Apartment Building Investing with Michael Blank https://themichaelblank.com Invest in Apartment Buildings with Private Money Tue, 12 Nov 2019 18:44:09 +0000 en-US hourly 1 https://wordpress.org/?v=5.2.4 Michael Blank’s passion is being an entrepreneur and helping others become (better) entrepreneurs. His focus is apartment building investing by raising money from private individuals. He’s been investing in residential and multifamily real estate since 2005 and began syndicating deals in 2010. He is the author of the Syndicated Deal Analyzer and the free eBook “The Secret to Raising Money to Buy Your First Apartment Building”. Through Michael’s blog on TheMichaelBlank.com, his weekly articles on the BiggerPockets.com, and his Podcasts, Michael is enthusiastic about sharing what works (and doesn’t work!) in the world of commercial real estate investing. Michael Blank: Commercial Real Estate Investor | Entrepreneur clean Michael Blank: Commercial Real Estate Investor | Entrepreneur mblank@neuron.com mblank@neuron.com (Michael Blank: Commercial Real Estate Investor | Entrepreneur) Copyright 2014 by Michael Blank. The Ultimate Guide to Apartment Building Investing with Michael Blank Apartment Building Investing with Michael Blank http://www.TheMichaelBlank.com/wp-content/uploads/powerpress/Artwork-300x300.jpg https://themichaelblank.com TV-G Northern Virginia MB 188: STOP Saving Your Money & START Investing in Multifamily – With Grant Cardone https://themichaelblank.com/podcasts/session188/ https://themichaelblank.com/podcasts/session188/#respond Mon, 11 Nov 2019 18:00:58 +0000 https://themichaelblank.com/?p=9697

Do you have your money right? Or are you handing it over to Wall Street and hoping for the best? What if I told you that the secret to true wealth is to STOP saving your money and START using it to invest in real assets—like multifamily real estate!

Grant Cardone is the CEO of Cardone Capital, a multifamily real estate investment firm with more than $1.36B in assets under management. He is also an international speaker and bestselling author, well-known for creating the 10X Movement and 10X Growth Conference. Grant was named the #1 marketer to watch by Forbes, and he is a widely respected entrepreneur who owns and operates seven privately held companies.

On this episode, Grant joins me to share what he’s investing in now, discussing what kind of returns he expects on multifamily deals. He walks us through a day in the life of Grant Cardone, sharing his secret to work-life balance, his definition of true wealth, and his thoughts on the importance of spirituality. Listen in to understand what is driving Grant to build a legacy and learn how his Reg A fund serves non-accredited investors.

Key Takeaways

What Grant’s investing in right now

  • $473M portfolio in 5 properties, 2K+ units
  • Well-located and institutional quality
  • Deals with competition (list of buyers)

Why Grant avoids value-add multifamily deals

  • Lack of salary growth in America
  • ‘Value-add story will hit limits’

The returns Grant expects from multifamily investments

  • 5 to 6% cashflow, 15% IRR
  • $40M down becomes $135M in 30 years

Why Grant started a Reg A fund with $5K minimums

  • Moral issue to support ‘little guy’
  • Not true that < sophisticated, more trouble

A day in the life of Grant Cardone

  • Time for gym, self-improvement
  • Shut down work at 6pm for dinner

Grant’s secret to work-life balance

  • Don’t invest in anything with potential to lose
  • No worry more important than high returns

How Grant’s approach to money has changed

  • Used to scrounge, act like miser
  • Now use money to make life easy

What drives Grant to keep growing

  • Legacy for family, change community
  • Produce something of value = live forever

Grant’s insight on taking it to the next level

  • From $90M deal to $900M
  • Good friends will challenge

Grant’s definition of wealth

  • Money, time, love, health and purpose
  • Continuous learning = expansive

The role of spirituality in Grant’s life

  • Spirit comes before and after body
  • Best ideas come from beyond mind

Grant’s advice for ABI listeners

  • Get your money right (use, don’t save)
  • Invest in real estate with someone you trust

Connect with Grant Cardone

Grant’s Website

Cardone Capital

Resources

Cardone University

10X Growth Conference

Grant on Lewis Howes’ Podcast in 2017

The 10X Rule: The Only Difference Between Success and Failure by Grant Cardone

The Millionaire Booklet: How to Get Super Rich by Grant Cardone

Robert Kiyosaki on Apartment Building Investing EP160

The Real Estate Guys

What’s the Best Investment: The Stock Market or Real Estate?

Nighthawk Equity

Podcast Show Notes

Review the Podcast on iTunes

Michael’s Website

Michael on Facebook

Michael on Instagram

Michael on YouTube

Apartment Investor Network Facebook Group

Financial Freedom with Real Estate Investing: The Blueprint to Quitting Your Job with Real Estate—Even Without Experience or Cash by Michael Blank

]]>
https://themichaelblank.com/podcasts/session188/feed/ 0 Do you have your money right? Or are you handing it over to Wall Street and hoping for the best? Today, Grant Cardone joins me to explain why the secret to true wealth is to STOP saving your money and START using it to invest in real assets—like multif... Do you have your money right? Or are you handing it over to Wall Street and hoping for the best? Today, Grant Cardone joins me to explain why the secret to true wealth is to STOP saving your money and START using it to invest in real assets—like multifamily real estate! Michael Blank: Commercial Real Estate Investor | Entrepreneur yes 40:26
Get Off-Market Deals By Tracking Lost Ones https://themichaelblank.com/apartments/get-off-market-deals-by-tracking-lost-ones/ https://themichaelblank.com/apartments/get-off-market-deals-by-tracking-lost-ones/#respond Mon, 04 Nov 2019 21:54:52 +0000 https://themichaelblank.com/?p=10165 It’s tough to find multifamily deals these days and when you do, the competition is FIERCE. Even if you do make a best and final, someone is always outbidding you or putting up part earner’s money. How do you compete with that?

It might seem impossible and you might be ready to give up, but don’t lose heart. Don’t let this frustration stop you from being successful, because people are having success buying apartments and you can, too. 

The key is to access off-market deals. The kind that are never listed publicly and only certain people see. So, how do you get these coveted off-market deals?  Well, there’s an insider’s secret to winning multifamily deals, and it starts with tracking lost ones.

Intrigued? Read on or check out this video where I show you exactly how it’s done.


Sticking with a Deal 

It’s important to realize that just because you “lost” a deal, or a property went under contract and now it’s gone, doesn’t mean that you’ve lost it forever. I have seen many deals come back to life. In fact, I predict almost 50% of the time the deal I “lost” does not actually close… and that means I get another shot at bat!

If you stick with a deal and keep following-up with the broker, the deal often comes back to you.  You may even see more favorable terms this time around, because now the seller is motivated after seeing the previous commitment fall through.

Even if that deal doesn’t come back to life, sticking with it will set you apart from the competition. Think about it – you’re building your relationship with the broker, and your follow-up activity shows them that you are a serious player that knows how the industry works.

Whether it’s this off-market deal or the next, here are a few practical tips for sticking with it:

Tip #1: Keep Records and Notes of Your Deals

I can’t express how important it is to record your deal activity and stay organized during the lifecycle of the deal. Personally, I record all of my activity with the seller to include:

– My notes

– Site visits 

– Phone conversations 

– Any analysis that I do for them

I will even make videos of my analysis so that I can refresh myself on the deal as needed. (To do this I use Jing, a free desktop recording tool). When it comes time to crack open the deal again, I will watch the video to quickly get up to speed.

To keep myself organized, I put everything in Dropbox and I create a folder for each deal that we do. The idea is that I will check back with the broker on these deals 60, 90, even 120 days later. It’s truly amazing how often these deals come back, so KEEP GOOD NOTES!

Tip #2: Schedule Regular Follow-Ups With the Seller or Broker

Keep yourself accountable to your follow-up.  Add a reminder on your calendar for the next time you should follow-up with the seller (or broker, depending on who you are dealing with) about the deal. Depending on the situation, I would recommend following-up every 2-4 weeks. 

You might try alternate sending an email with a phone call. Look for a blog post or article that you can share that provides value to that person. Your goal is to stay informed, but also to be top-of-mind so that if something changes (like the closing falling through), you’ll be one of the first people they call.

You might pick up the phone and have a conversation that goes something like this:

You: “Hey, Mr. Broker. I was following-up to see whatever happened to so-and-so deal?”

Broker: “Oh, it closed.”

You: “Fantastic! What was the closing price?”  (This is great information for your records, and for your market knowledge in general.)

Or, that same conversation might go in a different direction:

You: “Hey, Mr. Broker. Whatever happened to so-and-so deal?”

Broker: “Well, as a matter-of-fact they are having trouble with that closing right now.  I don’t think it’s going to go through.”

BOOM!  You are now on the inside track. You are THE inside guy and if that deal doesn’t close, they are likely to call YOU because of your persistence. And that is an off-market deal that will never see the light of day. 

This is surprisingly common. I was talking with a fellow apartment investor, Chris Urso.  Chris is a successful multifamily investor with thousands of units at this point. He had one of his best deals come back after being under contract twice before he got it.

The point is: stick with a deal until it closes, because it ain’t over ‘til it’s over!  And that is an insider tip, my friends.

Recap

  • Don’t ditch a deal just because it’s under contract.
  • Keep careful records for each deal and don’t delete them!
  • Stay in touch with the seller or broker until the deal actually closes.
  • Provide value in your interactions to build relationships with these key players. 

If you make this part of your investing discipline, you are sure to reap HUGE rewards!

]]>
https://themichaelblank.com/apartments/get-off-market-deals-by-tracking-lost-ones/feed/ 0
Forced Appreciation vs Market Appreciation https://themichaelblank.com/apartments/forced-appreciation-vs-market-appreciation/ https://themichaelblank.com/apartments/forced-appreciation-vs-market-appreciation/#respond Mon, 04 Nov 2019 21:27:44 +0000 https://themichaelblank.com/?p=10162 There are two ways that the value of your investment properties will appreciate: Forced Appreciation & Market Appreciation. But only one of these is within your control. Can you guess which one?

Watch the video below (or keep reading).

Market Appreciation

The market is unpredictable. It will go up and just as quickly, it can go down. We saw that in the example of the great recession. The market went down, everyone was scared, and property values plummeted.

The market is partly driven by comparables. Both properties for sale and properties for rent are impacted by the prices of the properties that surround them. 

Let’s look at sales comps, for example. When a property located near your property is sold, the value of that sale now dictates what your property is worth. Now, rental comparables work the same way. If nearby rents are between X and Y, you know that the rental rate for your property is going to be similar.

These are examples of market-driven forces. And there are various factors that affect market appreciation (or depreciation, for that matter). 

Take migration as an example. Baby boomers are moving from colder climates to warmer climates. This change will affect the market of both the cities they are moving from and the cities they are moving to. When looking at the recipients cities of these migrating boomers, the more people moving into those markets will slowly drive rents up and keep the vacancies as low as possible.

We made a video on this topic not too long ago, where we talked about the various macro-economic forces that impact a market. You can check it out here: Why Apartment Demand is Growing 

Forced Appreciation

Of the two methods, forced appreciation is the only one that is in your control. Unlike the market, forced appreciation happens when you force the value of an apartment building to go up. But how?

Let’s say you own 2 multifamily properties on the same street, located right next to one another. In all aspects, they are identical. They were built the same year, have the same specs and the same number of units. BUT, there is one major difference. The building on the left is worth $1 million and the building on the right is worth $1.5 million. 

How can 2 identical buildings, in the same location, have a half million dollar difference in value?  Simple – the value of apartment buildings is driven by the income it produces. So the building on the left is producing less income than it’s twin on the right.

In order to make the $1 million property appreciate $500,000 in value, you have to make it produce more income. Period. My firm favors a value-add strategy that uses a forced appreciation model to make a property appreciate, regardless of what the market does. 

  • If the market were completely flat, the value of the building would go up. 
  • If the market went up, the value of the building would go up even more. 
  • If the market went down, then the value of the building would not go up as much as if the market were steady.  But it won’t go down.

Essentially, YOU are controlling the value of the building and that’s why it’s called forced appreciation. 

Predictability & Business Planning

Unfortunately, no one has a crystal ball that can predict the future value of a market or a property. But, you never want to go blindly into a deal. You must do your research to hedge your bets. 

My firm plays the game by studying migration patterns. We also look at the economic forecast of a city through key indicators like job growth etc. We are trying to make predictions by pinpointing markets that are growing and improving. But…

The real magic happens when we can do both: Find a market that’s improving and force appreciation in that market. 

Obviously, forced appreciation is much more predictable than market appreciation. You can create a business plan that takes 18-24 months to execute. If you execute on that plan, it’s going to have predictable results. 

For example, let’s say you have a property earning $100 a month less, per unit, than the two properties next door. These other properties look a little nicer. So you know that you can get that $100 bump if you put some money into your property and make it more pleasing to the eye.

You might plan to put $5,000 into each unit to bring your building up to par (and write the improvements off as expenses!) Presumably, if you do this, you’ll be able to increase the rent as well. This is why forced appreciation is very predictable and surprisingly accurate. 

And as I mentioned before, if the market continues to go up in unpredictable ways, it will only enhance your business plan. If the market doesn’t quite cooperate, you might not be able to get a $100 rent bump, maybe you’ll only get $75. But you are still forcing the appreciation according to your business plan. 

Speaking of business plans, a good one will articulate the problem and solution very clearly. You want to make it easy for an investor to understand your strategy, how you intend to add value, and ultimately force appreciation.  For example: “The units don’t look as nice as the ones next door, therefore the rents are lower.” This makes sense.  

If someone is promoting a business plan that isn’t clear and doesn’t make sense, as an investor, you should be suspicious. Ask a lot of questions about the ability to force the appreciation of that asset.

Conservative Underwriting 

As a passive investor, you want to be conservative in your underwriting. When you’re looking at deals and evaluating an investment, you want to see how they’re being underwritten.  Now, underwriting is a fancy word for:  

  • What assumptions are they making? 
  • Are those assumptions reasonable given what you’re being told? 
  • Do they appear aggressive? 

Understanding Cap Rate

Before we move on, let’s address cap rate. We know that an apartment building is worth more, the more income it produces. The question becomes, how much more?  That’s where the cap rate comes in. 

A cap rate is essentially a multiplier, and the multiplier determines how much more something is worth based on its income. Cap rate has an inverse relationship to value. The lower the cap rate, the more something is worth. The higher the cap rate, the less something is worth.

The cap rate varies by market and is determined by comparable sales. (I don’t want to go too much into cap rate. You can get the cap rate for a particular market from a broker or an appraiser.)   

If you’re reviewing a deal with a current cap rate of 6.5% and the deal is projecting that in the future the cap rate will be lower, this is very unlikely to happen. Why?  Because the low cap rate is based on low interest rates. It’s possible that interest rates will drop, and therefore the cap rate will go lower, but it’s not likely and, therefore, it’s not a very conservative assumption.

When predicting the sales price of a unit, you should always assume a higher cap rate.  Which means, you’re assuming in five years cap rates will be higher and the real estate will be valued at a lower price. That is an example of a market predictor that is conservative versus aggressive. 

Net Operating Income

On the forced appreciation side, it’s all about net operating income. What is being assumed about income? How conservative are the projections?  

If a deal is projecting expenses of 38% of income, that’s really aggressive. Typically, you’ll see expenses between 50% and 55%. The lower the expense ratio, the more aggressive the projections. 

Another example of an aggressive projection would be a high rent bump in the first year. In year one, you’re going to have higher turn-over and increased vacancies because people are going to move out when you take over. So, a $150 per unit rent bump in the first year does not seem very likely.

When it comes to projecting net operating income, make sure that you look closely at the predictions for both rental income and expenses. Ask yourself these questions:

  • How realistic are they? 
  • How aggressive are they?
  • How conservative are they? 
  • How believable are they? 
  • How much margin for error is built in?

A prediction that the cap rate is going to be higher in five years has a margin of error built in. If it stays exactly the same, you’re going to do better, right? But if for some reason, interest rates do start going up, then your business plan is still going to be on track because you built in a margin of error.  

How to get started with Passive Investing

If you’re new to all of this, and you want to learn more about how apartment investing through syndications compares to investing in the stock market, check out the free report at:

www.themichaelblank.com/report

If you’re interested in hearing about how you can invest in apartment syndication deals, go to:

www.NighthawkEquity.com/join 

and set up a call with us to see if it would make sense for us to work together on future deals.

]]>
https://themichaelblank.com/apartments/forced-appreciation-vs-market-appreciation/feed/ 0
MB 186: The Predictability of Passive Investing in Multifamily – With Spencer Hilligoss https://themichaelblank.com/podcasts/session186/ https://themichaelblank.com/podcasts/session186/#respond Mon, 04 Nov 2019 12:00:38 +0000 https://themichaelblank.com/?p=9694

W-2 jobs give us a sense of security. But what happens if you lose your job or can’t work due to illness or injury? Spencer Hilligoss wanted to play financial defense and build enough passive income to keep the lights on for his family should something unexpected happen. And though real estate gets a bad rap for being a risky investment, Spencer discovered that multifamily is actually very predictable. In fact, it’s the best kind of boring! 

Spencer has 13 years of experience in tech startups, building high-performing teams across five companies—three of which valued at more than $1B. He currently serves as the Senior Director of Professional Development for LendingHome, the largest residential flip lender in the country. Spencer is also the Cofounder and Principal at Madison Investing, a real estate education platform dedicated to helping busy professionals build passive income, and a contributing writer and member of Forbes Real Estate Council.

On this episode, Spencer joins me to explain how the ‘dark decade’ he endured as a young man inspired him to pursue passive income through real estate. He shares his approach to financial planning, describing how he and his wife set goals and analyze deals together. Listen in for Spencer’s insight around the benefits of passive investing in multifamily over SFH strategies and learn exactly what he looks for in a sponsor, a market and a deal.

Key Takeaways

What’s keeping Spencer at his W-2 job

  • Take care of team at work
  • Don’t want to pull ripcord too soon

How Spencer got into real estate

  • Dad was top-performing real estate broker
  • Brother’s death + parent’s divorce led to bankruptcy
  • Pursue real estate to play defense financially

The Silicon Valley wealth playbook

  1. Join early stage tech startup for equity
  2. Work 16-hour days
  3. Pray for liquidity event
  4. Save for retirement (can’t access)

Spencer’s path to multifamily investing

  • Tech startup lends to real estate investors
  • Get educated and compare strategies
  • Built SFH portfolio of 7 (not passive)

How passive investing in multifamily differs from SFH

  • Analyze deal and build relationships up front
  • Double money in 5 years, don’t lift finger to manage

Spencer’s approach to financial planning

  • Based on being great parent, giving back
  • Work toward $8K/month passive income

What Spencer looks for in a sponsor

  • Track record (trustworthiness, grit, etc.)
  • Approach
  • Team
  • Communication

Spencer’s advice for new syndicators

  • Leverage partnerships and coaching
  • Borrow credibility from experienced investors

What Spencer looks for in a market

  • Strong job growth
  • Employers = counterweight to correction

What Spencer looks for in a deal

  • Specific plan to add value
  • Firsthand photos/videos beyond pro forma

What’s next for Spencer

  • More active to accelerate timeline
  • Scale impact through educational platform

Connect with Spencer Hilligoss

Madison Investing

Spencer On LinkedIn

Email spencer@madisoninvesting.co

Resources

Rich Dad Poor Dad: What the Rich Teach Their Kids About Money—That the Poor and Middle Class Do Not by Robert T. Kiyosaki

City-Data

Department of Numbers

What’s the Best Investment: The Stock Market or Real Estate?

Nighthawk Equity

Podcast Show Notes

Review the Podcast on iTunes

Michael’s Website

Michael on Facebook

Michael on Instagram

Michael on YouTube

Apartment Investor Network Facebook Group

Financial Freedom with Real Estate Investing: The Blueprint to Quitting Your Job with Real Estate—Even Without Experience or Cash by Michael Blank

]]>
https://themichaelblank.com/podcasts/session186/feed/ 0 W-2 employment gives us a sense of security. But what happens if you lose your job or can’t work due to illness or injury? Today, Spencer Hilligoss joins me to explain what inspired him to pursue passive income through multifamily and why passive inves... W-2 employment gives us a sense of security. But what happens if you lose your job or can’t work due to illness or injury? Today, Spencer Hilligoss joins me to explain what inspired him to pursue passive income through multifamily and why passive investing in apartment buildings is more predictable than you think! Michael Blank: Commercial Real Estate Investor | Entrepreneur clean 49:40
Understanding Cost Segregation https://themichaelblank.com/apartments/understanding-cost-segregation/ https://themichaelblank.com/apartments/understanding-cost-segregation/#respond Wed, 30 Oct 2019 15:15:45 +0000 https://themichaelblank.com/?p=10125 One of the most common questions my investors ask me is how cost segregation can impact passive real estate investors from a tax perspective, particularly in a multifamily syndication.  

First, let’s define the term. Under United States tax laws and accounting rules, cost segregation is the process of identifying personal property assets that are grouped with real property assets, and separating out personal assets for tax reporting purposes. That’s why I wouldn’t classify it as a tax loophole. It’s a common practice that has been around for decades.

Here’s how it works: The IRS allows you to, essentially, write off a paper loss from your taxable income. Typically if you have a rental property, you can write off the entire value (of the property) over the course of 27.5 years. Which is great!

You have the income generated from the rental property, and you have your related expenses: your mortgage interest, management fees, and expenses that come up, like having to replace a boiler, for example. 

When you deduct those expenses from your income, what’s left is taxable income. But wait – you’re not done yet!

You still have the depreciation of that property, which you can count as a loss on your tax return. This, again, shrinks your taxable income. It’s one of the best tax advantages out there, and it’s where cost segregation comes into play: Cost segregation allows you to accelerate the depreciation schedule

I mentioned earlier that without cost segregation, you can depreciate the value of the apartment building over the course of 27.5 years. With cost segregation, you can accelerate that timeline and take your depreciation MUCH sooner.

How much sooner, you ask?

Watch the video below (or keep reading).

Accelerating Depreciation

Here’s how it works. You send an engineer to your property, and the engineer has a giant spreadsheet where he/she breaks the entire building into its constituent parts: roof, electrical wiring, carpet, appliances, furniture, etc. You get the idea.

The IRS allows you to depreciate these different items over various time schedules. For example, a carpet might depreciate over a five year period. A roof, maybe 15 years. Electrical wiring, perhaps another 15 years, or whatever the case may be.  More on this can be found in IRS Pub 527.

By using this spreadsheet, applying the tax code to each of these elements, about 90% of the value of the building is depreciated in the first seven years or so.

That’s very powerful, right?

Now, it goes a step further. Donald Trump is a real estate investor. When he was elected as President, he passed a slight tweak to the law which now is called “bonus depreciation.” This basically allows you to deduct nearly 100% of the value of the building – in the first year

It gets better.

Previously, bonus depreciation would only apply to new equipment. (Like that boiler you had to replace). But this tweak allows for the bonus depreciation to be applied to used equipment as well. The amazing part is, now, you can deduct almost the entire cost of the property bill.  

So, you end up with this giant taxable loss in Year 1. That’s why for all of the properties that we purchase at Nighthawk Equity, we do a cost segregation analysis and pass that bonus depreciation on to our investors.

Managing Taxes on Deal Income

Here’s an example for you.

Let’s say you invest $100,000 in one of our multifamily syndications and suppose we distribute an $8,000 return on that money. That’s an 8% cash-on-cash return. You’re putting that money in your bank account, you’re going on vacation with it, you’re spending it or doing whatever you want to do with it.  

And then comes tax time. 

You get your what’s called a K1, which is your tax statement. (The K1 is what you give to your CPA to do your taxes as well.) On that K1 it shows that you received an $8,000 distribution but – magically! – your taxable loss was $40,000 (or some giant number). 

You’re thinking that your CPA is going to look at this and go –  “What the heck happened? You lost money on this. This was a really bad deal!”

Don’t panic, and don’t worry.  While you show a taxable loss, you still made money. And this is the exact reason why people attack President Trump.  They think that because he shows a taxable loss, he must be a bad investor. Meanwhile, he’s putting millions of dollars in his pocket. That’s the part the average person does not understand. 

The multifamily investor gets to put money in their pocket and defer taxes. That’s really the beauty of this bonus depreciation. You have a taxable loss and you can use it to offset other passive income strategies that you may be using (investing in other businesses, oil, whatever it may be). 

And if you don’t use the depreciation that year, you can roll it forward to the next year.  So let’s say you have income from your investment the following year, another $8,000. You can offset that gain with any kind of passive losses you haven’t used yet. Brilliant!

Nighthawk Equity knows a lot of full time investors that basically pay little to no taxes. The government has really set this up to incentivize real estate investors.

Tax Deferment vs. Tax Avoidance

As the saying goes, there’s only 2 things in life that you can’t escape: death and taxes. 

Depreciation, in one sense, avoids taxes.  It avoids taxes because the IRS considers it as an expense and, therefore, reduces your taxable income right now. In that sense, you’re literally avoiding taxes. 

However, when you sell, you may have to pay taxes on the gain. And this is where you could argue that the appreciation could be a deferred tax. 

For example, when you pay taxes, you have to pay taxes on the gain. You buy a property for $1 million. Years later you turn around and sell it for $2 million.  There’s a $1 million gain that you pay taxes on.

But, because of the depreciation, it lowers your basis. So in other words, when the IRS calculates your gain, it’s not on the full price. Rather, it’s on the $1 million minus whatever you depreciate it.

Purchase Price – Depreciation = Basis

If I depreciate $800,000 from bonus depreciation. My actual basis (my starting point) is $200,000.  As far as the IRS is concerned, they’re going to tax me on a gain from $200,000 to $2 million. It’s a $1.8 million gain that you’re taxed on, which is called depreciation recapture

You’re getting the benefit of the depreciation now, but you may have to pay for it later. 

Now there are mechanisms to defer that tax as well. For example, there is something called a 1031 Exchange. It essentially allows you to take the gains you’ve made and roll it into an equal or greater piece of real estate.

You’re in the Bay Area of California and you own a house. You have $500,000 of equity in the house because you held it for 10 years.  You don’t want to pay the gain on that, so you can do a 1031 Exchange and take that $500,000 in equity and profit and roll it into a small apartment building, without paying taxes on it.

There’s a process and procedure for all of this, which we will discuss in a future post.

Playing Your Cards Right

The way real estate is constructed; if you know the system and have a good tax advisor, you’re going to pay very little in taxes at all. 

I’ve been working with Tom Wheelwright from Wealth Ability.  I had been looking for a tax strategist for a while to help me with some of these things. Normally, a CPA just prepares your taxes. But Tom’s firm is amazing because they help you in the planning of these things. 

They will look at what you’ve done: your entities, your previous and also future activity. And they will advise you on what to do. 

For example, his experts will look at operating agreements, how depreciation was structured in past deals. They will give you an analysis of how it could have been structured differently and how should you structure your deals moving forward.

These are areas where you really want to work with someone who is an expert in real estate investments, because the tax benefits are enormous.  The question isn’t if you’re going to save money–the only question is how.  It takes real experts like those at Wealth Ability to help you answer that question.

If you’re interested in investing in multifamily properties but not quite sure of the next step, I invite you to check out this report I’ve created.  It makes a great case for why everyone should be interested in passive income through multifamily investing. 

Check it out here: www.TheMichaelBlank.com/report  

If you’re already convinced and want to be involved and hear about our deals, join the Night Hawk Equity Deal Club.  Go to www.NightHawkEquity.com and click the join button to setup a call with us.  We look forward to getting to know you and building a relationship.

*Michael Blank does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

]]>
https://themichaelblank.com/apartments/understanding-cost-segregation/feed/ 0
Revealed: The Broker Script to Unlock Off-Market Multifamily Deals https://themichaelblank.com/apartments/revealed-the-broker-script-to-unlock-off-market-multifamily-deals/ https://themichaelblank.com/apartments/revealed-the-broker-script-to-unlock-off-market-multifamily-deals/#respond Tue, 29 Oct 2019 13:00:51 +0000 https://themichaelblank.com/?p=10107

If you’re tired of brokers not returning your phone calls, or asking for “proof of funds” before they will send you their off-market listing, you’re not alone. 

When I first started calling brokers, I would say something like, “My name is Michael Blank. I’m a real estate investor looking for apartment building deals with 20-30 units. Is there anything you can send me?”

The approach seemed pretty straightforward, but brokers weren’t returning my calls.  If I did get a broker on the line, I’d get some version of this response: “Send me your proof of funds and I’ll be happy to share with you what I have.”

Proof of funds?  At the time, I was in the depths of my restaurant misery and I didn’t have proof of funds. I was stumped and didn’t know what to do.  

But finally, I cracked the code. 

Today, I am going to save you a lot of time and frustration and give you the exact script that will get brokers to take you seriously and return your phone call.  This is a very simple script that is basically guaranteed to give you a 99% success rate in avoiding the request for proof of funds.

Are you ready?

Here it is…

Watch the video below (or keep reading).



The Broker Script That Works

When calling a broker, you will prepare a modified version of this script to suit your deal:

“Mr. Broker, I work with a group of high net-worth individuals.  We’d like to expand in the Atlanta market. Now, we already have property management company XYZ on board and are continuing to build our team locally. We’re looking for deals in the $1M to $2.5M range with at least a 6% cap.  We would consider light to medium renovations but no re-positions. Is there anything you have in your pipeline that you can send over for me to review?”

This script is very intentional.  Think about it, brokers receive calls every day. They have to screen their voicemails and phone conversations for newbie investors and tire-kickers.  

With this script, you are addressing concerns that the broker has upfront and positioning yourself as someone that can perform and close the deal. Let’s take a closer look:

(1)   You addressed their money concern by stating that you’re working with a group of high net-worth individuals. CHECK.

(2)   You addressed their experience concern by stating that you’re already working with a property management company and you’re “expanding”.  CHECK. Now, you’re not lying about this stuff, even if you are expanding from zero. You are certainly not lying about your property management company, which is why you need to have this person on your team before you call the broker.  (More on that later). 

(3)   Finally, you’re using insider language like “cap rate” which is insider lingo for “how to value apartment deals” and “re-position” which is insider lingo for “a really big renovation”.  CHECK!

In order to use this script with confidence, you’ll have to do two things that I’ve alluded to already:

Task # 1: Educate Yourself

To educate yourself, there is no shortage of free information for you to explore on my YouTube channel, this blog, and my podcast: The Apartment Building Investing Podcast with Michael Blank.  New material is added every week.

If you’re ready to invest in yourself, I have a complete course called The Ultimate Guide to Buying Apartment Buildings. The best way to find out more about this course and if it’s right for you, is to watch an on-demand webinar where I’ll show you the blueprint you need to do your first multifamily deal.

To access the blueprint, visit TheMichaelBlank.com/Blueprint.  

Task # 2: Build Your Team

We talked about the importance of having a property manager on board, which is key.  You also need a lender on your team to help you know what kind of loan terms you are getting, and what you need to do to qualify for that loan. 

I won’t go into detail here, but for tips on building your team you can check out my video blog: How to Build Your Commercial Real Estate Team and Get Your First Deal 

You need to tackle these tasks before you start calling brokers. Both are relatively easy to do within 30 days, and soon you’ll be calling brokers with the confidence in yourself, your team, and your script. 

The Magic That Happens When You Use This Script

Anthony Metzger is a wine-maker turned real estate investor, with zero experience buying property. At just 29 years old, he took advice from my podcast and skipped the unnecessary step of investing in single family homes and dove right into multifamily.

He invested in my online course, built his team, and started calling brokers using the script.

And guess what? They took him seriously! They never asked him for proof of funds because they assumed he was an experienced investor. 

As a result, Anthony was awarded an $11M deal (218 units in Little Rock, AR). He brought it to us via our Deal Desk. We partnered, raised all the money for the deal, and closed it.

Anthony’s share of the acquisition fee was $20K. The first of many deals to come. And it’s all due to his willingness to invest in himself, follow the steps to build a team, and use a proven script to source off-market deals.

]]>
https://themichaelblank.com/apartments/revealed-the-broker-script-to-unlock-off-market-multifamily-deals/feed/ 0
MB 185: Creating an Uber-Like Resident Experience for Apartment Buildings – With Patrick Antrim https://themichaelblank.com/apartments/session185/ https://themichaelblank.com/apartments/session185/#respond Mon, 28 Oct 2019 12:00:08 +0000 https://themichaelblank.com/?p=9689

Technology has succeeded in disrupting several industries. Think about what Uber has done to the taxi business. Or how Airbnb has changed hotels. These innovations work because they create a frictionless experience for consumers. So, how might #proptech disrupt multifamily? And how can apartment investors leverage technology to better the resident experience and compete in the market of the future?

Patrick Antrim is the Founder and CEO of Multifamily Leadership, a thought leadership platform that researches the best in innovation and leadership in the multifamily space. He has 18 years of experience managing the portfolios of some of America’s most influential real estate entrepreneurs and business titans, including Forbes billionaire George Argyros. Patrick is also the host of the Multifamily Leadership Podcast and the creator of the Multifamily Leadership Summit.

On this episode, Patrick joins me to share his take on shifting renter expectations and explain why investors of the future need to understand technology. He describes how we can use tech to improve the tenant experience and why class B and C operators shouldn’t dismiss tech as a luxury amenity. Listen in for Patrick’s insight around current trends in multifamily and learn how his organization is exploring the intersection among technology, leadership and resident journey.

Key Takeaways

How Patrick got into the asset management space

  • Retire from playing for New York Yankees
  • Apprentice to former Mariners owner (5K multifamily units)
  • Grew relationships with HNWI to manage $1.2B portfolio

Patrick’s take on shifting renter expectations

  • Look at multifamily as consumer category
  • Unique opportunity for operators to add value

Why investors of the future need to understand technology

  • Lift on revenue (e.g.: $55/month for smart home)
  • Compete with luxury developments
  • Future valuations based on tech in buildings
  • Save up to $100K/year on expenses

How we can use tech to improve the tenant experience

  • AI voice assistant to answer calls
  • Upgrade leasing journey (i.e.: digital applications)
  • Smart appliances, IoT devices in units

Patrick’s insight on tech in class B and C properties

  • Consumers quick to adopt tech (e.g.: Wi-Fi)
  • Impact operational inefficiencies like keys, work orders
  • Eliminate need for leasing agent at small properties

Why property management companies are slow to adopt tech

  • Investors already winning, don’t have to think ahead

Patrick’s thoughts on current trends in multifamily

  • Talent as last competitive advantage
  • Resident experience drives returns
  • Discussion around affordable housing

Patrick’s mission with Multifamily Leadership

  • Collision of tech, leadership and resident journey
  • Design co. to attract talent, residents + investors

Patrick’s advice for aspiring multifamily operators

  • Focus on creating value long term
  • Make sure incentives aligned

Connect with Patrick Antrim

Multifamily Leadership

Multifamily Leadership Podcast

Patrick on LinkedIn

Resources

Michael’s Mentorship Program

George Argyros

John Saunders

LeaseHawk

SmartRent

PointCentral

Vivint Smart Home

Urbandoor

STRATIS IoT

BIM Technology

Shadow Summit

Podcast Show Notes

Review the Podcast on iTunes

Michael’s Website

Michael on Facebook

Michael on Instagram

Michael on YouTube

Apartment Investor Network Facebook Group

Financial Freedom with Real Estate Investing: The Blueprint to Quitting Your Job with Real Estate—Even Without Experience or Cash by Michael Blank

]]>
https://themichaelblank.com/apartments/session185/feed/ 0 Technology has succeeded in disrupting several industries. Think about Uber’s impact on taxis. Or how Airbnb changed hotels. These innovations work because they create a frictionless experience for consumers. Today, Technology has succeeded in disrupting several industries. Think about Uber’s impact on taxis. Or how Airbnb changed hotels. These innovations work because they create a frictionless experience for consumers. Today, Patrick Antrim joins me to explain how multifamily investors can leverage tech to better the resident experience and compete in the market of the future! Michael Blank: Commercial Real Estate Investor | Entrepreneur clean 40:05
Why Apartment Demand is Growing https://themichaelblank.com/apartments/why-apartment-demand-is-growing/ https://themichaelblank.com/apartments/why-apartment-demand-is-growing/#respond Wed, 23 Oct 2019 12:00:37 +0000 https://themichaelblank.com/?p=10039 It’s no secret that the demand for apartments in the USA, from both the consumer and investor perspective, is growing. It’s one of the reasons that I am so passionate about investing in the multifamily space. But have you ever wondered why the demand is so high and why it continues to grow?

It’s a great question and there’s a variety of factors that point to the strong demand for apartments. Let’s explore them now.

Watch the video below (or keep reading).

#1: The Housing Market

Housing prices are continually going up. Over the last year, the monthly median-priced home mortgage increased $175 last year — up to $1,700 per month.

That increase is widening the gap between owning and renting, which drives rental demand.

#2: The Millennial Mindset

Young adults are really driving rental demands these days, and this large group of consumers prefer renting to home ownership for a variety of reasons. 

Some don’t have the down payment to buy a home. (Again, here we see the effects of a widening gap between owning a home and renting.)

Others saw what happened to their parents in 2008 and may have even lost their house, or watched their friends lose their homes. This experience makes them cautious about buying because they don’t want to end up in the same situation. 

Finally, young people today simply want more freedom. It’s not necessarily about having less responsibility. They want more freedom to do as they please, and household chores like taking care of a yard takes away some of that freedom.

#3: Vacancy Rates

The type of buildings that we invest in, Class B and Class C, are affordable housing. This past year, the vacancy rate for these classes was at the lowest point in 19 years!

This is driving the demand to build more apartment buildings to accommodate the growing number of renters. Which brings us to the next reason this space is so competitive…

#4: Construction Costs

Let’s consider Class C, which has a 3.9% vacancy rate. One reason for this low vacancy rate is due to the fact that you can’t build affordable housing anymore. The cost of construction to build a new multifamily complex is going to cost upwards of $120,000 per unit. 

Typically, we buy properties for much less than that. Sometimes even as low as $40,000 a unit or $50,000 – $60,000 a unit. In other words, you can’t build more affordable housing than that.  

The demographic of people looking for affordable housing is always there, and growing, but it’s too costly to build. So when someone puts up a new apartment building, it doesn’t really affect us as investors very much.

This combination of these factors keeps demand really, really strong, which is reflective in the vacancy rates last year and the competitive nature of apartment deal flow that you see today.

Shifting Demographic Demands

A nonprofit called WeAreApartments.org is projecting that the USA is going to need 4.6 million more apartment units by the year 2030. There’s a shift in demographics that’s happening to drive this demand.

We already touched on the impact that young adults are having on the housing market with their preference to rent versus buying. This is definitely driving demand from a growth perspective. But what about the older generations?

If you look to where the general population is moving, it’s definitely moving from colder climates to warmer climates. This trend is largely driven by the Baby Boomers. I personally know at least three couples who are relocating, or already have relocated to Florida or North Carolina and South Carolina. It’s just better for them there because with better weather, there is more they can do.

So, when we are investing, we tend to invest in those warmer climates more so than the colder climates due to this shift in demographic demand.

Analyzing Submarkets

As an investor, you always want to think about demographic and geographic demands. I am always concerned about what’s going to happen in a recession or a market correction. 

It’s important that I understand these trends because not all real estate is created equal.

There is a market cycle for residential housing, a market cycle for office, a market cycle for multifamily.  If you understand the demographics and the drivers for each asset class, you will make better investment decisions. 

So when there’s a story on CNN about some kind of real estate crisis, the sophisticated, educated investor will ask questions like: 

  • What kind of real estate is it? 
  • What is asset class? 
  • Within the asset class, where is the market? 

Even within a city, the submarket is very important. There are submarkets that are less desirable and shrinking, and others that are very desirable and growing. As you’re evaluating opportunities, you want to start at a macro level and then get down into the micro details.

On a macro level, you have to ask yourself:

  • What are the drivers to that city? 
  • What’s the job projections? 
  • What does that submarket?  

The educated investor looks at all trends to make better decisions. The key takeaway is to make sure you analyze an opportunity from a top level down. Ask questions down to the submarket level, in addition to valuing the property itself.

Keep this in mind:

Even if someone were to make a mistake about the property itself by overestimating the rents, for example, a rising tide lifts all boats. If the submarket is good enough, it will fix and eradicate those problems over time. 

And If there are no problems, it will just amplify the business plan.

Helpful Resources

A lot of the stuff I’m talking about here you can find in the Marcus and Millichap free report called 2019 Multifamily North American Investment Forecast. This report is super informative both for passive investors as well as active investors.

]]>
https://themichaelblank.com/apartments/why-apartment-demand-is-growing/feed/ 0
The #1 Way to Source Multifamily Property Deals https://themichaelblank.com/apartments/the-1-way-to-source-multifamily-property-deals/ https://themichaelblank.com/apartments/the-1-way-to-source-multifamily-property-deals/#respond Tue, 22 Oct 2019 12:00:50 +0000 https://themichaelblank.com/?p=10026 A major challenge for investors in the multifamily space is access to consistent deal flow. While the internet makes it easy for us to search for available properties, smart investors know that properties posted online are there because no one else wanted them.

Most of these properties have been marketed directly to interested buyers that ultimately passed on the deal. Let’s face it, online listings are where deals go to die.

The #1 source for finding multifamily properties is through commercial real estate (CRE) brokers.

The reason brokers are the best source of deals is because they make it their business to know every multifamily property owner in town. Why reinvent the wheel when you can leverage their knowledge and relationships to get ahead of a deal before it’s made public?

Related: How to Find Off-Market Deals

Now, this does not mean that you have to spend your time and money marketing to every broker in your city. The truth is, you only need 1 or 2 solid brokers that you can build a relationship to feed your deal pipeline. (I once worked with a broker in Texas that was such a rainmaker that I had trouble just keeping up with him alone!)

But, how do you find great CRE brokers and build relationships with them?

Watch the video below (or keep reading).

Finding Top Commercial Brokers 

I have found LoopNet to be one of the best sources for locating CRE brokers. LoopNet is an online marketplace for commercial property with more than 8 million registered members and 5 million unique monthly visitors. 

I know what you’re thinking – “didn’t you just say that the internet is where deals go to die?” Yes, the property listings on LoopNet may be stale.  But what you care about as an investor is using the site to locate the originating deal source – the broker!

Below are the steps I recommend you take to generate a list of potential brokers:

  1. Go to www.LoopNet.com and create a free account.
  2. Search for the building types you want to buy including size range, zip code, etc.
  3. Create a spreadsheet and capture the contact information for each of the CRE brokers with listings similar to what you are looking to purchase.
  4. Keep track of the number of listings the broker has, the building types, and the part of town where their listings appear.

This exercise will not only help you establish a contact list, but help you sound intelligent about the broker’s business before you call them. That’s right – you’ll have to pick up the phone and have a conversation with the broker so they know you’re a serious buyer. A good broker will have his cell phone listed and is eager to answer it.

Before placing that first call, there are two important things you must do.

First, make sure you’ve brushed up on your industry jargon, so you’re using the right language.  Check out my post, How to NOT Sound Like a Multifamily Newbie for tips.

Second, make sure you’ve got your team in place. Hear my strategy for building a commercial real estate team on my video: How to Build Your Commercial Real Estate Team and Get Your First Deal 

Only after you’ve taken both of these steps are you truly ready to call the brokers on your list with confidence. Once you’ve connected with them, the real work starts. You must continue to build relationships with these brokers to earn their trust, and before you know it, they’re sending you off-market deals!

]]>
https://themichaelblank.com/apartments/the-1-way-to-source-multifamily-property-deals/feed/ 0