Walking Through the Deal

We’re talking about multifamily real estate. We’re talking about the best real estate investment theory –multiple doors, two units, four units or eight units, 12 units, 16 units. We’re not talking about single-family homes. We’re not talking about renting your house out. That is not what I’m talking about. I’m talking about scaling out. Scaling out multifamily.

I made the mistake with single family residence and trying to rent them out. Look, we all start in this same place – usually where you go out and buy a single-family house and you think you’re going to make a lot of money. The problem is the economies of scale. They just don’t work because you buy one house and then you want to buy 20 houses – and most of the time you can’t buy that scale.

Having a single-family or a small number of units mean that you are doing all of the management yourself and being hit with all the tenant problems and repairs. The dog that urinated on the carpet and you got to change that. You’re not counting the fact that somebody has got a mow the grass. So at the end of the day, you had to do everything and you can’t do it 100 times that. You need scale so it makes it affordable to hire a management company.

The first deal I did was 38 units the next deal with 48 units and next it was 92. It’s the same energy to close a small deal as a bigger deal. It doesn’t require anything more to go bigger.

That’s why I tell you guys leave four alone. Leave the eight alone. Leave the 12 alone. 16 units is what your minimum first purchase should be.

You get enough scale to where the plumber’s not going to rip you up, or the manager that hires the plumber won’t steal from you.

So what do you do when you find a deal? First you need to want the deal. Are you willing to pay full-asking price? That’s a great indicator if you want it.

Then you need to sell the real estate agent on the fact that you’re super, super excited about the deal. You do not negotiate on price at this step.

Your first job is to know the market. Your first job is to know real estate, to understand real estate, to know you want multifamily, lots of units producing revenue. You got to be looking at deals every day to make this happen, to build upon the great deals, you got to be looking at every single deal.

You got to have a commitment. I make the time to find the deals because I know this is a way for me to get something real for my future and my family.

Once you get into making your offer, you’ll want to create an LOI. An LOI is a Letter of Intent. A letter of intent basically just tells someone you want to buy their property, who you are, some basic terms and how you are going to pay for it. I’m not worried about the bank right now. I am not worried about the lawyer. I’m not worried about all this other stuff. I’m not worried about operating agreements or a LLC. Don’t worry about any of that. You don’t need a lawyer, you don’t need to do a title search. There’s going to be a bank involved in your deal and they do a lot of that anyway so don’t worry about all that.

Make sure you love the deal and then sell yourself. You’re selling the whole time. Don’t be negative. When you call you as a buyer, why do you want to immediately knock the value down? But that’s what we do.

Change people’s attitudes. Once you get somebody positive, then you can deal with them. It is difficult to deal with negative people. Once you attack price, then the seller has to defend his price. This position is terrible.

In my LOI I would say that there is no financing contingency and that the purchase agreement will become not fundable. That means that you can’t back out. Yeah, if you can’t get financing you can’t back out. You don’t need money to make money. You need confidence to make money.

That’s basically all that I put into an LOI. I always look for a property that I can improve.

If I can improve the property enough in 18 months or whatever it is and go back to the bank and get another long-term loan. I might of used a bridge loan to get the deal done. A Bridge loan is a short-term loan. You go to your bank and you’re basically signing your name. If you can’t do that right now, find somebody that can.

After I fixed the property, I went back to the bank and said I raised the rents, I fixed the property. Everything’s good. How much money will you give me now?

And today it’s worth maybe $10,000,000 based on the numbers.

So what do you take away from this? Number one, you need to be all in on real estate. You need to be committed. You got to be committed. You have to understand there’s a mental game. First mental, and then mechanical. First you’ve got to know multifamily, not single family, not shopping centers, not storage. You got to focus on some product. Multifamily. Focus on one product. Understand the game. Number two, you got to be looking every day. If you’re not making time to look every day, you’re not committed.

Once you’re committed to real estate, once you know it’s a good deal, you’ll find the money. If you’re not sure, you won’t find the money.

You need to be in this real estate game. Don’t worry about the price. Don’t worry about the loan and do not worry about the legal until you get the deal. Don’t worry about spending a little bit of money. Don’t worry about it. Get rid of your money because it’s going down in value.

 

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