on 14-Feb-2018 (Wed)

you will be buying low , or investing when other peo- ple don ’ t see the value. That positions you to sell high — in other words, when other people think you ’ re crazy for selling too soon.

There are emerging markets for commercial properties all around the United States at any given time.

different types of commercial property follow different paths in the market cycle. Simply because a market is emerging for apartments does not mean that it is emerging for retail space.

retail space generally lags behind apartments:

First come the announcements that new job opportunities will be opening up in an area. That creates a demand for offi ce space.

Then the people who will work in those offi ces begin to move into town. Because homes can ’ t be built fast enough, the apartment market suddenly heats up.

Many people want to see if their job will work out, and they want to get a good feel for the community. They check things out by rent- ing fi rst. After their leases expire, they start to buy single - family houses.

Retail space tends to follow housing surges, as merchants realize they can make money by moving closer to where people live and work.

Discovering how to recognize the signs of emerging markets — and then acting on that knowledge — will make you a very rich person.

Forced Appreciation This is one of the fastest ways to make money with commercial prop- erties. The concept is also called a value play . Whenever you look at a deal, always look for ways to force appreciation beyond what the local market may naturally generate.

To force appreciation, you must fi nd a deal with a slight problem.

the previous owner. Maybe he ’ s been afraid to raise rents, so his rents are under market. Maybe he is charging the correct amount for rent, but has higher - than - normal vacancies. Perhaps his expenses are running high. These are all opportunities to buy a property with a built - in reward, as long as you buy based on the actual numbers . That is the key to buying right with commercial properties.

Most sellers try to sell based on projected or pro forma numbers. This means that they are basing their price on what they think you can earn after you buy the property. The problem with pro forma numbers is they are not real. You are buying based on future cash fl ows that may never materialize.

the process of decomposing a function into oscillatory components is often called Fourier analysis

you will be buying low , or investing when other peo- ple don ’ t see the value. That positions you to sell high

Back to forced appreciation: All you have to do is raise rents up to market levels.

raise rents up to market levels. You ’ ll fi rst have to wait until leases expire, because leases transfer with ownership.

Apartments usually have one - year leases.

Offi ce buildings and other commercial properties have 3 - year to 20 - year leases.

raising rents also raises your property value: Commercial properties are primarily valued on multiples of their cash fl ow.

for each notch that you raise your net operating income , you ’ ve just raised the value of your property by multiple notches.

One of my favorite value plays is to fi nd a property with higher - than - normal expenses. Most properties operate with expenses of about 50 percent of gross income. When you see the actual fi nancials of a property with higher expenses, determine if you can lower those expenses to the average level.

the method of Lagrange multipliers finds the local extrema of a function subject to equality constraints.

Repositioning This is a special type of value play, and one of my favorites. When you reposition a property, you change the tenant base or signifi cantly alter the appearance of the property. Sometimes you do both.

We assume that both f and g have continuous first partial derivatives.

You may fi nd a property that needs some tender loving care. We call this deferred maintenance . Maybe it ’ s an okay property, but it hasn ’ t been upgraded in over a decade. It may look tired and out - of - date. There may also be the wrong type of tenant leasing the space.

For years the mall had languished as a working - class shopping center. In the meantime, the demographics in Hingham had changed. The city could now support higher - end enterprise. The working - class mall gained a new life and was repositioned as the nation ’ s fi rst lifestyle center . In place of the blue - collar stores, high - end shops like Williams Sonoma, Whole Foods, and Panera Bread moved into the refurbished spaces. The place took off, and is now one of the most popular shop- ping centers in the area.

Thus, the method of Lagrange multipliers yields a necessary condition for optimality in constrained problems.

Apartments are sometimes great candidates for repositioning. Let ’ s say that you fi nd a tired apartment building in a good area. This prop- erty has not been kept up well, so it ’ s attracting tenants who are even less well - kept. To reposition the building, you fi rst spruce up the exterior, focusing on the siding, roofi ng, and parking lot. You upgrade the landscaping, put new signage on the property, and create a nice leasing offi ce. You then work on certain strategic improvements inside the property. With the property now looking much better, it ’ s time to reposition those tenants. You get rid of the tenants who pay slowly, never pay at all, or are criminally inclined. Replace them with the tenant profi le that you are targeting.

To reposition the building, you fi rst spruce up the exterior, focusing on the siding, roofi ng, and parking lot. You upgrade the landscaping, put new signage on the property, and create a nice leasing offi ce. You then work on certain strategic improvements inside the property. With the property now looking much better, it ’ s time to reposition those tenants. You get rid of the tenants who pay slowly, never pay at all, or are criminally inclined. Replace them with the tenant profi le that you are targeting. This is a process that can take several months, absorbing more time and money than the simple value - play of raising rents. The rewards can be quite spectacular, though. Not only can you fi ll your vacant units, but soon all of the units are paying substantially more in rent. Because your property value is calculated at a multiple of the net operating income, you ’ ve just skyrocketed the worth of the property. When you come across a property that fi ts the profi le I just described, you should defi nitely consider it for repositioning.

Solving contrained optimization by direct substitution can be

1. difficult becausing finding analytic solution of the constraint equation is not easy
2. undesirable because the natural symmetry between the variables is spoiled

The method of Lagrange multipliers relies on the intuition that at a maximum, f(x, y) cannot be increasing in the direction of any neighboring point where g = 0 . If it were, we could walk along g = 0 to get higher, meaning that the starting point wasn't actually the maximum.

when we asked questions and got answers that justified going on, we asked for commitments. We ask questions like: "Is that what you want?" or "Is there anything else we should cover?" or "Are you willing to pay a ten per cent premium for a glossy finish?" or "If we show you we can meet your requirements, what will you do?"

WE NEVER ASK FOR THE ORDER!

High Probability Selling process is a closing process. We focus on finding out what's necessary to do business, right from the start. We use an orderly process that's thorough and professional. Our approach is designed to have the prospect commit to do business with us if what we have is what he wants.

we don't move to a new phase without a commitment. When we reach a point where a prospect won't make commitments, we end the meeting and move on to someone else.

NEVER ASK FOR THE ORDER! Just negotiate mutual commitments. In a situation where our company can't fulfill the prospect's Conditions of Satisfaction, acknowledge that promptly and make a swift, courteous exit.

You don't ever try to convince a prospect that he needs and wants what you have to sell. If he clearly understands the benefits you're offering, and they're not what he wants, it's time to end that visit. If he really wants what you have, he won't let you go

it requires the right questions, such as: You said you wanted a fast cycle time, how fast? You said you wanted the most insurance you could buy for a $1,500 annual premium. Do you want me to shop the market for you or are you planning to do your own shopping, company evaluation and comparison analysis? You said you want the fastest possible delivery. Are you willing to pay a premium for the overtime necessary to fill that requirement?

We're sincere in trying to determine the prospect's Conditions of Satisfaction (and we tell him what we're doing when we're doing it) and he can sense the difference.

In High Probability Selling we don't ask rhetorical or manipulative questions. We only ask questions we need to know the answers to

just sit there and ask them what they want to do

ask questions, gave her choices and asked for commitments

In optimization with equality contraint and a D dimensional variable x. The constraint equation \( g(x)=0 \) then represents a (D−1) dimensional surface in x-space

at any point on the constraint surface the gradient ∇g(x) of the constraint function will be orthogonal to the surface

At the stationary point the vector ∇f(x) is orthogonal to the constraint surface because otherwise we could increase the value of f(x) by moving a short distance along the constraint surface

In optimization with inequality constraint, the sign of the Lagrange multiplier is crucial, because the function f(x) will only be at a maximum if its gradient is oriented away from the region g(x) > 0

There are now two kinds of solution possible, according to whether the constrained stationary point lies in the region where g(x) > 0, in which case the constraint is inactive, or whether it lies on the boundary g(x)=0, in which case the constraint is said to be active.

Note that if we wish to minimize (rather than maximize) the function f(x) sub- ject to an inequality constraint g(x) ! 0, then we minimize the Lagrangian function L(x, λ)=f(x) − λg(x) with respect to x, again subject to λ ! 0

What can you demonstrate?

At the stationary point there must exist a parameter λ such that ∇f + λ∇g =0 because ∇f and ∇g are both perpendicular to the equality constraint

the biggest profits are to be made when you buy low and sell high

make money repositioning multi-family properties.

the right strategy for the particular phase a market is in to maximize your profits

There are four different phases of a market cycle. Some strategies will work great in one phase, while others will not work at all—until perhaps the next phase, when they’ll be just the right ones to use.

I’ll show you how to get the very most done in the shortest possible time. I’m a time fanatic, and you’re going to benefit from that.

it will take more than one deal to reach financial freedom.

if you will do for three to five years what most people won’t do, then you can do for the rest of your life what most people can’t do.

follow the rules and steps in the order I give them

The more properties you can control with the least amount of money out of your pocket, the faster you will become wealthy.

I began to fund my own deals and didn’t need to get into deals with no money down, because now I had money!

Eventually—no matter how rich you are—you will run out of money to do all the deals you want to do. You will need to use other people’s money to fund at least some of those deals.

if you always use your own money to get into a deal, you live your life in a feast-or-famine cycle. You feast after you sell a property and get a chunk of cash, but more often than not, you are in famine mode while your money is tied up in properties that are getting ready for sale or refinance.

Us- ing other people’s money wisely means you can avoid this cash-flow crunch.

Banks usually do require you to put 20 to 30 percent down on property.

many options for finding all the money you need.

T here are a great many different ways to invest in real estate: Just within the area of single-family homes, you can buy and sell through wholesaling, retailing, lease options, and subject to. You can specialize in foreclosures, abandoned houses, fixer- uppers, and pretty houses. Then there are techniques for investing in shopping centers, land, warehouses, industrial properties, and office buildings.

apartment buildings. They can be big (400-plus units) or small (two to six units). Regardless of the size you buy, start buying them!

You do not have to be the stereotypical landlord to enjoy the profits from an apartment building. A qualified property manager does all the hard work. They take care of the tenants, collect the rents, pay the bills, pay the mortgage, and put a chunk of cash flow into Robert’s bank account every month.

big numbers rep- resents a number of apartment units. Once you’ve accumulated that number of units, you’re done. You are done for the rest of your life

As a very rough average, an apartment unit will cash flow around $100 per month or $1,200 per year (these numbers will vary, based on the deal, location, property type, and so on). When I say cash flow, I mean spendable dough in your pocket. Therefore, if you want to live off $100,000 in cash flow every year, you need to accumu- late $100,000/$1,200 per unit, or 84 apartment units. Let me put it another way: Owning 84 apartment units could make you set for life!

get money partners to put up the cash for your deals. Depending on how the deal is structured, you should get between 25 and 50 percent of the monthly cash flow. If you got 50 percent of the cash flow, you’ll now need to accu- mulate 168 units to be free as a bird. That’s double the number of units compared to our earlier example, but the good news is you put no money down. Not a bad trade-off.

tenants are paying down your mortgage! That means even in a real estate market with no appreciation, your property is building equity.

12 Multi-Family Millions tenants are paying down your mortgage! That means even in a real estate market with no appreciation, your property is building equity. If you’re investing in emerging markets, your property will be appre- ciating rapidly at the same time your mortgage balance is dropping

every month you can enjoy a cash flow that supports your lifestyle.

your tenants are going to work each day to pay you rent, which is paying down your mortgage.

you might buy a building for $1 million and hold it for 10 years. You’re retired and using the cash flow to live on. After 10 years, that property might be worth $1,500,000 and your mort- gage principal may be down to $700,000. Notice that even though you reached your cash flow goal 10 years ago and you’re living very com- fortably, you’re actually $800,000 richer now! You have the option to take out a loan against the property and pull some of that equity out.

Most small real estate investors chase single-family houses. Most very large (corporate) investors chase commercial properties like office buildings and big shopping centers. That leaves a comfortable and profitable gap for you and me to step up and make our fortunes in between!

There is simply less competition when you buy apartments. The reason is obvious: Most people are scared away by the fear of dealing with tenants.

investors most likely avoid apartments because they think it takes big money to get started.

Investors making fortunes in apartments treat the business like a business. Each property is handled separately: It has its own ownership

Each month, separate financial reports are created and reviewed. That’s where investors should be spending their time—reviewing reports and doing more deals—not in rolling up their sleeves and dealing with tenants.

I personally do not stay in contact with tenants; but I insist that my property managers do!

If you are too much of a do-it-yourselfer, and think you’ll save a few bucks by managing the property yourself, I have news for you: You’ll be a burned-out statistic within two and a half years, on average. You’ll hate your tenants, they’ll hate you, the property will be deteriorating, and so will your former profit.

buy from these landlords, and not be one of them.

Banks will indeed finance only about 80 percent of the money needed to buy a property

there are a great many ways to get other people to put up the remaining 20 percent, for a share of the cash flow and profits.

118-unit apartment complex in Decatur, Georgia. They purchased it for $4,860,000. But first, they put together a group of partners and raised $1,400,000 needed to close the deal.

walked away with $140,000 to do repairs to the property, and another check for $170,000 just for putting the deal together!

On the day of the closing, they walked away with $310,000. Please let that sink in: Not only did they not pay to buy this property, but they were paid to buy it.

On the day of the closing, they walked away with $310,000. Please let that sink in: Not only did they not pay to buy this property, but they were paid to buy it.

Apartment deals are a profit multiplier.

Each month, they must share the cash flow with their investors, who get 50 percent of it. The total average net positive cash flow after all ex- pense and mortgage payments is about $12,700 per month. Ellen and Leonard get $6,350 per month or $76,200 per year.

They project that this property will be a five-year hold (why sell?). At current trends, they project the resale price to be $6,600,000. That works out to a gross profit of $1,900,000. The Spauldings’ half will amount to $850,000. On top of around $381,000 in cash flow while they waited those five years. So the first deal they did should be worth more than $1,231,000 in gross profits.

With an apartment building, you’ve at least got other tenants paying while your property manager is working to fill the vacancies. If you have one empty unit in a three-unit building, you may not have any cash flow for that month, but you’re probably covering your expenses and mortgage.

If you have a ten-unit building and a couple of tenants decide to leave, not only will the other eight make the mortgage payment but you’ll still have some cash flow that you can spend or reinvest in other properties.

Your apartment buildings should never be more than 95 percent occupied. Why? Because if they’re 100 percent occupied, you might very well be charging rents that are too low. But at 95 percent, you’re getting the maximum level of rents on pretty much the maximum number of units. (Naturally, this logic applies only to properties with lots of units; a three-unit property would not fit into this rule of thumb.)

For every renewal and every new tenant, you should be asking higher rent. You keep up this policy until your occupancy gets below 95 percent. Now you’ve found out what the market is willing to pay for rent in your building. You should now level off, and hold it there until your occupancy climbs above 95 percent, at which time you start the process again

You must get enough knowledge so when you do that first deal, you’re taking a calculated risk.

Know what the numbers mean and how to analyze them. Know what to expect before the closing, how to do your due diligence, how to get the property inspected, and how to find your property manager. Know the best strategies to exit the deal. Have an exit plan before you enter!

internalize these princi- ples. Once you’ve got them down, you’re ready to spread your wings and fly.

You can have all the skill and knowledge, but if you don’t take action, it’s worthless. In case you’re wondering how you’ll do in those first tentative tries to fly, I’ll tell you: You will fall a few times. That’s right: You’ll screw up. But so what! After all, you’re taking calculated risks, and not betting the farm.

Get out there and take action. Get started and then stumble. But then you get up, dust yourself off, and again move down the road in the direction of your dreams.

apartments are no more complicated than other real estate investments, or most other skills, for that matter.

Just reconcile yourself that when you’re starting out, you’ll be bad at the beginning. Then you’ll get better and—if you stick with it—will be on the road to mastery.

why not make it a type of real estate investing that can make you so much wealthier, so much faster than your typical single-family home investments?

Hunt for lenders to do new deals.

If I could get into the deal with no money out of my pocket and get cash flow every month, I wanted in. That was my philosophy. I wanted enough cash flow each month so I could pay all my bills and not have to worry all the time.

The market was exhausted. Builders had overbuilt, the market was oversupplied, and demand was at its lowest point.

buy a property, fix it up, and find a seller for the property. Sometimes it can be quick, but six months are usually required to complete that cycle. (Trust me: I know. I later got my contractor’s license and rehabbed hundreds of deals.)

buy properties two hours away—and eventually 2,000 miles away.

If you start by investing in multi-family properties the right way, you can become wealthier, faster.

When you discover how to find multi-family deals, they will jump into your consciousness, and beckon you to buy!

there are many types of multi-family housing. Properties for low-income families are usually government-subsidized housing. Then there’s housing for working people who can’t afford a house. There is also housing for the working people who simply choose to rent instead of buy. Finally, there is luxury rental housing.

Grade: A, B, C, and D. A properties are the luxury ones. They are usually less than 10 years old. White-collar workers live in them. These people are usually renters by choice: They don’t want the hassle of home ownership. Maybe they’ve been transferred to the community recently, or are soon to be married. Some of them travel a lot and have yet to settle down. Class A properties are the most expensive and are usually bought up by institutions (corporate investors).

B properties were built within the last 20 to 30 years. Their tenant base is a mixture of white-collar and blue-collar workers. Some are renters by choice and others rent by necessity.

C properties were built within the last 30 to 40 years. This is where you’ll find many tenants that are renters for life. On the other hand, some tenants (like me at one point) are just starting out in life. As they get better jobs, they work their way up the rental scale.

C properties are where you’ll find many Section 8 or government- subsidized housing tenants. Many investors are afraid of subsidized housing. They fear that the tenants are really rough. Well I’m here to tell you . . . they are! But only if you don’t screen them properly. It just stands to reason: If you don’t look at people’s background when you rent to them, you’re going to get tough tenants.

You are more likely to get good tenants if you: r Screen for prior evictions r Require that they have been working for two years before renting from you r Require that they have lived in the same residence for at least two years before moving into your property Yes, you will have to screen more applicants to get the good ones, but it’s worth it.

D properties are the worst. They are in bad areas and have bad tenants. There are usually drug dealers in the units and as soon as you get rid of one, another shows up to reopen the store. You see beat-up cars in the parking lot and bars on the windows. It’s not a place where you (or your property manager) will want to go to collect rents, even in the daytime. You can make a lot of money with D properties. I’ve done it. They are management-intensive and to be honest, involve many more headaches than rewards.