Best Multifamily Real Estate Investing Blog

A Letter to My Children About Investing

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The job of a parent has always been challenging, but with times changing so rapidly, the challenges are becoming more daunting. The Internet has ushered in so many changes, and has revolutionized every aspect of our lives, including how we invest our money and how we teach our kids about the subject of investing. In this article, I would like to offer suggestions on how to teach our children the basic principles of investing, along with sharing resources that I use to educate my children on issues pertaining to money.

Investing is practically non-existent in the public school system, and the responsibility of educating our children often falls upon the parents. The problem that most parents encounter is that they were never taught sound financial principles. Parents need to take control of their own financial picture and begin to pay attention to how they discuss money matters with their kids. These words, whether they are negative or positive, will leave an indelible mark on our children.

Let me offer an example. I was in business with my parents for over twenty years. My father was entrenched in the “old school” mentality of running a business. What do I mean by old school? Work your butt off, treat your business as your life, and be happy with whatever you make. It had worked for him for countless years, and he was able to create a wonderful life for my family. My problem with this strategy was that his business was funding his lifestyle. I wanted my lifestyle to fund my business, a huge paradigm shift. I wanted a business where I felt passion and contribution were qualities that I could achieve, along with generating income.

Around the time of the Great Recession of 2008, business began to shift dramatically. Consumer spending habits were changing (they didn’t have any money) and the Internet was transforming how and where consumers were purchasing products. All I heard from my mom was “We have to stay small and try not to take any risks!” Now mind you, I am a middle-aged man who is constantly hearing this negative self-limiting belief. I began to believe what mom was spewing, although I understood intuitively that her message was the opposite of what we should be doing.
Fortunately for me, I was able to extricate myself from my business and go in another direction. I knew I would never be able to grow the business to achieve the level of success I was aiming for. I decided to shed the limiting belief of playing it small and focused my attention on multifamily real estate, where I was able to accumulate a large portfolio within a short period of time.

If you would like to view our portfolio, TAKE A LOOK THROUGH IT BELOW
OR CLICK HERE TO DOWNLOAD.

The point to the story is that we need to be careful how we talk to our kids. It took me years to be able to leave my business and pursue real estate. Our kids should never be told “It takes money to make money” or “Money doesn’t grow on trees” or “What do you think, I’m made out of money!” Those are three of my dad’s favorite quotes.

I think Henry Ford said it best: If you think you can do a thing or think you can’t do a thing, you’re right.

Let’s begin with how we define investing. Investopedia’s definition is:

The first thing we need to teach our children is WHY you are investing money. Is it for a new bike, for college, for a new home? I use the analogy of investing as driving a vehicle to take you from point A to point B. You need to know where you are going and what you are trying to accomplish before you can choose your vehicle (real estate, stocks, bonds, etc.).
Most adults commit this mistake of not creating a plan that will allow them to invest in the proper assets. Whenever you enter an investment, always consider the end result. For instance, are you buying the home to fix and flip for a profit, or are you going to rent it out for cash flow. These are two hugely different strategies, and your success will depend upon what you are trying to achieve.

1.Earned Income

The next topic we need to teach our children is the three different types of income. First and foremost, there is Earned Income. This is the most popular type of income and is earned at a job. Unfortunately, this type of income is taxed at the highest rate, and allows for very few deductions. The goal is to turn earned income into passive income.

2.Portfolio Income

The second type of income is called Portfolio Income, income that is derived from stocks, bonds, and mutual funds. This type of income is easier to manage than real estate, and is more popular with the masses. Handing over the reins to a mutual fund company is rather simple and takes very little financial intelligence.

3.Passive Income

The third type of income is Passive Income. This type of income includes money from royalties, real estate earnings, and multilevel marketing. There are huge tax advantages to earning passive income, and if you decide to call in sick at the office, the money continues to roll in.

The majority of Americans rely solely on earned income, and that leaves them in a risky situation. If a person loses their job or becomes disabled, their ability to generate income will be greatly affected. It is our job to discuss the other two types of income to our children.

So ho do we teach our children about the different types of income?

My favorite place to start is playing games, specifically Monopoly and Cash Flow by Robert Kiyosaki. Children learn best when playing games, and you would be surprised how much you will learn. Cash flow’s objective is to get out of the rat race, and participants have to fill out an income statement and balance sheet. Players choose a profession and their focus is to create more passive income than their monthly expenses. The game is very entertaining while teaching the children about investing in all types of assets. The board game is expensive, but I guarantee it will be worth the investment.

Kiyosaki has also written countless books on investing. I would recommend Rich Dad Poor Dad and Rich Dad Poor Dad for Teens. On our podcast, the majority of guests credit Kiyoskai with opening their eyes and creating the necessary paradigm shift to begin to take investing seriously. I enjoy having discussions with my children about the concepts that Robert teaches throughout his books.

Task

Investing needs to become a priority in your life. Begin to educate yourself on the subject and choose a specific niche that you would like to concentrate on. Be careful with the words you use with your children. Start to play games centered on investing, and introduce new terms and concepts to your children, but make sure that it is fun and entertaining.

Resources:

-Wheelbarrow Profits, By Jake & Gino
-Rich Dad Poor Dad, By Robert Kiyosaki
-Rich Dad Poor Dad For Teens, By Robert Kiyosaki
-How To Turn $100 into $1,000,000, By McKenna, Glista and Fontaine
-Cash Flow Board Game, By Robert Kiyosaki
-Monopoly

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

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Unconventional Wealth

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Mike’s book resonated with me on so many levels that I don’t know where to begin. His journey and mine have taken similar paths, from going to college, to getting a job in the corporate world, to feeling unfulfilled and leaving the grind to open his own business, to selling his business and jumping headfirst into real estate.
Mike starts out the book by portraying the bleak picture that most Americans face and how we can’t depend on corporate America to take care of our needs. He lists such ills as the failing public school system, the rising costs of basic necessities, the poor job market with low paying jobs, and the enormous chasm between the rich and the poor. The statistics that shocked me the most: 146.4 million Americans classified as “poor” or “working poor” (48% of the population) and the top 20% of wealthy Americans now own 84% of all the country’s wealth.

The book then transitions quickly into what opportunities to focus on in the coming years. Mike defines Main Street Millionaires as An entrepreneur who wants to control his/her own financial future by owning small to medium sized businesses in his/her community that focus on providing quality, affordable, and ethical services to the largest and fastest consumer segment in the U.S.-the working poor.He lays out five industries that he thinks will flourish in this rapidly growing consumer segment:

1. Finance, more specifically pawn shops.
2. Affordable rental housing.
3. Fast food. Chick-fil-A and Panera are two brands that come to mind.
4. Retail. Dollar Store, Rent-A-Center and used car dealers are now taking over the landscape.
5. Senior Care.

Mike goes on to share with the reader how to create a foundation to become a Main Street Millionaire (M$M). After finishing the book, I felt as if I had become a M$M. Jake and I focus primarily on C assets that cater to blue-collar workers. We provide safe, clean affordable housing to this growing segment, and we have been able to offer a quality product and service while expanding our business.

His strategy of focusing on affordable housing is key to avoiding huge losses in real estate over the next few years as the market witnesses brand new complexes being built to cater to a wealthier demographic. Unfortunately, the market is nearing a point where these new units will not be absorbed by the supply coming online, and prices and rents will ultimately begin to fall. The book has only reinforced why our strategy is sound going forward, with “Cashflow” as the primary reason to invest in any asset.

I would recommend Mike’s book to any investor who is unsure of how to make money in real estate. Mike shares his trials and tribulations with the hope of the reader not committing the same blunders. The ultimate goal is to become financially free so you can win back your time and choose to do whatever it is that will bring you passion and joy.
Thanks Mike for writing a book for all of us who chose a different path that was different than what society expected of us. I hope others who are stuck in the corporate world will read your book and strive to become M$Ms.

Click the book to check it out on Amazon!

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

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Building Your Real Estate Empire While Working 9-5

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There are countless reasons for individuals to begin investing in real estate. The most common reason that I hear from my students is they want to start earning passive income with the hope of leaving their jobs. This article is written for all those investors who yearn to become full-time investors and jettison the 9-5 traffic fighting (thanks Alex Becker for that phrase) lifestyle. Let me create a framework that you can follow to achieve financial freedom by building your real estate empire while working 9-5.

1. Focus on a goal.2. Choose an asset that produces passive income.3. Begin your specialized education.4. Create a team capable of managing asset while working full time.5. Decide whether to self-manage or hire professional management.6. Consider a partner.7. Focus on buying for cash flow.

When Jake & I bought our first property, the goal was to supplement our current income. I think the both of us had no idea what the future had in store for us. We were both working full time, Jake as a pharmaceutical representative and I owned a restaurant. We chose multifamily specifically because we both had full-time jobs, and a multifamily would be easier and less time consuming to manage. We were naïve to the other benefits of multifamily, such as the economies of scale and the ability to scale the business quickly.

If you would like to view our portfolio, TAKE A LOOK THROUGH IT BELOWOR CLICK HERE TO DOWNLOAD.

Task:

Decide why you are investing in real estate. If your goal is to quit your job, then focus your efforts on multifamily. It will allow you to transition into investing while working full time. Begin to consume as much education on multifamily investing. Visit our podcast “Wheelbarrow Profits” on iTunes. Start to build your plan and what type of asset you want to purchase and what market you want to begin. Consider partnering with someone who has experience or who has the ability to bring in capital. Finally, focus on cash flow producing assets. It’s not what you buy, it’s what you pay that counts!

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

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Syndicating Multifamily Apartments with Attorney Jeff Love

In this episode

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 its so important to have the proper team members on board. In this show you will discover:

-Security Laws
-The different types of investors
-Real estate offerings
-Securities Acts
-Private Placement Memorandum’s
-Operating Agreements
-Subscription Agreements
-What is a real estate syndication?
-What is a real estate fund?
-And much more!

Jeffrey B. Love at Gibbs Giden

Additional Read: The Multifamily Syndication Process with John Cohen

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

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Setting Rents for the New Year

The art of raising rents is a difficult one to master for newbie investors. The fear of creating a vacancy or offending a tenant is unbearable for most new landlords. It is a touchy dilemma. You are directly impacting the quality of a tenant’s life when you increase the rent, but you are also affecting your ability to pay your obligations with the rent increases. In this article, I would like to list reasons why raising the rent on your properties is a necessary decision, how to accurately assess the market rental rate, and how to raise the rents effectively without creating a mass exodus.

Let me list the reasons why rents should be raised:

1. Keep up with the rate of inflation.
2. Grow the top line (revenue).
3. Stay competitive in the market.
4. Fight the expense creep.

If you have just acquired a property, or are in the middle of a renovation, you should read our article on our Three Step Reposition.

It is our framework on how to take over the operations of a property, and to effectively increase any rents that are under market. It will show you how to fill the vacant units, implement Ratio Utility Billing (RUBS), and raise the remaining tenants to market.
Before you consider raising rents, you need to make sure you are delivering a quality product to your tenants. What does that entail? In our properties, we strive to deliver clean, safe, affordable units with stellar customer service. We guarantee potential tenants a same day guarantee if they qualify to rent one of our apartments. We are always stressing our customer service and our quick and professional maintenance staff.

If you are trying to raise rents, and you business model does not deliver a quality product, you are going to experience the vacancy that I alluded to earlier. A tenant knows exactly what a two bedroom apartment is renting for, and if he can get a better deal down the street, then he is gone. But, if you can couple customer service with a competitive price, your retention rate will rise.

Need a few ideas on how to create win-win situations with your tenants? Read our article:

I often discuss with our Jake & Gino community the commodity effect. If your product or service becomes a commodity in the marketplace, then people will only shop you for price, and your margins and business will suffer. Take a look at the baking industry. Money has turned into a commodity, and the investor has countless choices to access money. Investors can drive a hard bargain with banks when trying to secure financing.
You want to avoid this mistake at all costs. The Internet has revolutionized how we shop for products and has led to the commodity effect. How do we try to navigate around the commodity effect? By offering great customer service, by differentiating our product and by giving the consumer reasons other than price to do business with our brand.

Now that we’ve discussed the importance of operations, I think we should examine the reasons why you need to be “pushing” rents. The most obvious reason is to keep up with inflation. Your costs go up every year, and your revenue needs to increase to offset your increase in expenses. The next reason may not be as obvious. Jake refers to this burden as the expense creep.
Every year, vendors are testing you to see if you are checking invoices to see if expenses are rising. It is your responsibility as an owner to review your contracts with vendors every year to insure the best price and the best value. Rent increases will offset some of the expense creep that occurs in everyone’s business.

Another obvious yet often overlooked reason is that landlords who do not stay competitive in the market are not maximizing their value. Let me give you a quick example. If you own 50 units, and the units are $50 per month under market, you are potentially losing $30,000 in revenue per year. That’s not even the worst part. The value of the property is $375,000 less at an 8 cap, due to the diminished income (Income/Cap Rate: $30,000/8%).

At this point, I think you’ve realized the importance of maximizing the revenue on your property. Let’s discuss how to determine the market rent and how to implement your strategy.
The first step is to determine the market rent. There are two websites that we use as a barometer for the rents. The first one is Rentometer. Plug in your address, insert the rent you are charging, pick the unit size and voila. The rent-o-meter will give you an average price, a median price and will tell you if your price is a good deal or if you are overpriced. You need to decipher what amenities your property offers compared to the market, but this is an excellent starting point to evaluate rents in the area.

The other site that we often use is Apartments.com. Look up individual apartment complexes to see what pricing is, what amenities are offered, and what is available to rent. Most landlords use this site to advertise their rentals.

You can also try the good old fashioned way of picking up the phone and calling a couple of brokers in the market. A good multifamily broker should have the pulse of the market, and should be able to tell you what a two bed is renting for in a specific neighborhood. I employ all three of these strategies to price my property accordingly.
Now that we have assessed the market rent, it’s time to go to work. Once we have tenants coming off a lease, we will go to market rent with the apartment, depending upon how many leases come up at the same time. If you have several buildings in one property, you can select to target one building every month or two and institute rent increases. This will lower your risk of having too many tenants vacating at the same time. This will also give you an idea if your increases are in line with the market. If you are getting serious push back on the increases, then you can modify the increase or choose not to implement one.

It is imperative that you work with your staff and get constant feedback as to how the tenants are responding. Are they mad, threatening to leave, or are they just venting their frustrations. You need to maintain a careful eye upon how many tenants decide to vacate due to the increase.

Task:

Begin by analyzing the rental rates in your market. Once the market rate has been established, check to see where your rents fall. Are they at the market, or is their some upside? If there is some upside, then start renting the vacant units at the newly established market rate and begin to increase the leases that come due to the new market. Remember, take your time and be flexible with your pricing.
Please share with us any tools that you use to assess the rental rates in your market. I would also like to know how you address increasing those rents.

1. Determine the market rent
2. Look in December how you are performing
3. Take it one step at a time

Below check out our 60’th podcast “Manage Right, The second pillar of the Wheelbarrow Profits investment strategy.” for more info on Managing your properties!!

If you would like to partner or invest with Jake & Gino, please fill out this form:
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Afformations: The Miracle of Positive Self Talk By Noah St. John

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Noah St. John, known for inventing Afformations, is another example of a person who turned disappointment and failure into triumph and success. He was a huge proponent of the traditional self-help, but this strategy was not creating the results he envisioned. He was using affirmations, a statement of something that you want to be true in your life. But he realized that these affirmations were not working, due to what he calls our Belief Gap.

As he stood in his shower one fateful day, he had an epiphany. He realized that if we began to ask ourselves the right questions and stop asking the wrong questions, he knew that it would change everything. This was his first step to a new and empowering life. What was his other realization? You create your life in two ways: by the statements you say to yourself and others, and by the questions you ask yourselves and others.

…ask ourselves the right questions

What Noah noticed was that the traditional gurus were focusing their strategy on telling students to change their statements. His powerful system focuses upon changing your internal and external questions. Noah does an excellent job describing what an empowering and disempowering question is, and how an empowering question focuses your mind on what you do have.

Thus, his “Afformations Method” was created. It is his system of creating and asking empowering questions. I have come to realize that the quality of your life is in direct proportion to the quality of questions you ask yourself. Noah only confirmed my belief, and I embraced his system. He shares in the book the four-step system on how to create empowering Afformations.

He also gives the reader Afformations for:

Health & Well-Being: “Why am I so healthy?”
Money & Abundance: “Why am I so richly blessed?”
Self-Confidence: “Why am I so capable?”
Work & Career: “Why do I love what I do?”
Love & Intimacy: “Why do I have such passion?”
Family & Relationships: “Why am I so generous with others?”
Conquering Fear: “Why am I at peace?”
Spirituality: “Why am I one with God?”
Overcoming Bad Habits: Why do I let myself be loved?”
Life & Happiness: “Why am I more than good enough”

I highly recommend this book to any reader who is looking for an empowering approach to take control of their inner voice and become conscious of their own thoughts. As Noah states throughout the book, the reader has to devote time and energy to his program.

You just can’t expect to incant a few Afformations and expect your life to change dramatically. You need to take action, along with the belief that you can achieve your goals.

I have begun my own personal Afformations and I incant them each morning. I want my subconscious mind to work on the answers to these empowering questions. I am taking control of my inner voice. What are you waiting for?

Also read: Increase Performance Dramatically with Positive Self-Concept

Since 1997, keynote speaker and business growth mentor Noah St. John has perfected his step-by-step system to help people succeed. Now you too can improve your personal and business life using Noah’s proven methods as well as learn techniques on how to make money and the secret to gain confidence.
As a communication expert and best-selling author, Noah provides helpful tools that boost performance, productivity, and profits.

Noah is the only author in history to have published works by Nightingale-Conant, Hay House, Mindvalley, HarperCollins, and Health Communications (the Chicken Soup for the Soul publisher).

Click here to Buy “Afformations”

If you would like to partner or invest with Jake & Gino, please fill out this form:
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Why Multifamily Units are Crushing the Market

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How to Use The Four Market Phases To Buy Right

Have you noticed all the real estate television shows are focused solely on fixing and flipping, and give no love to buying multifamily properties? I get it that fix and flip is sexy and produces great T.V., but does it qualify for a great investment or create generational wealth and passive income? We are going to tackle this question as well as why multifamily is crushing it and how you can jump in with both feet and join the party. Let’s also discuss what constitutes a great investment!

What are the characteristics of a great investment?

(Multifamily Assets meet all three criteria)

1.Leverage

Leverage is the rocket fuel to creating massive wealth. There are very few investments where you can invest as little as $150,000 in capital and control a $1,000,000 asset. Try asking your financial advisor to extend you this type of leverage. I guarantee the next thing you’ll hear is a click on the other end and your phone line going dead.
You receive all of the benefits; cash flow, tax benefits and appreciation. Why would a lender require a small down payment to acquire real estate? Simply put, the buyer is acquiring a revenue stream that covers the expenses of the property and throws off excess cash flow. The bank feels safe and protected with real estate. Bottom line: Multifamily real estate allows the investor to control more assets with less of his own capital, which will lead to an explosion of wealth.

2.Liquidity:

Initially, real estate falters on the second criteria. So how do we tap into the equity of our property? We refer to the strategy as “refinancing” a property and it is one of the main reasons why multifamily real estate is crushin it.

We also call it “Refi and Roll. This is a list of our properties that we have “cashed out” on:

We are currently in the process of refinancing both Lakeland Hills and The Hammond.
The goal of multifamily real estate is to increase Net Operating Income (NOI) by increasing the gross income and by decreasing the operating expenses. NOI is simply the gross income deducted by the operating expenses. Multifamily real estate allows the operator to force the appreciation of the asset by driving the NOI upwards.
Refinancing is an excellent strategy to access the equity you have accumulated in a property. Our infographic highlights the steps we took to refinance a property and withdraw over $1,600,000 tax-free. Dad always told me “It’s not what you make, it’s what you keep!”

3.Control

I have noticed a couple of stark differences between multifamily real estate and other strategies. First of all, multis provide a monthly paycheck that we refer to as passive income or cash flow. I also call it a yield on my investment, and it is one of the most important reasons to invest in any type of real estate. Multifamily is one of the best vehicles to achieve cash flow.
Secondly, multifamily real estate offers tremendous tax benefits. The government in their infinite wisdom realized there was no way they could provide adequate affordable housing. The solution was to provide huge incentives to real estate owners to step in and get the job done. Depreciation is an enormous tax benefit to real estate investing, especially when it is coupled with a cost segregation study.
Depreciation is basically a non-cash expense that allows owners to take a deduction on the income collected, thus lowering your tax obligation. I love the idea that my asset is appreciating while I get to depreciate it for tax purposes.
The government also allows owners to employ cost segregation studies whereby the owner identifies personal property assets that are grouped with real property assets, and separates out personal assets for tax reporting purposes.
What does this mean? You are accelerating depreciation on many items from 27.5 or 39 years and reclassifying them to a shorter time period, as short as five, seven or fifteen years. You are writing off a larger portion of your depreciation expense and realizing more losses quicker. Remember what my dad said, it’s what you keep and cost segregation is the icing on the cake in multifamily real estate. Listen to Rich Dad’s advisor Tom Wheelwright discuss the tax benefits associated with investing in real estate.

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Finally, multifamily real estate offers the owner an economy of scale unparalleled in any other strategy. We love the fact that we have larger buildings with more tenants under one roof, versus having multiple single family homes scattered about, which increases the management and expense burden.
If we have a vacancy in one of our complexes, chances are that the rest of the tenants can pay the mortgage. We are limiting our down side risk by having more tenants. A vacancy in a single-family home equals no rent that month, and guess who’s on the hook for the payment?
You can run your apartment complex like a business and scale up operations by hiring full time employees. My true success came when I stopped unclogging toilets and hiring full time maintenance to handle day-to-day operations. I was able to focus on managing the asset and buying more property.
Now that we’ve shown you why multifamily is the place to be, let’s describe the four phases of the real estate cycle and discuss how to take action with a list of tasks.

Phase 1: Recovery

The characteristics in this market phase include declining vacancy and no new construction. In my opinion, this is where the savvy investor can explode his or her wealth by “buying right”. Unfortunately, securing financing during this phase can be difficult and sentiment is still very weak. The contrarian investor thrives in this phase, and legends such as Sam Zell, commonly referred to as the “Grave Dancer”, created an empire while competitors were running for the exits. Most markets in the country have emerged from this phase and are well into the expansion and hyper supply phase.

Phase 2: Expansion

Many markets have been hovering in the expansion phase, a time of declining vacancy and new construction. It takes a few years for new inventory to come online, and during this period, rents and occupancy both expand. In 2015, rent growth was a robust 5.6% and occupancy stood at 96.1%, both highs. You may be thinking, “Here we go again!”
Let me tell you why you should still be crushing it with multifamily. We have been transitioning to a renter nation, with the aid of a shift in demographics and the Great Recession. Homebuyers are still feeling the ill effects of purchasing a home and getting hammered. There is no guarantee that buying a home and holding on for the long term will produce any gains. The economy plays a huge role in the expansion phase, and the economy is currently adding jobs to the markets we are invested in.
Two demographics that tend to rent are millennials and baby boomers. Every seven seconds a person turns sixty in the U.S., which creates more demand for our apartments. Millennials are entering the labor force saddled with student debt and are forced to rent, which creates another pool of prospective tenants. This demand has been fueling rent growth and is one of the main reasons why property values will continue to increase.
Vacancy rates, which fluctuate from one city to the next, are at the lowest since 1985, according to the U.S. Census Bureau and home ownership stands at a fifty year low.

Phase 3: Hyper-Supply

Trouble is brewing on the horizon. Vacancy begins to increase and new construction is still ramping up. This is a period when builders need to recognize what is occurring and should put the brakes on new construction. The party is starting to come to an end, but I would still buy in this cycle if I find a deal that fits my parameters: 10% cash on cash return, 8 Cap and a 1.3 Debt Coverage Ratio.
Deals are harder to come by in this phase, but we are still actively pursuing them. It’s all about the numbers, and we buy on ACTUAL numbers, analyzing the last twelve months of a property’s profit and loss statement.

Phase 4: Recession

Anyone remember 2008? The vacancy rate was increasing and new completions were being delivered to the market. The new construction came to a halt, but it was too late. There were fewer renters, while the addition of new inventory was coming onboard. This led to the rapid decline of rental rates, as well as occupancy rates, and ultimately accelerated the downturn in real estate values.
No one can predict the next recession, and our outlook on the industry continues to be bullish due to the demographics and low interest rate environment. It ultimately comes down to the deal in front of you and how you can add value.

Tasks:

Decide what market to invest in, and begin to research the market. Focus on job growth, which should average at least 2% growth for two consecutive years. To access data for jobs in a market, Google the name of the city and “job growth or utilize the website www.bls.gov to gather employment data for a specific city. Look for companies announcing a move to a market, and become familiar with employers in your market.
Target markets that are experiencing household and population growth. Household growth is a more powerful barometer because households are the ones that become our clients.
Study the demographics of the market and look for a higher percentage of millennial and baby boomers. The middle aged demographic tends to have families and are more apt to become homeowners.
Finally, take action and educate yourself on the power of multifamily investing. If you have any questions or want to take the next step, visit us at Jake & Gino. I can email you an E-book on ‘Researching A Market & Questions To Ask A Broker”. Let’s crush it together!

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Think and Grow Rich

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Napoleon Hill published his amazingly popular book back in 1937, and the message is just as relevant today as it was back then. It has sold over one hundred million copies worldwide, and most successful entrepreneurs we interview for our podcast point to this book as the breakthrough for their personal development. All of the successful motivational speakers and coaches utilize the principles that Hill espouses throughout the book.

Most people begin to read the book because they want to learn the secret to acquiring riches. I think the reader can use the framework that Hill lays out to achieve any goal in their life. I would like to outline the thirteen steps towards riches and several key points that the author makes throughout the book.

1. Desire
2. Faith
3. Auto Suggestion
4. Specialized Knowledge
5. Imagination
6. Organized Planning
7. Decision
8. Persistence
9. Mastermind
10. Sex Transmutation
11. Subconscious Mind
12. The Brain
13. The Sixth Sense

What I found to be very powerful in the book was all of the stories intertwined amongst the steps. It shows the reader how to incorporate these steps into their plan and invoke the “infinite intelligence.” For instance, the story of Thomas Edison and his amazing desire and persistence to create the light bulb gives a real life example on how to employ the thirteen steps.

The author was able to take real life examples of wealthy individuals and discuss how they attained their wealth. Napoleon Hill even discusses the trials and tribulations that he overcame to dedicate almost twenty five years of his life to bring this timeless classic to fruition.

All of the steps are vitally important to follow, but I feel that the mastermind is one of the most underutilized strategies in this day and age. I was fortunate to fall into a mastermind by accident, but it has served me extremely well the past few years. I credit my partnership with Jake as a sort of mastermind, where we both bring energy, skill and passion to our partnership, and in turn, we both derive the benefits of another working towards a common goal. We often hear that it is important to surround yourself with intelligent, motivated individuals. Hill speaks eloquently of this topic in his book, and the reader should heed his advice.

Think and Grow Rich is the perfect book to begin reading as the New Year is ushered in. Start to formulate a plan for yourself to attain your goals and what you want to accomplish in your life. Follow the path that Hill has laid out for you in this book!

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15 Ways To Increase Revenue In Your Multifamily Property

The way to increase the value of a multifamily property is to either increase the income or decrease the expenses, which will affect the Net Operating Income (NOI). The NOI is a key metric when analyzing the value of a multifamily property. For the purposes of this article, I would like to focus upon the top line of the investment, revenue, and how to grow the revenue of the asset. The asset classes that we focus upon are B & C properties. If you would like more information on NOI and increasing the value of your asset, read our article on 3 Step Repositioning To Add Value.

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Add additional units

On our most recent purchase, the property had laundry rooms spread throughout. The rooms were large, and we began to consolidate the laundry and decrease the size. We were able to create three additional studio units from the extra space, which allowed us to increase our monthly revenue by $1,800 per month. At a 7 cap, the value of the asset increased $308,500. We are in the process of building additional units throughout our portfolio from space that was deemed “useless” from previous owners. One of our favorite strategies is to convert units that are being utilized as storage units back into apartments. It’s a lot cheaper to go out and buy a shed to store your supplies.

Laundry Revenue

When you think of laundry, you don’t think of excitement. But you should!! Laundry is a vital service that can attract and retain quality tenants while adding revenue to the bottom line. We recently interviewed John Steinhofer from Caldwell & Gregory, who went into depth about the merits of hiring a laundry provider. The discussion was focused on the new technologies in the market, how to draft a contract, how to receive a bonus from the laundry company, what to look for when assuming an existing contract and much more.

Click below to watch the interview:

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Storage

When we purchased our first property, there were four garages that were filled with crap (that’s an understatement). We decided to empty out the garages, place locks on the doors and rent them out as storage units. We generated an additional $200 per month while providing an amenity to the renter.
If the property has space and there is a demand for storage, companies such as Betco and Trachte offer prefabricated and portable storage units. They range in cost and size to fit any budget.

Late Fees

Every operator should be charging late fees to tenants who pay after a specified date in the lease. The reason is two-fold. The tenant will not want to incur a fee and extra income will be generated. Once a tenant pays the fee once, he will most likely not repeat that mistake. We charge a ten percent late fee to all rent that is received after the fifth of the month.

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Utility bill back

Ration Utility Billing (RUBS) is a program that allows the operator to bill back the tenants for the usage of water, sewer, electric, gas, cable and garbage. To learn more about how to implement RUBS, click on the article above and visit NWP. It has been such a vital component to our value-add strategy that we have created the three-step framework. It has literally created millions of dollars of value on our properties.

Application

Every landlord needs to process background checks and evaluate all potential tenants. You are giving control of your asset to a potential problem. Every tenant needs to be screened, and you should charge the market rate. In our market, we are currently charging $45 per applicant. You may be able to purchase these reports at a discount and earn revenue while protecting your asset. The company we use charges us $16 per report.

Move in fees

We have acquired properties that utilize security deposits, but we decided to jettison security deposits and replace them with non-refundable move in fees. Our feeling is that security deposits can create an uneasy feeling between the owner and tenant (when am I going to get my money back), and we wanted to avoid this uneasiness. Plus, we wanted to collect the fee and retain it. In our market, move in fees range anywhere from $300 to $500. In some markets, this also creates a low barrier to entry for tenants.
You may be asking “What happens if the tenant damages my property?” Our solution is to have the tenant purchase Sure Deposit, in addition to the move-in fee. SureDeposit is a risk management tool that enhances traditional security deposits by offering surety bonds to residents. Most tenants do leave their apartments in decent shape, and we use part of the move in fee to turn the apartment for the next tenant.

Renter’s Insurance

Some property owners require tenants to carry renter’s insurance. If a tenant’s property gets damaged, the landlord’s policy does not cover any of the tenant’s contents. We do not require tenants to own renter’s insurance, but our software company Appfolio offers renter insurance for $9 per unit. As the operator, you can turn around and charge the tenant a very competitive $15 per month. Kill two birds with one stone! Protect your asset and make a few bucks.

Short-term rentals

We had a few requests by tenants at our properties that inquired about short-term leases, anywhere from three to six months in duration. At first, we decided against it. But, we noticed that these requests were becoming more frequent and we could charge a sizable premium in rent for a short-term lease.
The end result has been terrific for the company. We were able to fill a need for the tenant base, along with generating additional income. When the market is asking for something, it is the job of an entrepreneur to listen and to try and provide the solution.

Rent amenities

If your property has a clubhouse that is underutilized, consider renting it out to tenants for functions. Does your fitness center sit empty most of the day? Rent it out to yoga teachers and personal trainers. Tenants will love the service, instructors will earn money and you will maximize the amenities on the property. The use of these amenities will also begin to create a more pleasant atmosphere within your property.

Parking

Parking is becoming more of a luxury in many of the expanding cities throughout the U.S. If there is a demand for parking in your market, rent out spaces to individuals. On our four-plex in New York, we rent out spaces for $50 per month. I wish I had more parking!!

Cable

When we assumed control of our most recent acquisition, the owners had just signed an exclusive cable contract with a provider for $50,000. Guess who got the money? Although the contract lasts seven years, the company paid the bonus up front. If you purchase a property with an existing contract, ask the seller to pro-rata the fee and credit it to you at closing. You are obligated to abide by the terms in the contract. Why shouldn’t you be entitled to the remaining value on that contract? If your property does not have any type of contract, try to negotiate with a cable provider in your market.

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Vending

You may not see a surge in revenue from installing vending machines, but they do provide a service for the tenants. Locate vending machines in common areas, such as the pool, clubhouse, laundry rooms and the office.

Pet Fee

Knoxville, TN is known as one of the pet friendliest cities in the U.S. If we decided against renting to pet owners, we would be eliminating around 50% of our potential prospects. We even constructed a dog park on one of our properties to accommodate the pet owners. In our market, we collect a $125 non-refundable pet fee PER animal, along with a $25 per month charge. We turned a potential problem into a win-win for us and for the pet owners.

Built-in increase

In our leases, we have a built-in rent increase upon renewal. The increase is only 3%, which calculates to approximately $15 per month. But that is huge for us. It ensures that our rents are always priced to the market, and it is a hedge against inflation. Rents have climbed dramatically over the past several years, and many of the mom and pops have not kept up. We don’t want to become another mom and pop.
We have focused solely on increasing rents, and have yet to discuss expenses. I would like to address something that Jake calls refers to as the “expense creep”. What is it? Jake’s simplified definition is those teeny weeny expenses creeping up each year until you wake up and notice they aren’t that small taken collectively. How do you guard against expense creep?
Let your vendors and service providers know that you will be reviewing their services at the end of each year. You need to keep them honest and competitive. Who should you include in your review?

Insurance
Accounting/Bookkeeping
Software providers
Cell Phone/Internet Services
Trash removal
Pest control
Cleaning
Property management
Leasing
Marketing
Carpet and flooring
Laundry leasing
Painters (Try every month)
Electricians
Plumbers
Landscaping
HVAC
Home Depot/Lowes/HD Supply

For every dollar of expenses saved, that is one dollar that goes straight to NOI.

I hope this article has given you a clear path to increasing revenue and being diligent about your expenses. If you have any other ways to generate revenue on your property, please let us know. We would love to share them with our community!

If you would like to partner or invest with Jake & Gino, please fill out this form:
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A Property Inspection: How To Use One To Your Advantage and Why You Need To Perform One

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Two of the most important, yet often overlooked words in investing are “Due Diligence”. To the savvy investor, due diligence is the period of time when you begin to uncover intimate details about the investment similar to peeling the layers of an onion. The deeper you get, the more you uncover, and the more problems you may run up against. In this article, I will define due diligence, introduce our framework for due diligence, focus primarily on the physical due diligence and describe the responsibilities and duties of an excellent property inspector and how an inspection can be used to your advantage when negotiating a deal.

Due Diligence is defined in Merriam’s dictionary as research and analysis of a company or organization done in preparation for a business transaction. When I began investing in real estate, this was my biggest mistake. I had not done enough analysis in regards to the financial, physical and legal aspects of the deal. This transgression led me to develop a three-step framework for due diligence to follow every time I decided to invest in a property.

Click here to read about our three-step framework: Due Diligence.

The three steps include:

1. Financial
2. Physical
3. Legal

For purposes of this article, I would like to focus on the physical due diligence. Once a contract is signed, the due diligence clock starts and an investor usually has a specified period of time before the down payment goes hard (non-refundable). An investor needs to work quickly to perform his due diligence to decide whether or not to proceed with the investment. The typical timeframe for due diligence is thirty days, and an additional thirty days for financing. We try to secure extensions for financing in case we run into delays.

An investor should schedule an inspection once contracts are signed, but hold off on the inspection until the financial due diligence is complete and the numbers “work out” on the deal. Try to get the inspector on the calendar as quickly as possible because inspectors tend to be busy, and you don’t want to waste any precious time. We usually contact our inspector at least two weeks prior to our expected contract being signed to let him know that we have an inspection coming up for him. You do not want to waste money on an inspection if the numbers don’t work.

There are a couple of ways to locate a competent inspector. The first step would be to hire an inspector who inspects properties in your niche. Don’t hire an inspector who only inspects single-family homes to inspect your apartment complex. Visit Home Inspector! or Home Advisor to locate an inspector in your market. You can also try to receive referrals from your real estate broker, attorney, accountant or property manager.

I am always wary about receiving a recommendation from a real estate broker. There may be a potential conflict of interest because the broker’s concern is to sell the property and the inspector may feel pressure not to deliver a potentially negative inspection. To avoid this conflict, try to recruit an inspector before you have signed a contract. I wish we had done that on our first deal. We were scrambling for an inspector, and were fortunate to find one as we finished the financial portion of due diligence.
Not all inspectors are created equal, and not all inspections contain the same level of detail. Wally Conway is a Certified Master Inspector who was a guest on our podcast. He described in detail the benefits of an inspection, the different types of inspection and the value that an inspector brings to your team.

Watch our podcast with Wally Below:

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So what should you expect from an inspection report? This question depends upon the level of sophistication of the investor. As Wally states in the podcast, an investor can choose how detailed he would like the inspection to be. My requirement is to inspect every unit, document every issue in each unit with pictures and inspect the exterior of the property, as well as the condition of the buildings. This is not the time to be cheap. As you will see, the report may help you pay for some of the deferred maintenance.

We are in the process of inspecting our 97 unit complex. During the inspection, we were onsite, along with our inspector, our construction team member, our HVAC contractor and our property manager. This level of detail is vital when you present an offer to the seller to “cure” the defects that were uncovered. We have come a long way from our first deal.
You can handle these repairs in one of two ways. You can either ask for the seller to complete the repairs, or you can ask for a repair credit at closing so that you can address the repairs yourself. On our first deal, we were thrilled that the seller completed the repairs. We did not have team members capable of performing these repairs (in fact, we had no team).

Now, we are able to handle the repairs in-house, and we execute the work cheaper and quicker if we do it ourselves. On our most recent acquisition, we were able to negotiate a $30,000 credit at closing to address the repairs that were uncovered during the inspection. Do you think the inspection paid for itself and then some? You bet!

What can you ask the seller to repair on a property? That depends upon how motivated the seller is, and how reasonable you are in your demands. One of our demands from the seller is to deliver rent-ready units. Units that are “down” or in serious disrepair need to be addressed. Issues such as roofs, driveways, fixed assets (hot water heaters, a/c units, appliances) should be all in working order. If these issues were not apparent when you signed the contract, then you should go back and renegotiate the deal, also know as re-trading. Be careful not to be branded as a re-trader in your market, because brokers and sellers will know that closing a deal will become much more difficult.

Prices vary from one professional to another, based upon how thorough the inspection is. Some inspectors will charge a fee based on the amount of time allocated to perform an inspection. Others will charge based on the number of units. Just remember, try to secure at least three competing bids for the property. I have worked out a per unit fee with our inspector, and he provides us with a detailed report of issues and potential issues on the property. As they say, a picture is worth a thousand words.

I have come a long way on performing due diligence from my very first deal. It is a vital component to the first leg of our framework “Buy Right”. Once you buy it, it’s yours and there is no turning back.

Task:

Once a property is under contract, begin the financial due diligence and schedule the inspection. Hire a competent inspector that handles multifamily properties. When you are satisfied with the financial portion of the due diligence, proceed with the inspection. Perform a thorough, complete inspection of the entire property with pictures and recommendations of any defects or maintenance issues. Analyze the report with your construction team members, and estimate a cost for the work to be completed. Go back to the seller with your findings and proceed to negotiate an equitable solution to the problems that were uncovered during the inspection.

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

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