Best Multifamily Real Estate Investing Blog

How to Approach a Commercial Broker

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RE stands for Relationships, not Real Estate.

Multifamily investing is a people game. Of course, there is a significant amount of education, capital, and time required, but nothing in this industry ever occurs without multiple people coming together to make it happen.

Of all the people you will work with over the course of your real estate career, few are more important than your broker.

A great broker can keep your deal flow flush with opportunities, can serve as an incredible source of insight into the trends of your market, and they can be a hub of referrals for other professionals in your market that you’ll inevitably want to add to your team.

So it’s vital that you consider from the outset of your investing journey how you forge a meaningful relationship with your broker.

To that end, you need to understand three things:

How a commercial broker works
Why you should care what they think
When you should contact them

How does a commercial broker work?

In a commercial transaction, typically the broker will handle both sides of the equation. They are the gatekeeper of opportunity as they are the one pounding the pavement and making phone calls to potentially interested sellers.

Once located, the broker will approach their library of potential buyers who they think might be interested in the details of that particular deal.

The broker isn’t simply representing the seller or the buyer. They are trying to find a mutually beneficial opportunity for all parties involved.

This is fundamentally different from your typical residential deal.

Why should you care what a commercial broker thinks?

First, you need to care for no other reason than the fact the commercial broker is the one with the deal in hand.

Second, and more important, the broker is (or at least should be) the expert in that particular market. This is what they do all day.

Assuming you trust their judgment and motivations, you would be wise to extract as much information from your broker as possible.

Also read:

Investing in Relationships with John Okocha

When should you contact a commercial broker?

Don’t make a rookie mistake here: Fight the urge to approach a commercial broker until you have at least some of your ducks in a row.

Remember, first impressions are hard to break, and you only get one chance to be taken seriously by a commercial broker.

Which makes sense, because these guys and gals are busy. Their livelihood depends on closing deals. If they get the sense that you don’t know what you’re talking about (or what you’re even looking for), they’ll drop you like a hot potato and you’ll never hear from them again.

So how do you know when you’re ready?

When you’ve done the following three things:

1) Get Educated

This should go without saying, but you need to have at least a baseline understanding of real estate investing. If you aren’t familiar with terms such as cap rate, NOI, IRR, value-add, or cash-on-cash return, then you aren’t ready to speak a commercial broker.

Simply put, you must speak their language.

2) Study Your Market

Once you have a solid grasp of the fundamentals, it’s time to go deeper and really research the market you’re looking to invest in.

The commercial broker is an expert in the market you’re interested in, which means you should definitely pick their brains for insights, but this presumes you’ve done some amount of heavy lifting in the research department so you can actually have a beneficial conversation.

Where to start?

When evaluating a market, you should know things such as: What’s the employment growth like? Where is the growth concentrated? What’s driving that growth? What are the local market trends doing? Any interesting interplays within the local government that would pertain to this market?

3) Know Your Criteria

Before you whip out the yellow pages to find the best commercial broker in town, you need to know exactly what you’re looking for in terms of investment opportunities.

If you can’t clearly articulate what would make for a good deal in your eyes, then you have no business going to a commercial broker.

Get clear about what it is you’re looking for.

There are few things that a broker wants to hear less than: I’m open to whatever. You might as well be saying, “I don’t have a clue what I want.”

If you don’t know what you want, the broker is likely not interested in wasting their time to help you figure it out.

Why?

Because brokers are busy, and their business depends on their ability to close deals.

Who are they more likely to give their time to: Somebody who knows exactly what they’re looking for or somebody who is still testing the waters of infinite possibility?

Exactly.

So, get clear on what it is you’re looking for.

You should be able to answer questions about property class, asset class, rent, price point, class of neighborhood, age, type of value-add, occupancy.

Once you’ve educated yourself, you’ve studied your market, and you know exactly what you’re looking for, it’s time to reach out to the broker.

Own the Conversation

You must position yourself as an expert investor. To do this, you must control the conversation and direct it where you want it to go.

Trust me, the broker wants this.

They want to know that you know what you’re doing, where you’re doing, and how you’re getting there.

Being passive in the conversation and letting the broker ask all the questions is no way to accomplish this goal.

So be confident, direct, and poised. Display your expertise by asking questions with purpose and to verify your own findings.

Done correctly this serves to position them as the expert broker whose advice and opinion you value, without conveying the image of being the apprentice.

Avoiding the Common Traps

A broker’s time is a finite resource. The most successful brokers in a market guard their time with fervor. They don’t waste it on conversations they suspect will go nowhere.

Here are a couple common traps brokers lay to weed out the serious players from the casual onlookers.

“What cap rate are you looking for?”

On the surface this seems an innocent enough question. Cap rates are an important metric for determining an investment’s valuation.

Surely this is something you need to know, right?

Well, yes and no.

Yes, in that it’s helpful to know the general cap rate in a market.

But ultimately at this stage in the conversation the real answer is: No, the cap rate doesn’t matter.

Savvy investors don’t care what the cap rate is if the property hits their underlying investment goals.

If you are seeking 10% cash-on-cash with an 18% IRR, then it doesn’t really matter if the cap rate is 4% or 11%.

All that matters to you is that the property, at whatever cap rate it is selling, yields those returns.

Let the broker know as much.

If you’re a little fuzzy on cap-rates, check out this article: Cap Rates Demystified

“I have a property that would work well…”

Straight out of the gate, the broker is likely to send you a real turd of a deal. It may, or may not, even remotely resemble what you are looking for.

Tell the broker you are looking for 50-100 unit multifamily within five miles of downtown and they send you a 10 unit, mixed use space out in the suburbs, then you need to pump the brakes, because this is a test.

This isn’t what you’re looking for and the broker (if you’ve been clear about your search parameters) knows it too.

Stick to your guns and don’t go chasing something just because you’re excited a broker has finally sent something your way.

Few things will label you as an inexperienced investor faster than jumping from deal to deal.

Know your criteria and stick to it.

“Can you send me proof of funds?”

If you’ve gotten to the point where the broker is asking for proof of funds, you’ve probably gone wrong someplace.

That’s not to say the situation can’t still be salvaged, however.

First, let’s talk about how to avoid this question.

When you approach a broker, it’s important to know that they are putting you through a filter. They’re trying to figure out:

Does this person know what they’re doing, do they have a plan, and can they execute that plan?

Do the broker a favor and answer these questions for them by clearly articulating both your investment criteria and how you plan fund that investment.

Know your money.

Specifically, know your debt and your equity.

What type of debt do you plan to use (Agency, Bridge, Portfolio)? Hopefully you’ve already spoken to some lenders so you have some names to reference to show the broker you’ve already begun down this path.

On the other side, where do you plan to come up with the equity? Are you syndicating, using your own money, or joint venturing with a small group?

Address this elephant in the room confidently and on your own terms. If the broker has to ask, then it’s likely they already have doubts.

Now, in the best-case scenario you’ve addressed the financing early in the conversation, but let’s say you didn’t, and now the broker is asking for proof of funds.

What do you do?

Step One: Don’t Panic.

Step Two: Realize that in most instances (especially in a syndication or a joint venture) the funds aren’t just sitting around waiting to find a deal. In fact, a typical syndication is going to operate exactly the opposite.

First the deal is found and then the funds are raised.

The broker knows this. They should expect this.

Don’t be afraid to own this truth.

At all points during your first conversation with a broker they are trying to determine one thing: Can this person close a deal?

If they believe the answer is no, you’re not going to get very far with them.

But if you get educated, study your market, and know your criteria, you’ll position yourself in the broker’s mind as a person they want to do business with.

And that’s how you create a successful broker relationship.

Want to take your education one step deeper and learn the 5 Rules of Investing? Go get your free guide at www.invictusmultifamily.com/investingrules to discover the secret investing wisdom that’ll take your game to the next level.

Learn how Emma and Tristan Tully used their wedding refund in upgrading their learning curve and enhance their ROS (Return on Self):

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How To Perform Jake & Gino’s Three-Step Due Diligence On A Multifamily Property

How To Perform Jake & Gino’s Three-Step Due Diligence On A Multifamily Property

Any experienced investor will tell you how significant it is to know how to conduct a thorough multifamily apartment due diligence. Due diligence is defined by Investopedia as the care a reasonable person should take before entering into an agreement or a transaction to another party. I learned the importance of due diligence, or lack there of, soon after my first real estate blunder.

There are 3 types of due diligence:

Financial
Physical
Legal

As a rule of thumb, always perform the financial due diligence first. If the numbers don’t work out, then you didn’t waste any money or time on the property inspection or legal work. The majority of deals that don’t go to closing are because of the financial due diligence. In these uncertain times, we recommend a thirty day due diligence period for performing your due diligence. The due diligence period should not commence until you’ve received ALL the requested financial documents. This will motivate the seller to turn over all the records in a timely fashion so you can perform an accurate analysis of the property’s performance much more quickly.

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Let me recap the three types of due diligence:

Financial

It’s all about the numbers. Analyze a property based on actual numbers. Request the last twelve months of profit and loss and calculate the net operating income based on this statement. Once the numbers hit your investing criteria, move onto the next step.

Physical

Once the numbers work, it’s time to inspect the property. If you don’t have an inspector, visit home inspector to find a professional in your market. Be sure to inspect every unit, and negotiate the price with your inspector. You can expect to pay around 500 for a small multifamily property, and a per-unit cost for a larger multifamily property.

Whatever deficiencies you find with the property can be negotiated with the seller. Don’t be cheap!! Inspect every purchase.

Legal

When you purchase a property, you want the property to have no encumbrances, or liens, to have good title, and to have a valid certificate of occupancy (C of O). Your title company will provide title insurance to protect you if there is ever any question to the title of the property. Check to see if the property has any type of liens, and have the seller “cure” the liens before you take over.

As far as the C. of O, I have been a culprit of this mistake. I once purchased a four family that was zoned as a three family. The attorney and the bank did not pick up on this mistake, and after holding the property for several years, we went to refinance the property, and it ended up taking years and thousands of dollars to bring it up to code. Oh, the pain of that lesson!

Here is a step by step approach to analyzing and purchasing real estate correctly

Verify income.
Verify expenses.
Calculate net operating income.
If property meets your criteria, then proceed to the letter of intent. If not, then start the process over and continue your search for other properties.
Draft Letter of Intent.
Agree on a price.
Fill out Purchase and Sale agreement.
Perform due diligence.

Here is a list of a few problems that can occur during the due diligence phase:

Repair costs/larger capital improvement.
Poor tenancy with low security deposits.
Leases don’t match lease schedule.
Run out of time.
Property owner not cooperative.

All of these problems can be addressed with the seller. If you turn up unseen repairs, such as replacing a roof, or a damaged foundation, you can go back to the seller and ask for a price concession to fix the damage. In real estate, investors refer to these price concessions as “re-trading”. One does not want to be labeled as a re-trader because most brokers will be unwilling to work with you if you constantly want to lower the price once you have gone to contract.

Once you sign the contract, most brokers have already spent the commission. Can you imagine their anger if you jeopardize the deal and threaten not to close? Only consider re-trading when there are legitimate repairs that were uncovered during the inspection phase. If you are asking for the seller for a concession to cut down a few trees, that is not a fair re-trade. You would have seen those trees during your due diligence phase.

If the leases do not match the schedule, then you can either have the owner produce the leases or adjust the income according to what the leases show. If the property contains poor tenancy, then this should be reflected in the price with lower occupancy figures and lower rent collections. As an investor, my number one rule is to buy a property on actual numbers. So go back to the seller if there are any discrepancies in either the income or the expense figure, and reduce the price accordingly.

During these challenging times, economic occupancy can at times be much lower than physical occupancy. You need to ask yourself is there enough value on this property to take in the risk of purchasing an asset with lower collections. And you need to ask your bank of they will finance the asset with lower collections.

If you run out of time, you may be at risk of losing your down payment. We always ask for an extension of time to perform and close on the deal. It is a bit more difficult to deal with an uncooperative seller. Some sellers are a pain in the butt, and some are just simply disorganized. Have patience in both situations and keep your eye on the prize.

Some investors “go hard” from day one, meaning that their down payment is non-refundable, whether they close on the deal or not. Some markets are so competitive that buyers utilize this strategy to compete to win deals. We have yet to employ this strategy, and I recommend you think twice before allowing your down payment to go hard from day one, because you do lose leverage in the due diligence phase. Some investors simply perform their due diligence before entering in the contract, hoping that something unexpected does not show up.

Task:

Download our Due Diligence Checklist to perform due diligence on your next deal: Due Diligence Checklist

I am always curious as to what problems you have run into during your due diligence period. Please leave a comment below and we will compare battle scars. Bet you mine are bigger than yours.

Become a true master at analyzing and identifying profitable multifamily deals both quickly and accurately. Click on the below image to check out Jake & Gino Deal Analyzer now!

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Student Spotlight: Being Committed and Taking Action

By Timothy Lyons

Study hard and get a good job. Max out your 401k. Buy a house, as it will be your biggest asset. Limiting beliefs. Scarcity mindset. Engineering my life to play small. Content with being middle class. Work harder and longer to see an increase in pay.

I could go on and on but I’ll save you the misery! Shortly after joining the Jake & Gino community I heard Gino speak at one of our weekly Monday Masterclasses and he said something that has stuck with me ever since:

Education x Action = Results

That statement resonated with me in a huge way and it continues to guide my career in multifamily investing. I am a 38 year old father of three incredible little girls, a lieutenant in the New York City Fire Department and now a multifamily investor. Until recently I worked “on the side”, like many firefighters do, as an ER nurse at a level one trauma center. I resigned from the hospital to focus more fully on my real estate investing career and that has led to the creation of our real estate investing company – Cityside Capital.

The path here was certainly not linear. Like so many others, it was only after I had realized that I was living my life with a scarcity mindset, a mindset that was engineered for safety and certainty, that I decided change was needed. Change was something that I craved, but I was unclear what it was that I was looking for.

I love my career as a New York City (FDNY) firefighter. It is an honor and a privilege to serve others and to have a huge impact on people’s lives. Let’s face it – when people dial 911 on any given day, they are probably having one of the worst days of their life. The same goes for life in the emergency department of a level 1 trauma center. I have had tons of great days with lots of laughs and good times with co-workers, and unfortunately, I have had a smaller number of incredibly sad and soul sucking days filled with tears, fear, doubt, regret, and anger. I have had days where my team and I brought someone back from the brink of death, fixed a problem, made someone’s day better and even rescued people from burning buildings (See article of winning a medal for saving elderly man from burning apartment- on pg 40). I pride myself on “being in the room” when things are going bad because I can help make a difference.

I’ve got so many stories of surreal experiences that my wife bought me a journal to start capturing some of these events. As fulfilling as being a firefighter and ER nurse was, I knew that there was more that I should be (and could be) doing. I started to feel trapped in the W-2 grind. I found myself working 70, 80, and sometimes 90 hours a week. My family was feeling it – and I was feeling it too. I thought I was living the dream by having a healthy family, two solid careers, a great marriage to my best friend, a solid social network and the bills were getting paid on time with some savings leftover. I was having a positive impact on people’s lives and I had a sense of fulfillment. I’ve always had my finger on the pulse of the markets by reading the Wall Street Journal, personal finance books and magazines, and talking amongst family and friends who were in finance and real estate. I started to listen to some podcasts about real estate investing and immediately felt hooked.

During the summer of 2019, I was on a family vacation to the Outer Banks, NC and I ended up finally reading a book that had remained in my firehouse duffle bag for months without ever being read. That book was Rich Dad, Poor Dad by Robert Kiyosaki. Maybe you’ve heard of it?

I read that book in two days while sitting on the beach, building sand castles with one hand and having the book in the other. I couldn’t put it down! When I finished it, I was sitting on the beach next to my lovely wife, Kristina. I closed the book, turned to her and said, “Kris, I have something to tell you.” She responded politely, “Oh yeah Tim, what’s that?”. I continued, “I’m going to be a real estate investor!”. I love Kristina, as she has been such a supportive and loving wife no matter what endeavor I’ve gotten into. She looked across at me with a smirk and said,

“Sure you are Tim…”.

That led to reading and listening to books about real estate, investing, mindset, selling, business, marketing, psychology and more! I used every free minute during the day to listen or read a little bit more. Anytime I was driving, I turned my car into a “university on wheels”, and would continue to consume content. Just four short months later I took massive action and partnered on a three unit apartment building with a friend of mine.

That first property was a thrilling experience! In such a short amount of time I had decided to pivot the direction of my financial future and undertook massive action to make it happen. I knew I didn’t know it all, but I knew enough to jump in, and that made all the difference. My partner and I didn’t know about Jake & Gino’s motto of “buy right, manage right, and finance right”, but we were well on our way to implementing such a plan. In short order we put a new roof and siding on the exterior and renovated the 1st floor vacant unit. We did the work ourselves and it took FOREVER. It was a great experience and it provided a much needed lesson. Alas, we were fully rented and were cash flowing nicely. It felt great to be a real estate investor!

Watch Jake & Gino’s Movers & Shakers podcast with Tim:

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The most important takeaway from that experience was that my wife and I had our much needed proof of concept. We experienced what it was like to have monthly cash flow and we even did better than expected on our tax return. In order to commit more fully to real estate investing, it was important to me that Kristina be on board with the process, even though she did not want an active role in the business.

After only a few months of being a landlord, I quickly realized that buying 100-year-old, wood framed, three-family properties was not really scalable. I had enough capital for maybe one more similar purchase and then I’d be tapped out. I thought about it some more and came to the conclusion that it would be pretty difficult to raise private capital for such a project as well.

That’s when I turned my focus to multifamily investing and coaching.

Growing up in the greater NYC area I have developed a healthy sense of skepticism – it’s sort of built in to our DNA! Realizing this fact, it was hard for me to come to terms with hiring a mentor/coach to learn how to invest in multifamily apartment buildings. I had no idea how much it cost or what sort of ROI it would yield. I was all excited and pumped up – but nervous as anything all at the same time. Is this the right move? Should I really spend money on coaching?

Is this a scam? Oh, the limiting beliefs and little saboteurs in my head were having a field day!

I researched as much as I could on the internet about the different types of coaching/mentoring programs. They all seemed a touch different so I went ahead and called each of them to find out how it worked. I remember making that first phone call to a very well known syndicator and coach. I was listening to a podcast that he was a guest on and he actually gave out his cell phone number at the end of the show! I immediately took out my phone and dialed the number.

“What the heck am I doing?”, I thought to myself.

We ended up having a great conversation as he was so amicable and easy to talk to. He was super encouraging and our life stories both had a lot in common. I felt so relieved that the phone call went so well. What was I so nervous about before making that call? It was at this moment that I knew I was going to go forward with coaching – I just had to find the right fit. After dismissing a few other coaching programs, I got in contact with the Jake & Gino team. From the first minute of the first phone call – I felt as though I found exactly what I was looking for.

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From the day I finished reading Rich Dad, Poor Dad on vacation in the summer of 2019, until today, I have moved pretty quickly going from zero units to 190 units and being a co-sponsor in two syndications. I had to dig down deep and find out what was important to me to clarify what my “big why” was. Only then was I comfortable taking the massive action that was needed to get into, and be successful in, real estate investing.

tim@citysidecap.com

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MNS – Building a Successful Multi-Family Business with Jake Stenziano

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Today’s Guest of Movers & Shakers is Jake Stenziano.

In this episode Josh & Gino cover:

Being able to choose a profession based on your passion because you know how to make money work for you.
How pushing the chips all in can help create success
You only live once – the time is going to pass, what are you going to do with it is the question.
Why Consistency may be the most important trait for success.

Jake’s Bio:

Jake Stenziano, MBA is the best-selling author of two books, Wheelbarrow Profits and The Honey Bee. He is also the co-founder of Jake & Gino, the only multifamily real estate investment education company that teaches investors the three pillars of sound apartment investing; Buy Right, Manage Right, and Finance Right.

As a creator of the multifamily investing framework, Wheelbarrow Profits, Jake is a leading expert on investing in and management of the multifamily space and currently owns over 1500 multifamily units.

He currently resides in Knoxville, TN with his beautiful wife Whitney and their two children.

If you’d like to find out more about how you can become a part of the Jake & Gino family to work hand in hand with our team to build you business please go to www.JakeAndGino.com/apply to learn more.

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How Much Money Do Apartment Building Owners Make

The majority of investors are hard wired to focus on the short-term benefits and returns of an investment, while not appreciating or understanding the multitude of other benefits that an investment can provide. In this article, I am going to highlight the benefits of investing in multifamily and how much money an owner can make.

Let’s start with the three metrics that every investor should focus on in an investment vehicle:

Leverage
Liquidity
Control

Let’s take multifamily and see how powerful the asset can be when compared to these metrics. Multifamily provides one of the best assets to be able to leverage, that is, using other people’s money, whether it is money from a bank or from investors. In some cases, Jake & I have been able to utilize 85% of the bank’s money to control the asset. We only need to provide 15% of the asset’s price as the down payment.

For example, if an asset costs $1,000,000 to purchase, the bank will provide $850,000, and we need to contribute only $150,000. Now that is sweet! There are very few assets out there that provide this type of leverage. Why would our banker do this? The loan is backed by a real asset, the property, and if we decide not to pay, the banker will take back the property and go after us personally to make the loan whole. They’re getting their money one way or another.

Real estate is now known for liquidity, the ability to exit the investment. Have you ever heard the adage “Don’t wait to buy real estate. Buy real estate and wait.” The investor who plans to invest for the long term is the one who is rewarded, and not being able to cash in your chips can be a benefit. But there is a way to access liquidity from multifamily, the Refi & Roll. We will discuss this strategy in a bit.

Now onto control, one of our favorite reasons to buy multifamily. If we want to raise rents, sell the property, refinance the property or hire staff, we are in control and can do it. Good luck trying to fire an employee at Apple, or raise the dividend at Exxon. You have no control of decisions of the company when investing in stocks, and if their focus is on short-term profits at the expense of the long term, oh well. Every entrepreneur and investor craves to have control when investing or building a company.

Let’s dive into how apartment owners make money:

Cash flow
Appreciation
Refi & roll
Tax benefits
Inflation hedge
Economies of scale
Cycle resiliency

Cash Flow:

Revenue is vanity, profit margin is sanity, and cash is king. Let that sink in for a minute. Most investors focus on cash flow as the primary way to get paid, but as you will see, it’s not the only way. We focus on buying multifamily properties that produce cash flow from day one, and we like to say “If it don’t cash flow, let the grass grow”. We call a property that is negatively cash flowing an Alligator, because it will eat you alive!

In our portfolio, we average around $100 to $150 profit per unit per month, depending upon what market the asset is located, and how much debt is on the asset. For example, a twenty-unit property should deliver around $2,000 per month in positive cash flow. Let’s get the party started!!

Appreciation:

In multifamily, the value of an asset is based on the Net Operating Income (NOI), whereas, in residential real estate, valuations rely heavily on the market and the use of the sales comparison approach. For the most part, the investor has much less control of increasing value in residential real estate.

The income approach is utilized in multifamily, where the goal is to raise the NOI by increasing income and or decreasing expenses. Investors target underperforming assets and increase value through either operation or renovation. Some assets may have underperforming management, and yet, other assets may be renovated to a higher class with the expectation of increasing income, thereby, increasing the value.

For example, on our third deal, we purchased a 136 unit apartment complex for $4,075,000. The property was grossing $54,000 per month in total income, and within a year, we increased income to $85,000 per month, as a result of a combination of rent increases, filling vacant units and increasing other sources of income, such as pet fees and late fees.

It was a difficult reposition for us for a couple of reasons. First, we had never repositioned a property of this size. Secondly, we received a significant amount of pushback from residents when we began to raise their rents from $450 per month to $595 plus RUBS (Ratio Utility Billing. We were billing backs residents for their utilities). That isn’t a very pleasant conversation when you tell the resident that the rent is going up 40%, but you need to have it. But, we realized there was significant demand for these apartments at the new price point. We were offering a superior product and much better customer service.

After eighteen months, the property appraised for over $6,000,000, and we were able to refinance $1,600,000. Not a bad payday! This leads us to the third way apartment owners get paid…

Check out the video version:

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Refi & Roll:

When an investor refinances a property, they either replace the debt on the property with new debt or add a supplemental loan. We focus on properties that are underperforming, or in today’s jargon value-add, and as we discussed, raise the NOI on the property. This leads to an increase in the value of the property, and we are able to refinance out the gain in equity. Here are examples of refinances of our properties:

We have coined the term Refi & Roll because we refinance the property and ROLL the proceeds into our next deal. We realized early on if we have patience with the process and understand that multifamily is a long-term play, then with that patience comes rewards. In the tune of over $9,000,000 and counting!

Now I know that you can do this too. Focus on multifamily, and abandon the shiny object syndrome, jumping from one idea to the next. Once Jake & I did this, success started entering our lives.

Tax Benefits:

When Jake & I bought our first property, we had no idea the tax benefits involved with multifamily. Tax benefits, along with the 1031 exchange, in my opinion, have fueled the boom in multifamily valuations. We can look to demographics, and the willingness for the population to view renting as a favorable option, but the tax benefits can’t be overlooked. You always hear the rich not paying their share of taxes, and many of these rich folk invest in multifamily to lower their tax obligations.

We recorded this short video with Rich Dad Advisor Tom Wheelwright, who discusses the tax advantages of multifamily real estate and the tax strategy of cost segregation:

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I don’t invest in multifamily for the tax benefits only, but they are the cherry on top of that hot fudge sundae!

Inflation Hedge:

As governments across the world continue to print money, they create inflation, which is an increase in the money supply. Inflation leads to an increase in prices. A small amount of inflation is healthy for the economy, but what we are witnessing currently has many investors worried with where pricing will go.

We view owning apartments as a hedge against inflation. What do I mean by that? For example, when a maintenance technician receives the benefit of inflation by an increase in his or her salary, what follows is that rents will rise. As prices rise in the economy, rents have followed suit.

The other hidden benefit is that as the governments have been printing money like drunken sailors, hard assets, such as real estate, have benefited from an increase in the valuations. Another way landlords get rich in their sleep!

Economies of Scale:

The main reason why I skipped single family home and fix and flips and went straight to multifamily is that I already had a full-time job, my restaurant. I did not want to create another job, I was striving to create a scalable business and enjoy economies of scale.

How do apartment owners benefit from economies of scale? I will use our first deal, a twenty five-unit property as an example to describe the various benefits. The first obvious benefit is that all twenty-five units were contiguous, that is they were all located in the same location. No running around town trying to collect rents from twenty-five different locations. When you are working a full-time job and trying to grow your portfolio, time is one of your most important assets, and being able to visit one property instead of twenty-five is a home run.

Secondly, the cost savings were tremendous. One lawn to take care of, one garbage bill to pay, less structures to maintain, less transactions to execute. The cost savings were immense. What a nightmare it is to send your maintenance technician to twenty –five different homes, and since each house is different, how much time and energy is wasted to locate a hot water heater or the electrical panel. An apartment unit is basically a shell, and they are all the same. Just the time saved by having your maintenance tech drive around each house is a game changer.

And third, the ability to create a scalable business with multifamily allowed us to quit our jobs. At around the seventy five-unit mark, we were able to hire full-time staff and begin to focus on not only the property management, but also the asset management. We were able to hire out many of the lower paying tasks and focus on tasks that created wealth, such as deal sourcing and creating systems to run the business.

Cycle Resiliency:

Now, you may be saying to yourself, cycle resiliency is not a way that apartment owners get paid. I agree with you, but it is a way that apartment owners stay competitive in a down economy and can continue to grow their operations with sound operations.

As many investors have noticed during this pandemic, several asset classes are experiencing a more challenging market, such as office and retail. People need a place to live, and for many, buying a home is not an option. Jake likes to say that there are three basic human needs:

Food, Clothing and Apartments

We recorded an informative podcast with the co-author of the book Big Shifts Ahead, Chris Porter, who dives into the demographics of the country and the shift in living preferences. The podcast is imperative for all investors and business owners who want to understand how demographics will affect businesses and buying preferences in the future. Click here to listen:

Chris does an amazing job showing where people are migrating to, and how demographics is contributing to more people renting versus owning a home. The demand for apartments will continue to drive occupancy and rent increases, and apartment owners will continue to get paid.

When we first started our journey into multifamily, we thought cash flow was the only way to get paid owning apartments. We couldn’t have been more wrong, and the benefits of owning multifamily contributed to wealth creation. And we haven’t even discussed the various businesses that have been created through multifamily, such as an education company and a syndication company.

I would love to hear what other ways you’ve gotten paid by owning multifamily. Leave a comment down below or email me at gino@jakeandgino.com. Want to learn more? Check out our Education Academy.

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The Seven Levels of Building a Successful Multifamily Real Estate Business

When Jake & I decided to join forces and create the Jake & Gino community back in 2014, I was still working at my restaurant and in the midst of trying to grow another company called Gino’s family, a passion project that was a complimentary business to my restaurant. It was an attempt to broaden the reach of the restaurant by creating multiple streams of revenue, such as a cookbook and E-Books on gardening and cooking, and physical product sales, such as cutlery and vertical gardening bags. Little did I know that Gino’s family was a precursor to the success that we have created at Jake & Gino.

As you might guess, I ultimately abandoned the Gino’s Family brand and the restaurant, and focused my efforts on Jake & Gino and expanding our multifamily real estate portfolio. But, I never lost the learning lessons of why my Gino’s family venture was unsuccessful and Jake & Gino is flourishing.

In this article, I am going to document the seven levels of building a successful multifamily real estate business to help you buy your first deal and begin to grow your portfolio, but these levels can be utilized for any business. My goal with this article is to be able to provide clarity to you, to make you realize that it is ultimately your decision whether you want to buy a few properties and stay small, or scale the portfolio and introduce systems and processes to help you achieve larger goals.

Here are the seven levels:

The epiphany/AHA moment
Massive education
Action
Buy your first deal
Acquire your next few deals
Make your first hire
Scale the business

The epiphany/AHA moment

We all have a moment in our lives where we begin to evaluate ourselves and if our life has had any meaning. For me, it was 2008, right in the midst of the Great Recession, a year after my father passed away. The question I asked myself was “Am I building my dad’s dream, or am I building my own?” It became apparent that the restaurant was my dad’s passion, and I was using the restaurant as a means to generate a lifestyle. There was nothing wrong with that, until I realized that it was not my soul purpose, my reason for owning a business.

That was my AHA moment, and it spurred me to action and to consider investing in multifamily real estate. It was exciting, yet terrifying at the same time. I was so used to working at the restaurant that a life without it seemed incomprehensible at the time.

Massive education:

Once the AHA moment wears off, the reality that you don’t know where to start or how to achieve your massive goal starts to set in. I immediately realized that I needed to seek out a mentor or real estate coach to provide me with the systems to begin my education. I tried my hand in real estate a few years before, and it ended in disaster because I had no experience, training or guidance in investing in real estate. I wasn’t going to make the same mistake twice.

My next step was to sign up with a real estate coaching program and dive into podcasts and real estate books. Here are some of the books that I found to be helpful:

Jake & Gino Reading List

This step is all about focusing on your education and increasing self-awareness around your limiting beliefs you have, and to start to let go of those limiting beliefs. Your behaviors are belief driven, and if you think that you will not be successful in real estate, then your actions will reflect those beliefs. Having the right mentor and community is so important as you begin to educate yourself.

Action

Now that you are immersing yourself in education, it’s time to take action. Our motto at Jake & Gino is:

Education X Action = Results

Paralysis by analysis has left the building. Our motto has become “We commit and then figure it out.” The more decisive a person becomes, the more successful they will be in the long run. Taking small steps of action, and continuing with the momentum of those actions will ultimately lead to achieving the goal.

What do I mean by that? Let’s say you decide to call a broker to see if they have any deals, making the call may be the first action. Most investors quit there when they hear deal flow is minimal and the deals are terrible. Or, you can take action like Grant, a young Jake & Gino member who decided to tour a property with a broker. It’s a scary step for a new investor, and most people would rather not step outside their comfort zone.

I give Grant a tremendous amount of credit. Not only did he build rapport with the broker and learn invaluable information about the market, the broker was going to send him another deal later in the week. From that one action of deciding to tour a property, Grant received numerous benefits!

I have one bit of advice for those who are still contemplating taking action. Go out there and look for a partner. My partner Jake has been instrumental in my success, and I know for sure that I would not have been able to accomplish what I have without the help of an amazing partner. Jake holds me accountable, pushes me out of my comfort zone, and compliments my skill set. One plus one does not equal two when you have a terrific partner, it results in much more.

Buy your first deal:

After all of the hard work, and the property tours, and the underwriting, a deal comes to you, and it looks too good to be true. Did they make a mistake? Can this be happening? Your thought is “This looks too good to be true!”

Once you calm down and realize that you’ve got a deal, you begin to get a queasy feeling in your stomach, and your hands begin to sweat. That’s how I felt once Jake & I found our first deal. Your next thought is “Now what?” Are you really going to send in the Letter of Intent?

When you finally come to your senses, you fire off that LOI, and the broker relays it to the seller. After haggling for some time, the seller finally accepts it, and it’s off to creating the Purchase & Sale agreement (PSA). Now, there’s no turning back. A bunch of the sleepless nights awaits.

The day arrives, and the closing goes off with a few minor hitches, but you are the proud owner of your first mom and pop apartment. Our student Jason Bass summed up the feeling perfectly on the Movers and Shakers podcast:

“I am sitting in a Lowe’s parking lot after I closed. It was a feeling of euphoria, and I just sat there happy. Then, I realized it was time to get to work”

This level is all about the I”ma mentality. I’ma do this, I’ma do that. It’s all about adopting the mom and pop mentality and trying to do everything yourself. I call this the bootstrap phase, where you encounter situations for the first time, such as a resident passing away in an apartment, bed bugs, mold, evictions, and you hit them head on and try to tackle everything yourself. There are many times that you ask yourself was it worth all the trouble and hassles.

Something else also occurs in this level. You are now a closer, and brokers begin to take you seriously. Momentum starts to build towards finding your next deal. It’s a great feeling when residents are paying you, but you still see real estate as only a cash flow play. The other benefits have yet to cross your mind. Just wait!

Buy your next few deals

The last few months have been a whirlwind. Collecting rents, turning units, hiring vendors, still cutting your own grass. It’s been exciting, but also challenging. Deal flow starts to increase, and you start to close on a couple more deals. You are still in the mom and pop phase, but start to realize that you need to hire out some tasks, or else this real estate thing is going to consume you!

At this point, most of us are trying to balance a W2 job, or in my case, a small business, with the enormous tasks of trying to run a multifamily business. Yes, you heard me right! Multifamily is a scalable business, and it’s not jut tenants and toilets. When Jake & I bought our next couple of deals, we were still doing the bookkeeping and collecting rents. We were utilizing resident managers to help us, but we soon realized that we needed one or two more properties before we could hire full time maintenance and property management.

This level is where most investors either choose to continue to self manage their deals or seek third party property management. There is no right or wrong solution. The only concern should be what are you trying to achieve. Jake & I liked the control, and we saw property management as a way to drive operations and create another stream of revenue.

In any case, this is the level where you start to see light at the end of the very long tunnel and begin to see yourself firing your boss at a Taco Bell and transitioning into real estate full time. This is also where you begin to understand the true power of real estate. Our thought was “Why did it take us so long to realize how awesome real estate is?”

Make your first hire

This is a big step in every entrepreneur’s journey, a huge inflection point that will never be forgotten. You are starting to shed the I’ma mentality, and now it’s time to hire a full time manager and maintenance tech. This is almost as daunting as buying your first property, but I think it is easier because now you have proof of concept, you’ve bought a couple of deals and you need the help desperately.

You start reading books like Traction, Scaling Up, and Scale, to learn how to create systems to help you hire and delegate responsibilities. I call this level:

People
Systems
Culture

You are being pushed further from your comfort zone, and it is an exhilarating yet scary feeling. Jake & I knew we needed a mentor to help scale the business, but our focus was to get to the next level.

Leave W2 and begin to scale the business

The day has come to sit down with you spouse or significant other and decide it’s time to fire your boss and launch into real estate full time. You have accumulated around two hundred units, depending on what market you’re in and how much equity you control in those deals. Your friends and family, on the one hand think you’re crazy, and on the other hand, begin to utter phrases like “Lucky” and “I’m not sure”. You know luck has nothing to do with it. The harder you work, the luckier you get!!

You have entered your next inflection point, where you begin to obsess about systems and how to scale the business. Gone are the days of I’ma and doing everything by yourself. You will never go beyond this phase if you do not create the systems for your business. And if you do by some miracle, you will turn back into a mom and pop and be a slave to the business.

At this phase, you start to create core values and a mission statement to help you hire employees and create the culture for your organization. This is where Jake & I hired mentors to help us create core values and work on our business. Take a look at ours:

You realize that the week is starting to be consumed by meetings, and if you don’t create a cadence of accountability, you will drive yourself nuts. You also need to start planning quarterly priorities and yearly goals. I remember thinking to myself “What does this have to do with multifamily?” I now realize this IS multifamily, and if you’re not ready, then you better find a partner who is.

Ironically enough, you start to grasp the big picture. There are countless streams of revenue associated with multifamily, and multiple businesses that can be created. In this level, Jake & I created our education platform, along with our syndication company and our mortgage business. We call this our power wheel, where all of these businesses work in a symbiotic relationship and feed off of each other.

When I reflect back at this level, I remember thinking this was all created from buying that first deal, the deal that everyone passed on, the deal that we affectionately coined “The crack den”. Multifamily, like anything else that is important to you in life, is all about the long game. Staying in there long enough, taking the punches to the gut, and just figuring it out. Jake is famous for saying “Multifamily isn’t rocket science. If a drug rep and a pizza guy can do it, so can you.”

What level are you in? Even more importantly, what level do you want to achieve. Life is not one size fits all. The key to life is all about clarity and what YOU want to achieve.

Please leave us a comment below and let us where you are in your journey. And if you’re just starting, buckle up because it’s an amazing ride.

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How Will Multifamily Owners Have to Adapt in Order to Thrive Post Covid-19?

By Derek Loda, Jake & Gino Student since 2019

There is a vast array of uncertainty in the world right now, and it’s affects are wide ranging. From the stock market going on another roller-coaster ride, to soaring unemployment, our lives are now forced to adapt to the ‘new normal,’ or more appropriately, abnormal. Just a few months ago we were at the peak of a market cycle. It was near impossible to acquire a multifamily property for decent terms. There was so much reliance on the forced upside through ‘value-add opportunities,’ in fact, a C class deal I had looked at traded at a 4.6% CAP in a secondary market. There was so much money available from lenders, and they were happy to put it to work. Fast forward to today, Fannie Mae is requiring 6-18 months of reserves depending on leverage and market. Needless to say, a lot has changed, and it will change again. The big questions are: When, and by how much?

We have been through recessions before, but this is new territory: A pandemic led to our government shutting down all business deemed ‘non-essential.’ How is this going to affect our workplaces moving forward? What about how we live, both what we prioritize in a home and what we do for leisure? Having some foresight to notice trends early on can create an immense opportunity to provide high demand amenities and increased profitability from your apartment communities. Here are three areas that I believe will create opportunity:

Shift to ‘Work From Home”

We will see in the months to come how much businesses will have to cut back on expenses and readjust their practices moving forward. I anticipate that there will be a shift that leads to more companies allowing a certain percentage of their workforce to work from home. Of course, there are many facets to making those decisions, such as: who is best suited for such a role, how to manage data security remotely, and how drastic of a shift can be made without risking productivity.

https://www.instagram.com/tv/CAVcX11jCtE/

Could a company shift 25% of its workforce to working from home either partial week, or full time and in turn, cut the amount of office space they have to lease by the proportionate 25%? If a company is leasing a 10,000 square foot space at $15/sf per year, that 25% reduction equals $37,500. Substantial enough to consider such a move, imagine how quickly that adds up across the board for a company that employs hundreds or thousands of employees. But how does this relate to multifamily apartment communities? I see two primary areas where you can capitalize: amenities, and in-unit office space.

Do you have large one-bedroom units where you can have a semi-separated office space, or have built in office spaces that can be advertised in a way to create added demand from prospective residents that now find themselves working from home? Perhaps you have some two-bedroom units where the second bedroom is smaller, and it has been tougher to rent out in the past. Now you can advertise as an executive style unit and have added appeal to a group that find themselves needing a dedicated office.

The other area of opportunity is the obsolete ‘fitness center’ that is not used frequently by residents. Can you transition that into four, six, or more offices that can be leased to residents so they have a space dedicated for them that is not in their unit, as some will want a space that is separated because like many, they are easily distracted. Now you have taken a space that is not best suited for your residents, and created an added benefit to your community, while also generating added income.

Stand Out Service and Communication

Now more than ever, people are taking notice of how companies treat their employees and customers alike. It is not difficult to take care of your residents, build rapport, while maintaining profitability. I would even argue that by having stand out service and providing a higher quality of living, you will be more profitable due to the increased demand for your product. As Jake Stenziano says, “I want to be the Chick-fil-A of apartments.” For those of you that have been, think about the guest experience at Chick-fil-A. I know I’ve been there at peak lunch hour with a drive thru line wrapped around the building that you would assume would lead to a 30-minute wait or more, but they are so prompt and efficient that it takes ten minutes from start to finish. Being quick to respond is not the only key, it’s the level of service and interaction with the employees that makes it a great experience. Even when they are serving 300 orders per hour, they let you know that it is “their pleasure to serve you,” and employees are actively attentive to serve your needs.

Enough about a fast food franchise, how does this relate to multifamily? Be quick to respond to resident’s needs, both current and prospective. Someone is inquiring about living at your community, be active in fulfilling their need for information. Perhaps a current resident has an issue with their unit, it doesn’t mean that your maintenance staff has to drop everything for a non-emergency issue, but have a line of communication with the resident so they know the timeline for resolving the issue. Let your residents know that you are happy to assist them and provide a place that they are proud to call home. Engage with your residents: perhaps keep track of birthdays and send them cards, get in tune with what is important to them, make sure to let them know that you do pay attention to their lives and care about their well-being. By engaging with your residents and taking care of the property, they are more likely to take care of you by being a good resident.

Community Within Your Communities

People want to enjoy where they live, it is not a novel concept. If your residents feel safe, are in a convenient location, and are treated with respect from their neighbors and staff, they will be more likely to want to remain a resident at that community. How can you create an environment that will instill a sense of community within your apartment complex? Do you put on cookie-cutter community events and just hope that you get an ample turnout, or could you work on a method to put on events that best suit your residents? By having conversations with them, understanding their priorities, what they enjoy doing in their free time, and so on, you can have a better grasp of what they are looking for moving forward. Imagine having a community that interacts with one another, both at management organized events and those set up by the residents. Contrary to what you may think, I believe that the Covid-19 shutdowns have created a heightened desire for personal interaction. We’ve been hiding behind screens for years, but once told are we have to, we have suddenly realized how much we do actually want a personal interaction. Of course, you want to ensure that you are doing so in a manner that allows your residents to feel safe.

If you can come out of this and address items that best achieve your residents needs and create a true sense of community, you can be better suited to reduce your turnover and the expense that comes with it. What would reducing your turnover rate from 50% (the rough national average) down to 40% or less do to your bottom line? My guess is that it will produce a result you will love, both now with cashflow, and in the future valuation for a refinance or sale.

Opportunity lies ahead, what are you going to do to thrive moving forward?

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Four Phases of Financial Freedom

In this article, Jake & I are going to talk about the four phases to achieving Financial Freedom.

Now, it’s much easier to look back and discuss the journey once you’ve already done it, but for many of you out there, you may be just getting started on your path to Financial Freedom. Jake & I started out with humble beginnings, a drug rep (Jake) and a pizza guy (Gino). We partnered up in 2011, and in 2013, we bought our first multifamily property. Since then, we have been able to acquire over $100,000,000 in assets, and create dozens of streams of revenue for ourselves.

So, life is changed quite a bit for us. And we feel that it’s our duty to share our story with you and how we got there. One of the main reasons for our success is Clarity. Clarity allowed us to focus on one investment niche, learn the niche like an expert, and continue to improve on our skills, while staying focused and not being tempted by the shiny objects.

Phase 1: Decide & Prepare

This first phase may be the most difficult. It’s all about you. You need to decide and prepare. That was a huge challenge for me. I was working in the grind at the restaurant. I was working in my business and not on my business, until I picked up the book EMyth, by Michael Gerber, and that changed everything for me. I followed that book up with T Harv Eker’s Secrets of The Millionaire Mind, and that changed my view of money and success forever. Click HERE to listen to our podcast with T Harv Eker.

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The show is about finding success by having the “right vehicle,” the “right knowledge” and the “right you” to go all the way. It’s about legitimately changing how you were taught to think and knowing that you SHOULD give yourself more by getting rich. We dive in deep to the core of how mindset affects the person and spurs them forward or holds them back. This is a deeply affecting episode that will help you examine your limiting beliefs and re-condition yourself to step on the gas pedal on your path to financial freedom! It was an honor to podcast a person who I admired as a mentor and who inspired me to make the changes in my life to become financially independent.

Now back to the first phase one. What did that first phase look like for me? It looked like taking massive education, and starting to learn all about investing. It’s very important in this phase to realize that your personal financial statement becomes your report card. You have to get your expenses in order, your income in order, and begin to create a budget for yourself. You also create what we call a Financial Freedom Account (FFA), and you are going to start putting in 10% of your income to save to start purchasing assets.

Watch the Video version:

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Next, you create a saving account for emergency so you have money allocated on the side if an unexpected expense occurs. Finally, you are going to create a savings account and allocate three to six months of savings that comprise of your living expenses. You never know when a pandemic is going to pop up and create a massive disruption in your life.

We like to refer to the phase one as “burning the ships” phase. There is no turning back to your old life, and you are preparing yourself for the massive amount of work and energy needed to get to the next phase. You are shifting from a scarcity mind-set to a mind-set of abundance.

Phase 2: Achieve Financial Freedom

Phase two is where you’ve actually achieved “Financial Freedom”, where your passive income is greater than your total monthly expense expenses. This is another scary phase because now is the time to decide whether to continue with your job full-time or cut the cord and become a full-time investor. I decided to wean myself slowly in this phase. I continued to work at the restaurant part-time while focusing the majority of my efforts full-time into real estate. My wife was NOT a happy camper for those six months of eighty hour work weeks, but it only proved to us that I could ultimately leave the restaurant and pursue my passion.

In phase two, you need to become disciplined with your time and begin to focus your efforts on revenue generating tasks, while continuing to educate yourself on building a business and learning to implement systems. You begin to view business as scalable, and start to leverage other people’s money, time and resources much better. You are no longer a one man or woman show. By the way, this was my favorite phase. I felt alive, and I was accomplishing new tasks and continuing to push myself beyond my comfort zone. I was shattering my limiting beliefs and proving to myself that with patience and persistence, I could achieve anything.

Phase 3: Abundance

In phase three, all of a sudden all of the effort that you have put towards your goal begin to materialize and you start to attract abundance in your life. True abundance, in the sense that if you want to go out and spend $100,000 on a car, that’s not a problem. You still feel the urge to stick to your budget, but your daily worry of money begins to fade away and you begin to truly adopt the go giver mentality. Listen to our podcast with the ultimate go giver Bob Burg:

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We call this the snowball phase. All of a sudden, we turn around and notice that we’ve created multiple businesses, and we have multiple streams of revenue flowing in from those businesses, and our urge is to continue to reinvest the money into our businesses. We realize that to become successful is to adopt the long game mind-set in this phase.

Phase 3 is an exciting time in your life because you’re learning about yourself, and you are getting accustomed to trusting other team members and being able to recognize people’s strengths and what jobs they should be focusing on. As we like to say in the life coaching world, you are resonating at a high level of anabolic energy, and are able to create opportunities out of problems. You realize that money is just a tool to use to either invest in additional streams of revenue, or to enjoy. It is not used to hoard and to “save” for a rainy day. You use money to make it rain for you!

Phase 4: Super Wealthy

The streams of revenue have turned into raging rivers, and money has turned into a fun game. You want to go out and buy a jet. You want to go out and buy a yacht. Go ahead, nothing is stopping you from acquiring material possessions. You have learned the art of creating businesses that provide tremendous value to their customers, and you are reaping the financial rewards!

Now, the question is, what phase do you see yourself trying to achieve? There is no right or wrong phase, the only mistake would be not to decide and begin your journey to financial freedom. Ironically enough, in my experience, as you move through the phases, making money becomes less of a concern, and providing value and solutions are the main focus. A person who is financially challenged is always focused on making money to pay the bills, while a person who is financially free concerns himself with earning money, but begins to have a higher calling for their life, and begin to moves towards their soul purpose, which has been all made possible because they achieved financial freedom.

At Jake & Gino, our mission is to bring about a financial revolution through education because we know that:

People with financial intelligence can change the world for the better!

Where do you see yourself in the next five years? Now is the time to decide!

MIH!!

Jake & Gino

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7 Biggest Learning Lessons From Investing In Our First Rental Property

By Greg And Rachel Schwartz, Jake and Gino Members since 2019

We’ve learned a lot since jumping into real estate full time. After 9 months my wife, Rachel, and I both work full time in real estate while house hacking a 4 plex. This lifestyle transition was not easy, but nothing in life worth doing is. The journey began 3 years ago when I started learning about real estate and personal finance. We saved and learned, and learned and saved. In October 2019 I made the decision to transition from my position as a helicopter pilot in the Marines to my new career as a real estate investor and agent. We joined the Jake & Gino community to immerse ourselves in the education and surround ourselves with like-minded investors.

We chose to settle in College Station, TX and invest in our own backyard, literally. One day while driving neighborhoods, we came across a gentleman who appeared to be working on a 4 plex as part of a make-ready. Long story short, he was the owner and we made an offer the next day. Initially, our offer was rejected, but when the other offer fell through, we were ready and willing to step up.

Around this same time period, I got my real estate license. By sharing my knowledge of multifamily investing, I earned a reputation as a well-educated and determined new agent, which led to an offer to join one of the top-grossing real estate teams in the city. So by day, I have learned how to be an effective agent and by night, I have learned, through a lot of hard work and experience, how to renovate a 1980’s property. Luckily Rachel had taken it upon herself to dive deep into the world of property management. She built up the systems needed to market, lease, and manage our new tenants. The whole experience has been so different than we had ever imagined it. Our 7 biggest take away from the last 6 months are outlined below…

Starting small, but not too small.

We determined that multifamily is the path we want to take in order to achieve financial freedom. But we wanted to start from the ground up. By combining these two ideas, we decided to house hack a 4 plex. House hacking is a very forgiving way to learn in the school of hard knocks. Rental income from 2 units effectively covers our mortgage. Problems are only feet away and can be addressed immediately. By starting here, we have gained the confidence and know-how to expand our search to 16, 20, or more units. We learned, don’t think that you have to GO BIG OR GO HOME, you can start small but remember to have a plan to expand exponentially. As Gino always says, “Think big, but start small.” You just need to start!

Discover how apartments are the best investment vehicle to create wealth and generate passive income:

Due Diligence has to be painstakingly detailed and assumptions will bite you in the butt.

Once our offer was accepted, we started the process of due diligence. One of the first things we learned was that the original guestimate of $7,000, provided by the seller, for siding, was well below the actual cost. On top of that, it became clear that the roof was on its last leg. The total actual estimate for both roof and siding came out to $23,000. This would have been the ideal time to renegotiate the original offer and ask for 16,000 off the asking or money at closing. We didn’t ask for either. Naturally, this greatly affected our rehab budget and cut into our cash on cash return.

Inheriting tenants is a gamble, plan accordingly.

Having never screened tenants ourselves, we were ignorant to the poor quality of the application and lease being used by the seller. During our initial offer, the building had 2 of 4 units filled with paying tenants. By the time we closed we were down to 1 non-paying tenant. We then spent the next 5 months attempting to reestablish a relationship with this tenant, ultimately ending in a 30-day notice to vacate. In hindsight, we would have planned and budgeted for this turnover and removed this problem tenant earlier in the process.

Over rehab is a real thing.

We knew that a mild rehab for a unit should be in the 5-7k range. So we set aside 20k for the 3 units. But when the dust settled on the first 2 rehabs, and we crunched the numbers, we realized we spent closer to 8.5k per unit!!! Budgeting for the small things can be very difficult if it’s your first time. Things like caulk, trim, plumbing, paint rollers, and bug bombs add up quickly. When we were forced to stay within a strict budget of 3k, because we already spent most of the money, we leaned on the motto of “better than it was” and ended up with a great product for well under 2k. Those 8.5k rehabs rent out for $800 per month and the 2k rehab is set to rent for $775 per month. We feel that had we stayed strict to a 5-6k per unit rehab we would have all 3 units renting at $800 with great tenants.

Exit strategy. Start with the end in mind and again…don’t assume anything.

Don’t assume anything. In our case, we assumed we could cash out refinance 100% LTV with a VA loan after 6 months. Wrong, wrong, and wrong. We now know that Texas restricts cash-out refi’s on a primary residence to no more than 80% LTV. From here on out we will sit down with a lender and discuss the refinance products that will be available to us.

Set up systems now to support where you’re going, not where you’re at.

Even though we’re a small 4 unit operation, we’re implementing systems and using the software as if we’re a 150 unit complex. This includes an operations manual that is a one-stop-shop for every step from leasing to move out. Buildium, a property management software company, has been a key component of our organization and professional presence.

Rely on the experience around you.

I learned this one years ago as a young pilot. As a know-it-all young man, I would proudly brief my creative solution to the simulated mission only to have my glorious plan fall apart in execution. Without experience I didn’t know what I didn’t know, and therefore couldn’t account for every factor. The solution to this is to bounce ideas of those with more practice. This is where the Jake and Gino community has been clutch. By surrounding ourselves with like-minded individuals, many of whom are more experienced, we were able to avoid catastrophic loss. An added benefit of this community is the decimation of limiting beliefs. Think it can’t be done… look around you, it has been done countless times by Jake & Gino students!

If you have any questions about our current project, or any new opportunities, you can email me at schwartz.gregory.m@gmail.com.

You can also find us on BiggerPockets and LinkedIn.

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Top 5 Risks When You Don’t Have A Mentor

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In this article, we will identify the top five risks associated with not utilizing a mentor or education platform.

We have learned through our years as investors that good multifamily investing comes down to:

Education x Action = Results.

It’s great to take massive action. But if you’re not educated, you can fall flat on your face. When I first started investing in real estate, I was taking massive action. Unfortunately, I was lacking in education, and made some crucial mistakes that made me realize that I needed to get educated. My next step was to identify multifamily as my niche to invest an, and seek out a company that specialized in multifamily real estate education. It was one of the best decisions that I ever made when it came to investing, and partnering with Jake was the only decision that was more impactful.

https://www.instagram.com/tv/CAVcX11jCtE/

Jake & I proceeded to create Jake & Gino and introduce our Three-Step proprietary framework Buy Right, Manage Right & Finance Right so that investors had a proven path to follow.

Let’s dive into the first risk.

The Three Pillars of Real Estate:

I want you to write these three pillars down. The first one knowing that the Market Cycle is truly important every time you analyze a deal, and understanding where part of the cycle your market is in.

The second one is Debt. What kind of debt are you going to secure?

Multifamily has different sources of debt, as opposed to residential. Have you connected with a broker to discuss the various options available to you?

And a third one is the Exit Strategy.

What’s your exit strategy? Are you going to Fix and Flip? Are you going to buy and hold long-term?

You have to look at all three of thes components and understand how they work in a deal to make sure that this deal is a buy and hold, or a sell. Focus on the Three Pillars!

Not Being Able To Assess Risk:

If you haven’t been in the game before and you don’t have a coach working with you, you don’t know what you don’t know and that creates a huge vulnerability. With a coach, you can bounce ideas off them and get instant feedback. A coach can advise you and guide you through new scenarios and can offer additional strategies.

I had a coach on our third deal. It was amazing. My coach was right there with me every single step of the way with that deal, whether it was putting the letter of intent in, the purchase and sale agreement, going through due diligence, closing, taking the property over. Those were all new

steps for me, and my coach actually led me through each one of those processes. It saved us countless and countless thousands of dollars, having that coach by my side. And once I went through the process, I was able to replicate the process on our next deal!!

Not Knowing All The Strategies:

When Jake and I first started, all we knew was buy and hold by ourselves.

We had no idea what syndication was, owner financing, how to joint venture with other partners. If we did, it would have shattered some of our limiting beliefs and led to so much more growth. Coaches and mentors will be able to teach you the various strategies in multifamily. You will learn that each of these strategies is a “tool” in the toolbox, and you will know what “tool” to use for each deal that you analyze.

Lack of Team, Vendors and Community:

One of the great things about the Jake and Gino Community is our private Facebook group. All of the students interact in the group, post questions, look for partners and deals, and utilize it as another tool to learn. We also host live events, weekend boot camps where students can network and meet our vendors, and learn from our entire staff.

It is a fantastic way to surround yourself with like minded individuals. One of the keys to success in life is proximity, surrounding yourself with a community that supports you and holds you accountable. When times get tough, it’s always nice to be able to lean on that community for help and inspiration.

Due Diligence Process:

Due diligence are two of the most important words for any investor. An investor has to truly understand and learn the due diligence process when acquiring a multi-family. There’s a lengthy due diligence process and there’s a lot of steps that you need to take. It was reassuring for me to have my coach walk me through the due diligence process on that deal. I avoided countless mistakes that I had made on my previous deal, such as not looking at bank statements, tenant leases, analysing the T12, performing rent comps, diving into the legal due diligence.

Click HERE! to read our blog on our Three-Step Due Diligence Framework.

We hope that you’ve enjoyed this article. Please leave us a comment below with any risks that you have experienced in real estate if you haven’t used a coach or mentor.

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