Today’s REI Classroom Lesson

Michael Blank goes over step-by-step, what you need to do in order to secure your first apartment deal.

REI Classroom Summary

Michael Blank breaks down how to find your first apartment deal and how to determine how good the deals you’re looking at are.

Listen to this REI Classroom Lesson

Real Estate Investing Classroom Show Transcripts:

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: Hi there, and welcome to the classroom today. My name is Michael Blank and I’ll be your instructor today. Today, I want to talk to you about how you can do your first multi-family deal in the next 90 days.

Mike: This REI classroom real estate lesson is sponsored by uglyopportunities.com.

Michael: Now in a previous episode, it was called why duplexes are the perfect way to get started with multi-family investing. I made the argument that before you bag the idea of multi-family because you think it’s too big, go to duplex. It’s a great way to get started.

Now technically, duplex is not considered multi-family. It’s still considered residential, but I have seen plenty of people get started with multi-family where they do a duplex first and then before you know it, they are at a 12-unit, 20-unit, 32-unit.

So again, my argument has always been is go big if you can, expand your comfort zone, but before you are about to give up, go with the duplex. And what I want to do here is I want to kind of describe how you get into duplex realistically in the next 90 days. It’s going to be very step-by-step. I want to point you to a few other resources because we’re quite limited here in this video. So I want you to get a pen and paper and get ready to take some notes, maybe watch it again, all right?

So here is the 90-day checklist to get into your first duplex. So first thing you’re going to do is, I’m going to go week by week. The first week is you’re going to educate yourself. You’re going to read as much as you can, maybe you’ll attend a seminar, you’ll learn about basic financials, using things like cap rate and cash on cash return. You’re just going to educate yourself. That’s week number one.

Week number two is you’re going to determine your investing area. Now because duplexes are so numerous, you can probably do this in your backyard or maybe an hour or an hour and a half away from your backyard and you can probably still make them cash flow. But number two in the week two is determine your investing area.

Week three, I want you to analyze five deals. So you are going to find plenty of duplexes on realtor.com. Just go to an area and type in, there is filter at the top, you put in multi-family. Okay? And then download five duplexes and look for the ones that have a good amount of information. You really need what kind of rental income they’re getting and the nice thing about realtor.com, when you scroll down, it also shows you the expenses of that one, like the real estate taxes, insurance. It gives you like a quick calculator, even your mortgage. So all your expense is there as well and just try to find out what the rent is that you’re getting.

And then you’re going to create a spreadsheet where you can track all these deals and I like to see them side by side, right? So you have the income at the top and expenses at the bottom. So for each duplex, kind of create a simple profit and loss summary and I like to say I leave them side-by-side. Use a rental income supplied by the realtor and just assume a 10% vacancy. And expenses, again, on the bottom of realtor.com, it shows you what the expenses are. There’s not many.

We got mortgage, real estate taxes, insurance, maybe a home warranty plan for 450 bucks a year and the way I like to do it is I like to build in the $450 home warranty with say $100 deductible and that thing covers like major appliances that will break. And so your maximum expense normally should be $100 per incident. So budget and then I would just budget $100 per month in repairs just to be on the safe side.

Now, I created a spreadsheet for you, kind of a template with some formula, so you can just plug in the numbers and the way to get it is go to themichaelblank.com. So it’s themichaelblank/duplex. And there you can download that spreadsheet I’m talking about or you can just create yourself.

So anyway, then for each deal, to determine it’s good, here is what you’re going to do, the first question is are the current rents at or below or above market? And the best way to do that is to go to rentalmeter.com, and you type in your address, how many bedrooms it has and it gives you the median rental value in half a mile radius or whatever else. It’s a really, really fantastic tool. If the markets are under rent, that’s good, right? You rate that highly.

The other one is what is the current value of the after repair value. So if you’re going to make some renovations, what is the after per value? Is the asking price at or below or are you getting a deal or not or is it fair market value? If you can create some equity in the process, great.

Now, realtor.com also has a median value prices of houses in that county or that area so it’s very useful. The best way to do it is to actually do comps. Right? Actually use an MLS and doing comps on the building but realtor.com provides a good kind of rule of thumb there. And then what’s a cash on cash return? Calculate the cash flow, you’ve got your income, your rent, you’ve got your 10% vacancy, you’ve got your expenses, what’s left over? What’s your down payment going to be, 20% and what’s your cash on cash return and is that an acceptable return on your money or not. So those are some of the criteria that you can use to determine whether the deal is good on the one hand.

The other one if you do this side by side, so you 10, 15, 20 side by side, you can start seeing which ones are better, right? Which ones are making more money and which ones are better priced and so, you can actually get a good feel for which is a good deal or not. Now, so that was week number three. You just kind of practice a little bit.

Week four is we’re going to focus on raising money. Now because these are duplexes, you’re going to need a lot less money than a large apartment building. So you might not have to raise money at all and you can just go to sleep on the section. But just in case you say I don’t have any money, we’re going to address that as well and that is, you’re going to start raising money.

And the way to do that is something I call with a sample deal package and this is a kind of situation where you basically create an investor package from a duplex deal that you don’t have under contract and you use it as a tool to start talking to potential investors saying, “Hey, I don’t have it on contract yet, but when I do, it’s going to look a lot like this. What are your questions and concerns?”

And you make them comfortable with you, the kind of deal, you address their questions and concerns up front, so when you do actually get a deal when time is of the essence, you can call them back and say, “Remember four weeks ago we met, talked about this. I actually have a real deal. Are you still good for investing $10,000?” I talk a lot about raising money so I’m not going to do that here, but I have an e-book, a free e-book on this. You can download it from the michaelblank.com/ebook. And actually, I have a sample deal package in the back so you see what that looks like.

So that was the first four weeks. So we laid the groundwork for what’s next. We educated ourselves, we determined where we’re going to invest, we analyzed a few deals and we created a sample deal package to set us up for raising money. So that was the first month. Month one out of three is done. So the next two months, there is going to be three activities, two activities that you’re going to do on an ongoing basis.

Number one is you’re going to schedule one investor meeting per week. So that’s really it. And if you want tips on how to raise money, again, I’m going to point you at my website, themichaelblank.com, scroll down to the section that says, “What do you need help with?” And click on “Raising Money” and that brings up all of the articles I’ve written on raising money. So we’re not going into that here but there are articles in there like the secret to raising money, which talks a lot about the sample deal package, how to find investors, a step-by-step guide to ace your first investor meeting. What else have we got? How to structure syndicated investor deals. So basically, frequently asked questions for raising money.

So that’s what you’re going to do each and every week. You’re going to try to set up a meeting with a potential investor and you use a sample deal package as a tool.

The activity number two is you’re going to make five offers per week. That’s one a day, right? And again, it’s not that complicated to analyze a duplex deal. You can download that spreadsheet at themichaelblank.com/duplex or you can create your own but that’s where you kind of track all of your duplexes side-by-side, the numbers, the offers you made, any kind of activity. So you’re going to make especially one offer a day or five per week.

So that’s essentially it. That’s your 90-day plan because it gives you two months to make offers and so you have five offers per week. It’s about 40 offers in 60 days. So you have 40 offers in 60 days and your goal is to just get one accepted and duplexes, those numbers are great. You should actually do a lot better than that. But in 60 days, getting an offer accepted in 90 days, the probability of that is very high if you abide by these numbers. And I have plenty of people that have done duplexes first, again, I tried to talk them out of duplexes. Bigger is better. But before they’re going to ban the plan, duplexes. And so, it really gets you in the game. So that’s it. I hope you found that useful and I’ll catch you on the next episode.

Mike: HomeVestors, the We Buy Ugly Houses folks, is a franchise 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 at all but a burning passion to be successful in real estate investing, please visit flipnerd.com/ugly to learn more.

Please note, the views and opinions expressed by the individuals in this program do not necessarily reflect those of flipnerd.com or any of its partners, advertisers, or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.

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Michael Blank’s passion is being an entrepreneur and helping others become (better) entrepreneurs. His focus is buying apartment buildings by raising money from private individuals. He is the creator of the Syndicated Deal Analyzer and the free ebook "The Secret to Raising Money to Buy Your First Apartment Building"