Category: Education

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!!

Image: Pixabay

Branding Your Real Estate Business With Thought Leadership

Every establishment needs to be in touch with potential customers; this is not an exception with real estate investments. Branding thought leadership is essential to real estate dealings. This compilation aims to highlight the benefits of branding considered guidance in navigating the murky waters of the real estate world. Every outlet for business wants to offer that service which is irresistible to those who desire optimum and quality service delivery. Thought leadership in relation with real estate businesses aims to allow real estate service providers related to the problems faced by potential customers; it will enable customers to think highly of your brand and its uniqueness, highlighting the different issues faced and in conclusion setting apart your brand from other players in the field.  Ideally, all dealings in the real estate world solely involve surpassing your well thought out goals, and it consists of producing the results that, in the long run, positively affect your brand.  However, if you want to be a decisive leader, one whose opinions are defining on its own, if you desire to position yourself as a leading voice, by having a distinct brand. One of the best decisions to take in becoming a commercial real estate thought leader is to be consistent and continuously find ways to position your brand as being influential and authoritative.

This involves taking well thought out steps, calculated steps to be a thought leader in the widely acclaimed real estate leader. This is not one status that is attained in a day; it involves deliberate efforts to learn more about the field, creating a credible notion among your peers that you are conscious about this and you are well aware of all the implications and what it takes to be a real estate thought leader. There are many assured ways of doing this; but the most credible forms of gaining a voice in an already stifling industry is to be intentional about the steps you take; growing you and your team’s presence through reliable means such as education, research and long-lasting investment in the industry coupled with assured commitment to your immediate community.  Let’s paint a scenario where you already have a successful real estate outlet, a thriving brokerage business. At all, you are on this page because this is one of the dreams you want to achieve in no distant time. You already know your industry, and you have, through consistent efforts, defined your niche, and you also intend to help others grow in that geometric growth you have experienced. Now how would you go about this? How would go from just a business start-up owner, from one random innovative individual who has an outlet for the buying and selling of assets in the real estate world to the assured and proven expert on real estate matters; a trusted and assured source for consultations on issues of interest, one oozing stream of knowledge for those who dare to tap from this knowledge you possess.

How do you become a unifying voice of inspiration, a defining voice who is passionate about transforming ideas into reality and shapes the way others think about their industry? One particular way to go about this is simple; you work on it and with consistent efforts channeled in the right direction, you are really on your way to becoming what you so much desire. In line with the common saying that Rome was not built in a day, becoming a thought leader, a branding-thought leader in the real estate world is not a day’s job, and it merely does not happen overnight.  It is always the endpoint of determination, consistency, intention and diligence. But with a fast-developing global world, there are many routes you can take to get to that point; depending on you, these routes may even be faster than others. Here are some tested and assured ways you can attain your goal. There are three (3) critical steps to follow in your way to becoming an opinion leader in branding thought leadership. Some of these are:

  1. Take consistent and calculated steps to grow your audience:

Expanding the reach and increasing target audiences is one of the ways emerging businesses expand and drive home their influence. This is not one strange way for you, too, also become a leader in your chosen niche. This is seen as a natural extension of associating with similar industry experts and thought leaders. In linking with individuals or brands with similar aims and objectives, the same goals as yourself, then you are on your way to continue making your voice heard. In doing this, the audience of those you relate with would also become your audience. This is not one difficult thing to do, and it is not one rocket science. It is a typical move in the business world. Take for example, relating to a marketing firm committed to expanding the frontiers of the real estate world. By doing this, you can develop a reliable, loop-hole free strategy to aid your goal of becoming a voice to reckon with in the real estate world. Coupled with this, the use of website blogs, periodic newsletters, and in recent times the use of email marketing, will also further deepen your influence and expand your reach. This is even easier if you have a niche and drive conversion, and each time an individual or a prospective client reads any of the articles or clicks a related link, you have ultimately grown your audience even if it is by that one person.

One guaranteed way of expanding your influence is to be ready to participate in related speaking engagements. Do not turn down any chance to physically speak to like-minded people, to share your dreams with other participants in the industry. Such audiences will want to talk to you, they will want to interact with you and know more about the plans you have, they will ask questions, interactions will be done and in doing this, you will learn more and become an expert in your niche. When doing this, do not forget to record your meetings, these interactions, even take pictures and share on popular social media sites such as YouTube, Facebook and Instagram. By doing this, you can still interact with individuals who are not privy to these physical engagements but are also in the same real estate industry as yourself. Through these mediums, you can even answer other questions thrown at you. This way, you have killed two birds with one stone and you have succeeded in participating in both online and offline interactions. In all, the earlier mentioned mediums if well utilized, have the potential to build your image to the desired level in the industry.

  1. Endeavor to associate with the right people:

As with the common saying, like minds attract. Within professional settings, you should only interact with the right people. Those with which you share the same ideology; building a following among the groups you intend to serve is that which takes time but will yield the needed dividends in the long run. Forming valuable relationships like this is sure to help you with lead generation and drive conversion through the power of attraction rather than promotion, in line with industry experts. In your association with proven opinion leaders in the real estate, you have the opportunity of tapping into their reputation and the needed influence while also expanding your audience by association. In the long run, you will find it that these top opinion shakers will become your peer group within the industry. As it also the norm with other human associations, the people you relate with will tend to help you with your dreams as they would have found out that you share the same ideas and goals for the industry. They are more likely to recommend you to their contacts, their circle of influence as one trusted authority. Hence creating invaluable awareness for your establishment. You also do not have to be concerned if you are increasingly thinking that you are doing too much leaning. It is more like a symbiotic relationship as they also have much to gain by their association with you. As you are indirectly helping to further drive down their influence as a loud voice in the industry.

  1. Network, Network, and never stop Networking:

As it is often mentioned in public circles, the world is one global village. The internet and social networking apps and facilities have made linking of the chief director to that influential individual deep in the tropics of Africa possible. To become a leading voice in the real estate industry, deploying the use of social media should never escape your thoughts. Platforms such as LinkedIn, Twitter, Facebook, Instagram, and other similar social media applications have been known to help in further providing exposure for your startup. Platforms that have been implicated in the times past to be capable of influencing something as crucial as an election. Think about the possibilities and numerous advantages it can provide for your emerging firm. In the use of these platforms, the timing and placement of your links, observing the current trends and latching onto them can help to launch your brand into the public eye, further elevating your position as an emerging thought leader. Learn how to make use of search engine optimization, be on the lookout for rare opportunities than can help to grow your brand. Join reputable and assured platforms where you can list your properties. Platforms that show current market growth, which highlights your reach, shows its relevance and overall helps to position you as a business leader. In another guise, learn that becoming a voice to be reckoned with in the real estate industry is not a day job, its not something that happens suddenly, it is painstakingly done through consistent efforts; it is more like a marathon other than a brisk sprint. There is no reason to do all the above highlighted within a short time. Take your time to learn the ropes and work at your pace to achieve the lofty goal of becoming a branding thought leader in the real estate industry. You want others to acknowledge you as one with the experience, an expert, one that is worthy of listening to and solving related complex issues. This requires time; put the right effort and watch your circle of influence gradually increase.

Thought leadership is considered a very vital part of brand building. It is not an activity that can be done in a rush. Every business owner wants the brand to grow; we all want to achieve the geometric increase that has been panned out for our brand. According to industry experts, becoming a leading voice in the real estate industry requires you sampling the thought leadership template of established brands and think about how it can be applied to your establishment. What most of these top companies do is take ownership of the main issues that are responsible for driving forward the company. By owning these issues, they can effectively respond to dynamic marketplaces, and in doing this, they can redefine and lead in their respective industries. Thought leadership campaigns had been known to align with how world-class firms in the industry make use of marketing, build lasting influence and go through the extra work of delivering value to their numerous clients irrespective. Other tips by which you can become a thought leader in the real estate industry include; let it be known that these tips should be applied based on that which fully applies to your establishment. These tips are;

  • Creating a business blog: make use of a properly designed blog while offering trendy and valuable content to drive home your opinion. Gone are the days where blogs are dismissed as trivial and insignificant. Check the statistics of the proportion of the world’s population with an internet-enabled phone; then, you will get a grip on what we are trying to pass across.
  • Contribute guest blogs to other proven sites: This is also in line with you trying to grow your influence in the industry.
  • Write a column for your local newspaper
  • Create a vlog or podcast
  • Be internet savvy- answer questions on social media

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10 Tips to Growing Your Network and Building Relationships

How many times have you heard someone say “it’s all about who you know”, or “it’s all politics anyways”? Probably quite a few times, and in a broad range of circumstances. While many people do all they can personally to be successful, all too often hard work and talent go unrewarded because someone’s nephew also happened to be going for the same job. Whether we like to admit it or not, favoritism is an omnipresent force in the world of business, politics, government, and any other situation where human beings are making decisions on behalf of an organization or group. This is likely to be the case for a long time, because as long as human beings are making decisions on behalf of companies, basic preference is going to play a role in making those decisions, whether consciously or not.

This is why networking and relationship building is such a critical piece of success in today’s business environment. Failing to understand and build competency in networking and creating bonds with people is just as bad as neglecting one of the core functions of your job. With that in mind, we’ve put together a list of ten tips for networking and building relationships.

Being intentional about networking and relationship building will serve you in many ways throughout your professional and personal life. Having a network of people who are willing to help you out however they can will be a resource like no other. Life is unpredictable, and you never know how a person might be able to help you out at some point down the road or how you may be able to help them as well. With that in mind lets take a look at ten ways to be better at networking and relationship building.

Let’s start with networking. Networking is the actual act of generating new connections with strangers. It can be done at business events that are set up specifically for networking, or at your local restaurant. Good networkers are people who are adept at making connections, no matter where or when. Let’s take a look at some tips to getting started in meeting new people!

1.) Get involved

It’s difficult to increase the reach of your network if you spend time doing the same things, or nothing at all. One of the first things most people can do to become better at networking is simply to be more active in the community! People don’t always want to meet you in a business setting, ski clubs, fishing clubs, sports leagues and any other number of activities are a great way to grow your sphere of influence. When people get to see you in these settings, they can build trust and get to know you personally. Give people the opportunity to see you in a low pressure, informal setting and the opportunities for friendships will multiply quickly. Someone who is actively participating in groups within their community will make more connections in one year than others do in five, putting you ahead of the game and increasing the number of opportunities available to you.

2.) Be interested

One of the most common mistakes people make in networking is the way they approach making relationships. While this is an activity that can drive business, you don’t want to be overly directed or transactional when making new connections. When walking into a networking opportunity, seek to develop a few solid conversations rather than gather as many business cards as possible. People won’t remember the person who walked up to them and took the first opportunity to ask for their contact information, and if they do it won’t be fondly. Seek to gather conversations instead. Talk to people about themselves, who are they, what do they care about? This information will be much more valuable than a business card and will open a doorway to a potential long-term connection.

One thing to keep in mind is that people are excellent at spotting someone who is not being authentic. Avoid coming across this way by asking questions and talking about things you care about. When people get to see you in your natural element, they get a chance to build a connection with you on a human level. This will make potential business relationships in the future that much easier.

3.) Set and track goals

One of the most important things you can do to increase your rate of success at just about anything is to be highly structured in how you set and track your goals. Keeping track of attempts and their outcome will serve you in two critical ways. On one hand, having solid information about your successes and failures will que you in on patterns that you may not notice otherwise. If your goal is to attend networking events in your area and generate clients from those events, you may notice after a few weeks that evening events tend to yield the highest results. Maybe Friday’s are your best day of the week because you’re the most relaxed and conversational. Measuring your success allows you to optimize for more of it!

The second benefit of setting and tracking goals is increased awareness this will give you in the moment. When you know exactly how many people you need to speak to in order to generate one client (because you’ve been tracking those numbers) you will be more willing to go the extra mile to strike up one more conversation. Having the goal at the top of your mind while networking will make you that much more successful.

4.) Cup of coffee

Never underestimate the kindness of strangers. One of the most powerful tools in your belt as a networking professional is the cup of coffee. Identify people in your network who are outside of your reach. The owners of companies, established professionals, or that intimidating local attorney you see on billboards in your hometown. You may be surprised to find how open to helping these people are. Many times, people in at the top of the ladder got there due to a few hands down over the years. They will enjoy paying it back by offering the same opportunity to those who ask. Simply send a message over LinkedIn or call their office directly, tell them you have a great deal of respect for them and you would like to get their opinion on a few of the things you’re working on.

Setting this meeting up as a chance to pick someone else’s brain will make them feel valued and respected. This is also a low pressure ask for a meeting. When you make it about asking them questions you remove much the fear that this is a sales pitch for something. Take advantage of this opportunity by asking them thoughtful questions about the industry your in. Don’t ask for another appointment, and don’t ask them for business. Ask them if its alright if you keep in touch. Congrats! You just developed a long-term mentorship relationship with a successful and connected member of your community. These are the kinds of relationships that can prove to be invaluable over the years.

5.) Do what you love

Have you ever become frustrated in your networking endeavors by the difference between work talk and everyday talk? Have you ever said something like “I don’t get it, when I’m at the baseball field I can always carry a conversation with anyone, but as soon as I get in a business setting, I freeze up”? If you’ve ever been concerned about this it may be because those business settings are unnatural! If you don’t get excited about cars, and you aren’t terribly interested or informed in this area, a muscle car convention may be a difficult venue for you to have success networking within. While it sounds cliché, its true. If you do what you love you’ll never have to work a day in your life.

Doing what you love also makes you unconsciously competent at whatever your doing. You won’t be able to help but become an expert in your passion. This excitement and passion will come through in your conversations with people and you’ll find that when your doing what you love, people will actually seek you out as an authority on the subject. Keep this in mind when selecting networking opportunities. Is this going to give you an opportunity to showcase yourself in the best light? Or is there a better opportunity somewhere else out there?

Developing Relationships

So, let’s say you’ve taken some of the steps mentioned above and you’ve developed a few introductory conversations with new relationships. Now the real challenge begins. Making the connection is just the first step, anyone who is truly successful in building their network is competent at creating long term bonds with people. In that spirit, here are five tips to help you further develop relationships in your network.

1.) Be kind

This may seem obvious, but being gracious and friendly at all times really goes a long way. In the same way that you never know how a relationship can generate benefits for you in the future, you never know when someone you’ve offended will be in a position of power over you at some point down the line. Aside from avoiding this uncomfortable scenario, having a reputation as a nice person will make it easier to develop relationships with new connections and to grow established relationships. When someone has heard good things about you, they are much less leery of allowing you into their inner circle. When people know what to expect from you day in and day out as a kind and thoughtful person, they will be more willing to engage with you in the long term.

2.) Be generous

A bank representative attending a charity event for a local children’s hospital had his number called at a raffle. He won a TV! Rather than quietly accepting, or better yet, passing the free TV off to the children of the family sitting at the table next to him, he loudly exclaimed “I won! I already have all the rooms in the house covered so this baby is going in the garage for football!”

This was a story I heard after setting an appointment with this banker hoping to create a referral relationship. As insignificant as this moment seemed to him, this unfortunate banker had rubbed many people the wrong way that night. The optics of the well-off banker who already has more flat screens than he needs gloating and bragging about his win was less than positive. It just so happened that my future manager would be sitting at the table next to him that night. That decision he made years ago to behave in a greedy fashion is still rippling negatively through his network years after the event.

So spread the love! One of the most important factors someone considers when building a relationship with you is whether or not you care about others. More than just being kind to others, be generous to others. When a big sale is on the table, bring in one of the new members of the team. When you win something at a charity event, pay it forward and give it to someone who needs it more. Whatever you put out into the universe you will get back several fold. If you are unselfish and show people that you care about others and are willing to give to them, they’ll be much more likely to give to you in the future.

3.) Create comradery

One of the easiest ways to build relationships is to create comradery with people. There are many ways to do this, but they usually revolve around building a one on one, special connection with someone. Create a running joke that only the two of you are in on. Develop a nick name that you give to someone in your office (make sure it’s positive and they appreciate it). Singling someone out for individual attention let’s them know that you care about them on a personal level. You see them as an individual and you’re interested in building a relationship with them. You’d be surprised at how far simply individualizing your interactions with people goes. Don’t be the person who walks into a room and says the same thing to everyone. Canned “how are you?” conversations won’t be very emotionally compelling to someone. Seeing someone and asking them about their favorite sports team or playfully bringing up a success they’ve just had will stick with them.

4.) Notice and appreciate

Another key aspect to building lasting relationships is to show that you care. You should be looking for opportunities to applaud or identify individual efforts, noticing successes and commiserating with failures. This will help to put you in a person’s corner and show them that you take a personal stake in their success. At the end of the day, people just want to know that you respect and care about them. Make sure your actions, and words are geared towards building people up and treating them as individuals. Being a good listener also comes into play here. People take notice when you ask a thoughtful question about something, they said last week, these small gestures will build over time and will begin to tip someone from a prospect or a new connection into a friend.

5.) Be Authentic

This should go without saying, but when implementing anything suggested in this guide, make sure you’re doing it for the right reasons. As much as some of these tips and tricks can help you improve your reputation and networking abilities, nothing will hurt your reputation more than doing these things through a fake smile. Pretending to be interested in people for personal gain almost always comes through and will be a nearly impossible façade to keep up over time.  If that is the reputation you develop, it will become a serious headwind into your network building efforts. Not to mention the stress and work that being false in all of these interactions requires. When you are being yourself and authentically interested in people, you won’t be able to help but be interested in them and their success. If your faking it to personally benefit, that most likely will come through.

After reading through these tips and tricks, we hope you picked up a few actionable pieces of advice. Bearing in mind that we should be networking to help ourselves by helping others, using these tips can supercharge your ability to take make connections and quickly expand your circle of influence. One important thing that we did not discuss is to manage these relationships over time. Take opportunities to reach out to old contacts and keep in touch with them. Letting your connections rust is just as bad as never making them at all!

Beginning Your Real Estate Investing Career With House Hacking

For many people the idea of getting into “real estate” can be both exciting and overwhelming. Aside from the steep learning curve and the time investment it takes to feel comfortable making the leap into investing.  The idea of coming up with the capital required to purchase a property can seem unrealistic, especially for younger investors. For the aspiring real estate moguls among you, “house hacking” may be your first step on this journey. House hacking is the process of purchasing any multifamily property with the idea of living in one of the units while renting out the rest. It’s referred to as “hacking” for one simple reason. It’s a real-life hack! Think about it, everyone has to live somewhere. Take the thing that is an expense for everyone else and turn it into a revenue stream while making your rent cost zero!

Said another way, when done properly, house hacking allows you to have your tenants purchase a building for you, that you can live in for free, and they might even pay you to do it. All that you have to do is be able to finance the property. For this reason, this strategy is one of the best ways to get into real estate investing as it provides an opportunity to feel out real estate with hands on experience. Living in your investment property gives you more control over tenants and the property itself and will serve as an excellent crash course in real estate.

As we mentioned above, entering the real estate game can seem like a daunting task. Simplifying your entrance into this lucrative industry will allow you to actually take the all important first step with some confidence. Buying a house is something that most people do at some point in life anyways, why not make your first step an investment experiment? Most people decide to spring for the largest single-family home they can afford the first time around. While the thought of living in a multifamily can be un-attractive to some, a large single home can become a giant set of handcuffs for young couples. Being beholden to high monthly payments can prevent you from living life on your terms and could actually slow your road to the first upgrade.

Instead of tying your financial life to your home, create more freedom and independence for yourself while exploring a potential lifelong stream of income. This can be accomplished through hacking your first home. This strategy will not only mean no (or at least very low) monthly payments for the place that you live, it may mean having the place that you live put extra money into your pocket each month. While this is going on, an asset that can be sold again at any time is being purchased in your name. This double dip effect that house hacking can have on your net worth cannot be understated. Not only do you not have the drag of rent effecting your budget, you’re now free to re-deploy that money as a savings. With the average American paying around 30% of their annual budget towards housing, that will separate you from the pack in your ability to supercharge your savings.

So, if you’re convinced on the benefits of owner-occupying for your first home, your next question is most likely “how do I get started?”. This is a complicated question and the answer may depend more on preference than any perfected science. Once of the considerations in house hacking that one does not have in other types of real estate investment is the owner’s preferences. Where an investor typically plans to have someone else living at the property, and therefore is designing a space to be desirable to another person, house hackers will be living in and commuting from their property. This means that personal choice will play a much larger role in house hacking than in other types of investing.

Firstly, an investor has to know how much house they can afford. The simplest way to do this is to be pre-qualified by a mortgage underwriter for a certain size of loan. A mortgage originator will look at your current assets, your annual income, your credit, and several other factors to determine the size of loan that you will qualify for. Once you have this piece of information you can begin your search.

Location is critical when it comes to real estate so narrow your search down to an area that you desire to live in. Consider things like proximity to your work, amenities in the local community, and potential for your hobbies to be available to you in an area. While selecting a property, keep in mind that you won’t be the only person living there, and the success of your hacking strategy will depend on your ability to get your second (or third or fourth) units rented out. Balance your priorities with the types of tenants you would like to attract.

Once you have determined the dollar figure of the home you’d like to buy, and have the location selected you have to determine how you will be financing the property. While you may have done some research on this step while investigating your potential loan eligibility. Now will be the time when you make concrete decisions about how much money you’ll be putting down, how long your note will be, and the details of interest payments.

FHA loans are loans offered by the Federal Housing Administration, and offer certain benefits for first time home-buyers. These loans allow homebuyers to purchase property with very low-down payments. This is an appealing offer as younger buyers typically have little cash on hand.

For house hackers with connections to more seasoned investors, “hard money” is another route that you can go to secure funding. Hard money lenders are lenders who have plenty of money to put up, but usually are not looking to do much work for their part. Hard money lenders want young hungry investors to approach them with potential deals. Hard money lenders put up capital, and their partners do all the work to make the deal a success. For putting up this capital, the lender will usually expect a cut of the business on the back end.

For house hackers without connections to hard money lenders, more traditional lending options are also available. Standard mortgages are always an option, and there may even be special programs available to investors depending on their specific situation and the state that they live in. Without diving too deeply into how a traditional mortgage functions, understanding the basic features is important. A mortgage requires a buyer to put a down payment on a property, and also agree to make a series of future payments that go partly to chipping away at the original purchase price of the house, and partly to paying interest to whatever lender has put up the money to allow the sale to occur.

Funding and financing these projects is one of the more research-intensive aspects of house hacking because people looking to use this strategy are usually on a tight budget. Individual situations will vary greatly, but as a rule of thumb you should expect to pay around five to eight percent of a properties total value at the time of closing. FHA mortgages will allow you to put down as little as three percent, and expect to pay an additional two to five percent on additional closing costs and fees.

So, let’s assume that you’ve found a property that suits your needs and has additional space for tenants, and you have worked with a mortgage professional to determine how much house as well as how much cash you’ll need to get the project started. Now comes the fun part, the actual house hack! After these pieces have been put in place, all that’s left to do is to spruce up the property however you see fit, according to your budget. Additional money that you put into the property will go a long way to increasing the monthly rent that you’ll be able to charge your future tenants. That’s a good thing because the goal of a house hack is to ideally have someone else buy an asset for you while they pay your rent.

Additions that typically lead to direct increases in rental value are appliances, bathroom furnishings, hardwood flooring and conveniences like AC or in apartment laundry already hooked up. Just think about the things that you would pay more to have in an apartment and attempt to add as many of those features as you can. This will help you justify your rent when the time comes.

That leads us to one of the most difficult aspects of house hacking and that’s your tenants. Once you have your property purchased and set up, you can begin moving into one unit, but in order to make this hack go smoothly you’ll need to quickly fill the other unit(s) with good tenants who pay rent on time and respect the property as their own. This can be a challenge for many house hackers as this will likely be the first time that their learning how to work with tenants.

One of the most important pieces of the tenant search is setting your rental price. Before you purchased the property, you should have done some math to determine how much the mortgage, or whichever other financing method you chose, will cost each month. Ideally, for a successful house hack you would like to be taking in more rental income than you’re having to pay out. If you can even create an additional one or two hundred dollars of “cash flow” per month you’ll be taking advantage of house hacking. Imagine, every month, getting paid to live somewhere, WHILE someone purchases that place your living for you!! That’s the beauty of a house hack.

So, when it comes to setting rent, most of your work should be done on the front end. How much do similar apartments rent for in your area? Who is your ideal tenant and how much can they afford to pay? If you are evaluating a potential property and see that purchasing the home will cost much more each month than you’ll be able to charge in rent, it may not be a great investment opportunity. Try to identify potential properties in the area where your mortgage will be less expensive than the cost of purchasing a property, this will lead to the most successful hacking scenarios.

After setting your rents you’ll need to find a tenant, this can be done in a multitude of ways and the more different methods you use in attracting tenants the better. Cast a wide net and post your property on real estate sites, blogs, even working with realtors can be a good idea. The more potential tenant’s you have to choose from, the better the odds that you’ll find someone who is not only able to pay every month, on time, but will also be respectful to your space.

Hastily rushing the first person who shows interest in your unit could be a one-way ticket to finding thousands of dollars in damage for you to take care of when that person moves out. Ideally, hackers would like to find long term tenants to avoid vacancies while you look for new tenants. Footing the bill only a few months can erase any money that you’ve earned throughout the year on your property.

Aside from concerns about nasty tenants and standard hazards of owning a property that you may have to pay to fix, house hacking is one of the least risky methods of entering into real estate investing. Even for those with no interest in growing a business, free rent and ownership of a property with minimal cash outlay on your part should be attractive to everyone. Most Americans spend around thirty percent of their budgets on rent alone, saving yourself an entire third of your budget will allow you to save more, take more vacations, and will open up a world of possibilities not available to traditional buyers and renters

When done correctly, house hacking should be seen as a way to take something that you have to have anyways, and turn it into a profit center for yourself. When checks come in your mailbox each month, and when those checks cover your rent and then some, you truly are freed up to supercharge the rest of your financial life, not to mention the profit that one can make on the back end when they sell a property that was purchased with someone else’s rent check. If your interested in learning more about this, and other topics in real estate investing, make sure to subscribe to our mailing list!

How to Turn That Eye Sore Into a Business Opportunity

When you tell most people that you are a “real estate investor”, they probably reply something to the effect of “oh, you flip houses?”. Whether or not this assumption is true in your case, the fact remains that one of the most popular forms of real estate investment is house “flipping”. Flipping is a term used to describe the process of purchasing a property, putting some money, or some work into it, and quickly turning around and selling the house or the land for a premium. The term “flip” is used to describe the fast turnaround time of repairing and selling right away.

As we discussed above, “Flipping” is a term used to describe the process of purchasing a real estate investment with the goal of turning it around quickly and selling it for a profit. Typically, this process involves investing some money, and work into the property to help increase its value and the chance that it sells for a profit quickly. This style of investing is attractive for many reasons, these projects can be very enjoyable for those who are interested in the work of fixing up or making a property more aesthetically pleasing. The most common motivation for flipping a property is profit, and how quickly profits can add up. A seasoned investor with resources on hand can routinely clear tens of thousands or more per “deal” done. (A “deal” is a slang term for a property investment project). The name of the game in flipping is speed, and so profits can be realized very quickly. Like anything else, high potential reward can also mean a high potential loss if something goes wrong on your project. The purpose of this guide is to help clear some of those hurdles out of the way by highlighting key terminology, common pitfalls, and what to look for when getting into flipping.

So why flipping? Of all the different ways that investors can leverage real estate as an investment tool, why do investors select flipping over more common buy and rent or commercial property deals? The answer is simple, flipping is fast paced and offers a high potential of profits. Rather than owning a large portfolio of properties, each requiring a manager as well as a list of services and maintenance requirements, flipping allows investors to turn over their portfolio quickly and leave the ongoing maintenance to someone else. A flipper can purchase a home, fix it up for a month and immediately sell.

There are many advantageous aspects of this quick turnover flipping strategy, at the top of the list is low ongoing costs, as well as maintenance requirements, but flipping also allows investors to do many more deals in any period of time than other types of investing. Flippers also enjoy immediate lump sum profits. Where a landlord has ongoing payments and therefore small, steady profits over time, a flipper makes all his or her money all at once. They can purchase a property in the beginning of the summer for fifty thousand dollars and sell in august for seventy-five. When everything is said and done, our investor keeps whatever is left over after all closing and administrative costs. This results in tens of thousands, sometimes hundreds of thousands of dollars in profit being made all in one swing.

This allows an investor to quickly turn one hundred thousand dollars into much more money very quickly assuming everything goes well. Of course, that is not an assumption that investors can always make. As mentioned, any time there are potential high rewards, investors should expect an equal chance for financial loss. There are many factors that can quickly turn a great investment flip project into a drawn out and costly mistake.

One of the highest risks that a flip investor faces is the inability to sell a property for a profit after investing money in rehabilitating the property. Remember that each month an investor fails to sell, he or she is responsible for paying all costs of upkeeping and maintaining both the property, and the debt service on that property. Three months of interest, electricity, gas, other utilities, on top of any other cosmetic or structural work that an investor is paying for can really add up and chip away at any profit an investor may see. This market risk is one that should not be overlooked and can be very difficult to quantify and get down on paper.

For example, imagine an investor who purchases a townhome in a city that’s home to a large employer that brings many people to the community. A flipper identifies a property near the company’s headquarters, that will require just a few thousand dollars to fix up and get ready to sell. The investor, after looking into the numbers, identifies an opportunity to make around fifteen or twenty thousand dollars by selling the renovated property to an employee of this large firm.

The flip goes well, and after closing the needed work is done quickly and effectively, the property is in great shape and should sell quickly. Two weeks before the house is on the market, this large company announces layoffs at the local headquarters, and will be shifting its operations to other parts of the country. Nearly overnight, the value of this home has plummeted. With less and less employees in the area, demand for the home falls and what once was a property worth one hundred thousand dollars, an investor may have to settle for seventy. Instead of netting a cool fifteen thousand, our investor takes a multi-thousand-dollar bath for all the hard work they put into the project.

In this example, the investor did everything correctly and saw their investment derailed by something totally outside of their control. This market risk is built into flip investing and should give investors pause. It is critical to understand the economy and unique qualities of any area where a flip is being considered. While a buy, hold, and rent investor can stand to watch their properties value fluctuate over time, a flip investor is beholden to the local market as well as the timing that can come into play in relation to home prices in the area. For this reason, many flippers elect to invest close to home, or at least in an area where they understand local economic trends in real estate pricing.

One of the other disadvantages of this strategy is the capital that is required to flip. An investor looking to flip will need to have cash on hand, or an ability to secure financing frequently throughout the year. While they plan to have all their cash back sooner rather than later, putting in multiple offers requires an investor to have an ability to drum up funding at a moment’s notice.

When it comes to selecting flip properties, there are many schools of thought. It’s best for new investors to spend time reading and educating themselves on investing and the different strategies involved with investing in certain property types. An investor who understands small single-family properties in one area will have a very different process for screening potential deals than an investor who specializes in commercial buildings. Very simply, an investor should be on the lookout for properties available in up and coming areas, understanding the local market.

In the example above the investor was seeking to invest in property near a large employer in the area. In this scenario, an investor will want to understand what do employees of this firm do for fun? Where do they shop? Are they family-oriented buyers or are they young professionals? Understanding who and how you plan to target your investment will allow you to narrow down potential properties. Families will be looking for larger homes with good schools and access to recreational events. Young professionals might like smaller more urban properties walking distance from local entertainment or nightlife.

When selecting property types, or locations, this is where investors get to have some autonomy. What do you enjoy? What are you good at? Do you enjoy skiing? Maybe condos near mountains in the northeast is your target? As someone who understands the culture of skiing, you will be in a much better position to understand what buyers will be looking for when it comes to buying a ski condo. So, find what works for you, it will make investing more fun and enjoyable, and will help you in sifting through all the available deals in your area.

When it comes to searching for homes, many online sites such as Zillow will provide you with a comprehensive database of properties available in a specific area. This will give you a starting point for your research and will give you a general idea of local pricing, competition, and what buyers in an area are looking for. Keep in mind that while these tools do come with lots of information available, the information is not always completely accurate and so it is best to use these sites as a research tool in tandem with many other methods of evaluating your deal. Go see the property in person and bring a friend in real estate or who is a home inspector.

Look for structural damage, look for water, and keep an eye on the age of certain features on the home. Hot water heaters, roofs, plumbing, and mostly any other component in your property have a shelf life. Be careful not to buy into a property that will need to be completely updated to get ready to sell. A tip for investors looking to own in certain parts of the country, buy in the spring. When snow is melting and everything is wet, you’ll get a better idea of how the property responds to water and other natural elements. Make sure you understand how the utilities on the property work. Is the heating electric? Gas? Do you have baseboard heat? Maybe the home has central air?

All these factors should align with your ideal buyer and should match up with what that type of buyer is looking for. Once you have a solid idea of the tangible aspects of the property and have discussed them with a professional, you can begin to look at financial modeling. This step of the process is more complex and probably could have an entire guide dedicated to it. There are many free resources available online offering templates for excel worksheets designed to evaluate potential deals based on the numbers.

At this stage, you will compile all your research into the location, market, timing, features of the home, and psychology of local buyers and start to assign numerical values to these things. You will never be able to perfectly map out how cash flow will work within a real estate deal, but you can get surprisingly close. You should have an idea of cost of the property, and the kinds of work, if any, that needs to be done. Get quotes from local builders and add those into your financial model. In creating the best possible chances for success, it is important to build in unforeseen costs. Plan for the sale to take 20% longer than you anticipate. Plan for a drop-in market value, the more fail safes you build into your numbers, the more likely your chance of either experiencing a positive outcome or identifying a possible landmine before you buy.

Once you have looked at both the tangible and intangible aspects of your potential deal, bring it to a professional. Many real estate professionals would be more than happy to help you identify anything you may have overlooked, and you’ll need to find a real estate agent anyways to complete a successful sale. Contact a mortgage underwriter and get an idea of how you will be financing the property. Once you have your research, the backing of a few professionals, and with a little luck, you should be on your way to a successful flip.

While this is an exiting step for many investors, it is important to restate the risks associated with the flip strategy. You absolutely could potentially lose thousands of dollars, when a deal goes south, you as the investor are squarely responsible and you can lose out. There are few guarantees in investing and real estate is no exception. Exiting and high reward strategies have an equal ability to lose out. Being cautious and doing your due diligence is key to shielding yourself from these losses.

Potential for loss aside, most investors who do their homework should find a decently straight forward path to profits. As you become more comfortable with your specific process and become more adept at identifying “good” deals, you should see a commensurate rise in the profitability of your projects. This is the goal of flip investors, work on your own schedule, on something your passionate about, and make a lot while doing it! If that all sounds good to you, then you may be a flipper! Just make sure to do your research before diving in. To learn more about investing in real estate, and to get into more detailed guides, click here to subscribe to our monthly newsletter.

Introduction to Apartment & Multifamily Investing

How many times have you seen a late-night commercial featuring some real estate guru promising to get rich quick returns with “no money down”? While most of us are smart enough to identify these ads as too good to be true, the excitement surrounding investing in real estate, specifically in multifamily investing, is well deserved. For many people, investing in multifamily properties is a pathway to create passive income and financial independence for themselves and their families.

When done properly, this unique corner of the real estate market can serve as a second career, and for the savvy investor could make them enough money to retire comfortably at a young age, kicking back and collecting checks. As with most things in investing however, winning big requires taking risks and doing your homework, so over the course of this article we will dive into the basics of apartment and multi-family investing to give you an entry point into this incredible opportunity.

Multifamily investing is exactly what it sounds like. An investor purchases an apartment building, a duplex, triplex, or quadruplex, and then rents these spaces to multiple different tenants to profit from the income.

For example, there are many kinds of properties that an investor can choose from when deciding on real estate investments. The most common types being apartments, townhomes, condos, duplex, triplex, and quadruplex units. Each of these is described briefly below.

  • Apartments: Apartments are most likely the most familiar type of multi-family unit. An apartment building is a large structure made up of multiple self-contained living spaces. Each apartment has its own kitchen, bathroom, and sleeping / living areas. Apartment buildings can have anywhere from 2 to 200 “units” and costs to purchase range accordingly. An important distinction to make here is that the term “apartment” usually implies that the building owner owns each unit, and the tenant is simply a renter.
    • Condos: A condo, short for condominium, is just like an apartment in that they are complexes of self-contained units that range in size. The key differentiating factor is ownership. Typically, condos are purchased from the building owner, each tenant is purchasing the unit that they live in rather than renting.
    • Townhomes: Townhomes are like the bigger brother of condominiums. Where a condominium tends to be smaller, townhomes tend to be a series of multi-story houses, built with an adjoining wall to the townhome next to it. Like condos, these units are usually purchased by the tenant, while the communal areas like pools, lawns, and other public spaces are owned by all the tenants equally or the company who owns the complex.
    • Duplex: A duplex refers to a property that in many ways resembles a single house, but that has been split into 2 units. Many times, “duplex” describes a single structure with 2 front doors, one leading to the upstairs unit, and the other leading to the downstairs unit.
    • Triplex: After learning what a duplex is, the other “plex” types of properties are self-explanatory. A “triplex” simply refers to a single house structure with 3 units.
    • Quadruplex: As mentioned above, the “plex” property types all fall into the same category, the only difference being the number of units within the house. A “quadruplex”, as the name indicates is a single house with 4 units inside.

So, what is the purpose of multi-family investing. Why would someone want to buy one of these multi-unit properties? As you may have guessed, the primary reason is to make money! As a brief example, a successful multi-family investor would seek to buy a duplex that cost him $1,500 per month to purchase, and then rent each unit out for $1,000 per month. This generates $2,000 in income from renting that not only covers the cost of the mortgage, but it also puts an additional $500 per month into the owner’s pocket. It sounds simple enough, but there is a lot that goes into a successful real estate “deal”.

Aside from simple income, renting out a multi-family property allows an owner to capitalize on his property. Rather than simply owning the building, why not have it generating some income? Each month that you are collecting rent and paying yourself whatever you collect above the monthly cost to you, you are also having an asset purchased in your name that has real value and should appreciate in value over time. This double barrel effect of adding cash to your pocket AND “equity”, or ownership in a property, to your personal assets column has a powerful positive impact on net worth and greatly accelerates a person’s pathway to retirement if that’s something they desire to do. Renting a property, when done successfully, should contribute to your personal net worth in two different ways.

So, if all that sounds good to you, your probably curious as to how someone gets started in real estate investment. You’ve already taken the first step in reading this guide, as the more information you have, the higher your chances of making a successful investment decision. So, step one is to read as much as you can regarding the type of multi-family investing that you’d like to do. The internet is a powerful thing and you can save yourself lots of trouble simply by gathering others experiences and using them to inform your decision making.

Once you feel comfortable, and potentially have consulted with a professional or two, you need to start looking into the methods that you can use to acquire a property. There are many ways that one can go about doing this aside from simply putting down a bunch of cash to purchase a building or a complex. Let’s face it, most of us don’t have hundreds of thousands of dollars in liquid assets that we can sink into a house right now. This is where the concept of financing comes in. Just like you finance a car or take out a student loan to spread large costs out over time, using a mortgage allows you to put a small portion of the purchase price down today, and to pay in installments moving forwards.

The most common method of financing a mortgage is with a 30 year note in which you work with a bank who lends you the funds that you’ll need to complete the purchase. From there you will work with the bank to pay off the loan over time. It is critical to understand this part of the process, because your monthly payment will have a direct impact on your ability to “cash flow” a property. “Cash flowing” a property is real estate jargon for a successful deal. A property that is “cash flowing” is a property that produces an income to the owner above all the costs associate with the mortgage, renovation, and upkeep on the property.

Lets now take a more in depth look at the different methods that an investor can use to secure funding and move forward with a purchase. Aside from a simple bank loan or traditional mortgage, the government has many attractive programs for investors who are purchasing for the first time as well as for investors who are seeking to renovate properties. While this guide is not long enough to cover a comprehensive list of all the financing methods which exist, we will look at the most common and explain the costs and benefits associated with each.

While some real estate transactions are completed in full at the time of purchase, this is very rare. Obviously if someone has enough money sitting in their bank account to purchase their desired property, they are perfectly able to do so. Investors who are looking for true no money down strategies could approach what is known as a “hard money lender” someone with lots of cash who can buy a property outright. They will usually require their own method of repayment and will take a portion of the profit from your deal. This strategy is good for beginners who can find a passive partner. They put up the money, you find the deal and work out all its moving parts.

While this strategy is not totally uncommon, most of the time some sort of long-term payment is arranged at the time of sale. Most transactions involve an upfront payment of funds called the “down payment” followed by a series of monthly payments made up of some principal (the actual loan amount) as well as interest (the fee that you pay for borrowing the money).

Securing a loan will require a check of your credit history, an evaluation of your income, and your ability to make payments moving forward. If you are not able to put 20% down at the time of purchase, many institutions will require an additional monthly fee for “PMI” or mortgage insurance due to the increased risk of the loan for the bank.

For first time borrowers who may have less credit history or income, an FHA loan, short for Federal Housing Authority, can be helpful. This is very common tool used for first time buyers looking to break into investing as well. This is a special type of loan offered to first time home purchasers through the federal government that allows them to put as little as 3.5% down on a property. FHA loan standards are also lower due to the backing of the federal government, meaning lower credit scores and incomes may be eligible to receive the loan.

Once you have researched your preferred financing method and have started working with a mortgage broker to see what you qualify for its time to begin looking at properties. The research done on the front end of your real estate deal could make or break you. The more time you spend analyzing and understanding the features of the piece of property you are purchasing, the more likely you are to be successful in your first venture. Typically, investors look for a few qualities of property, although like many things in investing broadly, this comes with some risks.

Look for properties in good locations, with good schools nearby or near a downtown commercial hub. When selecting a multi-family investment property, you must put yourself in the shoes of your future tenants. When evaluating a home, imagine who might live there, this will give you a better idea of the potential challenges you might face in renting. Will you be marketing to college students each summer and trying to fill your property? Or will you be renting to families with young children. Will you be renting to long term elderly tenants? Study the demographics and behaviors in your area and use this information to inform your purchasing decision, especially if you’re a first-time buyer.

For the true rookie to real estate investing, one of the most common methods of getting started is referred to as “house hacking”. This strategy involves purchasing a duplex or other multi-family property, living in one of your units, and using the other units as rental income to offset your monthly rent costs. Many house hackers can live for next to nothing each month while having a lifetime asset purchased for them. This strategy is a great starting point as you will be able to be on site 24/7 to learn about upkeep, maintenance, and to keep an eye on tenants.

Aside from the intangible aspects of a property like location and local culture, many spreadsheets and applications are available for free online to do more concrete analysis of a property. Find one that works for you and evaluate your potential investment from a number’s perspective. How much are similar units renting for? Will you have to account for vacancy throughout the year? What about a savings fund for potential repairs? Try to factor in things like cost of garbage removal, cable, and internet. At this point you will be able to decide if you offer these services as a package with your property or if you should leave those to tenants to pay.

At this stage you can also evaluate the cost per square foot and some other metrics of your investment to see what kind of deal you may or may not be getting. While in the research stage it is important to ask lots of questions and seek guidance from others who have more experience. At the end of the day more people putting their heads together usually leads to a better result.

Done properly, multi-family investing can allow someone, with relatively little money down, to create a passive stream of income for themselves, all the while purchasing real estate that will most likely increase in value indefinitely over time if its kept up and monitored. Given the potential rewards, the risks are great. Before jumping into anything its important to understand that a bad real estate transaction can permanently hobble you financially. A purchase involving a house that needs thousands more in repairs than anticipated, or one that goes unrented for extended periods of time can send investors into bankruptcy and completely derail your financial plans. Investors should steer clear of complicated transactions their first time around and should only proceed after consulting with several professionals.

One of the most difficult aspects of multi-family investing is the family part. You occasionally will deal with tenants who do not pay on time, who destroy your property, and who can make managing your property a nightmare. Forums across the internet are full of stories of “tenants from hell” who appeared to be perfectly normal before destroying their units and worse. Carefully vet any tenants who you agree to rent to, its difficult to get someone out of their unit once an agreement has been signed, once again, careful research on the front end could save you lots of headaches. Ultimately your name is on the deed and anything your renters do while on the property will come back on you if not dealt with properly.

To summarize the article in a few lines, multi-family investing is a challenging and potentially risky endeavor. It requires time and patience to find good deals and executing them is even more challenging. For those who can navigate these challenges however, a potential life changing income source, and long-term wealth building can be attained. To learn more about investing in real estate, and to get into more detailed guides, click here for our FAQ page, or here to subscribe to our monthly newsletter.

Sources of Knowledge for the Real Estate Investor

As a real estate investor, you have a wealth of knowledge available at your fingertips. Whether you’re just starting out or have years of experience, there’s always more to learn. In today’s digital age, you can easily access an incredible depth and breadth of subject matter related to the real estate industry. You should make it a top priority to always be a student of your craft, in this case, real estate investing. The more you know, the more you grow.

Let’s explore a few avenues by which you can start or continue learning about the real estate industry.

Real Estate Textbooks and Books

The most basic form of real estate knowledge are traditional textbooks on the subject, most typically produced for high school and college students. While you could make the argument that, given the publishing cycle for academic textbook purposes, this information could be a bit outdated by the time you read the book. This is true to a degree, but the real benefit lays in the fundamental real estate knowledge you can glean from these sources. Textbooks produced for real estate courses are meant to follow a strict structure for the purpose of adhering to an academic curriculum. This gives you the benefit of learning against a logical flow of information as opposed to the somewhat standalone nature of real estate articles that you can find on the Internet.

Despite the fact that they may be outdated in terms of publishing, the basic real estate knowledge you can find in real estate textbooks and books is ultimately timeless. In this way, you can build a foundation of general real estate knowledge upon which you can build with additional specialized knowledge you gain from other sources.

Professional Organizations

As a real estate investor, you have the benefit of a huge community of people just like you, no matter where you live. There are hundreds if not thousands of international, regional, and local professional organizations related to real estate and real estate investing that you can join. These organizations often convey numerous benefits, including offering thought-provoking articles and forums where you can communicate with industry experts and like-minded individuals. In these forums, you can also post questions and receive responses from people within the organization.

Professional organizations often host periodic events for their members to get together in person, provide trainings and best practice presentations from leaders in the field, and provide a network of individuals related to your industry. For example, professional real estate investment organizations can establish a network of mortgage bankers, property management companies, real estate developers, and many others that you can interact and communicate with. These contacts are often invaluable, and it’s unlikely that you’d be able to build up such a large network outside of this professional organization.

Some professional organizations may require an annual membership fee be paid, while others can be provided free of charge. Evaluate the costs of joining a professional organization against the predicted benefits – it may be worth it tens time over if you make the right contact or build the right professional partnership because of the organization.

One of the most well-known professional organizations related to the real estate industry is the National Association of Realtors, or NAR. You can only join NAR if you’re a licensed real estate agent or broker, but if you’re an active real estate investor it may make sense for you to become a licensed real estate agent as well. Not only can you earn commission on your own transactions (though you would have to pay a percentage to your broker), but you can avoid the hassle of working with a middleman (i.e. another real estate agent) and work directly with the buyer’s agent or seller’s agent in your real estate investment transactions.

If you decide to become a licensed real estate agent or broker and, thus, gain access to the NAR, you’ll find that this is one of the most useful professional organizations to be part of as a real estate investor. Not only will you have access to the top-rated tools and software in the trade, but you’ll gain access to a wealth of industry-specific content and knowledge. More specifically, you’ll receive an email newsletter or magazine with real estate articles and statistics catered to your local market. NAR is a leader in the real estate industry and provides dozens of benefits to real estate industry participants, including annual conferences, marketing resources, in-person member meet-ups, content and news articles, and so much more.

Word of Mouth

You can learn a lot by speaking to and working with people that are more experienced that you are in the real estate investing business. Try to cultivate a mentoring relationship with someone you trust and respect, but most importantly, who has plenty more real-life experience than you do. You can garner gems of knowledge by listening to their horror stories about the landlord-tenant relationship, the intricacies of financing, and much more. It’s important to remember, though, to take all advice with a grain of salt. It’s easy to think that just because someone is a successful real estate investor now, they were always that way. More often than not, they had to endure the same struggles and challenges that you’ll have to face, in order to get to where they are today.

One benefit of having strong mentoring relationships when it comes to your real estate investing business is that you can bounce ideas and concepts off of a seasoned investor. It’s far too common for laypeople to speculate on the ups and downs of the real estate market, including when it’s a good time to buy or not, without having any firsthand experience in the industry! There’s an old saying that goes “when your barber tells you it’s a good time to buy real estate, you’re already too late.” This means that by the time good real estate advice becomes common knowledge among people that are not in the actual industry on a day-to-day basis, it’s already outdated advice. Don’t trust everything you hear from strangers, especially when it comes to making business decisions. Take a quick sanity check against someone you know and trust, and preferably someone who’s made a real estate deal or two.

The Importance of Statistics

On a related note, while it’s tempting to take advice from your friends and family and even established real estate investors, it’s crucial to stress the importance of statistics and data. Real estate investing is a business – so at the end of the day, you should be able to fact-check your speculation against a little bit of calculation. If a deal seems too good to be true, it probably is. Don’t let charming talk sway your decisions – always turn to the numbers to back up the facts.

This also rings true to news articles and social media posts on the Internet. Many of these articles are determined to cause you to act in one way or another. You should always question what the author’s intentions are, and who stands to profit from such an action. Take every news article with a grain of salt and do some more research to better determine whether the information presented is true or a blatant exaggeration, or somewhere in between.

When you do find that the articles you read have statistical evidence to back up their claims, make sure you confirm the timing of the data. It does you absolutely no good to read an article from three years ago telling you the real estate market in your county is about to boom – imagine if you went and purchased three new rental properties in response to this outdated piece of news, only to find that the true market in your area is already at an all-time high. In today’s day in age when data is overwhelmingly available, it has become more crucial than ever to confirm that the data is both timely and accurate.

Facebook and Other Social Media Sources

One of the dangers of social media platforms like Facebook is that it gives regular people the opportunity to pose as experts on a subject they may or may not be experts in. For example, let’s say you follow an old friend from high school on Facebook and have been a passive observer of their career in the real estate industry. You understand on a basic level that they mainly use their social media platform as a marketing platform in order to drum up new business, but nonetheless you receive a steady stream of their posts showing glamorous properties all over town at ridiculously low prices. As a real estate investor yourself, you start to think this person could be a good partner for your business. After all, you buy properties and this person seems to always have properties for sale.

This could go one of two ways. Either this real estate agent friend of yours truly has great deals available and you purchase investment properties at fair rates which result in a healthy profit to you, or you find that their Facebook profile was truly just a marketing ploy and you end up wasting your time. The lesson in this is to use Facebook and other social media platforms carefully when it comes to your real estate investment business. Understand that the articles posted on these sites typically don’t undergo a thorough fact-checking process and are rarely connected to reliable sources. Oftentimes, it just provides people a platform to speak about things in whatever manner they choose, no matter how legitimate the article seems.

The same advice holds true for other social media platforms including Instagram, Snapchat, Twitter, and many more. These platforms are primarily for entertainment, and secondarily for information transfer. Always verify the facts you read with trusted sources on the Internet before you take any action related to real estate investment. It may take you a few more minutes (or even a few more hours) to research a topic you’re unsure about, but it will save you plenty of money in the long run if you can avoid doing a bad deal based on faulty advice.

Seeing is Believing

Despite the fact that a tremendous amount of knowledge is available in a number of sources, nothing can compete with on-the-job learning. You can read all the textbooks, articles, newsletters, and editorials you want about the real estate investing industry, but it won’t compare to the first deal you do in real life. The amount of knowledge you gain from purchasing your first real estate investment property is priceless, and the experience of your first deal is something that is not easily replicated on paper. You can read about the pressures of negotiation, the stress of comparing mortgages, and the despair of having a bad tenant in your property, but you won’t truly understand them until it happens directly to you. You’ll learn more about the real estate industry (and about yourself) than you ever thought possible, only through real-life experience.

You should continue to balance your actual experiences in the real estate investment industry with a healthy dose of continuous learning. In this way, you’ll stay on top of your game and truly know all there is to know about real estate investing. Gather knowledge and advice from a variety of sources, including real estate textbooks to learn the fundamentals, in-person mentoring to learn the intricacies, and trustworthy news articles to learn the ins and outs of your local real estate market. Join a professional organization to become part of a community centered around your collective success. Use social media networks wisely and fact-check yourself as you come across dozens of statistics and figures every hour. Most importantly, never stop learning as the real estate investment industry is constantly on the go. As a real estate investor in today’s ever-changing world, you will find that you constantly rely on many different tools in order to stay abreast in all topics relevant to your world.

Using a Real Estate CRM

As a real estate investor, you will analyze dozens of properties a day at least. It’s going to be crucial for you to establish a system of organization to track your leads and the progress you make on each lead. One way to maintain a high level of structure is to invest in real estate CRM software.

CRM stands for customer relationship management. CRM software is a helpful tool for many different types of businesses, including real estate investing, to keep track of their contacts, leads, and other important information related to their everyday tasks. It helps keep a team on track and aligned with their goals, and it provides a visual workflow of your work. For real estate investors specifically, the CRM software could follow a lead from the point of first contact all the way through deal closing, and even further along to leasing or resale.

CRM software also stores a wealth of information related to each lead. For real estate investing, this could mean any of the following fields related to a specific deal: agent contact information, property location, property details, purchase price, resale value, appraisal value, inspection results, contracts and addendums, tenant screening documentation, rental lease agreements, title company information, mortgage details, property management fees, offers and counter-offers, and much more.

CRM Options

A quick web search will provide you with a multitude of CRM options related to real estate that you can customize and build to your specific business needs. Some of the better-known CRMs for real estate include Top Producer, Lion Desk, and Follow Up Boss. Each of these CRMs have unique features that could serve different aspects of your real estate investment business.

For example, as a real estate investor, you scour through dozens of properties a day at least. You analyze the property, the neighborhood, and the financial aspects of each new lead, and you need somewhere to track all of this information. You need to be able to pull up these details at a moment’s notice, and they need to be accessible from anywhere since you’re often on the go. You’re also constantly looking for tenants, contractors, title companies, and other professionals near the property in question, so it would be helpful to have a tool where you can set up drip campaigns – scheduled email communications that have customizable messages and parameters. You come across dozens of people a week that could be helpful contacts for any aspect of your real estate investing business – fellow investors, business leaders, property developers, lawmakers, and mortgage brokers. You need a solid address book to maintain their contact details and specific notes – and maybe even a picture so that you can better remember your contacts before an in-person meeting. A quality CRM software can do all of these things and more!

Alternatives to a CRM

If you feel that your volume of business doesn’t substantiate the cost of a CRM or the time it will take you to train yourself on the CRM, there are a few notable alternatives.

The first, of course, is good old pen and paper. There are surely many real estate investors who prefer to maintain their business on notepads and index cards. The drawbacks to this method are obvious, in that it can be difficult to stay organized and you are limited as to how much information you can reliably maintain. You also lose the technological capability of automated reminders and the mobility of the product. Sure, you can carry your notes around wherever you go, but what happens when you spill coffee on the only version of meeting notes you took when you met with that important real estate developer? You don’t have the benefit of automated backups that you have with electronic record-keeping. On top of that, you severely limit yourself as to how much business you can take on, as you have to maintain all records by hand. This method can lead to unreliable record-keeping, not to mention the fact that if you were ever audited by the IRS or any other governmental organization, it would be very difficult to prove the legitimacy of your business if all records are kept on paper.

A more advanced, but still imperfect, method of record keeping is to use a software like Microsoft Excel to track your leads and deals. You can use a calendar software like Microsoft Outlook to set appointments and schedule reminders. You can also use products like Microsoft Word and Microsoft PowerPoint to draft marketing materials and include them in your scheduled drip campaigns. Of course, managing your real estate investment business across a number of different software products could prove to be difficult and cumbersome. You, again, rely on your manual entries and updates and forego the benefit of having an automated system that remembers to take certain actions on all of your leads, instead of just those that you remember to update.

Another alternative to purchasing a CRM is to utilize their free trial version. Many CRM software companies offer a free trial of their product on their website in order to market their service and generate interest among a wider group of people. This could be a great way for you to have a “test run” of multiple products in order to decide which one suits your needs best. It’s also an opportunity to test out the support services of the company to answer your questions, give you tutorials, and just provide overall support to you and your team if needed. The drawback to this method is that you may be limited as to the range of services the company provides for their free trial product. It may suit your current needs, but as you grow your real estate investment business you may require greater functionality and/or storage space. These are just a few of the considerations you will encounter if you use free trial CRM software products.

Benefits to a CRM

There are numerous benefits to utilizing a CRM for your real estate investment business. For one, it provides a centralized location for you to track the data and extraneous information for your potential deals. At any one time, a prudent real estate investor may have a dozen or more properties on their radar. A CRM software helps keep you organized and structured as you navigate the waters of the real estate industry.

Real estate contracts have deadlines and lifecycles and missing one of these important dates could be deadly to your deal – and your wallet. By tracking each of these dates in your CRM, you’ll be reminded before every major deadline which greatly reduces your chances of letting one of these meetings fly by unnoticed. You can schedule automated emails to be sent to follow up with your title company, for instance, just to get a timely update. You can set up a marketing campaign to be sent to potential tenants when you buy a new rental property. You can track the dates of rent payments against the dates they were due to better understand your collections lifecycle. The tools available in any CRM software are far greater than the functionality you could maintain if you were handling your business by hand.

Another benefit of using a real estate investment CRM is that you improve your records retention for purposes of resurrecting old leads and for audit purposes. If you come across a property that seems to be a great investment opportunity, but the price is just a bit too high, you could schedule a reminder within your CRM to follow back up on this lead 6 months down the road when the market may have taken a downturn. If you were managing your leads on paper or in a spreadsheet, you wouldn’t have the benefit of automated reminders. You probably also wouldn’t have kept all of your notes related to that property in one central, easily accessible place. Moreover, if you were ever audited by the government or needed to provide business records to a bank or any other authority, having all of your records maintained in a CRM greatly reduces the hassle needed to gather the pertinent information.

Drawbacks to a CRM

One common drawback to a CRM software is that you might find yourself in what investors commonly refer to as “analysis paralysis” – this is what happens when you are presented with so much information that you cannot determine what is important and what isn’t, and you end up taking no action at all. This is common with real estate investors who are just starting out, because investing can be incredibly risky and confusing if you are not properly educated. Much of real estate investing is predicated on your inherent understanding of a property’s location and ultimate potential, so if you are overwhelmed by the details in your CRM specifically related to financials, you may overlook some promising opportunities.

Another drawback is the fact that, in order for a CRM to be most useful to you and your real estate investment team, it needs to be utilized consistently and accurately. This requires you and your team to be diligent about recording information about your leads, ongoing deals, and long-term opportunities. It requires fact-checking and it means that you need to trust yourself and your team to enter accurate, timely information on a regular basis. It also means that they need to update this information in real-time should things change, as things tend to do very often in the real estate world.

The final major drawback to using a CRM software could be the cost. It’s important for you to shop around to understand which product features are a necessity and which are a luxury that might not warrant the extra cost. For example, if you operate as a solo real estate investor without a team, it probably does not make sense for you to pay for the extra support package that offers unlimited support members to serve your team. You could probably get by with using the free help center, or at the very worst, paying per instance to the company’s in-person support team. It all depends on what the company offers but be sure to analyze the price of the software against all other expenses you incur as a real estate investor. The real estate CRM should be a tool that enhances your productivity and expands your reach, not a tool that costs a fortune but barely gets used.

Tips and Tricks

The first trick to having a CRM software for your real estate investment business is to actually use it! This will take time and, of course, discipline, but your business will reap the rewards. If you are consistent, you’ll find that the CRM soon becomes irreplaceable, a treasure trove of information for your real estate investment business that you can’t imagine working without. It will become a crucial part of your business, but only with time and practice. It will naturally take time to uncover all of the great functionality that is offered with your CRM software, but these features will become integral parts of your day-to-day functionality. Each software is different, so be sure to check out all of the unique features that yours provides.

The second trick to having CRM software for your real estate investment business is to take advantage of the CRM’s support center. Many CRM software products offer a support center full of virtual trainings, webinars, how-to articles, and tutorials. These can be invaluable when it comes to learning how to use your new CRM software, and this section of the software should not be overlooked.

If the scale of your real estate investment business is large enough to warrant having a team or partners, the third trick to having a CRM software is to train your team to use it. Their knowledge is likely just as relevant and important as your own, and you should aim to get as much of their knowledge out of their heads and into the software. This will come in handy when deals are being transferred from one hand to another in that the person working on the deal at the current moment has the benefit of reading the deal history in the CRM.

Now that you understand the importance of maintaining a system that works for you and helps keep you on track, it’s imperative that you choose a method you are comfortable with and implement that system in your everyday life. It is very easy to get wrapped up in the excitement of new software, with all of its bells and whistles, only to find months later that you aren’t using the product as intended. It will take discipline and time, but over time you will find the benefits of using a real estate CRM software far outweigh the drawbacks. Take advantage of your newfound organization and scale your business up today!

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How the Interests of EB-5 Investors and CMBS Lenders Can Sometimes Be at Odds

Situations where a property changes hands or defaults may prove tricky for situations where an EB-5 project is financed by a CMBS lender.

A notable characteristic of the real estate capital markets over the last 20 years has been the ability to access non-traditional sources of capital for both debt and equity investment in U.S. commercial real estate. One such source is the EB-5 investment/visa program. Created by Congress in 1990, the EB-5 program creates a fast track for non-U.S. citizens toward a green card in return for capital investment in qualifying U.S. domestic businesses and projects. The EB-5 program has garnered its share of controversy for possible abuses, but can also lower the cost of equity capital for a developer.

An often overlooked issue is the interplay of EB-5 financing with the requirements of a CMBS lender, where the developer, EB-5 investor and CMBS lender have objectives that are in conflict, at least initially. In particular, the EB-5 investor may seek decision-making and investment accrual rights not acceptable to CMBS lenders.

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Achieving Financial Independence With Real Estate

Real estate investing is one of the most powerful mechanisms to achieve financial independence. Financial independence, or financial freedom, is the concept whereby a person does not need to work a typical day job in order to survive; they instead make money in a passive manner and are able to support themselves solely through passive means. Financial freedom equates to the ability to support your lifestyle (which includes your living space, car payments, tuition payments, food, healthcare, and all other daily expenses) without having to go to work every day, and this is done by securing an investment which earns you money on a periodic basis. So, in the same way that many people earn a paycheck every two weeks, a person can own an investment that pays out quarterly dividends, annuity lump sums, or monthly profits – any periodic sum of money which completely supports a person’s financial needs.

There are multiple ways to achieve financial freedom, and real estate investing is just one of them. Many people choose to invest in the stock or bond market, or to work hard at building a company which eventually gains so much success that they are able to live off of the company’s proceeds. Recently, many people have tried their luck in the “bitcoin” or electronic currency markets. These are all means to obtain a steady stream of money on a periodic basis. However, the main concern with these methods of investment is the volatility – it is somewhat difficult for a person to predict how much money they will earn, or whether they will one day lose it all. Real estate investing provides a method to achieve financial freedom that is structured and conducive to long-term financial planning.

Using Real Estate to Gain Financial Independence

Investing in real estate is a broad concept, and there are multiple avenues that you may choose to go down. Buying a property “wholesale” requires a bit of start-up capital and a healthy understanding of a property’s resale value, but this is meant for investors who are looking to turn a quick profit. Similarly, “rehabbing” a property, or fixing and flipping a home, involves buying a property that needs a fair amount of repair or replacement. Once the property is “flipped” into a marketable living space, the investor sells the property at a profit, over and above what he or she paid to purchase the property as well all the expenses associated with renovating a rundown property. Once you get into the realm of renting a property out for an extended period of time, you’ll begin to build financial independence. This can be done through the buy-and-hold strategy of both residential and commercial real estate. Let’s explore each of these.

Passive Income from a Residential Property

The buy-and-hold strategy of real estate investing involves buying a property and holding it for the long-term. One example of this is a real estate investor purchasing a single-family home and renting it out to a family for fair market value. The savvy real estate investor understands the amount of rent that he or she can charge based on comparable market analyses and understanding the level of demand at play in the real estate market for that area. When an investor builds out a financial plan, he or she understands how much needs to be paid towards the mortgage (if there is one), property insurance, real estate taxes, and the homeowner association (if there is one). The total amount of expenses is subtracted from the fair market value of rent that the investor can charge for a home of that size and stature, and with any luck, the investor will have a healthy chunk of profit left over.

Once this investor secures a tenant, the tenant will likely sign a one-year lease. This secures 12 months of profit for the investor, which is helpful for him or her to financially plan and budget for additional investments. This investor may also work a day job, earning a paycheck every two weeks. But their rental property is now bringing in a monthly check – this is the equivalent of earning an extra paycheck a month, who wouldn’t want that? Sure, it will take some initial capital to secure the property, but a quick financial calculation will help determine how much time it will take for the investor to recuperate those funds. Plus, buying a property and holding it for the long-term has the added bonus of potentially selling the home for a healthy capital gain several years down the road. So, not only does the rental property provide a healthy flow of money each month, but it can be sold later on for a lump sum. Another benefit to the buy-and-hold strategy is that the tenant is paying down your mortgage for you and building equity for you in your house. You’re essentially earning equity each month without having to use your own money, and you’re providing your tenant with a lovely place to live. It’s a win-win!

Passive Income from a Commercial Property

There are several differences between investing in residential rental properties and dealing with commercial rentals. For one, the requirements of a residential tenant are quite straightforward. Ideally, you’d secure a tenant with a healthy credit score, enough income to cover the rent each month, and a clean background check. These are the baseline requirements for most landlords of residential rentals. On the other hand, the tenant in a commercial transaction is a business, not a person. Evaluating a commercial tenant entails reviewing a company’s financial statements, bank statements, and even tax returns. There are many more metrics that go into determining a business’ profitability and, therefore, ability to pay their rent that a commercial landlord needs to consider than for a residential tenant.

Another major difference between residential and commercial tenants is that commercial tenants typically have a longer time horizon and often sign multi-year leases. In addition, commercial rents are almost always higher than residential rents, given the many facets that go into determining market rent compared to neighboring tenants and competitors. Both of these factors are appealing to the investor who owns the commercial property, as a higher rent equals a higher profit and a longer time period to collect this profit. This is a solid way to build financial independence as commercial tenants are often a stable and high-quality tenant.

The Math Behind Financial Independence

Let’s conduct a brief thought experiment to really drive home the point behind financial independence. For starters, let’s say you work a normal, 9-to-5 job and you earn $39,000 per year after tax. You get paid every two weeks, which equates to 26 paychecks per year. Each paycheck is $1,500 in income.

$39,000 annual salary / 26 paychecks per year = $1,500 per paycheck

Now let’s say you’ve saved up a fair amount of money and you’d like to invest in real estate and start on your path to financial independence. You find a two-bedroom condo in your area that doesn’t need any major repairs or improvements, just a fresh coat of paint. With the help of your mortgage broker, you obtain a loan and within 45 days you close on your first property. Congratulations!

Here’s a breakdown of your monthly costs for this property:

Mortgage payment $600

Property insurance $50

Real estate property taxes $50

Condo association fees $150

Total monthly expenses $850

With the help of your real estate agent, you determine that you can charge $1,350 per month for a two-bedroom condo in your area, and you secure a qualified tenant who agrees to the stated monthly rent.

When the 1st of the month rolls around, you collect a rent check for $1,350. After paying your mortgage and condo association, as well as funding your escrow account for the annual property insurance and real estate property tax payments, you are left with $500 in profit.

$1,350 rental income – ($600 mortgage payment + $50 property insurance + $50 property taxes + $150 condo association fees) = $500 profit

After one year, this amounts to $6,000 profit. This profit figure does not convey the benefit to you, the property owner, of having a tenant pay down the mortgage each month and essentially building your equity in the property at no cost to you.

Remember that, in addition to this rental income of $500 per month, you earn $3,000 per month ($1,500 per paycheck) at your day job. Let’s figure out how many properties you would have to own in order to earn the same amount from rental income that you do at your day job. For the sake of simplicity, let’s assume that you only buy properties with a $500 estimated profit margin.

$3,000 monthly wages / $500 monthly rental income = 6 properties

or

6 properties * $500 monthly profit each = $3,000 monthly rental income

At this point, owning just six properties would provide you with the same level of income that you earn from working 40 hours a week at your day job. These six properties are essentially replacing your full-time job, and this is the true motivation behind financial independence – achieving a level of income that enables you to live at your current living standard without being tied to a paycheck. This may sound like a massive goal, and it is, but it’s by all means achievable with the proper planning and dedication. Even if it takes you 10 years to amass six properties which all achieve the desired level of profit, that’s ten years until you gain financial independence.

One of the luxuries of starting to amass real estate investments while you’re young is that there isn’t any rush for you to gain financial independence for the purpose of retiring early. You can choose to continue working as long as you want to, earning additional money from your properties on the side and funneling that money back into your investment business by buying even more properties. In this way, you’re not dependent on the income from your properties but instead can support yourself with your day job. On the other hand, if you’re a bit older and have your sights on retirement in the next few years, real estate investing is still a viable option to achieve financial independence. You’d likely have some money put away in a retirement fund which would supplement any additional income from real estate.

Financial independence is an empowering concept that is within everyone’s grasp with the proper planning and, most importantly, execution. Real estate investment is just one of the many possible vehicles to achieving financial independence, and it has many benefits in addition to the financial aspects. When you amass properties that provide you passive income over the course of your life, you also have the opportunity to pass these properties on to your heirs. In this way, you can instill the concept of financial independence in your loved ones at a very early age and facilitate this for them to an extent until they can manage their finances on their own. The key to achieving financial independence is to find a means of earning passive income. This money will flow to your bank account whether you’re working or lounging on a beach on a remote island – and then you’ll truly feel financially free!

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