Saving You Some Time: MultiFamily Millions by Lindahl Boot Notes

[Ernesto Hernandez]

I just wrapped up this book. Took notes along the way on my iPad. Fantastic Read. Wanna save some of you money and time. I picked it up base don multiple recommendations at the end of BP Podcasts. It’s less granular and more updated than Nickeron’s How I turned 1K in 5M. 

Enjoy!

MultiFamily Millions - Lindahl

Chapter 1: A different approach that creates huge real estate profits

He has had 540 deals and now holds $142, in different parts of the country.

He is a big believer in systems and time. His takes 30 minutes a day initially.

If you can do in 3 to 5 years what most people wont do, you’ll live a life to do the things other people can’t do.

He started off at age 29 with $800.

Most of his strategies involve none of your own money down. Within 14 months he had $10,000 of cash flow per month.

Eventually his cash flow allowed him to buy more deals but he had more deals than he had money.

Chapter 2: Why Apartments?

I need to learn:

Foreclosures

Wholesaling

Retailing

Lease Options

Subject To

He insists that anyone can do it in 3 to 5 years. Hire everything out, Prop Mngm

He bases his math off of $100 in cash flow per month per door.

Advises that even if you partner and split half, you still win, a little slower.

Less competition in multi family. Most don’t wanna deal with tenants.

Page 14. A couple found a building for 4,860,000 and raised the 1,400,00 through investors and they split the cash flow. They also walked away with 140,000 for repairs and 170,000 for putting the deal together.

Myth 1: Buy Single Family First

If you lose a tenant, lose 100% of revenue, can take 2 to 3 months to find new.

What if you have to evict and that takes multiple months?

You should never be above 95% occupancy, it’s a sign your rents are too low.

Myth 2: You need experience with the smaller deal

Two things will get you over fear, the first is EDUCATION.

Learn the numbers so you can calculate your risk, of your due diligence inspection, get a property manager. Have exit strategies in mind.

The second thing is ACTION: Doing your first deal gives you courage.

Myth 3: Multi Family is too Complicated.

Don’t get so caught up trying to be a do it yourself-er.

GOOGLE REAL ESTATE INVESTMENT ASSOCIATION SAN FRANCISCO

Beginning to end, don’t be surprised if one property takes up 6 months of your time.

Early on he managed his own properties and stuck to within a 2 hour radius, now he does this 2,000 miles away.

A = Luxury properties usually 10 years old or less

B = About 20 - 30 years and mixture of white and blue collar

C = 30 to 40 years old, renters for life. Can include Section 8. Must screen them properly. Look for No Evictions, Require 2 years constant employment, Require 2 constant years renting elsewhere before applying to yours.

D = Bad properties in bad neighborhoods, can still make money here.

Keep an eye out for foreclosures in Multi Family. Some people buy bad deals and then manage them wrong or manage them themselves.

Where can I find Multi Family Foreclosures?

Burned out Landlords are a great source of deals.

Chapter 3: On overview of getting your first deal

Always give yourself two outs, buy and flip and buy and hold.

Always leave a cushion in the numbers for things to go wrong.

14 Steps to Acquiring your first property:

Decide what SIZE building you want to start in

Decide WHERE you want to invest

Determine WHAT TYPE of multi family you want

Put your TEAM in place

MARKET to get your first deal

ANALYZE the deal

Create the OFFER or letter of intent

NEGOTIATE the deal

Create and SIGN the purchase agreement

Do your DUE DILIGENCE

RENEGOTIATE the deal

Start your FINANCING

Choose a MANAGEMENT company

CLOSE the deal

1. If you’re too afraid of a big deal, start with a smaller deal. You can then graduate to 20 to 75 unit deals. First deal will give you a ton of confidence.
2. Consider emerging markets, there are always 20 to 30 in the country at any given time, regardless of how far away they are. S another book dedicated to emerging markets.
3. Hone in on value add properties that have things like burn out landlords, bad management, need repair, have high vacancies, low rents.
4. You’ll need to assemble a team of Real Estate Brokers (as many as possible), Property Management Company, Bankers and other lenders, Attorney, Appraiser, Inspector, Insurance Agent. Brokers are critical because they bring you deals.
5. Promote the heck out of the deal you have in the pipeline to potential investors. Deal flow is the life blood of your business.
6. Crunch the numbers and scrutinize every entry.
7. You must start making offers, one or two a week. If you’re not doing this, you’re not serious.
8. You should always START negotiating at 10% below asking, this is your strike price. Your real goal is to get closer to 20% below listing. All depends on final numbers.
9. Purchase and Sale Agreement outlines HOW you will buy the property and what the key dates will be. ALWAYS use your own P and S even if you have to pay your attorney for a template. Try to negotiate 45 days instead of 30 to complete Due Diligence. Try to negotiate for a smaller amount of EARNEST money. Whenever possible, try to get a Third Party to hold the earnest money. Puts you in a week negotiating position. Could take a long time to get it back if the deal doesn’t close.
10. When the info comes in quick, its a sign of a well organized seller. You’ll want the last 3 years of Operating Reports, Year to Date P and L statement, Balance Sheet, Last 12 months of rent roll. DO NOT start the due diligence until you’ve proven all of the numbers. You can get your money back at any point during the due diligence. You’ll need an attorney to check the Title of the property to ensure accuracy. Hire an Engineer to inspect the structure. Every property has a COMMON problem and it’s your job to figure out what it is. During the walk through, chat it up with the employees if there are any as you may be hiring them upon purchase.
11. Don’t build a reputation of being a nickel and dimer, but do addressed major issues. Always ask for CREDITS so that you can still get the full loan and essentially finance the repairs rather than having to come up with the cash.
12. You’ll need a CONSTRUCTION loan when repairs exceed 3% of the purchase price. You’ll need a BRIDGE loan when the property is less than 85% occupied. You’ll get the best loans and rates above 85% occupancy. Lenders DON’T LIKE FLAT ROOFS. ADD A MORTGAGE BROKER TO YOUR TEAM. Go to www.multifamilymillions.com and search for one.
13. Go to www.IREM.org and look for CERTIFIED and ACCREDITED property managers. Always ask the property manager what types of properties they specialize in. Don’t get low end to manage high end and visa versa.
14. Option 1: Buy and Flip. Like a wholesale. Buy under market, sell at retail. NEVER buy in your own name, use the LLC. To protect yourself. You should ALWAYS collect the assignment fee before you wholesale. The other option is to buy it and then just start the selling process. Ideally you get a double close. Option 2: Buy and Hold. Always look for opportunities to raise rents as soon as you get a vacancy and focus on emerging markets. Option 3: Buy, Reposition, Sell. Ideally you can get a C building in disrepair and bring it up to B quality. Lots of room for equity and rent increases in this model. LOOK FOR C's IN THE B's. For this to work you must change the perception of the building in the eyes of the tenants and the community. Repositions fail if you run out of money or have bad management. It's smart to not raise the rents for bit until you raise the money you need to give it a big overhaul. Add 10% to your rehab costs to play it safe. Make sure the property management company is experience in turnover projects. Make sure they keep a checklist to inspect the contractors as the work is happening. Make sure there are NO OVERAGES.

Chapter 4: Where to find enormous profits from repositioning

NOI = income - expenses (NOT INCLUDING THE MORTGAGE)

Cap Rate = NOI / Property Value

Cap Rate is your return on your money not including financing

Sometimes lower cap rates are justifiable if income is very steady. Cap Rates are normally between 6% and 12%

Property Value = NOI / Cap Rate

This is why you should look for properties that have below market rents

It's all about raising the NOI!

3 NOI Factors:

Increase the QUANTITY of the income

Increase the QUALITY of your tenants

Increase the LOYALTY of good tenants

Problems to look for:

Rotting Wood

Carpets

Appliances

HVAC

Sinks, Counters, Faucets, Pipes

In general, be careful with buildings over 40 years old. Lots of work.

Functional Obsolescence:

He looked at a 60 unit in Alabama and had to calculate the ROI on New AC

Physical Upgrades:

Start with the exterior, the building has to look good from outside. Then focus on the common areas.

Perceived Upgrades:

Expect some tenant turnover. Most new tenants will arrive from within 3 miles.

Consider what the demographic already looks like.

Announce new management to everyone and let them know upgrades coming.

First, get rid of slow and non payers and criminals.

You want the community to feel like they’re a part of something.

He partners with Pizza Hut. Free Pizza in exchange for door flyers.

Little things lite Halloween Parties, best door decoration contest, monthly community news letter, bonus for re signing lease (coffee maker, ceiling fan, free carpet cleaning)

Frequent Maintenance CRITICAL for 3 Reasons:

The longer you delay, the costlier it gets

Deferred maintenance turns off tenants

Property Value will drop

Do you want a high cap rate or a low cap rate? Page 65

Less maintenance = less occupancy = more marketing = less fixing money

Good strategy to drive for dollars run down apartments? Non Absentee List?

You should expect vacancy to pick up as you turn a property over. Don’t get nervous.

2 Main Reasons Why Repositions Fail:

Running out of Money- Always budget worst case scenario

Hiring Bad Management - You specifically need a good repositioning manager

Call city hall and ask them for their Master Plan to see where they will be investing money and then see how well they are following the plan

Chapter 5: How to attract deals to you with minimal time and money

Successful Business Relationships rely on 3 key principles:

Make it Easy To Do Business With You - As a buyer, make the sellers life easier by proactively presenting your source of funds, lending, down payment and inspection details ready to go early on. Constantly keep seller updated as you progress through important dates and inspections. Sometimes leaving some meat on the bone for the broker is the best thing you can do.

Do what you say you will do - Build a reputation for being reliable and they will want to bring deals to you.

Don’t be a pain in the butt - After you negotiate and shake on it, DO THE DEAL

You might turn brokers off by being a nickel and dimer. 2 missing cabinet doors is not something worth complaining about.

Brokers are gold mines, establish good RELATIONSHIPS with them. Get them to LIKE you and TRUST you. Even when they send you bad deals early on, thank them for the deals and having the opportunity for scanning them. Don’t meet your criteria though. Usually takes at least 7 calls to get an actually solid deal.

LONG DISTANCE, BUILD RAPPORT OVER THE PHONE UNTIL YOU MEET THEM

Go Directly to the Owners:

He strongly suggests you do direct mail to multi family property owners, mail to them REGULARLY. If you want to start with duplexes, tri’s, quads, or bigger, it’s up to you.

You should focused on burnt out landlords from a distance who own near you.

Start with 100 owners and then ramp up to 1,000

1,000 letters is a very effective campaign. Expect just a 1% response rates, about 8 to 12 interested sellers from which one or two deals come.

Your goal should be to profit at minimum $20,000, wholesale.

Should cost you 75 cents per piece of mail, so $750 a month, $9,000 a year but you should get to $20,000 a month in deals.

He is a huge fan of direct mail.

Find Landlord Association Meetings to attend. Find some way to add value to them.

Try to find frustrated landlords. Find out where housing court is and just show up to some of the sessions.

Drive for dollars: Knock on doors of tenants and then tell them you want to do repairs on the dilapidated building and that way you can get the owner’s info.

LoopNet is where the leftover deals go but you can still find some good ones

You’re in the marketing industry and Real Estate happens to be the product.

SEO?

Chapter 6: Separating the Gold Mines from The Land Mines

Only Buy Based On ACTUAL Numbers.

Look for multiple ways to FORCE APPRECIATION

Never buy on pro forma numbers

Typical Flips take 3 to 6 months.

Typical Value Plays will take 12 to 24 months but reap much larger rewards.

Another way to find the owner is through the Tax Assessor’s Website and see where the tax bill goes. Call or mail that person a letter if phone doesn’t work.

You should have zero tolerance for poor management.

12 Ways Property Managers suck:

Inability to keep the property full

Inability to collect rents

Higher Than Usual Expenses

Poor Tenant Screening

Higher Than Usual Evictions

Property Not Clean

Leasing office not attended

Poor Tenant Relations

Poor follow up on tenant requests

Slow to get units ready to rent again

Not telling you about expenses

Poor landscaping upkeep

You should be aiming for a 20% profit AFTER you’ve factored in repairs

The gold mines are properties that LOOK Awful but the structure is good

Anything between 1 to 4 thousand per unit is actually considered normal.

Avoid structural repairs. Foundation Issues, Termites, Mold, etc

Different Ways to Fill Vacancies:

Tenant Referral Program: $100

Open Houses

Specials for Soldiers

Banners

Corporate Outreach Programs

Flyers in laundromats, hair and nail salons

Ads in the local college newspaper

Ads in local ethnic newspapers

Classified Ads

Strong tenant retention program

How To Raise Rents:

Shop The Competition to learn market rates

Get the exterior looking good, new lighting

Repair the common areas

Audit Your Rent Roll

When repairs are complete, approach tenants and give a small bonus renewals

You should always raise rents, even if just $25 a year, to get tenants in the expectation of some sort of increase. $20 a month on 10 units = $200 a month which is $2400 a year which on a 10 cap increases your value by $24,000. That’s 20% of $120,000 worth of property for you to buy next.

Chapter 7

Early on you want to be hyper responsive with brokers so that you get called BEFORE they e mail out a deal. This creates a bidding war in e mail.

Be consistent, easy to do business with and reliable and they will call you.

Call them within 24 hours and thank them, explain why deal isn’t good for you.

Keep clarifying your deal criteria.

Cap Rate = NOI / Value

Value = NOI / Cap Rate

You normally see higher cap rates in tougher neighborhoods, riskier.

A areas = 6-7 cap rate

B areas = 8 - 9 cap rate

C areas = 10-11 Cap Rate

D areas = 12 caps and above

75 units. Income is 772k, expenses are 370k. Expenses on a 2 to 20 unit are normally 35 to 40 percent. Closer to 50 percent on larger properties. 50% Rule.

Always round up to 50%. Seller is either:

Not doing regular repairs

Uninformed

Lying

Always ask for repair invoices and if owner doesn’t have them, call the vendors.

Ask to verify last years P and L, this years P and L, current rent roll.

Never accuse, play dumb if numbers don’t add up.

Always use last 2 years of data, with proof, never pro forma.

If management is doing a poor job of collecting rents and maintaining occupancy, dump em.

Work orders should have been completed in 24 to 48 hours. Inspect that.

Look at the maintenance log, if they don’t have one, that’s a bad sign.

Only 1 to 3 percent of rent should be late.

Management companies should be able to explain at length about what they are doing to retain tenants. Throw a party, return calls quickly, raffles, best holiday display contests, send out community newsletter, birthday cards, etc.

Partner with local businesses to negotiate tenant only monthly discounts.

Newsletter:

Explain updates and upgrades

A How To Section

A favorite recipe

Announce next cookout, etc.

Be careful for lipstick on a pig during your walk through. If grass is greener in certain area, could be a sign of bad pipes underground. Huge problem.

Investigate last two years of water bills for signs of leaks and repairs.

If you see empty lots, investigate pending permits with city. New businesses?

As you go through your walkthrough, look for the COMMON PROBLEM.

Investigate the area, read Emerging real Estate Markets by him.

Ask commercial brokers and management companies to find out average occupancy rates in the area you’re considering investing in.

Investigate the pending building scene and the job market.

ONLY buy a property based off:

Your criteria

The ACTUAL numbers’

DO NOT RATIONALIZE OUTSIDE OF THIS

1. You do your analysis from home, pay go out when you have a LIVE ONE
2. Form a team for long distance
3. Keep your eye on payday, you only need a few solid deals for this to work

Chapter 8: Where to get the money

Banks love apartment buildings

3 Types of Lenders:

Local, National and Conduit lenders.

Go to a local bank, open an account, put your money in it, then schmooze.

If you’re from out of state, go to them and do lunch. BIG TIP FOR ME.

Local banks give you the best construction and bridge loans but their rates may be a bit higher and amortization timelines shorter.

They typically fund 70 to 80% of the purchase price and 70 to 80% of the rehab costs at a 1 or 2 point premium. May offer a rollover provision if stable. Pge 135.

National Lenders are comfortable with nationwide investments but need the deal to package properly:

Occupancy 85% or higher for 6 months

$1.20 in payments for every $1 spent

Buildings with minimal repairs

Stable P and L sheets for past 6 months to a year

Stable income an Expenses

Conduit Lenders can offer more deals at higher rates. Most will finance flat roofs. Like National Lenders but get their funds from Wall St.

When to use a Mortgage Broker? Good ones cost 1% but save least that much.

In your application, you should include:

Your resume

Description of the deal

Key dates such as due diligence timelines, expiration of contingency, close date

How you’re going to manage, when it will break even, plan for pay back.

Last two years of financials

2 years P and L

Current Rent Roll

Include pictures and an aerial map

Sell them on the benefits of the project

Where tp get the rest of the money? Other people. Some sellers will lend you the 10% or the whole thing. 10 to 20% is common by issuing 2nd mortgage.

Call and find out which banks will allow seller financing, go to multifamilymillions and search Private Money.

Focus on 3 things: Marketing, Raising Money, Expanding your Knowledge.

Private Money usually costs 7 to 10 percent a year, for 5 to 7 years.

You get an acquisition fee anywhere between 1 to 5% of the deal.

You can raise all the money you need, nothing out of pocket.

Go to bplan.com for ideas.

Always paint the complete picture, including potential downfalls.

Sometimes you have to offer some equity after the sale of the property, up to 50 or 75 percent. Better to have 50 to 25 percent of deal than nothing at all.

Church, Charitable organizations, Business organizations all great resources.

Chapter 9: 12 Negotiating Tips of the Pros.

1. Be prepared. Do your homework on the property and neighborhood leveraging brokers and contacts in the area. Having the numbers in advance will show you’re a pro who cant be fooled and you wont miss any glaring problems with the financials that should be negotiated. Between Google and the Broker, avoid shady people who have a bad rap.
2. Understand the other party’s needs. Relocating? Other business? 1031?
3. Set your goals and rank them in priority. Are you doing a 1031? Never disclose. Lowest price? Cash Flow? Negotiated the closing date between the 3rd and 7th so all rent is collected.If you find things in disrepair, ask for seller credits. Why is this better than lowering the price? If no, recrunch numbers or walk away. Other option is to increase the sales price and ask for a credit. Write down all your needs in advance and rank them.
4. Decide your max price and dot exceed it. Always know it ahead of time.
5. Anticipate the next move and don’t avoid haggling. Even if you run your numbers, makes you look bad if you never budge, so start lower.
6. Remain Calm and Unemotional.
7. Build rapport and Trust. Try to learn about them in advance.
8. Create a Win/Win environment. Ask what their goals are. Never assumed.
9. Remain Flexible and open to options. See if there is revenue you missed, don’t be afraid to walk away.
10. When the seller speaks, listen closely and delay your response. Listen while making eye contact, process what the seller is saying, pause for a bit
11. Demonstrate Empathy. “Feel, felt, found”
12. Silence is Golden. Make offer, let seller digest it. Wait til seller responds.

Chapter 10: The 80/20 rule of rehabbing

Find the sweet spot on your rehabs, if you over rehab you may get good tenants but bad returns. Under rehab and you get bad tenants good returns.

Paint - Fix wood damage and paint over existing painted surfaces.

Consider vinyl over wood siding depending on price.

Roofs - Make them a priority. Roof work will damage paint so be careful.

Landscaping- Does wonders but roots can damage pipes. “Raise the canopy”

Repair or Replace Signage

Rehab the Pool

Reseal and Stripe Parking Lots

Improve Drainage - No standing water

Fix Damaged and Broken Windows

Fix or Improve Lighting - Lots of floodlights gets rid of bad people

Interior:

Always add 1 to 2% percent for CapEx on buildings older than 20 years old.

Paint: Offer an accent wall of their choice for an extra $20 a month

Upgrade Appliances

Repair Cabinets - Re Face them

Repair or Replace Countertops - Texture Overspray

Replace Tile or Linoleum

Clean or Replace Carpet

Refining Hardwood Floors

Replace Faucets - Don’t go cheap, causes problems.

Replace Light Fixtures - Ceiling Fans are a nice touch

Replace Mirrors - Bigger the better. Medicine cabinets suck.

Upgrade the Laundry Room - Must get cleaned daily

Tip for dealing with Insurance Claims - ALWAYS use a public adjuster. Don’t let the insurance company use theirs.

Tips for dealing with contractors - Get EVERYTHING in writing. Use contracts.

Make the contractor pull permits so you are not liable.

Make it mandatory for work area to look Broom Swept Every Day

Penalty Clause: Have THEM give you a finish date, write down daily penalty $.

Scope of Work: Be VERY specific and assume NOTHING. Even a dumpster bin.

Draw Schedule: NEVER give 50% upfront. 10/30/30/30 draws.

Punch Out List: At 30%, walk the property. When 100% done, cut check on spot

Change Orders: Changes must be signed off and authorized BEFORE starting

Don’t want to risk the contractor filing a mechanics lien on the property

Get their home address and telephone number

Lien Waiver - Always have them sign off and NEVER pay in cash

Fudge Factor - Always leave a 10 to 20% fudge factor

Chapter 11: How to avoid being a landlord. Secrets to finding good PM’s

Go to www.irem.org make sure the companies you look up have managed YOUR TYPE of property for at least 5 years. CPM's usually manage large buildings, ARM's smaller ones. ARM = Accredited Residential Manager.

Look up some of their properties and visit them. Interview them and ask them about their tenant retention strategy, marketing, ask for references and call them. Are repairs done in house or contracted out? In hour is cheaper, learn their rates because you could be paying them. Ask if their managers go to specialized training.

Mystery shop them. Pretend you’re looking for a place and see how well they sell you on the property.

What are their fees? Do they offer employees incentives for leases?

They should have some snacks and ask you multiple times to sign the app.

Know the rates in the area and just pay them.

2 to 30 units, 10%. 30 to 100 units, 5-6%, 101 to 250 units, 4 to 5%. 100+ 3%

Record keeping- Make sure its digitized or move on.

Marketing Budget - Ask them theirs, should have multiple strategies.

Tenant Screening - Decide Your Standards. Income, Credit Score, Convictions.

I.E. 2.5 times the rent earned income, no evictions last 5 years. 600 Fico.

NEVER BEND THE RULES OR GET SUED FOR DISCRIMINATION

Be Careful - Make sure there is no clause where they get commission for Sale

Make Sure You Are Authorized on the Bank Account - Some Don’t allow

Never sign a 1 year without the option to get out in case of bad performance. Each side has to give 30 day notice.

During the interview, ask for cell phone numbers.

Ask for 3 references of owners who have used them and CALL them.

Have them sell themselves. Ask what their weaknesses are? We all have em

Repositioning: Make sure you hire a management company with repositioning buildings.

2 Reasons Why Managing Repositioning projects fails:

Running out of money. Bad rehab estimates.

Management companies not running the rehab separate from maintenance. Must use two different crews.

Daily accountability is key. Communication between contractors, subs, mgmnt.

Larger construction companies usually have better economies of scale. $$$.

Good contractors follow people who PAY ON TIME and can refer other trades

Always get contractors license, insurance certificate, workers comp certificate.

Managing your manager:

Weekly reporting Monday morning

To include weekly recap of activity, traffic (# of people who called or walked in), conversion rate. Know pre leased occupancy. Know 90 day lease exposure and offer perks to keep them i.e. carpet steaming, ceiling fans, new appliance, etc. Weekly update of rents collected.

P and L statement. Netted revenues and expense to know, and grow, NOI.

Require explanations for all variances that exceed 10%

Executive Summary, to include work orders and rent roll.

Budget - During the last quarter, get a budget from them for repairs/improve

Chapter 12: Reselling for Big Profits

Maybe the market is changing? Jobs are changing? Market cooling off?

Maybe you used up depreciation and tax advantages on this property?

Maybe a partnership dissolves? Death in partners?

Maybe you want to sell high to be able to buy low again?

Maybe you want to 1031?

Return on Equity = Cash Flow after Tax / Current Equity in Property

As appreciation outgrows your Cash Flow, ROE diminishes and it may be time to sell or refi in order to buy more property and have money work harder.

Make sure your property is stabilized. 85% occupancy and above.

Increase the NOI. Increase revenue and decrease expenses.

Income - Expenses = NOI - Debt Service = Cash Flow Before Taxes - CapEx = Net Cash Flow

Notice how CapEx does not impact NOI and NOI determines price.

When you hold property for cash flow and depreciation, its best to incur as many ordinary expenses as possible. This approach minimizes your tax liability because you write off or EXPENSE in the same year.

When you are planning to sell, its best to categorize as CAPITAL when possible.

Make it shine physically:

Is interior and exterior paint in good shape?

Is siding intact or in need of repair?

Is woodwork solid throughout property?

Does roofing need to be repaired or replaced?

Can landscaping be upgraded or trimmed back?

Is parking lot in good shape?

Page 202 lots more examples.

Time to list. If the broker sold it to you, let them get the commission on the sale. This is a relationship business and you want more deals.

If you’re going to sell it on LoopNet make sure you prioritize experienced buyers. Always require proof of funds and get written permission to contact their lender to be able to track funding progress.

Your obligations as a seller:

Last 2 years of P and L

YTD and monthly operating statements

Current Rent Roll

Current Mortgage Note

A copy of the Survey

Chapter 13:

10 Biggest Mistakes and how to avoid them.

#1 - Running out of money during repositioning: Absolutely no overages clause for the contractors. They are experts and should anticipate possible overages. You must require that they notify you before starting any overage work. Always require that the contractor knows if major work will trigger ADA concerns. Along with unexpected problems, always make sure they will finish on time. Clause.

#2 Leasing Up Too Soon: Don’t rush it, it takes time. You don’t want too many tenants leaving at once. Should happen at a gradual pace.

#3 Not using licensed contractors: When you must pull a permit, only hire licensed. They should carry liability and workers comp insurance. Full time handy men are a good sign they never got their act together to be licensed.

#4 Not getting 3 Bids: Get on this ASAP and do not procrastinate.

#5 Assuming the lowest Bid is the best Bid. Some people lowball on purpose to make it up later on “unforeseen overages”. Require that their proposal is extremely detailed by the task, not the entire job.

#6 - Not going after private money sooner. It is they key to growing the vault. Start with friends and family, network through them, always market.

#7 Not consistently marketing

#8 Discriminating - Treat EVERYONE the same. Should be standard process. If ANYONE in your ORGANIZATION gets caught, you can still go down for it.

#9 Not having signing authority on bank accounts: Property Mgmt Companies.

#10 Buying. Property with bad environmental issues. Asbestos, radon gas, oil, run off contaminants, pollution in water, etc. Even if you close, may have problems down the road which may make it difficult to sell.

#11 Inspecting the property yourself - The inspector inspects some units and the overall structure but it is YOUR job to go into every unit.

#12 Managing the Property Yourself.

#13 Using Fill in the Blank Legal Forms. Always use an attorney.

#14 Dealing with tenants. Don’t get tempted to get involved.

#15 Thinking You Know It All. He went to a seminar that increases his income by 25%. Maybe I should reach out and ask him which seminar that was? NEVER SETTLE.

Chapter 14: Creating your Success Team.

You will not be successful if you think you can go it alone. You may not be able to afford everyone immediately but as you grow make sure to incorporate them.

RE Brokers: You need them for deal flow but NEVER accept Pro Forma numbers

Again: Be easy to do business with, do what you say you’ll do, don’t be a pain.

Property Manager: Brokers know PM and the other way around. Line one up as you get close to closing. Make sure find one that specializes in your type prop.

Have them drive the property with yo hand use their feedback to negotiate. Do not be flexible on major things like foundations and roofs. DO NOT send the property manager over until you have the property UNDER AGREEMENT. They might give away your deal or swoop on it themselves.

Attorneys: Get an attorney before you start signing anything starting from the purchase and sale agreement. You want someone who is experienced, in RE specifically, looks out for client’s best interest, vast knowledge, is willing to get creative but also knows legal boundaries, easy to get along with. The good ones can even get your tax assessment lowered.

Property Inspector: Do NOT get a referral from your broker, get one from PM.

Do not go with the lowball bid, see who is best qualified.

Appraisers: The bank may not allow their input but at least its valuable to you.

Lender: Portfolio Leander’s and Local Banks.

Contractors: Good ones get job done on time and on budget. Don’t fall in love.

Your goal is to have a few good contractors you can rely on. Get a new bid for EVERY SINGLE PROJECT. Otherwise, you’ll notice their bid process creep up.

Insurance Agent: Good ones will get you max coverage at min. cost.

Demographer: Will help you pinpoint emerging markets. They’ll tell you exactly what type of tenant lives within a 3 mile radius.

1031 Specialists:

Must be like kindred exchanges. Can’t go from apartment to boat.

Must identity replacement property within 45 days.

Must close on new property within 180 days.

Must use an intermediary - You wont be allowed to touch funds during swap. Always do background checks on the intermediary so you have a good one.

Accountant: File required reports to the govt, prepare and send in quarterly returns, advise you on tax consequences of transactions or changes.

Chapter 15:

Two tips to long term success, continue to educate yourself and tax action.

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