Cash flow must be the goal if you intend to replace your salary, so that you can quit your W2 job.
I’ve experienced first hand and conferred with other investors multiple ways you can screw it up. The following are some ways to keep the cash coming.
My friends Jake & Gino from Wheelbarrow Profits stress, “Buy Right”! This is the critical first step. If you don’t buy right, it can take years to recover, and keep you from reaching your goal. To make certain you are buying right, you have to know ALL of your numbers. Use something like my Deal Workbook to account for your expenses.
I remember the first couple of single family rentals I purchased. Needless to say, I left some expenses out, because I only accounted for the mortgage, taxes & insurance. What could go wrong when the a repair was needed, the tenant was late, or the unit was vacant. That’s right, if you don’t budget for these expenses you will pay. So, know your numbers and BUY RIGHT.
Operations includes the day to day operating of the property. Taking applications, rent collection, maintenance, etc. When you have a property manager in place, it’s your job as an asset manager to ask questions and follow up to make sure things are as they should be.
This includes providing regular reports; income & expenses, applications, turns, maintenance, etc. An empty unit is a lost income opportunity and a cost to you. If a property manager is not proactive and waits until after the unit is vacant to coordinate with the needed contractors, your vacancy loss will inflated.
A professional property manager will minimize the down time by communicating and actively marketing the unit as soon as it is known there will be a vacancy. It’s been said, “inspect what you expect”, otherwise you will be disappointed, and end up with less than you could of.
Capital expenses are related to replacing systems; roof, HVAC, plumbing, electrical, parking lot, kitchen & bath remodel, etc. They last for years, and should be budgeted for. If you do not budget for them, they can mess up your projected returns.
For the most success, make certain to include your capital improvements in your startup funding budget. This allows you to improve the property right away and increase the rents for the improved property. Paying for capital improvements out of cash flow will take significantly longer to reposition the property and will drain any potential investor returns. Been there!
An experienced investor will not only budget for these, but also account for them as capital expenses, outside of the operating budget for maintenance. When you include capital expenses as maintenance they will lower your NOI and your property’s value. Don’t do it!
You don’t expect a disaster, but it is always a possibility. Your ability to collect rent could suddenly stop if your property is damaged. The risk can mostly be transferred to an insurance company, through the purchase of a policy that provides Business Income coverage. Be careful, not all policies include Business Income nor cover all perils, causes of damage.
Fire, Hail, and Frozen pipes, are some of the common perils typically covered by a property policy. Windstorm including tornadoes & hurricanes can be an extra charge depending on where your property is located.
If your property is located in a Flood Zone, your lender will require Flood coverage be in place prior to closing. However, this does not mean that if your property is not located in a flood zone that it cannot suffer a Flood loss.
Earthquake and Landslide are rarely required by a lender, but regularly purchased by investors whose primary source of income comes from their real estate. if your property is located in an active fault seismic zone.
To learn more about protecting your cash flowing property from disaster, email J. Darrin Gross
The Letter of Intent and the Purchase Sale Agreement are significant steps towards closing your multifamily purchase.
When you find a multifamily property, you run the numbers. If the numbers show promise, it’s time to engage the seller to see if you can put the deal together. The initial non binding offer used by buyers is a Letter of Intent. If you and the Seller find agreement in principle, you will formalize the offer with a Purchase Sale Agreement.
The Letter of Intent is a non binding presentation to the seller that spells out the framework of your offer, your intent to purchase the Seller’s apartment building. This should be addressed to the selling broker, not the Seller. To see a sample Cover Letter & LOI used by Vinney, click here.
The Cover letter should summarize your intentions. It should also include any relevant experience you or your team has closing on Multifamily Properties, to give the buyer confidence you will close if they accept your offer.
The Letter of Intent is not binding, so it does not require legal review, but should contain::
Because you will be offering less than selling price offered, it is to be expected that the Seller will either reject or counter your initial Letter of Intent. After some back and forth, if you are able to reach agreement in principle with the Seller, you need to put the property under contract. This is accomplished using a Purchase Sale Agreement.
The Purchase Sale Agreement is a legal, binding agreement. The PSA includes all of the items in the LOI and spells out all the legal performance requirements for both you and the Seller. Each property is unique and requires that you have your attorney prepare and review to protect you.
Vinney advises that you communicate early and often with the Seller during the Due Diligence period to avoid any surprises. He suggest that your compose a Repair Letter as soon as you know the condition and any additional capital expenses that you were not aware of prior to your offer.
Similar communication regarding the financing should be made to keep the Seller in the loop. When you do this, the Seller is more likely to credit you additional funds to fix the problem, or accommodate the time needed to obtain financing to keep the sale on track to close.
For more, go to:
Text: SYNDICATION to 474747
Prior CREPN Radio Multifamily Syndication episodes with Vinney Chopra
Environmental Risk assessment needs to be part of your real estate investing due diligence.
Mike O’Connor is the Pincipal at Assessment Associates, Inc, an environmental consulting firm that specializes in working with real estate transactions.
The reasons to test range from: “it’s a good idea” to “lender requirement’. If you don’t need to borrow money, and you elect to forgo the assessment, you could end up with the liability and cost associated with any cleanup. However, if you are borrowing more than $1M, the lender will require a Phase I Environmental Assessment for a clean bill of health, guaranteed.
The primary risk comes from leaky underground storage tanks, but you would be wrong to think that you don’t need to be concerned unless you are buying a gas station.
Why your ask? Do your know what's going on on at the neighbors property? Is there a leaky underground heating oil tank? Each of these can create plenty of problems for you.
To learn how to DIY the initial Environmental Assessment
and know what to look for, get your
A Phase I Environmental Assessment consists of a visual inspection at the property and a review of all available public records. The consultant will visit the site, interview the seller, neighbors, etc to assess the historical use and potential for an environmental problem. If evidence suggest a potential problem may exist, the Phase I recommendation will call for a Phase II Environmental Assessment.
A Phase II Environmental Assessment involves sampling the soil beneath the surface. It can start with a Geophysical survey to identify inconsistencies below the surface. The results will identify where further looking should occur.
Then actual soli samples are puled to test the soil for toxins. This is accomplished by using a well drilling like rig that pulls cylinders of soil to the surface for visual inspection. The samples that look suspicious will be sent to a lab for testing. If results are positive, the site will need to be cleaned before going forward with the transaction.
For more go to:
Conquer your fears so you can leave your W2 job and have success investing in Real Estate.
The investors journey is full of hurdles, road blocks, growth opportunities, and setbacks.
Dan Handford with Handford Capital is a serial entrepreneur. He has faced the fear, made a plan and acted with relentless intention and achieved. When he sets a goal, he runs forward full throttle with relentless intention towards accomplishing his goal. All the while he keeps his eyes open for the next opportunity.
Because, when you reach a goal, you’re not done. Instead, you have to take the next step In order to continue your growth. Sometimes you have to take a few steps backwards before you can go forward.
Fear can be paralyzing. If your goal is to escape what you know, the W2 job that provides for your family to become a full time Real Estate Investor, what’s holding you back?
For most of us, it’s the fear of change.
To reach your destination, you have to be willing to leave your driveway and accept that you will make mistakes. So get comfortable with that.
You don't have to act with blind faith. But sometimes, you have to let go and trust what you have learned, and do the work.
Here are Dan’s action steps to get through the fear of moving forward.
Remember, if you don’t try, you are guaranteed you will not fail but you will also never have the success you wanted.
For more go to:
Podcast: Tough Decisions for Entrepreneurs
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.
For more go to:
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.
For more go to
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