Every investor should decide what their exit strategy is for the specific investment, and then underwrite the deal according to their exit.
Every multifamily investor should develop specific skills in order to succeed in the real estate sector. Which are they?
Napoleon Hill, the author of Think And Grow Rich, created a framework of success that the reader could follow by establishing his thirteen steps towards riches. Step number four, Specialized Knowledge, focuses on how knowledge becomes power only when it is organized into definite plans of action and directed to a definite end. In this article, I would like to discuss how you can implement Hill’s advice on specialized knowledge and five specific skills every multifamily investor needs to master in order to achieve success.
Five skills every multifamily investor needs to develop
The skill of negotiation affects every aspect of our lives, and the person who learns the art of negotiation will lead a more fulfilling life. The qualities of a successful negotiator include creating a win-win solution, being able to discern what problem can be solved during the negotiation, and paying attention to what the other side is trying to achieve.
Four tips to becoming a better negotiator:
1. Create a win-win
2. Learn to listen and talk less
3. Negotiate with the decision maker
4. Everything is negotiable
Most beginning investors do not realize that everything in real estate is negotiable, from the price, to the financing, to the repairs of the property, to the closing date, and on and on. We just need to ask, but most of us are “afraid” that the other side will say no. I overcame this limiting belief by recognizing that the seller was not saying no to me, he was just saying no to my request. Once I removed my emotions from the transaction, negotiating became much easier and much more fun. As Jake says “Patience, persistence, but willing to walk away.” If you become emotionally attached to a deal, you will lose your ability to negotiate effectively. Just ask Jake about buying a home!
Real estate is a relationship-based business, and as Jake likes to say, everyone eats at the table. This is one of my favorite aspects of the business. The broker receives a commission, the lawyer generates a fee for legal work, the accountant takes care of the books, the property inspector gets paid to perform a property inspection and the bank charges an origination fee (let’s not forget all those other fees). You get the picture. The investor who creates a strong network is more likely to succeed in the business.
Investing in real estate is all about the numbers. My biggest mistake was becoming emotional about a deal. I fell in love with a property, and I was compromising my ability to be objective about the investment. I quickly learned that my higher emotions led to lower intelligence. DO not become emotionally attached to a deal. Or even worse, do not force a deal if the numbers don’t work. Once you hear your inner voice begin to make excuses about why a deal could possibly work, shut off your inner voice and glance back at your calculations.
Every investor should decide what their exit strategy is for the specific investment, and then underwrite the deal according to their exit. Jake & I focus on three investing ratios: Cash on cash return, Debt Coverage Ratio and Cap Rates. Our investing model is focused upon purchasing B to C multifamily properties in real estate markets that can provide a 10% cash on cash return, a minimum 1.2 Debt Coverage Ratio and an 8 Cap. As the market has increased in value and cap rates have compressed, it has become increasingly difficult to find deals with these parameters. The key to our success has been to Buy Right. We are focused on not overpaying and being able to purchase an asset where we can add substantial value.
There are a few differences between financing a residential property and a commercial property (five units and greater). Finance Right is the third leg of our investing framework, and can be overwhelming to the beginning investor. Jake and I learned early on that you need to approach several lenders to receive terms for your deal, and that everything is negotiable. Here is a list of all the terms to negotiate when looking to secure financing for your deal:
It seems like the easiest part of real estate is buying a property. Once you take over a property, the hard part has just begun. The key to a successful property is the customer service. The overwhelming reason why tenants decide not to renew a lease is due to poor customer service. If a tenant has to wait three days for a call back for their maintenance request, chances are they will be shopping to live in a new apartment as soon as the lease expires. Most companies who excel in their field distinguish themselves by offering superior customer service, and real estate is no exception.
Whether you are self-managing or hiring a management company, the focus is to implement systems to run the business smoothly. When we bought our first property, we decided to self-manage the property and get our hands dirty. It turned out to be an excellent decsision. We were able to learn how to manage a property and how to spot the value-adds when analyzing a potential deal. In our subsequent deals, we decided to create a management company and manage the properties in-house. There is no right or wrong answer about managing. Decide who’s going to manage the property and stick to it!
DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation in writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.