The Pre-Launch Sequence (The First 30 Days)
The Pre-Launch Sequence is about developing the minimal skill set and confidence to be released into the world without sounding like a newbie. I’m going to show you how to become a “seasoned” multifamily investor in just thirty days. Here is the week-by-week plan:
Week 1: Educate Yourself So You Don’t Sound Like a Newbie
In the first week, you’re going to educate yourself. The problem is that most people don’t even know where to get started with apartment building investing or raising money. They lack the knowledge to do certain things, or they don’t have the scripts and tools to get them started.
The solution, of course, is a good system, one that teaches you how to evaluate deals and raise money?that’s a must 먹튀. I have a system called The Ultimate Guide to Buying Apartment Buildings with Private Money, but it doesn’t have to be my system?there are others out there.
My main point is to do it so you learn the language, key investing concepts, and the tactical steps to get your first deal done. Don’t get stuck with classroom learning?knock it out in the first week, and then quickly move to week 2.
Now that you’ve completed your “basic training,” it’s critical to become crystal clear about your first deal. And that’s what we’re going to do next.
Week 2: Clarify Your First Deal
This week I want you to get really clear about your first deal. The problem is that most people skip this step and chase after deals without a clear picture of what that first deal looks like. As a result, they either do a deal that’s too small or they pursue a deal that is too big and then fail to do a deal at all.
If we clearly define our first deal, it will allow us to visualize what that first deal will look like. If we can visualize it, the more real it becomes; and the more real it becomes, the more likely we will be to achieve that critical goal along our path to financial freedom.
Clarity of your first deal is key.
Your first deal should be both meaningful and achievable. Meaningful in that it should allow you to make measurable progress toward your goal of financial freedom. Typically that means it should be as big as possible. Achievable, meaning that, while your deal should be as big as possible, it should also be achievable in the next twelve months.
Everyone’s first deal is going to be a bit different. It requires an honest review of your goals and personal financial situation.
If your Rat Race Number is $10,000 per month then there’s a higher chance that you have some savings to invest with, and you are more likely to know other people with money to invest. Therefore, a reasonable first deal might be a 20-unit apartment building since it’s feasible for you to raise $250,000 in the next three to six months.
On the other hand, if your Rat Race Number is $4,000, you might have very limited savings and be less likely to know other high net worth individuals. If that’s your situation, then a reasonable first deal might be a duplex or 4-plex.
If you pick a first deal that is not achievable, you’re likely going to give up. If you pick a first deal that is not meaningful, it might take you longer than three to five years to become financially free. Remember this: the “best” first deal is one that is both meaningful and achievable in the next twelve months.
Where to Invest?
In addition to the size of the first deal, the second most important question to answer is where that first deal should be.
In general, we’re looking for an area that is growing and can achieve a reasonable return.
This disqualifies areas such as San Francisco or New York City, because even though these areas are growing economically, yields are so low that it makes it difficult for the average entrepreneur to achieve a reasonable return for the investors.
What if you live in one of these areas?
The solution is to look outside of your area.
It’s not that hard.
These days, geography should NOT be a factor or excuse. So much is available online that you complete the work virtually, and if you must visit in person, you can reach nearly every US destination with a five-hour flight. The only reason you would not go outside your own area is because you want to stay in your comfort zone. And do we grow in our comfort zone? I think you know the answer.
The next question, then, becomes: How do you find the right area in which to invest?
How to Choose the Best Areas for Multifamily Deals with Confidence
One of the main challenges when getting started with multifamily investing is where to look. With the market so hot, many investors are looking outside their own backyards in search of deals.
But where to look? How do you go about it?
This is not a small matter because wherever you choose means that’s where you’ll spend hours and days looking for deals, building teams, and managing the property.
The methodology is to evaluate areas based on the following criteria:
Look for areas you like. Start by picking an area you like (or at least wouldn’t mind spending time in). Maybe you have friends and family who live there, or maybe it’s just an area you like. Also consider the travel logistics. Is it a place you can reasonably drive or fly to? For example, I like to be able to get to the location with a direct flight in two hours or less.
Look for “high-yield” areas. If you’re living on either coast (or even some areas in between), then you know that the multifamily market is red-hot. It will be more difficult to find good deals when others are willing to overpay. That means you may have to look in less-hot cities or secondary markets that may be off the beaten path but offer higher yields. “High-yield” areas are properties that are valued for less relative to their income than other areas (i.e., their cash-on-cash returns are higher, as well as their Cap Rates).
Look for “high-growth” areas. You want areas in which employment is growing and ideally, you want that source of employment to be as diversified as possible. This will help avoid what happened during the recession with areas that relied on only a few industries.
I want to be more specific about how to apply these criteria by using three very useful reports.
3 Reports to Help You Find the Right Area
Here are three free reports to help you evaluate markets in which to invest.
The Marcus & Millichap National Apartment Report. To access this report, visit their website and create a free account. The report ranks the top metropolitan areas in the country by these very important criteria:
Vacancy and rent rates trends
Sales trends
Cap Rate and yield
Employment growth
The IRR Viewpoint Report. Another useful report is the IRR Viewpoint report, available on the IRR website. This report plots major cities on the “Market Cycle” graph (i.e., from a “Recovery/Expansion” market to “Hyper Supply” and back down to “Recession”). And it does this for multiple asset classes (i.e., multifamily, retail, office, etc.) and for major cities across the country.
The report visually plots the major markets on where they are in the “up-and-down” market cycle. It’s interesting that there are a couple of markets that are still in “recovery.” Surprisingly, there are also a good number of markets in growth and not-yet-hot markets (i.e., “expanding”).
Ideally, you want to look for markets that are in the Recovery and Expansion cycles and avoid properties in the Hyper-Supply and Recession cycles.
The Milken Best Performing Cities Report. The third useful report is the Milken Best Performing Cities Report, which you can download from Milken Institute. This report ranks cities?200 large and 200 small cities?based on their job growth and highlights the top-ranked cities with a more in-depth profile.
This allows you to see where your city ranks in the list and how it’s trending. If your city is toward the lower end of the list and declining, it could be an indication to be cautious about investing in that city. On the other hand, if your city is growing and the trend is positive, that might be a good indication to invest there.
Vacancy and rent rates trends
Sales trends
Cap Rate and yield
Employment growth
The IRR Viewpoint Report. Another useful report is the IRR Viewpoint report, available on the IRR website. This report plots major cities on the “Market Cycle” graph (i.e., from a “Recovery/Expansion” market to “Hyper Supply” and back down to “Recession”). And it does this for multiple asset classes (i.e., multifamily, retail, office, etc.) and for major cities across the country.
The report visually plots the major markets on where they are in the “up-and-down” market cycle. It’s interesting that there are a couple of markets that are still in “recovery.” Surprisingly, there are also a good number of markets in growth and not-yet-hot markets (i.e., “expanding”).
Ideally, you want to look for markets that are in the Recovery and Expansion cycles and avoid properties in the Hyper-Supply and Recession cycles.
The Milken Best Performing Cities Report. The third useful report is the Milken Best Performing Cities Report, which you can download from Milken Institute. This report ranks cities?200 large and 200 small cities?based on their job growth and highlights the top-ranked cities with a more in-depth profile.
This allows you to see where your city ranks in the list and how it’s trending. If your city is toward the lower end of the list and declining, it could be an indication to be cautious about investing in that city. On the other hand, if your city is growing and the trend is positive, that might be a good indication to invest there.
Where to Start: Putting It All Together
This is a lot of information, and you might be completely overwhelmed by the thought of picking one area from many.
Why not start with the IRR Viewpoint report? Create a short list from the cities in the Recovery or Expansion Market Cycle. Then check out the High-Yield Markets in the Marcus & Millichap report and cross reference them with the Markets with the Highest Expected Employment Growth. Combine these with the places you wouldn’t mind spending time, and you might have three to five cities on your short list. Then use the rest of the reports to drill down on each of these cities further and pick your top three.
These three reports will help you identify markets in which to look for deals. If you can couple solid job growth with an Expanding Market cycle and high Cap Rates, you have an ideal combination to look in that market. However, keep in mind that real estate investing is still very local; just because a city has a low ranking in the Best Cities report doesn’t mean that one part of the city isn’t growing. And vice versa. So take these statistics with a grain of salt.
Nevertheless, this methodology in combination with these three reports is a useful tool for narrowing down a geographic location for your next multifamily deal.
Week 3: Analyze 5 Deals to Gain Confidence
This week we want to get a jump start on developing the skill to quickly and accurately analyze deals. Once you analyze at least five deals, you no longer sound like a newbie, you’re able to make offers more quickly and accurately, and your confidence level increases substantially. If you can do that, brokers will return your phone calls and investors will agree to meet with you.
We already covered how to analyze deals in Secret #3: How to Analyze Deals and Make Offers in 10 Minutes, so go back to that section if you need a refresher.
In order to analyze a deal, you’ll need a good financial model to help you. You can build your own spreadsheet, search for one on the Internet, or purchase my Syndicated Deal Analyzer.
Find the best one for you, just make sure:
It’s created for analyzing multifamily property;
It includes purchase and exit assumptions;
It has the ability to create ten-year financial projections;
It incorporates investor returns; and
The software is editable so that you can customize the model.
Once you have a good financial model, it’s time to get to work. Here are some ways to get deals to analyze:
LoopNet: Go on loopnet.com, create a free account, and search for multifamily properties. There will not be a shortage of properties on LoopNet! You may need to contact the broker to get the financials.
MLS: You can also go to www.realtor.com (where houses are listed) and find multifamily listings.
Log into the Companion Course: You can access five sample deals there. Ignore my video analysis for the moment and instead just download the marketing package. Once you’ve analyzed it yourself, you can compare it to my analysis.
Go to FinancialFreedomTheBook.com/course > Chapter 9: The Pre-Launch Sequence.
Quantity over Quality!
For this step, it is NOT important how good the deal is, or even if it matches your first deal criteria. Find a deal, any deal, and analyze it. Do this five times.
If you’re calling brokers and they won’t call you back or send you their marketing package, then find another deal or download one from the Companion Course. This step is NOT about calling brokers, it’s about analyzing deals.
Okay?
Okay … let’s move on to next week.