Rental Property = Cash Flow

Benefits Of Real Estate As Rental Property

Rental property brings the power of amortization, appreciation, depreciation, cash flow, tax advantages, equity & leverage. This is like Captain Planet. Where all of the different heroes combine their elements and create the ultimate superhero. Real Estate is very similar. Because of these seven benefits to multifamily, there are so many reasons to invest in rental property as opposed to alternative investments. But the most magical, most powerful of them all is the eighth wonder of the world. The compound effect.

Over time, these rental properties pay for more rental properties. Over time, these rental properties become like an insurance policy over a bad deal, they cover it. And once that deal stabilizes. It all adds up, you start getting more and more cash flow. And if you don't over-leverage, you're paying down the mortgage, and you're paying down any early debt. So, you're getting the amortization. If the market continues to go up, you're getting that appreciation, which adds to your equity. Now you get that power, that asset. But sometimes you don't even need equity. Sometimes all you need is the cash flow, tax benefits, and depreciation working for you.

More Property Owned Does Give You an Advantage

In our case, I can go to a bank and say, “Yeah, I got $10 million worth of assets”. The bank just wants to know that I can handle that size of deal. They're actually willing to give me more money, because I've proven to be trustworthy. Now the equity does help when it comes to lending. But just knowing when you're making a deal with an investor, they'll question “What else do you own? What else do you have? Have you closed before? Can you manage these things? Can you handle this property?” So having the asset, and experience now obviously helps. There are so many elements that compound in real estate multifamily but none of them happen in wholesale. Keep that in mind when choosing your path.

You take the cash flow, improve the building and once the building is throwing off excess cash flow, you do not live off of that. You take that money and you store it up for the next down payment. Once you get a bunch of them, they start buying more rental property. Sometimes they have equity appreciation that allows you to buy more. Remember, It's not timing the market, it's time in the market, it's doing a great deal. It's putting in backup offers. It's putting in more offers than anybody else. It's evaluating more deals than anybody else. It means you're putting in offers that if they hit, it would be a home run. Keep putting names on deeds until you reach your goal.

Does Your Head Hang in Shame on that Offer?

My business partner, Ron and I had a potential deal of 11 units for $750,000, and here’s our conversation. Ron: “Does your head hang in shame on that offer?”
Gualter: “No, but it's a decent deal.”
Ron: “I don't like decent deals. I really like to have your head hanging in shame on the offer.”
Gualter: “What do you think about $700K?”
Ron: “How do you feel about $700K?”
Gualter: “Well, it's better.”
Ron: "But does your head hang in shame?”
Gualter: "No." Ron: "So what about $600K? How do you feel about $600K?”

Gualter: "Well, I feel pretty bad. Six is low. Like that's really low."
Ron: "That's probably the one then."

So, we went back and we offered $600K and they eventually took it. The next year in our refinance the same 11 units were appraised at $900K!

I want you to be walking around "feeling bad" about the low offer you just put in. So that one day when the offer gets accepted, you're thinking, “I can't believe I did that! I can't wait to tell everybody that this got accepted. This is insane. The best deal ever!” Do you ever wonder why I brag about all my deals? It's because of how I get them, I literally hang my head in shame week after week after week of many rejections. We just stick to the offers and wait for the right one.

In Conclusion

We don't wait for an agent to call us. We're the ones calling agents. We're calling wholesalers, we're calling the owners directly, all my investor friends, have heard me say, “Hey, I don't want you to be offended. I want to be the guy who offers you the least amount of money for your properties. And I really want you to say yes, and I'll pay the most that makes sense for the deal.”

If you can justify the cash flow and show me the expenses, I will absolutely pay that number. As long as the property cash flows the right amount after the loan and expenses. It doesn't hurt to throw out a lowball if somebody asks you for an offer. Even if you can't swing the deal the way you normally would, throw out a number that works and get creative on the terms.

If the deal is good enough, there is always a creative solution to financing the property.

Follow For Truth: @GualterAmarelo

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