Owning one property is manageable for most investors.  One problem, one unique solution.  However, for true wealth, multiple units are the goal.  To accomplish this without going crazy, or broke, you need systems for success.  

Systems provide direction, a playbook, for what to do when you or your staff face a situation.  Knowing what to do, how to do it and who to call when a crisis shows up, gives you the confidence to have a predictable outcome and freedom to focus on other matters like growth.

We spoke with Matt Faircloth from The Derosa Group about systems for success. Matt is an investor, flipper and multifamily syndicator.  In order to grow, he developed systems that are written in pencil because he recognizes that if a better solution is recognized, he wants to use it.

System for Success in Property Acquisition:

1) The first step is to do a Market Analysis.  If it is your local market, it is easy to know the different areas of town and their reputation.  

If you are not familiar with the area, you need to find the answers to the things you cannot change:

• Crime statistics: the type and frequency of crime committed in the neighborhood.  
• Local area median income:  Can your potential renters afford the rent you need to get?
• Affordability index: Are there enough potential residents that can afford the rents you want to charge?
• What are the market rents for similar units in the area?

Additionally, answers to these questions will tell you if the area is on the upswing:

• Is the population growing?  Is there growing demand for housing?  
• What is the unemployment and employment outlook?
• How many major employers are there in the area?

2)  Evaluate the Property:

If the area checks out, it’s time to evaluate the property:

Do the numbers work?  This is where you go line by line with the information available in the offer.  (Click here to get a FREE DEAL WORKBOOK)

• Actual Rents: it is good to know the market, but start with actual rents.
• All Expenses: Line by line, what will it cost you to operate the property?
• • Insurance
  • Trash
  • Water
  • Etc.

 

If the numbers work, it's time to do the physical inspection.  

3) Physical inspection: The key to the inspection, don’t start inside the units.  Start with the systems.  What is lurking that is going to cost you money:

• Roof System?
• Electrical system?
• Heating System?
• Windows?

If you have a major expense and the seller is not willing to work on the price, move on.  

Bonus: If you can, ask tenants you see what do they think of the property.

Then look in the units.  What can you do to add value?

• Remember, if there is a tenant in the unit paying close to market rent, the unit is fine!
• What is your competition doing?  You may need to do some undercover work to see what are your potential tenants looking at when considering renting your property?
• What is the benefit to doing small improvements?
• How attractive is the property, what can you do for minimal to approve the curb appeal?

 

If everything looks good, you are ready to make an offer.

4) Make the offer

• Use a Letter of Intent.  This allows you to present your offer without the contract back and forth.  Once you have an agreement on the the basics, you can go to the contract.

• Include with your Letter of Intent a list of the issues you found during your inspection that will need to be overcome.  If the roof has five years left, identify the cost of a new roof in five years.
• Prove to the seller that you can close.  A letter from your lender with a commitment to lend really helps.

 

Now the clock is ticking.

5) Due Diligence:  You have thirty days to confirm everything you believe to be true now.   

• Financing: Where are you getting your funds?
• Bring in your team to verify what you think is the case:
• • Contractors for roof, heating, electrical, plumbing.
  • Insurance
  • Trash
  • Utilities
• Get a copy of all the contracts that stay with the property:
• • Leases
  • Laundry
  • Trash
  • Utilities
  • Certificate of occupancy

Usually there will be something that comes up.  This is your chance to address the seller to renegotiate if needed.  If everything comes together, you will be the owner of a property.

Congratulations!

6) Operation: Now you need systems that cover the day to day operation including:

• Management: What are the daily, weekly and monthly tasks management needs to perform?
• • Property Management walk through frequency
• Bringing the property up to market rents:
• Get to know the property and the residents personally.  Let them know you care.
• If you have any bad apples, this is the time to identify and get them to move along.
• Tenants: What is your tenant selection process?  What are the minimum standards?
• Having unit standards will simplify the turn process when tenants move out, including:
• • Color of paint
  • Floor coverings
  • Cabinets

7) Refinance: If you are in a syndicate, this is the time to pay your investors.

8) Repeat

 

For more information goto:

http://www.derosagroup.com/

https://www.youtube.com/user/derosagroup

Due Diligence is a timed process for the buyer to inspect and confirm the information about the property and the deal before any money is lost.  Most buyers focus on the physical characteristics and the financials of the property.  They look at the condition and age of systems, roof, maintenance, etc.  On the financials the focus on the Net Operating Income.  If everything checks acceptable, they move forward.

These simple and obvious features are easy to identify and verify.  However, they are only part of the story.

In order to know the “rest of the story”, you need to meet with the seller and determine why they are selling the property.   The seller’s motivation can open the door to opportunities in creative financing.

One of Doc Haller’s students, presented an opportunity to purchase a $3M property operating in excess of 10% NOI.  There was only one problem, the student lacked the $1.2 M required to close.

During the due diligence, several things were learned by reviewing the tax returns and the loan documents:

• Property was held by a corporation.
• The existing note from the bank, in the name of the corporation, had 9 years remaining on the term.
• The banknote did not have a due on sale clause for change of corporate ownership.
• The seller did not need the cash from the sale.
• The seller needed to remove the debt from his balance sheet in order to proceed with another project that he needed financing for.

 

Using what you learn in due diligence

If you know why the seller was selling, you can get creative with your offer.  In this case, the buyer was able to apply the knowledge gained during due diligence to offer a creative solution:  

The buyer provided a Letter of Intent to purchase the entity.

• $2.5M offer for the stock purchase.
• $250,000 Down
• $25,000 for closing
• $250,000 Seller carry back

The bank tried to stop the transaction, but realized they had no leverage to call the note.  However, the bank did call the ten percent guarantee, $200,000 from the seller.

In light of this requirement from the bank, the seller requested an additional $250,000 collateral from the buyer, until the seller was reminded of a forgotten fact.

 

When due diligence pays dividends:

Hidden in the tax returns, beyond the view of the accountants and attorneys, was a note on the tax returns.  In exchange for the cost of the tenant improvements & betterments for the restaurant tenant, the seller had received thirty percent ownership of the tenant, a restaurant that annually provided in excess of $80,000 income to the seller!

The buyer now had the leverage.  Instead of keeping the stock ownership of the tenant restaurant, the buyer agreed to dividend the stock ownership of the restaurant to the seller, which was clearly valuable to the seller.

Summary:

By examining all the seller information available to the buyer, the buyer was able to:

• Buy a 10+ CAP building at a 17% discount increasing the CAP to over 12%.  
• The downpayment required was only ten percent of the offered and accepted price plus $25,000 for closing.  
• The buyer was able to retain the financing in place with a 9 year remaining term.
• The seller retained his ownership in the restaurant tenant providing more than $80,000
• The buyer picked up a property providing over 100% annual cash on cash returns.

 

For more information go to:

Commercialrealestatementor.org

 

Free White Paper: “How to Escape the Residential Rut”

 

Commercial real estate active training program with Doc Haller special offer:

For listeners of CREPN Radio, Doc is offer a 50% off discount.   The course normally sells for $2,000, avaliable to listeners of CREPN for half off:

1 payment = 50% Discount  code: CREPN

6 payment of $200 Discount code: CREPN6

The first thing a real estate investor needs to decide, is what is your strategy?  Everyone hopes to buy low and sell high.  Few consider the riches available by investing in bare land.

 

The Land Geek, Mark Podolsky, shared his journey from a workaholic investment banker to a two hour per week passive income professional investor in bare land.  

 

Mark’s investment banker training taught him that a company with fifteen percent EBITDA was a good company.  When his new work colleague showed that investing in land he could make 300 percent, he had to see for himself.

 

Sure enough, when he took the three thousand he had saved for car repairs and turned it into nine thousand, in less than thirty days, he was hooked.  In just eighteen months of investing on the side, he was able to surpass his income as an investment banker.  

 

So, he traded in his one hundred hour work weeks, for what is now no more that two hours per week.

 

How Can You Make Money in Bare Land?

 

Throughout America, there are parcels of land owned by people who no longer value the property.  The clues are are easy to detect.  

 

Mark sends out twenty letters each day to the owners of these unwanted properties.  The letters are short and to the point and include the price he is willing to pay.  The response rate averages three percent reply, a success by direct mail marketing strategies.  

 

When he finds a willing seller, he can acquire the property in just seven days and resell the property in as little as thirty days for as much as three hundred percent return on his investment.  Sometimes, he makes more, upto one thousand percent.  

 

How can you make more in bare land?

The secret to making money in bare land is to make it more than just a transaction by offering seller financing.  These small value properties are not what banks are looking for, so the buyer will either need to purchase with cash, or be willing to agree to seller finance terms.  

 

Using a land contract and promissory note, you can get your purchase price back as a down payment, and offer terms for as long as you want.  The longer the term, the greater your return.  

 

Mark has figured out the pain points and automated whenever possible.  This includes payment collections.  His motto is if you only have one form of payment, you have none.  So, he makes it a practice to collect a primary and a back up payment, so that he never misses a payment.  

In 2016, Mark completed 192 deals using this system.

 

To learn more about investing in bare land and get your Passive Income Blueprint

Click: http://www.thelandgeek.com/

Winter is the season for property owners everywhere to experience property damage caused by weather; snow, ice, rain, flooding and landslide.   Unfortunately, almost fifty percent of businesses affected by a major loss, never reopen.  Failure to plan is a plan to fail.   In an emergency, you need help and you need it fast.   Emergency Ready Profile, click here. What can you do to make certain you stay in business after disaster strikes? To learn more about what can be done to prepare for an emergency, we spoke with Servpro representative Marla Rockhill.   Restoration contractors have the needed equipment and training to clean up the damage quickly and minimize your down time.   For a free Emergency Ready Profile, click here. For more information go to: Marla Rockhill 503-777-9739 marketingspswpdx@gmail.com https://www.servpro.com/  

Winter is the season for property owners everywhere to experience property damage caused by weather; snow, ice, rain, flooding and landslide.  

Unfortunately, almost fifty percent of businesses affected by a major loss, never reopen.  Failure to plan is a plan to fail.  

In an emergency, you need help and you need it fast.  

Emergency Ready Profile, click here.

What can you do to make certain you stay in business after disaster strikes?

To learn more about what can be done to prepare for an emergency, we spoke with Servpro representative Marla Rockhill.  

A good first step to reducing the property damage is to create an emergency plan.  The information contained in an emergency plan is easy to find on a normal day, but it can seem impossible to find in the face of an emergency.  

 

Essential information in an emergency plan include:

 

• Emergency Action Checklist

• Emergency contact info: Names and numbers of persons who can help in an emergency

• Fire, Insurance, Restoration Contractor

• Identify where power and utility shut off switches & valves are located

• Evacuation plan and meeting location for where the occupants of the building are to meet

Creating an emergency plan can be the difference between staying in business or not.

The water used to put out the fire becomes a potential mold problem.  Standing water will quickly seep into walls, floors & ceilings and create a mold factory which can lead to additional health hazards.

Most property owners facing a large loss, have no idea where to look for help.  Getting to know a restoration contractor before you need one is a good idea.  

Restoration contractors have the needed equipment and training to clean up the damage quickly and minimize your down time.  

For a free Emergency Ready Profile, click here.

For more information go to:

Marla Rockhill

503-777-9739

marketingspswpdx@gmail.com

https://www.servpro.com/

Site selection is a fundamental key to successful real estate investing, location, location, location! For retail there can be multiple reasons for failure; poor concept, product, planning, understanding who is the ideal customer, and lack of funding to name a few.  But assume that these are solid.  Could a poorly located business fail? Site Zeus was created by Hannibal & Keenan Baldwin, successful business entrepreneurs who suffered some unexpected failures.  When they compared the successes to the failures, there was one significant distinction between success and failure: poor site selection.   Additionally, SiteZeus is able to assess existing locations performance and provide feedback to owners to determine which stores do better or worse and why.    Current verticals SiteZeus has identified as potential markets needing its service include: Restaurants & Retail Convenience & Gas station local medical offices For more information or a free demo, contact: https://sitezeus.com/ Jim Hoff jhoff@sitezeus.com Tyler Carlson tcarlson@sitezeus.com

Real Estate Investors who chose B, C & D properties must know four things to save on insurance.   Systems that are not replaced present a higher probability of failure or breakage resulting in damage to the property.  This increased likelihood of damage reduces the number of willing insurance companies to cover the property and in turn reduces the competition for your business which ultimately leads to higher cost of insurance. How to Save on Insurance When Investing in B, C, D Properties There are four systems that insurance carriers care most about and investors need to pay particular attention to: Roof - The roof is the first line of defense against rain and keeping water out of the structure.   A roof in poor condition can leak and cause a host of problems like: stained drywall, paint, and the big bad mold, which is a health hazard. Electrical - The older the property, the more concerned you should be.   Plumbing - Aging supply lines can be prone to leaks.  Supply lines made of galvanized pipe or polybutylene are known to fail.  When supply lines fail, the damage can be significant if not recognized immediately.   Heating & Air Conditioning - Properties with older, higher quality heating systems powered by a boiler or forced air natural gas, oil or electric furnaces have an average life expectancy of 18 - 20 years. The life can be extended with regular maintenance.   For your 10 things to know about insurance before you buy a property click here.

Successful investing in real estate takes knowledge, guts and a leap of faith.  How much more is required to invest in long distance multifamily? What are the key indicators Reed looks for to be successful in long distance multifamily? His engineer training provided the basic analytic skills to establish minimum requirements for his  investments.  Here are the starting requirements he has established that must be in place in order to proceed: Metropolitan Statistical Area MSA must have a minimum of at least 350,000.  This establishes basic population that ensures there are people that need housing. Population growth: a positive trend for the past ten years Employment opportunities of at least three major employers.  Jobs for your tenants so they can pay your rent. Moderate CAP rates.  Ideally they are 8 or greater.  If CAP rates are compressed, it makes it very difficult to purchase a property with leverage. Rents as a percentage of average income.  If rents are 25 - 30% of average income, then there is typically room to increase the rents.  If rents approach 40 - 45% of average monthly income, the opportunity to increase rents is significantly reduced. Once you have your parameters set, Reed suggests you analyze at least fifty deals to gain the experience and local knowledge needed to recognize a deal when it presents itself. For more go to: http://www.rsnpropertygroup.com/ Listen to Investing in the U.S.  An Aussie’s Guide to US Real Estate  

Reducing taxable income through interest expenses and depreciation are the cornerstone to a Real Estate Investors tax return.  What happens if President Trump and the Republican Congress pass, “A Better Way” tax reforms?   Does a simpler tax code eliminate depreciation? What about repair regulations, cost segregation and the 1031 exchange? All of these are possible in the Republican Congress attempt at tax reform.   Jonathan McGuire, a real estate consultant at Aldrich Advisors, discusses all of these at length and provides examples of how the proposed changes compare to what the current tax consequences.   While the goal is to simplify tax reporting and collection, the pain of change may scare you at first glance.  The changes make the consequences more directly related to the transaction and eliminate many current record keeping exercises to calculate taxes owed. On a scale of one to ten, Jonathan believes that as much as sixty percent of the proposed changes will become part of the tax code.  The only certainty in life are death, taxes and change.   For more, email Jonathan at: jmcguire@aldrichadvisors.com https://aldrichadvisors.com/  

The new year brings a new opportunity to dominate your marketplace.    Rod Santomassimo with the Massimo Group is a CCIM, former Commercial Real Estate Broker, author of multiple books.  He works as a consultant to Commercial Real Estate Professionals to help increase their results. In order to produce consistent results, here are some suggestions Rod teaches to his clients. Before you set a goal, it is important to know where you have been successful first.  Who are your current and past clients.  What were the exact circumstances that helped you make the sale.  Also, what were circumstances of your failures.   Knowing this first is key to understanding who your ideal prospects should be going forward for your greatest results. In order to dominate your marketplace, you need to have a funnel full of opportunity.  If you have not created a presence in your market, this is where you start.  It takes a lot of work, but the reward is pipe full of opportunity and consistent results.   To fill your pipe, you need a marketing plan of action.  Rod suggests that brokers be very disciplined about establishing their presence.  This can only be done with regular communication with prospects.   Providing valuable information regularly to prospects will help develop rapport and trust with prospects and top of mind.  Meeting in person, leaving behind content with your brand and contact information and regularly communicating via email, or other digital platform. Regular activity will develop top of mind position over your competition. For more information go: http://www.massimo-group.com/ rod@massimo-group.com