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Chosing an Exit Strategy

Question:

Tony, given that you stated you do the majority of your investing in Antelope Valley where the price points of the homes are relatively close to each other and the price range is narrow, could you briefly discuss when you would apply the various Investment Exit Strategy scenarios? Does your exit strategy depend on your tax bracket? If you sell before 1 year cap gains, right?

-Student

Answer:

First, I don’t agree with your assessment of the Antelope Valley. We have condos and houses for under $100,000 and we have custom homes that sell for over $1,000,000. Everything is geographically specific.

I only buy if the properties qualify for both of my Exit Strategies:

  •     Buy, fix and sell, with at least a 10% net profit.
  •     Hold as long-term rental for at least a 10% cash on cash return

   
What he’s saying is, if you sell before 12 months, you’re going to get wacked, but here’s the thing when you’re starving and you need money, capital gain should be the last thing on your mind. It’s all an individual thing. It’s not just your tax bracket, it’s your food bill, your rent, your mortgage, whether you have kids or not or whether you lost your job. There are many other things that come into play, but what I think you’re trying to say is yes it’s an individual situation.

For me, nowadays, I like to buy and sell just enough to cover all of the expenses in my office. The rest of my houses, I like to keep them as rental houses, because I know where I made all my big bucks. I don’t need to go to anybody’s seminar to tell me how to make $10 million dollars; I know how to do it. So, I know it’s not going to be “buy and sell,” and “buy and sell,” all this “flip this house” nonsense. Yeah, that’s lovely if you want to have Uncle Sam as your partner. But if you want to make some serious dollars, look at the guys who have been around. And you know what the problem is? The guys who really make big money in the real estate business, they’re what’s known as the “silent majority.” They’re quiet; they’re the guys sitting at the back of the meetings, the older guys that are very polite to everybody and they’re bringing in $100,000 a month in rental income and you wouldn’t know it by the way they dress.

But you’re very, very accurate, you have to be very specific, you have to know what your tax ramifications for your decisions are, but when you have no other choice you have to flip or you have to wholesale to someone. You have to get a finder’s fee, something to start working in the business.

My perfect example for that is the kids who started in San Diego, Erin and Joey. And they’re on the website, I’ve told you a million times, if you haven’t seen that video, shame on you! Go to www.tonyalvarez.com and click ‘video interviews” and listen to those kids that started with nothing.

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How to determine GRM for 4 plex

Question:

How do you determine the GRM for a 4-Plex property? or for the inland empire area?
-W.A.

Answer:

It’s the same thing. The GRM is basically the Gross Rent Multiplier. Just look at other 4-plexes in the area, figure out what their rents are, the total yearly rents. And figure out what it sold for. If it sold for $200,000 and the yearly rents are $20,000, that would be ten times gross. Just divide the total purchase price by the rents, by the market rent, and that’ll give you the GRM. That’s for any area. Just look for comps within that area.

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How do you train an agent to know what’s a good deal?

Question:

When you first start working with a new agent, and he sends you a prop that is not a good deal, how do you “train him or her” on what is a good deal??

-Student    

Answer:

You think they don’t know?! I think you probably have an inexperienced agent, meaning that the agent is new, not the relationship. That’s just a process of really taking them by the hand and really explaining to them and being respectful and sensitive to not insulting them. Sometimes it’s like walking a tight rope when you first start working with an agent and he sends you a property that is not a good deal. When you’re dealing with a professional agent it’s tough. I explain this in my presentations and in the course that you have to go in there and sit with them, show them your stuff and say you can’t make this work, but if these numbers change, I will make the deal happen. Always leave an agent, especially a professional agent, with the possibility of making the deal if they get the numbers to change, because the numbers are going to change. Let them know that you will buy this if they get the price to a reasonable number. You never say “no, I don’t want this deal.” You say you can’t buy this deal because there’s no profit and you show them why. You want to show them that you calculated it and that you know what your fix up and carrying cost is, but if it’s a new agent, that’s even more simple. Unless they have a large ego, then you got to be careful about not stepping in it. It’s basically just a function of spending time with them. And geographically with a map, showing them these are the zip codes I want to buy in, even taking the time to show them some properties that have already sold. That’s why I tell you all to look at the MLS as to what sold because you have investors that have already bought stuff and you look at deals and go “how did I miss that?!” Then you rub salt into your wounds. It’s a very educational process. And you’re able to explain to someone else, it’s a great instrument. I use this in my mentor programs. I use actual transactions, deals that have actually happened to make a point. I say, “Look, this was happening at the time that I was buying this other thing.” You can use that same kind of stuff to train your agent and the more you train that agent, the more you develop that relationship, especially if they’re new, the better they’re going to be for you. Because, you want to get to the point where you guys are working like it’s a symbiotic relationship. I hope I explained that thoroughly for you.

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Agents “slipping” deals before listing

Question:

Is it considered fraud for a RE agent to “slip” us deals before they are listed? Bruce Norris posted an article on his FaceBook page recently, describing two brokers who were arrested for giving their investors preferential deals, before they were listed.

Just to clarify, the Brokers had other offers, but presented only the low offers of their investor, leading to a low sale and a resale for a profit. Do asset managers demand the property receive broad exposure before accepting offers?

-W.A.

Answer:

Here’s the clincher on this and I want you to understand, this is really important. ABSOLUTELY it’s fraud! Put yourself in the seller’s shoes. You’re going to list a property with an agent. You’re done rehabbing it, you bought it. You went through all the work, now you list it with your agent and you trust him to get you the highest and best deal and your agent sells it to his cousin and takes a low offer and then calls you and says, “Hey I didn’t get any other offers.” You know, I’d want his head smashed like a coconut. So, why shouldn’t the government be upset about that? That’s absolutely fraud!

But what makes it fraud is they purposely held offers. They had higher offers and only gave them this low ball offer for this investor. They should go to jail. Now, when I tell you that an agent will give you a tip on a listing that’s not even listed yet, he’s giving you a heads up. That’s called “prelisting favoritism.” But that doesn’t mean, by any stretch of the imagination, that he’s not going to submit all of the offers that he has on his plate. He will however, when he gets the offers, tell the asset manager, “You should consider this offer, even though it’s lower.” Why? “Because I know this guy’s a closer. Let me give you thirty-five other deals he’s done. Well let me explain to you why I think you should do it. The lender he’s using is solid. And I’ve spoken to them already. It’s a hard money lender it’s not a conventional loan. We’re not going to be in escrow for 30-40 days.” You know, that agent can do a lot of things that are considered proper without violating any laws, without doing anything underhanded. Without, by the way, including you in this scheme because, you’re going to be an accessory to that. I’m surprised they didn’t go after the investor on this. I’ll be surprised if they didn’t because, that’s just down right fraud. This is the criteria I use whenever I look at something; whether it’s improper or not. Do I want it done to me? How would I feel about it if I was on the receiving end of the situation? I’ve made a lot of money in my life in this business. I’ve never once stayed working with somebody who would come close to do any stupid thing like that. Uh, hello? You put your offer in and the guy knows it’s not going to close; he’s got the chance to be a hero. You know, asset managers don’t want those deals falling apart any more than anybody else. They don’t mind eating crow if they screw up and took a high offer and never had the chance in hell on closing.

The answer to your question is yes. It is fraud for an REO agent to slip an investor a deal before they’re listed, but not to give you information before it’s listed. An agent can give you information on a listing any time he wants. But he also will tell you it has to be listed. Some lenders, not all of them, but some lenders require the listing to be exposed to the multiple listing for a certain amount of days. Other lenders have more flexibility. Listen, you have lenders out there that’ll tell an agent “hey I’m listing this listing with you; get me somebody who’s going to close.” They’re really interested in closing. So, if the agent says “hey I can’t get you a $100,000 and it’s an all cash transaction.” A lot of times they’ll say “get that guy in here. If you know the guy’s solid, it’s a done deal.”

-TA

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Difference with HUD REOs?

Question:

What do I need to know in dealing with HUD REO’s? Any particular approach, lingo, etc. that I may need in order to be taken seriously?

-W.A    

Answer:

The only thing you need to know when it comes to HUD properties is to follow the instructions of a good agent who deals with HUD REOs or HUD foreclosures all the time. We’ve done a little bit of this, we haven’t gone after it like a mean dog as of yet but we intend to because I think that’s an area that’s really developing. But the secret to that is really having an agent who understands and has experience submitting those offers. What’s probably good to do is to find an agent who was in the last market, in the last downturn and who worked a lot with HUD because that’s all there was and they’re very familiar with what you can accomplish and the one thing about HUD that I can warn you about is that they’re detailed because they don’t necessarily hire the brightest staff in the world so they set these stringent rules for themselves and they don’t really respect how much work you put into having to do their offers. Its not so much what you write up to be taken seriously. To be taken seriously, you just have to follow the guidelines that they give you, and that they give everybody the same thing. You won’t shine here. This is not Fannie Mae or any of that nonsense. Basically, it’s just a vanilla, cookie-cutter method. The only thing that could happen is that your agent’s an idiot and drops the ball and doesn’t get your offer in on time, doesn’t have all the appropriate paperwork, hasn’t crossed all the t’s and dotted the i’s. That’s it! And I just read about somebody who in my area had submitted an offer and were waiting and waiting and waiting. They were told they had the deal and they went on and found out that it was back on the market, listed as available again. And this was basically because their agent had screwed up and dropped the ball on something and the property was relisted again. They were able to capture it back again but you know they would have never known. It could have sold to somebody else and when it sells to somebody else you’re S.O.L, you’re toast – that’s it!

So, it’s not so much about any secret weapon. It’s really important for you guys to learn the process that’s involved in these kinds of offers. HUD, you need to understand ALL the elements that are involved in that for yourself so that you double check your agents and I know that sounds a little wacky, but it really is important.
    
-TA

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What is Wholesaling?

Question:

I still don’t fully understand the term “wholesaling.” Can you give me a few examples? On page 88B it shows a mild fix as a wholesale. I thought just flipping a house, “as is” was wholesaling.

-A.N.

Answer:

A mild fix wholesale, for example, is when you buy a property, instead of doing repairs, you trash out the house and clean it up so that its somewhat presentable. You have the lawns cut and the yards cleaned.

What you’re looking for is just to clean up the property and make it neat. No extensive rehab.

You’re in essence making it appealing for new investors so they don’t get scared off.

You would be surprised at what you can do with a little bit of touch up paint, gardening and clean up. Sometimes you can put that property back into the MLS as a “fixer” that needs TLC and sell it with multiple offers and can sometimes make almost as much profit as a full rehab.

The name of the game is to look at each property, individually, and try to figure out how many different Exit Strategies you can create to dump that property as fast as you can, for as much as you can. A mild fix wholesale is just one type of wholesale deal, it’s just taking wholesaling and slicing it to many different pieces.

-TA

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What if an REO property needs more than your estimate?

Question:

Hi Tony, Please help me reconcile these two statements: 1. You once said that you never cancel escrow on an REO agent. 2. You also said that you run “an offer mill” making 15 offers per day or so.

How can both be true? What if your offer on an REO property is accepted and then you inspect the property and discover that it’s going to require a lot more work and money than you thought? Do you lower the offer? Isn’t that what you called a “terrorist offer?” Or do you cancel altogether? And if so isn’t that the same as cancelling out of an escrow? You just disappointed an REO agent.

Or do you inspect every single REO property before you make an offer so that scenario never occurs. That means you and Sabrina are inspecting at least 15 properties per day.

 

Answer:

Dear David,

Nice of you to write. Let’s take your questions apart piece by piece.

1 – I don’t run “offer mills.” My goal is to send out 15 offers a day. However, we personally only write a minimum of five and those are LOIs on an 8 1/2 X 11, pre-designed template where we basically just enter the property and agent information. However, we only make offers for two reasons:

One, on properties that I’m interested in buying. These are made through the listing, or a buyer’s agent within the listing agent’s office or through a buyer’s agent outside the listing agent’s office.

Two, on properties where I am interested in meeting the listing agent such as a pending listing where I use an LOI (Letter of Intent/Interest) type offer. This is what I call a “calling card offer.” It’s just my way of introducing myself using a point of interest for the listing agent.

2 – I have never canceled a deal once I have a seller accepted offer and have opened escrow.

3 – Presently, in our market, properties that we pro-actively select to submit offers on fall into one of two categories: REOs or Short Sales. The REOs are typically inspected by Sabrina and/or myself and the agent representing us, prior to submitting our offer.

The short sale offers are submitted with one contingency – “Subject to Interior Inspection.” We seldom inspect short sales unless we are concerned about the present condition or the upgrades. This is typical and accepted when dealing with short sales where the final price has not yet been approved by the lender. Keep in mind, short sales for us are the equivalent of gambling, that’s why we call them “Slot Machine Offers.”

-On a short sale where the selling price has already been pre-approved by a lender and we are interested in purchasing at the approved price, we would be inspecting the property prior to opening escrow.

4 – In the past, when I have been out of town, and before the existence of the Flip video camera, I would have to rely on Sabrina or an agent to inspect a severely damaged property, something that has always made me somewhat uncomfortable. There have been times where they have underestimated the repair costs. One that comes to mind, is actually a recent purchase of a property where they missed that a part of the foundation was made of brick. This is a very costly repair.

However, it would be more costly if I cancelled that escrow as the level of damage it might cause my business may be unrepairable. In all honesty, many times it’s not so much the damage it will cause my reputation as a professional buyer, but the fact that having that level of commitment assures me of the loyalty of top brokers, indefinitely.

In any event, this is the way I’ve chosen to do business and I believe it’s largely responsible for the success that I’ve experienced. Keep in mind that I suggest that as new buyers, you keep your contingencies for inspecting, financing and everything else in place to protect yourselves from your own errors or poor judgement. Take your time, inspect properties carefully, really understand what you’re doing and the cost of those repairs as well as the added value that they will bring to the property. A declining market is not a forgiving atmosphere.

The bottom line is this, we don’t make offers on properties without prior visual inspections! Nor would I recommend that anyone entertain that idea, it just isn’t prudent since the condition of the property is such a crucial part of your equation. If the picture that I conveyed of our system of making offers was a disorganized or disorderly conglomeration of disjointed actions – nothing could be further from the truth!

I don’t make frivolous offers. I don’t waste an agent’s time by making uneducated guesses. Every action we take in our office is well thought out and pre-calculated with a specific reason in mind.

Unfortunately, my ability to communicate may not be as good as the systems in my office. Please forgive me for any confusion that I may have caused.

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Making Hard Money Make Sense

Question:

I use a little hard money, but not very savy about it.

To buy and hold seems like you need to leave a lot of skin in the game. 20% on either conventional or hard money. Hard money at 60-65 of todays market value on longer terms . If I buy at a 20% discount … I still need about 20% down

With the average multi unit in the Hood of SD will cash flow 1000k a month with 100 percent financing @ 9 % and 200k-250 purchase price. Since that does seem possible, thats a 40k hit without repairs. I can only do so many of these deals…..I want to do a lot…..

How do I finance or purchase other wise with keeping some skin!???

P.S I ordered your REO 101 package yesterday…Im sure there will be some good stuff in there!

Answer:

First, thanks for the ordering course.

Now, on the stuff I buy to keep – my goal is always to refi and get 100% of my money out of the property and still have at least $100 of monthly “real net profit” (that means after ALL the expenses- PITI- vacancy & credit loss, maintenance & 10% management.) So I try to buy at 50% to 60 % of ARV (after repair value or fix-up value) This is does not happen everyday, but those type of buys must make up at least 50% of my purchases. Now keep in mind that those are fixers where I’m forecasting spending 10% to 20% of the ARV on buying & repair costs as well as 10% to 20% on holding and selling costs. Keep in mind that since I don’t read minds or crystal balls, I don’t know when the market will change so…

When I buy, the property must jump through 2 hurdles: buy & sell and buy & hold.

Many times I’m purchasing properties where the repairs or other costs are less than my worst case scenario and that is typically reflected in a higher purchase price or percentage of purchase price to ARV, such as paying 70% of ARV.

OK, keeping in mind that the real estate market can change at any one moment, you must plan your attack with several acquisition strategies to assure your desired outcome. You MUST have more than just one method of catching the prey, especially if your long-term goal is to “hold it,” until it gets fat and juicy, while eating the eggs it produces periodically, and that is as good an analogy as possible – the chicken!

Even if you are flush with cash, if you believe and are banking on benefiting from appreciation, financing will be both your salvation and your weakness. Part of your daily tasks should equally include both the pursuit of leverage and new inventory, for you cannot continue to grow without both.

Do not limit your thinking nor listen to your well-informed logical thought process when it comes to your acquisitions of both of these needed components because the secret to acquire both to fill your coffers will come from consistent, relentless and unrelenting pursuit of both simultaneously, regardless of your own thinking (past, present or future continued imagined results). Almost daily you will have to wipe your opinionated-mind clean of your own “bull shit” thoughts and perceived conclusions and re-fix your focus on your deliberate chosen actions.

Financing is available from one of several sources

1- your cash stores

2- conventional lenders (FNMA up to 10, but really 4 to 5 properties)

3- local commercial banks – 5 to 10 (but really limited only by your finances and relationships)

4- hard money- same as #3

5- true investors, as in older real estate people that have been in and understand the business and now just want to get checks instead of managing properties (they are everywhere) – search in real estate offices; start with agents and their clients, referrals. Also, ads in a large newspaper like the LA Times- although these folks are typically looking for short term type investments; it’s all about returns.

6- Other retirees looking for better returns than the bank can provide- there are thousands- try to stay local when looking for these folks. People that prepare tax returns such as CPA’s or enrolled agents are a great source for people that earn good wages and need to find investments to give them either tax shelter or additional income to off-set their increasing tax liability.

7- Other investors like yourself looking to partner up with someone who has any of the components they perceive (or have actually identified) as missing from their own tool box needed to do this business. Local investor clubs are a very good source for these folks.

8- Check out the Homepath financing available to investors on FNMA Homepath approved properties. You can get up to 10 and the financing is superior to anything on the market. You may be paying a higher price for the properties, but when you add in the financing component it may make mucho sense. I personally am trying to buy 10. They identify several approved lenders to work with on their site. Make sure to confirm they have closed prior deals and are presently active doing these type loans with FNMA.

These are just a few tips to sort of jar your own mind and get you to start thinking in a different direction instead of just hard money for long-term financing.

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Estimating Repair Cost

Question:

I have decided to focus on rehabbing. My big stumbling point now is that I am unsure on how to estimate rehab costs, and the best ways to find contractors. What would you suggest I do in the meantime till your class starts, as I really want to get started as soon as possible?

Answer:

The “best” way to do anything is usually different for all of us. Since everything I do is local, meaning I do all of my investing within a small geographical area, my business model is front loaded. That is, I typically invest a larger amount of time at the beginning to find experienced, reliable professionals who have proven themselves in my market. By this I mean, they have already been tested by someone else. This applies when trying to add ANYONE to my team including real estate agents, brokers, attorneys, insurance brokers, termite inspectors, property inspectors, appraisers, lenders and all types of contractors and handy men.

Now let me attempt to answer your questions more specifically…

1 – “Finding” a worthwhile contractor: If you want to find a worthwhile contractor, speak to real estate agents that have been utilizing the services of such contractors for many years. They will typically know who the good ones are as well as the bad ones. Keep in mind, these brokers should be REO brokers who are accustomed to using Fannie Mae approved vendors. In some cases, these contractors may be more expensive than a typical handy man. However, they may be better equipped to provide you with quick and accurate repair estimates than a typical handy man. These vendors may also be found on the actual Fannie Mae website.

Also, Home Depot as well as Lowes both have a department called the “Pros Desk,” here is where all your area contractors with credit lines repeatedly pay for their material purchases in order to have their purchases reviewed to lock in their discounts (10-20% off retail prices). The folks that man the counter are very familiar with the contractors and handy men who are presently active in your market place. Make friends with these home improvement store employees and they can easily direct you to contractors who may be worth using.

A third resource for contractors would be other local investors you might befriend. To find them, simply attend a local investors club meeting and make your request known to everyone there. Either individually or ask to speak to the group before the meeting.

You can also write a short note to other investors in your area requesting a referral for a local handyman or contractor that they use for repairs on their rental properties. You can easily obtain the contact information for these investors by requesting your local title company to pull the list of absentee property owners in your market which is public information and available to everyone or you can look it up yourself on the internet, assuming you have access to county records data. You might even add a financial incentive like taking them to lunch. After all, it may be a great opportunity to meet someone who can sell you their property at a discount or finance your deals if they have too much cash sitting around doing nothing or partner up with you and finance your whole operation or any other idea your creative mind can think of on how to benefit from meeting and building business relationships with these local investors while talking to them about finding a contractor or handy man. Just so you know I have used this technique myself over the years and it paid off very well.

With respect to “finding,” choosing, or hiring a worthwhile contractor or handyman it is imperative that you seek a referral from someone who has already used them successfully several times. One less reliable method is to drive your local neighborhoods and look for houses that are presently being rehabbed and speak to the contractors doing the work. However, I cannot caution you enough about hiring someone straight out of the phone book, newspaper or advertising from flyers or local recyclers or a referral from someone who has only used the contractor once… this is setting yourself up for a HUGE disappointment!

2 – Estimating repair costs: Again, there’s NO substitution for experience! The best way of accurately estimating the repair costs of a fixer upper property is to already have done it hundreds of times. Remember it’s not only accurately estimating repair costs of what you can identify but it’s having the experience of where to look for evidence of problems that are not clearly and easily visible. These are the explosions that will eat up your profit by becoming the “extras” that your contractor will be more than HAPPY to rectify!

Since you obviously do not have this wealth of knowledge as I have already mentioned – find a reliable contractor with a verifiable track record and have him do this for you. Most contractors will provide this service at no cost to you in hopes of getting the job to repair the property. However, some may charge you a minimal fee and then credit it back to you as part of the contract for the job should you decide to hire them.

Another option is to hire an actual property inspector. Again, they must be someone who has proven themselves and comes referred to you by other professionals you respect in your specific market area. These folks will charge for their labor and their cost can range from $100 to several hundred dollars for a complete inspection. I suggest that whatever method you choose to use, I HIGHLY recommend that you are ALWAYS present during the inspections at least, at the beginning of your real estate career. Come equipped with a video camera and digital recorder and be prepared to interview the property inspector or contractor as they walk the property documenting the needed repairs as thoroughly as you would interrogate a terrorist incarcerated in Guantanamo minus the water boarding! Consider the cost of these inspections as part of your initial real estate education. You’re paying for it, so make it count!

Documenting on video and audio your before and after inspections of your properties will become extremely valuable over time in many different ways from capturing an accurate record of all your decisions helping you write up detailed work lists for your contractors and in settling any disputes when your contractor accidentally forgets some of the items he initially agreed to repair. You will also be able to use this information when soliciting financing from private investors. It is an excellent tool in demonstrating your performance.

Over time, you can develop a system which breaks down your cost of repairs by a specific metric, such as a dollar per square foot cost. This method can be applied to each specific improvement such as paint, stucco, plumbing, carpentry, electrical, air conditioning and heating, windows, doors, flooring, landscaping, etc. Iit can also be broken down into more detail like interior/exterior repairs and improvements or as a general overall price per square foot of the entire rehab. After a while, you will be able to walk through a property and quickly calculate what the overall total cost of repairs will be within a 10-20% margin of error.

Your objective should be to get to the point where you’re able to accurately estimate your rehab cost even though, for the most part, your contractor will be the one actually repairing the estimates.

Remember you will be the one who does the initial inspection before you make the offer so you must sharpen your skills so that ultimately, you rely on YOUR ability to identify a worthwhile project.
I hope I have answered your questions to your satisfaction.

Your friend always,
Uncle Tony

Question:

Uncle Tony,
Thanks for your answer, but this is also were I get confused. To rehab a building for a novice like me, who do you call? A general contractor or a home inspector? or both? I am confused.

Answer:

1-To answer your question directly- to rehab a property you should use a professional who does rehab work, such as a licensed and insured contractor (preferably one that has been referred to you by someone you trust that has used that same contractor several times successfully).

2- For an initial inspection to assess and estimate the actual repairs (IF YOU CAN’T OR DON’T KNOW HOW TO DO THIS YOURSELF) hire a reputable property inspector local to your community, who is experienced with inspecting properties in disrepair (most home inspectors typically inspect properties for only the items that are easily visible) or a licensed contractor that is willing to do this for you economically, typically because he is hoping to get hired to complete the rehab.

“Home inspector” inspects property for a fee.
Contractors do rehab and construction and sometimes also inspect properties for the purpose of estimating the repairs that they are hopefully going to get hired to complete; get it?

NOTE- In both cases REMEMBER to hire someone that comes referred to you by someone you trust that has used that professional in the past on several occasions successfully.

Your friend always,
Uncle Tony

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Best areas to invest in multi-family units

Question:

Hi Tony,
Your presentation at SDCIA on Tuesday was great! Thank you for sharing your insight.
I have a question. I am currently in the process of building my real estate investment biz (I am using your free starter kit to help me). My plan is to form an entity, (my atty recommnds C corp) and start acquiring 4 to 8 unit apartment buildings to build residual positive cash flow. My next phase will be to invest in Fix and Flips.

My question is; In what area should I start acquiring apartment buildings?

I currently have my eye on San Diego, Las Vegas, Pheonix, Orlando and Tampa based on research that suggests that these are strong rental markets.

Would you advise against any of these areas and are there other areas that should also consider?

Thank you in advance for your input.
-GT

Answer:

Hi GT, and thank you for your question.

The fast answer is… I don’t have a clue. The obvious reason is presently I’m not investing in multi-residential income properties in those markets. Therefore, I simply have no need to know. Any “opinion” I would share would be just that, an “opinion” — hardly worth your time to hear.

Presently I’m focused on buying 1 to 4 residential properties and whenever possible I prefer them to ALL be detached single family dwellings with their own small private yard areas.

Also, since we handle our own property management, I am presently only buying within an hour drive from my office (located in the Antelope Valley), so my opinion of any of your preliminary markets is really not valid.

However, if you started completing the Free Starter Kit, then you already know the first thing you must deal with is Choosing a Target Market (and knowing it better than anyone else.)

The choosing of a specific place (or geographical location) to start buying apartments (or anything for that matter) is very strategic and unfortunately ALWAYS entirely up to YOU to decide. The reason for this should be obvious — it’s simply YOUR money, credit, time and effort.

You have to go through the process (learning curve) of HOW TO identify a location that is going to feed you the type of property, tenants and cash flow at the prices you think you will need to be profitable.

As far as my or anybody’s “opinion” as to whether one state or city is better or worse than another… well, honestly I would have to go through exactly the same steps I suggest that you take in the Free Started Kit to arrive at the same conclusion, so why repeat the effort?

Seek information and advice from investors who already own the same type of property you are interested in, and other real estate professionals (i.e. appraisers, insurance agents, etc. — not just the brokers and agents who specialize in that type of property who stand to get paid when you buy and not when you don’t — although honestly, they are an important part of your initial investigation.) The key is that you consult MANY individuals who have first hand experience of that market not just opinions they’ve read or heard from somebody else.)

In the past, I have purchased apartments of all sizes, shapes, types and locations in many Target Markets. I have used both a buy, fix & flip to other long-term hold investors model, and a buy, fix & hold long-term model as well.

Since I do not know your level of experience in the business I will caution you about a few things (if I may…)

1. Try to stick with properties as close to where you are physically at the beginning as this will help you to manage your tenants and/or your managers more effectively and with minimal stress and expense. (NO ONE WILL EVER MAKE DECISIONS IN YOUR BEST INTEREST AS WELL AS YOU WILL.)

2. Do all your research about the area and such, but remember you do not have to know EVERYTHING before starting to make offers. Use your contingencies effectively to both buy yourself appropriate time to fully investigate the properties, and to also withdraw from the deal should you discover it’s not what you want.

3. If you will need financing, make it an integral part of your initial research to personally visit with lenders LOCAL to the Target Market you choose. Prior to placing offers, make sure you have ALL the elements of accomplishing your goal firmly in hand.

4. Remember, properties for sale are everywhere, but a “Great Deal” is seldom found just by looking. More times than not, it’s created by your efforts, your understanding of your Target Market, as well as, the elements of doing whatever you decide to do as an investor (and the depth and breadth of your relationships within the business community you select as your Target Market.)

5. Should you decide to invest out of state, please do your due diligence slowly, carefully and deliberately. Be clearly aware of all the Pros and Cons (especially the CONS!) 😉

On the other hand, if you are an experienced investor and are already aware of the specific things I’ve mentioned above, I can tell you this – I would personally stay clear of the Vegas market since I have done research and find it very transient. I personally like the Orlando market (and Florida in general) if you can deal with the gun toting citizens (tenants), senior drivers and the occasional hurricane.

We hope we have been of good service.

Thank you for your question.

Your friend always,
Tony