The Process of Finding New Investments With Mike Heckman
Property investments nowadays has brought about unending passive income to it’s investors. But having sudden changes in the economy, not to mention different loops in the industry, investors tend to seek the help of companies who has more experience in the industry. Companies that are extremely resourceful and very good at underwriting.
With over 20 years of experience in real estate investment, Mike Heckman, the director of Acquisitions & Incorporations at Alexander Forrest Investments explains the different process on how his company can help other investors find the right property for them.
The Company – It’s history and role to Property Investments
The primary role of the company is to identify potential transactional offerings in the multi-family space. Having both class B and C as the target market. As a third-party service platform, AFI has set a goal that wasn’t lofty but it does at that time and seemed logical to simply underwrite all of them. That means putting them through a full seven-year, wolf street quality financial model Excel. Everybody who have seen one would recognize, 14 tabs with thousands of cells. This Excel file contains assumptions, AFI’s operational platform, and demographics.
Using AFI’s operational experience since 1989 and having Mike’s investment in multi-family by seven years, leveraging those 28 years of experience, the company now knows how much things cost, and in some ways, the knowledge of what would be below the market might say something would cost, it simply sets a bar for the financial metric. Once the property is qualified then more research will follow.
Finding the right property at the right time.
Sometimes the timeline can be short. Most of the time it’s either more equity than what is currently available simply because equity is engaged elsewhere. And this is where the underwriting goes in, so that the company will have an inventory.
There are a lot of investors, but sometimes they invest in the wrong locations, the metrics of that city are just not as desirable as it can be. Certainly, there are several deals where a person’s equity can be parked, but AFI’s goal is to put these equity into action. A potential for cashflow. Fat deals that turns out to be skinnier is better that skinny deals that becomes skinnier.
Digging up a deal killer. If there’s none, it will be a positive deal. A very few times it’s the fault of the dirt, the building, the street, the address and sometimes it has got to do with the people. Both to those who own, those who operate, and those who resides there. That’s where the focus of quality has to lie.
External influences or factors that would negatively impact the disposition process is something that can’t be solve immediately. Site visits are a must. At night time, what’s going on in the submarket’s property can be a factor for disqualification. However, there are manageable negative factors that can be changed once the property has been purchased. Depending on how the owner reacts and deals with these negative factors, the property will definitely have a good reputation.
Knowing what to improve. It requires not just a system but a focused, energetic, round-the-clock grinding on the issues and paying attention, and tracking data, knowing exactly what’s going on. It is the owner’s responsibility to care enough for their properties.
Operational execution is the key to leverage.
Do not be aggressive in underwritings. It is way better to model a conservative number, then if the deal works, continue with it. As operators, the goal is to keep these properties going for the next 2-3 years, and then following the rent optimization for another 3 years, maintain and improve the assets to become a high-level property.
It’s so much better just to be conservative in the underwriting, let your numbers tell you whether to deal or not then when you’re in the inspection, the company is just going to verify that nothing’s been misstated.
There’s always a romantic tale that they want to tell of why the asset is worth what they’re asking. The company have no interest in that. It’s merely the submarket characteristics, the asset’s current condition, the operational expertise of the current operator and what its potential
AFI’s underwritings and assumptions maybe are above the market. This true because the company will provide a higher budget than that of what the “market’ has assumed due to the improvements it will bring in order to stabilize and grow NOI.
This is how a third-party real estate company does. It provides more profit than what was planned. It oversees development for the long term instead of short term investments. It is expected that they overdeliver to have these clients become advocates of their product as well. Having a third-party real estate company work for you will provide you several options on how you can get more from what you’ve expected. A lot of cash flow for you.
So, if you haven’t already, go to Kahuna Wealth Builders site (kahunawealthbuilders.com) and get the Cashflow Quickstart Workshop. There’s more in that content and you’ll get a much better understanding about property investments. Like us and send in your reviews too via iTunes, it’s really greatly appreciated and it does mean a lot.
The website and podcasts will allow us to reach more people so that they can understand everything about property investments. That your own paradise is within reach. You don’t have to be a master at a lot of things. All you have to do is be a master in cashflow and by doing that one thing, that one thing can set you free for life. Go out and have a wonderful day.