Best Multifamily Real Estate Investing Blog

The ABCs Of Real Estate Investing By Ken McElroy

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If you are seriously considering to transition into multifamily investing, the first book you should read is The ABCs of Real Estate Investing by Ken McElroy. It is one of the only books that will teach you how to find, underwrite, negotiate, manage and prosper in the multifamily space. I have read countless books on apartment investing, but Ken’s book stands out above the rest for several reasons.

For starters, it is always refreshing to read a book from a “guru” who is actually massively successful and engaged in the subject he is teaching. Ken is a Rich Dad Advisor who owns one of the largest property management companies in the Southwestern U.S. He is in the trenches, and has the ability to write about multifamily investing in an easy to understand style. His book has actionable content, and a framework for the reader to follow.

Ken focuses a good portion of his book on property management, a vital topic that most authors gloss over. He highlights the fact that property management is vital for the success of the investment and is an ongoing process. He details the duties and responsibilities of a successful property management company, and how to hire a company and when it is time to fire your management company.

Turning your business plans into profitability with Thor Conklin

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Owning a business is one thing. Owning a profitable business that you can depend on is another. So many people get stuck becoming soloprenuers and eventually get burned out. In this episode, Thor Conklin takes a deep dive into what separates the profitable business from the the unprofitable.

In this episode you will discover:

1. Why his early business’s failed
2. Entrepreneurs organizations
3. I vs. E
4. How to pay yourself first
5. Accountability
6. Execution
7. Culture
8. Systems
9. Being proactive vs. reactive
10. And much more!

http://www.thorconklin.com/

Check out the podcast for iTunes: iTunes Store
Check out the podcast for Android: RSS FEED

If you would like to partner or invest with Jake & Gino, please fill out this form:
Investor Form

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Your Multifamily Investing Questions Answered

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As investors and educators, Jake & I fall into the trap of thinking that we know what our member’s pain points are. The only way to truly understand what frustrates beginning investors is to ask them. I set out by asking our members on our J&G Facebook Page what was most challenging to them when beginning to invest in multifamily real estate.

Here are their questions with answers:

Dan S:

“Not knowing where to find the deals?”

Unfortunately Dan, this question is puzzling even to the most experienced operator. What makes finding deals challenging is that the investor has to understand market cycles and to seek out markets that are beginning to emerge. Click here to read our article on Market Cycles. In the current climate, there is a plethora of cash chasing yield, and the options are limited. Multifamily has become a very popular alternative for many investors, and this has led to cap rates compressing and prices escalating.

The first step is to begin to research markets and to select a market that is poised for growth. Remember, real estate should not be viewed from a regional perspective, and should be analyzed market to market. One city may be experiencing tremendous growth, while another is shedding population and contracting. Utilize our Market Research Doc to begin analyzing markets and comparing which market has the most positive metrics.

What should you be looking for? The first, and by far the most important metric, is job growth. I’m sure you’ve all heard “Location, location, location!” When trying to discover the next emerging market, it’s all about “Jobs, jobs, jobs!” The demand for apartments will increase when a city is adding employment, and jobs are a driving force when it comes to people relocating to another city. Jobs have a multiplier effect; in essence, when one white collar job is created, two to five blue collar jobs are created to service that white collar employee. We strive for at least a 2% job growth rate for at least two consecutive years.

These are five other important criteria to focus on:

Household Growth
Construction Permits
Demographics
Tenant Laws

Strong Government Leadership

Your task should be to map out your market, attempt to create a relationship with the various property owners, and network with brokers in the market.

Jaytee L:

“I am worried about timing the market and buying at the top.”

Well Jaytee, you aren’t the only investor with this sentiment. 2017 feels eerily similar to 2008, with a couple of exceptions. First of all, I think banks are on much more solid ground than they were back in 2008. Secondly, cap rates in many markets are still higher than they were back in 2008. And third, the shift in demographics to a renter nation has propelled multifamily valuations. Baby boomers and millennials, the two largest demographics, have shifted to renting instead of purchasing a home, both with different reasons for their decision.

On the other hand, I keep hearing that there are no deals out there, and that cap rates are continuing to compress. I even notice most brokers sense they have the upper hand when selling a property, and make less effort to entertain offers they deem “too low”. A few years ago, brokers were begging for offers.

The only way to combat your fear of market timing is to seek out markets that are:
1. Emerging
2. Still reasonably valued

Create buying parameters for your market, and be willing to stick to those parameters. We are reluctant to invest in deals that offer less than an 8 Cap and a 10% Cash on Cash return based on ACTUAL numbers in our market. It is very difficult to locate these deals, but we are more interested in protecting our downside risk than just buying another deal. Once (not if) the market shifts, we want to make sure that we bought right and the property will be able to sustain the debt service and the expenses. Remember, it’s not what you buy, it’s what you pay, and most investors are getting caught up in the euphoria of the current market projections.
If you feel the market is overpriced, I would recommend that you build your cash reserves and continue to educate yourself. I would also venture into other markets and seek out markets that are starting to emerge. But, keep sourcing deals, and if a deal pencils out, go for it!! Whatever you focus on, expands!

Daniel J:

“How do I have the right answers for brokers and overcome inexperience?”

We experienced the exact same fear when we decided to invest in multifamily properties. Who was going to take a drug rep and a pizza guy seriously? I credit my real estate education with overcoming our lack of credibility. I was able to speak the lingo, and I knew how to underwrite a deal. On our first deal, we stumbled through the rest of the process.
Fortunately, for you Daniel, Jake and I created a couple of resources through our mistakes that will help you network with brokers and display your credibility. Download our Researching A Market E-book, a fantastic resource that will allow you to ask brokers pertinent questions when analyzing a specific market and deal. Start to learn the real estate lingo and qualify yourself as a real estate professional.
The other resource that investors need to create is a Credibility Book, a business plan that investors formulate to convey their investing strategy and their current portfolio.

Click the image below to download our Credibility Book:

We have even created a micro-course to walk you through how to create your own personal Credibility Book.

Click the image below for a link to the course:

Here is a testimonial from a student Melissa who created a Credibility Book with us:

“I did a credibility book for the 12-unit I’m buying. It really made me stand out to the broker, got me great financing, and honestly helped me get organized for my search criteria. Follow what Jake & Gino say and you’ll get a deal!”

If you want to stand out versus the competition and show the broker why you’re the right person to take down the deal, then you need to create your own book.

Robert C:

“How do I invest in multifamily with a lack of cash and a New Jersey market with low cash flow?”

The first step Robert is not to focus on the lack of money, but focus on your education and how you can add value to others. Zig Ziglar says “You can have everything in life you want, if you will just help other people get what they want.” Once you learn how to underwrite deals and invest in markets that cash flow, then you can embark on forming a partnership or raising private money for your deal. Jake & I partnered up for our first deal, and we haven’t looked back. We were able to recruit a third partner who was instrumental in allowing us to grow our portfolio.

Coincidentally, we just had a student from New Jersey close on his first multifamily deal, a ninety-four unit apartment complex in Louisville, Kentucky. He was able to select the market and form a real estate syndication (the pooling of funds from numerous investors). Was this an easy deal for him? Absolutely not!! It seemed as if he continued to run into roadblocks, but his tenacity and desire to buy a large property maintained his motivation to close on the deal.
The answer to your second question lies with our student’s solution. He sought a market that was still reasonably valued, and one that he felt comfortable with the demographics. He is active in his market fixing and flipping, but he understands that his market does not deliver cash flow.

If you have any questions, please email me at gino@jakeandgino.com, and I will be sure to respond. I may even write an article answering your question.

If you would like to partner or invest with Jake & Gino, please fill out this form:
Investor Form

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How to Buy First Multifamily Property

Welcome to the ultimate podcaster’s roadmap on how to buy your first multifamily property. In this article, we have compiled podcasts, You Tube videos, and recorded calls for any investor who wants a framework on how to buy their first multifamily property.

What is the most beneficial way to consume the content in this article? We have designed it so all you have to do is listen to the podcasts, videos, and live calls in the order that they have been arranged.How have they been arranged? We start off the journey with: why multifamily, followed by researching a market, creating a multifamily team, buy right, manage right, finance right, and ending with Jake and Gino’s interview on Bigger Pocket’s podcast. As Jake likes to say, follow the yellow brick road to multifamily!

Click here to watch how to use this blog:

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1. Ten Reasons We Buy Multifamily

In this episode, we take a deep dive into why we do what we do! We wanted to share what we buy and how we are finding multifamily property deals. Finally we cover our top ten reasons for investing in multifamily properties and much more!

2. Overcoming Limiting Beliefs With Noah St. John

Many people have strong desires but fail to convert those desires into results. In this episode, we interview Noah St. John who’s cracked the code on converting desires into results. He calls it DBAR and we take a deep dive into DBAR in this show. We hope that his method can be applied to all investors trying to buy their first deal. Let’s work on your limiting beliefs.

3. Breaking Through To The Other Side

In this episode, J&G break it down and hold nothing back. They share how they got out of there comfort zones to actually create a large scale real estate business and take control of their financial futures. More importantly they share the “time benefit” of this and what it’s done for their families and overall quality of life. At some point you must put down the textbook (Wheelbarrow Profits) and jump in with both feet. Education X Action = Results

4. 28 Questions You Must Ask Your Broker

Any experienced multifamily real estate investor will tell you that it’s not easy starting out as a first-time investor. One of the main reasons for this is experience and credibility. In this podcast, we’ve developed the top 28 questions that you should ask you real estate brokers. Why did we do this?

1. It’s going to give you credibility (you will sound like you know what you’re talking about…aka fake it till you make it).

2. You need to know this stuff.

3. Be cool and these questions can help build rapport with the brokers.

Download the E-book and the Document below to analyze a market:

Market Research Document

Research a Market E-Book

5. Gateway Into Multifamily Team Building

In this fourth “Gateway into Multifamily Real Estate Investing” podcast, we cover how to build your team. This is one of the most challenging aspects in the beginning of any successful real estate venture. We also share our personal experiences and advice. You can’t do it all yourself and you need a solid team of professionals on your side.

6. Networking With Alex Franks

In this podcast, Alex shares some great insights on how to network with other real estate professionals. He has a great story about how he started out in his local gym speaking with investors. There is no doubt that his success is directly tied to his ability to network. Get your networking game-on!

7. Insurance With Kelly Thomas

In this episode, we had the pleasure of interviewing Kelly Thomas. He is a Client Executive with TIS Insurance Services, Inc and became the fourth generation Thomas to work for TIS. Kelly has maintained several roles at TIS starting at the age of 12. Today, he specializes in Commercial Insurance, Personal Insurance, and Life Insurance and provides tailor-made risk management solutions to many individuals and businesses across the Eastern United States.

8. Steve Goldman Broker

In this episode, Steve Goldman, CCIM takes a deep dive into creating relationships with multifamily brokers. Steve’s been in the business for over 15 years and is the founder of Goldman Partners Realty. Many times people focus on what you can do for them. Steve’s focus is on getting deals done and how he can work with both buyers and sellers to get fair transactions completed that both sides feel good about. We think this episode provides great insight on the broker and buyer relationship.

9. Accounting With Tom Wheelwright

Tom dives into the “Cash Flow Quadrant” in his book Tax-Free Wealth, a chart that Robert Kiyosaki designed that illustrates the four types of earners, and how taxes affect each of the quadrants. Tom describes in detail how the business owner and investor receive a far more favorable tax status.The book shattered my limiting beliefs surrounding taxes and made me focus on how to use the tax code to my benefit. I decided to focus on investments where the government is trying to stimulate growth.

10. Scott Maurer With Advanta Self Directed IRA

If you are looking to raise money for your deals, than this show is for you! Scott Maurer takes us through the steps of raising money using self directed IRA’s. Scott believes that this is an untapped resource that Wall Street doesn’t want the average person taking advantage of.

11. Property Inspections With Wally Conway

Wally dives into what qualities to look for in an inspector, how vital the inspection process is, and how to hire a qualified inspector.

12. Mike Saporito: How To Network With A Banker Conway

Learn how to build long term, profitable relationships with one of the key players in your multifamily investing business. In this podcast, Jake and Gino bring you an in depth interview with First Vice President of MCB, Michael Saporito. Let’s discuss how crucial it is to create your credibility book.

13. Jeff Love Syndication Attorney

We sit down with a syndication attorney Jeff Love and take a deep dive into the legal side of syndicating apartments. It’s very important to follow the rules. This show covers the current regulations and discusses why it’s so important to have the proper team members on board.

14. Laundry With John Steinhofer

In this episode, we interview 15 year laundry veteran John Steinhofer about the inside game of multifamily laundry service. There are many ways to provide laundry service for tenants and we share many of the options in this show. John also shares ways to get extra cash upfront and how to better serve tenants with new machines and promotions.

15. Ricardo Hinojosa Multifamily Financing

In this episode, Ricardo Hinojosa discusses his transition from the corporate world to multifamily financing and then eventually to multifamily investor. Ricardo also shares tips on funding multifamily deals. Learn all about the different types of debt instruments, and how important it is to recruit a multifamily mortgage broker.

16. Crowd Funding With Darren Powderly

In this episode, Darren Powderly (co-founder of Crowdstreet.com) shares his innovate platform on raising money for your multifamily deals. Darren is a wealth of knowledge, since he brings a real estate and tech background to the table. If you are considering raising money for you deal, you don’t want to miss this episode.

17. Blueprint Housing Section 8

Have you every wondered what it takes to invest in HUD or Section 8 housing? If so, this show is for you! We have two experts to discuss all of the benefits and pitfalls of subsidized housing.

18. Buy Right Podcast

Buying Right is the first of three crucial steps to a successful multifamily real estate investment. Get this phase right and you are well on your way to a profitable investment. Alternatively, NOT buying right can send you straight to the poor house.

19. You Tube Video: 8 Negotiation Techniques That Every Newbie Needs.

Learn how to negotiate like a pro and avoid these costly mistakes!

20. You Tube: How To Find Deals In Multifamily.

Learn how to find a deal in the current market, how to network with brokers., how to analyze a current deal, and what to do with a pro-forma.

21. Live Call With Jake & Gino: Deal Analyzer Calculator.

Learn how to analyze deals quickly with the deal analyzer calculator. We dive into what a value-add is, how to spot one, how to create value and how to properly analyze an income statement.

22. Manage Right Podcast

Now that you’ve purchased your property correctly, it’s time to reposition it for big bucks. Learn our three-step repositioning framework on how to turn an ugly ducking into a well-oiled machine that pays you every month.

23. Manage Right Live Call With Jake & Gino

The three-step framework and the management system is expanded upon in this live call. Learn how to effectively manage your asset or choose a reputable management company.

24. Traction Podcast For Building Systems In Your Business.

In this episode, we are fortunate to have the visionary of EOS Worldwide Mike Paton as our guest. Our team struggled implementing systems in the early days of our business. We were laser focused on results but sometimes came up short with the roadmap, AKA the process needed for achieving our goals.Mike Paton describes his journey and defines why an operating system is so important to the success of any small business.

25. 15 Ways To Increase NOI.

In this episode, we share our top 15 ways to grow the NOI on your multifamily investments. Some of these ideas are less traditional than others but all have contributed to our rapid growth. If you’re not growing you’re dying!

26. Finance Right Podcast

Now that you’ve purchased your property correctly and are managing right, its time to secure long-term financing. This is the final leg of the strategy and will help secure your investment for years to come.

27. You Tube: How To Secure The Most Favorable Financing Terms For Your Multifamily.

Are you intimidated when confronted with commercial financing? Let us dispel the myths and fears surrounding commercial financing. Download our bank term sheet to help you compare the different bank terms.

28. Syndication with Brian Burke

Brian Burke started out with a single mobile home investment over 25 years ago. He now controls over 1,000 multifamily units and has built a private equity real estate firm. It all started with his “power base.” Brian was a police officer and his first investment came from his police officer friends.

29. Transitioning from Single Family to Multi with Chris Urso.

In this episode, we interview Chris Usro, the managing partner of URS Capital. URS made the transition from single-family to multifamily. Since 2007, the firm has purchased over 1,800 apartment units. This episode is jammed packed with actionable content, especially regarding how to pick a market!

30. J&G On Bigger Pockets

Jake & the G-Daddy are featured on Bigger Pockets and discuss their journey from a dilapidated twenty-five unit complex to 674 units in only three years!

Task:

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Wheelbarrow Profits Podcast

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Investment Realty – Property Classification

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Rules of Thumb, Part 2.

In our previous article, we focused on unit mix and the importance of choosing an apartment complex with the most beneficial unit mix. In this article, we are going to focus on property classifications for investment realty.

Property classifications are important because the investor will know what type of earnings come with investment realty and he will be able to convey to brokers the type of properties he is investing in. An investor will become familiar with cash flows and cap rates associated with each class of investment realty.

A-properties are the most recently constructed units, those that contain top amenities, require low maintenance, and are inhabited by young white-collar workers. These assets tend to be more stable, have less risk, and charge higher rents, all of which are the reasons they trade at lower cap rates. This type of investment realty will appreciate more, but cash flow will be harder to come by.

B-properties have typically been built within the last 20 years, and it usually has a mix of white-collar and blue-collar workers. The property will show its age by a bit of deferred maintenance or functional obsolescence. You may also see older heating and cooling systems, roofs that have a bit of wear and tear and parking lots that need repair. B-properties have a good mix of appreciation as well as cash flow.

Additional read: How to Get Started Investing in Real Estate

C-properties tend to be at least 30-years-old and contain mostly blue-collar workers and section 8 tenants. They contain a fair amount of deferred maintenance, and these properties are poised for cash flow. There’s less appreciation potential unless the investor repositions the property and improves operations. This is our favorite type of property class to invest in because these tenants are less likely to purchase homes and will become long-term tenants if treated properly. Our broker in Knoxville refers to C properties as “crap” properties, but loves to invest in this type of asset because of ability to cash flow and reposition to a higher class. Investors are always on the lookout to buy a C property and reposition it to a B property.

D-properties, the lowest class of property, are usually located in inner cities where it’s difficult to collect the rent and vacancy rates are high. This type of investment realty is highly management intensive and the tenant base is often difficult to deal with. Investors get lured into investing in these properties due to the low prices, but soon realize they got more than they bargained for. Unless you can purchase a D-property and reposition it to become a C-property, you’re better off staying away from them.

Additional read: Your Multifamily Investing Questions Answered

To recap, here are a few rules of thumb for these property types:

A properties will have the greatest appreciation, but the worst cash flow. Investors will buy these A assets because they tend to be less risky and therefore the return will be lower. The less risk the asset has, the lower the cap rate.
B properties will have a good mix of cash flow, as well as appreciation.
C properties have great cash flow, but appreciation is limited, unless forced.
A properties have the lowest cap rates, ranging from 4 to 6.
B properties are in the range of 7 to 9.
C properties hover in the 10 plus range.
D properties start at 13, and can escalate from there. Just remember, a 15 cap rate looks great on paper, but it means ZERO if you can’t collect the rent.

If you would like any more information on multifamily investing, please visit feel free to share your questions here. Please leave us a comment below and let us know what type of property types you invest in.

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10 Signs That Your Management Company is Not Performing

To manage or not to manage, that is one of the most difficult questions for a beginning investor to answer. On the one hand, learning the business and taking control of the asset is crucial for success in real estate. On the other hand, hiring a management company to run day-to-day operations allows an investor to focus on growing the portfolio and developing into an asset manager, not a landlord. This article will focus on the “Manage Right” portion of our three-legged framework, and specifically on ten red flags when dealing with a property management company.

Excessive fee:

When you sign an agreement with a management company, you will establish a management fee for running the property. This fee is usually based on GROSS income generated from rents, and may include other types of income, such as application fees, pet fees, and laundry income. Make certain that the company does not include security deposits when calculating gross income.
Security deposits are not classified as income, and belong to the tenant. Therefore, they should be held in a separate escrow account. Some management companies may try to lump in security deposits with gross income and charge you. Big NO-NO. Some management companies may also try to charge you for rent that has not been collected. Only allow them to bill you for rent that has been collected.

Lack of income growth:

Most investors are content when their occupancy number is hovering around the market rate, and rarely focus on driving the income. It is your duty as an investor to maintain your rents at current market levels to maximize the income and value of the asset. Request a market rent comparable from the management company to compare your rents to those of your competition. If your rents are below the market, devise a strategy to increase them to the market rate. Also, explore other options for increase in revenue on your property. Watch our video on You Tube: 15 Ways To Increase Revenue On Your Multifamily!

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Listing agent:

Some management companies specify in their contract that they will be the exclusive agent if you try to sell your property. Be aware of this clause, and have them remove it if you do not want them listing your property if you decide to sell. Only allow them to list the property if you feel comfortable with their performance.

Getting negative feedback from tenants:

We like to mail our tenants a survey along with a self- addressed stamp envelope for them to return to us. I have learned a very important lesson in over twenty years of dealing directly with customers. A customer is much more inclined to tell you if you are doing a poor job as opposed to doing a good job. Tenant surveys will shed light on the management company’s customer service and overall performance. Using surveys is one way of being proactive and staying on top of your business. Visit Jot Form to start creating your own personal free tenant surveys.

Getting charged for fake repairs:

Have the management company procure three bids for every job, and have them get your permission to perform the job if it is over a certain dollar amount (we ask for repairs over $200). You should call the other 2 losing bids just to make sure they are real companies that are in business and not fictitious ones that the management company created so he could secure his own bid. Have the company take pictures of the job before and after completion to have proof that the work was done.

Empty apartment:

If you notice on your rent roll the same apartment vacant for a few consecutive months, this may be a sign that the tenant is paying the management company cash under the table. Either make a surprise inspection or call the tenant who lives next door to see if the apartment is vacant. Also, check the utility bill to see if there has been usage for the month. Property management software is an excellent tool to use to see how long the apartment has been vacant, and if the property is being marketed.

No professional software:

Your professional management company, along with the rest of your vendors, needs to enter the 21st century. The software they utilize needs to be cloud based so that you can review the performance of the property in real time. We are huge fans of Apfolio but there are other platforms in the market: Yardi, Quickbooks, Rent Post, Buildium and Real Page.
The only way to analyze your performance is with accurate and up to date financials. You will be able to catch trends much quicker and be proactive, instead of “reactive”. If you decide to refinance or sell your property, sending out the financials is as easy as a click of the button.
Software companies also offer discounts to their users. App Folio charges users $16 per application, and they offer renter’s insurance at a very competitive price. They also offer online payments for tenants. Explore what each platform can provide to you as benefits and savings.

Unaddressed maintenance requests:

One of the benefits of utilizing property management software is that you will notice when maintenance requests are logged into the system, and how long it takes the management company to address the issue. You can track the new maintenance orders, the orders that are waiting to be addressed, and the orders completed. The number one reason why tenants do not renew their leases is poor customer service. Providing quality customer service to your tenant base will diminish one of your costliest expenses, tenant turnover.

Slow rent collection:

Management companies should send owners a report weekly detailing rent collection and rent outstanding. 90 to 95% of rent should be collected by the second week of the month, and if the company continues to fall short of that target, then this may be a red flag. It may mean that the management company is renting to unqualified tenants or tenants may be disgruntled with customer service and are reluctant to pay the rent. In any event, owners need to react quickly and address the problem.

Slow turns:

When an apartment is vacated, it should be a priority for the management company to get in there and “turn” the apartment. The average turn should take around a week to ten days if no major repairs are involved. You never want to show an unkempt apartment to a prospective tenant, so it is vital to get it rent ready as quickly as possible to show. Every day the apartment is vacant, you are losing revenue. For instance, if you are renting an apartment for $600 per month, it is costing you $20 per day or $140 per week vacant. You can see the value in having a management company focus on turning empty apartments.

Task:

Decide whether you will self-manage or hire a property management company. Visit these two websites for more information on property management companies: IREM and All Property Management. Interview at least three companies and read the contract very carefully. The Manage Right portion of the framework is crucial to the success of your asset.

If you would like to partner or invest with Jake & Gino, please fill out this form:
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5 Questions To Ask When Buying Multifamily Real Estate

As we progress deeper into the current real estate cycle, most Jake and Gino members I interact with are asking the question: “When (not if) will we have a market correction? We stress in our education that buying right is critical to an investor’s success and one of the goals in buying right is to limit your downside risk. This article will focus on five crucial questions to ask a seller when analyzing a deal for buying multifamily real estate, why these questions need to be asked, and how to use these questions during the negotiation process.

As a life coach, I have spent hours asking my clients empowering questions to help them learn more about themselves and to ultimately answer their own questions. An empowering question is a thought provoking, open ended, challenging question that allows a person to look for answers and new opportunities. Please click here to read how to utilize empowering questions: Empowering Questions.

Your mission is to collect as much information as possible when asking these empowering questions and then formulating a solid plan for buying multifamily based on the information. Most investors make assumptions when entering a negotiation for buying multifamily real estate and fail to discover important details pertaining to the investment. Your job is to seek out the seller’s problem and then create a solution to his problem with your offer. An investor who can solve bigger problems will potentially earn bigger returns.

Why are you selling?

It seems like a rather obvious question, but how many investors don’t even consider the other side’s motivation for jettisoning the asset? If you find out why the seller has put up the property for sale, then you can begin to understand how you can solve their problem. “Why” will lead you to the seller’s motivation. For example, if the seller is burned out, the seller will be more amenable to negotiating on the price. If the seller is performing a 1031 exchange, this bit of information sheds other important details. The seller will be under a time constraint and he will have a different type of motivation.
We always focus on the reason why a seller is willing to part with his asset. If there is no motivation, then I can guarantee you that your ability to solve a problem is greatly diminished, and your chance of finding a “deal” has just plummeted. Here are several examples of motivated sellers:

Burned out
Poor operations
Partner acrimony
Family in-fighting
Divorce
Bankruptcy
Health issues
Retirement
Relocation
Inherited property
Code violations that need to be addressed
New opportunity
1031 exchange

Watch the video version:

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What are you going to do with the proceeds?

Why would you care what the seller does with his money once the deal closes? Well, if the seller is going to dump his money into the bank earning a paltry 1% interest, you may have a better solution for his money (AKA creating value). Begin by asking the seller if he would like to earn 4 or 5 % on their money. Most of the time, you will receive a puzzled look on their faces. Now is the time to introduce seller financing. It is your job to educate the seller on the benefits of seller financing. Click here to learn about seller financing: Creative Financing.

I mentioned earlier a 1031 exchange and the effect it has on the seller’s motivation. If you discover the seller is attempting a 1031 exchange, they will be up against the clock to complete the sale and roll over the proceeds into another chosen property. The seller may be looking for a safe bet to close the deal, and you may be able to negotiate a discount if you can convince the seller that you are the party to get the deal closed in time. On the flip side, never tell a buyer you are attempting a 1031 exchange, or you will come across the identical problem.

Could you tell me the story of the property?

Every property has a story, and they are all unique. Our first deal used to be a short-term motel infested with unsavory individuals (nice way of saying crappy tenants). Another one of our deals was built, owned and operated by a family. And yet another was owned and operated by an out of state owner who decided to meet Jake at a Ruby Tuesday’s the weekend before the closing to receive a concession on the price. Thankfully, Jake refused the beers offered to him.

Also read: How You Can Use Creative Financing to Create Wealth

Each story led us to a conclusion on why the property was being sold and what problems we would be presented with. Our first deal was on the market for over two years, and we were able to negotiate a substantial discount on the price, as well as secure 10% owner financing as part of the down payment.
The second deal presented us with different challenges. The seller was motivated to sell this asset, but the pool of buyers was limited and he had already tried to sell the asset to his family unsuccessfully. We were able to purchase this asset with no money down because we displayed our credibility in closing and managing this type of asset.

The third deal was interesting. We knew the seller was motivated because he was in arrears on his property taxes, and the property was performing poorly. He did have us up against the wall due to the fact that our due diligence time period was about to expire, but he was truly motivated to sell. In the end, we only conceded two days of prepaid rents in order to purchase the property. Our concession would have been significantly larger if we were unfamiliar with the story of the property.

How long have you owned the property and do you have other assets?

Isn’t it nice to find out that a seller has additional units in his portfolio? If you can create a rapport with the seller, he may come directly to you to sell his remaining assets. Talk about creating your own off-market deal. You can also try to convince the seller to bundle his entire portfolio and possibly sell to you at a discount. You never know until you ask.
We like to ask sellers about how long they have owned the property because it may shed some light on why they are selling? Have they depreciated the property fully and looking to move their capital? Are they frustrated with the property and looking to sell? In one of our negotiations, we noticed that the sellers had owned the property for only eighteen months. We found out that the sellers massively overspent on re-positioning the property and the note was about to reset to principal and interest. The clock was ticking on how much longer they would be able to operate the property profitably.

What type of financing does the property currently have?

Finance right is the third leg of our framework, and many deals perish due to poor financing. Ask the seller if the financing is assumable. The terms on the assumable financing may be more favorable than current market conditions, and closing costs will generally be lower. Don’t expect the process to be any quicker or any less painless!
You may also find out that the term on the mortgage is coming due, or the property is resetting from interest only to principal and interest, and the owner can’t refinance the property. Both situations present a problem for the seller and an opportunity for the buyer.

Download our Bank Term Sheet to help you with negotiate financing with the banks:

BANK LENDING COMPARISONS

Task:

The theme throughout this article has been “Ask, ask, ask”. Don’t be afraid to ask questions when buying multifamily real estate, don’t assume that you know the answers, and always approach the deal with solving a problem. Leave a comment below and let me know your favorite questions to ask a broker!

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If you would like to partner or invest with Jake & Gino, please fill out this form:
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Why All Investors Need To Create A Budget Before Investing In Multifamily Properties

As I sit here in Florida on a month’s vacation, I find it extremely difficult to compose an article espousing the benefits of creating and following a budget before investing in multifamily properties. My budget for this month has, well, let’s say, not followed my normal spending habits. But, if I had not created a budget early on in my life, there is no chance that I would have achieved financial freedom and been able to take a month’s vacation. In this article, I would like to introduce you to a tool to create your own budget, what skills you will develop as a result of creating a budget and dive into several reasons why a budget is crucial for your success in investing in real estate and achieving financial freedom.

I have embarked on a new learning experience and signed up with Dave Ramsey’s Financial Coach Master’s training. My desire was to learn a framework on sensible saving and spending habits and in turn teach and empower my children and Jake & Gino students to take control of their financial destiny. As so often happens in life, once a person thinks he masters a subject, he only begins to realize his ignorance. I totally underestimated the power and importance of a budget.

A budget is simply a blueprint of your financial future. In my coaching business, I have discovered that money and budget problems are seldom the “problem”. They are usually the symptom of something else that is occurring in the client’s life.

Let me now discuss the three types of budgeting problems. According to Mr. Ramsey:

Budgeting problems fall into three types:

Prospective problems:

The person does not have a big enough reason “why” to do it. If a person can find enough reasons why, they will find a way how. My story is the perfect illustration. I was a small business owner with a large family (six kids) who felt trapped in their situation. I finally built up enough energy and reasons why to escape my surroundings that I jumped into multifamily properties and learned how to accomplish it.
If you don’t have a big enough reason why to create and follow a budget, you won’t do it. How many times do you have to end up with more month at the end of the money? Please read my article on motivation and how you can summon motivation when it is most needed: How You Can Summon Motivation.

People Problems:

The relationships that you are in may cause you to procrastinate about developing a budget. This may be a serious roadblock for some, but I want you to read on and see how you can convince or persuade your counterpart to commit to a budget. Would your partner like to see a 17% raise if they commit to a budget? I know I would. That is the statistic that Dave cites when his clients adopt a budget. Put the savings in real dollars to your partner and then show them where the savings will come from.

Process Problems:

This is the easiest problem to solve. People do not know the mechanics behind creating a budget. Let’s start with a tool that I find extremely useful to begin your journey: Every Dollar. It is a fantastic tool that allow you to plan and track your income and expenses, link your accounts to the bank, and gives you a clear snapshot of what is occurring every month.
I was frustrated when I first began using the budget tool. Whenever you begin something new or vacate your comfort zone, that little inner voice will be screaming at you to quit. It will take you a few months to become proficient, so the key is to stick to it and not to beat yourself up if you aren’t doing it right!

Let me list a few reasons how creating a budget positively impacted my professional life, especially my real estate career:

Laser Focus.
Took responsibility for my spending and saving habits.
Controlled expenses.
Ability to reallocate resources.
Greater understanding of a balance sheet and income statement. Utilized budgeting for capital expenditures.
Focused on earning more income.

The first thing I noticed when I created the budget with Every Dollar was that I was able to focus on what I was spending money on and where I should cut back my expenditures. I was happy that my housing costs were around 30% of my total income, but my food costs were a bit higher (six kids that love to eat). I was also spending more on my lifestyle than I should have. I had money left over at the end of the month, and I was able to allocate more to my charitable contributions.
A person who can focus his efforts is much more likely to succeed in life. In the case of the budget, the numbers don’t lie and I was able to spend money and gift money where I felt it was appropriate. Once I saw the inequity of my spending, it gave me the motivation to fix the problem.

Another amazing benefit of the budget was my ability to realize that my income was not fixed. I had the power to control how much I made that month. For example, I could focus on making more sales calls, expand the Jake & Gino community, solicit more coaching students and try to buy another multifamily property. It was a terrific feeling when I began to add more revenue as it was generated throughout the month. It actually made me work harder and smarter and target revenue producing activities.
The biggest benefit was taking responsibility for my actions and not blaming the economy or my current situation for my money problems. Responsibility, coupled with focus, has been the driving forces behind my recent success in the real estate space.

Task:

So where do you start? First, you need to admit to yourself that money is slipping through your hands every month (remember the 17% figure). Next, consider contacting a Financial Coach to discuss your current situation and how to create a plan to address your problems. If you have a partner, you both need to be onboard and willing to work together to solve the problems. Finally, just jump in and use Every Dollar to create a budget!
Before you even consider investing in real estate, you need to get your financial house in order. It’s never too late to start. Let me know how things work out or if you would like some help creating your own personal plan.

If you would like to partner or invest with Jake & Gino, please fill out this form:
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Five Skills Every Multifamily Investor Should Develop

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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.

If you are interested in Napoleon Hill’s book, click below to read our book review.

Here are the five skills:

1. Negotiate
2. Network
3. Underwrite
4. Finance
5. Manage

Negotiate:

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.

Here are the four tips to becoming a better negotiator:

1. Create a win-win.
2. Learn to listen and talk less.
3. Negotiate with the decision maker.
4. EVERYTHING is negotiable.

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!

Network:

Real estate is a relationship-based business, and as Jake likes to say, everyone eats at the table. This is one of my favorite aspects of the business. The broker receives a commission, the lawyer generates a fee for legal work, the accountant takes care of the books, the property inspector gets paid to perform a property inspection and the bank charges an origination fee (let’s not forget all those other fees). You get the picture.
The investor who creates a strong network is more likely to succeed in the business.

Here is a look at our team-building pyramid:

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!

Click here to download our e-book on how to build rapport with a broker:
45 Questions To Ask A Broker.

Underwrite:

Investing in real estate is all about the numbers. My biggest mistake was becoming emotional about a deal. I fell in love with a property, and I was compromising my ability to be objective about the investment. I quickly learned that my higher emotions led to lower intelligence. DO not become emotionally attached to a deal. Or even worse, do not force a deal if the numbers don’t work. Once you hear your inner voice begin to make excuses about why a deal could possibly work, shut off your inner voice and glance back at your calculations.

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:

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Finance:

There are a few differences between financing a residential property and a commercial property (five units and greater). Finance Right is the third leg of our investing framework, and can be overwhelming to the beginning investor. Jake and I learned early on that you need to approach several lenders to receive terms for your deal, and that everything is negotiable. Here is a list of all the terms to negotiate when looking to secure financing for your deal:

Download the sheet below by CLICKING HERE:

Here is an article that I wrote about what you should look for when financing a multifamily property:Financing Your Multifamily & What To Look For.

Manage Right:

It seems like the easiest part of real estate is buying a property. Once you take over a property, the hard part has just begun. The key to a successful property is the customer service. The overwhelming reason why tenants decide not to renew a lease is due to poor customer service. If a tenant has to wait three days for a call back for their maintenance request, chances are they will be shopping to live in a new apartment as soon as the lease expires. Most companies who excel in their field distinguish themselves by offering superior customer service, and real estate is no exception.

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!

Task:

Read Wheelbarrow Profits, our best-selling book that expands upon our three-step framework: Buy Right, Manage Right and Finance Right. If you would like a copy of the book, email me at gino@jakeandgino.com and I will forward over a copy to you. Let’s begin to focus on specialized knowledge.

If you would like to partner or invest with Jake & Gino, please fill out this form:
Investor Form

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Making Millions and Building Cash Flow with Mom and Pop Apartment Investing – Kevin Bupp

In Kevin Bupp’s Podcast “Real Estate Investing for Cash Flow” Kevin spoke with Jake and Gino about how they got their start as Multifamily investors and how they have been able to amass a portfolio worth in excess of $32 million in just a few short years. In our candid conversation we’ll also discuss the various challenges they faced when getting started and how they were able to push through them even in the most difficult of times.

Check out the show on his site:
HERE

And his website:
KevinBupp.com

If you would like to partner or invest with Jake & Gino, please fill out this form:
Investor Form

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Other topics that Ken dives into in his book:

Here are their questions with answers:

Dan S:

“Not knowing where to find the deals?”

These are five other important criteria to focus on:

Jaytee L:

“I am worried about timing the market and buying at the top.”

Daniel J:

“How do I have the right answers for brokers and overcome inexperience?”

Click the image below to download our Credibility Book:

Click the image below for a link to the course:

Robert C:

“How do I invest in multifamily with a lack of cash and a New Jersey market with low cash flow?”

1. Ten Reasons We Buy Multifamily

2. Overcoming Limiting Beliefs With Noah St. John

3. Breaking Through To The Other Side

4. 28 Questions You Must Ask Your Broker

5. Gateway Into Multifamily Team Building

6. Networking With Alex Franks

7. Insurance With Kelly Thomas

8. Steve Goldman Broker

9. Accounting With Tom Wheelwright

10. Scott Maurer With Advanta Self Directed IRA

11. Property Inspections With Wally Conway

12. Mike Saporito: How To Network With A Banker Conway

13. Jeff Love Syndication Attorney

14. Laundry With John Steinhofer

15. Ricardo Hinojosa Multifamily Financing

16. Crowd Funding With Darren Powderly

17. Blueprint Housing Section 8

18. Buy Right Podcast

19. You Tube Video: 8 Negotiation Techniques That Every Newbie Needs.

20. You Tube: How To Find Deals In Multifamily.

21. Live Call With Jake & Gino: Deal Analyzer Calculator.

22. Manage Right Podcast

23. Manage Right Live Call With Jake & Gino

24. Traction Podcast For Building Systems In Your Business.

25. 15 Ways To Increase NOI.

26. Finance Right Podcast

27. You Tube: How To Secure The Most Favorable Financing Terms For Your Multifamily.

28. Syndication with Brian Burke

29. Transitioning from Single Family to Multi with Chris Urso.

30. J&G On Bigger Pockets

Task:

Please subscribe to our podcast and leave us a review:

Rules of Thumb, Part 2.

Excessive fee:

Lack of income growth:

Listing agent:

Getting negative feedback from tenants:

Getting charged for fake repairs:

Empty apartment:

No professional software:

Unaddressed maintenance requests:

Slow rent collection:

Slow turns:

Task:

Why are you selling?

What are you going to do with the proceeds?

Could you tell me the story of the property?

How long have you owned the property and do you have other assets?

What type of financing does the property currently have?

Download our Bank Term Sheet to help you with negotiate financing with the banks:

Task:

Budgeting problems fall into three types:

Prospective problems:

People Problems:

Process Problems:

Let me list a few reasons how creating a budget positively impacted my professional life, especially my real estate career:

Task:

If you are interested in Napoleon Hill’s book, click below to read our book review.

Here are the five skills:

Negotiate:

Here are the four tips to becoming a better negotiator:

Network:

Here is a look at our team-building pyramid:

Underwrite:

Finance:

Manage Right:

Task:

Check out the show on his site:
HERE