In multifamily space, there are two types of plays or deals that you must be familiar with. Learning about these deals will help you roll in the game of multifamily investments better, help you plan and strategize your plans when facing different kinds of deals, assist you properly on the length of time in achieving your projected income and teach you how to deal with your investors in different kinds of circumstances.
Repositioning Play
In learning about repositioning play, it is important to understand that that you have to be prepared in doing lots of work in long periods of time. This is a kind of strategy wherein we try to change the position of the property in the sense that we are attempting to add value to it. Changes of sorts may include adjustments in operations, appearance, or the whole general attribute of the property. Take note that in repositioning play, income generation may not be as quick as you expect it to be. If you’re going to buy a property, on the first and second year, it may not cash flow very well. If it does, it will most probably be just enough for you to pay your equity. Sometimes, it’ll be a combination. On the first year, you can be losing a little money, and on the second you might create profit for your company. Usually it’s on the third year that you will be able hit that “payday moment”.
Normally, this type of deal is slower because firstly, it takes a lot of time to fix your property. Most of the time it takes about a year to do it. In my personal experience, it takes a full year because we don’t rush into these things. We want to get multiple bids along the way. We want to keep occupancy up as best we can. We want to really maintain the asset as we’re going. That’s the first step.
After doing all the technical stuff, the second step is modelling your property by repositioning the tenant base. Note that if you want to learn how to model your property the Kahuna way, it’s best not to cheat the system and pay attention. Cheating yourself will translate into cheating your investors. The key into this step is to not make big expectations that fail in the end. We’d rather project that we can do it on two years and make it in one. Always prepare for the worst-case scenarios. I’d always like to think that if it qualifies as a worst-case scenario deal, then guess what, it’s a deal. Doing otherwise, and making false expectations would only mean cheating our system.
Settle for green light deals. Secure a good partnership with your investors just like what we do in the Kahuna. Sure, it takes a large amount of time but when we’re talking about modelling and presenting deals with our investors, in repositioning play, you must do this in a very conservative manner. It is always best to under promise and overdeliver. Every time. When done right, you can make a crap ton of money.
Momentum Play
Momentum play basically means that we are acquiring an operationally sound property. Unlike in repositioning play, momentum deals are deals where you get to purchase a property in a relatively good price and there is no necessity to do adjustments on the basics of the physical attribute of the property. On day one, your cash flow will work immediately, creating enough income to pay your investors. There’s not a lot of risk to the deal but there’s also not a lot of profit.
In one of our investments, the Forestwood Apartment Complex, there wasn’t a lot of work needed to be done when we bought the property. It was an easy deal. Every quarter we did not miss a payment. It’s been very easy to pay our investors. We make enough profit. I think we’re making $25,000 to $30,000 net profit every month. It takes around $9000 every month to pay my investors. But it was a pretty profitable deal. In our projections, within five years we’ll be able to sell the property and make about $1 million profit. Indeed $1 million is a large amount of money, but to hold an apartment complex for $3.6 million and to make only about $1 million profit, that’s my side of the profit. But in the back of my mind, I was making $1 million from a very easy deal. Most importantly, it pays my investors.
These are just some small simple tips to help you in your career in real estate. Remember to always learn expand your knowledge in the economics of multifamily investments. Always think of, “what if?” What if something happens, I must be able to make money to make my investors whole. It’s important to prepare for the worst-case scenarios and most importantly, all you have to do is believe it with the thing between your two ears, and believe it wholeheartedly, and then go on a relentless pursuit for it.
WHAT TO WATCH OUT FOR:
This is just the tip of the iceberg! Coming out in the next month is the Kahuna Cash Flow Calculator. This system that I have been working on meticulously to give you an underwriting structure. I’ve taken three or four of the templates that I liked. I’ve mashed them together to give what I think is the easiest and cleanest but most in-depth software. Right now, it’s going to be in my beta test. I’m just going to have it in an Excel format which is very cool for the people that are going to take this thing up.
Check out the Kahuna Wealth Builders, get my Quick Start video series, or better yet, go to whytherichgetricher.net and get my book.
