Category: Education

How to Increase Your Rental Property’s Net Income

If you currently own a rental property, and your revenue is covering your expenses with a little extra to put in the bank, that’s awesome! But what if you could bank even more each month by simply thinking outside the box? What if you could increase your net revenue to double what it is right now?
Would you be interested in that?
There are so many ways to add value for your tenants that they would be willing to pay extra for. You can also get creative and utilize your property to create more income in other ways. All it takes is a little creativity and looking at things in a different way.

Rent Parking Spots

If you own a property in an area where parking is a high commodity, this is a no-brainer. Whether you’re in the city where people have to search for parking, or you’re close to a sports or music venue, you can cash in on it. And don’t worry, you can take care of your tenants, too!
Let’s say you own a single family home near a football stadium. If there is enough grass, a large driveway or otherwise, you can use that space and sell parking spots for a premium to the fans who are attending the event. All it takes is a sign with your price on it and someone to collect the cash and direct the cars to the right spots.
You can make this an attractive deal for your tenant, as well. Obviously, you need to ensure that they still have space to park during the events. After that, you can offer a portion of the profits to them, waive one month of rent, or any other offer that they might accept.
The key is to make it a win-win for both of you. If you’re both making money off the deal and it doesn’t destroy the property, go for it!

Rent Extra Storage Space

It should come as no surprise that people LOVE their stuff, and that some take it to an extreme level to the point that they can’t fit everything in their home. This can be a major advantage for you if you choose use the opportunity as a money-making venture. The major concern is whether or not you have the space to rent out.
Renting additional space works really well when you own a multi-family property. The living spaces are likely smaller than in a single family home, which means people will be looking for extra space to store their things. You can sell storage space to them in garages, attics, basements or extra units in the building. If you’re super savvy, you can make it a goal to own a multi-family property and a storage building that are next door, or in close proximity to one another.
If you own a single family home, it can be a little more complicated, unless you have another spot nearby. This works really well when you’re renting a carriage house, an apartment over your garage or a mother-in-law suite. These situations almost always have a larger house connected or on the same property, which gives you the opportunity to rent additional space.

Install Solar Panels

This might seem like an odd one, but you really can make it work to your advantage. Installing solar panels on the roof of your rental property can be a major cash cow for you. You need to first do the research on whether or not it’s a good investment for you by considering the amount of time it will take to recoup the cost and how old the roof is at the time of installation.
Once you decide that it’s a good investment, you can get it done and start making some extra money. There are multiple ways to accomplish the same thing, too.

Include Electricity in the Rent

One option is to install the solar panels and then increase the price of rent to include electricity. You then ultimately become the utility, and your tenants will pay you instead of the electric company. Whether it’s a single or multi-family establishment, you are likely to create enough energy to cover everything that is being used and have some left over.

Sell Additional Energy Back to the Grid

Since power grids are becoming smarter and smarter, many of them now offer a two-way transfer. This means that if you have excess power after running all the necessary electricity at your property for the month, you can sell the rest back to the grid. This is not an option that you would do “instead of” selling to tenants. It would be “in addition to”.
There are more than 40 states in the U.S. that allow this type of transfer. It’s called “net metering”. Not only will you receive a check from the power company for the excess energy, you can also get some great tax benefits, as well. Start by checking with the power company in your area to find out if this is an option for you.

Offer Consumer Services to Your Tenants

Many people are willing to pay for convenient, time-saving services in and around their homes. Depending on the expendable income of the tenants in your property, this could be a really creative and smart way to generate more income. Think about all the different services that you, your family and friends use on a regular basis. Can you recreate them?
Each of the following is an example of a service that you could offer to your tenants for an additional fee. You can choose to offer them a la cart, or as a package deal. You can also include them in the rent, or have your tenants pay separately. Either way, it’s worth considering!

Lawn Car Services

Offering lawn services like grass cutting, tree trimming, gardening, wedding, fertilizing and more is a great place to start. There are tons of people who don’t have the time or the desire to do these sorts of jobs around their homes. If you have the ability to do it yourself or to sub-contract it out, it’s definitely worth considering.

Cleaning Services

This is another really great option to not only serve your tenants, but to generate additional revenue for your business. Consider the cost of doing it yourself versus hiring a company to do it and conduct a basic ROI evaluation. If the numbers look good, give it a try and see how it goes.

Dry-Cleaning Services

If you really want to go above and beyond, you can partner with a local dry cleaner to offer a pick-up and drop-off service for your tenants. In this scenario, your tenants could leave their dry-cleaning on the front door for the cleaner (or you) to come pick it up. Once it’s done, it is delivered back to their door. This is a convenient way to do additional business with your tenants and they will appreciate it, as well.

Grocery Delivery

Think about all the apps and grocery stores that offer this service! Can you find a local business who is currently doing it, or setup one for yourself and hire someone to do it? It might take a little more setup time to get this to work, but it’s definitely an option worth exploring. Home grocery delivery is a rapidly growing service that you could cash in on.

Dog Walking

Although there are lots of dog-walking apps and services on the market, your tenants are likely to trust whoever you recommend for these types of things. You can offer dog-walking on a daily basis, as well as pet-sitting when your tenants go on vacation. This allows the pet to stay comfortable at home, rather than being boarded at a kennel and gives the tenant peace-of-mind that their furry friend is well taken care of.

Baby Sitting

If you have a really great relationship with your tenants, they might even trust your recommendation on who should watch their kids. Whether it’s your own teenagers who are looking to make some cash, or you hire a contractor to do it, this is another excellent service. Parents are always looking for a great babysitter to take care of the kids while they take a night off. And who better to help them with it than you?

Less Creative Options

Obviously, all of the options listed above will take some due diligence, planning and potential bargaining with local service providers. If that’s not something you’re interested in doing, there are other ways to ensure you are making top dollar for each property you own.

Refinance When It Makes Sense

This is one of the best ways to increase your net income each month. We all know that the market fluctuates on a regular basis. We go through periods where interest rates are through the roof and others where they are amazingly low.
If you really stay on top of the market and what it’s doing, you’ll be in a great place to refinance at just the right time. If you get a great deal and don’t spend a ton on closing costs and other fees, you can really improve your revenue situation substantially.
It’s really helpful to shop it on an annual basis, too. Just like car insurance and other such necessities, many people become complacent and just pay their premiums year after year without ever shopping around. Be smart about it and always be on the lookout for what might be the right option.
A great way to accomplish this is to start by finding a lender whom you trust. If you have a lender or an advisor who can help you identify the right time to refinance, that’s worth its weight in gold. Ask them to reach out to you when the market is primed for great refinancing deals. Don’t worry – you’re not an inconvenience. I promise you, they have a list of prospects to call when the market is at just the right spot.

Investigate Tax Benefits

This is another area where many investors are under informed and don’t get the full tax benefit of their properties. We don’t recommend trying to figure this out on your own unless you’re a tax professional. But we DO recommend looking in to the matter by contacting a tax professional and discussing all of the options.
More often than not, investors will learn about additional tax benefits they didn’t know they had. These can be the result of renovations that you made to the property, energy-efficiencies that you added but didn’t realize you could get a break for, and so on. Your best bet is to keep really good track of all the improvements and investments you make to the property. Then share those with your tax advisor every year when you file your taxes. You’ll be amazed what is possible.

Conclusion

The key to all of this is just learning to think outside the box. Don’t get complacent as an investor and think that the monthly rent from your tenants is your only opportunity. The sky is the limit when it comes to offering additional services and amenities that your tenants might be willing to pay for.
Always do the research on the potential ROI, the costs associated with the service or services you want to offer and what type of insurance may or may not be necessary. If you think insurance will be necessary for the service you want to offer, bid that out, as well. Go into the decision with as much information as possible for optimal results.
Hopefully, this article has sparked some ideas for you. As an investor, you are the CEO of your real estate business and you get to call the shots. The more creative and forward-thinking you can be, the better. Not only will you be able to make more money from your rental properties, but your tenants will have the pleasure of convenient services that are offered from the same person they trust – YOU!
Image: Pixabay

6 Mistakes that New Investors Make on Fix and Flip Properties

There are tons of TV shows, YouTube channels and articles that make it seem like the fix-and-flip model of real estate investing is really simple and straightforward. However, it’s not as easy as it looks and there is more than meets the eye. There are tons of mistakes that new investors make that could easily be avoided with a little bit of education and coaching on the front end.
If you’re thinking about getting into fix and flip real estate investing, we encourage you to do some research and learn from people who have been doing it for a while. There’s no sense in reinventing the wheel when there are tons of resources available to you to help and keep you on the right track from the very beginning. In this article, we are going to break down some of the key mistakes that new investors make and how to avoid them.

What is Fix and Flip Investing?

This type of investing involves an investing purchasing a property not to keep or use, but to turn around and sell for a profit as quickly as possible. Most fix and flip scenarios involve some level of cosmetic enhancements, renovations or improvements that are done to the home prior to putting it back on the market to sell. It’s a really great way to turn quick profits if you do it well.
According to ATTOM Data solutions, 6.2% of all home sales in the United States in 2019 were house flips completed by fix and flip investors. That’s approximately 250,000 homes and an average of $62,000 gross profit on each. The key here is “gross” profit. Notice it didn’t say “net”.
What’s important to understand about flipping houses is that once you close on the property, the quicker you can turn it around, the better. For this reason, flippers are often attracted to foreclosures, short sales and other such situations that allow for a quick turnaround. But you also have to be really careful to balance the attractiveness of a quick turnaround with the amount of money and work it could take to get it ready to put back on the market.
Let’s dive into some of the mistakes that new investors make and how to avoid them. The more you know on the front end, the better off you’ll be!

Mistake #1: Not Doing Your Research

This is a lesson that is often learned the hard way amongst new investors. Just because you can get a house for a really cheap price doesn’t mean it’s worth it. There could be very good reasons why it’s priced so low and taking it on is not always a wise decision.
Doing your homework on the neighborhood, the housing market and current conditions can save you thousands in the long run. It takes a little bit more effort in the beginning, but can be a total game changer. There are lots of resources, websites, mobile apps, etc. to help you make sound decisions during the buying process, so be sure to look into those, as well.
There is a rule called the “70% Rule” that we highly recommend you consider when researching your properties. It simply states that you shouldn’t purchase the home for more than 70% of what it will be worth AFTER the renovations or the AVR (after repair value). In order to adhere to this rule, you have to know what the house will actually be worth and approximately how much it will cost you to do the renovations that need to be done.

Mistake #2: Not Choosing the Correct Financing Option

Ideally, you want to be able to purchase the homes in cash to avoid paying any financing fees, interest, etc. However, most investors who are just getting started don’t have access to that kind of cash right out of the gate. Making smart decisions in your financing will be a major game changer for you in the end.
There are tons of vendors out there offering “no money down” and “low money down” options, but they are often touted by fly-by-night companies, rather than legitimate lenders. Don’t get caught in that trap because you are much more likely to lose money in the end, rather than making any. Additionally, if you are financing not only the property but also the acquisition of the property, you will be paying interest on that money, too. Remember that every dollar counts.
Research all of your lending options and ask lots of questions in the process. You want to find a lender you can trust who can provide a mortgage product that works for you. Look for low interest rates, low closing costs and minimal fees.
Then you need to consider how long it’s going to take you to turn the property around and get it back on the market and sold. Since you’ll be paying the mortgage while you’re renovating it, you need to consider those costs in your calculations. Again, every dollar counts.

Mistake #3: Wasting or Underestimating Time

If you finance your investment property, you’ll be paying a mortgage payment and interest for every month that you own the property. This means that time is money – literally. Making good use of the time and being efficient with renovation plans is critical.
We recommend a few different techniques in this scenario.

  • Have a plan for the renovations or repairs before closing on the property.
  • If possible, have a few different contractors bid the work for you before closing, as well.
  • If you plan to do the work yourself, be sure to price out all of the materials and tools you will need and calculate how much time it’s going to take you to complete it.
  • Plan for how long it will take to get the necessary inspections on whatever work was performed, whether by you or by a contractor. This can take much longer than you anticipate.

Many new investors are still working a full-time job because they have not yet built their investment portfolio to the point that they can quit their 9-to-5. If this is you, try to be realistic about how much time you can dedicate to the work that needs to be done. Do you have a spouse at home? Kids? School? All of these things can contribute to distractions that will keep you from being able to complete the work in a timely manner. It’s not a bad thing, but rather just something to think about.

Mistake #4: Contracting Everything Out

If you’re in a really great place financially, this might be a good option for you, but for most fix and flip investors, particularly new ones, the real profits come from doing the work yourself. We call this sweat equity. If you’re able to purchase the home, do the majority of the work yourself and in a timely manner, your profits will increase exponentially. The cost of contracting the work to someone else might be so high that it eats up any profit you would have made.
There are many fix and flip investors who are contractors, builders, carpenters and other craftsmen for full-time work and do the investing as a part-time or seasonal gig on the side. These investors generally have the skills and knowledge to be able to complete the work quickly and efficiently, which allows them to turn better profits on their investments.
If you’re not handy with a tool box, you might want to consider whether or not the investment in the property and the contractors will be more than the profits earned after the resale. If the profits will be marginal at best, it might not be a great option for you. Instead, you could consider partnering with someone who is able to do the work, or opt for a different type of real estate investing.

Mistake #5: Doing Unnecessary Work

If you ARE someone who is handy with a hammer and enjoys doing the construction yourself, it can be really easy to over-do it. When you’re passionate about home improvement and renovations, you can get carried away with all of the possibilities of the property. Try to restrict renovations to only the necessities.

This goes back to doing your research and knowing your market. Although it would be awesome to renovate the kitchen, all the bathrooms, knock down some walls, etc., is it really a smart decision? In some cases, the answer might be yes. But more often than not, the answer is likely no. If you purchase a house for $80,000 in a neighborhood where houses sell for about $120-130K, it doesn’t make sense to dump $50,000 into it. You’re not going to sell it at a price that is high enough to overcome your renovation costs.

Instead, think about what is absolutely necessary to make the home as attractive as possible to the current buyers who are purchasing homes in that area. Make those improvements as quickly and efficiently as possible and get the house back on the market. Also, don’t underestimate the power of a really good deep cleaning job, fresh paint and great landscaping. Curb appeal is more important than you think, so don’t forget about it.
There are many resources available in the market to help you figure out what your return on investment (ROI) is going to be on any given property, based on sales price, finance fees, renovation costs and resale. A good rule of thumb is to shoot for an ROI of 20-30%. This gives you some wiggle room in case something goes wrong. If there is a major issue during the renovation, you have more financial cushion before you end up losing money. The best rule is: don’t lose money!

Mistake #6: Being Impatient

Buying an investment property and doing the work to get it ready for resale can be a really exciting time. But many novice investors are too eager to get started and just jump at the first house they see, without doing their research or considering any of the other things we’ve talked about thus far. Although your knee-jerk reaction might be to dive in head-first, try to rationalize your decisions and be patient.
Do your research on the different areas of town in which you’re interested in purchasing an investment property. Then be patient and wait for the right deal. I’m not saying sit at home and wait for it to fall in your lap, but I AM saying that you need to weigh the pros and cons of each potential investment that you look at. If something seems off, or it’s not quite the right deal, let it go and wait for the right one.
This goes for contractors, as well. Hopefully, you are able to do the majority of the work yourself. If you find yourself needing to sub-contract some of the work, again, patience is a virtue. A good rule of thumb is to get three quotes from three different vendors before making a decision. Many new investors jump at the first bid and hire that contractor, not knowing whether or not it’s a good deal and whether or not that contractor is any good.

Conclusion

Fix and flip real estate investing is a great way to turn a quick profit for a savvy investor. If you have the skills to do the renovations yourself and the time to get them done quickly, this might be a perfect investing option for you. Just make sure you don’t make the mistakes we’ve discussed in this article.
The reason that most people invest in real estate is to make money. When you’re just getting started in the industry, you will make a lot more money if you pay attention to the deals, be patient and do your homework. If can be an incredibly lucrative side hustle or primary job if you do it well and avoid the major pitfalls that most new investors run into.

Picture: Pixabay

Why You Should Consider Multifamily Investing

If you’re a real estate investor at any level, you know the value of time and money. You likely got into this space for the sole purpose of creating a passive income for yourself and your family. But how much time and effort are you spending on your investments and is there a way to become more efficient?
The answer is YES! There is absolutely a way to become more efficient and make more money at the same time. This is where multi-family housing comes in to the picture. It is definitely worth considering and we will discuss how and why a little later in this article.

What is Multi-Family Housing?

Multi-Family housing is just a fancy word for apartments and condominiums. It is basically a structure or a community full of buildings that have “units” where families live. Multiple families living in the same building… hence the term “multi-family”.

Why is Multi-Family Housing a More Efficient Investment?

There are a variety of reasons why this is a more efficient investment. As I said in the beginning, if you know the value of time and money, you’ll be interested to know how to maximize both.

It Has Higher Returns Than Other Types of Property

Multi-family real estate has had the highest average annual returns for more than 25 years. It has outperformed industrial, retail, hotel and other investments. In fact, between 1992-2017, it produced 9.75% returns for its investors.
Smart investors consistently look for options that will produce high returns and put their money to the best use possible. Some investors are more risk-averse than others, but multi-family is usually a safe investment for all the reasons we will discuss in this article. It’s a smart decision and housing will always be a need, regardless of what is happening in the economy or the world.

The Market Share is Increasing

Studies show that both millennials and baby boomers are increasingly becoming renters rather than homeowners. For millennials in particular, homeownership is often out of reach due to the steady increase in home prices. For baby boomers, it is likely the desire to spend time traveling or doing leisure activities, rather than house and yard work.
Regardless of the reasons for renting, both of these generations represent a large portion of the marketplace. Millennials are the largest generation in U.S. history and if the majority of them are renters, the multi-family real estate business will continue to grow.

It Is More Agile Than Commercial Investments

Due to the fact that multi-family housing enjoys shorter-term leasing agreements, owners and investors can adjust pricing more quickly as the market changes. For example, rent on an apartment will typically be 6-months, 12-months or even 18-24 months. Conversely, on office space and other commercial structures, the lease agreement could be 5, 10, 20 years or longer.
Because of the shorter-term leases, landlords can increase the rent more often and more quickly to adjust when the market changes and they need more cash flow. Other commercial investors do not enjoy this same level of agility.

Property Management is Much Easier on a Single Property

Multi-family structures are an extremely efficient form of investing because you can attract renters all in one place, rather than having 20 independent houses all over town. Chances are very good that you only have one mortgage for the whole property, along with one fee for landscaping, grounds keeping, insurance and potentially a property manager. It is much more time-efficient to operate in this capacity because you only have one location to deal with.

Inspections

When buying, selling and renting your various properties, you would need to work with a ton more people on single-family homes than you would with a multi-family property. With individual homes, you would likely need to work with 20 different sellers and 20 different inspectors at 20 different addresses! With a multi-family property, it’s one seller, one inspector and one address for the same 20 renters.
The buying and selling process is more streamlined in this scenario, which saves a ton of time for the investor. Once the purchasing process is complete, it’s all about getting the units rented out and the cash flow coming in.

Marketing

You can also consider the increased efficiency from a marketing standpoint. If you own 20 individual single-family homes and you have to market them individually, that can be really time consuming, not to mention expensive. You need a different landing page for each one, different photos, different descriptions, etc. If they are in different neighborhoods, you will also need different marketing strategies based on the target audience.
With a multi-family structure that has 20 units inside, you can be much more efficient. Yes, you still need 20 renters and you still need to market the units, but it takes a lot less work. You can have one landing page, one description, one gallery full of photos and so on. Renters who are looking for homes in your area will be able to see all that you have to offer in one spot, which is convenient for them, as well.
If you own and operate the structure, you can also brand it however you like. Whether you’re interested in forming an LLC or your own brand of apartment or condo, you have the ability to do that. If not, that’s okay too.

What if I Can’t Afford a Multi-Family Structure?

If you’re not yet in a place where you can afford to purchase a multi-family housing structure on your own, that doesn’t mean you’re completely out of the game. It just means that you need to do some other forms of investing and saving more cash until you get there. You can develop a basic strategy for building your portfolio and go from there.
There are also some key considerations when it comes to getting approved to buy a multi-family structure vs a single-family home. I recommend talking to your lender before assuming it’s not possible for you. Many banks will approve the purchase of a multi-family property much more quickly than a single-family home.

Why?

Because multi-family units have a track record of producing a steady cash flow from month to month. Even if the property has a few vacancies, it is highly likely that the renters in the other units provide more than enough cash to cover the expenses of owning the building. When a lender looks at all of these details combined, they see a much lower risk and are more likely to lend the money.
If your lender says no, don’t fret! Investing in multi-family housing doesn’t always mean owning the structure. It could mean other forms of investing where you purchase shares in someone else’s projects.

Investment Apps

One of the strategies that is growing in popularity and making investing more accessible is the creation of real estate investment apps. YES! There’s an app for that!
If you’re thinking I’m crazy, just hear me out for a second. Real estate is an industry that is highly dependent on data, location and money. What is the one device that you probably already use for all of those things? You guessed it – your phone.
You probably use your phone for GPS, real estate searches, internet browsing/research and you might also log into your bank accounts from your phone. If you’re comfortable using it for all of these things, why not download an app that will help you do them all at the same time?

Not All Real Estate Apps Are Created Equal

Depending on what type of investor you are, there will be different apps that will help you accomplish your goals. There are apps specifically designed for certain aspects of real estate investing such as commercial structures or fix-and-flip homes. There are other apps that are more general and all-inclusive. Which one will work for you really depends on your area of interest.
Fundrise is a great option if you’re looking for an all-in-one solution. It gives you access to both residential and commercial investments, but requires a certain investment level for each tier. You have to choose a tier when you open your account: core, advanced or premium. The three tiers have minimum investment requirements of $1,000, $10,000 and $100,000, respectively.
This app functions more like a traditional investment account at a financial institution. You invest the money and they choose the investments. This is excellent for investors who are okay with giving control of their money to someone else. But if you want full control, this one is not for you.
Yieldstreet is another app that gives investors access to investment options that used to be reserved for hedge funds, crowdfunding investors and ultra-wealthy people. With this app, you will have access to commercial and residential properties. The residential properties are mostly multi-family, high-producing entities.
This is a great option if you have a little cash to invest, but not enough to purchase an entire building. You can start here and as your investment grows, you can save up to purchase that investment property.
Property Fixer is an excellent resource for investors who like to fix-and-flip both single-family and multi-family residences. It can help you do a full analysis of the property while onsite, rather than trying to create spreadsheets and such when you get back to the office. It will include things such as buying and holding costs, projected return on investment and mortgage calculators.
If you upgrade to the pro version, you can create portfolios, brand your PDF files and send them to clients or investors right from the app. It also lets you itemize expenses and upload photos for a complete package related to a single property.
Ten-X is almost like an auction site. It will help you find the best deals on commercial properties in your area. Both buyers and sellers use this app, which also has a robust web presence. It his highly data-driven to help you make the best choices for your investment portfolio.
However, this is an online sales mechanism. So, if you’re in a place where you’re not quite ready to buy yet, you’ll be better off going with an app that lets you invest or buy shares, rather than the whole property.

Private Brokers

If apps aren’t your thing, you can always sit down with a private investment broker and ask about your options. Much like the apps listed above, many brokers can offer access to a variety of properties that you wouldn’t otherwise be privy to. They can help you manage your investments and choose the right properties in areas that are increasing in value.
When talking to a broker, be sure to consider their minimum investment amounts, fee schedules and limitations. How much control will you have over your own money vs how much they will control it for you. Only you can make the decision on how much control you want to relinquish to a broker.

Conclusion

Multi-family real estate is an excellent investment for both beginners and seasoned professionals. It has historically produced higher returns with lower risk than many other options. For this reason, it is an excellent way to diversify your investment portfolio with peace of mind.
Whether you choose to invest by purchasing a building, or through an app or brokerage, you can feel good about your decision. As the market for multi-family housing continues to grow, your investments should too.

Image: Pixabay

How to Build Your Real Estate Portfolio From Scratch

Many of my friends and colleagues are interested in owning rental properties as a way to earn passive income. I think it’s awesome that people have this goal and that real estate can help them reach it. But I also want to help people understand exactly what it takes to get there.

Let’s say your goal is to eventually bring in $10,000-$20,000 per month, which would essentially allow you to retire from your 9-5 and start living life on your own terms. Let me be the first to say that I think this is a fantastic goal! But what’s your strategy?

In this article, I will walk through the steps of building your portfolio, starting with your very first property. I help you build a plan that will work for you without breaking the bank in the short term.
Let’s get started.

Step One: Assess Your Current Buying Power

This is going to look different for everyone, so stay with me. Depending on the amount of available cash you have, you might be looking to start with just one investment property, or a handful of them. For this example, let’s focus on just one.

If you have decent credit, minimal debt and a little bit of cash to put down, you may be in the perfect position to purchase your first investment property. I recommend discussing your options with a few different lenders.

Questions you should ask your lender include, but are not limited to:

  • How much can I be approved for?
  • What will my interest rate be?
  • What’s the difference in rates for investment homes vs second homes?
  • What are my options for the length of the loan and how quickly can I pay it down?
  • Are there any penalties for paying it off early?

Once you decide on a lender, be sure to obtain pre-approval so you can confidently put an offer in on a property when you find the right one. Once you collect all the information you need to make a good decision for your current financial situation, you can move on to the next step.

Step Two: Choose a Property in an Area That Sells

This may seem like a no-brainer, but it often is not. You need to start your property search by looking at the different areas of town. What areas are you interested in?

If you’re looking for a house in the suburbs that you can rent out to families, you will want to consider several factors that appeal to that audience. Most families are all about location, location, location. You want to find a neighborhood with easy access to schools, shopping, recreation and even places of worship.

If you’re considering a condo or high-rise downtown, the conversation shifts a bit. People looking to rent these types of residences tend to be single or married without children. Sometimes they are empty-nesters looking to downsize. In this scenario, you’ll want to consider parking, storage space and the amenities of the community.

The other thing to consider is whether or not the community you have chosen allows rentals. Whether it’s a neighborhood or a high-rise, chances are good that there are some restrictions on rentals. Be sure to do your research on your selected neighborhoods before putting in an offer.

Step Three: Purchase the Property

Once you’ve decided what type of property you’d like to purchase, BUY IT! Your realtor and lender will walk you through this process, but it basically entails putting in an offer, considering any counter-offers from the seller, going through the home inspection process, etc…

If you’re working with a realtor, this will all seem like a fairly simple process. If you ARE the realtor, you already know what to do.

Step Four: Marketing

Now that you own your investment property, it’s time to start marketing it and finding potential renters. Finding the right tenant has a lot to do with where you purchased your property and who your target audience is. If you’re still not sure who they are, do a little more research on your area.
You’re looking for information like this:

  • What are the market rates in your area for rentals of similar size?
  • Who are the main inhabitants in your area?
  • Who is moving in and out of the area?
  • What do people value the most about that specific neighborhood?

Once you learn a little bit more about the people living in the neighborhood, you can start to target your marketing to find the right tenants.

Social Media

It’s no secret that social media is one of the easiest ways to get your product or service in front of the masses. But again, do your research first. Based on what you learned about your target audience, join some online forums and groups that cater to those specific types of people.

You will be amazed at how much you can learn about your target audience by hanging out where they do. You’ll learn about their habits, hobbies, interests, dislikes and more. Once you learn more about them, you can craft your messages in ways that will resonate with them.

You also need to create social media accounts for your properties or your business as a whole. Remember that the internet is a visual medium, so you need really great photos of your properties to entice people to click. Once they click, you need more photos for them to view.

Give them more information than they need. If they feel like they have to search for it, they will exit your post and keep scrolling.

Word of Mouth

As antiquated as it may sound, people still take recommendations from their friends, family and even anonymous people online! Think about it… you read Amazon and Google reviews before purchasing, don’t you?
Ask existing tenants to write testimonials for you. Or do a short 30-second video of them saying their testimonial out loud!

Online Marketplaces

There are tons of places online where property owners can advertise their available properties. You can look at the various platforms, their fee schedules and requirements and figure out what will work best for you. Here are just a few options:

  • Zillow
  • Realtor.com
  • Hotpads
  • RentalHouses.com
  • Oodle
  • Padmapper

Depending on your marketing budget, some of these might be more realistic for you than others. But they are worth the time investment to at least learn what your options are.

Your Own Website

Whether you’ve been in business for several years, or you’re just getting started, a website can be one of the most lucrative things you can invest in. Consumers are savvy and information-hungry. They want information at their fingertips when it’s convenient for them.

Just as with social media marketing, you want to make sure your website has fantastic images and lots of information. Have you ever been looking for a house online and you won’t even click on the ones with terrible photos? Your customers are the same way!

Take the time to take great photos of the home. If you can invest in a professional photographer, go for it! If not, newer smart phones have fantastic cameras, so you can get some great shots on your own.

Last but not least, consider whether or not you need to hire a professional web designer. If you have the expendable cash, it can be a great investment. If not, I recommend either WordPress or Wix. Both platforms are designed to help non-web-designers create and launch their own websites.

Step Five: Screen Potential Tenants

This process can seem daunting when you’re just getting started. But I recommend you to be as diligent as possible to minimize the risk to your property and your business. The following steps are critical in the process of screening potential tenants:

Have potential tenants fill out an application. You can create one on your own, use a template or have a lawyer draw one up for you.

Run a credit check. This will give you information on the past 7-10 years of the tenant’s payment history to other creditors, including past landlords. Depending on what state you live in, you may or may not be able to charge the potential tenant for the cost of the credit check.

Run a background check. This will give you information about the tenant’s past. You can order these through companies such as StarPoint and ScreeningWorks. This will give you information about previous evictions, crimes committed and other public records.

Complete reference checks with previous landlords. If your application is thorough and includes past landlords / living spaces, you can reach out to these people for information about the tenant’s behavior and payment history.

Call the tenant’s employer. Verify the income amount that they listed on their application. You want to be confident that they can pay the rent on time each month.

Interview the tenant. This is one of the most important things you can do. It will be mutually beneficial for both parties to get to know one another and decide whether or not the relationship is going to work.

Step Six: Do It Again!

Once you’ve gone through all the steps listed above and you have some renters in your first property, you can start considering what your next property will be. You can return to step one and start again!

However, I highly recommend waiting for a little while until you’re comfortable. Get to know the process and how to manage your first investment property before going out on a limb with another one!

Over time, your income per month will hopefully grow and you will have more to invest. As I said in the beginning, you can absolutely grow your business to the point that you can walk away from your 9-5. It just takes time, patience and smart decision-making.

Should I Hire a Property Manager?

Only you can answer that question for yourself. Maybe you were an executive at a company and didn’t have the available hours in the day to dedicate to your rental properties.

You may or may not be in that situation. If you have the time and the know-how to market your properties, screen clients, handle maintenance issues, etc. then you will be fine! If not, I really do recommend a management company to handle those items for you.

If you screen them carefully, you will find one that fits your needs and your budget. I also base a lot of my decisions on how I feel about their integrity. You need someone who will be honest and who is licensed and insured,

Conclusion

Hopefully you now have a clear understanding and the outline of a plan for how to go from where you are right now to owning your first investment property. Remember that it takes time to build your portfolio. Not overextending yourself at the beginning will help you be more successful in the long-term.

Happy investing!

Picture: Pixabay

How To Know If You Are Ready For Real Estate Investing

Real estate investing is an excellent strategy for long term wealth accumulation, but how do you know if you’re ready?
In a nutshell, you’re going to need some cash reserves and a good strategy that works for you. There are tons of real estate investment strategies and it’s easy to get overwhelmed. But narrowing your focus can help you get started on the right foot.
Here are the top three things that will tell you whether or not you’re ready:

  • You have access to cash
  • You know which kind of investor you want to be
  • You have a strategy

How Much Cash Do You Need for Investing?

Contrary to popular belief, you don’t need a ton of cash on-hand to begin investing in real estate. Many investors actually prefer to take out loans from private lenders rather than using their own cash. It all depends on your financial situation, your credit score and your level of comfort with taking risks.
Here are some of the key considerations to help you decide whether or not you’ve got enough cash in the bank, or good enough credit to find a lender.

Are you in survival mode? Living paycheck to paycheck can be a tough situation. Or maybe you’re not quite in the “living paycheck to paycheck” spot, but you make just enough to pay your bills and start digging yourself out of debt. This is a normal and commendable place to be. But it’s not likely a great place to start investing just yet. Focus on getting to a comfortable spot first, unless you can qualify for a loan

What do your reserves look like? Do you have cash reserves in the bank? In general, you want to have $1,000 in an account for a rainy day fund. This is for emergencies and unplanned expenses. Beyond this, it is wise to have about 6 months’ worth of bills saved up for the property you want to purchase. If you’re looking to purchase a rental property with a $1,000/month mortgage, you want to have at least $6,000 in the bank.

Passive vs Active Investing

Investing in real estate can be as much or as little work as you want it to be. Some investors really want to be hands-on while others don’t have the time or the interest in doing so.
Let’s talk about the specifics so you can make the best decision for you.
Passive Investors make monetary investments in properties without getting involved in the decision-making, negotiations, etc. For example, when you invest in the stock market, you don’t get involved in the daily operations of the companies in which you invest. You simply earn some dividends when the company does well.
Passive investing is similar. People who invest passively in real estate typically do so in one of three ways: the stock market, crowdfunding or partnership.

  • The Stock Market is a quick and easy way to invest in real estate without getting involved in construction, fixing and flipping, negotiating deals, etc. But you still have to do some research on which funds and REITs to invest in. There are some great resources available for this, but I usually prefer to talk to successful investors. They are already doing it, so why not buy them a cup of coffee and pick their brain for great ideas?
  • Crowdfunding is a scenario in which a professional investor identifies a property to renovate into a hotel, multifamily unit or other such entity. If the investor doesn’t quite have enough capital to make the purchase, they may look for private investors to assist in that area. If you invest in it and it does well, you will receive a portion of the profits.
  • Partnership with an active investor is another great way to get involved without doing a ton of work. Much like crowdfunding, partnering with another real estate investor who actively purchases rental properties can generate some income for you, as well. In this type of partnership, you can partner with the active investor to purchase the properties and then you share the profits in a way that is proportional to the work you put in. So the active partner will likely receive more of the profits, but all you did was invest a little money on the front end, so it’s worth it.

If you already have a full-time job that you enjoy and that allows you to live your preferred lifestyle, passive investing is likely a great option for you. Depending on how much cash you have to invest, you can really build a nice portfolio.
There are downsides to everything and this is no exception. In passive real estate investing, you need to make sure that the stocks you purchase or the partners you choose are reputable. Make sure they are purchasing properties in a viable end of town. Do the research on the projects they are working on before putting in any money!
Active Investors are involved in the identification, purchase and/or management of the real estate in question. The simplest example of this is a person who flips houses. They find a home that they think will be a good investment, put in an offer, purchase it, renovate it and then sell it (hopefully) for a profit. Although there is a lot more that goes into the process, this is a good illustration of active investing.
Another example of active investing is to purchase rental properties. In this scenario, you purchase a rental property, find a renter and allow their monthly rent to serve as an income source for you. Many of these investors hire property management companies to take care of the logistics of finding, renting, getting contractors to do repairs, etc. But it is still much more involved than passive investing.
Some of the key benefits of active investing are control over the situation and the opportunity to make more money in a smaller amount of time. If you are the one purchasing and managing the property, you are relying only on yourself to make good decisions, rather than a company, a partner or a large real estate investment firm. You also have the opportunity to flip the house quickly and make a fast profit.
This type of investing typically requires a higher toleration for risk.

Developing a Strategy

Once you decide what kind of investor you’re going to be, you will need to develop a strategy on how to make it a successful venture. Your strategy can change drastically based on your available/accessible cash.
Strategies for Passive Investors
If you’ve already decided that you’re going to be a passive investor, you need to develop a plan that makes sense for you. Real estate investments via stocks, bonds and REITs are a great place to get started.

What is a REIT? I’m glad you asked!
REITs or Real Estate Investment Trusts are companies that own and manage income-generating properties. These include residential properties like apartment buildings and condos, as well as non-residential properties like hotels and shopping malls. These companies share their profits proportionally with their investors on a quarterly or annual basis.
Some REITs are publicly traded while others are non-traded. It is helpful to discuss your options with an investment broker to help you choose which ones are best for you.
So let’s talk about next steps.
Step One:
To invest in stocks, bonds and REITs, start by identifying a broker you want to work with or an online brokerage that you trust. It pays to do your research and find one that has a similar philosophy to yours and a fee schedule you can live with.
Step Two:
If you’re working with a broker, you’ll want to schedule time to sit down and talk about your goals. Tell them why you want to invest, how much available cash you have and what your ultimate goals are. Your broker will discuss the various options and assess your tolerance for risk. From there, the two of you will build a plan.
If online brokerages are more your speed, there are tons to choose from.
Step Three:
After developing a plan with your broker, it’s time to take that leap! Whether you have just a small amount to invest at the beginning, or a much larger sum, now is the time! As you become more confident with your investments and returns, I think you will find it really gratifying to invest in this way.
Note to self: Crowdfunding is a much bigger world. It is a type of investing that is typically reserved for accredited investors. If that’s you, then go for it. If not, perhaps it will end up on your real estate investment bucket list.

Strategies for Active Investors

As an active investor, there are several ways to jump into the real-estate business. But let’s consider how your available cash affects your strategy.
If you’re in survival mode right now, it might be best to focus on real estate as a side-hustle or even a job, rather than an investment. Simply put, you need more money coming in right now, rather than going out. There are a variety of full and part-time opportunities in real estate that will get you involved in the industry and making connections, while putting more cash in your pocket. Leasing agents, real estate agents, property managers, appraisers and other such jobs are a great way to get into it without investing just yet.
If you have plenty of cash available to invest, there’s no better time than the present to start doing it! If you’ve identified yourself as an active investor, start looking for your first fix-and-flip or rental property. It’s important to know whether you want to flip it or rent it out before you purchase a property. These two types of properties will look very different. One will be a “fixer upper” while the other might already be in great shape and you’ll just need to find a renter.

Fix and flip investments are a great way to make a profit quickly, assuming you’ve done your homework on getting a great price, doing the renovations and then listing and selling it. You need to consider what your ROI will be once it’s all said and done.
In the fix and flip world, the faster you get it done, the better. You don’t want to hold onto these properties for too long because you’ll end up paying the mortgage until it’s sold. After all, you OWN it…
Rental properties are a completely different animal. With these types of investments, there is generally a lot more risk involved. Again, you need to do some homework on the potential ROI of a rental property. You’ll need to be confident that you can rent it at a price that will give you a positive cash flow each month. To create a positive cash flow, you need to consider all expenses that are tied into owning the property.
For example, if you purchase a rental home with a mortgage of $1500/month, an HOA of $200/month and a property management company of $150/month, you’re looking at $1850 per month plus maintenance and upkeep if it’s not covered by your management company. So you’re looking to rent it out for $2200-2500/month or more in order to make a profit each month.
Of course the math is much more complicated than that, but you get the picture.

Conclusion

Real estate investing is an exciting and sometimes scary world. But doing some research on the front end and answering the simple questions above will help you get started off on the right foot. A great strategy and a business plan will give you great peace of mind and the confidence to take the first step.
So what are you waiting for?

Picture: Pixabay

Fixing and Flipping Multifamily Real Estate Investments

For any business you can think of, the end goal of the owner or investor or the entrepreneur, as it is commonly known, is to make profits. This is the same with multifamily real estate investments; every real estate investor wants to make an above average return on all the money that is invested.

This article aims to analyze all the issues relating to fixing and flipping multifamily real estate investments to make profits. Although this may not be ideal or appropriate for some real estate aficionados, those who can pull off the fixing and flipping arrangement do make substantial financial gains. The fix and the flip process can pose a significant challenge to certain real estate investors; however, to begin the process, there is a need for proper funding.

These can come in the form of loans, which is also made available in some instances for individual properties and even for more experienced investors who wants to flip more than one real estate property at once.

These loans come in a whole lot of forms which include:
Cash-out refinancing (which involves refinancing one property to fix and flip another one)
Home equity lines of credit
Bridge loans
Hard Money Loans
Permanent Loans (not typical in flipping)

It is worthy to note that the process of fixing and flipping real estate can be carried out with any property, no matter its enormity. The types of highlighted loans above are to help support the purchase of single or multifamily investments.

For fixing and flipping operations, funding is a real issue, and if you are a serious investor looking for a source of financing, hard money loans are a good source of funding. The hard money loan option may be more expensive than the other types of funding though.

The demand for fix and flip processes concerning multifamily real estate dwellings is only increasing these days. Many fix and flip professionals are choosing this path because the number of rental households has increased by more than 15%, and this upward growth is expected to continue.

This is because many teenagers are expected to leave their homes and become renters themselves, further boosting the multifamily real estate market. The need for independence from parents is real around this age, so it is not surprising.

Path to Fix and Flip Profits:

When it comes to multifamily real estate investments, fix and flip, investors have to compete with other buyers for the properties on the ground. Fixing and flipping has the sole principle of making use of a certain amount of money to make some brief renovations; in all, a general uplift to improve the valuation of a real estate property before selling it at an excellent price.

This way, an excellent profit is made. Concerning multifamily real estate, seasoned fix and flip investors still have to contend with repair and flip newbies in the industry; those who do not have the required skills and expertise.

These new entrants into the industry tend to make things difficult for experts. These newbies tend to buy existing properties for more, making it difficult for them to come across an affordable fix and flip property. On the path to fix and flip profits, you should seriously consider multifamily investments.

All you have to do at first is to be conservative enough in calculating the potential returns. The rule made is by seasoned investors is to estimate the property’s rental income, then subtract half of that amount for monthly expenses and then subtract the mortgage payment from what remains.

Then if the property cash flow does not cover these costs, you can either decide to negotiate a lower purchase price or look for a building in another area that supports higher rent payments.

Fix and Flipping MultiFamily Properties:

As mentioned earlier, projections have concluded on the path that rentals on properties are most likely to be on the increase. Many seasoned real estate investors have turned to multifamily real estate holdings, all in a bid to diversify their holdings and increase their profit.

As the demand for rental housing units continues to rise, the fix and flip experts are also noticing it is expected that with multifamily holdings, they will undoubtedly require more significant investment and more work for you to gain maximum benefits.

For a first time investor, they are seeking to make new inroads into the world of real estate investments. Getting to sell a multifamily holding can be very challenging. Even for experienced investors, the rules have to be followed. As it is the norm, the search for a buyer can be more challenging than for single family buyers.

For example, in America, property owners and investors alike are coming to terms with the fact that they can increase their profit by choosing to purchase multifamily units. This inadvertently opens up a new path for fix and flip real estate investors as there is a higher chance of success when you decide to fix and flip a multifamily property.

Funding for fixing and flipping multifamily real estate holdings, many platforms on the internet and even near you offer programs for this. Most only have programs designed for clients with strong credit scores. Also, those who have the needed experience with renovating and owning multifamily properties are given a chance.

Very strong net worth and liquidity also allow for flexibility to be exercised in the decision making. Some of the prerequisites which usually are considered include:
• The multifamily property must contain at least five (5) units of housing.
• In some instances, projects with at least 50% occupancy are also considered.
• At least a credit score of 670 is needed.
• Loans from 250,000 to $5,000,000 can be provided with no limit placed on the number of multifamily housing units you can flip.
• Finally, loans up to 80% of the purchase price with rates which are as low as 8.5% and a 24-month term.

But first this disclaimer, this is not a get rich quick method. If you are looking for a means of getting rich quickly, then real estate investing is certainly not for you.

An alternative to fixing and flipping real estate holdings is to buy properties in perfect locations where you are sure after doing the necessary valuations; the value is going to increase. Having a great strategy at this point is very crucial. This strategy is key to knowing when to improve property values and also knowing when to sell and reinvest the funds in other profitable properties. One very sure way to amass wealth and reach that dream milestone is to buy real estate rental properties, then fix and flip them accordingly.

• You can decide to flip ten (10) houses that make $100,000 of profit.
• Flip 20 houses that make $50,000 of profit on average.
• Or you can also decide to flip 40 houses that make $25,000 of profit on average.

Markets also influence these profits. As if you live in a market with lower property prices, the real strategy will be to flip smaller houses with smaller profits but at an increased volume. An excellent example of this is buying $50,000 homes that you can resell for $120,000 and can net you $25,000 to $30,000 after renovations, closing costs, or commission and taxes. This you can repeat about 3 to 4 times per year. If you live in a place like Los Angeles; it is more realistic to find flips with $100,000 t0 $200,000 of profit.

At this juncture, it is only ideal to find out the real reasons investors flip multifamily real estate units. In the real estate industry, there is a big market for single family homes. It is only natural for flippers out there to cater to the needs of this large population. However, in contemporary times, there is an increase in renting.

• It is usual for more people to have a hard time believing that investing in a home is the best option they have. They are beginning to see primary residences as more of liabilities than assets.
• Some have been burned in times past as they have bought homes that sunk considerably in value after a certain period; contrary to laws of real estate investment.
• The increasing proportion of the workforce is becoming mobile to the latest advancements in technology; hence, they are beginning to like the flexibility renting provides.

These reasons are highlighted as a result of accessing the opinions of industry experts on the latest realities facing rents and mortgages in developed societies. Multifamily properties are the ideal property to flip, but why decide to flip multifamily real estate holdings?

Reasons for Flipping Multifamily Properties:

Marketability: Much has been mentioned of the fact that many areas are seeing a rise in their rental rates, and the absolute economic crisis turned many people from homeowners to renters, and this has made it more difficult for single family flippers.

The markets for single family flippers have changed and shrunk considerably over time, and only fewer people qualify for mortgages. Higher rents also mean higher selling prices for investment properties, and this is a significant factor for commercial multifamily.

• The Exit Strategy: When talking about single family units compared to multifamily housing units, any experienced single family fixers and flippers will always tell you to plan your exit strategy properly. Part of the procedure is to determine the After-Repaired Value accurately.

You need to know the amount you can sell the place for after the repairs have been made.
It is common knowledge that with single family homes, the rent will barely cover the mortgage, which includes insurance and taxes. With the inclusion of maintenance items, you might be losing money.

However, with multifamily properties, these properties are unarguably cash cows. You can choose to cover the mortgage payments with rent from one or two units and receive pure profits from the other units. And if your multifamily flipping does not work, you can simply rent it out and make some money, with no loss on your part.

Tax Advantages: This should not be mistaken as tax advice coming from a professional. But the buyers of multifamily residential properties, especially the buyers who live in one unit, can take advantage of both the homeowner and tax deductions. In addition to the edge to buyers, there are excellent incentives for flippers who get to buy multifamily residential.

Finally, it should be known that fixing and flipping are done for the sole purpose of making a profit. However, real estate industry leaders believe that it is one niche that is fraught with challenges considering the many rules and special considerations to be made. However, you need to be experienced enough to pull this off with multifamily real estate units, so you do not run at a loss.

Picture: Pixabay

Financial Independence By Investing In Multifamily Real Estate

One of the reasons for going into business, particularly the multifamily investment niche of real estate, is solely to create wealth and passive income. Current investors in this niche have made it known over and over again, how multifamily real estate investing has done that for them. However, one fundamental question to consider is how one can create wealth, satisfying a need in the process without financial independence? If you are a real estate investor, now more than ever is the time to escape the corporate rat race and become financially independent. Based on the main goals of any investor, the main aim of this content is to highlight the tips you can make use of in achieving this sole objective. However, it is only reasonable we inform that achieving financial independence is not as easy as we would be stating here. You need to be intentional about being financially independent. Learning how to create wealth and improve your business dealings can be very challenging.
If we were to conduct a poll today amidst real estate investors on why they chose the real estate sector to invest their resources, sure we would have lots of reasons to consider. Although some might treat it as a partial source of income, others commit fully to it with financial independence becoming the unifying goal. This has been the dream of many, and real estate has been one of the best ways of achieving it. Financial independence is achieved by an investor when the passive income, the returns from activities in the real estate sector, is more than their monthly expenses. In such a way that you have lots to spare. Although this might sound risky or seem like a very long process that can only be achieved in years, one uphill climb, it is achievable and very realistic, giving the factors involved. It has even been confirmed that rental property investors make cool cash, achieve financial independence through investing in real estate. As mentioned earlier, here are a few tips we advise the reader to strictly adhere to if one is so particular about achieving financial independence. These tips include:

• Get Educated:

One of the best things one can do to improve oneself is to get educated. It does not cost a thing to stay updated with the latest developments in the real estate world. As a real estate investor with your eyes on the goal, you need to be abreast of all the back and forth going on between the bigwigs in the industry, and you need to have an idea of the latest moves to make that are sure to bring in the needed profits. In line with achieving financial independence, although there is no real need for formal education or a college degree, one still needs to dedicate lots of time to reading and to grow at the same time. Successful real estate investors have achieved financial independence by knowing how to play the right cards at the right time. Investors are constantly educating themselves about the best investment strategies and investment properties. With investment property types including either single-family homes or multifamily settings while strategies include rental properties, commercial real estate investing, with the inclusion of Airbnb rentals. They seem to be growing in value every day, and you should consider investing in them.

• Financial Planning:

How can one achieve financial independence without top-notch financial planning? For most real estate investors, there is always a template more like a written plan as to how to achieve financial independence. It was observed that having a plan makes you more likely to achieve the set-out goals and objectives. Financial planning in the real estate investment niche is said to refer to all the processes of determining all that is related to the financing of your rental property. In plain terms, it solely involves anything that settles all your real estate concerns; the acquiring of a mortgage that fully suits your real estate investment. It also supports the calculating of your expenses and the cash flow through the rental property in focus.
In terms of mortgage and mortgage payments, they are referred to as the foundations of real estate financial planning. Having debts is not bad, but continuously piling up the debts to such an extent, it starts to impede your ability to save, that is a source of concern. This development, in the long run, tends to affect your ability to achieve financial independence as early as you would have wanted. While in terms of expenses, optimum financial planning should involve defining your passive income. To determine this number, real estate investors should consider all the monthly expenses, which should include repairs, maintenance, utilities, electricity and water bills, taxes, vacancy rates, property management, etc. For a real estate investor to achieve financial independence with all that has been listed out, an estimate of the expenses must be made to determine the extent by which they affect the odds of achieving financial independence through real estate investments.

• Endeavor to Grow Your Real Estate Portfolio:

This is no rocket science, but the more your investments, the higher the passive income you can derive from it. Growing your real estate investment portfolio is one sure way of attaining financial independence. The more you invest in real estate properties, the more passive income you earn. That is not all therein, and you are likely to earn more passive income from diverse real estate holdings. This also protects the real estate property investors from the dynamic economy and real estate investing market fluctuations, which ultimately allows for financial stability regardless of the conditions around.
To achieve this talked about financial independence, we have a lot to discuss about strategies one can apply to attain it in no distant time. Some of these are discussed as follows:

• Calculate Your Freedom Number:

This is one of the first things to do; the freedom number is not a unit or a property count. It refers to the amount of income you need to cover your current expenses or the amount of passive income. Which is more or less equal to the amount you are receiving from your current active full-time job, or that which can fully afford your full lifestyle. The best way to arrive at this number is to open up an excel spreadsheet and make a list of all current expenses. If you also intend to replace the current income and become a full-time real estate investor, then your freedom number automatically becomes your pre-taxed income. If you intend to improve or keep your current lifestyle, then you need to determine how much it would cost you, and that is referred to as your freedom number. To make this clearer, imagine a scenario where you currently earn $50,000 a year at a job, and you make calculations that you would need an additional $10,000 to maintain your current lifestyle. Your freedom number is about $60,000 yearly.

• How Much do I need to invest in real estate to achieve my calculated freedom number?

The next thing on the list is to calculate how many rental properties a real estate investor needs to be involved in before you achieve the calculated freedom number. This calculation is solely based on specific investment criteria as a real estate investor. For example, if your investment specification is only to purchase certain properties that are sure to achieve a 10% cash-on-cash return. Then you will need more money to achieve your $60,000 a year freedom number, Roughly about $600,000.

• Creating a Freedom Timeline:

After calculating your freedom number and the amount, you would need to invest in real estate to get that much as passive income, which caters to all the expenses that maintains your current lifestyle. Next is to create a freedom timeline, which is all about how often you will purchase properties to achieve your freedom number. These timelines do vary with all depending on current situations, investment strategies adopted, market, etc. the best recommendation is to have a freedom date then backdate a timeline.
For example, if you already have it in mind to quit your active paying job in the next 10 (ten) years to focus on real estate investments, following from previous examples of your freedom number is $60,000. You need to purchase about 60 units for a start and a cash flow of about $100 a month. The money that would be available as a rising real estate investor to be used as down payment will be any amount of money you have saved up, which is money you have set aside from your full-time job.
After purchasing your first housing units, you will have an additional stream, which is the $100 a month; and how long can you wait before you purchase your next property? And as from that point, you will have an additional $200 a month towards the next payment. At some other point, you will ultimately have enough equity in the earlier rental unit purchases that will be able to be refinanced and, in the long run, buy more units.

• Implementing your Freedom Timeline:

The last thing to consider after calculating your freedom number, determining how many units you need to buy, is to create a timeline. As it is the time to start making high-level purchases like a new real estate entrepreneur. One of the strategies that have been adopted in recent times is the BRRRR strategy superbly coined by Brandon Turner at BiggerPockets. The named acronym stands for buy, rehab, rent, refinance and repeat. By buying, you can purchase old or distressed properties, which translates to the level of distress you are capable of managing, and this will go a long way in you achieving the financial independence you so much want. By rehab, you only need to subcontract to someone who is a great general contractor to carry out random property repairs and general renovations.

As for renting, you need to lease your newly renovated asset to great residents who, to an extent, share your ideas. Individuals who would adequately make use of your property; as their use would not make you accumulate unnecessary expenses on repairs. Then on to refinancing, you can choose to obtain a new loan on the property in a bid to pull out the equity created from the rehabilitation carried out. By repeating the entire process, by using the money from refinancing, you can achieve financial independence. Honestly, we can only outline these steps and hope they work for you. The number of obstacles you are likely to face as a real estate investor or entrepreneur varies in a lot of ways, as achieving financial independence can be very daunting without mincing words. However, this is not to discourage you. Still, with consistent effort, partnering with reliable individuals, patience and resourcefulness are one of the positive ways to work through the many obstacles you are likely to face.
Many professionals or veterans in the real estate sector have spoken on some tricks that worked in their favor. Some of these tricks have helped them to quickly navigate the many obstacles that have barred others on their way to achieving financial independence from real estate investing:

• The use of Tax Benefits.

• Appreciation:

You must have heard of the common term in real estate that units with proper management appreciate over time. It is certainly one factor that comes into play in the real estate sector. For these individuals, they have been able to do an equity strip from the properties, and they do not have to pay taxes when they borrow money against the properties. The equity that was created by the appreciation of the properties acquired can be pulled out and used as a down payment to purchase other properties.

• Leverage:

Financial independence can also be achieved by leveraging properties with debt; in this way, they were able to control virtually 100% of the property by putting less than 100% down while also compounding the benefits of inflation. There are many ways to arrive at financial independence, but one central factor is the diligence and patience to see the processes through. We can only wish you the very best on your journey.

Picture: Pixabay

Building Your Real Estate Investing Team

In line with the common saying, “No man is an island,”; one saying which readily comes handy in this context. No one has it all, and when it comes to investments like real estate, which is prone to global interest rates and related regional variations, the need to build a team that makes real estate investing decisions worth it is highly essential. Experts in the industry have at one point or the other spoken or gave their opinions on the need to build a team for real estate investment decisions. When it comes to this aspect, building a real estate investing team is not as hard as individuals who are not privy to insider information have made it out to be. If done intentionally, it is a fun process as it solely involves surrounding yourself with individuals with the same ideology, the same aim and objectives as yourself as relating to making the best decisions as long as real estate multi-family investment is concerned.

Initially, it is sometimes the thoughts of real estate brokers that potential investors may be intimidated by the presence of a great team in brokering a favorable deal. They may believe that there is the possibility of their position in bargaining being threatened as they are dealing with more than one person. This should, however, be the least of worries as to get a credible building team, you need to effectively network and link up with reliable individuals who have a good understanding of the workings of the real estate industry. Conduct very effective interviews and also consider referrals from past acquaintances and work colleagues to fully determine how worthy they would be to the aim you want to achieve with them being a member of your team. For you to put a great team together, you do not have to go to the extent of putting up Ads on every trendy social media platform, advertising for willing individuals who share your dream.

As mentioned earlier, networking is vital to building a great team to help with making crucial real estate investment decisions. In networking, you do not have to get across to everyone, even those that are of no use to what you have in mind. Else you risk increasing the size of your team with no direct returns on productivity. In building your team, you only need to incorporate individuals that are vital to the achievement of your objectives. You need to connect with individuals of like minds such as real estate attorneys to address all legal issues relating to real estate investments. You also need to connect with commercial real estate brokers, building managers, and a multi-family mentor. This mentor should be one of credible standing in the real estate world, one with the experience to help with untangling knotty issues when you come across them. One should have it in mind that you do not get a good team by surfing online or reading books, hell, Nah! You go all out, connect, and form useful ties with individuals that you can be sure are ready to get down to business. The main aim of this compilation is to give you insights on the useful tips you can make use of to build yourself that dream team.

No matter how you look at it, real estate investment is not a one-person sport; it is not a one-man show. It entails you building a team which must be successful in achieving a set of underlisted goals. Hence, if failure is no option, you need to assemble a credible team, one which is not built to fail. It does not matter the number of deals they are going to be working with, either one (1), five (5) or thirty (30). Getting a team requires the recruitment of many different professionals who have a perfect understanding of their skill sets. When you can find a group of people who has the same ideologies as you, a team that aligns with the aims and objectives you intend to achieve in the long run, you can make your life easier in many ways than one. With a credible team, you can quickly run to your team for answers, and as they say, multiple heads are better than just a single head, you are in safe hands as it is rare for a group of people to run out of ideas on a single subject. In building your team, there are 6 key teams you need to form to ensure a smooth sailing experience.

• A LEGAL TEAM:

What is a multi-family real estate team without a credible legal team? You need efficient, reliable legal paperwork when dealing with real estate. Some attorneys can help with the buying, sale, and even owning real estate properties. Certain clauses in the real estate world require the attention of a credible legal practitioner or a legal team. A legal team can help with the handling of contracts, setting up appropriate and acceptable legal structures for all the parties involved. There are some confusing terms involved in setting up real estate contracts and everything in between. A competent legal team can help with dismantling this and making them clearer so one can determine a bargaining position properly. There is also a tendency to make costly mistakes in drafting and signing contracts. In all, there should be provisions for real estate, securities and exchange attorneys, transaction professionals, for all the transactions.

• The Acquisition Team:

This is one of the first teams to form as a real estate investor or a real estate aficionado. The members of your acquisition team would consist of those who can easily spot an opportunity or a potential opportunity as far as from a mile away. They are very relevant to the overall functioning of the team, as they without spotting these opportunities, you cannot be termed a real estate investor, as investing in these opportunities make you. The team members are also skilled in assigning value to any property they have settled on as an opportunity. The members of this team include marketers, appraisers, scouts, inspectors, brokers, and credible bankers.

• Equity:

It is safe at this point to say that none of your plans or hope for investing in real estate is achievable without the money, the raw cash involved. This equity expressly means the amount of money needed outside of financing. It is the amount of money you are paying to finance your portion of the purchase. As far as this equity is concerned, you can choose to pay singly or pay as a group of investors as this makes things more comfortable in the long run. When the pooling of resources from a group of people is involved, one needs to adhere to legal rules for the pooling of investors. Experts have also advised that the skill of competent and qualified security and exchange attorney can be helpful.

• Finances:

Finances in investing in real estate are one aspect that requires proper planning. Sometimes when you set your eyes on an opportunity, you may not have the financial muscle to pull off investing in that opportunity at such a given time. No one says it is a crime if you decide to get a team to help with financing. This team typically consists of members such as wealthy private individuals, mortgage brokers, lending institutions, etc. All these aforementioned entities will help with the provision of the money needed to kickstart your investment. As many are predisposed or are structured to provide this kind of help.

• Property Management Team:

One of the important functions a real estate investor has to fill in is in the aspect of property management. There is a need to maintain or find ways to improve the value of any property invested in, so in any case of resale, the value of the property remains appreciably high. After the purchase of a property, a single real estate investor cannot manage the property concerned alone; and one has to form a team to operate your property daily. The property team will be in charge of properties and repairs, overall maintenance of the investment. This team collects rents and leases on your behalf, making the property management team one who can make or mar your investment. So only credible, tested, and trusted individuals should be brought in to form a part of this team. For a third-party management team, you must make the best choice of picking a platform that is experienced in the type, size, and area of your property.

• Accounting:

Lastly, one of the things to talk about, one fundamental and essential aspect of your investment you need a team for, is your accounting. There is no way, and you are making all these deals, recognizing opportunities, pooling resources together from different bodies, carrying out repairs and maintenances on your property in a bid to increase its value, without proper accounting. This one step is very fundamental, and many investors tend to make mistakes. There is no alternative to having accurate accounts and up to date recordings. There is need for you to know all that happens as regards the finances of your business. Outstanding accounting will ensure you have an idea of how your business is doing; if you are making profits, when to sell, market trends, where the problems lie in your investment. Investors need to be very careful about getting involved with businesses or real estate properties that do not have accurate or efficient account keeping. Hence, there is a need for you to have a team for this as knowing when to ask the right questions will go a very long way in making your business decisions way easier. Costly mistakes will also be avoided, so go there and get things done, network, and get a team of the best minds, with your interest at heart together.

Networking has been mentioned earlier as one of the keys to building a great team. Other factors to consider when deciding to build your team is first to get your house in order. This is one fundamental thing always to consider. In line with Jan O’Brien of the Real-estate builder, who asserted that the foundation of building a successful real estate team is to have your own house in order first, as every play starts with a flexible game plan. In building a team, you need to set your aims and objectives, set your revenue goals, and reconcile these factors backward to see or determine the leads and the team members you would need to meet them. Other facts to consider are:
• Always know who to hire and when to hire
• Be sure to do your math
• Never forget the little things: this is essential as when growth happens; consistent growth at that, there is the tendency to forget the most important things that stick to the mind of our clients when business is concluded. There is a need to make a good impression and strive to retain it when carrying out businesses subsequently. Never make the mistake of forgetting or ignoring these little things, which instigated the growth of your company in the first place. There is a need for consistency. Be proactive with your decisions, be relatable as most times clients do not have the sound understanding of real estate as you do, a significant reason you are in that position. Hence there is a need for you to strive to make sure your clients make the best decisions that would accentuate their bargaining and investment positions.
• Be sure to hire right
• There is also a need to make use of these recommended four trait personality combinations. This assessment is one that has been touted by leading opinion givers in the industry and how these personality traits have come to influence investment decisions. Each team member can be asked to rate their affinity or propensity for each of the following characteristics.
1. Dominance
2. Influence
3. Steadiness
4. Conscientiousness
Lastly, with this compilation, we are of the hope we have been able to fully explain to a real estate investor or participant on the need to get a team together, assemble individuals of integrity and reputation to make these crucial decisions on your behalf.

Image: Pixabay

Single Family vs. Multifamily Family Real Estate Investing

When the term real estate is mentioned, it is mostly linked to investment opportunities, and it is seen in financial circles as a credible means of getting legal, enduring and long-lasting value for money. In plain terms, it is said to refer to properties, lands, buildings, and anything you might think of that links land and money together. As unusual as this may seem, this term is said to even include air rights above the property and the underground rights below the land. Many legal struggles have erupted over this in contemporary times; hence, it is imperative to fully define the term which would be a recurring term in this compilation. The word means precisely its literal meaning; it is said to refer to a real entity, a physical property, something that can be seen with the eyes. Most constitutions have now restricted the term to those with legal rights to the property. There are generally four (4) types of real estate, namely;

  • Commercial real estate:
  • This comprises of shopping centers, malls, hotels, academic buildings, hotels, and office installations. Apartment buildings are regarded as commercial entities even though they are used as residential spaces. In so far, they are erected to provide income.

  • Industrial real estate:
  • This is said to include all buildings and properties used for manufacturing. It also encompasses buildings erected for purposes such as for research, the production, storage and distribution of goods.

  • Land:
  • In economic terms, this is said to refer to any vacant piece of land, a marked portion, a geographically bounded space, farms, and settlements. Categories include subdivision and site assembly plots, undeveloped and early development or reused land.

  • Residential real estate:
  • This includes both homes under construction, newly constructed homes, and even resale homes. One prevalent category is the single-family homes; Condos, duplexes, bungalows are also included in this category.

REAL ESTATE-MULTIFAMILY INVESTING:

Real estate investment is that which is said to be a viable alternative for those who are unable to stand the unpredictability of the stock market. Real estate is also one which is a better investment option for investors who wanted to take their earnings from investing a notch higher. Instead of setting their funds only to be managed by someone else. For an arrangement that was prone to many external factors. One very effective strategy utilized in real estate is rental property investing. This is adopted mostly by investors who want a steady income aside from the slow, trickling, but sudden increases in the value of their leading portfolio. This is one strategy that has been adopted by many investors, including the moguls in the investment world such as Zhang Xin and Donald Bren were said to have built up a large percentage of their fortunes by investing in a range of commercial and residential properties. Some other multimillionaires have also made incredible profits from developing various commercial and residential properties. In terms of residential real estate, one of the types of real estate investments highlighted above, there are two types of properties one can invest in; they are Single-Family and multi-family investing. Single-family apartments are those with only one available building or space to rent. They are mostly residential buildings, but they do not have that much potential for maximized returns compared to multi-family investing. Comparing to multi-family investing, they are commonly known as apartment complexes; that is residential buildings built together with more than one rentable space. Over time, some of the advantages of investing in multi-family real estate settings include;

• You should consider that growing a single portfolio takes less time: The real estate multifamily setting is very comfortable for an individual who wants to build a relatively large property. Taking control of a single 20-unit apartment building is easier than managing 20 different home settings with the possibility of working individually on each property, different realtors, separate loans, while all the back and forth can easily be made by investing in a single multi-residential property.

• Multi-family Real estate investment is more expensive, but it is a lot easier to finance:
As expected, the cost of acquiring a multi-family property would be higher than investing in a single-family setting. But this should not be a bother, as multi-family settings are way easier to handle financially. Securing a single-family proeprty can go for at least $40,000, while a multi-family environment can go up to the tune of millions. And the choice may be obvious, but you might have to reconsider. Getting loans for a multi-family proeprty is far more comfortable than for a single-family property due to the significant cash flow that multi-family properties generate every month. The possibility of foreclosure on a multi-family asset is not as high as that of a single-family property.

• The owner is in a position to make reasonable financial decisions:
This is in the case of real estate investors who do not participate in the actual management of their properties. Instead of monitoring themselves, they seek a competent property manager who does all the work and monitoring. The manager is paid an agreed percentage of the monthly cash flow the property generates. In light of this, instead of splitting percentage margins across different properties, only a single property is considered. This allows for reasonable financial decisions to be made and will enable investors to take maximum advantage of the services property managers offer.

Multi-family investment settings provide a whole lot of opportunities. With these types of investments, it is not advisable to jump into investing without a template or the needed expertise and management capabilities. It is ideal to make your findings before jumping just into any multi-family investment window. Randomly window shopping would not be enough as it requires proper planning and financial evaluation of the about to be acquired property. The natural progression for serious investments in the world of real estate is to start with local family single family properties before moving on up to large scale multifamily establishments. The possibilities with prompt investment in multifamily units are endless and the industry has continued to grow with some positive projections going into the future.

Some reasons to invest in multi-family investing:

Aside from the boundless, timeless opportunities presented by real estate multi-family investing, investors generally do not shift from single-family real estate investment to multi-family investing. Some reasons precede most decisions. Some of the reasons alluded to the shift include the fact that it saves time; this is generally the biggest perk of investing in multi-family properties. Opinions have agreed on the singular point that it allows for efficiency in management and increases the possibility of making better, informed decisions.

Another primary reason is it allows for better control. Real estate investors all agree that investing in multi-family units allows for more control. Control to mean that since net operating incomes drive a lot of multi-family real estate investments, buyers tend to also look at it as a business, and as for the operator, you can effectively drive the net income which directly translates to the value one can get out of that.

Factors that influence multi-family investing:

Nearly everyone has the dreams of investing in a credible venture that would steadily bring in income. Real estate also affords that opportunity, but there are certain factors, qualities that an investor is expected to possess and how certain factors can influence a potential investor’s decision in the long run. These perceived factors are highly influential in the decision-making process. Some of these factors are:

  • Business plan/preparedness
  • Capital
  • Partnership
  • Experience
  • Mindset/Comfort Level

As mentioned earlier, the typical progression among real estate investors is from starting with smaller, scattered single-family units then gradually easing into large scale multifamily units that can house multiple families, with a central factor still on making a stable profit. It is known that once this progression is made, there are specific ways of making a significantly higher income by looking for off-market deals. Newer and larger multifamily settings are listed with a competent broker coupled with some assured online sources. These multi-family settings typically classified from the more modern class A units to the much older class D units. In descriptive terms, a value-adding multifamily unit generally is hard to find, as they are not readily advertised or listed. However, searching for class B off-market multifamily properties are considered as viable alternatives. The more massive and more complex the property a real estate investor is looking for, the harder it is to find on the market. To identify and acquire top-notch multi-family investment opportunities, one has to be creative. Many of the deals involved in landing these properties are built on forming enduring relationships with partners or one investor to the other. Another is through extensive networking, and if you are referred from one investor to the next. As mentioned earlier, finding quality multi-family housing units remains a severe challenge. Many cites in the United States are opening up and attracting real estate investors. In real estate, plenty of programs exist for when a potential investor is searching for single-family housing units. But this is not the case with multi-family settings. It is advised that thinking outside the box is required in these instances; to locate functional multi-family units suitable for investing in.
Every investor seeks to make maximum profit on whatever venture that eyes are set upon. You would not want to dabble into an idea without considering its Dos and Don’ts. Here are a few tips that are sure to come in handy when you are looking for a multi-family real estate opportunity.

• Calculate your cash flow:

This is highly crucial, as estimated mortgage dues are part of the equation in this step. Calculating your estimated monthly income or cash flow, be sure of the money you want to invest in your chosen portfolio, then subtract the monthly NOI agreement from your potential property. The simple calculation highlighted above would help to determine your cash flow estimate, and in the long run, learning if investing at that particular point in time would be worth it.

• Know your limit rate:

Before investing in real estate, multi-family properties for that matter, be sure to calculate your limit rate. To determine your limit rate, the simple thing to do is to take the monthly NOI, multiply it by 12 which is the number of months in a year to get the annual number and then proceed to divide that amount by the total mortgage amount. The main thing to understand as regards to the limit rate is to know that increases in the amount do not readily translate into better fortunes. It may indicate risk and a higher return. One common thing brokers do is to capture a rate between 5-10% and anything smaller, the investment may not have enough income. You want to be sure you fully understand all the risks associated with investing.

• Remember to find your 50%:

One of the best ways of analyzing potential investment opportunities is to check out the numbers to determine the protenital gross income. This is done by calculating the difference between the expected rent and projected expenses in owning the setup. When one does not have to know all information about a potential property opportunity, only what one has to do is to use the 50% rule. The difference between the estimated revenue and projected monthly expenses is the net operating revenue and it is USUALLY around 50%. This is a very rough estimate.

• What to check before deciding to invest in multi-family settings:

Taking random walks or a drive through the neighbourhood is seen as means by which one can come across a property begging for an investor. This is not always the case as finding the ideal estate requires much more than random navigation. Investors need a credible groundwork to analyze and evaluate the financial consequences of investing in a property. The following checklist should be considered before investing in a real estate opportunity;
• Cost
• The seller
• Location
• The total number of units.
Be sure to do your groundwork before considering investing in a multi-family property.

Getting Started in Multifamily Apartment Syndication

By now, the term multi-family real estate investment is not new; in investment circles, it is a collective term as it is a proven wealth creation vehicle. Foremost billionaires and many high-ranking individuals made a bulk of their fortune through investment in multi-family properties. Although this was not possible without these concerned individuals having top-notch knowledge about what they were delving into. They continuously do research and update themselves coupled with the association with some of the best minds in the real estate mind. Knowledge is indispensable to crucial decisions and that is what this medium is trying to achieve by continually providing you with tips on how to successfully invest in multi-family real estate. With this topic; multi-family syndication. Syndication on its own is said to mean the pooling of resources together to achieve a unifying objective. The pooling together of resources can be in the form of time, money, expertise, etc. it is done as mentioned earlier to achieve an objective that is otherwise impossible to achieve alone or might take time. Then in plain terms, multi-family or apartment syndication is said to refer to the coming together of multiple parties to jointly acquire and own a venture to make money together. Real estate experts often see apartment syndication as a faster way of getting returns on investments that might otherwise take time to profit on.
Multi-family syndication is often seen as a way of raising money from passive investors and buying high valued apartment buildings. Over time, some creative ideas have been fashioned out as the ideal ways for you to get your foot in the door with multi-family apartment syndication. You do not want to be a newbie just walking around in uncharted territory. Below is a list of ways to start in apartment syndication.

  • Conservatively underwrite deals
  • Take your time to find an excellent off-market deal
  • Negotiate and deconstruct all the strange terms; get all legal documents in order.
  • Secure debt financing (if this is applicable)
  • Raise capital and be the point person for all capital sources.
  • Do property management.

To correctly state, multi-family syndication is a form of a group investment. In this type of real estate arrangement, individuals known as syndicators are allowed to share all the profits and losses regarding the investment. For multi-family syndication, here is how it works; the key players in the partnership are referred to as general partners and limited partners. The limited partners are also referred to as investors. General partners are mainly responsible for putting together the whole arrangement. They are like the brains behind the entire set-up. They bring passive investors to the negotiating table regarding the venture to be embarked upon. General partners typically refer to a group of registered syndicators who are specialized in the different aspects of multi-family syndication. They contribute to finding the right deals, underwriting it, they secure finance, and they gather and form relationships with investors for lasting profitable dealings.
While the limited partners, on the other hand, are passive investors, as mentioned earlier. They invest money and expect returns that are equity in the deal. For the money invested, they are entitled to cash flow from the profits the investment generates. They also receive either monthly or quarterly reports on the performance of the asset. Not to forget, there is also a vital part of the syndication arrangement that has not been mentioned. This is the property management group. They help to manage the day to day operations of the property along with any other employed onsite staff, and they are also responsible for the execution of the syndicator’s business plan. The role of the property management group mainly becomes active when a contract is in place already. During the time which they go in and help the general partner with the due diligence process. They evaluate the property structure and any aligning issues or environmental matters that have not been previously considered. Other factors crucial to a successful syndication arrangement include:

1. The Market:

What is any viable investment opportunity without a market? The very first step in a long-lasting value-adding apartment syndication strategy is to choose an active market. Optimum markets are mostly those with high growth metropolitan statistical areas with more than an average population coupled with job growth and employer diversification. Another vital factor to consider in terms of market structure is the rate at which the market rent is growing. Without any renovation or value-added service to the existing structure.

2. The Property:

After identifying a stable market, another thing to consider is the ideal property. The most common practice is to find stable properties with conservative underwriting that will also bring about the much-needed profits. There is a need for the property to be stabilized as a property that is already performing, but not up to its full potential provides only little risk. The identified property should add value as mentioned earlier, as the gold spot is to find a property that will be strong enough to withstand renovations and rebranding that will improve its value. The property should not also be too old to cause money loss due to failing systems. There is also a need for due diligence to be performed on the property, random checks coupled with a thorough financial audit to discover any undisclosed liability.

3. The Business plan:

After the property to be invested in has been locked down, the partners together with the property management group, start the implementation of the value-adding plan. This is simply a means of increasing the net operating income. Renovations, both interior and exterior and other forms of rebranding are done to increase the value of the overall structure. Other assured ways of increasing the net operating income are to find ways of improving revenue-generating facilities in the acquired structure, such as the laundry area or by tightening operational leakages.

4.An Exit Strategy:

This follows after a long-lasting, and any adverse policy tight business plan has been implemented. It is now decided that it is time to either hold or exit. This crucial step is dependent on the principal investor’s strategy. How long the business plan holds depends entirely on market conditions and its stability.

5. The Money:

We saved the best for last; money makes the world go around, and it is crucial to the success of any business plan or future projections made. In an excellent multi-family apartment syndication deal, everyone wins; both the buyer, the seller, the investors, the property management, and the real estate broker. The sponsor’s share of the profit is the split from the limited partners, and a second form of the revenue for the sponsor comes in two forms; the acquisition fee and the asset management fee. Limited partners who are the passive investors and significant stakeholders in the business arrangement receive a large percentage of the profits from the operations and sale of the asset depending on the proportion of their percentage ownership. At this point, it is advisable to note that the splitting of the profit is not uniform, and they differ from structure to structure and will also vary by sponsor. The property management company for the random checks and the daily run of the business earns their share of the profit in two forms; from the construction management and the property management fee.

Benefits of real estate multi-family syndication:

1. Reduced Risk:

Acting as a passive investor and plugging funds into a real estate venture involving a syndicator is one with fewer risks. Compared to single-family housing units, which are like investing all your money in only one pocket. In that instance, although you may own 100% of the deal with regards to profit, you are also exposed 100% to the risks surrounding the investment; and this is not the deal with multi-family syndication arrangement, where you also get to share the risks with other investors.

2. Stable Value Creation:

One primary reason for investor’s preference for multi-family concerns over single-family housing units is the value it creates over time. Unlike single-family housing units that solely rely on market fluctuations and neighboring home prices, as an investor in a multi-family syndication venture, the syndicator has ultimate control over the value of the property and from time to time only finds ways to increase the property’s net operating income. The appreciation of capital can be achieved slowly and gradually over time.

3. Binary Occupancy:

Multi-family investments, according to research, have an average of 93% occupancy. The larger the property, the insignificant few tenants leaving is. However, this is not the case in a single-family unit as when your tenant leaves, you are left vacant and have to cover expenses from your pocket which can be disastrous in the long run.

4. The Advantage of Time Commitment:

Passively investing in a business set up is usually less time consuming than active investments. Investing in a single-family unit is deemed time-consuming as you need to find the real deal, handle the loan, and carry out the due diligence tasks yourself. With a syndication deal, you have a qualified person handling all that for you. Syndicators are responsible for maintaining the property and profits also come to you through a syndicator.

5. The Economy of Scale:

The handling of single-family units can be demanding. Operating expenses required are on a larger scale especially if the single housing concerns are scattered all across. Syndication provides the property management group necessary to handle all the changing dynamics involved in managing a multi-family housing unit. The management of the tasks linked with the management of the property while also being under the direction of a qualified and assuring syndicator.

The main advantage of multi-family syndication is that it expressly allows investors to take the full benefit and experience of the main sponsor, as capital is expertly aggregated amongst investors. Collectively investors can acquire high valued multi-family properties that would be unobtainable using a single fund source. The risks are also equally dispersed amongst the investors, coupled with the reasonable adjustment of investments at a comfortable risk level.

After discussing the advantages of joint investments in multi-family housing units, it is only normal for us to briefly mention some of the risks involved and some of the issues to watch out for. Here are some mistakes you should not make. Even though syndication is mainly an avenue to get maximum returns on investment, there are some mistakes a potential real estate investor should not make in multi-family syndication ventures. One is to avoid legal troubles as much as possible. Real estate is a legitimate business and one should aim to make it remain as such, endeavor not to have issues with your paperwork, violate regulatory guidelines or intentionally or accidentally mislead your investors. Legal tussles burn one out, try to run as far as possible from it. Else you open yourself to liability.

Another issue to consider is the issue of funding difficulties. It can be hard to know if to start with finding the right deal or locating the investors. Funding should be lined up first before finding the right contractor. Rookies in the real estate industry often make this single mistake. There is also the factor of non-existent or inconsistent marketing and this is in line with the issue mentioned earlier. There is a significant need for a consistent approach to marketing real estate opportunities to catch the fancy of investors. So, you are ready whenever the opportunity comes knocking. If you are trying to syndicate in multi-family investments, you are also in marketing, and you should be in charge of building your pool of credible investors by the development of an intentional plan to be out there and attract potential investors while also keeping them engaged as you continue to search for good deals to keep them interested. We do hope all through this compilation, and you have learned the basics of multi-family apartment syndication, the major parties involved, the roles of each party and the benefits and risk associated with syndication strategies. Cheers!!

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