I wanted to share an example of the power of the network.
Last night on our weekly Apprentice call, one of my Apprentices told the group that he was looking for $30,000 for his earnest money. He asked who was interested in being his private money source…
Another Apprentice immediately came on the line, “I’ll do it. What’s your email?” It took 3 minutes, maybe.
That’s the power of the network and the mastermind community.
Private money is easy.
But first you need a deal and the mindset and skillset to approach private money sources.
Another Apprentice has a Commitment Letter for $20 million on a single apartment deal. That’s right – $20 million.
That’s 100% financing for the acquisition, closing, rehab and his syndication fee.
He’s earning cash up-front (like a wholesaler) and he’s getting a huge cash flow as well.
And 12 months ago, he wasn’t even considering doing apartments.
That’s the power of the success formula:
Success = Skillset + Mindset (+ Community) (TM).
Lance
Everyone likes a great deal. You may have everything in place to put together a deal but do you know how to make it a great deal? Do you know how to do it in such a way that it won’t cost you too much? Let’s get some pointers on structuring the deal.
Structuring the deal is creating a deal that allows the private money source to feel comfortable with the amount of control and have minimal risk. The first thing an investor is interested in is whether they will get their money back, or they are interested in the preservation of their capital. Both of these concerns address the investor’s comfort level of the deal. What you need to focus on is publicizing the features of your deals that provide control and low risk for your private investors.
Control means such things as the private lender or investor never releases the money until some promised event has occurred. For example, they only release the 20% down payment to an escrow at closing rather than to you directly. Another method is to have the lender only release rehab monies when they have certified that certain parts of the rehab are complete. This is part of the strategy of preeminence; you are showing your private investors that you thought of their interest when you set up the deal.
Low Risk means that the investor believes that their investment is secure. That’s one of the great things about real estate because you have a hard asset that serves as collateral. Part of the security comes from the loan to value ratio because that’s a hard asset and in the worst case scenario, if you don’t perform to their expectations, they can get access to the property and that redeems their investment. For income producing property, the primary indicator of value is how much income it produces.
The more time you spend on Control and Low Risk, the less time you will have to give in return. Your goal is to set up a deal in such a way that the person involved is better off even if they don’t buy from you.
Enjoy this day with your family and friends. Be grateful for your blessings – not just this day but everyday.
Merry Christmas and Happy Holidays,
Lance
Lance Edwards broadcasting from Las Vegas.
” Las Vegas is indeed a testament to the power of the entrepreneuer’s vision combined with the power of using other people’s money. So if you haven’t set your vision yet remember to set it BIG! Because you are only limited by your vision and the creative use of other people’s money.”
Wishing You the Best in Your Multifamily Business,
Lance
Welcome back. This is the continuation of my earlier post, “Everything Happens for A Reason: 2008 Prepared Us for 2009″.
I concluded that post about the 2-fold opportunity for us as apartment entrepreneurs, thankfully recognized due to my core belief that “Everything happens for a reason and it serves me.”
Before I explain the opportunities, I feel obligated to share some additional mindset points that hopefully will serve you as they have me – in life and with apartments. When the 2008 financial crisis hit, I challenged my Apprentices with this…
I told them to remember that the language we use and the questions we ask ourselves are critical.
I reminded them as I remind you: DO NOT ask yourself the question, “What is going to happen to me.”
That is a disempowering question. It is the question of the victim. And that question repeated and supported in your subconscious will illicit the actions of a victim and you will attract things in your life consistent with playing the victim (unconsciously).
Instead, ask yourself an empowering question, “What am I going to make happen?”
That is a question of power and control. That is the question of the entrepreneur. And that question repeated and supported will illicit actions and observations that will serve you in a time of unprecedented change and opportunity.
The other question I challenged the Apprentices to ask themselves was, “How will I benefit from this crisis?” Keep asking that and your mind will seek it out (if you are following your other daily mindset routine - for assistance, see the resource box to the right.)
When I asked myself that question, I arrived at the following answer:
The financial crisis of 2008 is a time of unprecedented opportunity for the apartment entrepreneur. Here’s why:
1) Increased Demand for Rental Housing: With less people qualified to own homes and more people losing their homes, that is increasing the demand for rental housing.
And in cost-conscious times, people downsize their housing accommodations which creates progressively increasing demand for apartments.
Just 2 weeks ago, my local TV station reported that apartment occupancies are up and apartment rents are up! Apartments may be one of the few businesses where demand is increasing. It’s logical.
2) Increased Supply of Private Money: Do you think there is more money entering or leaving the stock market? That’s right. Leaving – seeking a safe haven; like income producing commercial real estate.
People have seen their 401-K plans diminish by 40%. They need fundamental conservative investments like good, old-fashioned apartments where the value is based on the fundamental income – not the neighborhood appreciation brought about by free home loans.
As the apartment entrepreneur, it is our job to be matchmaker; to match deals with dollars and profit from our value-add, which is huge. Private investors are shell-shocked right now and they are desperate for a return to feelings of control and security. And our apartment deals can provide that.
I had a couple approach me recently at a local real estate club. They had lost $300,000 in their 401-K in a matter of weeks. Unsolicited, they told me their story and asked “Can we invest with you?“
That’s a microcosm of the opportunity for high integrity, trained entrepreneurs like you. And especially for those who have the mindset to see the opportunities and stand strong.
I’m challenging you to stand strong – for yourself, for your family, your your private investors. The world needs entrepreneurs right now.
Lance
I have a core belief that has always served me. And that is… “Everything happens for a reason and it serves me.“
The power of this belief is that, once it is embedded in your subconscious, your mind will always seek out an unanticipated benefit – whenever you don’t get an outcome you desired.
Have I had outcomes that I didn’t like? Yes, absolutely. Painful at the time? Yes, absolutely.
But thanks to this belief that everything happens for a reason, a far greater outcome manifested itself some time later. This is true for my business life and my personal life. Everything – I mean everything – happens for a reason. IF (big IF), you adopt the mindset to seek it out and not crawl under the table and play the victim.
Does that make sense?
When you adopt this attitude and belief, great things start happening. For one, it develops of feeling of anticipation when things don’t go like you expected.
Yes, it can be painful when we don’t get what we want, but the pain is minimized by the anticipation that something greater is on the way. And let me assure you, your mind will find that greater reason why – if you allow it to by adopting this belief.
Many of you are familiar with my mindset mentor, Garrett Lambert. One time, he and I were discussing this belief and I told him, “Garrett, I firmly believe that everything happens for a reason and it serves me but the reason is not always evident at the time.” Garrett’s response: “That’s OK. It’s none of your business anyway.”
He’s right – we just need to be open to the possibilities; it’s all part of a bigger plan.
I write about this now because I firmly believe that the pain and uncertainty of 2008 happened for a reason and it will serve me, you and the nation. And I am open to learning what that greater reason is. I already am getting some insights…
First, I believe that we will come out stronger as a nation. Our financial systems will be purged of the greed and corruption; protective systems will be installed, and we will emerge with a much stronger and sound economy that will power us for years to come.
Second, I firmly believe that change yields opportunity and no one is better suited to benefit from that change than the entrepreneur. By definition, we are change agents and hence we benefit from change – when we adopt the mindset to see the opportunities and act.
And the opportunities available to us right now are 2-fold: 1) increased demand for rental housing and 2) an increased supply of private money looking for safe havens like income producing real estate.
Can you say apartments? I’ll continue this in Part 2…
P.S. Remember, Your Mind Is Your Greatest Asset (TM)
Have you ever pondered what it takes to create wealth? In order to get on your path to financial freedom, you need to understand what it takes to get there. In any real estate or business venture or even in our personal lives, there are three things that need to occur simultaneously to create wealth for us. Those three things are Active Income, Passive Income and Enhancing our net worth and increasing our asset base.
Active income is where you exchange your time and energy for income. You are active and working at it. If you don’t work at it, you don’t get paid. Another term for this would be working income.
Your current job would be considered active income. Your active income will not make you rich unless you’re building something that will generate passive income. It doesn’t matter if it’s a high paying active income job; the bottom line is if you don’t show up and do the job, you won’t get paid. Some examples of active income in real estate are property managers, home appraisers, real estate agents and contractors.
Passive income is income that is generated by assets or other people where you are not actively participating. Apartments are a good example of passive income. You either invest your money into it and make it a passive vehicle for you or you invest your time and energy one time to create it and the asset pays you forever. Passive income examples for real estate are rental properties, equity participation and private money lending.
Passive income is really the path to financial freedom. The basic definition of financial freedom is when your passive income is more than adequate to pay for your desired lifestyle. To create your financial freedom plan, you must figure out how much you require per month to pay for your desired lifestyle and what investment vehicles you are going to use to get there.
Enhancing our net worth and increasing our asset base is the third step in creating wealth. First, we need to define net worth and asset. Net worth is simply the difference between your assets and your liabilities. Assets are anything that delivers monthly income. They are yet another means of producing passive income.
Everything comes back to passive income when it comes to securing your financial freedom. Once you come to the realization that passive income, not active income is the key to your financial freedom, then you have taken the very first step toward creating wealth for yourself.
There is a misconception out there that evaluating real estate deals is a time-consuming and arduous task. Nothing could be further from the truth! Analyzing apartment deals and making money on apartments is all about the numbers. More specifically, it’s all about the revenue and expense numbers. With that in mind, you can easily assess a deal in 10 minutes.
Apartment values are based on the numbers and the Net Operating Income (NOI). The more net operating income you can generate, the more money you will have to put in your pocket every month and again when you refinance or cash them out. However, you have a large degree of control over the revenue and the expenses of an apartment. You have the ability to estimate the value up front but you can also predict the value of your property even if you desire to make changes.
There are three simple questions to ask when evaluating a deal:
- What is the Cap Rate?
- What is the price per door?
- What is the unit mix?
Once you have the answers to those three questions, you will know whether you should move forward with the deal. Let’s examine each of those questions more closely.
What is the Cap Rate?
This is an abbreviation for the capitalization rate. This is the return on investment on a percentage basis if you paid all cash. The formula for CapRate is your NOI divided by the purchase price. For example, if you have a property that has a NOI of $100,000 per year and you paid $1,000,000 cash for the property, your Cap Rate is 10% because you are getting 10% return on your $1,000,000. The golden rule in evaluating deals is to look for properties that have a 10% or higher Cap Rate.
What is the price per door?
Price per door equals the price divided by the number of doors (or apartments). As a general rule, if it is less that $25,000 per door, then it is a candidate because it will most likely have a good Cap Rate and it will most likely have cash flow. Your general rule of thumb is that you go with less than $25,000 per door for an apartment building. This figure does not include any rehabilitation costs.
What is the unit mix?
The unit mix is the percentage of units that are one bedroom, two bedroom, and three bedrooms. A property that has more two bedrooms than one bedrooms will have higher rent or higher revenue per door. It is better to have a property with more two and three bedrooms than one-bedroom units because the rent per apartment will be higher on average. Generally speaking, two bedrooms are easier to rent.
The answers to these three questions reveal a lot of things. The Cap Rate tells you about the cash flow of a property. The price per door will tell you the class of property you are dealing with and the unit mix will tell you about marketability and revenue stream. These answers allow you to assess within 10 minutes whether a property is worth pursuing.
SECURE AND CONFIDENTIAL