Halloween is just around the corner!

I recently read a figure that was beyond scary – it was downright frightening. According to a survey done by the Federal Reserve in August 2014, only ¼ of Americans feel financially prepared for retirement.

The recent volatility in the market makes me feel stronger than ever that there must be diversity in every portfolio. The beauty of investing in apartments is that you have a measure of control of your financial destiny.

The beauty of apartments:

• You can invest in apartments part-time
• ONE deal can put you on a path to financial freedom
• You can build equity for the future while collecting cash flow today

Sooner or later inflation will kick in, regardless of how many dollars are printed, and real estate is an excellent hedge against inflation. There are also great tax advantages of multifamily real estate, (click the link for a more thorough explanation).

I warn against the “park and pray” mentality. I’m guilty of it myself, getting my retirement account statement, glancing at it and sliding it in the drawer, “praying” that when it’s time for me to retire, the market will be there for me. That’s why I personally believe in investing in apartments. It is a fundamental based strategy, supported by real demographic numbers.

Who is renting apartments?

• Baby Boomers that want an easier lifestyle
• Milliennials that don’t want more debt than their student loans
• The foreclosure forced many out of homes and into apartments

According to Marcus and Millichap, a nationally recognized commercial real estate firm, even with multifamily construction booming and 215,000 units coming online in 2014, new inventory will not outpace demand going forward. Vacancy remains extremely tight.

Not every market is strong, and you must have a system in place to decipher a strong location from a weak one. There are basic demographics that must be reviewed to be sure that the fundamentals are present to go forward with sourcing deals.

The “Hottest” market is NOT always the smart play. Live where you like, invest where it makes sense.

Don’t be one of the QUARTER of the population that isn’t prepared for the transition to retirement. Investing in multifamily real estate can truly alter the financial path you’re on for good.

Make sure that the scares that you get this Halloween season are from the kids in your neighborhood, and not fears of the future. You can grab your Market Research Guidebook by entering your info above – this free  guide offers a step-by-step approach needed to evaluate trends and understand key factors when determining where to invest.

Have a Happy and SAFE Halloween!

The beauty of apartments is that it is the one type of real estate investment that is easy to scale and build your real estate business, even part-time. HOWEVER, the bigger upside needs to be tempered with the potential for a bigger losses as well. Make sure that you have looked deeply into each element listed below:

Sub-Market knowledge: Location, Location, Location
The ONE thing that you can’t change about an apartment building, no matter the condition of the building or the great price, is the LOCATION. Make sure that you thoroughly understand the visibility of the property to potential tenants, and that the path of progress is moving toward you, not away from you. You can make improvements to the units, rebrand and market the heck out of it, but the location doesn’t work, your efforts will be a losing battle.

Property Inspection
Make sure that you have done a thorough inspection. When we go to a multifamily property during the due diligence period, we have a whole crew swarming the property, from the building trades for the physical assets to our administrative team pouring over the leases. You do NOT want to find out after purchase that there are drainage issues… AND this can be an opportunity to revisit the purchase price for a possible “re-trade” or reduction.

Taxes
Make sure that the assumptions that you are working off of are as accurate as possible. When were the taxes assessed? Make sure that you have taken into account any possible tax increases so you are not surprised.

Exit Plan
We always encourage our clients to buy an apartment building with several different scenarios penciled out. Is it possible to refinance and take the proceeds to use in another property? Is your plan to buy and hold? Make sure that you are not cemented into one plan or another, because even we can’t see into the future!

These four areas are places where multifamily investors can get seriously hurt without the right guidance. Make sure that you carefully investigate all of the above items as well as have a step by step system to follow for all of your due diligence items. Our Elite Apartment Coaching program was created to be the backstop for both beginner and sophisticated investors; to make sure that they don’t make any expensive mistakes.

I wanted to answer some questions that I’m frequently asked about multifamily real estate deals and what it really takes to make them happen.

So here is a question I get asked all the time: When do I stop analyzing and make an offer?

I always talk about the importance of laying a strong foundation; being clear on your plan, and making sure that you have a team put together to make sure that you don’t make any costly mistakes.

When do I make an offer on an apartment deal? 

First, Make sure that you’ve completed ALL of these steps:

• You’ve gone through the numbers and done the analysis.
• You’ve gathered up the sellers’ financials, to the best of what they have.
• You feel confident about the assumptions you’ve put in your analysis.
• You’ve had a conversation with a property manager in terms of confirming your assessments about the location and condition of the property.

You don’t need wait to have every utility bill for the last 14 months, you don’t need to have the tax returns for the last three years, you don’t need to have the rent rolls for the last 24 months, you will never know EVERYTHING about a deal. It’s just not possible. DON’T let that create a state of fear that prevents action. Don’t sit and stare at your numbers; that is how you will lose the deal.

Action is going to create results; don’t be scared to make an offer.

We’ve been there in our investment business, we’ve bid on deals that were listed at 5 million dollars and we’ve made an offer at 3.5 million…
You can’t get locked into analysis paralysis when it comes to making an offer. If it makes sense for you, make an offer and put the deal in your pipeline.

Don’t be the victim of hesitation.

Get irons in the fire! Start the conversation! This is how deals get DONE.

It’s finally spring (A snowstorm here or there notwithstanding) and its time to shake off the slow pace of winter and get active. Watching things come alive and grow got me thinking about gardens…planting seeds…cultivation.

You might be thinking, “What does this have to do with real estate?” Stay with me here, there are a few parallels.

SPREAD THE SEED
This is a relationship business. Don’t underestimate the importance of creating a strong relationship with a broker in your market. This is how you’ll see deals that haven’t yet hit the marketplace yet. Another great source for deals are your potential property managers. They’re in tune with what’s happening with local owners and often will tell you the things that the brokers may “forget” to mention. Personally, I don’t ever seriously consider any property without a local property manager’s input.

CULTIVATE
Broker relationships need to be cultivated. If a broker sends you a deal that doesn’t fit your parameters make sure you follow up and thank him for the opportunity while reminding him of the specifics that you’re really focusing on. When you visit properties with him be sure you follow up with a thank you and possibly a small token of appreciation. Small gestures can go a long way. I once bought lunch for a broker and I was shocked to hear from him that over his 30-year career no one else had ever done that for him. This was a few years ago and I still get deals from him.

TIME TO HARVEST
Staying in touch with brokers keeps you fresh in their mind. As I had mentioned earlier, this is how you will see deals that haven’t yet come to market. Even if a deal that you’re interested in goes to someone else, be proactive. Reach out to your broker to find out how the deal is progressing. The broker that you create a relationship with will be the one that calls you when the deal heads south, affording you a great opportunity. Deals fall through all the time and if you can be situated to capitalize, you’re ahead of the game. Brokers want to close as much as anyone involved in transaction. If you show them that you’re a real buyer they’ll often go to bat for you with the seller to get the deal done.

Now get out there and do some gardening!

Property management encompasses all aspects of running an income property. From finding and screening tenants, to maintaining the property, collecting rent, and handling any issues that might arise.

While some professional property managers specialize in certain types of services, most are prepared to take full responsibility for your property, unless you’d prefer to handle certain things yourself.

Professional property management can make owning (and profiting from) rental properties a hassle-free experience.

For most, the decision to use a professional property management is a simple cost/benefit equation. Professional property managers are experts at handling properties and tenants and they generally take only a small percentage of your property’s monthly rent in exchange for their services. When you consider what you get in return—a hassle-free, essentially passive income stream—the decision to employ a professional property management is a no-brainer for the majority of rental property owners.

After all, our job is to manage the property manager and the asset while looking for our next deal.

Things to Consider When Interviewing Property Managers

1 – Cost: Managers generally charge a monthly fee to watch and maintain your property. Those fees can range from as low as 4% or so, to upwards of 10%. Obviously, you should look for a company that charges less and provides more services.

2 – Communication: For me, communication with a manager is of the utmost importance. I need someone who uses email, and is responsive to both the telephone and email. If I don’t get a response back in a timely manner, it is time to walk. In addition, you need someone who can deal with you and your idiosyncrasies. Some of us are needier then others. You want to let companies know up front where you stand, and make sure they’re willing to be flexible for you.

3 – Termination of your Agreement: In the event that your “relationship” does not work out, you want to know up front what exactly it will take to terminate your agreement. Is there a charge for breaking your contract? Penalties?

4 – Repairs and Maintenance: Does the company have their own maintenance crew, or do they contract out to a handyman? How much do they bill out at? Can they handle all kinds of repairs? What happens if they can’t do something? Do they have other contractors that they work with? In addition, you probably want to have a maximum that the company can spend without contacting you. Generally, I will allow my managers to do what they need to as long as it is for something under $200. I must confirm any expenses over that. If you are a bit more of a control person, you can also request invoices/receipts for expenses.

5 – Monthly Statements: Does the company send out monthly or quarterly statements. I wouldn’t deal with anyone that does not provide monthly income/expense statements.

6 – Evictions: How does the company handle evictions? What are the costs to evict?

7 – Yard Work: How much do they bill yard work out at? Landscaping? Do they handle snow removal? Mow lawns? How much does each cost?

8 – Reserves: What kind of reserve does the company require? The reserves are used in case anything comes up. Most managers will require a certain amount.

9 – Accounting: When will the manager mail your check to you? Beginning of the month? State laws usually dictate accounting rules for managers, but you would want to know all of this up front. Tenant Deposits: How do they handle deposits? Are they commingled, or simply put together with all other income for your account?

10 – Vacancies: I’ve actually interviewed companies that will charge you 1/2 a month’s rent to fill vacancies in your property. This is typically up for negotiation and will vary depending on types of properties and sizes. You will need to fill your vacancies, so you will need some advertising done.

11 – Advertising: Where do they advertise properties? Are for rent signs put on the property’s lawn? Do they advertise in the paper? Online? There are quite a few effective places to advertise properties for free, online. Do they use these? In addition, you want your property advertised effectively. Do they have the basic HTML skills to add images to their for rent ads online? This makes a huge difference, trust me. IF THEY DON’T USE CRAIGSLIST DON’T HIRE them!

12 – Section 8: Do they have experience dealing with section 8 properties / tenants? Do they know what is entailed with such properties?

13 – Properties They Manage – I also like to know how many properties they manage, how many managers work at the company, what specific areas they focus on, how long they have been in the business, and other questions about their experience. This should be a good start to get you going. I like to always tour the manager’s current properties without them knowing to get a good feel for them.

14 – Tenant Retention – Ask what they do to retain tenant’s i.e. special incentives, customer service policy, etc.

Many of us are guilty of it. We all know how it goes…we’ve been hearing all about the volatility in the market and once a month that retirement statement arrives with a seemingly endless amount of pages.

How many of us do the quick once over and the file it away?

How many of us would rather not look at all knowing full well that our day might be ruined in an instant!

I like to call this traditional way of retirement saving the “Park and Pray” plan. You did what your advisor told you to do. You started saving early. You’ve invested and reinvested all with the hope that the market will continue to appreciate. Finally, when the time comes to retire we hope and pray that the market is high! We know all too well what happened just a few years ago. If you were planning to retire then

Does any of this sound familiar?

What if there was an alternative…Away for you to really control your savings. An investment strategy that will not only appreciate over time but also provide you with actual spendable dollars to supplement your retirement income?

This is just what multifamily real estate has to offer. And I say multifamily real estate specifically because there are of course many different strategies one can choose to invest in. Almost all require the investor to be very hands on; managing the property yourself…fixing plumbing issues, fielding tenant calls…you name it.
When you invest in apartments you manage your property manager. You are the asset manager, not the landlord.

Multifamily Investing allows you to achieve all of the benefits of investing in Real Estate; monthly cash flow, appreciation, tax benefits…but without the sweat equity and time cost of traditional Real Estate Investing.

One deal a year…done the right way. That’s all it takes to create a retirement portfolio that’s based on sound, performing properties as opposed to the whims of Wall Street. Please understand that I’m not anti Wall Street by any means. I am a firm believer that any portfolio needs to be diversified and multifamily real estate is a strong way to do that.

The market for apartments is stronger than it’s ever been before and the demand for rental units far outweighs the available product. Tight credit markets, student housing, baby boomer housing, and immigration… everyone needs a place to live. That’s what you will provide while building a portfolio of cash-flowing assets for your future.