Multi Family | Dave Lindahl - real estate investing

Debunking Myths – Part 1

Apr 062011

A myth can hang around so long that people think it’s the absolute gospel truth. Lets look at some common sayings and bits of conventional wisdom that could do you more harm than good if you adhere to them religiously.

Myth: Location Location Location
Reality: Location is more important to your tenants than it is to you

Sorry, but this famous triptych truism is wrong. Certainly, location plays a role in determining value. But it is not the ONLY factor. Nor is it even the most important factor for you, the property owner. Imagine if doctors lived by the mantra “exercise, exercise, exercise.” It’s sound advice. But it’s not the remedy for a broken leg or sore throat.

To assess location, you must first profile the property’s target market. You can then determine if a property’s location gives you maximum exposure to the target market. For example, bedroom communities outside the city center have A.M. and P.M. sides of the street, indicating the commuter traffic flow into and out of the city. Traffic flow is the lifeblood of many retail businesses. Donut shops want to be located on the way to work. Pizza on the way home from work. Traffic flow is less important for offices, industrial and apartment buildings. Here, access to public services like rail and schools will likely be more critical than which side of the street the building sits on.

Location is more important to your tenants than it is to you. It’s a great marketing tool for getting tenants, but it is not the pedestal upon which you should be basing the value of your building.

Myth: Future value is worth paying for today
Reality: Future value should not factor in your purchase formula

You may have heard me say that the term “pro forma” is not Latin for “pretend,” but it might as well be. That is because nobody can predict the future. Pro forma numbers are a calculated guess – and the calculation is often meant to deceive you… sellers give you a work of fiction when they deliver their pro forma numbers.

You don’t buy a new car based on its future “collector value.” Likewise, when buying real estate, don’t let pro forma numbers drive you down the wrong path.

You want to buy a property based on actual numbers. Focus on the profit-and-loss statements: Get the year-to-date and go back two years as well. Also get the current rent roll. These 3 numbers will reveal the true story — no crystal ball required.

We’ll be looking at more myths in upcoming blogs… stay tuned.

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Documents Needed When Buying a House with Cash

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Feb 152011

If you are in the fortunate position of being able to afford to buy a house using only cash, and with no requirement to rely upon the additional support of a commercial lender in order to make up the shortfall of the asking price, then you need to be aware that you will be required to produce some documentation.

The reason for the need for purchasers who conclude a transaction using cash only to produce relevant documentation is to prevent, deter, detect, and catch fraudulent and criminal activity.

Specifically, many criminals seek to launder their ill-gotten profits that they have made through their various criminal enterprises by the purchasing of real estate with cash. By making a large purchase with their dirty money, they then have a plausible and legitimate excuse for having such a significant amount of wealth to their name and so this can further muddy the waters for law enforcement who are trying to competently investigate the conduct of the criminal.

That said, purchasing a home with cash is actually much easier and speedier a transaction than by paying with alternate forms of credit such as with a home equity loan or mortgage, and the level of paperwork involved is fairly minimal. Once you have identified a particular property that you are interested in purchasing, make sure that you do your due diligence, determining the structural condition of the property along with a search of the title deeds of the property.

Should both of these searches (which are entirely voluntary by the way, however, it is strongly recommended in the most emphatic terms possible) turn up no adverse results, you will then need to initiate contact with the seller and provide them with an offer.

Once you and the seller have finally reached a consensus as to the purchase price, the next step will involve the purchase and sales agreements being verified and signed by a qualified property attorney. The attorney will probably require that you provide a bank statement, proof that you have the necessary amount of funds, along with photographic identification such as passport, drivers license etc. This both confirms that you do indeed have the requisite amount of funds and that you are actually legally competent and entitled to conclude the transaction in question.

In the interests of both safety and convenience, you may want to convert either all or part of the funds required for the final settlement of the transaction into cashier checks. The benefit of cashier checks is that unlike money, they can only ever be used by the recipient and so this means that if they are stolen, they can be easily traced and the thief apprehended.
Once the settlement has been duly concluded to the satisfaction of both parties to the transaction, the deeds will be transferred as appropriate. Your real estate attorney will be better able to explain the precise mechanics involved in this specific part of the process.

And there you have it! The property is now legally yours, for you to use as you see fit.

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The Safe Island Technique When Talking to a Seller

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Jan 132011

When you are talking to a seller of a property, trying to get the best deal from them, you should inevitable gear up for a lot of questions. You are, after all, the buyer of property. As such, it is good if you get to know as much about the property as possible. This is where you can use the Safe Island Technique, which was popularized by an internationally famous speaker named Floyd Wickman. So, what is this Safe Island Technique all about and how does it help you in your selling process?

The Safe Island Technique is a way of getting to know everything in advance. This is wonderfully put into use by doctors. When they are performing any procedure on a patient, they continuously keep telling the patient what’s happening and what’s going to happen next. This removes the suspense from the daunting scary procedure and makes it not-so scary anymore.

This is what the Safe Island Technique is all about. When applied to the real estate selling process, it employs asking a lot of questions to the seller so that you know what is going to happen next.

Why does this become a good technique for handling real estate property investigations? The main factor here is that it removes the stress out. When you know what’s coming next, what part of the procedure is the next in line, then you aren’t unduly worried about what you will have to do next. It also helps put the sellers themselves at ease.

When you are going to see a property, you can make things easier on them by using this technique. For instance, you can tell them that you would like to ask some general questions about the property first. Then you would like them to show you the property. You would like them to tell you what you need to know. Like, tell you about the number of rooms in the house, the amenities and features available, the windows that open to the east, any potential problems and so on. This helps you make a proper judgment about what you would like to ask more about the property.

Then you tell them that you would like to sit down and discuss more about the property. This would be a talk about the price, and negotiations about the property could come in. you can tell them that you would like to bring in an assessor or inspector to professionally look over the property and give his or her opinion about it.

So, in short, the Safe Island Technique is a way of “guiding” the seller through the entire process. They are relaxed about what they are doing, because you have laid out to them what exactly they are supposed to do. There are no surprises waiting to be sprung, either on them or on you, and that makes the whole process become quite a streamlined process for both parties involved in the real estate selling process.

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Off-Market Deals

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May 202010

The commercial real estate market is currently the most competitive that it has been in a great deal of time. To work effectively and give yourself the best opportunity to succeed, you must find unlisted, off-market deals in addition to looking through listed commercial deals. This article will quickly give you a few pointers on different ways to find off-market deals.

To give you an idea of one particularly successful real estate investor, he has done forty deals worth roughly $100 million over the last three years. Within that time frame, only ten of the forty deals were listed and were marketed conventionally. Thirty out of his forty deals were off-market deals. You are throwing away many great opportunities by not looking for these off-market deals.

The first pointer to keep in mind is that every person can be a potential lead. In addition to buying deals from the major companies such as CB Richard Ellis or Sperry Van Ness, you need to look for smaller brokerages too. There are often many individuals who run small brokerages who may work out of their homes and have a low profile. These brokers can often have great deals which they may have not marketed or may have also under-marketed the property.

The remainder of this article will focus upon two strategies you may use to acquire off-market properties. The first one is the failed transaction. This occurs when a property has gone into contract but failed due to reasons normally involving the buyer. The seller can become very frustrated as a result. This is a great opportunity to jump in and buy the property quickly and efficiently. Use short due diligence periods and potentially include a non-refundable deposit to appease the seller. The seller may be willing to make concessions on price and other matters within the contract because of the speed and professionalism you display through the deal.

The second strategy which you can use is to look at the largest owners within a particular market. Look at the overall portfolios for these owners and see whether there are properties which don’t fit with the overall strategy of the portfolio. These owners may not be used to managing this property and may not be receiving the type of return they would normally receive. You can enter the picture and help them out by taking over a part of their portfolio they do not want or need. This will allow the owner to rid themselves of a troublesome property while providing yourself with a deal which had no competition.

This article on off-market deals should have given you an idea on why it is so important to look for off-market deals along with two strategies to find off-market deals. Off-market deals are a source of deals which you cannot ignore. If you choose to avoid this area, you are limiting the amount of success you can have within the market. Hopefully you are able to use this information within your business in the near future. Good luck.

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Choosing A Broker

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May 172010

This article will give you some helpful tips on potential guidelines in choosing which broker to work with. The first paragraph will focus upon some general guidelines that many successful commercial investors have found followed by explaining some of the differences between the listing broker and selling broker.

If you are in the beginning stages of your commercial investing career, you may want to look at using a young and aggressive agent to begin with. A younger agent may be more responsive in working with you and will also help foster a closer relationship than veterans who have been in the business for many years. Veterans who have been in the business for a great deal of time will often have established relationships with many clients and may not have the time or desire to develop new clientele.

This can happen because the older commercial broker has a well-developed network of contacts that bring him more business than he or she may be able to handle at one time. A younger commercial broker will often be working to establish his or her business and you can use this to your advantage to develop a close working relationship. This will allow you to develop a relationship which you can build on in the future. You can work to build your business as he develops his business. This is a good bond you two can have in common.

As with any industry, there are many different types of companies in the marketplace. You will find benefits to working with many different types of companies. Many commercial properties are listed through large commercial brokerages. Many successful investors have done this to great advantage. When looking to acquire properties, many successful investors may look to work with lesser known brokers. These brokers may hold information or listings which are not on the market or are being under-marketed currently. You may work with many brokers but be sure that you have a close relationship with at least one. A broker will be one of, if not the most important, business partners you can have. If you do not have a good broker, you are cheating yourself out of valuable industry contacts, information, and experience. You cannot focus upon using one broker for all of your activities because you are cheating yourself out of many different sources of deals.

Check out the broker and ask for references. This can allow you to check into the broker’s background and what others are saying about this particular individual. Ask around the market what others think about this particular broker as well. You need to do your homework before choosing a broker because this is a partner you will use often and a relationship to build slowly but surely.

Hopefully this article on choosing a broker has given you good insight. There is not necessarily a set formula to finding a good broker but these are tips which may be able to help you. When looking for a broker, take time to develop a relationship from the beginning and you will be rewarded throughout with the benefits of a good business relationship.

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When Multi-Family is Best

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May 122010

Everyone dreams about it. From the time they are young they dream of a home that is their own, inside which they are master and the ultimate say in any decisions that are made. These are the moments in which their future will be decided and they will finally be free of outside influence. Of course, for many young adults this is a dream that will not come to be for quite some time; they will live with their parents while they finish their schooling, then step out of the comfort of that home into their first small apartment, after which they will almost inevitably bounce from apartment to apartment until they decide that it is time to settle down and start a family, at which point they will finally find that single home they have been dreaming of.

For some individuals, however, that single home isn’t what their dreams are made of. Their dreams consist of apartment buildings with plenty of people, the more the merrier. They look at single family homes with a kind of tolerant disgust in their eyes, a necessary evil to get them started on their path to the multi-family homes their fantasies are made of.

Who are these unique individuals who dare to turn against the conventions of society and live their lives backwards? Real estate investors of course! Real estate is one of the fastest growing markets in the world, and it seems as though everyone wants to get a piece of the pie; however, in order to turn that piece into a whole pie and enjoy the maximum amount of income that real estate is capable of generating it is first necessary for them to learn the rules of the game.

The first rule in real estate is to buy low and sell high. What does that mean? It means that when an investor is looking for a property they should keep their eyes on the ones that need a bit of work and are therefore going to be sold for a price below market value. The investor can then use their resources to rehabilitate the property and raise its value, where they can resell the property for its full market value and pocket the proceeds.

Of course, this is what investors do with those single family homes that they use to get them started. The second rule of the business is that true wealth in real estate comes not from the rehabilitation and resale of homes but from the generation of passive income. Passive income is money earned without having to work for it. Is this really possible? Absolutely; however, the secret to doing so is to look away from those single family properties and focus on multi-family rentals.

When an investor purchases a multi-family home and rehabilitates it they are opening the doors to take in tenants. These tenants will then pay often exorbitant rents in order to live in their apartments. These rents will arrive every month and can be used to pay all of the expenses on a property (assuming, of course, that the investor has done their homework properly) as well as providing a comfortable income for the investor in question.

The largest expense to owning a property is the payment of a mortgage. Once that mortgage has been paid the building will belong to the investor and all of the rent checks that come in every month will become spendable income, all generated from their original investment. It is through the accumulation of this passive income that real estate professionals are able to reap the fruits of their labors.

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The Times Ten Valuation Calculation

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May 112010

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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How to Help Your Leasing Agent Stand Out

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May 052010

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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Successful Networking Attracts Business

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May 032010

The effectiveness of your network determines the strength of your real estate investment business. I’m always on the lookout for new people to work with – new private investors, new bird dogs, and new players in the market. The way I see it, I am only as good as the weakest member of my team. In fact, I firmly believe that a strong network of people working together can propel any investor to new heights in their commercial real estate career.

A strong network of experts lowers investment risk. Needless to say, I hate losing money. While I can’t factor out all the risk in any real estate investment I take on, I understand that I can remove most of it. How do I do that? I get my team of experts involved in my deals. I have a great team of people working for me, but did you know that networking was critical in the formation of my team of experts? I had to get out of my comfort zone and start meeting professionals who could help me. I had to seek out the counsel of other professionals when parts of the deal didn’t go as planned. I had to network myself.

A strong network of deal sources means you always have a full pipeline to work with. A broker may bring two or three properties to the table. Mr. Smith the postman may inform you that he heard through the grapevine that the owner of a small, local mall nearby plans on selling. Ms. Mae just referred you to her rich Uncle Benjamin who wants to buy another apartment building complex. All of these sources have one thing in common. They all relied on networking to bring in deals.

Networking ensures that you’ll always have people to work with no matter what type of property you’re investing in. Smart investors continuously work on building a list for three groups of people – buyers, sellers and private money investors. This is where I focus most of my effort. If you have a constant flow of people moving through your business, chances are you’re running a successful commercial investment business.

Okay, at this point we can all understand the need for networking. We understand the power of what a group of people can do for us in our lives. But how effective are we? If you’re out meeting people at every opportunity you can, but you’re not yet realizing the results, it’s time to make some improvements. The success of your business is counting on it. Here are a few tips.

1) Be sincere when meeting people for the first time. Insincerity will often speak louder than anything you could verbally say. Any attitude of insincerity will show through in your body language, tone of voice and even when you may seemingly be smiling.

2) Make it a point to develop a deeper relationship. People will do business with you simply because they feel more comfortable with you. For that reason, spend a few minutes and get to know as much as you can about the person you just exchanged cards with. In fact, eliminate business card blitzing. Not only is that impersonal; it’s also difficult to really remember and get to know 20 – 30 people you just met. We don’t only want to spread our business card around, but we also want to develop a quality relationship that blossoms into something further.

3) Have an elevator speech already prepared and practiced. For many people, networking doesn’t come easy. They have to work at it to be successful. Write out your speech. If you have others around you, ask them to role play with you and practice until you’re familiar with it.

Successful networking brings you business. You’ll need people to protect and operate your commercial real estate investment business. You’ll also need people to keep your deal machine running. Commercial real estate investing is a people business. By practicing these few tips, you’ll be well on your way to achieving all the success and dreams you desire.

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