Financial Freedom with Real Estate Investing

No one wants to lose their shirt—or anything else for that matter—in multifamily investing. But it’s easy for inexperienced syndicators develop an emotional bias and conflate the numbers in order to make a deal look good to potential investors. And passive investors new to the game typically focus on returns, when their first question ought to be about the risks involved. Conservative underwriting is the key to risk management for syndicators and investors alike… But how do you ensure that the numbers are reasonable? What questions should investors be asking? And how can you tell when a syndicator is too aggressive?

Omar Khan is a Chartered Financial Analyst with Boardwalk Wealth, a private equity firm based in Dallas, Texas, that connects international investors with multifamily opportunities in the southern US. Omar is responsible for raising capital, strategic planning, the development of underwriting models, and investor relations. He has 10-plus years of global investment experience, and Omar has participated in capital financing and M&A transactions valued at $3.7B.

Omar joins me to explain how to identify aggressive underwriting and ensure the accuracy of the numbers used in a particular model. We cover conservative guidelines for reserves and loan terms as well as the importance of planning for worst-case scenarios. Listen in for Omar’s insight around what to look for in a syndicator, how to leverage a sensitivity analysis, and the exit strategy questions an investor should ask—and a syndicator should be prepared to answer!

Key Takeaways

Omar’s background in finance

  • Ten years investing experience
  • Raise capital, develop underwriting models (large syndication deals)

How to identify aggressive underwriting numbers

  • Unreasonable rent growth projections (4% max)
  • Overly ambitious rehab plans

How to ensure accuracy of numbers used in model

  • Ranges rather than specific numbers
  • Sponsor solicits several data sources

What Omar looks for in the cap rate at exit

  • 50-200 basis points higher (3-5 year term)

The internal systems questions passive investors should be asking

  • Frequency of communication with sponsor
  • Auditing of financial statements (who, how often)
  • Systems, resources to resolve problems

The qualities Omar is looking for in a syndicator

  • Admit to mistakes rather than blaming others
  • Plan for solving potential problems

Omar’s insight around communicating with investors

  • Monthly email to relate progress
  • Quarterly, annual in-depth reports
  • Open and honest when mistakes made

Omar’s advice around conservative loan terms

  • Avoid 12-24 month refi
  • As long term as possible (even if slightly higher interest rate)
  • First question should address risk rather than returns

Omar’s approach to bridge loans

  • Don’t touch unless very experienced
  • Get out as quickly as possible (12 months)
  • Shouldn’t worry about running out of cash

The most conservative underwriting guidelines for reserves

  • $1K per unit, one month operating reserves
  • Take reserves out of cashflow ($250/unit/year)
  • Ensure syndicator has access to financing

The importance of planning for worst-case scenarios

  • Use modeling to develop Plan B, C & D

How the passive investor can leverage a sensitivity analysis

  • Analyze variables (i.e.: holding period, interest rates)
  • See where IRR, exit cap lies in different scenarios

Omar’s advice on the exit strategy questions to ask syndicators

  • When/to whom might we sell?
  • Do you have relationships with lenders for refi?

Connect with Omar

Boardwalk Wealth

Email omar@boardwalkweath.com

Call (214) 727-8643

Resources

Rentometer

CoStar

Invest with Michael

Partner with Michael

Michael’s Course

Financial Freedom Summit

Podcast Show Notes

Free eBook: The Secret to Raising Money to Buy Your First Apartment Building

  • Download
  • Text “secretbook” to 44222

Review the Podcast on iTunes

Michael’s Products

Syndicated Deal Analyzer

Contact Michael

Michael on LinkedIn

Financial Freedom Summit

Partner with Michael

Invest with Michael

Michael’s Course

Free eBook: The Secret to Raising Money to Buy Your First Apartment Building

Review the Podcast on iTunes


‘It is in your moments of decision that your destiny is shaped.’

--Tony Robbins

In my experience, once you truly decide to pursue multifamily investing, it will take 3 to 18 months to do your first deal. In 3 to 5 years, you will have replaced your income and quit your job. And the entire process is set in motion via the Law of the First Deal.

Today, I’m unpacking the powerful Law of the First Deal. I start with its basic principles, offering case studies of podcast guests who were able to replace their income within 3 years and quit their jobs via multifamily investing. I explain why the Law of the First Deal works, describing how investors become deal (and money!) magnets soon after their first closing.

Finally, I walk you through the steps necessary to develop a concrete plan, calculating how long it will take to quit your job—based on your individual Rat Race Number. Listen in for insight on how to leverage the Law of the First Deal to replace your income with multifamily!

Key Takeaways

The principles of the Law of the First Deal

  • First deal is smallest, most difficult
  • Second and third follow in rapid succession
  • Replace income within 2 to 3 years

Case studies of the Law of the First Deal

Why the Law of the First Deal works

  • Magnet for deals, brokers approach with pocket listings
  • Magnet for money, investors who missed out want in
  • Deals get bigger as comfort zone expands

How long it takes to quit your job

  1. Determine average income per unit
  2. Establish how many units you need to cover living expenses
  3. Determine how long it will take
  4. Determine size of first deal

The typical Law of the First Deal timeline

  • First deal in 3 to 18 months
  • Second deal within 6 months
  • Third deal within 6 months
  • Total of 1 to 3 years

The value of establishing a concrete plan

  • Focus on first deal, avoid overwhelm

Resources

ABI EP027 Drew Kniffin

ABI EP 073 Brad Tacia

ABI EP072 Tyler Sheff

ABI EP078 Joseph Gozlan

Michael’s Products

Syndicated Deal Analyzer

Contact Michael

Michael on LinkedIn

Financial Freedom Summit

Partner with Michael

Invest with Michael

Michael’s Course

Free eBook: The Secret to Raising Money to Buy Your First Apartment Building

Review the Podcast on iTunes

Direct download: MB_109-_The_Law_of_the__First_Deal_-_with_Michael_Blank.mp3
Category:Commercial Real Estate -- posted at: 2:02pm EDT

Would you be willing to make 4,500 agonizing phone calls to land your first property? How about going to the trouble of analyzing 100 deals to find one good one? It goes without saying that we have unparalleled opportunities here in the US, but success is unlikely to fall into your lap. So, if you are looking to become a successful multifamily investor, you have to START: Learn to analyze deals properly and get one done.

Andrew Cushman is the principal of Vantage Point Acquisitions, a multifamily investment firm out of Southern California. Andrew has a BS in Chemical Engineering from Texas A&M University, and he worked for a Cargill Foods for seven years before leaving the corporate world for real estate investment. He completed 24 profitable single family flips before making the transition to apartment building acquisitions in 2010. Since then, Andrew has successfully syndicated 1,800 units that continue to provide investors with strong returns.

Today, Andrew joins me to share his story, explaining how an article in the Wall Street Journal inspired his real estate career and why he made the transition from pre-foreclosure flips to multifamily. He walks us through his first deal, a 92-unit property in Macon, Georgia, discussing his mistakes around failing to vet investors and underestimating renovation costs. Andrew offers advice for aspiring investors on beginning with the end in mind, building a network of investors, and partnering for instant legitimacy. Listen in for Andrew’s insight into the benefits of B properties and learn why finding a good deal in the current climate is challenging—but not impossible!

Key Takeaways

How Andrew got into real estate

  • Chemical engineering degree
  • Tried other businesses
  • Article in WSJ re: flipping houses
  • Four years in single family (pre-foreclosures)

Andrew’s shift to multifamily

  • ‘Only as good as last flip’
  • Looking for true financial freedom

Andrew’s first multifamily deal

  • Hired mentor as guide
  • 92-unit deal in Macon, GA
  • 75% vacant, built in 1960’s
  • All-cash syndication ($1.2M raise)

How Andrew financed his first deal

  • Failed to vet investors, lost ¾ of $800K
  • Reached out to entire network
  • Extended closing three times
  • Seller agreed to carry $200K note
  • Raised just enough to close
  • Continued to raise for renovation

What Andrew learned from his first deal

  • Properly screen neighborhood
  • Better estimate rehab costs
  • Better track rehab spending
  • Hire right contractors

Andrew’s advice around doing your first deal

  • Choose deal just outside comfort zone
  • Begin with end in mind, work backwards
  • ‘Don’t buy in the hood’
  • Don’t underestimate rehab costs
  • Learn to analyze deals and get one done

Andrew’s take on the challenge of finding a great deal

  • Must be willing to analyze 100 to find one
  • Don’t look for home run on first deal

Andrew’s insight for aspiring investors who lack capital

  • Start analyzing deals
  • Build network of potential investors (sample deal)

The value in partnering

  • Saves from mistakes
  • Creates legitimacy
  • Go farther, faster

Andrew’s advice to his 22-year-old self

  • Go straight into multifamily
  • B properties = highest return with least effort

Andrew’s perfect day

  • Surf in morning
  • Work at home office
  • Meet wife for lunch
  • Family dinner
  • Work in evening

What Andrew is looking forward to

  • Deal with colleague met at conference
  • Climb, ski Mount Shasta

Connect with Andrew

Vantage Point Acquisitions

Andrew on LinkedIn

Andrew on BiggerPockets

Resources

LoopNet

Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not! by Robert T. Kiyosaki

Michael’s Ultimate Guide to Apartment Building Investing

Syndicated Deal Analyzer

Financial Freedom Summit

Partner with Michael

Invest with Michael

Michael’s Course

Free eBook: The Secret to Raising Money to Buy Your First Apartment Building

Review the Podcast on iTunes


At the heart of every successful entrepreneur is a deep sense of spirituality. There is strength in developing a relationship with the higher power, and you must get your ‘being’ right before you can do something truly meaningful.

I recently saw Robert Kiyosaki speak on The Real Estate Guys cruise, and his talk reminded me of the connection between my success as an entrepreneur and my faith. Today, I’m sharing the three spiritual lessons that changed my life and brought me to the work I do now, teaching others to raise money and achieve financial freedom through apartment building investing.

I start by sharing my early success with the software startup webMETHODS, explaining how that experience created the illusion that I was in control of my own destiny. Then I describe the challenges I have faced as an entrepreneur and the three lessons I learned around giving up control, finding peace regardless of the circumstances, and shifting to a mindset of giving. Listen in for insight on the relationship between success and spirituality and learn to step out in faith—and realize an incredibly fulfilling life!

Key Takeaways

The concept of Be Do Have

  • Must get ‘being’ right before accomplish something of meaning
  • Involves character, relationship with God

My early success in tech

  • Joined webMETHODS software startup in 1997
  • Company had most successful IPO in history

Spiritual Lesson #1: You are not in control

  • Left job in 2005 to pursue passive income
  • Bought three restaurants, losing money
  • Realized couldn’t control outcome despite best efforts
  • Surrendered control and sales increased by $4K in four weeks

Spiritual Lesson #2: Find peace regardless of the circumstances

  • First apartment deal in 2011
  • ‘Professional tenant’ sued in housing court every six weeks
  • Attorney fees, fines and no rent coming in
  • Found sense of peace and tenant dropped all charges

Spiritual Lesson #3: Shift to a mindset of giving

  • Profit margins on restaurants shrinking in 2013
  • Had to let VP go, running pizzerias myself
  • Losing $10K/week, all money deployed
  • Spent time reflecting on when felt most alive
  • Idea to start online business teaching multifamily
  • Motivation to help others brought success

The relationship between success and spirituality

  • Relationship with God provides strength
  • Great things happen when step out in faith

Resources

The Real Estate Guys Events

Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not! by Robert T. Kiyosaki

Damion Lupo on Apartment Building Investing

The Untethered Soul: The Journey Beyond Yourself by Michael A. Singer

Uganda Counseling and Support Services

Financial Freedom Summit

Partner with Michael

Invest with Michael

Michael’s Course

Free eBook: The Secret to Raising Money to Buy Your First Apartment Building

Review the Podcast on iTunes


1