Welcome back for part two on things you might want to know that’ll help you grow your confidence in the apartment game.
Click the link below if you missed part one.
I’ll pick up where I left-off.
5. Improve Cash Flow, Improve the Property Value.
In my opinion, this is one of the biggest differences between single family and apartment properties.
In a nutshell, if you can improve the cash flow of the apartment building, you’ll raise the value of the property as a result.
With a house, you can make some improvements that might get you a few more thousand added to the appraised value, but that’s about it.
This is a beautiful thing if you happen to buy an apartment building that has a lot of “value-add” opportunities. I say that, because after you do the work to add more value to the property, you can refinance it, and take that cash and invest in more real estate with it!
I used to always look for some “golden nugget” when it came to figuring out how to be successful in real estate.
In my opinion, it boils-down to hard work and developing strong relationships with key people.
I think the Twitter’s and Facebook’s of today make it easy to forget that human beings still do business with people they know, like, and trust.
That’s not going to change any time soon.
I’m not saying you have to go to every REIA meeting and be a master networker (although that could help), but if you’re not personable and genuine, or if you’re all about yourself, you’re going to have a tough time succeeding.
I can’t tell you how many opportunities have fallen into our laps based off of relationships alone.
In fact, we were approached with a residential deal just last week from another investor who thought of us first because we’ve done deals together in the past, and we trust one another.
And as I’m segueing into the apartment game, I’m learning that the same thing applies here.
7. You Must Develop Systems
I’m so thankful that one of our mentors preached to us the importance of developing systems ’till he got blue in the face.
Eventually, after two or three years, the message finally got through my thick skull.
Listen, whether you’re going to be wholesaling apartments, or buying and holding them, your chances of success go way up if you focus on developing a system for each part of your business.
Ever heard people say that the word system stands for “save yourself time, energy, and money?”
It’s true. In fact, our system for residential properties is what’s giving us the time-freedom to keep our residential business going while we add apartment buildings to our repertoire.
We didn’t have a system at first. But as we got more and more familiar with the residential wholesaling business, we constantly kept looking for ways to automate, or simplify the processes involved with that business.
Now we’re in the midst of doing the same thing with apartments.
8. Start with B and C Properties
Starting out, I wanted to “go for the gusto,” per se, and start looking for a huge, top-of-the-line, 200-unit apartment complexes.
Luckily, one of our mentors explained to me that I may need to rethink my strategy, because b and C level properties are usually a lot better, because they tend to cash flow better than the super-duper, top-level properties.
9. Start out With 5-to-30 Unit Properties.
After explaining to me that I was being an idiot, my mentor recommended that we start out working with units that are 5-to-30 units, for two reasons:
1. Because of the lower prices of these types of apartments, there’s a good chance that our current residential cash buyers that buy residential deals might be interested in some of the apartment deals that come across our desk.
Focusing on these types of apartments makes the transition into apartments a little easier for us, and creates win-win situations for us and our existing clientele.
You see, if they buy just one apartment building that has a nice cap rate, they can get cash flow from that one apartment building that they’d have to buy and rent 10-to-20 single family properties to match.
2. As an independent investor, you’re probably never going to really want to mess with apartments at the 100 or more unit level anyways…
…of course you can if you want, just don’t expect for them to cash flow like the smaller ones.
The huge complexes like that are usually owned by insurance companies, hedge funds, and other big, institutional owners as a way to keep up with inflation.
Those huge apartment complexes tend to have pretty low cap rates, and don’t bring much cash flow in.
10. Mentors Make the Road a Lot Smoother.
One of the best things we did was find successful people that were doing what we wanted to do and find a way to serve them.
For example, if you don’t want to wholesale apartments, you could also bird dog for an investor in-exchange for a finder’s fee if-and-when they close on the property you bring to them.
This way, you not only get some real on-the-job training on how to find and evaluate apartments, but you get to make money too!
One mistake I see people make is approaching seasoned investors asking for them to teach them what they know.
I’m sorry, but that’s not how it works.
You might find someone that’ll be willing to do something like that, but most successful investors that I know have limited time, and they got into investing for the time freedom.
So why would they want to spend hours out of their day or week teaching you the business for free?
If you wanna get, you have to give first. It’s the way the universe works.
11. Personal Credit Doesn’t Matter? Don’t Believe the Hype.
I had always heard that in commercial investing, when it comes to getting financing for a deal, the bank doesn’t care much about your personal credit like they do if you’re buying residential.
That’s only partially true.
Think about it; who in their right mind is going to lend money on a big-ticket item like an apartment building to someone who can’t even handle their own finances?
I was at a training recently where an investor said that when they were trying to refinance a 130 unit building, the bank ran all kinds of background and credit checks on them.
They even checked their account histories with each bank that they had bank accounts opened with.
And this guy has a ton of liquid cash. At least he said he did.
Anyways, don’t believe the hype. Your personal credit and finances DO matter.
But don’t be discouraged. Even if you don’t meet what banks are looking for when it comes to getting financing, you can always find people to partner up with you that do.
I just wanted to mention this, so that you don’t enter the game with false expectations and end up getting blindsided.
Well I could go on and on for days, and I know what I’ve talked about is far from everything you might need to consider, but hopefully it helped you at least a little bit,
Best of luck to you in your endeavors.
What else should people know that want to get into the apartment investing business? Leave a comment.