Napoleon Hill, the author of Think And Grow Rich, created a framework of success that the reader could follow by establishing his thirteen steps towards riches. Step number four, Specialized Knowledge, focuses on how knowledge becomes power only when it is organized into definite plans of action and directed to a definite end. In this article, I would like to discuss how you can implement Hill’s advice on specialized knowledge and five specific skills every multifamily investor needs to develop and master in order to achieve success.
The skill of negotiation affects every aspect of our lives, and the person who learns the art of negotiation will lead a more fulfilling life. The qualities of a successful negotiator include creating a win-win solution, being able to discern what problem can be solved during the negotiation, and paying attention to what the other side is trying to achieve. Click here to read my article on Nine Negotiation Techniques To Help You Close The Deal.
Most beginning investors do not realize that everything in real estate is negotiable, from the price, to the financing, to the repairs of the property, to the closing date, and on and on. We just need to ask, but most of us are “afraid” that the other side will say no. I overcame this limiting belief by recognizing that the seller was not saying no to me, he was just saying no to my request. Once I removed my emotions from the transaction, negotiating became much easier and much more fun. As Jake says “Patience, persistence, but willing to walk away.” If you become emotionally attached to a deal, you will lose your ability to negotiate effectively. Just ask Jake about buying a home!
The pyramid consists of the personal team, the most crucial members, followed by the professional team and concluding with the contractors. Students often ask us how we find deals in our market. The best and most reliable way to source deals is to create relationships with the real estate brokers in your market. Network, network, network!
Every investor should decide what their exit strategy is for the specific investment, and then underwrite the deal according to their exit. Jake & I focus on three investing ratios: Cash on cash return, Debt Coverage Ratio and Cap Rates. Our investing model is focused upon purchasing B to C multifamily properties in real estate markets that can provide a 10% cash on cash return, a minimum 1.2 Debt Coverage Ratio and an 8 Cap. As the market has increased in value and cap rates have compressed, it has become increasingly difficult to find deals with these parameters. The key to our success has been to Buy Right. We are focused on not overpaying and being able to purchase an asset where we can add substantial value.
We recently hosted Brian Burke, CEO of Praxis Capital, on our podcast. He made several excellent points on how he underwrites a deal. His time frame for a deal has been extended to ten years, and his approach to underwriting a deal is very conservative. I think that he considers himself a steward of his investor’s capital, and exercises extreme caution when investing their funds. With over seven hundred deals completed over the course of twenty-five years, he is definitely an expert on the subject and a leading authority in the multifamily space. Click below to watch our podcast with Brian and learn his secrets to underwriting a deal:
Whether you are self-managing or hiring a management company, the focus is to implement systems to run the business smoothly. When we bought our first property, we decided to self-manage the property and get our hands dirty. It turned out to be an excellent decsision. We were able to learn how to manage a property and how to spot the value-adds when analyzing a potential deal. In our subsequent deals, we decided to create a management company and manage the properties in-house. There is no right or wrong answer about managing. Decide who’s going to manage the property and stick to it!