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How You Can Avoid Our 13 Biggest Mistakes, Part 3

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Entrepreneurs will tell you that they learn more from their mistakes than their successes. My definition of an entrepreneur is a person who has earned enough money to pay for his own mistakes (I fall in that category). We have found it incredibly helpful to reflect upon our mistakes in multifamily real estate investing so that we can learn from them and not repeat them. In the previous Article, we discussed bed bugs and septic systems.

Let me recap our thirteen biggest mistakes:

Nightmare manager
Unscrupulous mortgage broker
Incompetent team member
Sub-par employees
Deceased tenant
Bed bugs
Septic systems
Safety net
Long-term holdings
Signing an exclusive with a broker
Utilities
Capital expenditure
Negotiation

We would like to tackle the next two mistakes on our journey to 674 units.

Incompetent Team Member:

An incompetent team member can be a huge drag on your business, not to mention detrimental. When hiring a potential team member, start by asking your current team and those in your sphere of influence for referrals. When it comes to those who aren’t doing their job the right way, give them time to get it right, but if it doesn’t happen within an adequate time frame, don’t hesitate to replace them as quickly as possible.

We have employed several incompetent team members, including accountants, lawyers and maintenance technicians. Our first accountant was referred to us by a team member, but she clearly had very little experience in dealing with real estate. We quickly replaced her before the problems began to accumulate. It was our mistake not to interview her more thoroughly and ask for more references. Be sure that the team member has adequate experience in the job that they are being hired for.

This will be a recurring mistake in your business if you don’t address it immediately or if you don’t demand quality work from your employees. From the first moment of contact with a potential employee, we discuss and focus on our company’s mission statement, and expect them to uphold and work towards its attainment. If an employee finds it difficult to adhere to our mission statement, then we find it easier to part ways.

Signing an Exclusive Buyer’s Agency Agreement

When we first began our search for multi-family properties in Knoxville, we ran into a broker who wanted us to sign an exclusive agreement. The terms stipulated that he would represent us in all transactions in Knoxville for a specified period of time. We declined because we felt that it would limit our ability to work freely with other brokers in the market.

One week passed, and this particular broker pitched us on a “hot” deal, one that we’d already come across just a couple of days before. We told him the deal wasn’t so hot and that another broker had already presented it to us (who never asked us to sign any agreement with him). He proceeded to lecture us and say, “That’s not how you do business down here. You’ll never make it in this town!” We were both a bit intimidated and unsure of how to proceed.

A couple of months passed, and we found a deal listed on Loop net with a local broker in town. We ended up diving in, and as luck would have it, we formed a terrific relationship with the broker (without an exclusive agreement). We closed on the deal sixty days later, and we purchased our next three deals with him. There was never a mention of an exclusive agreement.

Keep in mind that if you sign an agreement, it will limit your ability to work with other brokers, so think twice before making that move. The only time we would consider signing an agreement is if the broker has access to a large number of listings as soon as they come to market.

When purchasing residential property, it is sometimes customary to sign a contract with a “buyer’s agent” whose sole purpose is to scour the listings for your dream home. Don’t confuse buying a single-family home with an apartment complex.

Call the listing broker directly when trying to acquire a deal. They’ll keep the entire commission, which will give the broker some flexibility when you negotiate the price. Just remember that the listing broker is working for the seller, not you. Be mindful not to divulge any details about your strategy to purchase the property.

Task:

Write out a mission statement for your company and convey the message to all team members. Use Indeed as a platform to begin hiring new employees. Ask current team members for any recommendations when hiring a new employee. If an employee does not fit your company’s mission statement, do not procrastinate and part ways quickly.

Do not sign any exclusive agreement with a commercial broker. It will hamper your efforts in locating new deals. If a broker expects you to sign an agreement, tell him “No Thanks”. You do not want to be controlled by one broker. Establish as many relationships with multifamily brokers in the market, and call them whenever they post a new listing.

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Our 13 Biggest Mistakes to 500 Units and How You Can Avoid Them: Part 2

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n the previous article, we began to highlight mistakes that Jake and I committed as we embarked on our investment career. We obviously have committed more than 13 mistakes, but we felt that these thirteen errors had the ability to destroy our future and were vital to focus on and try to give a solution to the problem.

We discussed our “nightmare” manager and our unscrupulous mortgage broker in the previous article. In this article, we are going to focus on two more mistakes.

Bed Bugs:

Once you attract bed bugs, it’s extremely difficult – and costly – to eradicate them. One of our apartment complexes that we purchased was being run as a weekly rental and the tenants would use the mattresses and furniture that were in the units.

Although the rental income was higher with weekly rentals, it wasn’t worth the hassle or the bed bug problem that the tenants brought in. The tenant base was extremely transient and our make-ready expenses were higher than the extra income that was generated. We’ve now partnered with a new pest control company that specializes in heat treatment for these evil creatures so we ensure it’s not going to be an issue again regardless of how long our tenants stay.

When you purchase a property, make sure to have the inspector walk through all the units and check to see if there is any bed bug activity or termite activity. If you find instances of bed bugs, try to have the seller take care of the problem, or ask for a repair credit for the expense to get rid of them. Our mistake was not inspecting the furniture before taking over the property.

It is imperative to throw away all bedding if bed bugs are found in the apartment. Contact your pest control team member immediately and have them eliminate the bed bugs. We had a tenant from the property mentioned above sue us because he claimed that the bed bugs in his apartment repeatedly bit him and caused him discomfort. It was his furniture, yet he felt the need to sue us.

Avoid this mistake by inspecting all of the furniture. This lawsuit led to us throw away all old furniture and required tenants to purchase their own mattresses and beds.

Septic Systems:
A septic system is a self-contained sewage plant that’s located on the property. It consists of a tank, which holds the refuse, and leach fields to where excess water flows and eventually dissipates. This type of sewage system is very common in rural parts of the country where running sewer lines can be prohibitively expensive and where the infrastructure is lacking.

The main concern that we encounter with septic systems is that it limits the number of units that it can service. The system occupies a large percentage of the property due to the requirements for the leach field and the expansion fields that are needed if the leach fields fail. Our other concern is whether or not the system is functioning properly when the property is purchased.

We recommend all buyers perform a dye test that will determine if the septic system is working properly. You also have to ask the seller to provide you with a schedule detailing of when the tanks were pumped. On average, a system should be pumped every 6 to 12 months for a rental property, but the only way to determine that is to actually monitor the tank when you first pump it. One telltale sign that the system is not working is if the owner has to pump the tank frequently. This indicates that the leach fields are malfunctioning and the fields aren’t allowing the water to dissipate.

Our first property contained a septic system, and considering it was winter, we didn’t have an opportunity to perform the proper due diligence. There was our mistake. The fields on our property were very old, and we should have foreseen problems, but we were so excited to buy the property that we overlooked this critical element of the investment.

As luck would have it, one portion of the septic system failed one year after we closed on the property. We were forced to dig everything up and build an entirely new leach field. It wasn’t an expense that we were anticipating so early into our investing careers.

Our only other option was to ask the seller to hold some money is escrow once we closed on the property to protect us from a faulty septic system. We could have performed the due diligence in the spring time. If the system needed repair, we could use the money from escrow.

And if the system was functioning properly, then the attorney would disburse the funds from the escrow account. Most sellers will balk at this demand, but if they know the fields are functioning properly, then it should not be an issue.

Task:
Inspect every unit for termite and bed bug activity. Consider hiring a pest control company once you assume ownership of the property. You want to be proactive on your properties and avoid problems before they arise.

Review how often the owner pumps the septic tank. Assess the age and condition of the septic system. If you anticipate problems, discuss receiving a credit from the seller.

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The Seven Steps To Success In Real Estate, Part 3

In the second ARTICLE, I laid out the next three steps to achieving success in real estate. My goal here is to dive into the final three steps: Submit, Due Diligence and Take Responsibility. Let me recap the Seven Steps (actually, I included Take Responsibility as an extra step).

Educate
Pick a market
Niche
Network
Analyze
Submit
Due diligence
Take responsibility

Submit:

So far, real estate has only been an abstract thought. You’ve learned how to analyze deals, pick a niche, select a market and educate yourself. Once you submit your first offer, the reality of investing hits you like a ton of bricks. It is an exciting but vital step in the process. This step is what creates momentum, and from your thoughts and desires, you are now entering the massive action phase.

How do you submit an offer? Once you have located a deal and performed your underwriting, it’s time to fill out a Letter of Intent (LOI). Click HERE to download an LOI that we used on one of our deals. A real estate broker should be able to furnish you with a blank LOI.

An LOI is a non-binding offer to purchase the property that contains general terms and conditions of the proposed transaction. It expresses to the seller your willingness to enter a Purchase and Sale agreement (P&S), which is the next step once the buyer and seller have agreed to terms.

Do yourself a favor and include a time frame for the LOI. For example, state in the LOI that it is only effective for seven days. Force the seller to give you a quick response, so he does not have time to “shop” your offer.

Once the seller agrees to your terms, the P&S is drawn up. Read over the contract very carefully with your attorney to make certain that everything that was agreed upon is spelled out in the P&S. Now it’s time to move to the due diligence phase.

Due Diligence

I have found that most beginning investors underestimate the importance of due diligence. In my very first transaction, I was thrilled to be purchasing an investment property, and should have focused more on the actual numbers and condition of the property. I had no idea that the due diligence period came with a sixty day time-frame, in which I had to close on the deal. It never occurred to my lawyer to include an extension in the contract if I was unable to secure financing or complete the due diligence.

Due diligence can be broken down into 3 types and should be performed in this order:

1. Financial:

Analyze the actual performance of the property. Request the last twelve months of operating statements (profit and loss, income statement, balance sheet). If the actual numbers are different than the ones you were given, you have two choices. You can go back to the seller and demand an adjustment in the price, or you can walk away from the deal. We have a clause in our P&S that the deal is contingent on the numbers provided to us in the beginning of the process.

The majority of deals that don’t go to closing are because of the financial due diligence. We recommend a minimum of a thirty-day due diligence period for inspecting smaller properties, and at least forty-five to sixty days for the larger properties. There is no sense in scheduling an inspection and wasting money if the numbers don’t work.

2. Physical:

It’s time to schedule an inspection of the property. I recommend you search Home Inspector to locate a qualified inspector in your market. You can also ask for a referral, but I would refrain from asking your real estate broker. There may be a conflict of interest in getting the deal done, and the inspector may feel some pressure from the broker in not disclosing every minor detail. Try to hire someone who is independent and who has experience in the multifamily space.

The cost of an inspection varies from market to market. Expect to pay around $500 for a single-family home inspection, and a per unit cost for larger properties. We are currently paying $20 per unit for inspections on out apartment complexes

NOTE: Inspection costs are negotiable. Make sure the inspector enters and inspects EVERY unit on the property. The inspection report is used to demonstrate the deficiencies in the property to the seller, and a tool to negotiate money off the price or those deficiencies being rectified.

3. Legal:

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

Take Responsibility:

The property is finally yours. Now it’s time to get to work and follow the game plan you have developed to adding value. It is an exciting moment to realize that you are now in control of your own destiny. This final step is what separates the mediocre investment from the stellar performer. It’s the same way in life. Those of us who are responsible for our lives and actions tend to lead a more fulfilling and empowering life.

Let me know if this seven-step framework has led you to your first deal. As Jake likes to say, follow our yellow brick road to multifamily investing!

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The Seven Steps To Success In Real Estate Part 2

In the first ARTICLE, I laid out the seven steps to achieving success in real estate. I expanded upon the first two steps, and my goal here is to dive into the next three steps: Niche, Network and Analysis. Let me recap the Seven Steps (actually, I included an extra one).

Educate
Pick a market
Niche
Network
Analyze
Submit
Due diligence
Take responsibility

Niche:

What does it mean to choose a niche in real estate? Most newbie investors, myself included, become overwhelmed with the choices and strategies available in real estate. I often compare it to being in line at a buffet, with countless tempting choices in front of us. But, as we all know, some choices are far superior than others. I am not here to tell you which choice is better. I am only here to tell you to pick one, focus all of your energies on that choice, master that niche, and then begin to invest exclusively in that niche.

Some investors may have no capital to begin their investing. Wholesaling may be their best option to jump into real estate. My recommendation would be to master the wholesaling platform, crush it, and then and only then, consider another strategy.

My reason for this stern recommendation is simple. It is easier to hit a target that you are focused upon, one that has all of your energy and attention. When you first begin a new venture, it is vital that you master all of the basics. Does anyone expect a new driver to jump into a Porsche and begin driving 100 miles per hour? The end result is not going to be pretty.

Choose a niche that relates to your personal situation. For instance, my goal in real estate was to create passive income and generate wealth. I knew that buy and hold, specifically multifamily properties, would propel me to success. I never considered fix and flip, or purchasing single-family homes because these strategies were not consistent with my goal. Once I chose my niche, I searched for a mentor who was teaching multifamily investing, and I dedicated myself to learning everything in the space.

Is it no wonder that some of the richest investors in the world adhere to this principle. Take Warren Buffet as an example. His advice is not to diversify, not to put all of your eggs into different baskets. Mr. Buffet is a value investor, and has created an amazing company maintaining this discipline. Once you become a master, the deals start coming to you.

Network:

Real estate, like so many other businesses, is all about the relationships you develop. It has become easier to network in this day and age due to the Internet and social media platforms. Sites, such as LinkedIn, allow you to seek out the decision maker of a company in a matter of minutes. But what do you do once you make the connection?

I recorded a podcast with Alex Franks on the subject of networking and his insight is invaluable. Click HERE! to listen to the podcast. Some keys to networking are:

Build rapport. Try to find something that you and your prospect both share in common, whether it is kids, sports teams or a hobby.
People do business with people they like and trust.
Stop talking, listen and show genuine interest in the person with whom you are trying to build rapport.
In the words of the great Steven Covey, “Seek first to understand, then to be understood.”
Do as you say and say as you do. If you have an appointment to jump on a call at 9 AM, you better jump on at 9 AM. Stick to your word.

Don’t be afraid to tell people what you do for a living. I have memorized a short elevator speech that gives a concise description of what I can offer potential prospects and how I can add value to their lives.

Finally, try to enjoy networking and don’t view it as a job. People can sense if you’re faking it, or if you’re in it for your own personal intentions. Choose events that you will enjoy. My favorite is taking people out to lunch, where I feel the setting is more intimate yet casual.

Analyze:

It took me a long time to learn this particular step, and once I did, my investing career took off. Real estate is all about the numbers. If the numbers don’t work, move onto the next deal. Early on, I would fall in love with a property, and convince myself that I could make the numbers work. Avoid this huge mistake by approaching real estate as a business.

In multifamily investing, I focus on three specific benchmarks: Cash on Cash, Debt Coverage and Cap Rate. Once the property can be acquired by satisfying these benchmarks, I further analyze the property to see if there are any value adds to the asset, such as raising rents or lowering expenses. I only purchase a property based on actual numbers, specifically the last twelve months of performance, and expect a 10% Cash on Cash, a 1.2 Debt Coverage Ratio or higher and an 8 Cap.

It is no different in other niches in real estate. When a fix and flipper is buying a home, he has to perform an after repair market value of the property to estimate his profit. A wholesaler needs to know current market values before putting a deal under contract. Not knowing market value will lead to failure in real estate.

Current market conditions are making it more difficult to locate these deals, but I have learned to be disciplined in the buying process. All savvy investors understand that you make money when you buy in real estate. When analyzing multifamily real estate, there are other amazing benefits that are often overlooked. I wrote an article on Bigger Pockets highlighting these benefits. Click Benefits! to read.

Task:

Decide what you want real estate to provide for you. Choose a niche based on your needs and goals. Seek a mentor or coach to assist in your education. Next, get out there and start networking with individuals in your niche. Finally, begin to analyze deals based on actual numbers and remain disciplined throughout the buying process.

Let me know if you have chosen multifamily investing as your niche and why!

Read further: The Seven Steps To Success in Real Estate – Part III

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The Seven Steps To Success in Real Estate

Starting a new venture can be one of the most daunting tasks, especially an undertaking that involves money and risk. If you begin a new diet and don’t lose the weight, not much has changed. You slide right back into your old habits and comfort zone. Can you imagine investing money in real estate when you Mom told you it was a bad idea, and you ended up losing your investment?

I’ve heard those words “ I told you so”, but I didn’t let it deter my will to succeed. I just realized I needed a new approach. I am just thankful that I didn’t allow anyone to crush my dreams of financial success, including mom.

My goal in this article is to outline seven steps that any new investor needs to follow to achieve success in real estate. I developed these seven steps through hard knocks and creating huge mistakes, but without those mistakes I would still be chained to a mundane job with no ability to control my future. So let’s dive into the seven steps!

Educate
Pick a market
Niche
Network
Analyze
Submit
Due diligence
Take responsibility

Educate:

Investors think that a few podcasts and a couple of books on real estate will prepare them for the rigors and perils of investing. Does everyone forget it takes four years to receive a college education, and most professions require additional schooling? Podcasts and books are a fantastic start, but you will have to go deeper in your education to succeed.

So where should you start? Every investor should read “Rich Dad Poor Dad” to understand why real estate is a powerful tool to create wealth. A large number of our podcast guests point to “Rich Dad Poor Dad’ as opening up their eyes and minds to the opportunity with real estate. But this is just the beginning.

The next step is to seek out authors who also speak to the “how” in real estate. Our book Wheelbarrow Profits is a fantastic place to begin your multifamily investing. We have created a detailed three-step framework on how to create wealth and generate passive income with multifamily real estate: Buy Right, Manage Right and Finance Right. Our students are amazed at the depth and amount of actionable content that we share with the reader. If you are a podcast lover, subscribe to our weekly podcast Wheelbarrow Profits on Itunes.

Click HERE to download a free copy of “Wheelbarrow Profits”.

Other authors that have influenced my investing career are: Dave Lindahl, Dean Graziosi, Fixer Jay Decima and Gary Keller. These authors all have two ingredients that are crucial for the success of their students. They are investing in the current market and have achieved a level of success from doing, and their content is focused on the how part, not just the why.

Most “gurus” focus on the ‘why’ because they are not acting in the current market. Choose a teacher/mentor who has been in the trenches and is running their business in today’s market. Jake and I pride ourselves on the fact that we are continually pursuing deals to grow our portfolio.

This gives us the advantage of understanding what strategies are working today, where valuations are and what phase of the market we are currently in.

The internet has countless websites that offer tremendous content. We recommend Jake & Gino, Bigger Pockets, Connected Investors, Keith Weinhold, Seth Williams and Mark Ferguson as places to commence your education. These sites all offer a robust blog page and most contain their own podcasts.

Finally, once you realize that real estate is the right vehicle to take you to where you want to go and you commit to it, seek out a mentor or coach for a deeper dive. I credit much of my success in real estate to hiring a coach and developing a specific plan for me to follow.

A coach reduced my learning curve tremendously, which eliminated many mistakes and propelled me to success much quicker.

I was such an advocate of coaching that I ended up attending IPEC (Institute of Professional Excellence In Coaching) and became a Certified Professional Coach.

Is coaching right for you?

If you are unsatisfied with your current results, it may be time to take a harder look into hiring a coach and getting you back on track. Just hire a coach that has experience in real estate, and a coach who has a track record.

Pick A Market:

Once your education is in high gear, it is time to focus on a market you want to invest in. Are you fortunate enough to be able to invest in your back yard, or do you have to consider other markets to invest in?

I wrote in a previous article how not understanding my market was one of my biggest blunders. It is worth reading: Top Five Things I Wish I Knew. It describes what to look for in a market and how to choose an emerging market.

My first journey outside my backyard was purchasing duplexes in Rochester, NY. My market was nearly impossible to buy multifamily properties that cash flowed, so with the guidance of a coach, I decided to try my hand elsewhere.

Although I ended up selling the duplexes last year, the experience was priceless. I learned how to analyze a market, how to hire a management company, how to underwrite deals and I shattered my limiting belief that I needed to “touch” real estate in order to succeed. It set the stage for me to invest with Jake down in Knoxville, TN.

In the next part of this article, I am going to focus on the next steps to success.

Read further: The Seven Steps To Success in Real Estate – Part II

Please let me know what real estate books you have found helpful. I am always on the lookout for new strategies to learn and implement. My motto has become: Learn-Do-Teach. The truly successful people never stop learning and growing.

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The $1,600,000 Climb To The Top

When Jake and I purchased Park Place apartments, we knew that the property was underperforming and we had a terrific opportunity to “force” the appreciation on the asset. The property was grossing only $53,000 per month due mainly to poor management. Our goal was to implement our three-step repositioning framework, increase the Net Operating Income significantly over the next twelve months, and with some luck, refinance the property.

The next twelve months proved challenging, but with determination and hard work, we were able to increase the revenue to over $80,000 per month. We implemented RUBS (ratio utility billing), began to charge all types of fees (late, pet, application), and raised the rents to market.

We drove the income on all different fronts, while focusing on reducing expenses.

At the end of eight months, we began to shop around different lenders to refinance the property. We received our first appraisal in December from a CMBS lender, a disappointing $5.7 million. (We purchased the property at $4.075 million, but we felt the appraisal still came in light) The lender just could not comprehend how we turned around an asset within eight months, and delivered a very low appraisal.

We then approached another CMBS lender, and as you can see on the picture above, we were met with more resistance. At this point, we were losing faith in getting a deal done. This is where our mantra kicked in: Patient, Persistent, but Willing to Walk Away. We decided to seek out another lender who would give us the best terms.

Finally, almost a year after our initial inquiry, we struck gold. We found a portfolio lender who was willing to offer a fair appraisal ($6.33 million) of the property along with very favorable terms. The lender created a win-win situation. He underwrote a large loan against a very stable asset. We were able to cash out a huge sum of money, the lender required us to set aside a sizable capital expenditure amount to address deferred maintenance on the property, and the lender financed our next big multifamily deal. WIN-WIN!!

All lenders will require you to set up funds for a capital expenditure account based on the needs of the property. Our first two lenders required us to fund the account with much more than what we felt the property needed. Our portfolio lender’s requirement was much lower, and we were able to extract more equity for ourselves.

How does a capital expenditure account work? Basically, the bank estimates the amount of deferred maintenance on a property and funds the account with proceeds from the refinance. As you can imagine, the estimate is highly subjective and should always be negotiated with the bank. In the end, these funds do belong to you but are to be used only for repairs made to the property.

We allocated our cap ex funds to repairing parts of the driveway, exterior painting and upgrades to some of the units. Once the repairs were finished, we submitted the receipts to the bank, and then the bank disbursed the money to us.

While you are in the midst of the reposition, take pictures to document your progress so you can use them to show the banks what you have done to add value to the property. Maintain accurate records, while concentrating all of your efforts to revenue trending upwards every month.

The moral of the story: Look to create value in any endeavor you choose, work hard to create that value and work even harder to get paid. If one approach isn’t working, learn from that approach and try another one.

Jake and I had to abandon CMBS lenders and partner with a portfolio lender. It was one of the best decisions we have made. The lender has become an integral team member and has financed several other acquisitions and refinances. Our problem turned into an incredible opportunity.

Task:

If you want to learn how to invest in apartments and receive a huge payday, visit Jake and Gino and contact us today!

Begin to develop relationships with local banks. Jake and I prefer to work with local banks (portfolio lenders) because they are much easier to work with and have an intimate knowledge of the local market. They will understand your deal and will give you a quick answer whether or not your deal will meet their lending criteria. The ideal timeframe to begin the refinance process is usually one year after the purchase. Banks like to see consistent performance and are content with twelve months of performance.

Don’t always take the first deal. Shop your deal to a couple of lenders and let them fight it out for your business. We used to be thrilled when a bank offered us terms, but our true success came when we began negotiating with multiple lenders to secure the best deal.

CMBS: Commercial mortgage backed security that is secured by the loan on a commercial property. The loans are then packaged and sold by conduit lenders on the secondary market to institutional investors. This secondary market is vital and provides liquidity to the commercial mortgage market.

The interest rate on these loans are fixed, the loan is typically amortized over a thirty- year period, a balloon payment is due at the end of the term, and there is usually a prepayment penalty. The loan is non-recourse.

Portfolio Lender: This type of lender originates its own loans and holds them on their balance sheet. These loans do not have to conform to Fannie Mae guidelines and allow the lender to be more flexible in lending guidelines.

Recourse Loan: Debt that is backed by collateral from the borrower. The bank can go after a borrower’s assets in case of a default. (The bank has recourse)

Non-Recourse Loan: Debt that is secured by the property, and the borrower is not personally liable in the event of a default. Ideal loan.

Loan points: A form of prepaid interest to buy down the rate of the loan.

Loan origination fee: A fee paid to the bank to originate the loan. (Make sure to negotiate this fee with banks)

Amortization: A gradual paying off of a debt by regular periodic installments, which include interest and principal.

Balloon Payment: Large payment, due at a certain period of time in the future, is usually 5, 7 or 10 years.

Capital Expenditure: This is an expenditure for an asset that will improve or extend the useful life of an existing asset for a period to exceed one year. We set aside $250 per unit per year in a Cap Ex account. Banks will require that you set up and fund a cap ex account when you refinance a property. Think of a Cap Ex account as a rainy day account. (Another avenue where your negotiation skills will be used)

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How It’s Done, Our Refinancing Timeline (Infographic)

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The Gateway To Multifamily Real Estate

ENTER THE GATEWAY

In life, it is always difficult to begin a new journey or eliminate a bad habit. Our habits become a part of our physiology and foster limiting beliefs and an unfulfilling life. When I began my real estate career, I was fearful due to my uncertainty of this new endeavor.

I calmly reminded myself that a journey of a thousand miles begins with one step.

That first step is crucial to your success along the journey. My first successful step was to seek a real estate coach to teach me how to invest in multifamily apartments. My previous attempts at investing all led to failure due to my lack of education and my willingness to understand why I wanted to invest in real estate.

Click Logo To Enter

Fast forward to the present, and I have been able to accumulate 674 units in only three years. It has been an arduous but rewarding adventure, one made a bit easier because of my financial education.

I set out to recreate a blueprint on how any investor can get started buying multifamily properties, and “The Gateway To Multifamily” is the yellow brick road and the springboard to beginning your journey.

We have designed this product for new investors as well as for investors looking to change course in their investing strategies to answer the questions we posed in the beginning. The Gateway will answer these questions and more.

Each lesson module within the four week course are comprised of

Topic-centered micro-courses on getting you started in investing and building your business. Our micro-courses include “Where to Find The Money” and “Building a Credibility Book”.
Audio lessons and interview from some of the top minds in real estate. You will learn from top investing pros and learn the exact steps the took to succeed in real estate.
Articles on topics specific to the module
Professionally produced instructional videos, packed with the steps you need for success

The program is broken down into four weeks: The Gateway, Finding Your Niche, Creating Your Credibility and Building Your Team.

The course is also filled with video lessons and articles centered on personal development and goal setting, two vital yet overlooked activities that will propel you to success. Learn how to ask empowering questions, how energy blocks are stopping you from achieving success, what your level of energy is and why your success is based upon YOUR thoughts and actions.

All of the lessons in the Gateway are downloadable so you can learn offline.

WEEK ONE: The Gateway
You will be introduced to multifamily investing and why it is the most powerful niche in real estate. In this first module, you will learn,

How to set goals and think outside the box
How to overcome your fears, rejections, your motivation to invest in real estate
Creative financing techniques.

Ever heard of who-what-how? If you haven’t, don’t procrastinate. Find out how you can energize your life.

WEEK TWO: Finding Your Niche
This module is packed with the details you’ll need to;

Dive into partnerships
Picking your niche
Pathways to making money in real estate
And how to use real estate to create a lifestyle, not a job

You will learn how to successfully implement our framework: Buy Right, Manage Right and Finance Right, the three pillars to our massive success.

WEEK THREE: Creating Your Credibility
In this module, you will build your own personal credibility book to help you raise money from banks and private investors. I wish I had a credibility book when I first started. I was chasing deals all over the place with zero success. Once I created a credibility book, the deals started coming to me.

Let’s not forget about finding the money for your deals. In this extensive micro-course you’ll learn how find money for your deals, including partnerships, IRA funds and creative financing. Learn to think outside the box and banish the word NO from your vocabulary.

WEEK FOUR: Building Your Team
This module is all about building your all-star real estate team.

Who should you have on your team
How do you select the right members
How to evaluate your team.

This is one of the most challenging aspects in the beginning of any successful real estate venture. You can’t do it all yourself and you need a solid team of professionals on your side.

In addition, Jake and I will be adding relevant content periodically to further enhance the gateway experience. Look out for live recorded coaching calls on the four weekly topics.

So what are you waiting for? Click down below and start your journey down the yellow brick road to success in multifamily investing.

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Our 13 Biggest Mistakes Investing to 675 Units in Real Estate

And How You Can Avoid Them

One of the major foundation principles that I learned while attending IPEC (Institute for Professional Excellence in Coaching) was that “You cannot make a mistake.” Many mistakes, or bumps in the road, are merely judgments that are made after the incident has occurred. For instance, a person looks back at an action that they performed six months ago. At the time, the decision was based on all current information he had at that particular moment.

As time progressed, things changed and his perception may now be that he committed a mistake.

My opinion is that when you make a decision, you are not making a mistake. I feel that inaction or procrastination is a bigger “mistake” than flawed action.

I live by this tenet: Thought—Desire—Action—Result. If I am living in constant doubt, I will never perform the desired action to achieve the results I am looking for.

We all have different criteria that we use to take measure of our actions. One person might deem something a success while another may feel they failed at the same exact task even though both achieved similar results.

For example, a company may set certain growth targets, but fall slightly short of those objectives. The team can display frustration at missing their target, but they can also be exuberant that the company exhibited positive growth.

If you view missing the target as a mistake, then expectations will be lowered and the team will be less optimistic.

However, if the team is excited about their progress – despite the lack of hitting their goal – then this excitement will fuel their momentum and they’ll be able to envision a brighter future. We always try to stay positive and view every “mistake” as a learning experience, understanding that we can often learn more from mistakes than successes.

Let’ begin discussing our two biggest mistakes on the way to accumulating 675 units. We will delve into our two largest stumbling blocks in this article.

Nightmare manager

When we were still newbies in the business, we were excited to assume control of our second property, and with it came the on-site manager. He seemed okay at first, but we both felt that something was amiss. He’d been living on the property for twelve years and acted as if he was part owner.

Every time we suggested a new change or a new policy, we were met with resistance. We eventually had no choice but to evict him, but the nightmare didn’t end there.

He wasn’t happy about the eviction and tried to sue us for workman’s comp and discrimination, but the cases were thrown out each time. Strangely enough, when he was replaced, the operations of the property soared. Net income rose 30% and the billing system he was so adamantly opposed to was implemented with zero complications.

In fact, the tenants expected it because this was the norm for the market.

Our mistake in this situation was not firing the manager as soon as we took over the property. We should have interviewed him beforehand and laid out our business plan to see where he stood, and if we had, we would have noticed how difficult he was to work with and would have saved ourselves quite a bit of trouble.

Unscrupulous Mortgage Broker

Have you ever been in the middle of doing something and just knew that it wouldn’t end well? That’s exactly how we both felt when we decided to use a mortgage broker to help us acquire financing for our second property.

Sandy (fictitious name) told us that he could secure an SBA (small business administration) loan for our deal, and all he would need was half the payment up front, and then the other half when the deal closed. He explained that if he couldn’t secure the financing, he would refund us the down payment.

You can probably guess where we’re going with this. Just as the closing was approaching, Sandy conveniently disappeared. We were scrambling to find another source of financing and had to reach out to a couple of local banks.

We lucked out and we were able to qualify for the mortgage and finally close the deal.

In the meantime, we kept trying to find Sandy, who eventually reappeared and told us he was going to find us a lender. When we told him that it was too late and we had already found a bank to lend us the money, his response was that he was entitled to the payment because of all the work he had invested into the deal.

We were forced to contact a lawyer who suggested we sue Sandy for breach of contract, and that’s just what we did. Despite trying to negotiate with Sandy just so we could settle the issue without all the extra mess, he wasn’t interested. After a few months, the judge issued a judgment in our favor for the down payment and legal fees incurred.

The saga should have ended there, but Sandy was beside himself because he claimed that he had already spent the money, and that us “rich owners” didn’t need the cash.

We eventually came to an agreement that Sandy pay us monthly installments that were to be broken up into six equal payments.

What is the moral of the saga? NEVER pay a mortgage broker any fee until the deal is closed. You can pay the appraisal fee, but don’t pay any other fees associated with the loan.

As you can see, we committed some pretty bone-headed mistakes, but we didn’t use these mistakes as an excuse to slow us down. It only added fuel to the fire and inspired us to continue our learning.

Task

Before taking over a property, interview each employee to see if they will be a good fit for your company. Discuss what you will expect from them and how you will run the property. It is vital for your success to begin your team building off on the right foot.

When looking for a mortgage broker, ask for referrals from your broker, attorney and your accountant. Begin to develop relationships with local banks that are expanding their portfolio and prefer lending on multifamily assets. These local banks are much easier to deal with, and have an intimate knowledge of the local market.

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How Landlords Can Create a Win-Win for Tenants and Employees

How Landlords Can Create a Win-Win for Tenants and Employees

One of the best ways to retain quality tenants in your apartments is to create a sense of community, a place where tenants call home and where they want to live with their friends and family. Along with creating a sense of community for your tenants, landlords need to create a positive and empowering environment for their employees who service the tenant base.

Landlords have to view their tenants as customers, and are compelled to offer their “customers” value and service in exchange for payment of rent. They have to treat their employees in a similar fashion to maintain loyalty and to keep their staff motivated.

At our properties, we require our maintenance staff to respond quickly and professionally to all maintenance requests. We have a twenty-four hour maintenance hotline where tenants can reach our staff in case of an emergency.

In July of this year, there was a train derailment in our town that forced the evacuation of our tenants from one of our properties into hotels. Our manager was at the property at 3 AM directing the tenants and telling them where to go and what to expect. We were proactive in this situation, and fortunately the tenants were back in their apartments a couple of days later.

Other examples that separate us from our competition include we offer clean, affordable apartments and are constantly addressing deferred maintenance issues. We have dubbed the phrase “Modern Affordability.”

We also offer our tenants a referral fee for every new tenant they refer to our property.

We recently implemented a new program with Papa John’s pizza that was a win-win for the tenants, the employees and for our business. We had been looking for ways to increase value to our tenants, and we approached Papa John’s to see if they were amenable to offering a discount to our tenants.
We were surprised at how open the company was willing to create a promotion for our property.

We were able to draft this agreement with the company:

All new renters get a free pizza card in their welcome packs. Offer good for one free large 2 topping pizza and free 2 liter .
Staff will be fed once per month (we bought lunch for staff, so this was great)
The staff will receive 50% off menu priced orders while at work and for pick-up.
Papa John’s will be allowed to place up to 4 yard signs to promote our apartment weekly special every month from the 1st until the 7th.
The apartment week special will give all of your renters a 50% discount off regular priced menu.
The box top flyer for the first seven days of each month.

As you can see, all parties in this transaction prospered.

Papa John’s is building their brand and has direct access to our tenant base. Our customers will be visiting Papa John’s first, and will be offered discounts to visit the store. The tenants will be happy that they will be able to receive discounts from Papa John’s. Our staff is also excited because they will be receiving a sizable discount from the pizzeria.

It is vital in business to create these win-win situations so that all parties prosper. You will be more likely to elevate customer loyalty and satisfaction while increasing revenue.

This is just one small example of how you can create these awesome solutions. Just learn how to think outside the box and be prepared for the naysayers to say “You can’t do that.” When you hear these words uttered, just know that you are on the right track.

Please let us know of any programs or ideas you have implemented to increase tenant loyalty and retention. Leave us a comment down below.

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