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How Do I Transition From Buying Homes To Commercial Property?
Joe: Hey, it’s Joe. This one is from Don from Canada. Don says, “Hey, Joe, how are you? I’ve been following your blog for some time. Great information. Thank you. I’ve been buying and holding single family homes and I want to transition from this to fifty or more unit apartments. So, how do I pitch potential investors to finance my deal and what strategies do you suggest to help facilitate this move into multi-unit apartment investing?”
Joe: First of all, make sure that you keep the properties that you’ve already got. Don’t use those properties or leverage those into other properties. Keep them as your portfolio. Let them pay themselves off if they haven’t already and let them be your retirement. Those should be sacrosanct. Don’t touch those, don’t touch the income from them. Let that build, buy more properties just like that, single family homes. That’s a very safe way to have an investment.
Joe: Now, multi-family can also be very profitable, and you can do multi-family deals the same way that I teach these other zero down structures. You can use subject to, multi-mortgage, land contract, assignable cash deals, you can use these same, you can use these same structures with multi-family that you do with single family. The only difference is you have to manage these properties properly. You also have to take into account the value of these properties, the repairs on these properties. Remember, there’s going to be a lot more management involved with these types of deals if you’re not selling them on lease option. Because these are going to be tenants instead of lease option buyers.
Joe: That means that most apartment buildings, they have trash that has to be taken out, they have you know, washer dryers in them, they’ve got you know, a furnace, they have to either pay for the whole unit or they have to get separate meters in there. You know, make sure you know what all your numbers are and look at those gross operating expenses, look at your income. If you have, how many vacancies can you have before it starts costing you money every month?
Joe: I see too many people that get into these deals using the zero down structures on multi-family units, and they don’t put them together properly because they don’t have enough cash flow in those properties to make them make sense and to give you some safety margin in order to do that. So make sure you’ve got all those things.
Joe: Now, once you have all those things, multi-family properties can be very profitable. And again, these structures will work on all these things and you won’t have much risk because you’re not going to use loans from a bank. If you go out and try to get loans from a bank you’re going to need, you know, larger down payments, even if you have the seller carrying some of it, you’re still going to need larger down payments or you’re going to have a really good relationship with a bank which means that you’re going to have lots of resources to work with.
Joe: If you want to build, if you want to start doing syndicates or you know, finding investors where you can start buying these properties together or just getting private money, be careful about that as well. Dodd-Frank creates some new rules about that so make sure you understand what the Dodd-Frank rules are and what the Safe Act and how those things apply to you. You might want to get an attorney to set those things up for you so you follow all the rules and don’t, you know, get those things screwed up.
Joe: I think it might be easier for you to create trust from your investors if you’re doing it yourself, so maybe you buy some of these properties yourself using the zero down structure so you don’t have to put money into them. You know, get them managed properly and then you can go to them and say, “Here’s what I’ve done,” you know, “would you like to buy into it?” And then have them buy into that property that they know is already stable. Because if you start screwing with people’s money, and you start losing their money because you’ve done something incompetent, they’re going to come after you.
Joe: And I’ve known people that have landed in jail because they didn’t do things properly. They mingled their money, they spent some money on the wrong things that they shouldn’t have, they probably knew they shouldn’t have done that. But they did it anyway and, because money got tight and they had to keep things going, they had to keep cash flow going, and you get into that situation you make bad decisions because you’re forced into it.
Joe: But if you’re doing the zero down techniques, you’ll never be forced into that situation. The worst thing that happens is you have to give the property back to the seller and let them deal with it and you know, you know, it’s going to be a blow to your ego, but it’s not going to hurt your credit and it’s not going to hurt your pocket book. So, keep all your portfolio properties that are single family homes, keep those sacrosanct. Don’t touch those things. Let those things continue to grow, you know, continue to put money into those, make that happen, and then do this other thing with these.
Joe: I also wrote a book called Finding Private Money. If you just search under my name you can find it online. And it talks about the different ways that different teachers have suggested that you find private money, how you find private money. And it also shows the ways that I suggest you do it and how, what I think, the ways I think make sense are more viable than using some of these other private money sources. So get that book. It’s three bucks. It’s on Amazon, so it’s a lot of good information for practically no money.
Joe: Anyway. I hope that helps. Good luck