All Forum Posts by: David Carl Lindahl

We’re in that time of year when people have long since made their new year’s resolutions—maybe while having one glass too many of champagne—and by now, most or all of those resolutions are in serious trouble. One study found that 80 percent of new year’s resolutions are toast by the second week in February.

I’m not here to talk about general goals, because my main focus is multi-family investing. So if you have goals for 2021 relating to collecting butterflies or something else, then I may not be your subject-matter expert. However, if you’re looking to make better real estate investing goals, and also get out of the rat race—whether it’s in-person or remote—then listen up.

One school of thought says that you should go for “BHAG”. That stands for Big, Hairy Audacious Goals. Look it up. I wonder if that very concept is the cause of lots of people giving up a few weeks after they set their goals.

I’m accustomed to talking about big numbers, because I’m in real estate. It’s possible for one single multi-family deal to be big enough for you to retire. That’s pretty big.
But the problem is that big numbers can also be intimidating. In fact, they can set you up to fail, as you’ll see as you read on.

Big numbers can be great as eventual goals, and they may even motivate you. But it’s easy to sit on the couch and dream big. The real trick is how to make those dreams a reality.

Fortunately, I have a recipe for you that can turn dreams into results. It consists of three ingredients.

You’ve heard of motivation, but what’s this net-motivation stuff? It’s the positive drivers, reduced by negative boat anchors.

The positive drivers are pretty straightforward, though many people miss a key aspect. It’s good to have a big benefit in mind, like doing a multi-family deal that nets you five figures per month. The missing piece that’s also important is to think about what you’ll do with the benefit. I’m a student of an area in psychology called Neuro-Linguistic Programming. One of the concepts is future pacing, where you envision the end state you’re going after. So what will you first do with that monthly income? Visualize it. Taste it. Cut out images from magazines or find them online, so you can see what you’ll do with that money.

Of course, your goal may not be monetary, and this still works. If you want to lose 25 pounds, then great, but also visualize in depth what that lighter you will be able to do.

That’s the positive-driver part of motivation. Now for the boat anchors. You need to insulate yourself from demotivators. In my experience the most powerful demotivators are usually the people closest to you, or authority figures, because you listen to them more than you listen to strangers.

A gigantic, life-changing demotivator could be a teacher who says: “You’re no good at math. That’s OK; many people are no good at it.” Or it could be the looks and snickers your friends made when you got up to sing at an audition. These single events can alter the course of lives if they happen to people early enough, before they have the emotional shields to not take it to heart.

All it takes is a brief comment. In my case, my dad told me in no uncertain terms that I should quit my silly idea to get involved in real estate. He said “If you try that, Dave, you’ll be going downnnnn.” He coupled the warning with a thumbs-down sign. Then, every time I would mention something later about real estate, all he had to do was make the thumbs-down sign to reinforce his message. I love my dad, and fortunately I was old enough to separate my feelings for him from his advice.

This same type of demotivator can take so many different forms, with people saying any or all of the following:

• “I tried that and it didn’t work.”
• “You’ll never amount to anything.”
• “Don’t try it; I’m only saying it because I love you.”
• “You’re going about it all wrong.”
• “Oh, is this the latest kick that you’re on? Remember how the last one ended?”
• “That may work somewhere else, but it won’t work where we live.”
• “Maybe that stuff worked 20 years ago, but it won’t work in our economy and especially with all the COVID stuff going on.”
• “You know you don’t have the (fill in the blank: education, experience, brains, willpower, etc.) to pull it off.”
• “Bless your heart. You try so hard with your little dreams.”

Demotivators can also be very subtle things, like a look you get, or someone saying “Uh huh” in a disbelieving tone, or “yeah right”, or even just silence when you wanted a little encouragement.

The solution? Don’t cut off those people. (Well, probably don’t; it depends!) Instead, just nod but don’t engage, and do not take the demotivator to heart.

Here’s a simple rule: Take advice from people who have been successful at the thing you’re trying to do. If you want to become a doctor, then take advice from a real doctor. Don’t take advice from someone who washed out of medical school, or who never even tried but knows a guy who knows a guy.

After you insulate yourself from negative advice, then think about loading yourself up even more with positive energy. They say we will be the average of the people we hang around the most. Do you hang out with successful people? If so, great! But if you can’t think of many, then this should be one of your goals for the year.

If you don’t know a lot of successful people, the good news is you can kind of rent them!

In the old days the easiest way to do that was to attend an event where you could get steeped in tons of positive vibes from the presenters and the audience.

Those days will come back at some point, but they’re not practical at the moment. Even so, it’s still possible to surround yourself virtually, by attending webinars where there are breakout rooms of like-minded people. You may also be able to engage with positive people through a chat box that runs during a webinar.

Another great way is to become part of the right kind of social-media group like a specialized facebook group. The right people in certain groups will help each other, and it’s great! It’s not like just hearing from some guru who was successful but no one else seems to be.

Just be careful to get in the right group that gives off supportive vibes.It’s awfully easy to burn up your day on facebook, Twitter, etc, and also to pay too much attention to people who are short on proven expertise and very long on advice.

We just talked about how plenty of people have opinions, and many of those opinions are not helpful. It’s also true that plenty of people have experience because they’ve bought multi-family real estate. Obviously every property in your town and state is owned by someone. But a lot of people who are owners have no interest in teaching. They just own properties and are totally fine if the fewer people who know about multi-family real estate, the better.

I’m different. I have a mentality of abundance, and not of scarcity. Scarcity-thinking says that if I train you to buy apartments, that’s somehow going to cut into the potential profit I can make.That’s just silly. We live in an ocean of many trillions of dollars, and that’s just in the US! If I go to the beach and dip a spoon in the water, does it lower the water level for you? If I back a tanker truck and fill it to the brim, does it lower the water level for you? Nope. And if you buy an apartment complex, or 10 of them, it doesn’t cut into my profit potential. So find a teacher who’s experienced at what you want to learn, and who has the abundance mindset of sharing.

The next requirement is the teacher has to be good at teaching. Having experience is great, and being willing to share it is also great, but the shared information has to be clear and easy to follow.

I’m sure there are other good teachers for multi-family real estate investing, and more power to them. But I’m known for being a fanatic about systematizing the process. Why? Because I hate inefficiency and preventable mistakes. Creating systems is what’s allowed me to do many hundreds of deals around the U.S.

So wherever you decide to get your real estate investing information, make sure the actions are laid out systematically, step by step, by a real pro.

The next requirement is that the actions must be broken down into small steps. I know from personal experience how daunting and depressing a big, general action can be. Let’s look at different action statements:

“I need to do something like real estate investing.” (Too vague. What is “do”, anyway?)
“I want to learn real estate investing.” (Still vague. What type? When will you know you’ve “learned” it?)
“I want to get unstuck and moving with multi-family real estate.” (Too vague. How are you stuck? When will you know you’re unstuck?)
“I want to learn enough about multi-family real estate investing, so I can determine if it fits my circumstances.” (OK, now that’s a more-doable objective.)

Let’s say you feel like multi-family real estate is worth pursuing, so you’re past that stage. Here are other types of action statements:

You may say: “OK, what bothers me the most is finding the money to do my deals. I seem to find enough properties but it’s the money that stops me.” (That’s almost a good statement, but it could still use some refinement. Is your objective to find the money for a series of big deals, or one deal, or what? Because there are many techniques for getting funded.)

“I want to learn how to find the money to do my first multi-family real estate deal because I don’t have the down payment.”

Now we’re talking. It’s specific and clear. Now you can use that statement as a type of yardstick to compare against whatever multi-family real estate materials you come across: do they address your specific action statement, or not?

There’s one other key element you need in order to advance toward your goals. You need to be patient.

I’m about the worst example of this, so I know what I’m talking about!

When I was in my 20s, I wanted what I wanted, and I wanted it IMMEDIATELY. If you’re in a rock band and you set your sights low enough, then you can kind of pull that off. But I got supremely tired of being broke and—long story short—my high motivation, coupled with a tough mentor who insisted on patience and following his action steps, meant that I stuck with it until I saw some benefits.

It’s so hard to do! You go to the gym for the first time in a long while, and put in a good workout. The next day it hurts to brush your teeth, never mind go about your daily tasks. That’s what I get for working out? I can now work out with MORE pain than before?

And even after several workouts, it’s hard to see a difference in the mirror. Nobody’s made any comments, other than “Hey, you didn’t wipe up all your sweat.” Why am I doing this? Maybe I’ll take a break and come back to it later, when I have more time, or I can find a training buddy, or the price is lower, or the gym is emptier, or the gym is fuller…

Thus dies a perfectly good intention to get in shape.

The same happens with multi-family real estate investing. You may have a hard time finding a suitable property, or if you do find one, you put in an offer and it falls through. Maybe you put in three offers on different properties and they go nowhere. Is it time to say that “real estate investing doesn’t work”? No, not any more than “gold mining doesn’t work because I looked for gold today and didn’t find it.”

Most worthy goals require patience to weather the ups and downs. It’s easier to find that patience when you’re in the kind of supportive group I mentioned earlier, and you’re taking proven small steps from someone who’s been there and done that, over and over.

It’s time to create resolutions that involve the better approach I’ve outlined above.
Build your NET motivation by loading up on what inspires and drives you, and insulating yourself from what messes with your head.

Whatever you’re pursuing, make sure you look for a set of regular, effective actions. No pie-in-the-sky here, but actions that have been tested, refined, and proven to work.

Find a set of steps that are small enough that no one step seems too daunting, and also so you have regular positive feedback when you accomplish each one.

Then start to take those steps regularly.

Know that there will be setbacks, so just put your head down and keep on patiently plugging. If you choose actions that have been proven to work for others, you can have the confidence that they’ll work for you eventually, too.

Sure, I’d love for you to use the systems we’ve developed for multi-family real estate—but you don’t have to. You can apply these concepts to materials you get from someone else, or to goals that have nothing to do with real estate.

Because I do like to hang around successful people, I look forward to your writing me and describing how you’ve made progress toward your new-and-improved resolutions!

If you spend any amount of time around me, you will know that I’m a pretty positive kind of guy. I don’t like to dwell on the negative, and instead focus on whatever positives I can extract from a situation. I think that a positive mindset is an important factor to becoming successful.

Even so, there is one case where it makes a lot of sense to dwell on the negative: you should study the mistakes other people have made. To be very honest with you, if you’re a real estate investor, it’s inevitable that you’ll make your own share of mistakes. That’s true about learning any skill. And it’s great to learn from those mistakes and move on. But here’s the real secret: you don’t have to make all the mistakes yourself! There is no virtue in that. Instead, smart people take every opportunity to stand on the shoulders of others, so to speak, by learning from the mistakes others made.

Therefore you’re in luck today: in this article you will hear about seven mistakes that real estate investors make when it comes to funding their deals with private money.

In case you’re new to real estate investing, the term “private money” means funds you get from individuals, as opposed to the conventional approach of going to a bank or other lending institution to take out a loan. Private money can come from family members, friends, business associates, or even complete strangers who hear about your real estate opportunity and want to make a good return on some of their investment dollars.

Real Estate Investing Mistake #1: Not looking for money soon enough

This is an extremely common mistake, because it seems to be the logical thing to do. The reasoning goes like this:

“I can’t talk with investors until I have a deal! After all, they’re going to want to know the details of any investment that they get into.”

That sounds reasonable but here’s the thing: when a good property comes around, it often is not available for long. If you start to cultivate investors only after you know about the deal, two bad things could happen:

1. You make the investors feel rushed because the clock really is ticking on that deal. Rushed investors will be displeased at the very least, and will most likely back away. Nobody likes feeling rushed, especially when significant dollars are at stake.
2. You lose the deal, because you could not act quickly enough.

There’s a saying in sales: “ABC stands for Always Be Closing.” In real estate investing, it should be “ABRM” or “Always Be Raising Money.” That means whenever you’re talking with people about what you do, you casually mention that you’re a real estate investor and from time to time you come across very solid investments. If someone would like to hear about the next one—whenever that may be—you’d be happy to let them know. It doesn’t come across as a hard sell, or really selling of any type.

In fact, not having a deal at the moment can work in your favor because it takes the pressure off the conversation. The implication is that you’re not in any rush, and that you’re very choosy about the sort of deal that meets your standards.

Real Estate Investing Mistake #2: Asking for money

“Huh?”, you may ask. How can asking for money be a mistake when you’re looking for money? It’s all about putting yourself in the shoes of potential investors. It’s common for people who have money to be pitched all the time. As a result, they’ve gotten very good at saying NO.

I remember how much I dreaded having to pitch people. Sometimes I’d rev myself up, dress up, and go to some event where I could network and do my pitch for money. One time I drove all the way to an event and pulled into the parking lot. I turned off the car, and sat there, thinking: Should I go in? Come on, Dave! Of course you should! You drove all this way to meet these people! And just think of how good it will be to get your property funded at last! Just get out of the damn car and get your butt into that event, and do the pitch, OK? How bad could it be, after all! It’s not like they’re going to take a swing at you! Go for it!

So I hesitated. Then I made up my mind that I’d do what any self-respecting adult would do in this situation.

I started up the car and drove home.

It was just too painful to go in! But get this: just a short while later, I would routinely go into such events without the slightest anxiety. Not only that, but my confidence showed and as a result, I found it easy to raise money for my deals. What was the radical, life-altering change?

My first secret-weapon was this: I stopped pitching. Now when I go to events, I just let normal conversations happen. Sooner or later, someone will say: “What do you do?” That’s when I pull out my second secret weapon, in the form of five words. I say:

“I’m an emerging-markets investor.”

That’s it. Then the conversation naturally unfolds. They say: “Oh? What’s that?” and I explain about how there are these hidden markets waiting to move to the next stage of growth, and how I sometimes identify properties to take advantage of that growth. Zero pitching. Zero stress for either side. Just a conversation.

People do not like to be sold, but they do like to buy. It’s all about the approach. So when I say those five words, they generate curiosity and make it easy for the other person to ask a question. Now it is just a conversation around what these emerging markets are all about.

Naturally, some people don’t have money, or aren’t interested in real estate. In that case the conversation quickly moves on to other topics, and that’s fine. But the people who can invest and are interested will sort themselves out from the rest, and we’ll have a good chat. This simple mindset change made all the difference for me.

Real Estate Investing Mistake #3: Not knowing the rules

In some situations it may make sense to go after bank financing, in which case you’re playing by the bank’s rules. They have forms and questions, which you fill out in detail. Then they decide to fund or not fund your deal.

The situation is different with private investors. Many of them are not experienced at doing real estate deals. In that case, you have to play by the rules that the state and federal authorities set up for how these private investments must work.

It’s way beyond the scope of this article to describe all the rules, so I’m not going to try. However, I want to give you a heads-up about a couple of big red flags.

The first is about when you get specific with someone concerning the deal you want to get financed. It’s one thing to say that you’re an emerging-markets investor and from time to time you have projects that investors can be a part of. It’s quite another to talk about a specific property that you’re trying to fund. Do NOT talk about specific properties casually! You MUST follow rules about WHEN you disclose any property details to any potential investors.

The second red flag is WHAT you mention to a potential investor, even when you follow the rules about when you can discuss a specific property. It’s very tempting to do a bit of promotion and discuss rates of return that your analysis indicates are likely. Don’t do it. Let the written materials do the work about discussing the property, after you give those materials to the potential investor.

The rules are really not that bad, once you get to know them. But you do need to know them well, or else this form of raising capital is not for you.

Real Estate Investing Mistake #4: Not knowing your property

At some point it will become appropriate for you to get specific with potential investors about a property. This is when you need to know your stuff, or else you will spook your potential investors.

To some extent, a private investment transaction comes down to investors having a level of confidence in you. They rarely want to know a ton about all the details of a property. Instead, they ask a few questions about the property, but mainly want to be confident that YOU have done your homework—also known as “due diligence”—on that property, and you’re very familiar with it.

That means you should be able to discuss the neighborhood, town, and region. You should know the key numbers relating to why this is such a good investment, and how it compares to other properties. Your answers should indicate how you’ve done your homework thoroughly.

It will take some work on your part to become very familiar with the property. That’s the price of playing this game. It’s a wonderful profession and it can be highly lucrative for you—but it IS a profession and that means you as a professional must be impressive in your command of the property details. That brings us to the next mistake.

Real Estate Investing Mistake #5: Not polishing your presentation

Think about just how lucrative apartment investing can be: it’s possible to use other people’s money to buy an investment that will pay you significant sums every month, without your doing the daily management of that property.

The price of admission to this exclusive club is that you need to get very good at knowing your property, and knowing the way to speak with potential investors. It can quite literally be worth a million dollars to you to get great at this skill, so treat it with that appropriate level of care and attention.

Imagine being a professional actor, where you are expected to know your lines and say them to your audience when the time comes. In a sense, that’s what you are doing when you raise private money. You need to know your stuff.

Don’t get me wrong: I am not saying that you should pretend or act in some way that is not realistic. You must be completely truthful. But you must also convey confidence and knowledge, and doing that requires practice.

Look upon this practice as very highly paid work. When you get good at knowing your properties, and saying the right things at the right time, you’ll be handsomely rewarded. You move your mouth and people write you checks. It’s worth the effort.

But it IS effort. When you’re learning how this profession works, it’s smart to realize that you’ll need to practice what you say. Therefore think about ways you can practice in front of supportive people you know, where the stakes are low. (Note that I didn’t say “friends and family” but “supportive people”. Sometimes the people closest to you are not supportive, and may actively sabotage your dreams. So choose your audience carefully.)

Another tip: don’t just “go for it” and talk up the wealthiest person you know, right from the beginning. Do what experienced theatre companies do: first learn what you want to say; then have some dress rehearsals among supportive people. Then take your performance to a real-life, off-broadway situation that’s not likely to result in much attention or money. You don’t want money at this stage; you want experience. Only after you feel like you’re really getting the hang of this should you think about using it with your best potential investors.

By the way, keep in mind that this is not the World Series Game 7, OK? You get to take as many swings as you need and striking out is fine. You just need to connect once in a while.

Real Estate Investing Mistake #6: Not following up

This one is super-easy, super-important…and very few people do it! Let’s say you do all of the above and you end up having a really productive conversation with someone. Great! You have her contact information and you agree to stay in touch.

Except you don’t.

Maybe you meant to stay in touch, but you lost her card. Or you wrote a sticky note but it got buried under ten other sticky notes on your monitor.

You must fix this stuff—now. Treat the leads like little gold vegetables you have to carefully cultivate. That means not killing them with overwatering (over-contacting people) or killing them through neglect. Just do a little bit of steady cultivating, and they’ll produce a bounty of gold for you.

Real Estate Investing Mistake #7: Not being organized

I just alluded to this one above, where you have sticky notes for important things. Even if you’re starting your real estate investing business while you’re working full-time, treat it the way a professional would. Take the time to make notes, and put important reminders in your online calendar. Set aside a little bit of time each week to study, do some marketing, stay organized, and follow up.

Just remember: you are doing what others won’t do. You’re building your business while they don’t feel like it, or don’t know how, or have a hundred other excuses for not taking action. Pretty soon, you’ll be able to do what they cannot do: you’ll benefit from monthly passive income, and appreciating assets. Slow, steady work on the right systems is the price of admission to this exclusive club. You’re invited to join the club. Will you pay that price?

In a moment, I’ll explain how students of mine bought a $1,550,000 apartment complex with no money of their own down. Oh, and they walked away from the closing with $32,300 in their pocket, and a spendable income of $51,200 per year. Plus they do not deal with any tenants. If that sounds like something you’d like to learn more about, you’re in the right place.

The ABCs of getting the most out of investing in multi-family properties the way my students did means you should focus on three objectives:

• A. Get the highest appreciation in the shortest amount of time;
• B. Put as little money down on the property as you can; and
• C. Get that money back as soon as you can.

The more properties you control with the least amount of money, the wealthier you will become.

When I first started to buy smaller multi-family properties, I used no-money-down techniques. The reason was simple:

I had no money.

That forced me to do two things: First, I needed to get good at marketing, so I could have a lot of deal flow. That meant I could pick and choose the deals that were attractive enough that I could get other people to put up the money. Second, because I was new at this, I found a mentor whom I could run deals by, and that gave me the confidence to attempt this crazy goal of doing apartment deals when I had no money! Sometimes you need an experienced person in your corner to give you encouragement and also to tell you when you really are doing something crazy and should avoid it.

Conventional Wisdom vs. Conventional Opinion

I’ve found that conventional wisdom sometimes classifies things as crazy when that conventional wisdom is not wise at all, but ignorant of how things really work. I call it “conventional opinion.” One of the secrets to my success has been to ignore conventional opinion and seek “expert wisdom” to guide me.

If we go back to the specifics of apartment investing, you must always remember one crucial point when buying with no money down: the property must cash flow properly. By “properly” I mean the debt coverage ratio must be 1.20 or higher with 100% financing.

The debt coverage ratio is the net operating income (yearly income – yearly expenses) divided by the mortgage payment, also known as “debt service”. This means for every dollar that you pay out in debt service, you have $1.20 being generated in the form of cash flow. This is the same general measure that lending institutions use to determine if they will finance a property. It’s a nice, conservative approach.

Here’s another example of “conventional opinion” being wrong: it’s actually easier to purchase a multi-family property with no money down than it is to buy single-family properties. When you’re dealing with the owner of an investment property, you’re dealing with an investor. Those people focus on the numbers, and if the numbers work, the deal is likely to get done.

When you’re dealing with the owner of a single-family property, it’s often a person who is emotionally attached to the property, and for good reason: you are negotiating on the single-biggest tangible asset they have in their life.

Stitching Together the Financing

Even though multi-family properties are investments, it's sometimes challenging to get conventional bank financing for them. It really depends on the bank, the specific property, and the current lending environment. Fortunately, many private individuals are happy to lend you money that they may have sitting in a savings account or an IRA, earning basically nothing, provided that you are willing to give them an 8-10% return. Of course you factor the higher interest rate into the deal when calculating the numbers and if it cash flows properly, it's a buy. If it doesn't, you should walk away.

Here’s how Kristy and Kevin Frew from the outskirts of Flint, Michigan put this type of deal together. Kristy’s goal was to buy a multi-family property of 50 or more units within six months. She wrote that goal down. (That’s important!)

Kristy and Kevin ramped up the flow of deals they saw by sending out direct-mail campaigns, making relationships with commercial brokers, and cruising neighborhoods. They knew there was not one magic method of finding possible deals, but instead it’s about doing several straightforward, tested, and effective things at the same time.

Soon they heard about a 51-unit building that was for sale in their area. The original asking price was $1,700,000. They were able to negotiate the price down to $1,550,000. When they did the analysis, they realized that the property would cash flow at $32,000 per year with 100% financing and the rents were low. This is known as a “value play”, and you should have at least one value play in every deal you do. Once the rents were raised, the new yearly cash flow (spendable income) would be around $51,200 per year.

Then it was time to structure the financing. They knew they could get 80% from their local lender and they informed the lender that they would be getting secondary financing from other sources. This is important because if the lender prohibits secondary financing, you need to find another lender.

Their first thought was to go to the seller and request owner financing. They asked for the full 20% but the seller countered with only 5%. The Frews made a counter-proposal for 10% but the seller would not budge beyond 5%.

Well at least their original 20% challenge was now only a 15% one. They owned a single-family property and were able to take out an equity line and come up with another 4%. It could just as easily have been an equity line from a credit card or some other asset.

They then talked with friends and family members. After having several conversations, it turned out that Kristy’s father had always wanted to be involved in real estate and never took the time to learn the ropes. When they explained the deal to him, it was obvious they had a deal that worked. Soon Kristy’s aunt wanted in on the deal as well. Between the aunt and the father, they came up with the last 11%.

Within their six-month deadline, Kristy and Kevin Frew bought a 51-unit apartment building for $1,550,000 with none of their own money down. It generated $51,200 a year positive cash flow and they walked away from the closing with a check for $32,300.

Return on Education

How did they get the 32 grand? Kevin had a real estate license and that was his commission. Other people pay $32,000 for tuition at some school; Kevin invested in his education—that license—and it earned him $32,000 for just one deal, not to mention all the other benefits he and Kristy would get.

The transaction the Frews did was a good example of the ABCs of getting the most out of a deal. Time will tell how the ultimate appreciation works out, but when you have no money of your own in the deal, and you’re getting cash flow each month, then waiting for appreciation doesn’t feel so bad.

Isn’t real estate investing great?

When I’m in need of some amusement, I’ll occasionally browse through real estate investing forums to see what’s being discussed. I often will leave with a sort of pitiful smile on my face, given some of the nonsense that’s out there.

Don’t get me wrong: it’s perfectly fine to be part of online groups. The right ones can be supportive and useful. It’s just that for every experienced, articulate person, there must be 25 people who are “all hat, no cattle” as they say in Texas. Long on opinion and very short on knowledge.

I saw a debate in one of these forums about being a landlord versus being a property manager. Both sides went at it, and were 100% convinced that theirs was the right approach, and the other person was full of a cattle product. And it went downhill from there.

I am very intimately familiar with being both a landlord and a property manager, having done each role extensively at different points in my real estate investing career. So I thought you might want to know my $0.02 on the topic.

I won’t keep you in suspense about my conclusion, so here it is: at some point you need to have experience in both roles, if you’re going to make the most money and keep the most sanity. Now for the explanation.

The benefits of being a landlord

When I bought my first three-family apartment building over 11 years ago, I was the manager, maintenance man, plumber, carpenter, leasing agent, housekeeper, counselor—you name it. If it had to be done, Dave was a phone-call away.

As strange as it may sound, managing my own property and being the landlord did have its benefits: the primary one was control. As a landlord I had total control over my property. I knew exactly what my tenants were doing, what my occupancy would be at the end of the month, what marketing was the most effective, the expenses that were coming up, and therefore what was the state of my cash flow.

When the buck stops with you, you’re in a unique position to have your hand on the pulse of a property.

My control extended even further. I collected the rents and paid each bill, so I had the ultimate knowledge of what was coming in and going out on a daily basis. To some extent I could tune those inflows and outflows, as I got to know the tenants’ situations and also how flexible each vendor was about payments.

Another benefit is increased cash flow. With the average management company charging 10% of gross collected rents, that’s money that you are not paying out of the property as a monthly expense. As a result, you have more money in your pocket at the end of each month.

You can also optimize the expense-side of things: you decide what repairs need to be made and when to make them. You may even do the repairs yourself to save more money. For those repairs that require contractors, you meet with contractors and get bids. More importantly, you get a gut feeling as to the character of all the contractors and whether or not you want to do business with them long-term. As you grow, you can negotiate some discounts with them.

Most landlords that I know are landlords because they want this control and they don’t want to give it up. They feel that if they hand over their prized asset to a third party, the other people will not be able to run it as efficiently as they do themselves.

You must realize that when you are a landlord, you are in the tenant business. Your sole purpose is to keep those tenants happy, handle their needs, account for rents, and pay the expenses to keep tenants in the building. Though it is true that you are technically an investor, as a landlord, your main business is serving other people’s needs.

I did that for over three and a half years. I was one of those people who liked having that control over my properties. In that period, I accumulated 104 apartment units and my monthly cash flow was in the high five figures. I thought this was just about as good as it gets, and that I was King of the Hill.

The problems with being a landlord

I must admit: even then, certain aspects of being a landlord did not make me feel like a “lord” or king at all. I didn’t like collecting the rent every month. Oh, it was great when they sent them in on time to my post-office box, but I did not like going out to collect them. You might ask: “What’s not to like about collecting rents? People are handing you money!”

I did like that part; what I didn’t like was when the tenant was not home, or refused to come to the door. Other tenants would have vicious barking dogs at the door, and might tell me over the insane barking that it was “a bad time to talk” and could I come back in a couple of days. Two days later they’d not be home, but the vicious dog sure was. So around and around I’d go. By the time the King collected all of the rents, it was time to start collecting them again for the next month.

The King didn’t like fixing clogged toilets on Friday nights when I had better things to do, or on Saturday mornings when my favorite real estate infomercial was on. This got old extremely quickly. I began to notice patterns: it was usually the same people each month whom I’d have to chase for the rent, and the same tenants whose toilets got clogged with paper, dolls, and whatnot again and again.

These nuisances didn’t rise to the level of evicting the tenants, so basically I just had to suffer. I have to admit: the wear and tear on me from being a landlord started to factor in a bad way into my desire to own more units!

Once I managed to collect all the money that I was going to get, now came the unpleasant task of paying bills. It wasn’t the concept of paying bills that bothered me—hey, we all have to pay for services we use. What I detested was the process: collect all the bills, open the mail, rip off the stub, put the remainder in that bill’s receipt folder, write the check, make the journal entry, stick both stub and check in envelope, put on stamp, lick envelope, write in return address, etc. (This was before a lot of online services, which now make things a little easier.)

Doing all this for one or two properties is easy; doing it for 22 little properties became two to three nights’ work. Was I ever happy when I finally delegated all of the bill-paying, except for the part where I continued to sign the checks.

It got “better”: of all the bad aspects of being a landlord, what drove me the most crazy was showing apartments, believe it or not. The first thing I learned the hard way: half the people will not show up. You take time away from your family to go to the property to meet people; then they don’t have the basic courtesy to call and say that they won’t be there. So you take the time to drive there, wait for at least 30 minutes—hoping that they’ll show—and then drive home with absolutely nothing to show for your time except deep frustration.

Eventually I got smarter and called people earlier in the day to confirm. Even many of the people who confirmed would not show, and not notify me! This made my blood boil.

I finally adopted the policy of having them meet me at the corner donut shop near my home. Then we would drive to the property, regardless of how far away it was from the donut shop. I learned that if they didn’t show within ten minutes, I could be in my home office, back at work in two minutes. And when they sometimes showed up late at the donut shop, they usually called and I would drive over and meet them. Later I got even smarter and had them meet me in my office. I’m all about improving processes.

Maybe it was the collective pain from more than three years of this, but eventually I realized that if I gave up a little of the control, I could give up a lot of the madness, and I could make more money, faster. I was ready to accept the concept of “property management.”

Property Managers and Property Management

Make sure you do not confuse “property manager” with “property management”. Property managers act like landlords but don’t own the property. They are paid a fee for their services. Property managers have one major responsibility—tenant retention—because keeping those units full represents cash flow.

On the other hand, when practicing property management, you hire a manager to oversee all of your day-to-day activities. Property management is the running of all the systems that it takes to keep a property operating at maximum profits. That means having a robust array of reports about traffic, maintenance activity, exposure, profit and loss, budgets, forecasts, and an executive summary.

Instead of showing units to prospective applicants, you as an investor will look at a traffic report every Monday. That report tells you how many people came to see the property during the last week, what marketing got them there, and how many became tenants.

Instead of going out to fix clogged toilets, the maintenance log tells you how many tenants called in for repairs, when they were scheduled for completion by the maintenance person, and what the approximate cost was.

The exposure report tells you how many vacant units there are, how many are pre-leased, what the physical occupancy is, and what the economic occupancy is (the people who are in the unit, actually paying rent). This report tells you how many leases are coming due and in which months. You can then instruct the property manager to either ramp up or ramp down the marketing efforts.

The property manager prepares the profit and loss statement for you each month to explain exactly what the profits and losses were, based on the income and expenses.

The executive summary explains the profit and loss statement and variances from the proposed budget, which the property manager created at the beginning of the year and is now tracking on a monthly basis.

To give you some perspective, while landlording for three and a half years, I assembled a portfolio of 104 units, consisting of mostly small properties. In the next three and a half years, my involvement in property management allowed me to increase that portfolio by 706 units. Same amount of time, different investing mentality.

Which role is better?

Reading reports and tracking progress sure beats dealing with tenants and maintenance issues. It allows investors to go after more deals and create more cash flow, and the end result is that they become wealthier, faster.

Should you therefore never have any experience with being a landlord? Ideally you should. It’s no different from billionaires who insist that their kids start out in the company’s mail room or manufacturing plant. They want the kids to know exactly what’s involved in some of those humble jobs. Someday when they’re managing, they’ll make far better decisions instead of just barking orders and having no idea what they’re talking about.

Fortunately, you don’t have to be a landlord for years the way I did. You can learn the ropes and then move out of that role relatively quickly. When you’re ready, we have lots of good materials on how to assemble a great package of property management reports, among other management topics.Here’s another efficiency tip: next time you’re reviewing the discussion threads in forums, look for people who have actually done all the things they’re talking about. That will cut down your reading load by about 98%, so you can take all that time savings and go buy more properties.

If you’re thinking about investing in apartments, this article will save you a lot of time and grief. I can confidently say that because I’ve taught many thousands of real estate investors from all walks of life over the last 20 years, so I have a good handle on what works…and what doesn’t.

I’m going to say something that few real estate investing experts will tell you, but it’s the truth:

Don’t just dive into apartment investing.

That’s unusual advice, right? You might expect that if I’ve created America’s most-comprehensive set of materials on how to invest in apartments, that I’d be encouraging you to just “jump in; the water’s fine.”

Well, I didn’t get to this position by being conventional. Anyone can whip people up into a frenzy about some business opportunity. That’s easy. What’s more difficult is knowing how to get people so they cross the finish line and they succeed at their dreams. That requires a little bit of thinking up front, and that’s my focus for you.

I have a four-step process for you to follow, in order to see if real estate investing is right for you. If it’s not, that’s cool—you won’t have wasted a penny and can find something else. But if you decide that maybe it could work for you, then these four steps will be crucial in giving you the best foundation for success.

Step 1: Know your reason for investing in apartments

I didn’t invent this step, but I’ve been a long-time student of success and this is one of the keys: it’s to know your “why”.

At one level, apartment investing is no different from any other worthy pursuit: there are going to be highs and lows. The highs are unbelievably satisfying, like when you can finally relax inside, knowing that the money-part of your life is taken care of. But there will be lows, when at first you need to learn concepts, you have no successes yet, and maybe some initial steps include a little stumbling.

That’s why you should figure out your “why” right up front. Are you looking to replace your job income? Instead, maybe you in fact like what you do at work, but it’s not giving you enough of a money cushion to pursue your hobbies, or take care of relatives. Spend some time figuring this out.

I’m happy to be able to say that I’ve completed an Ironman Triathlon, which is swimming 2.4 miles in the ocean, followed by jumping on a bike and pedaling for 112 miles, and then running a full 26.2-mile marathon. Yeah OK that’s kind of insane, and I can tell you that I had countless times when I wanted to quit. Dave, what are you doing to yourself? You don’t need to do this! Rest on that couch, man! Just do the marathon part, OK?…

But I kept at it. I had assembled my motivation ahead of time, in the form of images of people crossing the finish line at other ironmans. I had a picture of what the medal looked like that I was going to get. And I reminded myself that this had been on my bucket list for a very long time, and how great it was going to feel to cross that baby off!

To my knowledge, I’m the only apartment investor with a major portfolio of properties and who has ever completed an Ironman triathlon, so I’m in a unique position to tell you the following:

Apartment investing is way easier!

You don’t need tons of training ahead of time, and you can pull over and regroup on your journey anytime you want to. Plus all you need to do is take baby steps, but more on that later.

Just get as clear of an idea as you can—preferably with some reinforcement in the way of photos, articles, mocked-up plane tickets or certificates, etc. Make your “why” as real as you can. This is important for your journey ahead.

Step 2: Know yourSELF

Now’s the time for a little bit of honest self-reflection. How do you go about learning new skills? People are super-different in this way. Let’s take skiing for example:

Some people will start their skiing pursuit by first doing conditioning in the off season, so they’re in great shape. Then they research the best equipment, talk with their friends about the best place to ski, and sign up for lessons. These are your “ready, aim, fire” folks.

At the other end of the spectrum, you have people who on a whim will buy or borrow some gear, trust in their ability to figure it all out on the fly, and take a chairlift to the top. They’re in the “fire” camp—no need for “ready” or “aim” for them.

Then you have a whole bunch of people in between. You can ultimately be successful anywhere on that spectrum, but some approaches increase your chances of success, and others increase your chances of arriving at the bottom of the mountain in a ski-patrol toboggan. The people who need to make all the mistakes by themselves can get proficient eventually, but it will come with lots of failures, pain, and scars. But they’ll know it, through and through!

Other people want to learn from others’ mistakes, so they don’t have to make them all themselves. This costs something in the form of instruction—assuming they’re learning from a professional and not their boastful buddy. However, I’ve found this to be the shortest route. Partly it’s because you can avoid mistakes and partly because you can turn to someone and get encouragement when you’re in a tough patch and just need to get to the next level of skill.

I’ll tell you about the people who are not going anywhere: it’s those who think that buying stuff is the same as taking action. I don’t want you to buy all my real estate investing stuff, only to have it all sit on a shelf or in a hard drive. If you don’t do anything with it, you just wasted a lot of money. You’ll never be one of the students whose pictures I have on my walls—students who took action.

Don’t get me wrong: you don’t have to quit your job and take super-human, massive action to be successful at real estate investing. All you need to do is take small, regular, calculated steps in the direction of getting your first deal done. No leaps. Just steps. But it’s the act of taking little, regular steps that’s the real secret.

If you can point to some time in your past when you learned something through a series of small steps, you’re going to be fine with real estate investing.

Step 3: Know the main moving parts of apartment investing

Apartment investing consists of seven main moving parts. Let’s briefly look at each one.

1. Believe it. Your apartment-investing activities will go nowhere unless you make sure your head is not filled with certain typical objections that don’t get answered. These are statements like:

• “It’ll never work.”
• “There are no good apartments where I live.”
• “I’m too old/too young to invest in apartments.”
• “I’m not good with numbers so I couldn’t possibly analyze a deal.”
• “I don’t have enough of a down payment to invest.”

These are just a few of the brick-wall objections that make people drop the idea of apartment investing. I have answers to all of these points, but that’s beyond the scope of this article. For now, my advice is that you should list your objections and then see if I or someone else can answer them. If you don’t get answers you believe, then apartment investing is not for you. If you get to the point where you think it could possibly work, then that’s great. On to the next moving part.

2. Find it. You need a regular flow of possible deals in order to be picky about the ones you get serious about. There are whole systems for getting that flow of deals to come to you, rather than your having to pound the pavement.

3. Analyze it. Once you have that flow of possible deals, you need a fast, efficient way of sorting them into piles. The biggest pile is “no go” because the deal is priced wrong, it’s in the wrong location, or for many other reasons. But with sufficient deal flow, you’ll have a small pile of “maybe” properties that you can then do more analysis on. At some point you’ll uncover a good one. But how to pay for it?

4. Fund it. Of course you can use your own money to finance the purchase of a property, but there are more than two dozen other ways to do it! In fact, some of my students have bought their very first property without using any of their own money. How is this possible? It’s because if you have found a really solid deal (that goes back to your “find it” and “analyze it” skills), then you’ll soon realize that people with money are looking for good deals to invest in.

5. Own it. This involves knowing how to make an offer, negotiate, and get experts to handle the paperwork in order to close on a property. There is a tested and proven process to do all of this.

6. Manage it. You do NOT want to be the property manager, being on call at all hours to unclog toilets. I can tell you how to find a good enough deal that it supports paying for an experienced property manager to do all the daily stuff for you.

7. Grow it. Once you have a property running, now what? You need to know all the options available to you: you can keep it as your source of monthly cash flow, or you can swap it for another property (known as a “1031 exchange”). You could sell it, and there are other creative possibilities. What a great position to be in, right?

Step 4: Know the real-world process and next steps

OK, so let’s assume that this all sounds reasonable to you, so far. You know your “why”, and you are willing to get answers for the various questions and objections you have. And you should have questions and objections! You shouldn’t just blindly dive into something with tons of excitement and no details, because that’s a prescription for bailing out early.

Write out the questions you have, whether they fall into the details category or even just the “I don’t know where to start” variety.

You then need to plug yourself into some source of good information. It’s crucial that the source has “been there and done that” because there are plenty of big-talking wannabes out there. Take the advice of experts.

Next, those experts need to have clear material for you to follow. Apartment investing is not rocket science. It has lots of steps, but it’s not mysterious. No split-second decisions involving life or death. At each point in your journey you should be able to ask questions of someone who’s knowledgeable, and you should get a clear answer.

Full disclosure: part of the process involves being out of your comfort zone. Some people don’t like to read, and others don’t care to speak with strangers about a potential deal. Well, apartment investing does involve some reading, some analyzing, and speaking with strangers. None of it is some major high-pressure performance—instead it’s just following the next baby steps in the proven process.

You might even find the process to be not only profitable, but enjoyable! Why? Because it’s not like school. You can do this at your own pace, and can be part of a social-media group, where like-minded people help and encourage each other.

You can even invest in apartments on the side, while keeping your day job. That way you’re not taking some scary plunge into the unknown. No plunges and no up-front commitments necessary: just the agreement to keep an open mind, keep listing your questions and issues, and keep getting answers from qualified experts. Then it’s just a matter of putting one foot in front of the other, and setting the pace that’s comfortable for you to make steady progress toward your investing goals.

It’s not speed that counts; it’s taking regular small steps in the direction of your stated goal, with a guide at your side. After a while you won’t need a guide, and eventually you may become a trusted guide to others. That’s another great feeling!