All Forum Posts by: Bill Ham

@James Chuaycham in my experience, lift station sewage systems are on about 10-20% of larger apartment complexes (100+ units) and not that common at all on smaller ones (under 50 units). There very common in the restaurant space though. There not a big deal if you know its there and how to operate it. Now they come with digital monitors that connect to your phone. This one was old and had a very loud alarm and a big red button that said SILENCE ALARM. I think a tenant or maintenance staff just hit that button when it went off. 

@Zachary Inman Yes the property insurance did wind up covering it under an "equipment failure/malfunction" clause. It was close though. 

@Scott Mac Great point. The system had been recently repaired when we took over but there was no real record other than the receipts for that repair. It was totally my fault for not looking into the system sooner as I clearly didn't understand what it was. After our spill ,I became educate quite quickly. That system needed to be cleaned out every 6 months by a proper tech. I did get it on a regular maintenance contract after that. I made sure that was passed on the buyer when I sold. 

@Joe Villeneuve I will simply refer you to points 1 & 2 as stated above. 

Interesting replies! 

This formula was not meant to be strict financial advice but a generalization of how to build a business in real estate. 

If you don't think you need equity in the RE business-

1. You don't understand equity. Equity can be created without putting down any money (all though it does help) and yes if we put down enough cash anything will cash flow. You can also create equity in a deal that you don't actually own. Making problem solving offers can create equity through the use of creative financing. Cash, creativity and solutions can all provide equity in a deal. 

2. Your probably not actually in the RE business.  

The formula above is meant to provide a general point that if you are not actively building equity in your portfolio...you are just being active. With that point of view you are not ever going to have anything other than your next deal. Either you are going to get up off the couch and go to work or your equity is. 

Equity = cash flow

Fancy acronyms = a job in RE

Where does cash flow come from?

I find that most people have never considered this question. When I ask, “How much money do you need to produce, in passive income a month, to be comfortable?” the average answer is $10,000. Cash flow does not produce cash flow. Equity produces cash flow. If you want $10,000 a month in cash flow, you need $1.5 million in equity producing an 8 percent annual return.

$1,500,000 × 0.08 = $120,000$120,000 / 12 (months) = $10,000 per month

The math is simple. No equity equals no cash flow. If you want cash flow, you need equity in something that is producing cash flow. For every $10,000 you want in cash flow, you need another $1.5 million at work for you in an investment. Something has to go to work—either you or your money. Most likely you will be the one going to work, until the money does.

If you have a financial goal of $10,000 (or more) a month, you really have a goal of producing the equity that produces the cash flow, not the cash flow itself. This is a real estate chicken-and-egg scenario. Which comes first? In this case, the answer is easy. Equity. No equity equals no cash flow.

This formula is not meant to serve as an investment model, nor is it meant to give you financial advice; it is simply to show you a concept that the average real estate investor has not considered. If you do not understand the origination of cash flow, you are not likely to produce any. In my example, I use $10,000 a month because that is the most common cash flow goal, and I use 8 percent as the return-on-investment number because that is a common amount of cash flow to receive from the average real estate investment (in my experience).I fully understand that, at times, real estate can produce more, and certainly less, cash flow than that. This is just a basic formula. Now that you understand where cash flow comes from, you can begin to understand the art of creating it. Build equity in real estate that produces cash flow. That’s it.

Now let’s look at a basic business model that will help you to achieve your financial goals in real estate. Let’s start with the concept that you have an initial goal of creating $1.5 million in equity, in income-producing real estate, that’s providing an 8 percent cash on cash return. Keep in mind that for every $10,000 more you want to make a month, you need another $1.5 million in equity. For example, if your goal is $20,000 a month, then you need $3 million in cash flow producing equity.

@Brody Garcia

Tip- at some point you are going to be on a 1st call with a seller. You may have cold called them or they may have called you from a letter you sent. Either way...the absolute number one thing you must do before getting off that first call is MAKE AN OFFER. So many people try to build a "relationship" on the first call instead of getting to the point. These people did not call you for a date. They called to sell you a property so make an offer and do it quick.

The first step to doing this is to basically know the values of assets in your market. Houses, quads, 20 units... whatever you are trying to buy. Know the basic values. Offer a range of about 10% over and under the real price you would like to pay. So, if you want to pay $50,000 a door for units in your area...offer 40-60K a door. Make this offer verbally on the phone the first time you talk to a seller. Ask if that is a price range they would sell for. If no then go to the next deal as it is at least 10% overpriced. If they say yes...then tell them you can make a firmer offer with a little more info. Now you have made sure there serious about selling at viable price and you bought yourself a little time to figure out if you really like the deal.

100% yes! 

Works great from 4-10 units

Works OK from 10-40

Not so good over about 50 units or so. Over 50 you are typically dealing with commercial realtors. I know a handful of people who have gotten deals lately by referral from a lead from a SFR mailing. The person called about a house they inquired about but the buyer asked if they had any multi or knew anyone who did and got a deal that way. Referrals.

You hire a full time maintenance person once the cost of money spent on contractors exceeds the salary cost of the employee. If you get a maintenance tech that is HVAC certified you can pay for them by avoiding one or two calls to an outside HVAC vendor. 

Rule of thumb- 2 employees per 100 units. 1 in management and 1 in maintenance per 100 units.