“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” — Paul Samuelson
How do you make big money in real estate deals?
You might see Grant Cardone with his jet and his lifestyle and think you should be doing that.
How does someone get to be a part of it?
How do the deals actually work?
How can you make money?
We’ve recently been part of a deal where we made about 26% per year annually.
We’re really thrilled with that type of return!
We have another deal we’ve had less than a year.
We’re getting ready to sell or exchange it into another property.
It’s about a 75% return in one year.
How did that happen?
We bought the property at a great discount.
The real estate market is also crazy right now.
There are many ways you can get deals.
Today, we’re going over how people get paid in multifamily real estate.
After this you’ll be able to find these deals and get involved with groups that make these deals happen.
1. How Investors Make Big Money in Real Estate
We have a debt-based economy.
The reason that’s important is because debt is available.
At the time of this video, you can get debt at 3%.
If inflation is 6-7%, or whatever it is, you actually can take advantage of this.
We’re also in a fiat system.
They’re printing more and more money.
40% of all the currency that exists was printed in the last 18 months.
These are things that are really important to remember.
You can make money in different ways.
I like physical gold.
I’m coming a little more around to crypto.
People put a lot of money into these things.
An investor uses leverage, which goes back to a debt-based system with the fiat.
We know dollars will be worth less in the coming years.
Historically, this has happened.
It will continue to happen.
The Federal Reserve has said they’re trying to create inflation.
If you can take out leverage, you can use other people’s debt to do it.
You can get paid really well.
Investors that invest in multifamily deals or large real estate deals typically get paid two ways:
One is through cash flow from rent.
The other is appreciation.
If you buy a house that costs $100,000, maybe a few years later it’s worth $120,000.
How much is your gain on that?
A lot of people would say it’s 20%.
That’s actually wrong!
It’s really a 100% increase.
On this deal, you typically only put $20,000 down.
When you do that, you have an additional $20,000 from that $120,000 gain.
Now you have $40,000 and you’ve doubled your investor equity.
People get paid really well when they use leverage.
Let’s try a real life example of a large multifamily deal:
We purchased 288 units in Jacksonville, Florida 10 months ago for $28 million.
We had it revalued at $37 million.
It’s only been 10 months.
Isn’t that amazing?
We only put $7 million down.
After some of the fees and associated costs, we saw a $5.5 million gain after only putting down $7 million.
That’s a 78% return in 10 months.
I will say that this is atypical.
This is one of the best deals I’ve been a part of.
How did it happen?
We use leverage.
We bought it in a favorable area that is growing.
The market appreciated so much.
What are we going to do with the property?
We’re actually going to sell it, do a tax-exempt exchange, and buy a bigger property.
Doing this will get higher returns for our investors.
Some of these numbers are pretty crazy.
This is not always exactly how it works, but it gives you an idea of what happens when you use leverage in this debt-based economy.
It’s a way you can make a lot of money.
Hopefully I’ve got your attention now!
2. Multifamily Syndication
I also wanna talk about the bread and butter of real estate.
I call it the bread and butter because it’s just that awesome.
With this asset class, there are many tax benefits.
There are great returns.
It’s called multifamily syndication.
Multifamily has to do with the type of apartment and syndication is the structure that it goes into.
As an operating group, we’ll find a real estate deal.
We typically do 100-300 units.
We’ll find a deal, get it under contracts, and buy the property.
Then we’ll send it out to our investors where we’ll do some type of presentation or webinar.
We then have a process where we share the profits.
Of all the profits that come from a deal, we’re gonna give a 70-30 or 80-20 split.
This means 70-80% go to the passive investors and limited partners and 20-30% go to the general partners for operating the deal.
We also invest our own money in deals.
That’s called skin in the game.
Whoever you invest with, they should be putting in some money and so should you.
We put our money where our mouth is.
Other groups should do the same as well.
These are typically 5-7 year deals.
The goal is to double the money, maybe a little less, in this timeframe.
You may be thinking that all sounds like a good return.
It is a great return!
We’re trying to do something really special.
It’s very different from REITs.
We don’t buy properties just anywhere.
We don’t buy them in the middle of nowhere.
We buy where we see the trends are, where people are moving.
We like three demographics:
1. Population growth
2. Job growth
3. Income growth
When you have more people moving to an area, it puts pressure on existing housing to raise rents.
In the Atlanta area where we own a couple properties, the city is expected to grow in population by 30-40% in the year 2030.
Where are these people gonna live?
They can’t build housing fast enough.
They can’t build it cheap enough.
The stuff that’s 30-40 years old, the stuff that we buy, we renovate it.
Those rents tend to keep going up because the population is growing.
When you see job growth and income growth, those go together to put pressure on rents.
When rents rise, the value of the property goes up.
In commercial real estate, it’s all about the income from the property.
That’s how you determine how much that property’s actually worth.
We also buy an area where we see a lot of landlord rights.
I live in California and I don’t want anything here.
In California, it can take you 6-9 months to get rid of an unpaying tenant during COVID-19.
In other states, you can evict people who are not paying.
You can find a way to manage the property the way you want.
You can raise rents.
The reason we love Southern states is the amount of retirees moving to those areas.
Why is that?
It’s because the weather’s warmer and it’s a little bit cheaper.
For every retiree that moves to the South, there has to be multiple people supporting them.
You need healthcare workers.
You need people to clean the house.
You need people in retail services.
Those are people that we’re working with.
We buy in the areas where we see those demographics.
In 5-10 years, there’s gonna be more people.
The properties will typically be valued much more.
Now, how does multifamily syndication really work?
I’m gonna give a very quick example:
Let’s say we have a $10 million multifamily apartment.
We put $2.5 million down.
We also have $1.5 million set aside for repairs.
We’ve raised a total of $4 million to buy this $10 million apartment.
Our goal is to hold it for five years.
We get a little more than $2 million in cash flow.
That money is returned to investors.
Then we sell the property in five years for $12 million.
You can say that only a 20% profit.
Remember the example from earlier?
It’s actually a 100% profit.
We put $4 million down.
When we sell it, we’ve got an extra $2 million.
Again, we’re going on equity, not on the sale price.
That’s a 50% profit in five years.
We basically have $2 million from the appreciation and $2 million from the cashflow.
This means we’ve taken the original $4 million and added another $4 million.
That’s a 100% return in five years.
Sounds like a pretty good deal, right?
That’s just a base hit!
We’ve seen some deals that are much better and some that don’t go as well.
That’s how you get paid.
Now we’re gonna talk more in detail about how you can get paid really well in a multifamily deal.
3. Get Paid Well to Fix a Problem
I’ve given you some information about how these deals work.
Now I want to talk to you about how you get paid well.
You get paid well in real estate by fixing a problem.
If you can fix a problem, you can get paid super well.
Everybody knows the house flipping model, right?
You go out, find a dump of a house, fix it up, and sell it a few months later.
That’s what I look for in deals.
I invest both my own money and I also invest in other people’s deals.
I look and ask: What problem are we trying to solve?
If there’s a deal and there’s no problem that needs to be solved, I don’t know if it’s a good deal.
We’re not adding value to anything.
You can say we’re getting a great deal, which is good.
But what are we doing to provide an additional margin of safety?
Margin of safety is a Warren Buffet term meaning that we give ourselves some margin in case things don’t go the way we would hope.
We do this in large apartments.
We’re buying apartments from the 70s or 80s or even older.
We go in and renovate them.
Typically, we can’t do it in a few months so we hold them for a little bit longer.
Sometimes they sell before five years.
We look for this thing called a value-added approach.
I love the value-added approach because it gives an additional margin.
If things don’t go exactly according to your plan, you have a safety net.
An example of this is a recent property we did.
In the renovated units, we’re seeing a rent upside of $200/month.
This upside happens when we spend $8,000-$10,000 per unit in a property with over 100 units.
This is all based on how much income is coming in.
So that’s what we’re trying to do.
We’re trying to come in and we’re forcing this appreciation.
We’re coming in, finding a problem, and solving it.
This is very different from the REITs approach.
REITs are real estate investment trusts.
They are publicly traded.
You can get in and out of them.
I’ve invested in them and you may invest in them as well.
REITs are typically brand new properties built within the last 5-10 years.
The challenge with that is there’s really no value to add.
There’s no real margin there.
If the market goes down, REITs go down.
If you have a property, though, you’ve added some value.
You have some additional safety there because you’ve increased value.
It should typically hold a bit higher.
The returns are higher for that reason too.
The other disadvantage to REITS is recession.
If there’s a recession and you have a bunch of REITs, the first place we see get hit hard are brand new apartments that aren’t getting super premium rents anymore.
People can’t afford them.
They want to move to an older apartment.
I’ve used this value-added approach with investing to 10x my net worth in a period of 4 years.
I know you can do the same as well!
When I talked about Grant Cardell and the jets and all this stuff…
Real estate investing is not sexy.
It’s not really that exciting.
There’s this quote I love that says:
“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”
Paul Samuelson said that.
There’s not a lot of drama in real estate.
It’s slow and steady.
I know a lot of wealthy people and they’ve found success through compounding interest and finding different places to add value.
If you want to know more about how this works and how to find great deals, we did an event recently.
We called it “How do you find a great multifamily deal?” and you can check it out here.
We had three experts talking about what a great multifamily deal looks like.
Now I want to hear from you!
What are some of your financial goals?
Have you been able to make a lot of money in certain types of investing?
Before you leave, make sure to check out our special report about investing. It compares the stock market to real estate, and it also includes how the pandemic affects your investment future.
If you are interested in investing with us, we are happy to answer any questions that you may have. Join our investment club today and we will be in touch.
Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.