Team RE Mentor

How easy is it to get started in real estate investing? Hear about our guest blogger's first major real estate investment deal and what inspired him to start his journey as he became one of the "kings in real estate."

Finally, I bought my first deal. The property was a three-family property with three bedrooms on each floor. Always remember, the more bedrooms you have on each floor, the more income you'll have coming in. That's more money to you. Bedrooms are income.

"Fools say experience is the best teacher, but I prefer to learn from other people's experience."

The purchase price of the property on Newton Street was $140,000. It had a positive cash flow of $572 a month.

Cash flow is very important.

Every time I mention cash flow, I'm talking about net spendable income. Cash flow is figured after all expenses are paid, and after the mortgage is paid. It's the money you get to spend on whatever you want.

I was very excited about having $572 in positive cash flow on my first property.

Many of the people I had been learning from were investing in single-family properties, but I'd seen an interview on television with a guy named Harry Helmsley from New York.

A Video That Changed My Life

A lot of people know Leona Helmsley. She was known as the “Queen of Mean”. But Harry Helmsley was a multimillionaire real estate investor in his own right.

Harry talked, in this interview, about starting out buying and selling multi-family properties.

He ended up owning the Empire State Building.

During the program, the interviewer said, "Harry, what is it about multi-family properties that got you going?"

Harry said, "I always liked the idea that a group of people would pool their money together and give it to me so I could pay off the mortgage on one of my buildings."

In essence, the tenants are buying the buildings for us!

Harry said, "I always liked the idea that the same group of people would pool their money together and give it to me so I could pay for all the maintenance on my property too, so I could sell it for top dollar. They'd give me so much money that, at the end of the month, I would have cash flow—money I could either reinvest, put into a savings account, or perhaps just go out and have some fun with."

Well, that did it for me. Right then and there, Harry Helmsley got me hooked on multi-family properties. I thought to myself, "I'm going to go out and I'm going to attract as many of those people as I can find. I'm going to have them pay off as many buildings as I can, and let them give me as much cash flow as they want to.

Sure, some people start with single-family properties. There's nothing wrong with that. You should always start where you're comfortable. I was on my way to becoming a player in real estate investing.

The Road To Wealth in Real Estate Investing is Paved With Multi-family Deals

But remember this: The road to wealth is paved with multi-family properties.

You can make money buying and selling single-family properties within real estate investing, sure. But if you want to be truly wealthy investing in real estate, eventually you're going to get to multi-families. Why not just take the shortcut and start with them? That's what I did.

See, I didn't have anybody telling me at the beginning, "Whoa. Stop. You've got to do single families first." The truth is, you don't.

I went straight to apartments. So, did Beth who was surprised how easy it was to get over her fear of investing and how easy it was to start investing in multi-family real estate.

(By the way, a great many of my students go directly into multi-family investing before they do any other type of real estate investing. I'm not showing you anything here that you can't do.)

With multi-family properties, we use the “income approach” or the “capitalization rate” for real estate investing

My point in introducing you to multi-family property investing, is that I learned that this type of property is valued differently from single-family properties. With single-family properties, we use what's called the “comparable method” and we compare like-kind properties to each other to determine their value.

With multi-family properties, we use the “income approach” or the “capitalization rate”. That rate is simply the return that you expect to get on your investment.

The way we figure out that capitalization rate can be a little bit confusing. So, what I did is I took a complicated formula and I broke it down to a simple formula which I call the “Times 10 Valuation Calculation”.

This is what you do: You take the yearly income, and you subtract the yearly expenses, not including mortgage. Yearly income minus yearly expenses equals your Net Operating Income, or “NOI”.

You'll hear this term a lot in multi-family investing: NOI, which stands for Net Operating Income. If you take that NOI and multiply it by ten that gives you the approximate value of the property.

This is a very basic formula you can use over and over with multi-family real estate investing to quickly figure out value. So, let me share with you the numbers on Newton Street.

25 Newton Street:

Income $34,000

Minus Expenses $15,300

= Net Operating Income (NOI) $18,700

$18,700 x 10 = $187,000

(So, the value of the property in very rough terms is 10 times the NOI.)

Now remember, I paid $140,000 for the property, so with the stroke of a pen, I profited $47,000 on that property.

“The best news is that there are real estate investing deals like this in every town in America."

There are deals like this in your town. When I first started looking at multi-family properties to invest, I didn't think I was smart enough.

I was always a ‘C’ student in math and I wasn't sure if I could do the math. But what I realized is that I could take very complicated formulas and I could break them down into very simple formulas, and use them over and over again.

So, remember that simple formula.

It's called the Times 10 Valuation Calculation.

You sure don't need an economics degree to do apartment investing! We'll talk more about economics when we get to market cycles, but I've got a way to simplify that, too.

I've taken all of the hard work out of these decisions for you.

When you get down to it, the value of a multi-family property is in the income stream. For every $1 you increase the net operating income, you increase the value of the property by $10.

And that's just like printing money.

In my seminars I give you over 23 different ways to increase your Net Operating Income in a very short period of time. Increasing your Net Operating Income increases your equity very quickly.

Apartment Buildings Are Like Money Machines

Some of those 23 ways include finding properties that have low rents, or high vacancies, or ones that have higher than normal expenses.

Then we make quick changes to the property. We increase that cash flow, and for every dollar we spend on the property we've increased the value by $10.

Talking About Cash Flow?

When you're talking about cash flows of $70,000, $80,000, that starts to be serious money.

Apartment buildings are like money machines. You have a property manager in place. They're managing that property for you.

Every month that money machine puts a chunk of money into your bank account.

Imagine for a moment that you go shopping and use a credit card. At the end of the month, you get a bill. That bill shows a minimum payment due. If you don't pay the total bill, that minimum payment goes higher the next time and the bill gets larger. The next thing you know, every month you get that credit card bill coming in and staring you in the face until you finally pay it off completely.

Imagine what that's going to be like when you are free from any credit card statements coming into your house!

Now, wipe that experience completely out of your mind and think of this: The next time you go shopping, you take with you a debit card and that debit card is linked directly into the account that your Apartment Money Machine fills up. It is putting a chunk of money in every month, every month, which is your cash flow.

Now you go out and start spending. At the end of the month, what don't you get? You don't get a bill. You are now free from credit card bills. Imagine what that's going to be like when you are free from any credit card statements coming into your house!

And think about this: Let’s say you go out and decide to spend all the money in that account for that month. What happens the very next month? A whole pile of new checks arrives!

That cash flow account has another month's worth of deposits.

You decide what type of lifestyle you want to lead. You then let your apartment buildings pay for it. How does that sound?

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Guest Blogger

David L

With more than 18 years of experience in Real Estate Investing, David L.* has rehabbed over 820 houses, and currently controls over 7,400 apartment units. Starting out as a struggling landscaper with no experience in construction, Dave accepted an opportunity to renovate a foreclosed house for a local bank.

Within the first 14 months, Dave’s apartment buildings created a positive cash flow of more than $10,300 a month for him and his family and within three and one half years Dave became a multi-millionaire.

Dave then learned about the four phases of the Real Estate Market Cycle, what strategies to use in each cycle for maximum profit and the fact that at any given time there are 10 – 20 markets around the United States that are “Emerging.”

Dave learned how to find these markets, and he created a system to buy in these markets. Quickly, Dave became much wealthier, much faster! He has done and does all of this without dealing with a single tenant! Now he is ready to tell you how you can do it too!

*Today, Dave has earned millions of dollars renovating houses for resale. And, he controls over 7,400 apartment units with a monthly cash flow equaling what most people make in a year!

Dave is the author of two #1 bestselling books, Emerging Real Estate Markets and Multi-Family Millions. Among other publications, David has been featured in Reader’s Digest, Creative Real Estate Lifestyles, AOL and Kiplinger magazine.