There’s a lot that goes into the process of real estate. Keep reading to discover what you need to know about real estate.
One of our investors has been looking to get into a deal with us. We have this equity raise and it’s on a 45 unit project which we acquired earlier in May. We’re talking to a select group of people to place some equity into the deal and then what we’d like to do is, once we get the equity back out of the project, use it to expand into another project.
Building up relationships with investors is something that’s really going to change the speed of your investment process. The more relationships you have with people who have capital, the quicker you can grow. You can grow at a slower pace with your own money, but if you’re able to bring in money from friends and family or high net worth individuals, then your portfolio’s going to grow a lot faster. That’s what we started gravitating towards is building more relationships and trying to bring in people who we can work together with and become more successful with. Our goal is not only to just benefit ourselves by raising capital, but we want to bring in people who have capital and benefit them by paying them a good return. We want it to be a win-win for both sides.
That’s the ultimate way to continue growing. You want to work with people long term . Once you cash out an investor in the future, let’s say you do a two or three year hold with the money, the goal would be to find another deal that you can all invest into. If you have a good experience and have a good relationship with the first investor who works with you, then they’re going to come back and do another deal with you. If you perform well and show how you will continue to be successful in the future, those initial investors will want to come back and work with you. That is a crucial part of what you need to know about real estate.
It Doesn’t Matter Where You’re Starting
It doesn’t really matter if you start with a lot of money or very little. What matters is that you get started. Find a way to create success that matches what your life has cut out for you. Everybody I meet has a different story of becoming successful. You have to find and create what you want your story to be. Figure out what types of real estate deals you’re going to invest in.
You don’t have to be in a big rush, but you do have to work hard and be very persistent. That’s what’s going to create success. It’s not easy but you need to have the drive and ambition to get there. When I first started out, there were banks that didn’t want to do deals. Whether they weren’t in the market for what we were trying to finance or whatever the case was, about 6 years ago it was hard to find capital and build relationships.
Believe In Yourself
An important part of what you need to know about real estate is that it’s hard to find deals. However, you have to keep persisting forward, find the money, and increase the value of the property. You have to do it no matter what anybody says. You have to believe in yourself to accomplish success. The moment you stop believing in yourself is the moment things aren’t going to work out.
You have to have a strong belief system that you can pull it off. You’ll find the money and get the deal done. The harder you work, the more success you’ll see. Having a strong mindset and being positive will also help you become successful. You should have goals that you want to accomplish and you should approach these goals by saying, “once I have accomplished XYZ then I will move on to ABC…” or whatever positive thinking works for you. Saying “I have X amount of units in my real estate portfolio,” and talking like you have already accomplished your goal will help you manifest it into reality. That’s how you’re going to become more successful.
Don’t stress about it. There’s going to be a lot of frustrations, obstacles, and issues that come up, but just take one problem at a time. Figure out how to solve it and overcome it, and keep building towards success.
Critical Skill For Investing
A critical skill to investing successfully into real estate and an important part of what you need to know about real estate is knowing the numbers. Every time we see a deal come across our desk, with just a few calculations we can easily figure out what the potential value will be. Just pull out a calculator and figure it out.
Let’s say someone says they have 150 units in an A plus location and rents are about $1200 a month. Basically you can figure out what the value of the property is. Knowing the numbers is really important. You have to know your market, what the upside is, and what the market rate is. If you know these factors within whatever markets you’re investing in, you can figure out what a property is worth. This will save you a lot of time. You’ll be able to determine quickly whether you should underwrite the deal and put effort into putting an offer together, or whether you should pass on it and move on to the next opportunity.
Using the numbers above of 150 units and the average rent is $1200 a month, you would multiply $1200 by 150 units which is $180,000 a month. Times 12 which is $2.16 million. Then I know our expense ratio in our marketplace, so I’m going to say 68% of that is going to be the net operating income.
The other 32% is going to be the expenses. That leaves an NOI of about $1.5 Million. Take $1.5 million divided by a 6% cap rate, that’s a $25 million deal. Then from there, what’s the age of the property? Was it built in 2000? If that’s the case then you probably can improve the units by putting granite and new kitchen cabinets and new flooring.
Once you have those improvements in place, you could probably raise the rent $300 a month. That’s going to increase the value of the property by around 30%. This is an example of a good deal that you’d want to underwrite very quickly. Now an example of a deal that isn’t as good is if the rents are $1,000 a month times 150 units, $150,000 times 12 = $1.8 million times 68% again = $1.2 million with 6% cap. It’s a $20 million deal, but maybe there’s not enough upside. You have to figure out the numbers and figure out the system. Plus, you just have to know the numbers. That’s one of the biggest parts of investing into real estate.
There are numerous factors for what you need to know about real estate.
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