Most entrepreneurs know that Real Estate is where the money is at. They also know that Commercial Real Estate is more lucrative than residential. What most don’t know is that Commercial Real Estate is actually easier than residential. The profits are bigger, the time it takes to create wealth is less, and competition is much less. There are some pitfalls, though. In this article I am going to teach how to invest in apartment buildings the right way.
I was born into a Real Estate family. When I was a little kid, I went out with my Dad and looked at properties, took coins out of the laundry machines, and hung out with him and his staff at his office. He taught me things at a very young age about Real Estate that some never experience. At the time, I was not interested in his business, I just liked the cookies at the office. But I learned enough to where my entry into my own Real Estate career was very natural.
My Dad has always specialized in apartment buildings. He owned a bunch of houses and several apartment complexes. He started a brokerage company that specializes in apartment sales. When I was 21, I joined his firm and sold over 20M in property in my first few years. Now, I want to pass along to you some of the wisdom that he has shared with me.
The first thing that you need to do when learning how to invest in apartment buildings is to ask yourself why you are doing it? If your “why” isn’t big enough, your “how” will be difficult. What I mean is that if you are in a situation where you have to make it work or your dreams are so big that nothing will stop you, then you will be motivated enough to overcome the challenges you will face. If you have a sick family member, a financially starving family, debt up to your eyeballs, a big dream, or any other unstoppable force, then you probably have a big enough “why”. If you are doing this because it looks like a quick way to get rich, I would recommend something else. The grass is not always greener on the other side, and this business is no exception.
Once you know that you are committed to the process, then you can create a simple business plan. Spend a day laying out a roadmap for this business. This does not have to be a professional business plan, just something to refer back to when you are making decisions.
Your first plan of attack should be marketing. This is the key to your success. If you market and improve your marketing every day, you will always have a pipeline full of fresh leads. This would include sending out direct mail, cold calling, networking, internet, and many other ways to find sellers.
Once you have sellers to talk to, you need to know what to say. This does not have to be complicated or nerve-wracking, this is a simple conversation to find out if they are serious about selling and to gather information so that you can make a good business decision. Just remember, when a seller needs to sell, they need you more than you need them. A seller has to sell, a buyer does not have to buy.
Now that you have all of the income and expense information, you should find the value of the property by doing a quick market analysis. Call up owners in the area or call brokers and find out what the cap rates are. Once you have a value on the property, you can determine how much you want to offer. The less you offer, the less likely you will get the deal. If you are planning to do a quick flip, then this is normal: make a lot of low offers so that you can wholesale the property. If you are going to hold the property, then you will want to spend more time on evaluating the deal to make sure you are making the right offer and building a great relationship with the owner.
Once you get a deal, now it is time to figure out what to do with it. Real Estate is so dynamic that you will never have everything lined up perfectly. If you have a ton of cash and amazing credit, then you will have less work, but if you are limited in your resources, then you will probably be structuring deals on a case by case basis. This is how Donald Trump does it; locks up a killer deal and then finds partners to help him buy it.
This is an over-simplified way to invest in apartment buildings. There is much more to know and experience is usually the best way to get educated. I have also seen many investors “lose their shirt” because they did not learn how to do it the right way before they jumped in. I like Robert Kiyosaki and his teachings. Unfortunately, he doesn’t talk much about how to do it, mostly why to do it.
I have been in the business for almost 10 years. The best recommendation I can give is to find a mentor. If you have one locally that will help you get started, they can teach you all of these things and the specifics behind them. If you go it alone, you are taking unnecessary risk. At a minimum, learn from someone who is successful and will show you proven techniques. You will save tens of thousands of dollars and a lot of time.