The Right Way to Invest in Apartments
If you’re thinking about investing in apartments, this article will save you a lot of time and grief. I can confidently say that because I’ve taught many thousands of real estate investors from all walks of life over the last 20 years, so I have a good handle on what works…and what doesn’t.
I’m going to say something that few real estate investing experts will tell you, but it’s the truth:
Don’t just dive into apartment investing.
That’s unusual advice, right? You might expect that if I’ve created America’s most-comprehensive set of materials on how to invest in apartments, that I’d be encouraging you to just “jump in; the water’s fine.”
Well, I didn’t get to this position by being conventional. Anyone can whip people up into a frenzy about some business opportunity. That’s easy. What’s more difficult is knowing how to get people so they cross the finish line and they succeed at their dreams. That requires a little bit of thinking up front, and that’s my focus for you.
I have a four-step process for you to follow, in order to see if real estate investing is right for you. If it’s not, that’s cool—you won’t have wasted a penny and can find something else. But if you decide that maybe it could work for you, then these four steps will be crucial in giving you the best foundation for success.
Step 1: Know your reason for investing in apartments
I didn’t invent this step, but I’ve been a long-time student of success and this is one of the keys: it’s to know your “why”.
At one level, apartment investing is no different from any other worthy pursuit: there are going to be highs and lows. The highs are unbelievably satisfying, like when you can finally relax inside, knowing that the money-part of your life is taken care of. But there will be lows, when at first you need to learn concepts, you have no successes yet, and maybe some initial steps include a little stumbling.
That’s why you should figure out your “why” right up front. Are you looking to replace your job income? Instead, maybe you in fact like what you do at work, but it’s not giving you enough of a money cushion to pursue your hobbies, or take care of relatives. Spend some time figuring this out.
I’m happy to be able to say that I’ve completed an Ironman Triathlon, which is swimming 2.4 miles in the ocean, followed by jumping on a bike and pedaling for 112 miles, and then running a full 26.2-mile marathon. Yeah OK that’s kind of insane, and I can tell you that I had countless times when I wanted to quit. Dave, what are you doing to yourself? You don’t need to do this! Rest on that couch, man! Just do the marathon part, OK?…
But I kept at it. I had assembled my motivation ahead of time, in the form of images of people crossing the finish line at other ironmans. I had a picture of what the medal looked like that I was going to get. And I reminded myself that this had been on my bucket list for a very long time, and how great it was going to feel to cross that baby off!
To my knowledge, I’m the only apartment investor with a major portfolio of properties and who has ever completed an Ironman triathlon, so I’m in a unique position to tell you the following:
Apartment investing is way easier!
You don’t need tons of training ahead of time, and you can pull over and regroup on your journey anytime you want to. Plus all you need to do is take baby steps, but more on that later.
Just get as clear of an idea as you can—preferably with some reinforcement in the way of photos, articles, mocked-up plane tickets or certificates, etc. Make your “why” as real as you can. This is important for your journey ahead.
Step 2: Know yourSELF
Now’s the time for a little bit of honest self-reflection. How do you go about learning new skills? People are super-different in this way. Let’s take skiing for example:
Some people will start their skiing pursuit by first doing conditioning in the off season, so they’re in great shape. Then they research the best equipment, talk with their friends about the best place to ski, and sign up for lessons. These are your “ready, aim, fire” folks.
At the other end of the spectrum, you have people who on a whim will buy or borrow some gear, trust in their ability to figure it all out on the fly, and take a chairlift to the top. They’re in the “fire” camp—no need for “ready” or “aim” for them.
Then you have a whole bunch of people in between. You can ultimately be successful anywhere on that spectrum, but some approaches increase your chances of success, and others increase your chances of arriving at the bottom of the mountain in a ski-patrol toboggan. The people who need to make all the mistakes by themselves can get proficient eventually, but it will come with lots of failures, pain, and scars. But they’ll know it, through and through!
Other people want to learn from others’ mistakes, so they don’t have to make them all themselves. This costs something in the form of instruction—assuming they’re learning from a professional and not their boastful buddy. However, I’ve found this to be the shortest route. Partly it’s because you can avoid mistakes and partly because you can turn to someone and get encouragement when you’re in a tough patch and just need to get to the next level of skill.
I’ll tell you about the people who are not going anywhere: it’s those who think that buying stuff is the same as taking action. I don’t want you to buy all my real estate investing stuff, only to have it all sit on a shelf or in a hard drive. If you don’t do anything with it, you just wasted a lot of money. You’ll never be one of the students whose pictures I have on my walls—students who took action.
Don’t get me wrong: you don’t have to quit your job and take super-human, massive action to be successful at real estate investing. All you need to do is take small, regular, calculated steps in the direction of getting your first deal done. No leaps. Just steps. But it’s the act of taking little, regular steps that’s the real secret.
If you can point to some time in your past when you learned something through a series of small steps, you’re going to be fine with real estate investing.
Step 3: Know the main moving parts of apartment investing
Apartment investing consists of seven main moving parts. Let’s briefly look at each one.
1. Believe it. Your apartment-investing activities will go nowhere unless you make sure your head is not filled with certain typical objections that don’t get answered. These are statements like:
- “It’ll never work.”
- “There are no good apartments where I live.”
- “I’m too old/too young to invest in apartments.”
- “I’m not good with numbers so I couldn’t possibly analyze a deal.”
- “I don’t have enough of a down payment to invest.”
These are just a few of the brick-wall objections that make people drop the idea of apartment investing. I have answers to all of these points, but that’s beyond the scope of this article. For now, my advice is that you should list your objections and then see if I or someone else can answer them. If you don’t get answers you believe, then apartment investing is not for you. If you get to the point where you think it could possibly work, then that’s great. On to the next moving part.
2. Find it. You need a regular flow of possible deals in order to be picky about the ones you get serious about. There are whole systems for getting that flow of deals to come to you, rather than your having to pound the pavement.
3. Analyze it. Once you have that flow of possible deals, you need a fast, efficient way of sorting them into piles. The biggest pile is “no go” because the deal is priced wrong, it’s in the wrong location, or for many other reasons. But with sufficient deal flow, you’ll have a small pile of “maybe” properties that you can then do more analysis on. At some point you’ll uncover a good one. But how to pay for it?
4. Fund it. Of course you can use your own money to finance the purchase of a property, but there are more than two dozen other ways to do it! In fact, some of my students have bought their very first property without using any of their own money. How is this possible? It’s because if you have found a really solid deal (that goes back to your “find it” and “analyze it” skills), then you’ll soon realize that people with money are looking for good deals to invest in.
5. Own it. This involves knowing how to make an offer, negotiate, and get experts to handle the paperwork in order to close on a property. There is a tested and proven process to do all of this.
6. Manage it. You do NOT want to be the property manager, being on call at all hours to unclog toilets. I can tell you how to find a good enough deal that it supports paying for an experienced property manager to do all the daily stuff for you.
7. Grow it. Once you have a property running, now what? You need to know all the options available to you: you can keep it as your source of monthly cash flow, or you can swap it for another property (known as a “1031 exchange”). You could sell it, and there are other creative possibilities. What a great position to be in, right?
Step 4: Know the real-world process and next steps
OK, so let’s assume that this all sounds reasonable to you, so far. You know your “why”, and you are willing to get answers for the various questions and objections you have. And you should have questions and objections! You shouldn’t just blindly dive into something with tons of excitement and no details, because that’s a prescription for bailing out early.
Write out the questions you have, whether they fall into the details category or even just the “I don’t know where to start” variety.
You then need to plug yourself into some source of good information. It’s crucial that the source has “been there and done that” because there are plenty of big-talking wannabes out there. Take the advice of experts.
Next, those experts need to have clear material for you to follow. Apartment investing is not rocket science. It has lots of steps, but it’s not mysterious. No split-second decisions involving life or death. At each point in your journey you should be able to ask questions of someone who’s knowledgeable, and you should get a clear answer.
Full disclosure: part of the process involves being out of your comfort zone. Some people don’t like to read, and others don’t care to speak with strangers about a potential deal. Well, apartment investing does involve some reading, some analyzing, and speaking with strangers. None of it is some major high-pressure performance—instead it’s just following the next baby steps in the proven process.
You might even find the process to be not only profitable, but enjoyable! Why? Because it’s not like school. You can do this at your own pace, and can be part of a social-media group, where like-minded people help and encourage each other.
You can even invest in apartments on the side, while keeping your day job. That way you’re not taking some scary plunge into the unknown. No plunges and no up-front commitments necessary: just the agreement to keep an open mind, keep listing your questions and issues, and keep getting answers from qualified experts. Then it’s just a matter of putting one foot in front of the other, and setting the pace that’s comfortable for you to make steady progress toward your investing goals.
It’s not speed that counts; it’s taking regular small steps in the direction of your stated goal, with a guide at your side. After a while you won’t need a guide, and eventually you may become a trusted guide to others. That’s another great feeling!