $50,000 – 100,000. For purposes of the exercise we have assumed a $75,000 initial investment. Cash on cash (CoC) is 8% and the assumed sales price yields a 10% return in addition to the annual cash.

In year one, you the investor make a $75,000 capital contribution in exchange for a share of the property. $6,000 is returned to you at 8% CoC (either on a quarterly or annual basis). Over the next four years the GPs work with a property management group to implement the business plan and optimize NOI. In year 5 an email arrives….”Great news! A buyer has made a strong offer for the property and we can sell at a nice profit thanks to the execution of our plan.” You receive a wire for $126,788 and have cumulatively now received $150,788. Subtracting your initial investment, we see that you doubled your capital and made $75,788 on the deal.

Now perhaps you celebrate with your fellow LPs and GPs, take your spouse to a nice dinner, maybe even fly to the Caribbean for a quick trip (please send recommendations this way). But by now you are an astute investor, aware of the power of real estate, and decide to roll the investment into a second property. Another 5 years go by and now we have $300,000.

Again, you could pocket this money, put it in savings, bet it all on $GME, but instead we decide to use the power of real estate to lever our returns.   

$609,509, all from an initial investment of $75,000. If you were 35 years old, you now have leveraged an initial investment into over half a million dollars by the age of 50.

Imagine if you did not just invest in one of these but could find the power to invest every couple years, or even every year. This is financial freedom, this is generational wealth, and in our opinion there is no better way to put money to work.

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7 Steps for Real Estate Investing Like Warren Buffett

Most investors would agree that Warren Buffett is one of the greatest investors of our day and perhaps all time. He is widely known for his ability to pick winning stocks, which is what earned him the nickname Oracle of Omaha. However, his advice to investors can be applied to other areas like business and real estate investing. Forbes offered seven ways you can take to apply Buffett’s teachings to real estate investing.

…

1) Look for quality

This first step may not obviously apply to real estate investing, but it can still by applied. Buffett focuses on high-quality companies that have strong fundamentals. He would rather pay a fair price for an excellent company than a little bit for a mediocre firm.

The same holds true when it comes to investing in real estate. If a property is ever being sold for less than what you think it should be worth, then you should be asking questions to find out why it is so cheap. Some issues can be fixed, and it is possible to find good deals. However, it is better to hold out for a quality property than to invest in one that is cheap but probably won’t be very good.

To identify quality properties, it’s essential to look for those with good bones. Cosmetic issues can always be fixed, often for very affordable prices. However, problems with the location cannot be fixed. Fundamentals are also important, so you should look for properties with attractive financials that make it a good investment as a rental property or property that can be flipped.

…

2) Real estate investing is a business.

It’s also important that you view all of your real estate investments as a business. Buffett told CNBC in an interview in 2014 that investors should look at their stocks “as a business.” He advises investors to think like an entrepreneur when investing in stocks.

This bit of advice may be easier for those interested in real estate investing. After all, many properties will go on to become rentals after they’ve been fixed up a bit. Even flipping a property is good business.

The key here is to look for deals that just make good business sense rather than going with your gut feelings. Investments should be driven by data and financials rather than guesses or speculations.

…

3) Stay in your circle of competence.

warren buffettWarren Buffett has also spoken and written time and time again about what he calls his “circle of competence. He advises investors not to invest in companies or industries they don’t understand. This is exactly why Berkshire Hathaway stayed away from technology stocks during the late 1990s and early 2000s. Buffett didn’t understand the sector, so he avoided it.

When it comes to real estate investing, staying within your circle of competence is much easier. Of course, this means that you should take the time to understand the business side of things before you ever get started with it.

It also means that you should take the time to understand every property you buy before you buy it. Before you sign on the line, you should already have a plan for what you will do with it, whether that involves turning it into a rental property or just outright flipping it. It’s also important to understand not only the property you intend to invest in but also the market it is in. If you don’t understand the property and the market, it’s best to move on and find something else.

…

4) Don’t forget about the possibility of loss.

No investment is a sure thing, and real estate investing is no different. Thus, it’s important to realize that there is always some level of risk involved, no matter how much of a sure thing a property appears to be.

Before buying or investing in any property, you should consider what the worst-case scenario might be. This is a critical part of the process because it will bring you back down to earth if it feels like you’re getting too excited about a particular property.

Understanding the worst thing that could happen to any property will also help you figure out where your own risk tolerance stands and determine how much you should keep in reserve.

…

5) Remain disciplined.

It’s also important to remember to follow real numbers and concrete data rather than your emotions. It’s very common and quite easy to have a knee-jerk reaction to movements in the stock market, but it is possible to have sudden reactions to real estate investments as well.

By creating a strategy and sticking with it, you will be able to keep your wits about you when everyone else is panicking or getting overly excited about the market.

…

6) Look for undervalued properties.

One of Buffett’s main guidelines when it comes to identifying stocks to buy is looking for value stocks, which are those that are undervalued. It is possible to do the same thing in real estate investing.

Real estate agents set the price of properties after looking at the prices of comparable properties and speaking with their client about where they want to set the price. There will always be opportunities presented when prices are set lower than what the property is worth. If you have taken the time to get to know the market and the type of property you’re looking into, then you should have a good idea of when something is undervalued. This will give you a chance to take advantage of these underpriced properties.

…

7) When the going gets tough, be aggressive.

Finally, there will always be difficult times in real estate investing, just as there is in other kinds of business and investments. Sometimes the market as a whole will not be doing very well, but an aggressive investor can still find opportunities, even if those opportunities won’t pay off for a while.

Like most value investors, Buffett is very patient when it comes to investing in underpriced stocks. He goes in with a long-term mindset, and the same should be true of real estate investors. The market may be down temporarily because there is an oversupply of properties, and that’s the time to buy. However, you may have to wait a while if you’re going to flip the property because you will need to wait until the supply is less to bring in whatever the property is really worth.

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This article is for informational purposes only adopted from a partner site: buttonwood.ca, it should not be considered Financial or Legal Advice.

Consult a financial professional before making any major financial decisions.