The secret to making money in real estate is to find a way to get your property to make money for you. That’s right you want your property to do all of the work for you and then turn its earnings over regularly. How is this possible? Well, obviously a building cannot go out and plow a field or fix a road. It can, however, provide a home to an indefinite number of individuals, and it is this ability that will allow it to turn into a positive income generator for you.
The trick to getting your property to generate a maximum amount of income for you is to purchase a multi-family home. What is a multi-family home? A single family home is one that will hold only one family comfortably, generally only three to five individuals, and generates only one rent. With that explanation, you should be able to figure out a multi-family property is one that will house multiple families and generate multiple rents, allowing you to enjoy a bigger income.
When evaluating a multi-family property it is important that you take the time to figure out its capitalization rate, or the ratio between the capital that will need to be expended to purchase the property and the income it generates yearly. This will give you some idea of how quickly the property will pay for itself, thereby allowing you to begin to pocket the proceeds; after all, unlike when a single family is sold and the income it brings in comes in one lump sum a multi-family home is not going to stop generating income after it is paid for.
Figuring (and understand) the capital rate can be difficult, so I have developed what I call my times ten valuation calculation to assist fledgling investors to determine the return they can expect to get on their investment. First, take the yearly income of your property and subtract the yearly expenses; this is going to give you your NOI, or net operating income. Yearly expenses should include such things as repair estimates, land rentals, etc.
These expenses should not include your mortgage payment. Remember this, it is a very important part of this process.
1st equation: Income-Expenses=Net Operating Income.
Take the net operating income and multiply it by ten, giving you the approximate value of the property and allowing you to decide whether or not it is a worthwhile investment.
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Your leasing agent is usually the first person a potential resident deals with at your property. If your leasing agent stands out from the rest, the customer is likely to remember your property as well. Do what you can to facilitate this.
Leasing agents will always give out cards to customers. That is standard procedure in most cases. What if your leasing agents could make their business cards special? One way to do that is to customize the backs of the cards.
There are little postage stamp sized pictures that you can have made and put on the backs of the cards. These will impress the customer in such a way that they will want to keep them. They are more than just a name and contact information on a card. This is something personal.
Another idea for your agent is to put their own mission statement on the card as well. Then, when the customer leaves, the leasing agent can take the time to personalize a floor plan drawing by writing them a heartfelt note. They may go away feeling that you have singled them out for special attention.
It is important that customers have a feeling of personally knowing the leasing agent. One way to do this is to use a section of your webpage. You can put an audio section on it where the customer can hear the voices of the staff inviting them to the property. Putting a voice with a face fosters trust.
You can personalize the apartment or condo with monogrammed linens. You can also get things like coffee mugs with your name on them. Anything that will produce a memory point with the customer is beneficial.
The leasing agents can be remembered by the clothing they wear. Every time they see a person wearing a certain type or color of clothing, they are working as a leasing agent for your property. That sparks recognition.
The customer will definitely remember their leasing agent if a strange package arrives at the door from them. It might be anything that you can use to drive home your message. For example, you could send a valentine heart with the message, “We heartily invite you to come back and rent with us.”
The agent can distinguish him-/herself by using the telephone. People like to receive friendly calls. It might just be a call saying that the leasing agent invites them to come to your property before they go to any others.
If this sticks in their minds, it can have an enormous effect on the number of people who will rent. By seeing your place first, they judge every other place by yours. This gives you a definite advantage.
The leasing agent can put in an effort to make a good and lasting impression. When customers have a warm feeling towards the leasing agent, they will feel more comfortable about visiting your property. They will also feel a sense of trust in that agent when leasing that condo or apartment. It really makes a huge difference.
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There are three main reasons novice investors fail in commercial investing: inaction, being cheap, and doing deals that shouldn’t be done. I can’t tell you how many times I hear young investors tell me the reasons why they haven’t reached their goals. Well, it’s time to get out of the slump of wrong thinking and doing what it takes to make this year your best investing year ever. Think of it this way, even if you do only one deal this year, that’s one more than you did last year and basically, that’s a huge financial improvement.
Get Over In-action
You’ve been learning the ropes and studying deals. You may have even written some offers, but you find something wrong or something that you feel you need to research further and ultimately, the offer never gets submitted. That is what I call inactivity. No matter which way you dice it, education and research is important, but it’s not the thing that lands you deals.
Now here’s how I define activity – submitting offers. Submitting offers is the only way to land deals. I find many new and would-be investors often fear making a mistake and committing themselves to what is probably the largest financial undertaking of their lives. What you should know is that you’re not really committed yet. Submitting an offer can easily be done by submitting a Letter of Intent to Purchase. This is not a binding offer; it’s just a door opener which shows that you’re a serious buyer. The next step is negotiations.
Get over in-action by making offers and engaging in the process of negotiations.
Don’t Be Cheap
Many new and would-be investors make the mistake of doing things they should leave to the professionals. For example, many try to save money on property inspections, property management, legal counsel, and realtors by taking on these responsibilities themselves. I may own over 7,000 units, but I always make sure I hire professionals with credentials and expertise in their field for every deal I close on. In fact, I make these professionals a part of my team and I benefit from their experience and knowledge.
I also don’t scrimp on maintenance and repairs. I train my property management company to jump on tenant issues as soon as they arise. Why? Tenants leave because maintenance issues aren’t addressed. I also train my team to be proactive in taking care of property wear and tear like painting, buildings and grounds maintenance and any other issues that affect the image of my building.
Cutting corners like these will not only cost you, but it will also zap you of any time and energy you have left to do other deals.
Don’t Do Deals that Shouldn’t Be Done
Many young investors also believe that just because they’re making money on a deal, then the deal must be good. That is far from the truth! These deals are called marginal deals – anything less than 10% cash-on-cash. There are also commercial property owners and realtors that will tell you that making more than 10% is virtually impossible in the area you’re thinking of. While that may be true, be conservative and look for other deals.
Cash is king in the real estate industry but that cash has to come as a result of making calculated risks based on the property’s actual performance; not based on what might happen. You may already have heard horror stories of previous so-called investors jumping in on a deal based on what will happen. Don’t get me wrong. There are many speculators who do make money and lots of it, but that’s not the kind of deal that many can tolerate financially. My point is to invest in commercial property based on it’s actual performance; not based on what you think or you’re told might happen – the key word is “might”.
Taking the failure out of commercial investing comes as a result of setting specific ground rules for yourself as an investor. For example, there are three basic things that new investors should be careful to avoid: in-action, being cheap, and doing deals that shouldn’t be done. Avoid these activities and make this year, your best investing year ever.
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Lead generation is a foundational activity of your commercial real estate business. Without it, you’ll fail before you even begin. Many people don’t think they have the time or the energy to find deals. I don’t care how busy people tell me they are. My response is always the same – if you want it bad enough, you’ll make time for the important things. When you discover how easy it is to get started, you’ll be kicking yourself for not starting earlier. Here are six ways to generate commercial property deals.
1) Direct Mail
Direct mail is one of my favorites. In fact, it’s how I got started. After I would get home late at night, I’d always make sure I’d stuff envelopes and get those letters out. Why? Those letters represented my future success. There are many investors shunning the idea of snail mail, but the truth is, it’s still works and it’s still a great way to generate leads.
2) Reading the Classifieds
With the number of short sales, pre-foreclosures, and foreclosures on the market, you’ll be sure to find something in the classifieds section of your local newspaper. Be diligent and read each ad. The more ads you read, the more you’ll become familiar with them and know how to spot a potential deal. That’s what I did and after awhile, I started calling these people. The more ads I called, the easier it got to make those calls and eventually, I ended up getting a couple of deals that way.
3) Local Investment Club
These clubs can provide a few leads for those seeking commercial property deals. I started attending their monthly meeting and started talking with some of the members. Real estate is a people business. The reason I mention that is because other people are going to help you get where you want to go. Well, my trips to the local investment club paid off in networking. A few of the members knew somebody, who knew somebody, who was looking for a buyer. I was in the right place at the right time.
4) Real Estate Brokers
Real estate brokers are also a great source for leads for two reasons. They’ve got the Multiple Listing Service at their fingertips or they are working with a client who can provide me with a sweet deal. I also make it a point to work with multiple brokers and I have at least three who send deals my way on a regular basis. There’s no leg work to generate leads; no licking and stuffing envelopes; and they also send me commercial property comps, tax information, and other documentation I need to analyze a deal. How easy is that?
5) Keep it Professional
While this isn’t really a source of leads, it’s the thing that will bring you ongoing leads in the future. Nobody, and I repeat, nobody wants to work with someone who’s unprofessional. If you don’t follow through on your deals, chances are, you soon won’t be getting any. People go out on a limb to refer their lead to you and when you mess up, they mess up too. Don’t ruin it. Always do what you say you’re going to do and you’ll always get leads.
6) Be Easy to Work With
One deal might not make you a millionaire, you’ll probably need a couple of deals to reach your financial dreams and goals. Generating leads can be time consuming so it’s often best to have a team of people “scouting the land” for you. When you’re easy to work with, they’ll want to work with you more and you’ll be the first person they think about when they have a lead.
As an investor, you’ve got to make sure your deal pipeline remains full. The six easy ways presented above for lead generation work. I’ve used every single one of them. My advice to you is to start with at least one and consistently work it until the deals start coming in. Soon, you’ll be working all of these ways and you’ll be on the path to being a successful investor.
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One thing I like most about apartment investing is that it gives any investor the ability to have a solid cash flow via multiplied profits. Additionally, I want to find a way to increase those returns and ultimately, increase the overall value of my property. How can I do that? Using the concept of forced appreciation, investors can make low- to no- cost changes and receive huge returns. Here are a few key ideas to maximize the value of your apartment investment.
Raising Rents
Many apartments aren’t being rented at market value. In fact, what you’ll find is that many apartments (especially those managed by the owners themselves) are rented for 10% – 20% below market value to attract and keep tenants long term. This is a great strategy and one that is easily executed however, keep in mind that the leases must expire before you can raise rents. For apartments, this period can be anywhere from monthly to annually.
Decreasing Expenses
Look for opportunities to decrease expenses. By that, I don’t mean that you should be “cheap” and cut costs on maintenance and repairs. I also don’t mean that you should take on property manage responsibilities. What I mean is that there are improvements that can be made such as installing energy efficient light, solar heating, and thermostats that ultimately save you money on your utility bills. You can also find cheaper alternatives for marketing your property, shop for lower insurance rates, and possibly even investigate if there are ways to save on taxes. Decrease your expenses, but don’t be cheap about it.
Improving Tenancy Rates
While there is no one single trick to improve tenancy rates, every investor still has to find ways to tackle this challenge. First, take a look at the tenant base of your apartment building. It will give you some idea of who is attracted to renting in your building. This information will then help you strategize your advertising to attract qualified tenants that are looking for the living experience you offer. I would also consider going beyond traditional print advertising methods and include avenues such as referral incentives and move-in specials.
Changing the Tenant Base
Some apartment buildings have tenants who aren’t the best for your investment. These tenants often include those who make late payments, no payments, or those who are involved in criminal activities. These kinds of tenants not only affect your bottom line, they also won’t help you attract tenants who are the exact opposite. Start to get rid of these kinds of tenants and focus on doing what it takes to attract your target tenant profile. This may mean that you’ll have to invest in repairs and upgrades, but in the long run, it’ll pay off big time.
Upgrading the Facility
Contrary to popular belief, upgrading your facility does not always include having major work done. While there is often, cost involved, the financial impact can be minimal compared to the returns you’ll receive. I’ve already mentioned several options for upgrading your building, but other simple, low-cost changes could be replacing property signage, upgrading the landscaping, and repaving the parking lot.
Adding the Extras
There are other opportunities that will not only add convenience for your tenants, but it will improve your bottom line. These amenities include things like vending machines for items like snacks, soft drinks, and laundry products. You might also consider adding larger scale opportunities such as laundry facilities, parking, storage facilities, and even a gift shop or convenience store. These added amenities will make your building more attractive to potential renters and help retain current renters longer.
Forced appreciation is a powerful strategy any investor can use to gain multiplied returns on their apartment building investment. Among their options, investors can do simple things such as raise revenues, decrease expenses, upgrade the building, and add convenience items for sale. These changes are relatively easy to make and often have low or no cost. Like any real estate investment, each property is unique and I recommend that you research your options thoroughly to determine which changes suit your property the best.
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You have one chance to make a first impression and in this business, networking is your key to success. I talk a lot about having teams of professionals who are ready to help you accomplish your goals. I also talk about making sure that your deal pipeline is full. None of this can happen without the proper people in place. Here are five ways anyone can do to network like they’re a veteran.
1) Look and act as if you were already a success.
The way you dress says a lot about you especially when people are sizing you up for the first time. The clothes you wear and the way you speak lets people know that you take your business seriously and that they should take you seriously as well. Would you do business with the guy who looked like he could make the deal happen or would you do business with the guy who looked like he needed as much help with his clothes as he did with his deals?
2) Go where the people are
Networking involves meeting people and it just makes sense to fish for people where the people are. Join organizations of people who are aiming to be as successful as you are. Check out your local Chamber of Commerce or Rotary Club. You should even check if there’s a local real estate investment club in your area. Let’s not forget that there are people already in your sphere of influence such as family and friends, acquaintances, and people you’ll be making contact with as you start building your commercial investment business.
3) Be a people magnet
People are drawn to nice people. Basic attributes such as being polite and respectful can go a long way when trying to establish contacts. Your positive attitude will shine through when you’re in a conversation with others. Speak highly of others whenever possible. I can’t stress enough that if you’re serious about building your investment career, you should never make an enemy. It’s never worth it to lose a relationship. Even if a deal goes sour, find a way to back out gracefully and salvage the relationship for the long run.
4) Follow-up, follow-up, follow-up
Keep in touch with people. A quick two minute phone call can do wonders in keeping you at the forefront of people’s minds. Don’t hesitate to send out postcards or letters that lets people know what you’re doing in commercial real estate.
5) Be prepared to make the next connection
Always have a business card ready and never be afraid to ask for a referral. Business cards help people remember how to get in contact with you and it adds a professional touch to the connection that was just established. But being prepared goes beyond just handing out business cards. The person you just met knows people too or he will soon know someone else who may just be your next buyer, investor or team member.
Networking is critical to make your investment business a success. You’ll need people to fill your deal pipeline. You’ll need a dream team of investors, tax accountants, real estate lawyers, assistants and others to help you accomplish your real estate goals. Follow these simple steps and you’ll be networking like a veteran in no time.
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