The Apartment Consultant

Can you imagine if Warren Buffett was your investment advisor? Wow, that would be awesome wouldn’t it? Getting advice from the most successful investor in the world would be incredible, huh?

A few years ago, myself and bunch of other real estate investors gathered from around the country to study the man, the legend, the Oracle of Omaha, Warren Buffett himself. We studied in-depth a book called “Buffettology”, a book that embodies his investing principles and techniques throughout his decades of making billions of dollars for himself and his shareholders. We all learned so much from it. And our goal was to take from that book how Warren approached investments, how he bought them, how he made money from them, and lastly, how we could take what we learned and apply it to our own real estate investing lives. Here’s are 5 what I call, Buffett Nuggets below:

This week, I’m going to share with the two remaining Buffett Nuggets and how you can use them in your very own apartment business.

Buffett Nugget #3: Warren seeks expansion in his investments

I can tell you once I understood this nugget, it really sold me that investing in apartments rather than single family homes. How I saw expansion was literally playing the game of monopoly with my real estate investments. First buy a few small green houses and later exchange them into large red hotels. I realized that having a 25-unit apartment complex was better than having 25 single family homes. I no longer had to worry about 25 aging roofs! Also, when I had a tenant move out of one of my homes, that investment was 0% occupied with no income. On the other hand, my 4-plex, when it had one tenant missing, I was 75% occupied with excess income – cash flow. So, I took several of my single family rentals and sold them and started buying apartments. In one transaction, I went from a single family home into an 87-unit apartment building by using the 4th nugget we’ll learn below, leveraging. That was both, expansion and leveraging. I’m sure Warren would have been proud of me!

Buffett Nugget #4: Warren maneuvers leverage in and out of his investments

Warren found a way to acquire other people’s money to manage so he could profit from his investing expertise. He did this by starting an investment partnership and later by acquiring insurance companies. Once he acquired their money (I call this leverage), he even leveraged that. And the rest is history – all of his early investors are now millionaires several times over. As apartment investors, we are like Warren where we don’t have unlimited money in our personal bank accounts to acquire apartment complexes. Like Warren though, we need rich friends. Warren hosted chicken dinners at his home for doctors who wanted to invest their money so they wouldn’t have to work forever or hard as they have been. Once I saw this, that’s exactly what I set out to do – acquire other people’s money and use my expertise in investing it. You should do the same thing. Start small is my best advice. A second way to leverage your apartment investment is to understand the power of the net operating income the property generates. On an 8 cap rate property, for every dollar you increase the net operating income, your property value goes up by $12.50. Now, is that leverage or what?! Increasing your net operating income by $5,000, which is not hard to do, will increase your property value by $62,500!!

Doesn’t all this make sense? There’s no rocket-science or complex formulas here, right? That’s what I like about Warren’s style of investing. So, there you are folks…plain ol’ fashion good advice that you can apply yourself to your apartment investing right now.

Can you imagine if Warren Buffett was your investment advisor? Wow, that would be awesome wouldn’t it? Getting advice from the most successful investor in the world would be incredible, huh?

A few years ago, myself and bunch of other real estate investors gathered from around the country to study the man, the legend, the Oracle of Omaha, Warren Buffett himself. We studied in-depth a book called “Buffettology”, a book that embodies Warren’s investing principles and techniques throughout his decades of making billions of dollars for himself and his shareholders. And our goal was to take from that book how Warren approached investments, how he bought them, how he made money from them, and lastly, how we could take what we learned and apply it to our own real estate investing lives. There are 4 what I call, Buffett Nuggets. I will discuss 2 this week and the other 2 next week.

I’ll take each one and show you how to use them in your apartment investing to be just as successful as Warren. Guaranteed!

Buffett Nugget #1: Warren wants and gets predictability of CASH FLOW!

When Warren invests in any company, he demands that it has reliable, consistent, and reproducible cash flow. Cash is KING to him! He does this by extensively researching the company’s financial history and where the company sells its products or services. Once his research is complete, he can more or less tell if the company is reliably liquid or not.

As an apartment investor, you should do no different. After all, you are in the income-producing business and therefore, you should confirm the property’s income, right? You do this by getting a hold of the seller’s three years of the property’s financial records, a current-month rent roll, a six-month report of income collection, a rent delinquency report for all the tenants, and last but not least, the seller’s income tax returns for the property’s last three years. The reason you want to get the seller’s tax returns is to compare the tax return’s reported income amount to the amount given to you on the seller’s “computer generated” financial records. You see where I’m going here? Which do you believe most – a computer generated report or an amount reported on an income tax return? Easy answer…

Buffett Nugget #2: Warren demands CONTROL of the company (6 controls he always gets!)

The reason why Warren is considered to be the best investor in the world is because he’s a control freak where it matters most. Do you think you could be successful if you controlled the income, the expenses, the asset itself, the debt, the management, and you had insurance just in case something went horribly wrong? I bet you could! Well, that’s exactly what Warren sets out to do when he makes a substantial investment into a company. They either let him do that or he walks. It’s that simple.

As apartment investors, if you get the right education and sound advice, you should construct your deals the same way…nothing less. Please don’t settle for less! If done right and without being too over-enthusiastic, you too, should these 6 investor controls in your next apartment deal – income, expense, asset, debt, management, and insurance. If you don’t, call me, stop your deal, or call someone who’s an expert in apartments. Anything less and you’re putting yourself at above normal risk.

I could go on forever, but then a blog wouldn’t be a blog wouldn’t it? So, I’ll stop here. Next week, I’ll share with you the 2 remaining Warren Buffett Nuggets I learned and how to apply them to your apartment investing.

Til next week,

Peter Harris, The Apartment Consultant

First of all let me make it clear that there are other significant causes of apartment investment failures such as making a bad deal, investing in a declining market area, having too much debt, and incurring lawsuits, but the number one cause is, by far, poor property management. Now this goes for apartments being managed by its owners or by professional management companies.

Here are four of seven of the most common mistakes that poor property managers make. I will include the other three next week. Here’s some good advice to being successful in the apartment business: don’t make these same mistakes!

Mistake #1: Have none or very little property management skills. You can see here I used the word “skills” and not “experience”. I know a few property managers who have years of experience but lack the skills to manage their property most profitably. The skills I am referring to can be obtained through supervised training and education. Poor skills lead to poor choices which lead to poor results. And failure is the inevitable outcome.

Mistake#2: Lack of market knowledge. Not knowing levels of rents for the area and vacancy rates will guarantee subpar results for your apartment investment. Not having an aggressive marketing plan or not targeting your ideal tenant profile is a very common mistake. You can’t just hang a sign outside and expect to have your 50-unit apartment building at 100% occupancy with a waiting list – it’s not going to happen. Know your market and its demographics like the back of your hand.

Mistake #3: Not watching the flow of money like a hawk. Human nature says to the property manager, “money is available and I can surely spend it, so I will”. Poor cash control is a property killer. It’s like giving your ten year-old his college education savings in advance and asking him to make sure he takes care of it. Human nature will take over and he will look for opportunities to spend it unwisely and/or foolishly. Know the cash position of the property on at least a weekly basis. Make an effort to understand monthly financial reports of the property. How can you make sound business decisions concerning the direction of the property if you don’t know how much money is in the bank or is due to come in?

Mistake #4: Now knowing the ins and outs of the property, literally. If you don’t know the strengths and weaknesses of your property, how do you then go against your competition? You should easily know the rents and square footages of your one and two bedrooms, what makes them appealing, what amenities (pools, laundry, club house, internet, etc.) are on the premises, highlights of the surrounding area, and so on. You should also have a grasp of the property’s incoming rent amounts on a monthly basis and a deeper grasp of its operating expenses. The more you know, the better the decisions that can be made.

First of all let me make it clear that there are other significant causes of apartment investment failures such as making a bad deal, investing in a declining market area, having too much debt, and incurring lawsuits, but the number one cause is, by far, poor property management. Now this goes for apartments being managed by its owners or by professional management companies.

Here are four of seven of the most common mistakes that poor property managers make. I will include the other three next week. Here’s some good advice to being successful in the apartment business: don’t make these same mistakes!

Mistake #1: Have none or very little property management skills. You can see here I used the word “skills” and not “experience”. I know a few property managers who have years of experience but lack the skills to manage their property most profitably. The skills I am referring to can be obtained through supervised training and education. Poor skills lead to poor choices which lead to poor results. And failure is the inevitable outcome.

Mistake#2: Lack of market knowledge. Not knowing levels of rents for the area and vacancy rates will guarantee subpar results for your apartment investment. Not having an aggressive marketing plan or not targeting your ideal tenant profile is a very common mistake. You can’t just hang a sign outside and expect to have your 50-unit apartment building at 100% occupancy with a waiting list – it’s not going to happen. Know your market and its demographics like the back of your hand.

Mistake #3: Not watching the flow of money like a hawk. Human nature says to the property manager, “money is available and I can surely spend it, so I will”. Poor cash control is a property killer. It’s like giving your ten year-old his college education savings in advance and asking him to make sure he takes care of it. Human nature will take over and he will look for opportunities to spend it unwisely and/or foolishly. Know the cash position of the property on at least a weekly basis. Make an effort to understand monthly financial reports of the property. How can you make sound business decisions concerning the direction of the property if you don’t know how much money is in the bank or is due to come in?

Mistake #4: Now knowing the ins and outs of the property, literally. If you don’t know the strengths and weaknesses of your property, how do you then go against your competition? You should easily know the rents and square footages of your one and two bedrooms, what makes them appealing, what amenities (pools, laundry, club house, internet, etc.) are on the premises, highlights of the surrounding area, and so on. You should also have a grasp of the property’s incoming rent amounts on a monthly basis and a deeper grasp of its operating expenses. The more you know, the better the decisions that can be made.

Last week, I went over Key #3, so this week let’s learn Key #4 and #5 shall we? Although there are many moving parts to apartment rehabbing, I have found through the years, common things that lead to great success. I follow these and implement them wherever I go. Here they are. Five keys to successful apartment property rehabbing:
Key #1: Make physical and cosmetic improvements to the property
Key #2: You are in the construction business, so be good at it
Key #3: Be in a strong location and know your market very, very well
Key #4: Focus on the net operating income and know your cash position at all times
Key #5: Have more than one razor-sharp exit strategy and be flexible to market changes
These 5 keys are simple to understand yet are very expansive in content. Read on.
Key #4: Focus on the net operating income (noi) and know your cash position at all times
Remember that income-producing real estate is valued more on its income production than anything else. The more income you generate, the more it is worth. It’s that simple. Here’s a quick analysis:
Apartment building A: NOI generates 75,000 per year. At an 8% cap, it is worth $937,500
Apartment building B: NOI generates $100,000 per year. At an 8% cap, it is worth $1,250,000
Assuming that the properties are comparable, that’s a $312,500 or 25% difference in value just because of the higher NOI.
The net operating income (NOI):
• In a nutshell, you can increase your NOI by either increasing your gross income collections or by reducing operating expenses, or by both.
• The easiest way to increase the NOI is to increase the rent or lease rates when the leases expire. Stay on top of the market and increase the rent whenever you can. If your occupancy is constantly at 100%, it means that your rents are too low.
• After a rehab, you should expect to increase the rents, even on the long-term loyal tenants. They will expect it too. Expect a few tenants to move out as this gives you the opportunity to replace them with higher-quality, higher-paying tenants.
• Another way to increase NOI is by reducing operating expenses by bidding out insurance, keeping closer tabs on repairs and maintenance, and passing on utilities to the tenants. Convert owner-paid heat and electric to tenant-paid utilities.

Cash positioning and rehab budgeting
Knowing your cash position every step of the way is a crucial part of every successful rehabber’s way of life.
Establish both a rehab budget and property operating budget. Due to the distressed nature of the property and its lack of historical financial data, your budgets will be not as accurate as if you were purchasing a stabilized property.
• Anticipate and budget the income to drop initially as tenants will either move out from all the ruckus around the property or will have to displaced during the rehab.
• The rehab budget will come from the bids you receive from contractors.
• Have a “contingency fund” in your rehab budget because there will be cost-overruns and things you missed that need to be done. I tack on an additional 15% to the budget for this.
• Most rehabs operate under a drop dead deadline, meaning that at a certain point, loan payments or investor payments will have to be made. Design your rehab budget realistically with plenty of room for delays. Delays will occur. As a rule of thumb, I add a 25% cushion of additional time to meet such deadlines.
Key #5: Have more than one razor-sharp exit strategy and be flexible to market changes
It’s important to have an exit strategy thought of before you make an offer on the rehab project, during your ownership, and after you sell.
Reasons before: it’s smart to have an exit strategy before you purchase your rehab because you need to prove to yourself that how you plan taking your profits is realistic.
Reasons during: life happens – the market could change, the economy could change, or your personal situation could change. Being flexible with your exit strategies will give you peace of mind during one of these instances.
Reasons after: this is probably the most important exit strategy. If and when you sell your completed rehab, it is possible that Uncle Sam profits more than you do. Plan smartly with a good tax strategy for when the sale takes place. Consider doing a 1031-exchange.
4 typical exit strategies:

#1: After rehab: hold onto the property for cash flow and equity build up.

#2: After rehab: position the property to sell for huge profit

#3: After rehab: refinance, pull cash out and hold

#4: After rehab: sell property and 1031-exchange into a larger property

Peter Harris, The Apartment Consultant

I really believe it is smart thing to study others who are successful in the field you desire to be successful in. Don’t you? With that said, I have observed, experienced, and gathered seven wealth-building habits for apartment investors. Pay close attention to them as some of them are counter-intuitive to traditional real estate training and investing.
This post continues from my last one, where I showed you Habit #1, #2, and #3. Go back and read those and take them to heart.
Habit #4 – Patiently Acquiring and Having Tolerance for Mistakes
• Rome was not built in a day. Building a good-sized and wealthy portfolio requires years to build and is built one property at a time. Successful apartment owners take their time and strategically plan out their acquisitions over a period of years. The real estate cycle and market conditions have to be just right in order to make the best buying/selling decisions. Time and timing are the keys. The average real estate cycle is ten years in length, so give yourself at least that to build your Rome.
• Have you noticed that life tends to have built-in provisions for the mistakes we make? The most successful apartment owners that I personally know, made huge mistakes in the past that have brought them literally to their knees, but the most successful ones bounce back to do even bigger deals. The moral of the story is…it’s human to make mistakes, but it is also human nature to be overcomers.
• Allow yourself room and grace to make mistakes. It is the highest form of learning there is.
• This next sentence here should probably be the 8th habit. It is to learn how to manage growth of your portfolio. How many well-known companies do you know that were absolutely terrific when they were small in size, but now that they’ve multiplied in size, are now failing their customers and have lost their identity? The same can happen to you or worse if you don’t stop and take a deep breath before you decide to add to your portfolio. Bigger is not better (or richer), but instead strive to be a lean, mean, apartment-operating machine.
Habit #5 – Effectively Partner
• Proverbs 15:22 states, “plans fail for lack of counsel, but with many advisors they succeed.” Throughout history, no one has achieved impossible dreams or built amazing companies without effective partnering and/or outside advice. When you really think about it, there is no such thing as a self-made millionaire. Somebody somewhere at some point helped or advised that person.
• The apartment investment business can be very dynamic with lots of moving parts to it. Don’t be average over a lot and master of none. Do what you do best and hire out the rest to the best.
• Successful apartment owners know the value of relationships. Success is a relationship business. Finding the best deals, solving the biggest problems, and finding the money for your deals come from relationships.

Habit #6 – All Business Systems are Accountable
• Well-run and profitable apartment investments seem to go under the radar. But what you will hear more of are the apartment communities that are failing or are in deep trouble. Upon deep inspection, you’ll find that the troubled apartments have a key component to their operation that has stopped working. And that failed component has caused or will cause other facets of the operation to fail down the line soon. Nonetheless, a profitable apartment business has nearly every business component running at good to satisfactory levels.
• Successful apartment owners have excellent internal communications and accurate financial and operational reporting. Their systems allow them to hold their apartment’s business systems accountable to those responsible. Here is a sampling of typical apartment business systems: accounting, revenue, internal controls, property staff, marketing system, maintenance, and marketplace.

Habit #7 – Well-insured and Entities are Set Up For Maximum Protection and Tax Strategy
• “Plan for the worst and be happy if it doesn’t happen” is the attitude and habit of the most successful apartment owners.
• Their goals are to build a legal fortress with strategic insurance coverage and with the use of well-thought out entities such as LLCs, LLPs, Corporations, TICs, Trusts, etc.
• A poorly protected investor may not only lose his or her properties to a real or frivolous lawsuit, but personal property as well. As of 2006, there are over one million attorneys in the U.S., all wanting to deploy their skills (on your property!).
• Before doing any of this on your own, consult an asset protection attorney and tax strategist first.
• What good is it to be a brilliant real estate investor, but not being able to keep your money? Poor tax planning will take the wind out of any investment venture, so pay for good tax advice. Paying the cheapest price for tax advice will be very expensive to you.

I really believe it is smart thing to study others who are successful in the field you desire to be successful in. Don’t you? With that said, I have observed, experienced, and gathered seven wealth-building habits for apartment investors. Pay close attention to them as some of them are counter-intuitive to traditional real estate training and investing.
Habit #1 – They Only Invest in Apartments…The Power of Focus!
• The best and the brightest apartment owners are the best and brightest at one thing – buying apartments. They don’t stray away from their specialty, but rather focus on apartments only. They don’t try to be “jack-of-all-trades”. Neither should you if you want to be one of the best and brightest. Focus plus follow-through brings about quantum results.
• It is also true that you will tend to focus on something you like or are passionate about. I first had a passion for and focused on buying and converting single family homes to rental units. Then, my focus and passion shifted to 4-plexes. After that, my passion and focus graduated to large apartment complexes. So you can see that my focus shifted, but always remained on apartments.

Habit #2 – Not Over-Leveraging DEBT…Cuz It’s a 4-letter Word!
• Heavy debt is a cash-flow killer. Even though debt is pretty much the norm on most deals, be smart about it. Having high debt is a trap that snares cash-flow and equity. Proverbs says that the “borrower is slave to the debtor” and that is so true. Having high debt is like having high credit card debt. There’s little if no personal cash flow every month as a result.
• An easy way of measuring your “debt-safety” level is to figure out your breakeven-occupancy percentage. To do this quickly, simply add up all of your annual operating expenses plus your all debt. Then, divide that number by your potential gross income. You’ll find that your operating expenses will typically not vary much, but that your debt can have a huge impact on your breakeven point in occupancy. The higher the debt load, the higher the breakeven point in occupancy needed. For example, if your breakeven occupancy point is calculated to be 60%, then after that, it’s all cash flow. But if your calculation comes out to be 90%, that spells trouble. You have no room for error and must keep your apartments 90% occupied just to pay the bills.
• Even though there are financing programs available that allow you to perhaps finance an investment with no down payment, it may not be a good idea. Run your numbers. Be prudent.
• Having 50% debt (or 50%LTV) on your properties is ideal and not easy to achieve, but it will keep you out of trouble and allow you to enjoy greater cash flow.

Habit #3 – Properties Are Managed Effectively and Professionally
• Having top-of-the-line property management, whether you do it yourself or hire a company to do it for you is a major key to success.
• In a nutshell, a top management company’s ultimate goal is to maximize potential rental income, reduce operating costs, strengthen tenant retention and relations, enhance visual appeal of property, and increase property value. If they can do this, you have a winner.
• Apartments that have the best reputation in the community have the highest rents, the lowest turnover, and have sound and solid property management.
• Good property management have well-oiled systems of accountability for the 4Ms: money, marketing, maintenance, and managing the staff.
You’re wondering where Habits #4, #5, #6, and #7 are? I ran out of space, you’ll have to catch my next post. See ya then!!

I have lost count on the number of investors I have coached into their first or tenth apartment investment. But it has to be over a 1000 since I first started coaching in 2003. You’d be surprised how much I have learned from my students. It’s really true that what you teach you become very sharp at. Teaching and coaching apartment investing has really helped my own investing greatly. The marketplace has changed drastically since 2007, but coaching investors is still going strong. For this blog, I thought it would be helpful to share with you my observations from a coaches perspective of what today’s students are doing and are up against.

5 Observations I See Today As a Coach
Observation #1: From the 10,000 foot level, I see a lot of confusion and fear on both sides – sellers and buyers.
The questions I get from student investors often are, have we reached the bottom yet, what if I buy and the market further tanks, and what should I invest in – apts., retail, self-storage, mobile home parks, etc.
Sellers fall into two categories: ones that are doing okay and two, ones that are desperate to sell. The ones that are desperate to sell are being represented by brokers who have given up on them basically. These sellers need creative student investors to rescue them! Like you!
Observation #2: Banks and lending institutions are causing the most roadblocks to getting a deal done. Enough said on this point.
But honestly, the answer to this problem is: skip using the banks and use Master Leases or Land Contracts to buy apartments. As I mentioned in Observation #1, sellers are being abandoned by brokers, but sellers still want to or need to sell. And that’s where you come in. Go make those deals!
Observation #3: Prices of properties in some areas are down to 2002-2003 prices. I also see cap rates from 2004 levels in great cities to invest in.
Large office buildings here in SF are selling for 2003 prices per sqft. In Texas, areas that were 7 or 8 cap two years ago are now 9 and 10 caps. I expect cap rates to creep up even more. Take a look on the website www.loopnet.com and you’ll see what I’m talking about.
Observation #4: We need to think long-term now for wealth-building purposes. 7 year hold for cash flow strategy is a smart thing to do today.
Instead of buying and flipping apartments right away, you’ll need to hold onto it to maximize your profits. This is a change in our mindset, but how it was done in the old days (when things were stable). Face the fact that the economy and the way we do business has changed forever. Don’t give up, just make adjustments.
Observation #5: Students and people I meet at seminars need to be more aggressive in making offers to sellers. We are in a buyer’s market and we set the market price, not the seller or broker. The property is only worth as much as you are willing to pay for it.
BONUS Observation: Don’t give up! The roughness and toughness of today’s market is a “weeding out” process. This down market is a filter so to speak and is going to greatly reward those who stay in this game. It’s okay to sit on the bench to take a short breather, but don’t leave the game. Don’t give up.

#1 – Important reminder: 9 out of 10 property managers are no good!!
In other words, 90% of qualified property managers cannot operate your property to its highest levels. Face it, the property management business is a tough business to make money in. They usually over-commit and under-deliver. It takes years to be successful in it, let alone grow profitably. And no one cares more about your investment than you do.

#2 - Make sure the property management company is in agreement with your business plan and exit strategy for the property.
Did you invest in this property for monthly cash flow for you to live off of, or for your retirement years down the road, or as a tax-shelter? Whatever the case, make sure your property manager knows, understands, and is in agreement with you.

#3 - You won’t find out if the property management is good or not, until you hire them for 3 months at least. Ouch.
Working with a property management company is like a marriage, you’ll find out if they can really do the job only after you hire them and they’ve been on the job for a time. Choose your property manager wisely.

#4 - To hire the best ones around get a referral from someone who is happy with their own property manager’s performance.
This is absolutely the best way to hire a new property manager successfully. Find someone such as a fellow-investor who is pleased with how their property is being managed.

#5 - Make sure they agree to send you monthly performance reports – get a sample of theirs before you hire them.
Upfront, when interviewing, ask what their property performance reporting capabilities are for owners. Get a sample of what they currently send out, then tell them what you need on weekly and monthly basis for reporting on the property. If they are incapable, then you have limited ways of holding them accountable.

#6 - Hold the property manager accountable with well-organized monthly meetings and with the “weekly accountability report”.
Every month, like clock-work there needs to be a meeting between you and the property managers. If you let these meetings sly and go by the wayside, think of a child that you slack discipline with. What happens?

#7 - Visit the property routinely (with surprises too).
Upon taking ownership, you should visit the property at least once per month (more if it is being rehabbed) for the first 6 months. Afterwards, site visits once per quarter should do.

#8 – Conduct an annual customer service satisfaction survey of the tenants or often called a “resident satisfaction survey”.
You could easily do this yourself or hire a third party to conduct the survey. The survey should address the following: maintenance of apartments and grounds, maintenance of community facilities (pool, clubhouse, etc.), maintenance of utilities (heat, water, garbage), tenant relations, leasing services, and security. Keep it simple, easy to fill-out, with a self-addressed stamped envelope, with names optional.

#9 - Plan for rainy days because stuff happens = build reserves.
Nothing comes between business relationships more so than the subject of money. Money problems seem to never appear until it’s needed and there is none. Build up and maintain a reserve fund for emergencies.

#10 - Don’t be afraid to pull the plug on the property manager if poor performance lingers.
Here a few signs to watch indicating it may be time to pull the plug: high delinquency of rent collection, worsening occupancy trend, habitually late reporting, and accounting irregularities.

Set Your Goal: to purchase your first apartment in 90 days. In general, this plan is for buying cash-flowing, income-producing apartment investment with built-in equity.
Do Your Market Research: one of the most important rules on where to buy apartment buildings is to buy where there are JOBS. If there is an absence of jobs and job growth, there will be an absence of persons to rent to. If you have no one to rent to, your apartment investment will likely fail. The easiest way to gauge a healthy job climate is to call your local chamber of commerce and get connected to the economic development department. Within this department are all the statistics you’ll need to see what the current unemployment rate is as well as what the future holds. I like to get info straight from the street as well. I’ll call several local property managers and ask them the question point blank: “how’s the job market today?”
Start In Your Own Backyard First: I suggest starting your market research and having an intention on investing in your own city first. It is by far the easiest and most efficient way to begin. Investing out-of-state for the first-timer should be your last resort and should be done with the help and guidance of a skilled-advisor or hands-on consultant. By starting locally, you’ll be able to drive around, meet people in person, check up on the property easily, and learn the business faster.
Be Smart and Find a Local Property Manager: Smart business people team up with smarter teammates. Property managers know all the ins and outs of operating and running apartments – that’s how they make a living. So why not have them as your advisor right now as you’re learning the business? Property managers know neighborhoods very well, if they’re safe, if they’re easy to get tenants, and how stable they are. As soon as I find a potential deal, I get my property manager on the phone and I ask them about the neighborhood and apartment complex. This is my way of “kicking the tires” before I jump in. This way, it will save me a trip to the property and allow me more time to evaluate more deals.
Start Generating Leads: Now that you have a goal, some market research under your belt, and have a city to start in, you’ll need to start finding sources of deals or leads. The simplest way to get leads is to start calling local real estate agents or brokers. I suggest calling them on the phone first and if there is a “connection” there, meet them for a cup of coffee. Even though you are qualifying them, you should be focusing on building a rapport with them. If you don’t like them or if they don’t like you, it’s not worth doing business with them. Life is too short folks! I emphasized this many times that the real estate investment business is a relationship business. So, after you spend a little time building rapport, start sharing with them what you’re looking for.
Start Networking: Here’s that “R” word again. Relationships. Join a local real estate club and start attending their meetings. Go to investment seminars not to only learn the latest techniques, but to meet new people. One of the wealthiest people I know has very little money, but he is the master at networking and meeting people. I see him as truly wealthy. There’s richness in the relationships he brings into his life. The best deals are not going to be found on the internet. The money you need for the down payment is not going to land in your lap. These two things WILL surely come as a result of new relationships you develop.
Analyze Hundreds of Deals: Finding a deal worth making an offer on is a numbers game. You’re going to have to kiss a lot of frogs to find the one prince. The more deals you analyze and look into, the sooner you’ll reach your goal of buying apartments. The bonus of looking at a lot of deals is that you’ll become sharper and sharper at evaluating them. In no time, you’ll be able to qualify deals in a matter of minutes, sometimes seconds.
Get Your Financing: It’s never too early to start thinking about and taking action on how to get your deals financed. You likely fall into one of the two following categories: one, you have your down payment already saved up and it is accessible. Or two, you have very little money for a down payment and you’ll need to go out and find it. Or maybe you fall into a combination of the two? Either way, let’s get than going as well.
Get Your House In Order: What I mean by this is that you’re going to have to change your frame of mind from a homeowner/renter to a business owner. Once you buy your first apartment building and rent to someone, you are hereby a business owner whether you want to be or not. Being a business owner brings great liabilities and responsibilities with it. It’s time to set up an entity (LLC, LP, Corp., trust, etc.) that’s going to own your apartment building and business.