“We buy for cash flow…
…we are not people who buy low to sell high.
We are not people that buy hoping that it goes up in value.
We buy and make money from day one because we buy these properties with positive cash flow.
They cash flow from month one period.
And when the up and down times come, we still make money with them because they cash flow in the down times as well.”
Cash Flow
We joke around the office that we’re all about to get a big raise. The reason we consider it a joke—even though we really feel like it is going to come true, and we’re referring to a raise in our real estate—is because we’re not speculators.
We buy for cash flow—and that’s something that first-time listeners need to understand very clearly—that we are not people who buy low to sell high. We are not people that buy hoping that it goes up in value. We buy and make money from day one because we buy these properties with positive cash flow. They cash flow from month one period.
And when the up and down times come, we still make money with them because they cash flow in the down times as well. Even though the property value may have dropped, the rents don’t.
So there’s a big difference between that and speculating like most people do with their money where they put it in the stock market or they put it in mutual funds and they hope that it goes up in value—and that’s really the only way that they make money is when it goes up in value. And when the stock market crashes they get slaughtered.
Opposite Markets
Well, with us what’s different is when the real estate market crashes we don’t get slaughtered. In fact this sounds kind of funny, but it is true. As a real estate investor—and really as any type of true investor—you actually pray for the opposite market.
In the up times sometimes we’re praying for the down times so we can pick up some steal deals. But in the down times, guess what we’re praying for? The up times because of the principle that you make your money in the transition.
We’re buying properties now where we were paying 35,000 a door we’re paying 18,000 a door for some of these properties right now. Single-family homes that we were paying 80 and $90,000 for that were worth 100 to 120, we’re now paying 60 and $70,000 for and they’ve dropped all the way to 90,000.
But we’re still picking up $30,000 equity even based on the current values. And again, those things cash flow 2, 3, $400 a month. We invest for the cash flow, that’s the cake. The icing, which is the appreciation or the equity build up, we get that anyway.
We get the appreciation just like you do, but ours cash flows the whole time. That’s the big difference people need to understand about when you’ve got speculation and stocks and bonds and things like that versus actually owning something like a piece of real estate.
Knee-Jerk Reactions
But let’s go to the Real Estate Center Online News, RECON, Real Estate Center Online News. “Experts Predict an Apartment Shortage. The National Association of Home Builders in Las Vegas marked that the slowdown in multi-family housing construction is likely to create an apartment shortage in the near future, industry experts with the National Association of Home Builders said Tuesday—last Tuesday. New multi-family construction has been crippled by the credit crisis—“
Now this is me adding this. This is one more instance of banks doing a bad job, the government doing a bad job. Their knee-jerk reaction when everything went south, when everything started to go bad was instead of making loans to the right people, they quit making loans to anybody. They shot themselves in the foot.
Not only did they shoot themselves in the left foot, if you will, by giving loans to anybody, once they got busted and all those loans started to go bad, they shot themselves in the right foot and stopped making loans to anybody. Now, that harms all of us and that harmed the economy—the incompetence of the banks and the government’s knee-jerk reaction.
Speculating
“—leaving the industry, the new multi-family industry, unable to gear up for the increased need for market-rate and affordable apartments that is expected to accompany economic recovery beginning next year—referring to 2011.”
Heaven in ‘11 is what the National Apartment Association is saying as well as the National Association of Home Builders — they’re predicting, speculating, that there’s going to be a major recovery in 2011 in real estate and really starting this year they’re already starting to see it.
“’We desperately need lenders to begin financing apartment communities again,’ said NAHB Chief Economist David Crowe. ‘The vacancy rate for apartments is elevated now, but as the economy recovers and jobs return, the people who’ve been doubling up with relatives and friends will want a place of their own and there may not be one available.’
“Industry experts expect demand to outstrip current supply by mid-2011 with increasing shortages of rental housing through 2014.” Ready for this? “This is very likely to increase market-rate rents as much as 8 to 10 percent per year in 2011 and 2012, and 4 to 7 percent per year through 2015.”
Rent Increases
What does this mean to our families as multi-family owners? And remember our members do everything from single-family to 600 unit apartment complexes.
But what does this mean to us when you see rental increases like I just described — 7, 8, 9, 10, 11 percent in one year? This can raise your net operating income in such a way that it literally increases the value of your apartment complex by millions of dollars just by increasing the rents.
See, people don’t realize that because they don’t own businesses. They’re really not sophisticated and they just own stocks and bonds and things like that. If what I’m saying doesn’t make sense or if you just need a little more information just call. We’ll talk about why this is the perfect storm for you to invest and build wealth for yourself with real estate.
