How Most People View Apartment Investments
In my professional career as a real estate investor and mentor to other investors, I’ve done two things a LOT: Invest in apartments, and make presentations to people thinking about investing in apartments.
In the presentations, I explain the kind of money that it’s possible to make in apartment investing. To summarize, if you do a 100-unit apartment deal, in very general terms you can expect up to $10,000 per month of cash flow in your pocket. That’s month after month, to you.
Oh, and you could get an up-front acquisition fee from the deal of six figures, plus your portion of the appreciation on the property. That could be another several hundred thousand dollars.
I also typically give a presentation about the several skills you need and activities that you must do in order to get your first deal.
Yet to be perfectly frank, the 80/20 Rule applies to most audiences, except that it’s more like a 95/5 Rule: 5% of people will take the information to heart and act on it. The other 95% will…do nothing.
Given the kind of money that apartment investing can make for people, it simply cannot be that people in the 95% think the money is not good enough, so it must be something else.
At some level, of course I get it. Plenty of people have reasons to be distracted at the moment, with COVID still very much in our lives.
Other people may get bogged down, thinking that they’re no good with numbers, or they’re too old or too young to invest in real estate.
The Biggest Apartment Investment Objection
But if I had to think of one objection that stops the largest number of people from enjoying the amazing financial freedom that apartment investing brings, it’s this:
“I just don’t see myself ever being able to finance my deals! I don’t have the down payment, and who is going to lend money to me! After all, I’ve not done a deal yet. To tell you the truth, I kind of can’t blame them!”
Thus ends the brief investigation of a real estate investing career for lots of people. It’s a shame, because they don’t realize what you are about to find out:
How it’s possible to have other people fund your very first apartment investment.
On the face of it, my statement seems unbelievable, wouldn’t you say? Why would wealthy people hand money to apartment-investing beginners?
If you had this thought, then I applaud you. You’re thinking critically about whether the things you read are plausible and realistic. That’s an important defense mechanism, and I do it all the time.
The way I see it, for any investment to have a realistic chance of being successful, it needs to work for all parties involved. There is no room for wishful thinking or hoping that other people will take actions against their better judgment. A good deal has to “pencil out” for everyone.
So if that’s the case, why on earth would a rich person finance the first deal of a newly-minted apartment investor? It’s because that investor found a sufficiently good property. The rich person is not investing in the beginner, but in the good property. That’s why.
The “Gold Prospector” Method for Apartment Investments
This concept is why this article is called the “Gold Prospector” Method. Sam is brand-new to gold prospecting, with no success or money to speak of. He learns how to go up into the hills and look for gold. Then let’s say that Sam finds two blobs that look like they may be gold. He rides into town, and goes into one of the several offices where you bring your gold to be “assayed” or evaluated closely.
The assayer examines the first blob closely with his magnifying glass, and says: “I’ll give you nothing for this. It’s iron pyrite, also known as ‘fool’s gold’.” Then he looks at the second blob, perhaps expecting that it will be the same. But wait—this one is different. He closely inspects the blob, and asks if he can heat it up in order to determine the exact chemical composition. Sam agrees. The assayer comes back and says: “I’ll give you $5,000 for this. It’s one of the best specimens I’ve seen of gold all this year.”
Let’s think about that assayer, who has a business of his own to run. What do you think are the chances that if Sam brought only the pyrite rock, that he’d say: “I like you, Sam. You’re an experienced investor. You brought me some fool’s gold, but hey, you’re a good guy. So here’s $1,000.”
By the same token, if you brought the assayer the real gold, what do you think are the chances that the assayer would say: “Sam, you have some real gold here. In fact, it’s about $5,000 worth of gold that you found with your beginner’s luck. But I’m sorry. Didn’t you read the sign on the door? We only accept gold from experienced prospectors, not beginner’s gold.”
Maybe Sam got lucky in finding that gold as a beginner. But do you notice how Sam took action to look for gold? Where would he be if instead, he sat in his cabin, doing nothing and thinking: I won’t look for gold. After all, no one will want to evaluate any gold I find because I’m just a beginner.
Your Choices as an Apartment Investor
What I try to do is get people to realize that real estate investing is no different. If you’re Sam, here are your choices:
- You can sit in your cabin, think it’s all hopeless, and do nothing.
- You can decide to go out and look for gold, but with zero training. You might find it—that’s how the first big nuggets were found, after all. But that really is doing it the hard way, with no idea what you’re doing. You’ll need to spend a while and make all the mistakes yourself before you smarten up and look for gold in the likely places.
- You can befriend a 49er who’s been prospecting in the hills for many years and who can tell you how to do it, plus what NOT to bother with.
You may ask, “Why would an actual successful 49er tell me how to prospect? Isn’t that against his own self interest?”
It’s reasonable that the 49er might not show you the exact spot where he’s currently panning for gold, but that’s OK. It’s a big country! It’s a big state. If you set off on your own, will your luck in finding gold in any way diminish his luck? Of course not.
The exact same thing is true with real estate investing. Even if every single person in my company, RE Mentor, were to stop working at the company and hit the hills, prospecting for real estate deals, will that exhaust the supply? What if every one of them did one deal a day: would that exhaust the supply in the United States of good deals? It wouldn’t make a dent. There’s untold trillions of dollars of real estate out there.
This is why rich people will lend to you, as a rank beginner. They know a good deal when they see one. They will focus on the quality of the deal you bring them. If it’s good enough, then they’ll work with you. If it’s not, then they’ll ask you to go out into the hills and try again.
But it is indeed a big country. Why stumble about, looking to find good deals and making all the mistakes yourself, if you can learn to sift and sort, until you have what might be a gold nugget of a deal? That’s the whole idea of learning how to source good deals. It’s part marketing—getting the word out and building a network—and part analysis of what your network brings you. That’s what we do every day with students around the country: help them to prospect for deals.
Real Estate Sponsor Event
We do something else from time to time, and it’s become quite popular. We bring several of those assayers together with our student-prospectors. It’s called a sponsorship event. The assayers are wealthy people who are known in the real-estate world as “sponsors”. They’re looking for someone to bring them deals that meet their standards. At the same time, we provide a structured event where we help students to understand what the sponsors are looking for.
There’s another benefit of working with a sponsor. They are usually successful investors who can become friends and mentors. They’ve been around the block many times and can help students to find quality deals faster. Of course, that’s another win/win that benefits both student and sponsor.
These are not huge events, by the way. We like to keep them small, so that everyone can meet everyone in a friendly, no-pressure environment.
By the way, you do NOT need to have a deal in order to benefit from this event. For technical reasons that I won’t go into here, it’s actually better if you do not have a deal. The whole purpose of the event is to share information and introduce people to each other, so they both eventually might work together.
You can find out more about the next sponsorship event here.
Gold prospecting and deal prospecting are not for everyone. Some people would like the certainty of a 9-to-5 job. I guess it’s certainty, until some pandemic comes along and reshuffles everything. But if you’re the sort of person who’s looking for something to supplement or perhaps someday replace whatever you do for a living, then there’s gold in them hills…if you have a trusty horse, a few essential tools, the knowledge of what to look for, and where to go when you think you’ve found a nugget.