Have you ever driven around your city and seen all these apartment complexes, shopping plazas, or even office buildings? I always used to think they were all owned by rich billionaires.
…some of them are, but not all.
The reality is that a lot of these large properties are actually owned by regular people like you and me to generate passive income.
The answer: with real estate syndication.
It’s what I used to recently close a 192 unit deal in San Antonio with my partners.
But what exactly is real estate syndication?
Syndication is a way which multiple real estate investors pool their funds together in order to purchase a property that is more expensive than any of them could have afforded on their own.
Generally, there are two types of partners in these deals: 1) General Partners (GPs) who accept additional risk, put the deal together, and operate the asset 2) Limited Partners (LPs) who have limited risk and invest more passively.
Real estate syndications are an effective way to spread risk. Since each investor can allocate a smaller sum to each deal, they can effectively spread their risk across multiple property types and diversify by geographic region.
Real Estate Syndication Structure
Syndications in real estate are amazingly diverse in their structure so it’s impossible to cover everything. In general, there are four components:
- Return of investor capital – Limited partners should always get paid back first, and this ensures they get paid first
- The preferred return – Not all deals have a preferred return, but when they do this is where it pays out. Investors get the first portion of the deal before the general partners.
- The catch-up – Many deals don’t have a catch-up tier but this is where the sponsor will get 100% of the profits after the preferred return until the predetermined split is met.
- Carried interest – profits are split based on the agreed amount (such as 80/20 or 70/30)
Let’s break it down further…
What Is A Preferred Return In A Real Estate Syndicate?
According to Mark Kenney over at ThinkMultifamily, a preferred return is “a return that investors received BEFORE the general partners receive a return.” In essence, after the investors receive their initial capital back, they received a preferred rate of return before the general partners get any payout at all.
Mark, an investor and real estate coach who owns over 2,000 doors in Tennessee, Georgia, and Texas, says that he doesn’t like to use a preferred return but has in the past on deals that didn’t expect any distributions for 12 or 18 months.
The preferred return would accrue and give incentive for people to invest in the deal.
Andrew Campbell, the co-founder of Wildhorn Capital, a multifamily operator based in Austin, Texas has a different opinion. He said he likes to have an 8% preferred return for the majority of his 450 door portfolio.
It “gives some certainty to investors about their overall returns. Plus, 8% also happens to beat the historical stock market return of 7%.”
What Is A Waterfall In A Real Estate Syndication?
The waterfall refers to the overall distribution of funds and tiers that were mentioned above, but it is often referred to as how profits are split after the preferred return is met. Andrew Campbell explains it perfectly:
“Profits generated above any preferred returns are generally split between investors (Limited Partners) and deal sponsors (General Partners). In our case, above the 8% pref we split profits 70% to Limited Partners and 30% to General Partners.
Some deals and sponsors will have additional “waterfalls” where at 18% IRR (for example) the split would go to 50/50. The general idea is that the higher the returns are to investors, the more the sponsors make, and everyone is happy.
The downside of multiple waterfalls is that sponsors can sometimes be incentivized to return investor capital early (to boost the IRR) and trigger these waterfalls.That can sometimes put unnecessary risk on the asset if they are being to aggressive.”
Kenny Wolfe, the founder of Wolfe Investments who has been involved in over $91M in real estate transactions doesn’t like the complexity of the waterfall structure many syndicators use.
“We have steered clear of preferred returns mostly because those are usually accompanied with up-front fees charged to investors. Our investment structures are tied to the performance of the investment, and not just closing deals like the typical preferred return strategy.”
“If we make our investors money, then we’re rewarded. If we don’t then we aren’t rewarded.”
I originally didn’t plan to dive into the fee structure at all, but since Kenny brought up some great points, I think I’ll dive into the fees and how some different structures affect the incentives and performance of deals.
The Fees When Syndicating Real Estate
There are a lot of different types of fees used in syndication. Some are more common than others but all have their pros/cons. Here are the most common ones
I’ve seen this anywhere from 0 to 5 points with 2 being the most common. Acquisition fees in a syndication are really common and most have them, but not all.
Syndicators are running a business and that has costs. Acquisition fees help pay for the operating costs, staff, flights, hotels, diligence, and other costs that are needed to run the business.
On the other hand, acquisition fees can be enormous on large deals and can drive some deal sponsors to be short-sighted and focus on closing deals rather than operating deals profitably.
Think about it, a $10M deal with 2 point acquisition fee is $200,000. That adds up fast! You can see how some sponsors will lose track of buying good deals and focus on just closing deals, regardless of how good they are.
Asset Management Fee
This generally ranges from 1-3% of gross rent revenue. This may or may not go to the deal sponsor and it goes to cover the cost of managing the asset and management team that was hired.
Since the syndicator only gets paid when the asset is cash flowing, there isn’t much incentive to take on difficult projects. That’s where the construction fee comes in. If there is a major rehab project a fee can be imposed to compensate the project manager while the asset isn’t producing income.
It can vary but is often 1-2% of the construction cost.
There are a lot of competing interests in a deal and it’s difficult to align everyone 100% of the time – that’s why trust must be built with anyone that you’re investing with.
But, a few major points to consider are how all the fees and the preferred return and waterfall all fit together.
Deals with high preferred returns and high fees create incentives for the sponsor to find and close deals, but not a lot of incentive to maximize cash flow. As Andrew pointed out, deals with huge benefits to the sponsor at certain levels can cause them to sell early to bump the IRR artificially and trigger that waterfall distribution.
But, deals that compensate the sponsor more will create more incentive to produce high returns.
That’s why there are so many different ways to structure deals! Every sponsor and investor pool is different so they can create deals that work for everyone.
Structuring a Syndication Deal – Example
Similar to how Andrew structures deals, let’s say that in this deal there will be an 8% preferred return, 70/30 split thereafter, and have a 2 point acquisition fee and 2 point asset management fee.
The limited partners will get 70% of the returns after the 8% pref and the sponsor will get the other 30%. The sponsor will get 2 points up front and 2 percent of the gross revenue.
Example 2 – Syndication Structure
Kenny, on the other hand, keeps it simple. He might charge an 80/20 split with no acquisition fee, no waterfall, and no preferred return. The asset management fee is 2% as well in this example.
So, the limited partners get 80% of all the profits and the general partner gets 20%. If it does well everyone does well and if it does poorly everyone does poorly. There are very limited fees except for the asset management fee.
Example 3 – Hybrid Structure
Mark kind of does it a third way. He said he generally does the 80/20 split, but he does charge an acquisition fee and asset management fee but rarely does a preferred return.
The acquisition fee is more similar to Andrew but his split is more similar to Kenny.
It’s interesting to see how 3 different real estate syndicators have three entirely different ways to structure their deals.
How To Find Real Estate Deals to Syndicate?
These are large deals and you don’t typically see them on the MLS, so how exactly do you find deals for a syndication?
Well, three different deal sponsors had three different answers:
“Now that we’re established as a solid buyer we get off-market deals across the US. We look at the on-market deals as well. These days the off-market deals have been much more attractive.”– Kenny Wolfe
Andrew Campbell appears to have a more holistic view for finding deals.
“It’s a full-time job, and it all comes back to relationships. Meeting and networking with brokers, talking to owners, title agents, insurance providers, property managers. Leads can come from anywhere, and in this market, you want to make sure you can see as many properties as possible, and the earlier and more off-market/limited market they are the better.”
Mark Kenney has seemed to be extremely successful working directly with commercial real estate brokers.
“We generally work through brokers to finds deals.”
What About LoopNet for Commercial Real Estate Syndication?
I’ve known about LoopNet for a while, so I was curious about it. Kenney put it simply though:
“Loopnet is where deals go to die.”
But, David Eldridge of NAI Glickman Kovago & Jacobs, a commercial brokerage firm in Worcester, Massachusetts, said,
“Loopnet is far from dead. We do a ton of volume on it and use it almost exclusively for smaller listings.”
How Do You Find Commercial Brokers and Get Them to Take You Seriously?
Commercial brokers are dealing with a lot of big players in the market, and it can be difficult to get them to take you seriously if you are a new player.
Mark pointed out that “a market generally only has a few major names. The top 2 or 3 people have access to virtually all the deals, so you just need to identify them.”
He continued, “it’s not hard to get yourself onto their email list, but it can be more difficult to get people to take your offers seriously. It’s important to have some experience in the field and if you don’t, then partner up with someone who does have the experience.”
In the end, money talks and the highest offer usually wins. So, you can make up for experience with higher offers.
The Cost To Syndicate A Real Estate Deal
Now that we’ve got past the “what is a syndication in real estate” and the “how to syndicate in real estate” part of the article, we can get into the costs and money aspect.
The first logical question is about the cost of a syndication.
There are several major fixed cost items that every syndication requires, including – SEC attorney, earnest money deposit, diligence, private placement memorandum, loan application fees, and more.
So, let’s break them down. As some fees are percentage based, I’m going to create a hypothetical $2,000,000 deal.
- Attorney for Contract – $3,000
- SEC Attorney for PPM – $12,000
- EMD – 1% – $40,000
- Diligence – $25-$50 per door – $2,000
- Loan Application – 1% – $20,000
- Other Financing Costs – 0.5% – 1% – $20,000
Total Costs – $97,000 to get the deal done, of which $40,000 goes toward the purchase.
So the total fixed costs are $57,000 or 2.85% of the total deal price. As you can see, this is not cheap!
The syndicator has to front all the money and if the deal doesn’t close most of that money can be lost. So, you can see one reason why syndicators are compensated pretty well.
How Big Do Syndication Deals Need To Be?
We are talking some pretty big numbers here overall. Realistically though, how big or small does the syndication deal need to be in order for it to make sense?
Universally, all of the deal sponsors wanted to do larger rather than smaller deals. Both Mark and Kenny said they want deals over 80 units which allows for full-time on-site property management. Andrew prefers to look at it as a dollar figure and prefers to do deals over $8 million to keep the fixed costs as a small percent of the total costs.
How Do You Find Investors?
Most people reading this are probably wondering how you can find people to invest so much money. Most people can save up $50-100k, but you are talking about raising hundreds of thousands, or even millions of dollars for a deal. How?
Andrew says it’s a “second full-time job” which comes back to relationships and marketing. He does at least 5 sit-down meetings a week to grow those relationships.
Kenny is so well established that most of his new investors come from referrals though he also does a meetup, podcasts, and general outreach.
Example Syndication Deal
You might be wondering how much a syndicator can actually earn from one of these deals. So, I put together this example based on the knowledge I gained.
Let’s assume we found a property somewhere in Texas with a 6.5% capitalization rate. It’s about 70 units and is selling for $60,000 per unit. That’s $4.2M total.
A 6.5 cap rate means the property has a net operating income of about $273,000 per year before finance costs.
With about $875,000 as a down payment, that’s about $190,000/year in finance costs (I’m rounding).
So the cash flow is about $83,000/year.
Of course some of that goes toward principal, and eventually, the deal will be sold and that will get distributed back to the investors. For now, though, let’s just focus on cash flow and not the entire return.
What The General And Limited Partners Earn In A Syndication
I’m going to keep the numbers super simple so I can do it all in my head. Let’s take the 1% asset management fee out of the gross rents. We don’t have a number for gross rent (only NOI). Let’s say it’s $8,000. If you were the asset manager, great you get to pocket that. If not, someone else does.
The rental income is now $75,000.
Of that cash flow, let’s say the syndicator is doing a 90/10 split and will earn 10%.
And let’s say he also put in about $100,000 into the deal, they would have a total equity of 21.4% and would get about $16,050 in cash flow. That’s about a 16% cash on cash return for the principal (excluding the asset management fee). Don’t forget, they earn the same returns as other LPs on the cash they invest, and then get their split just for doing the deal.
Realistically, this example doesn’t include any growth in value and is a very simple example.
Now You Know The Basics
…and it’s time to download your deal calculator to help you start analyzing your next deal.
Here’s How To Get A Mortgage You Can Actually Afford
So, you’ve finally decided to purchase a home. After years of contemplating if you should buy or rent, then saving, building your credit etc, it’s now time to dive in and get it.
Purchasing a home is exciting. After years of dreaming, you’re finally getting a place that you can call your own.
It’s really easy to get caught up in the excitement making you forget to ask one crucial question – how much “home” can you really afford?
…and, once you decide how much you can afford, you should stick to it. It’s all too easy to decide on a price, then find the home of your dreams is only $25,000 more. Then you start thinking, “we can make this work…” But, can you really?
According to statistics, the median monthly mortgage payment for homeowners in the U.S. is $1,030. That’s a lot of money.
While you may love the fabulous kitchen or huge backyard one house offers – if you can’t pay the mortgage every month or get the cash to fix what’s broken, your home’s never going to be a blessing.
The good news is, determining how much ‘house’ you can afford isn’t rocket science. You can use the four tips here and utilize online tools to help you figure things out.
Build a Solid Foundation
There are countless people who have gone broke by buying a house simply because they believe it’s the “grown-up” thing to do. However, life events such as having a baby or getting married aren’t reasons to buy a house.
The time will be right when the money is right. Before trying to figure out how much house you can afford, be sure you are financially ready to purchase a home.
To do this, ask yourself the following questions:
- Are you debt free and have an emergency fund of three to six months put back
- Do you have enough cash to cover moving expenses and closing costs?
- Can you afford a 15-year-fixed-rate mortgage?
- Can you make a 10 to 20 percent down payment?
- Do you have enough money to set aside each month into passive investments above and beyond your mortgage?
If you answered “no” to any of the questions above, it may not be the right time to purchase a home. Wait until you have a better financial foundation.
If you are currently financially stable, then move on to the next tip.
Maximize Your Down Payment
One of the biggest costs in a new mortgage is PMI or MIP. Both of these are different ways of saying that you need to pay an extra fee every month because you didn’t put enough down.
If you can get to 20% or more, then you won’t have to pay mortgage insurance for the lender. This can save you hundreds of dollars per month.
When buying a home, remember – the more money you can put down, the better. Higher down payments mean lower mortgage payments every month and the ability to pay your home off faster.
While the best option is to pay 100 percent of the home cost in cash, this isn’t viable for most. If this is the case, then try to put down at least 20 percent. By doing this, you can avoid paying for private mortgage insurance.
Calculate the Costs
All you need to do to figure out what you can afford when it comes to buying a home is to crunch a few numbers. If you need help with this, consider using a mortgage calculator with down payment, which will help you figure things out.
If you want to do things manually, consider the following:
- Add up all the income you bring in every month. If you bring home $2,000 per month, and your spouse makes $3,000, then your total monthly take-home pay is $5,000.
- Multiply your total monthly take-home pay by 25 percent to determine your maximum mortgage payment.If you are bringing home $5,000 per month, then it means that your mortgage payment should not be over $1,250 each month, including insurance and taxes.
Remember, your bank or lender will tell you that you can afford WAY more than that. In fact, some loans allow you to get to 40% or even 50% of your income going toward loans. While they may allow it, it isn’t financially smart to borrow every dollar you can afford.
Don’t Forget About Maintenance and Capital Expenditures
When comparing if you should rent or buy, most people look at the total rent, compare it to the mortgage, and say it’s better to buy a house.
What you are forgetting is that rent includes all the maintenance costs in a home whereas a mortgage does not.
As a general rule of thumb, it’s good to plan on spending around 1% – 2% of the total home value every year in maintenance and CapEx.
Major capital expenses are things like a roof or HVAC that last for several years. Even though you might have 10 years left on your roof, you should start saving for it now, along with the dozens of other major items that will not last forever.
So, if your home is $200,000, you should think about adding another $2,000-$4,000 per year in maintenance and capex. You definitely won’t be spending this much every year, but what you don’t spend now will be spent in a year or two when you have to replace a $12,000 roof, replace a garage door, etc.
If you have higher end appliances and fixtures, you should be more toward the 2% whereas standard grade homes can be closer to the 1% mark.
When you know your numbers, you will be able to shop for a mortgage and a home with confidence. Trying to determine what you can afford without considering the tips here may leave you with a home that’s going to cause you financial hardship in the future.
Remember, buying a home is not an investment, it is an emotional decision. Once you recognize that, you can begin to take it seriously and make decisions based on actual facts, rather than be driven entirely by your desires. If you base everything on the emotions involved with buying a home, you’ll dive right into a mortgage that you can’t really afford.
(THROWBACK!) High-Dividend REITs: Are They A Safe Bet?
Investment in Real Estate Investment Trusts (or REIT’s) are ideal for investors who want a regular stream of income. REIT’s purchase real estate properties and lease them to clients (or tenants). This income generated is then paid to shareholders via dividends.
REIT’s are required to distribute at least 90% of net income to shareholders which means these firms have higher dividend yields compared to regular equity investments. But how many high dividend paying REIT’s are worth investing in? This article looks at REIT’s with high dividend yields and a market cap of approximately $1 billion.
CBL & Associates Properties
CBL & Associates Properties (or CBL) has a market cap of $915 million. This REIT has a dividend yield of 17.4% and pays annual dividends of $0.80 per share. CBL’s portfolio is primarily in regional shopping malls (Class B and Class C).
CBL is grappling with declining sales as revenue has fallen from $1.04 billion in 2015 to $1.02 billion in 2016 and $927 million in 2017. Revenue is estimated to decline to $852 million in 2018 and $835 million in 2019. There have been concerns over the high debt levels (over $4 billion) of CBL as well.
Further, company CEO Stephen Lebovitz also hinted at a possible dividend cut in the future. CBL reduced its dividend by 25% last year as well. CBL has stated that it is looking to reposition its portfolio and focus on redevelopment initiatives. However, investors will not be confident about investing in a stock that has declined from $20 per share in August 2013 to $4.65 in August 2018. The stock is trading 16% above the average analyst price target of $3.91.
Washington Prime Group
Washington Prime Group (or WPG) engages in the acquisition and development of retail properties and this REIT has a market cap of $1.5 billion. WPG has a dividend yield of 12.8% and pays annual dividends of $1 per share. The stock price has declined from close to $20 in May 2014 to the current price of $7.92 which is 6% higher than the analyst target price of $7.45. This year, WPG has however risen over 18%.
WPG is a mall owner with assets across Florida, the Mid-West and the East Coast. In this digital age when the number of people visiting malls has declined, WPG has also seen its revenue decline. Sales have fallen from $922 million in 2015 to $758 million in 2017 and are estimated to reach $724 million this year.
WPG’s funds from operation (or FFO) which is similar to earnings per share for stocks declined 8.4% in 2017, while occupancy reduced from 94% in 2016 to 93% last year. WPG might also have to cut dividends if sales continue to decline over the next few quarters.
Global Net Lease
Global Net Lease (or GNL) has a market cap of $1.5 billion and this REIT has a portfolio of commercial properties. GNL focuses on sale-leaseback transactions across the United States and Western Europe. GNL has over 300 properties with an average lease term of 8.6 years.
GNL’s client base includes FedEx, GSA, ING, and Finnair among others. While GNL’s revenue rose 21% year-over-year to $259 million in fiscal 2017, FFO per share declined 18%. GNL has a dividend yield of 10% and pays an annual dividend of $2.13 per share compared to its reported FFO of $2.10 per share last year.
GNL aims to acquire properties worth $293 million this year which will expand the company’s portfolio. GNL is estimated to post revenue of $283 million in 2018, $303 million in 2019 and $314 million in 2020. GNL is trading at $21.53 which is 11.5% lower compared to analyst average target estimates of $24.
Kimco Realty (KIM) has a market cap of $7.2 billion and is one the largest publicly traded REIT. This REIT owns close to 500 shopping centers in the United States with 83 million square feet of leasable property. Kimco has a dividend yield of 6.6% and pays an annual dividend of $1.12 per share.
According to this report from Suredividend.com. “Kimco’s property portfolio has enjoyed rising occupancy and rents over the past several years.” In the first quarter of 2018, Kimco’s FFP rose 5.4% driven by a rise in occupancy and rent. While occupancy rose 1 basis point to 96.1%, rental rates for new leases rose over 15%.
Kimco’s tenants include struggling retail companies such as Sears, JC Penny and Kmart all of whom might close a few stores. Kimco will need to look at acquisitions to drive future revenue. This stock has lost close to 6% in 2018 and is trading at $17.06 which is 1.3% lower than analyst projections.
Senior Housing Properties
Senior Housing Properties (SNH) is a healthcare REIT with a market cap of $4.5 billion and a dividend yield of 8.2%. This REIT owns property worth $8.5 billion and over 700 tenants. SNH shares have increased close to 30% since February this year and the stock is trading at $19.04 which is 4% below average analyst price target estimates of $18.25.
While SNH’s FFO per share fell 16% in 2017, performance has started to improve this year. SNH has managed to beat analyst earnings estimates considerably in the last two quarters. SNH has acquired properties worth over $300 million and sold assets of approximately $800 million since the start of 2017. The proceeds were used to pay off debt.
SNH revenue is estimated to rise 4.1% year-over-year to $1.12 billion in 2018 and 2.1% to $1.14 billion in 2019.
4 Ways To Make $10K A Month
The goal to make $10,000 a month in passive income is just a long-shot dream, right?
Probably. I don’t even know why you’re reading this article…
If you’re looking for 5 more generic steps to take to never reach your goals, then stop reading now.
If you’re looking for “buy my program and you’ll be earning 6-figures and can quit your job” then you also should look elsewhere.
Instead, keep reading if you’re looking for some real solid steps on how to grow and build your passive income to a level that can replace your day-job.
How Can I Make $10,000 per Month?
The first question to answer is “how exactly do I make $10,000 per month?” There are really only 4 ways to earn $10,000 a month:
This is a summary of the 4 general ways to earn income – employee, self employed, as a business owner, or through investments. It’s also called the ESBI model. The list is also ordered from least desirable to most desirable.
When you decide “I want to earn $10,000/month” you need to decide what path you are going to take first then refine it into ‘how’.
So, let’s start with the worst ways to create $10,000 and work our way up to the best.
How to Earn $10,000 a Month as an Employee
If grinding your way through life at a corporate job is your definition of success, then this section is for you. There is only a tiny bit of sarcasm in that sentence…
Your wages are loosely tied to the value of what your contribute to your company. It’s more closely tied to the supply and demand of similar workers as you.
So, to earn more, you have to be better than everyone else around you. To do that you need to:
To accomplish this is easy. Work more efficiently and harder than everyone around you. Then, work twice as long as everyone around you.
Do that for 5 or 10 years and eventually your employer will recognize the work you do and you’ll probably make 6 figures. You just need to get there before a younger person is willing to work even harder and longer than you for half the wage.
It’s a bit harder to acquire a skill or knowledge that others cannot replicate, but you could pay for training courses, additional schooling, or study on your own to increase your skills in your field.
Earning $10k Being Self Employed
The benefit to being self employed is that every bit of work you do goes straight back to you.
You do not need to work extra hard and hope that your employer notices and gives you a raise. If you work twice as much, you’ll hopefully see twice as much income (assuming all of the effort you put in generates more revenue).
I think that being self-employed is a great way for people to get started building their income. Everyone talks about investing, but you probably need extra income first before you can start investing.
The first couple things that come to mind are consulting and real estate.
I like consulting because it is a high payout job and also offers a very flexible schedule. It’s not something that can be totally outsourced, as people expect their consultant to be the one consulting them.
Being a real estate agent is also highly flexible and has a very good payout. It’s also very automatable (is that a word?). Almost every step of the process can eventually be outsourced to an assistant, VA, or other real estate agent.
It also costs very little to get started, has few barriers to entry, and is easy to take market share because most people don’t have an existing relationship with a real estate agent.
Another reason I like the idea of being a real estate agent is because when you do get started investing in real estate, you’ll have a leg up on other people. Hint: this is exactly how I got started in real estate.
Getting Started as a Real Estate Agent
Becoming a successful real estate agent is super simple (though it requires a bit of effort!). Just follow these steps:
- Take your licensing coursework (I like Real Estate Express to fast-track it)
- Take your tests (both state and federal)
- Determine your niche and ideal clients
- Find a good brokerage to hang your license
- Find clients and close deals
Taking Your Real Estate Agent Coursework
Every state has its own licensing requirements. Some are easy while others are hard, so it’s important to get the best coursework that will make you the most likely to succeed.
That’s why I always recommend Real Estate Express. They offer all of your coursework for ridiculously cheap. It’s all set up to get you through the coursework quickly and give you the best chance of passing your test.
Taking Your Tests
There are two tests to take – the federal and the state real estate exam. They aren’t hard, but you do need to prepare for them.
I recommend scheduling the test as soon as you’re done with the course and taking it as soon as possible.
A lot of people schedule it several weeks or months away to give them “time to study” but I don’t think this is generally true. Generally, you know the most the day you complete the course, and every day after that you lose some of it.
So just get it over and done with asap!
Determine Your Niche
There are hundreds of niches to choose from, so be selective and master one or two.
I personally think that being a residential agent for real estate investors is the perfect niche. Here’s why.
Being a commercial broker is really hard, especially for new agents. The top producers have been doing it for years and everyone knows them. Taking market share is next to impossible for a newbie.
Being a retail agent that works with new home buyers is fine, but they are a dime a dozen and setting yourself apart is really hard.
Being an agent for 1-4 unit residential properties, but working exclusively with investors is the perfect mix. You have a good niche that is focused yet broad enough.
Additionally, investors are logical rather than emotional. They also buy on a regular basis (every year or more than once a year), and don’t care what the place is as long as the numbers work.
So, they are far easier to work with and buy more often. The only drawback is they tend to buy less expensive properties, so you need to do more transactions.
Find a Good Brokerage
The key is to remember that you are interviewing the brokerage, not the other way around.
So, shop around to find one that fits your goals and niche in real estate.
Find Clients and Close Deals
Finding clients is tough! It’s especially tough for the newly self-employed.
Fortunately, there is a service called Agents Invest which connects you to your ideal client. Agents Invest has a boat load of active investors who are looking to buy properties.
You just need to contact them and see if it’s a good fit. So go check them out!
How to Earn $10k per Month as a Business Owner
This is really simple.
Step 1 – Start a business.
Step 2 – Grow your business
and… Step 3 – Earn $10k/month.
Alright, it’s not that simple! I’ve started 3 different businesses and there is a lot that goes into running and growing a business.
If you already have a business, there are two ways that I have found to help you grow. The first is to find whats working for you, and double down on that. The second is to find new revenues sources on the fringe of what you’re doing, or through upselling.
Most people that want to grow a business tend to focus on doing more, but that often ends up with earning less.
I recently had a conversation with a mortgage broker. He said the issue with most brokerages is they want to do every type of lending (multifamily, retail, manufacturing, etc). The problem is, they become just like everyone else out there and nothing sets them apart.
They are not an expert at anything.
Instead, by focusing in on one specific type of lending and becoming an expert at it, the business grows faster and earns more.
Now, if you don’t already have a business in real estate you want to double down on, you might want to start one.
Starting a New Business
If you’re going to be investing in real estate, it probably makes sense to have a business in the real estate field too. There will be synergy between the two and it will ultimately help you invest in the future.
There are a ton of different real estate related businesses that you could start. Literally, dozens or even hundreds of niches to choose from.
If I’m choosing to start a new business I want it to have a few basic criteria.
- I want to be able to automate it (though I can do the work myself to start if I choose)
- It should be scalable
- It should be relatively inexpensive to start
While there are a ton of options available, I’d probably choose to start a wholesaling or lead generation business.
I like this because it hits all 3 of my criteria and it also ties in well with real estate investing. Any time I want to buy a property for myself, just take the best leads and keep them for myself rather than sell them.
Here’s how to get started
Determine Your Niche in Real Estate
It’s important to decide what niche you want to be in. Here are a few popular niches:
There are more, but those are probably the top 4.
It’s important to know your niche so you can tailor your content and lists to this area.
Build Your Funnel
It’s important to figure out how you will generate leads. This is how most wholesalers fail.
Remember, you have to get your name out there and be the first to find the potential seller before others do. That’s why I love using the internet.
Most people go to Google before ever making a buying or selling decision. That’s why if you can rank your website on Google, people will probably find you first!
If you want to be first to find them (by having them come find you) then what you need is a lead generation website.
For that, navigate to Investor Carrot and put your info in on the next page to get a free trial.
You can also read more about building out your Carrot site on this recent article I posted.
Decide What To Do With Your Leads
Once leads start coming in, you’ll need to decide what to do with them.
If you want to chase them down yourself and put deals under contract, great! If not, you can easily sell your leads to wholesalers in the area. That’s what I do.
I think working an agreement with another wholesaler for a profit share is the best way to do it as it requires the least amount of effort for the most return.
Making $10,000 A Month as an Investor
The one we’ve all been waiting for, drum roll please…
Making money as an investor is all about building up multiple streams of passive income. One of the best ways to do that is with real estate.
Every property you buy is another stream of income to add. Every unit, every tenant, it all adds to your goal.
The biggest risk to real estate is the lost revenue during a turnover or eviction. But, as you buy more property, this averages out.
For example, if you have one house you either have 100% occupancy or 100% vacancy. So, you do great some months and terrible in other months.
But if you own 10 units and 1 is vacant, you’ll have 90% occupancy.
If the vacancy rate in your area is 10%, you can expect to always have 1 vacant unit. At this point, it just gets built into your normal operating budget.
Here are the steps to getting started in real estate
Get an Education
The most important part is to learn everything you can about real estate investing. You need to understand how to estimate market value, repairs, rents, your operating budget, etc.
To do this, I recommend this inexpensive eCourse to help you get going.
It’s too easy to make mistakes in real estate, but that shouldn’t stop you from getting started.
Instead, learn from others mistakes first, and the best way to do that is to take their course.
Get an Agent
You don’t need an agent to invest in real estate. If you have build out a lead generation website, then just use those leads to buy deals.
But, if you don’t have any source of leads, the best place to start is with an agent.
For this, I recommend the service Agents Invest, which connects investors to investor savvy agents around the country.
A lot of people don’t ever find a deal because they are afraid to make offers. If a deal is listed too high, simply make an offer for less.
Don’t be scared of making offers!
I once offered less than half of what a property was listed for (and got it). So, it happens. Just recently a good friend of mine negotiated over $150k off a deal that was only listed around $500k to begin with.
That’s a 30% savings!
So, it’s totally possible to do, even in a hot market!
Do a Combination to Earn $10k/month
The last option is to do a combination of the above to get to $10,000 per month.
If you are self employed, own a small online business, and also have some real estate with some passive income, that combination might get you to your goal as well.
What are you doing to reach the goal of $10,000 per month? If your goal is higher or lower, tell me what your goal is and what you’re doing to achieve it.
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