Passive Income generated from assets is the key to building real wealth.
AJ Osborne is an insurance agent turned real estate investor who traded the lack of security provided by a job to create generational wealth through real estate.
Naturally competitive, he was a successful benefits insurance broker. He ate what he killed. If he wanted to make more, he sold more. Ultimately, he realized that he was limited by time, and he knew that at any time, his clients could leave. This left him feeling less than secure.
In the 2008 economic downturn, he recognized the difference between being rich vs being wealthy. Those who he thought were rich, lost the most. The survivors, owned assets that produced income regardless of the economy. Their income did not depend on their time. He recognized their freedom as true wealth. And, most investors passive income was generated through real estate.
AJ studied the real estate market and recognized the value add opportunity in self storage. The market was fragmented, full of amateur operators that left plenty of room for improvement.
He recognized that the industry has not customer service oriented. There were additional products and services that customers were willing to pay for, but were not offered.
He focused on finding poorly run self storage businesses, in underserved markets. opportunities, initiating systems, and producing predictable outcomes.
Today, he and his father run a portfolio of self storage properties throughout the west. They have a system.
After each refinance, he was able to pull his initial investment capital out of the deal which gave him the needed capital for the next deal.
Until you test a system, you don’t know if it really works. For AJ, the passive income from self storage was tested when he was stricken with Guillain Barre Syndrome. For months he laid paralyzed in a hospital bed, in pain and unable to move beyond blinking his eyes. There was no way he could go to work to sell insurance.
Fortunately, his self storage business generated income regardless if he was sick. Not only did his income continue while he was ill, but real estate value grew.
If not for his self storage business, he and his family could have lost everything. The passive income and wealth created from his real estate proved to be more secure than a job that could disappear.
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Multifamily Underwriting has three key aspects for consideration to determine if you have a true investment opportunity. They are Market, Financials and Physical Property.
When looking for a Market it is important to look for an emerging market. An emerging market is one that has jobs, jobs, jobs. Population of the city is not as critical as the number of jobs and its distance to a major market, however you will want to set some minimum population criteria.
You are looking for growth. Talk with the locals to determine the true prospects for new jobs. Call the local brokers, property managers and the chamber of commerce and to to the building permit office to find out the path of progress and where the population is moving.
While underwriting the market, get to know the real estate professionals that you will need on your team. These are the boots on the ground that will be able to provide you with potential properties. Vinney has found that you will be more successful if you specify exactly what you are looking for, class of property, neighborhood, number of units, etc.
Once the brokers know your criteria, they will bring you deals.
There are two aspects to your initial multifamily underwriting. You want to start with the financials. How is the property performing financially? At the same time, you can do an initial property inspection using online searches or with the help of your broker.
Vinney recommends that you never fall in love with the property. Only fall in love with the numbers.
What to look for in the numbers. Start with the rent roll, and expenses. You are looking to identify areas where you can save money, or those that will be different than the sellers. Vinney recommends you use his Deal Analyzer. You can list the sellers numbers, and the numbers you find that will reflect our operating cost side by side. This will more clearly identify if the property is a real investment opportunity.
One key metric is Cash on Cash ratio. This provides a simple measure of the net return on the cash required to close the deal. Vinney looks for 10.5% as a minimum for the multifamily properties he acquires.
If the initial numbers look good and you pursue the property, you will need to do a more thorough analysis to confirm the sellers numbers including bank statements, utility statements, leases, trailing twelves, etc.
The physical property has two aspects you are looking for during your physical inspection; value add opportunities and capital improvements that are needed.
The best investment opportunity will be one that you can add value to. This could be updating the kitchen and baths, painting the exterior, adding storage space, dog parks, etc. These improvements that residents are willing to pay more. This translates to a higher Net Operating Income and higher property value.
The condition of the physical property cannot be underestimated. During the physical inspection, you are looking for the physical condition of the property; roof, plumbing, electrical, heating & cooling systems, paint, parking lots, landscaping, etc. Make notes when you find needed repairs.
Vinney has had greater success by communicating immediately with the seller’s broker about any needed repairs rather than waiting. By communicating right away, the seller is not caught off guard at closing.
When you determine the repair cost, Vinney has been successful by requesting a seller credit at closing rather than a sale price reduction. The benefit of a credit is that you have the funds needed to make the capital improvements needed instead of paying for out of cash flow.
To develop your multifamily underwriting skills, get in the habit of analyzing deals. This practice will sharpen your ability to recognize when a true investment opportunity comes your way.
For more, go to:
Text: SYNDICATION to 474747
Tax Free Investing?
Real Estate Investing provides unique tax strategies not available in all asset classes.
Scott Smith is an attorney and the principal at Royal Legal Solutions, based in Austin, TX. His clients are strictly real estate investors. This narrow focus allows him to dive deep into specific aspects of real estate investing and help investors safely navigate their options for maximum tax savings.
Traditionally, the phrase “tax free” investing may better be thought of as tax deferred. Whether you invest in a traditional 401k that taxes the upon withdraw, or a Roth IRA which taxes the funds prior to use, there is tax, but the difference is when the tax is paid. Real Estate Investing truly provides some opportunities to generate cash through a nontaxable event.
The conversation with Scott Smith focused on how to accelerate the growth of your retirement account using two different strategies available to anyone who qualifies.
If you have non W2 earnings, and can demonstrate that you are “active”, you may qualify for a Solo 401k. There are multiple advantages available if you structure the entity properly and can demonstrate that you are active in the operations.
A Self Directed IRA provides investors the opportunity to select the investments you want to invest in, except for “prohibited transactions” . If you are a W2 employee looking to invest in a real estate syndication for example, but do not have the savings to do so, you might be eligible to use your employer sponsored 401k.
For more go to:
Podcast: The Real Estate Nerds Podcast
Value Add Technology in Parking can increase revenue and customer experience.
Jake Bezzant, CEO of Parking Sense, takes us through the new technology and benefits of available to parking lot owners. Installing hardware in conjunction with the downloadable user application provides data that makes the lot work better for all parties.
You know the drill. You have an appointment but first you need to park the car. If you did not plan ahead, you could end up parking miles away from your appointment. Or worse, have to cancel your appointment because you could not find parking.
It is not uncommon for a parking lot without technology to underperform. If you cannot tell a driver where to park, the driver may travel through the entire lot before finding one parking spot. No more. Now, there is new technology in parking available to help you and visitors to your property forget about any parking hassle.
Parking Sense is a manufacturer, installer and operator of technology in parking. The system consists of hardware installed at the lot, a downloadable application for users and lots of data to help with your value add strategy.
You can chose to only use the hardware which provides a visual queue, green or red light to drivers looking for a space. If you elect to integrate with the free downloadable app, you can eliminate the need for gates and payment machines. Parking Sense has found that users tend to migrate to the application if they do not chose to do so up front. Use of the application allows the system to communicate with users reminders such as, parking validation, where they parked, and how much time remains for their space.
Parking lot owners can purchase or lease the system.
The benefit to a parking lot owner using technology in parking is the ability to fully understand their supply and the demand for parking. This allows you to communicate in real time with drivers exactly where an available spot is located. If you can keep your lot full you increase your income. When drivers can easily find a space to park, they are happy.
When Parking Sense technology system is installed, property owners are able to over sell parking as much as 300%! This compares with only 75% sold prior to installation. It is clear that if you own a parking there is a value add opportunity by using technology.
The migration to the urban core has created a premium on parking. Cities want cars off the streets, and the future includes driverless cars. It is clear that cities will not allow driverless cars to roam aimlessly through the streets. If you have the technology, you can communicate with cars in real time where they can park in your lot and keep your lot full.
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Qualified Opportunity Zones can produce tax free gains for investors with capital gains. This new vehicle was added added to the December 2017 Tax Cut and Jobs Act.
Jonathan McGuire takes us through the Qualified Opportunity Zones and how they can benefit investors.
Government sponsored investment incentives are nothing new. Tax credits or special treatment for a desired behavior are a tool used to stimulate growth and encourage investors to deploy needed capital. The vehicle identifies the area of need and rewards investors for taking a risk through tax abatement. The most recent example on the Federal level is found in the Qualified Opportunity Zones.
The 2017 Tax Law provided the opportunity for each state to nominate distressed areas in need of investment to the US Treasury. If certified by the Treasury, the area is recognized as a qualified opportunity zone. Investors can find a current list for each state Qualified Opportunity Zones to find local opportunities near them.
The opportunity for investors is pretty broad. Projects must abide by local zoning rules and be new investment into a project. There are certain types of investments which are prohibited including: investment must be new money into a business or property. Real estate can be new construction or a rehab project. If the property is in the zone, it must follow local use guidelines. Sin type businesses are not eligible, bars, country clubs, liquor stores, casinos, etc.
There are multiple tax benefits available to qualified investors.
The investor must have a recognized capital gain within the last 180 days, which must be deposited in the Qualified Opportunity Fund. At this time, there is no recognized requirement to use a qualified intermediary, similar to a 1031 exchange.
The capital gains can come from any investment, sale of a business, property, stock, etc.
In order to invest in a property located in a Qualified Opportunity Zone, you must use a Qualified Opportunity Fund. A fund is an investment vehicle set up as a separate corporation or partnership, designated to invest in a qualified opportunity zone. The initial investment must include capital gains.
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To accelerate the growth of your multifamily portfolio, you need to know how to attract capital and communicate with real estate investors.
Vinney Chopra has raised millions of dollars and syndicated over 26 multifamily properties. Today, he shares the key to scaling up quickly; attract capital and communicate with real estate investors.
To attract captial is not easy. To be successful, you need to always be looking for capital. If you are syndicating, you are looking for passive investors to invest as Limited partners in your LLC.
The easiest money usually comes from those you are closest to, your family. These people know you and are most likely to support you if they believe in the opportunity you present.
The next closest group of eligible investors will be your acquaintances. Again, these people know you and are likely to support you if they are able.
Now that you have introduced your investment opportunity to your closest circles of influence, it’s time to check with your business associates. These are the professionals you know that have a retirement account. They are likely looking for ways to make a better return than what they are currently receiving.
The key to attract capital is communicating the opportunity to your potential investors. You can easily do this with a “credibility kit”. This is where you share with potential investors the knowledge you have gained. Introduce your investment team, and the criteria you will use for selecting a property. The goal is to convey to the investors that they will not lose their investment.
Educate the investors on why investing in an emerging market is a sound decision. Explain what you know about the growing demand for multifamily, job growth and the opportunity to increase rents.
You can never start too soon. Raising money if full of rejection. Investors pull out at the last minute all the time. So, you need to have a long list of potential investors that can fill a capital needs at any time. A deal is not a deal if you don’t have the funds to close.
Vinney has overcome the issue of investors backing out or not having enough money to close. He does this by offering investors 2% on their funds from the day the deposit until the asset is acquired. This guarantees closing, and the provides the lenders assurance the down payment is available.
Keep records. Vinney recommends a spreadsheet where you identify the goals and dreams of the investor and keep records of the dates and what you discussed. This allows you to easily reach out when you have a deal.
Your ability to close deals will raise your stature with the real estate brokers in the market. The more deals you close, the more deals you will be presented.
Vinney recommends regular, constant communication with investors. He leverages technology with voip calls, webinars, videos, emails, etc. He does such a good job that in 12 years only 5 investors have actually visited a property.
When you communicate regularly with investors, they will feel comfortable and tell their friends about the good job you are doing and will want to invest with you.
For more go to:
Text “Syndication” to 474747
FREE Deal Analyzer: http://deal.multifamilyacademy.com/
Call / text (925)766-3518
A good multifamily property manager is invaluable to real estate investors.
Andrew Kroger is the owner of Peak Property Management and shared with me the characteristics of a good relationship between a property manager and the investor.
Your relationship with the property manager is key to your success. The more common ground between you and your manager, the better your results will be.
The goal when interviewing prospective managers, is to learn who they are and how they communicate. How much communication do you want and how do you want to communicate.
Are you looking for a manager to do it all, or do you want to be more hands on?
Think about your preference, and look someone that fits your communication needs.
It’s important that the manager is on the same page with you. If they understand your goals and objectives they can help you reach them.
Get referrals from other owners. Find out what other property have to say about their experience working with the manager.
If your goal is to sell in the near future, does the manager recognize this? What does that mean to them?
Find out what property management software they use? What level of reporting should you expect and how often? Does it include rent increases, rent roles, balance sheet, profit & loss statement? This is your scoresheet for how well you property is performing.
Once you find a property manager to work with, invite them for a tour of your next acquisition. The manager can develop both operating and rehab budgets if necessary. An experienced manager can give you a clear understanding of the property’s potential to ensure your success.
Operating the property efficiently is key to cash flow. Questions you want to get answered from your prospective property manager include:
For the best outcome of your multifamily property, find a property manager that meets your communication needs. Take the time to make certain you are on the same page. This relationship is paramount to your multifamily real estate investing success.
For more go to: www.peakpropertymgt.com
Commercial Real Estate Investment lessons can be costly.
An expensive lesson can ruin you. If you are lucky, you learn something and you still have enough time to recover and make your fortune back.
Paul Moore, co-host of the podcast, How to Lose Money, talked with me about some of the lessons he has learned from real estate investing and how they have helped to form the real estate investment strategy he employs today.
When the market is going up, it’s hard to tell the difference between investors and speculators. But, when the market corrects, speculators are more susceptible to losing. Paul summed up the difference between an investor and a speculator:
If you are investing for cashflow, you are an investor. If you are investing for appreciation, you are a speculator.
Paul has tried multiple investment strategies; single family residential flipping, ground up commercial development, multifamily and self storage. He has gone from riches to rags and back to riches. Through each asset class, he has learned from his losses, and has changed.
He no longer invest on a haunch, ie: speculates.
Today he is looking to create generational wealth in commercial real estate. Unlike some investors who commit to a single asset class, Paul has become a student of the market. Now he looks for a safe place to invest his capital with the possibility of a return.
He has studied the market and found justifiable reasons to invest. He knows the client profile, what the projections are for this demographic and what type of owner/ seller qualifies a good prospect to purchase. This market knowledge helps confirm any haunch he may have.
Using the lessons he has learned, Paul is now syndicating self storage facilities.
For more go to: https://www.wellingscapital.com/
A Limited Partner is a passive investor in Multifamily Real Estate syndication. By definition, the limited partner is basically responsible for bringing capital to the deal.
My conversation with Lane Kawaoka, host of the podcast Simple Passive Cash Flow , takes an honest look at multifamily real estate investing from the limited partner view.
Lane started in single family real estate and quickly realized that in order to grow enough cash flow to replace his W2 job he needed to scale. He recognized that Multifamily real estate was the answer, but did not know how.
In Multifamily, you can go it alone, partner, joint venture, or syndication. Syndication is a group of investors that pool their money to purchase a larger property that is likely out of reach if they tried to purchase alone.
A syndication has two level of partners,: General Partner and Limited Partner.
The General Partner (GP) is the quarterback. They are responsible for qualifying the market, connecting with local brokers, finding the property, coordinating the prospectus, attracting investors, operating the property. For this work, the General Partner is compensated for operation and performance of the deal.
The LImited Partner (LP) supplies the capital needed for the down payment and capital expenses. They have no duties regarding the acquisition nor operation of the property other than providing the capital. This is truly a passive investment for the LP.
When you are an LP, it’s your job to find an opportunity and a GP, operator, that you feel will do a good job and provide solid returns on your investment. So, what are you looking for in a General Partner?
A qualified General Partner, individually or his team, will posses a proven track record. “Past performance does not necessarily predict future results”, however, it does give you a chance to judge if the GP and team are qualified.
Things to look for in a General Partner:
For more go to:
Prior CREPN episode:
Multifamily Syndication is a team sport. You will multiply your success when you create a winning team.
Vinney Chopra has successfully purchased over 26 multifamily properties through syndication. In this interview he describes the members you need on your multifamily syndication team for success.
Relations at all levels are key to your success in all real estate investing. For newer syndicators, you can overcome a lot when you have experienced professionals on your team.
Once you have selected an emerging market to invest in, you need to find the following members for your team.
Partner: this is the person you identify with that shares your vision and can share in doing the work that needs to get done. Someone with a different skill set that compliments you tends to work best. There are numerous jobs that need to be taken care of and together you can divide the work and conquer. One thing to consider is a partner with strong financials. Chose your partner wisely because you will likely be working together for multiple years.
Commercial Real Estate Brokers are essential to success. Due to the nature of commercial real estate, having relationships with multiple brokers can pay dividends. Brokers have the relations with the local property owners, know the market, the properties, owners and who is a potential seller. You will do best if you present your specific buying criteria so they know exactly what you are looking for.
Loan Broker is your source of funding. The amount you will qualify is dictated by the networth of your general partners. An experienced loan broker will know the various programs available and be able to find you the best funding.
Attorneys are critical to the legal structure needed for your success. The attorneys will form the LLC entity for the property and your operating company. You also need a securities attorney to prepare the private placement memorandum, operating agreement and subscription agreement. Each of these are critical your ability to raise money and stay out of trouble.
Property Manager has the critical needed experience managing multifamily properties. The property manager will also help recognize issues during your inspection that need to be addressed with the seller. An experienced property manager has will convey confidence to lenders and your investors. A good property manager has relations with contractors, knows the laws and has systems to deal with most situations. Their experience is key to the profitable operation of your property.
Investors: Start talking to everyone as soon as you decide you will be investing using syndication model. You must have a prior relationship with your investors who invest in your syndication. Without investors, you will never buy a property.
CPA: Your CPA will prepare the annual financials you need to communicate the property’s performance to your investors. Your investors will expect your numbers to be presented in a standard accounting format.
Contractors of all types. The good news is that with multiple units, you have the chance to achieve economies of scale. When you find a quality contractor that provides the best service and price, add them to your “preferred vendors” list. These are your go to solutions when a problem arises. Let the contractors know that there will be additional work in the future and see if they can recognize this future work in their pricing.
For more go to:
For your FREE Multifamily Syndication Underwriting Tool
TEXT “Syndication” to 4747
Prior episodes with Vinney Chopra