Today, Michael Blank goes over the steps to prepare for your first multi-family deal.
From being an expert at analyzing deals to knowing how to raise capital, there’s numerous factors can you need to be educated on before being ready for your first multi-family deal.
Mike: Welcome back to the flipnerd.com REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Michael: Hey there, my name is Michael Blank. I will be your instructor today. Today, we’re going to talk about the six steps to your first apartment building deal.
Mike: This REI Classroom real estate lesson is sponsored by uglyopportunities.com
Michael: So you’re obviously here because you’re interested in real estate investing, to do. . . So do you seeking passive income and long-term wealth, and maybe you’ve considered multifamily, but you kind of dismissed it. And it’s really because of limiting beliefs, or maybe you just don’t know certain things. And I have found a lot of people change their mind a little bit once they see how a first deal can happen. So that’s what I want to do today. I want to kind of show you the roadmap or blueprint to your first deal so you can start visualizing this, and seeing what is possible. So I have my six steps here.
Step number one is don’t sound like a newbie. So this might sound a little obvious, but it’s not as important for a single-family as it is for multifamily. For a single-family house, I mean, you can kind of bumble your way through a deal and be okay. But multifamily, when you talk to a broker and you’re using the wrong words, they will immediately classify you as a newbie and treat you like that, possibly for a very long time. So just educate yourself about basic financial concepts and lingo. So that’s step number one. And that doesn’t really cost a lot, even though obviously, the more you educate yourself, the better you are.
Step number two, immediately thereafter of basic education is you want to get good at analyzing deals. So real estate is a numbers game. It is. And this is not really a no-brainer. I mean, when I first got started with a multifamily, it took me four hours to analyze a deal. That’s in a long time. That’s because I didn’t have the right tools or the techniques. But now, I know that I can do the same thing in 10 minutes. I call it kind of my 10-minute offer and it will allow you to make an offer and a deal within 10 minutes of getting a marketing package from the broker.
So here’s a side effect of analyzing deals. It’ll increase your confidence. So one of my students, Nick, he just told me a story the other day. When he would speak to potential investors, they would immediately ask him about his track record and his experience. And he went to a REIA meeting and he’d analyzed about a dozen deals now. He went to a REIA meeting and the investors never asked him about his experience. We kind of debriefed on this afterward and he felt it was because his confidence level was so much higher. He knew what he was talking about and the objection never came up. So the side effect of analyzing deals allows you to make more offers, yes, but on the other hand, it increases your confidence. And that’s why that is so important.
Step number three, obviously, is once you know how to analyze deals, you need to create deal flow. And the best way to do that is via brokers. Now, there are all of the kinds of other ways you can do it. You can send postcards, and yellow letters, and pink letters and you can do all that stuff. And those are all fine, but the vast majority of deals, and everyone will attest to this, comes from brokers.
So you need to get good at calling brokers, contacting brokers, getting them to send you deals, staying in touch with brokers, and that’s going to be your life blood for your deal flow. And eventually, you will get to the point where the brokers trust you enough where they might actually give you an off-market deal. Now, that’s the holy grail of deals is to get an off-market deal. So number three is to create deal flow.
Number four, after you’ve done all that stuff, is to learn the secret to raising money, okay. That’s number four. You have a chicken and egg problem that goes something like this. I don’t have a deal under contract so I can’t go out and talk to investors. On the other hand, ooh, now I have a deal on a contract, and now I don’t have enough time to raise money so I can close. And this creates a problem for most people.
The solution really is to get commitments long before you have that first deal under contract. And then, I kind of teach this in my “Secret to Raising Money,” and I’ve talked about it on my own site, themichaelblank.com, and even on an REI classroom on flipnerd.com. And check out episode 17. It’s called, “Obtaining Unlimited Money to Invest in Apartments.” And the way you find it is to go to flipnerd.com, and click on “Shows,” and at the top search for “Unlimited Money,” and the episode pops up. So read that episode and hopefully that will address the concern about raising money.
Number five is to learn to avoid costly mistakes. Now, you’re going to make mistakes. There’s no way . . . everyone’s going to make mistakes. You just want to avoid the ones where you lose your shirt. So here are the most common and costly mistakes. Buying in the wrong area, number one. Well, number two, not correctly analyzing a deal and not overpaying or doing a deal that doesn’t have enough cash flow, or not have enough cash reserves when you go into a deal. Number five, not starting the money raising process soon enough, spending money too soon in the due diligence process, and, lastly, not knowing your lender’s underwriting requirements up front. And these are some of the things that you can address proactively by educating yourself, by surrounding yourself with experienced investors and/or hiring a coach.
And last but not least, step number six is, really consider partnering or wholesaling your first deal. So a lot of people think they have to have the money raised, or the money to actually get started in apartment building investing. That’s actually not true at all. A lot of people partner or they refer or they wholesale. It’s totally fine [inaudible 00:05:46] strategy. I had a student who brought me a deal in Columbus. He found it, he analyzed it, and he was he was getting close to a verbal agreement on a price that made sense. And that point, he started reaching out to multiple people, not just me, other people who were looking for apartment buildings. And he basically negotiated a referral fee.
So we negotiated a referral fee of $45,000 for this thing and so don’t dismiss that. If you can find a deal, analyze it, and start the negotiation process around a number that makes sense, that is valuable. Someone will pay you for that because it’s so hard to find deals. So it’s very easy for you to get some money upfront, and you can say that you’ve actually done a deal, which you have. So don’t dismiss partnering or wholesaling.
So I’m hoping that I kind of addressed some of these limiting beliefs. And there are really three of them that I hear over and over again. Number one, “I don’t have the cash or credit.” Okay. You’re going to raise money for that. Number two, “No one is going to take you seriously without a track record.” We talked about that also, is increasing your confidence by analyzing deals. And, “I don’t know how to get started or what to do next.” And we talked about that as well. So I hope this episode kind of dispels some of the myths and limiting beliefs and gives you a map to visualize your roadmap to your first deal. All right. Thanks a lot. I’ll see on the next episode.
Mike: HomeVestors, the “We Buy Ugly Houses” folks, is a franchised system of hundreds of real estate investors that have purchased over 65,000 houses. If you’d like to learn more about the most powerful real estate investing system in existence, whether you’re a pro looking to take your business to the next level or whether you have no experience flipnerd.com/ugly to learn more.
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