Your chances of being the next Facebook inventor are minimal, but the chance of you buying real estate is possible. I’ll show you exactly how you can get a fifteen percent or higher internal rate of return on your money. All it takes is cash flow, appreciation and an exit strategy.

When I was sixteen I wanted to help my mother and I couldn’t. That became the driving force for me to want to create wealth so I could help her and others.

My goal wasn’t money, it was charity. I wanted to take care of people. People like my family, parents, etc. If I was broke, I couldn’t afford to fund other’s lives. I wanted to take care of me, my family and have reserves to help others.

I spent twenty-five years working my tail off, taking my extra money and investing it into real estate. I missed many things so I could earn extra money so I could invest in real estate and create a passive income stream. The goal was that my passive income would overtake and make more than my earned income.

My number-one rule in investing was to invest in something or someone where I wouldn’t lose my money.  Stocks don’t do that. They’re speculative and I can’t control them. Studying wealth and how the super-wealthy created and grew their wealth led me to real estate. And not any real estate, but multifamily real estate.

Buy a real asset that produces cash flow is very different than buying stocks. For example, buying four million of stocks costs me four-million dollars. But buying four-million dollars of real estate only costs me one-million dollars. Why? Because I only have to put an initial payment down to obtain the property.

Understanding the math of real estate and how to get your investment to multiply is fundamental. One of the many factors to look at is what your IRR is.

An IRR is a metric used to estimate the profitability of a potential investment. This is then used to evaluate the attractiveness of a project or investment.

In real estate, specifically multi-family real estate that I invest in, I’m always looking for a huge IRR. In fact, an IRR of fifteen percent and higher (much higher sometimes) is absolutely possible.

To show you an example, here is the IRR on a deal with below average to average returns:

$4,000,000 property with an initial investment of a $1,000,000 as down payment and $3,000,000 financed. Over the course of ten years, my cash flow each year is five percent and a ten percent appreciation on the equity (not the total investment) totals fifteen percent IRR right there. If you factor in the debt pay down (DPD) of ten years at one-point-five percent, the IRR total is thirty percent.

Real estate investing the correct way (so you don’t lose money!) can be complicated. In the most basic sense, you have to pick great assets in great locations that cash flow and wait as long as it takes and then sell at the perfect moment to maximize your investment.

Want to understand the math behind real estate better? Pick up my book, “How To Create Wealth Investing In Real Estate.”

GC, Cardone Capital.

The place to start is where you know the market, which is code for where you live. Don’t try to go into new markets in the beginning. Shop where you live and stay close to where you live until you start to learn the market and get Real Estate Deals. The first market I ever shopped was within a ten-mile radius of where I lived. For three years, every weekend, when I wasn’t working my main job, I shopped deals, exhausting every broker in the market, and I never bought a deal.

What you learn from walking properties is ten times more valuable than what you will learn reading a book.

When I moved to San Diego, I realized I had learned a lot and walked away from some very good deals. Rather than regretting what I didn’t buy, I resumed shopping properties in the new market I had moved to. The difference was, this time, I had the confidence of KNOWING what I was doing, what I was looking for, what a good deal looked and felt like, and what a bad deal looked and felt like.

Within three years, I had collected five hundred units. Over the last twenty-five years, I have since bought and sold over $1 billion worth of real estate, in nine different markets, through all types of economic climates.

What I know today after doing this for years is:

1) Apartments are the best investment for protecting your capital, providing dependable cash flow, and appreciation over long periods of time. 

2) It’s vital to know the market you are investing in today and looking forward over the next five to ten years.

3) Knowing the market starts with knowing where the deals are and who has them. 

4) The brokers who have the deals you want are CBRE, ARA, Cushman Wakefield, Marcus & Millichap, Berkshire, HFF and a few private broker shops in each market. Of course, there are also the private sellers. By having the right technology, you can get access to the broker property intel and the data is priceless. 

How you contact those brokers and what you say to them is too much for this introduction, as that is an art in and of itself.

I learned very quickly, the fastest way to get deals is to close on the deals you make offers on. Be a closer, stay true to your word, and never violate the trust of the brokers’ market. Once the market knows you are a real buyer (a closer) the game of creating wealth through real estate investing becomes possible.

The broker network is very small, and in most markets, only a few guys control all the apartment inventory, at least the good stuff. If they don’t believe in your ability to close, you will never get the good deals.

Brokers are very private, highly competitive, almost paranoid, and, for the most part, underpaid. If they don’t know you, they won’t even return your phone call. Once you get them on the phone you better be able to validate your story as a buyer.

Also, always deal with the listing broker. Whoever controls the listing, controls the deal. Find out who is controlling the inventory in your market. Just because a broker is the big guy in one market, doesn’t mean they represent well in another.

The next thing is, you have to know the market. When I say “Know the market,” this is what I mean: economics, job providers, rents, concessions, expenses, the growing parts of the market, dying parts of markets, the politics of the city, the home prices in the area, the overall economic conditions, occupancy, cost of insurance, flood zones, salaries, crime rates, walk scores, reviews, concessions, credit worthiness of the market, demographics of your tenants, competition, other sales, history of property going back five years or longer; everything and more.

You should know what the last buyer paid for the deal you are considering, and know how the property operated during the bad times. You must know the existing management company’s work ethic, and service, to unveil opportunities.

You should walk the property during the day, at night, and on the weekends. You should also mystery shop the property in person and over the phone.

When you are investing, there is a lot to research: KNOW, don’t guess. Listen to everyone, ask a lot of questions, but make sure you know what the reality is, not someone’s opinion. Remember the Russian proverb made famous by Ronald Reagan, “Trust but verify.”

Having a passion for property is the first step in creating true wealth in real estate.  Educate yourself more by picking up my book, “How To Create Wealth Investing In Real Estate.”

GC, Cardone Capital.

With sales inventory shrinking and the lack of affordable real estate, knowing how to pick your market is critical. I’ll share the six things you must know to select a winning market.

How to decide which market to buy in is a critical part of the real estate investment process.

Boston? Phoenix? Miami? Houston? San Diego? How do you choose?

After twenty-five years of learning, studying, researching, shopping and walking markets I’ve organized the data you need to know down into six classifications.

I’ll give you a brief overview of these classifications and why they are important to your investment process.

I shop many different markets so I can see what will happen in the future to the markets I’m invested in.

The data you study is going to tell you where to buy and the type of property (size, classification, location, etc.) to buy.

Think of this, one-third of all rental stock in the U.S. is single-family homes. These deals don’t produce enough revenue on their own and will be the first to be victims of any market downturn or adjustment.

Multi-family real estate is the better deal. Storage units have been overbuilt, retail is susceptible to downsizing and are subject to much higher volatility.

16-32 units in the price range of $1.2-$1.6 million with 30% down is the kind of deal you want to be looking for. Again, this size has the power of scale and will allow you to weather a temporary downturn in appreciation, help you with vacancies, give you an edge on amenities to attract renters and gives you wiggle room on improvements to increase property value.

Here’s the six things you must know to select a winning market.

1. AFFORDABILITY

Are the units affordable in the market? Determine how they compare to other rents in the market. Do you have room to raise them if you improve the property? A rule of thumb is three to one or four to one. This means if rent costs $1,000, people need to be earning $3,000 per month or if it’s four to one, they must earn $4,000.

2. JOBS

Does the market have a healthy economy? Are there companies coming into the market and creating jobs? What kind of companies and what kind of jobs?

3. MIGRATION

Are people moving into the market or out of the market? What are the ages of people moving? Where are they moving from? Why are they moving? Jobs? Retirement?  These are huge differences and these renters are looking for very different things.

4. STOCK

What type of inventory and how much of it is present. Be careful if there is a current shortage of units. Are they a lot of builders building so you’ll find yourself in a glut of multifamily when you are looking to sell?

5. EXIT STRATEGY

You should know who you want to sell to and who you buyer is when you are ready to sell. You should know this when you buy. Determine where the market will be and what your leverage and appreciation will be when you are planning on exiting.

6. DISPARITY

Determine the gap between buying a house and rentals in the market. Is housing affordable? Will people want to buy a house or rent?

You can lose money in real estate so you need to do your homework. Learn more about investing in multi-family real estate so you can become an informed investor – no matter if it’s your first deal or fiftieth.   

Not comfortable going it alone? You can invest with Grant Cardone through Cardone Capital, join his Real Estate Investors Club, sign up for his Real Estate Program or pick up his book, “How To Create Wealth Investing In Real Estate”.

GC, Cardone Capital.

Do you think you should own a home or rent? Unless you have twenty million in the bank laying around you have no business buying a house.

Most people think the only way to save money is to buy a house. They have been misinformed and misguided by media, society and even their parents in thinking home ownership is a way to ensure their retirement and that when they’ve grown old that they’ll be financially secure. In most cases, buying a home means you will be paying it off for thirty years. Then to get that money out of it, you would have to sell it. What then? Where will you live?  You won’t be ahead.

A home is not an investment because it doesn’t pay you every month.  In fact, you have to pay for your home every month. Property taxes, easements, insurance, upkeep – plus the mortgage payment itself. That’s why a house is not an asset, it’s a liability. An investment is not a good deal if you are paying in and no cash flow is coming out.  Your equity is tied up and you don’t have access to it.

So, what are the other reasons for renting instead of owning a home? When you rent, you can leave and move when you want. You have flexibility in mobility. With today’s economy and job market it’s not a bad thing to be mobile. And why settle down? Invest the money in yourself or your business. Your money needs to work for you, not the other way around.

If you want a great opportunity to create income for yourself, realize that America is becoming a nation of renters. Apartments offer high cash yield, build equity, give tax advantages and let you use leverage. A $400,000 purchase can be bought with twenty-five percent of the price, allowing you to leverage $100,000 to control four times the value in physical property. Stocks or gold can’t produce that type of result.

A house, much like a 401K savings plan, has been fed to you as part of the American dream and making it. Really, it’s a middle-class myth perpetuated by outdated thinking, politicians and mass media. The middle class is dying. It cannot be sustained anymore by the money being earned by that class of people. Buying a house may have worked for previous generations but old ways of doing things aren’t viable today. We are not in the 1950’s, things have changed and people need to adjust their thinking about finances and creating financial security.

Instead of investing in a house right away, invest in yourself. Becoming better at your job, improving your skill set, networking – all those investments will pay off and improve your financial situation by giving you opportunities to earn more income. Becoming better will never fail you.

Whether you have a house or not is irrelevant to how well you are or, will be, financially. So many people are concentrated on savings but their real problem is they just don’t make enough money. Concentrate on increasing your income so you can save to make a real investment.

Only after you have enough income should you start to think about investing. Buying a home to live in is not going to pay you. Whether it be multifamily real estate or something else, a true investment will not cost you money. A home needs to be fed, it won’t feed you.

If you start investing in yourself, focus on growing your income and putting that growing income into an investment that will pay you, then you will be living like the rich do, not like the middle class.

Most Americans have been made to believe the myth that getting rich is almost impossible or not important. If you look at the world you will see that the only group of people that are safe are the rich. The rich didn’t get rich “buying a house”.

The wealthy will be able to survive inflation, housing busts, tight credit, high unemployment rates and whatever else is thrown at them. They have investments that pay them.

Don’t get caught in the idea that a house is your ticket to wealth. Home ownership has been fed to this country as a way to financial prosperity. It may have been true in the past, but today it’s all a myth.

Is it:

The CAP rate?

The amount of Rent?

Your ROI? (Return on Investment)

The IRR? (Internal Rate of Return)

Your Rent Margin?

One of twenty other terms?

No, it’s actually very simple but something many, many investors get wrong.

If you get this number wrong, you’ll have no leverage in the marketplace, and no chance of growth or achieving wealth.

THE NUMBER OF UNITS IS THE SINGLE MOST IMPORTANT PART OF REAL ESTATE.

Miscalculating the number of units can impact your investment – it will limit your rent growth, your appreciation and your exit strategy.

Two to four units are considered residential. These types of loans are easy to get and that’s why so many people are foolish enough to get them.

This type of real estate doesn’t have the unit margin to support wealth creation.

These deals are so small that they can’t support a management company or any type of property amenities improvements. Without these, your time will be spent managing the property instead of having it be a passive income source. The lack of amenities or improvements will negatively impact property value and appreciation. You won’t have a viable exit strategy because there is no growth and the value will be based on comps in the area instead of the net operating income of the property. And because of its size, just one unit being vacant can sink your investment because suddenly twenty-five to fifty percent of your cash flow can disappear at the drop of a hat.

These are the deals that are foreclosed on first because they don’t generate enough income.

KEEP IN MIND, JUST BECAUSE IT’S EASY, DOESN’T MEAN IT’S THE RIGHT INVESTMENT FOR YOU.

Don’t be tempted to bargain hunt for an investment. An investment isn’t like going to Walmart or doing a Target run. An investment takes homework, knowledge, study and expertise.

This is your hard-earned income that you want to put to work to create more income.

Never think of it as a get-rich-quick scheme.  It has to be a get-rich-for-sure scheme.

You want a commercial real estate deal.  Commercial real estate is defined as five or more units. Ideally, it would be 32 units and a deal valued between $1.6 million and $2.46 million for your first deal.  You should look at putting 25-35% down.

So, if you can’t save that much to do your first deal, then find an investor(s) or invest with someone who is doing the deals you want to do.

Again, you have to do your homework and know for sure this is the right deal, group or person for you to partner with.

By doing a larger deal, you can develop an exit strategy. You can determine if and when you should refinance and sell.  A larger deal can let you do improvements to the property to drive up rent, which will drive your NOI (net operating income) and appreciation.

On a larger property, you can look at landscaping, exterior painting, security, management, pool, parking, gyms and amenities to improve the property.

This NOI improvement will drive up your value. Remember the banks will value your property on the NOI and NOT comps.

Larger deals also insulate your investment through market downturns produced by overbuilding, you’ll be able to handle more vacancy than a smaller property and you’ll be able to influence your net operating income faster and have it be more under your control.

Don’t do the little deals, find the bigger deals that require bigger down payments.

Do your work on the down payment of the deal. Do the extra work to buy the right deal.

Take the time to get your number right and where it needs to be.