In my humble opinion, real estate is the best way to grow your wealth. If you want to get super rich (think billionaire) get involved in real estate — but I’m not talking about just any kind of real estate.

For example, a home is not an investment, because it doesn’t pay you each month — you have to pay it.

It’s a liability to me, not an asset. Not only does a house leave you less mobile, it ties up your money so you can’t use it for real assets.

There are many indications that multi-family real estate investments will continue to be great looking into the 2020’s and beyond:

• 75 million Baby Boomers are retiring
• Many of today’s apartment complexes may be converted to retirement communities in the future
• Many millennials aren’t buying homes
• It’s getting more expensive to build new apartment units

Your first challenge is simply getting a down payment. Once you do, it’s easier to get a loan on a multi-family unit than any other piece of real estate. Multi-family is the easiest way to get rich once you’re in the game!

Let’s say you can find a 49-unit property priced at $35,000 per unit with an 8% cap (the return on investment based on the income a property is projected to create) for $1,750,000.

If you pay cash for this deal at $1,750,000, you would make $140,000 free cashflow per year after expenses. With $450,000 down and financing $1,300,000, the debt payment would be $78,000 per year. This would make you $62,000 cash flow per year. This cannot be done with a home, period.

For the vast majority of people, college never leads to riches, nor does a home. If your goal is to build up $300,000 of equity over 30 years, then buying a home is a way to park your money the same way you would in a savings account or under a mattress. If you want to leverage your money and grow wealth, buying a home is not the way to go.

If you go into multi family real estate investment the right way, over the next decade it could be the best investment strategy of your lifetime — and I put my money where my mouth is. I currently own almost 5,000 apartments and will soon have over 10,000. They are not building enough multi-family apartment buildings to keep up with demand.

If you want to get involved in multi-family real estate, start with a minimum of sixteen units, avoid single family residences and condos, and only buy multi-units at one address.

If you struggle with producing enough income to save enough for a significant down payment, you can partner with me in smaller amounts.

Be Great,

GC

I’m going to show you the different ways you can build value in a real estate deal. You need the find the value in order to create and increase income. Approach each deal with the question: Where’s it at? Where’s it at? You can add value many ways and today I’ll show you five.  You can always add value the hard way, which is yourself – sweat equity, or you could actually manage the value add and actually have a game plan.

A salesperson has to add value. If you’re selling something, selling a product, there’s got to be a value add. Otherwise you’re just stuck on price.

For example, if you want to build a phone, a great phone, what value add would it need?  It would have apps on it. It would have a camera, great camera and it will be able to shoot video and do slow motion. It would have to have improvements constantly. It would be a value add.

How do you keep people shopping your product? You add value.

How do you add value to your career? You add value to the person you’re working for. Let’s say you’re a receptionist. How do you add value? Well, you know what, you know everything that’s going on. You know about all the products.

How do you do that in an apartment? I’m going to walk you through five ways to add value

1. Rent Disparity

Now, the first thing I look for in any market is what’s called rent disparity. Rent disparity means a difference. Rent disparity is if you can find a market that’s got $800 rent but has the potential to go to $4,000. Basically, it’s an economic explanation for the process of gentrification (creating improvements to raise value). It describes the disparity between the current rental income of a property and the potentially achievable rental income. You’re looking for the middle ground.

My sweet spot is that I want to be in multifamily, not shopping centers, not storage, not houses. So, when you buy four units and you’re at a thousand dollars a month, where’s the rent disparity? Where’s the value that can be added? How are you going to add value to exit? How are you going to add value to raise the rents? So, one thing to look for is markets where there’s rent disparity.

2. Timing

If I know there’s a bunch of product around being built around my property at significantly higher prices per door – again, rent disparity. But it’s also timing. I got people that are investing (banks and investors) that are investing a bunch of money around my property – It’s a timing play. How do you know about the timing? You got to be in the marketplace. You got to be in the marketplace to know when the timing’s right…

3. Amenities (Kitchens, floors, Garages, VIP Parking, Washer and Dryers)

Amenities are going to get you more rent. You fix a pool because it makes the place easier to rent.

People viewing the property will say, “Oh God, you’ve got ellipticals. Oh God. Oh, my gosh. You have nice people here. Oh, you got grills outside!” That only makes for a higher closing ratio when people visit your property. So, you captured them. Amenities make it easier for the management company to close the deal. For example, let’s say washers and dryers cost $600 per unit but by installing them I can increase the rent by $65 per month. That’s roughly $800 per year. Would you invest $600 to get back $800 a year? Uh, Yes, I would.

Here’s a value add example: We’re going to get another $65 a month for washers and dryers, we think we’re going to get another $25 per VIP parking. We think we’re going to get another $17 a month for VIP trash. We pick up your trash. You don’t. That’s another$100 to $150 a month! Multiply that by 200 units per month, which is $30,000 and 12 months would be $360,000 a year!

That’s called value add. invest something to get something back. And investment means you put your money at risk in order to get more money back. What will people pay for is value.

4. Income

You need the property/deal to be producing income. When you buy one of these deals, the bank is not going to give you a loan if you cannot substantiate that this deal will produce income immediately.

5. Reducing Expenses

If I’m buying a property and I have another property in the same city I can have the same management company do both properties. There will be savings based on economy of scale.  I can reduce my trash expenses, or other property maintenance expenses – again using the economy of scale.  And that’s going to lower the expenses on the portfolio. Another way to lower my expenses is to get preferred financing or use debt to my advantage on the deal. I could get an interest only terms or great debt which is going to return my investment, return my cash flow to investors, etc.

This is about value add. It’s about where’s the value add in the deal. There’s times where I paid all the money for a deal or over because I know there’s value add based on timing, based on pricing, based on debt, based on opportunity.

Add value to your deal and you’ll always have a buyer and appreciation when you exit.

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.

How many units should it have?

What should you pay for it?

How much debt should you have?

What should the CAP rate be?

Let me show you an example of what an ideal deal looks like and how that deal can double your investment.

Your ideal first deal should look something like this:

AROUND THIRTY-TWO UNITS

You want a unit number that is large enough to produce cash flow to cover your debt and pay you each month. You want a number that can weather economic cycles to ensure that you will come out ahead when you exit. You’ll also want to pay attention to the number of units so having vacancies doesn’t tip the scales and ruin your investment.

ABOUT FOUR MILLION IN COST

This number will fluctuate of course based on geographic area and other factors. Four million puts each unit at $125,000 which means that it is in a good market, in good condition, etc. This is a guideline that I explain more in my book, “How To Create Wealth, Investing In Real Estate”.

Putting one-million dollars as a down payment so you finance three million.

This is gives you a good debt ratio as well as allows you to aim for an interest only loan. If you can’t invest this much, go in with an investor who is doing larger deals. Small deals will sink you and are always the first to be foreclosed because there is not enough margin to keep it afloat if something changes like vacancy, improvements needed, insurance, etc.

SIX PERCENT CAP RATE

Remember, this number helps evaluate a real estate investment. The CAP rate determines the net operating income (NOI) of the current market value (sales price) of the asset. So if a property is at a CAP rate of six percent it means that it is earning $240,000 per year in net operating income (income from rent). Six percent of four-million dollars is $240,000.  The lower the cap rate, the worse the property makes in rent.

Now, let’s look at the magic and power of real estate and controlling an asset that produces cash flow.

On the deal above with paying one-million dollars down on a four-million-dollar property leaves a three-million-dollar debt. Keep in mind, the only out of pocket is the one-million dollars that was put down.  So, what you want to double is that amount to two-million dollars.

Paying interest only on three million is $136,500 per year. We’ve already calculated the CAP rate of six percent so we are making $240,000 per year. Minus the interest, we are left with $103,500 in cash flow. That’s ten percent cash flow rate.  In five years, you would have made half your one-million-dollar investment back. Now that doesn’t take into account any property management or improvements you make. Doing anything with each of those two areas, would mean you could increase rent thus increasing your cash flow.

So following this simple math, in five years if you sell the property for $4.5 million you’d have doubled your original investment of one million to two million. And this would be a non-taxable event.

Increasing your cash flow is going to increase the value of your property. The most obvious way to do this is by increasing the rent. That’s one of the things to look for in your deal is the ability to raise rent.

There’s a few ways to raise rent. You can just because. This would be a generic cost of living increase. You could raise rents due to exterior improvements to the property like landscaping or paint. Give tenants something in return for increasing the rent like washer/dryers, ceiling fans, better lighting, countertops, etc. Don’t overcomplicate it though. For every dollar you spend, you want a 25% return.

Investing in real estate is investing in a real asset that will inflate in value and will produce positive cash flow and double your investment if you do it right.

I’ve single-handedly built a real-estate empire without raising external capital.  I didn’t do this as a full-time career but as a side business.  I wanted to have a stable place to park my income from my other businesses that could be a wealth preservation and creation vehicle.  Cardone Capital has been involved in more than $425 million in transactions and I’m looking to grow it to not just 1, not 2, not 3, but FOUR BILLION dollars.

I’M ALSO LOOKING FOR PARTNERS WHO WOULD LIKE TO INVEST WITH ME.

Taking on the right kind of debt lets you keep what’s yours, you don’t need to give up company equity for cash.  Debt can help you manage cash flow.  It’s not really that complicated.  Let’s say you have a company that has an opportunity to sign a contract for $100K but you need some equipment to fulfill it that will cost you $40K you don’t have.  Debt is great for you—get a loan, pay a little interest, and make your profit.  Just do the math.  If profit will outweigh the debt with interest, why not take it on?  Measure the return on investment (ROI). With debt, you need to be certain that an investment’s ROI exceeds its after-tax interest cost.

When I was 29 I bought my first property—a single family property in Houston.  After a couple of months, the tenants left.  With no cash flow coming in, I sold and broke even.  I swore I’d never buy single family again because I don’t want my occupancy rate to go from 100% to 0%.  I didn’t buy again for five years, during which time I just accumulated cash by becoming a master salesman, hustling like crazy, and saving.  I bought a $1.9 million dollar 38-unit complex in San Diego with $350K down.

More recently, in 2012 I made the largest private party acquisition of multi-family real estate in Florida, purchasing 1016 units for $59 million, much of which was financed with debt from Fannie Mae.  Recently I’ve been looking in Houston, Texas.

DEBT IS MY FRIEND, AND IT CAN BE YOUR FRIEND.

I use debt to add income producing assets which offer great upside and throw off positive cash flow.

If you have BAD debt, or if you have no money to even get a loan, get on Cardone University today.  It will be more valuable to you than an education at Harvard, Yale, or Cornell.  Go into debt if you have to—remember that any debt that has a positive ROI is good debt.  Your ROI on Cardone University will far exceed your wildest expectations.  Remember you only have a little bit of debt and a whole lot of riches to gain.

Also, my exclusive Sales Boot Camp is coming up.  We’ve got some great content to help jump start your sales no matter what industry you’re in.

GC, Cardone Capital.

2. Shop The Deals.

3. Find Deals That Are For Sale.

4. Contact.

5. Learn/Make a Pitch.

6. Underwrite Your Deal.

7. LOI (Letter Of Intent)

8. Financing and/or Investors.

9. Legal.

10. CLOSE.

So, you pay the bills and take care of your family, right?

But what would cause you to work even harder to earn more money?

The next reason for most people is they take on an extra job or work overtime so they can change the level of comfort or choices you and your family have available to you.

But there is another level I learned about when I was in my thirties while studying wealthy people. There is an old saying, “Get your money to work for you as hard as you work for it.” When I read that it changed my life.

I immediately quit trying to improve the quality of stuff I bought, (cars, houses, clothes, trips) and started earning extra money so I could invest the extra money in things that would get me more extra money. The goal, back then, was to earn $10,000 a year or $833 a month on my extra money.

So, I started studying investments and locked in on real estate because I have always loved real property and it is more understandable to me than stocks.

I did the math and figured if I could buy ten apartments that each paid me $80-100 a month of free cash flow after expenses and debt, I would earn an extra ten thousand a year.

My first real estate deal was a bit of a misfire and I explain it in my  book so you don’t have to make it. My second real estate deal I was able to purchase 48 units that paid me $35,000 a year in free cash flow. I later sold that property and made $3M of profit above the cash flow and that was more money than I had made in 15 years of working. I was hooked on real estate forever.

In my new book, How to Create Wealth Investing in Real Estate, I walk you step by step through what I have learned and how anyone can do this for themselves. If you want the book because you follow me here on LinkedIn and just pay for shipping and I will cover the cost of the book.

Today I own almost 5000 units and remember, my originally goal was only twenty units.

Now I nearly earn more free cash flow every month from real estate than my other seven businesses combined. The difference between my real estate investments and my other businesses is the real estate doesn’t require my constant effort, worry, energy and attention.

Warren Buffett says, “If you don’t learn how to create money while you sleep, you will work until you die.” The point is investing in the right assets can provide you with passive flows of income forever while you wait for appreciation on your investment in the future.

This brings me back to the subject line, Go Broke Investing. When I earn extra income, above and beyond my basic living, I invest the money. That is what I mean by going broke investing and you will never go broke.

I owned 500 units and had two other businesses profitable and no one knew anything had changed for me.

I wasn’t spending money on houses, cars and watches, I was putting the money back to work in hopes that one day I would earn more money from my money working than my time.

I explain this in my book and if you love real estate and always wanted to know how to get started, where to find deals, how to evaluate the deal, how to manage or how to get funding, then you owe it to yourself and your family to get a copy and read it. Just do me a favor and write a review and post a picture of yourself reading it somewhere online and I will buy the book for you.

Have you done the math yet on how much cash flow 5000 units produce every month?

Enjoy the book as my gift and good luck investing. Look forward to your comments below.

GC, CardoneCapital.com

1) Know Your Market

2) Never Invest in One Door

3) Know Your Debt Partner

4) Calculate Returns Over Years

5) Exit

Know Your Market

• Rents. You need to know what rents are in the neighborhood. Are they seasonal or year-round?
• Jobs. What is the employment rate, industry and companies that fuel the rent situation? What have the trends been in the area?
• Occupancy. What is the physical occupancy of the property? What is the financial and economic occupancy? Again, look at the trends and year over year.
• Tenants. Who are the tenants, their history and the type that rent there? Has it always been that way? Are things changing?
• Location. Where is it? What is it near? Is it a transition neighborhood? A few blocks can change things dramatically. Is there any construction planned? What type?
• Owner. Know the other owners in the market along with the current owner of the property.
• Sellers. Know who the sellers are in the market and who you are competing with.
• Market Expenses. How much are utilities? Does a one, two or three-unit work better in the market? What is the unit price? Will parking, lighting push rent up or be seen as a detriment?

Four ways to approach real estate

• Buy it yourself. Self-fund your purchase.
• REIT. A real estate investment trust. Not recommended but it will pay you more than the bank. You get dividends but you don’t own the property.
• Syndicator. You invest money within an investor fund.
• Cardone Capital. You have the opportunity to buy a real asset, are an owner of it and you receive a monthly dividend.

• Residential. Usually four units or less, and you must occupy one. This loan is fairly easy to get, usually easier to get than home loan. This loan is based on credit, income and the rental income is added to your income.
• Commercial. Loans for four units and above. The bigger the deal gets, the more the lender will look at income of the property and less to your income. Banks will look at your net worth first, then credit, and your track record (your ability to manage the property).

Money Myths

• Buy a house. In reality, this ties up your money.
• Invest in a retirement plan. You’re giving your money to someone else and have no control over it.
• Buy Stocks. Gambling with your money.
• Savings Account. A bank gives you no return on your money by having it sit in your account.
• Small real estate investments. These types of investments aren’t big enough to create real money that can become indestructible.

• Find the right deal
• Negotiate the right price and win the deal
• Finance the deal