This Month is Crazy and What I've Learned

[Michael Ealy]

This month will probably go down in my real estate investing career as one of the craziest month ever. It's crazy in terms of the "hustle" I did, because the volume and number of deals I am doing now are bigger than before. And the month is not over yet!

I am writing it here on BP not to brag but to share some valuable lessons any investor (newbie or experienced alike) can benefit from.

This is how crazy this month is...so far.

$28.5 Million Worth of Deals Acquired (Closed):

1. Hotel - Columbus, Ohio

Purchase price: $7,000,000
Renovation: $5,300,000
Expected Sales price at exit: $14M (worst case) to $17M
Cashflow: $400K to $500K/yr
Investment Horizon: 3-5 years

2. 346 Apartment Units - 5 separate properties in Cincinnati, Ohio

Purchase price: $20,000,000
Renovation: $4,000,000
Expected Sales price at exit: $32M (worst case) to $45M
Cashflow: $1.2M - $1.6M/yr
Investment Horizon: 2-4 years

3. 42-unit apartment - Bond Hill area Cincinati, Ohio

Purchase price: $1,500,000
Renovation: $276,500
Expected Sales price at exit: $2.6M
Cashflow: $80K-$100K/yr
Investment Horizon: 2-4 years

Deals Sold (Closed)

1. A package of 2-fam & single family home
Acquisition: $60,000
Sold: $110,000
Wholetail (bought for cash and then sold to investor-buyers)

2. 4-Family Apartment building
Acquisition: $75,000
Renovation: $10,000
Sold: $135,000

Deals Under Contract/About to Close

1. Under contract and doing due diligence on a 90-unit apartment building in an "A" area for $10M; value once repositioned: $18M

2. Selling (under negotiation) for one of our buildings - profit will be around $400K+ (not bad for a 1-yr hold)

What Did I Learn from Doing All These Deals?

1. You don't just find good deals, you make them happen - investors complain deals are hard to find, and it is. However, to get a deal, you need to look beyond the surface and find the good in the deal. What do I mean by this? Other investors pass on opportunities because they're stuck with the notion that the deal has to have a 10% cap or else it's not a good deal. The 42-unit apartment I bought for example has a 7% cap at purchase but I already got approved for section 8 rent increases of about $150/month per unit. At a 7% cap, that increases the value of the building by $1,080,000. If you're stuck with getting a 10% cap, you just lost on a million dollars in profit. And even if the cap rate increases again, I am OK because the 42-unit building I am buying will produce a lot of cash every month (in fact just the cashflow increase alone is over $75K/yr).

2. Joint venture is a powerful thing and you're a fool if you want to do things by yourself - all these deals happened because I leverage on my JV partners. My JV partner who owns and manages over 5,000 hotel rooms (they call it "keys") is the one I leveraged on to get approved for financing and the one who will manage my hotel in Columbus. Another JV Partner found a group of sellers which sold us the 346 unit apartment package.

You can do big deals by leveraging on other people's expertise, time, money and resources. So I just shake my head when newbie investors tell me they want to do everything on their own. Dude - this is not school. In school, "cooperating" with your classmates to pass the exam is cheating. In real estate investing, you make more money the more you cooperate with people who are better than you at the many things you're not good at.

3. Even if you can do a NO MONEY DOWN deal, you still need money and lots of it! (specially for big deals)

I see several posts on BP from newbie investors who have not done a single deal yet about wanting to raise capital from investors and wanting to do syndications. My advice: DON'T!!! 

You have not earned the right to do a big deal yet. You don't have a track record yet. Real estate investing is not as easy as the gurus portray it to be. You can lose money. I lost everything when I started and fortunately, I did not use anyone's money but my own. I learned on my own dime not one someone else's.

Also, with big deals, you have a lot of expenses that can really pile up. For example, on the hotel deal, my lawyer's fees alone is $50,000 and that came out of my pocket. So even if my investors put up the downpayment, I would never be able to do these big deals if my bank account has less than six figures. So you need a 6-figure bank account (preferably 7-figures) to do these big deals even if you can do a No Money Down deal. Lastly, you need to be well capitalized and have enough operating reserves and capital reserves because in real estate development/investing, expenses have a tendency to increase higher than your expectations. You don't want to run out of money.

What about you? How's your month? What did you learn?