All Forum Posts by: Tom Cafarella

Hi Juan,

Owning a 16 unit building right out of the gate for you is probably not a great idea. First of all, you won't be able to use FHA financing. If you use FHA financing, you will only have to put down 3% whereas if you buy a 16 unit building right out of the gate, you are looking at 20-30 percent down and it will be a much harder loan to get.

There is no such thing as starting too small, although my personal opinion is to do the maximum amount of units that FHA will allow(4, or a 3 if you can't find a 4).

I know many successful investors(including myself) who only started with 1 unit.  

Hi Charles,

My strong inclination would be to say no, you would not get a better value there. Highest and best use for many multi unit buildings ends up being to sell them as condos and my guess is that you would be competing with developers(like myself) who build condos and will be willing to buy based on the resale of a condo rather than a rental price.

The other issue is that if you have never done a deal like this before, I would highly recommend you not doing a big new construction project as your first. Between carrying costs, building expertise needed, zoning, permitting, etc. there is a lot of room for things to go wrong.

Getting good deals on multi familes right now is definitely tough as the price to rent ratios in hotter markets make it more difficult to cash flow. However, if you are able to get to seller’s directly, you can still get great deals anywhere in the country.

In terms of annual income, I am assuming you mean rents.

Getting total rents is fairly easy and I would use two resources:

1. Rentometer: www.rentometer.com. This is like the zillow value for a rental. If you type in the address and the number of bedrooms it will give you a quick estimate of the rent.
2. For a more detailed and accurate number I would go on craigslist and look up what is for rent in that area and number of bedrooms

Hi Ranjit,

I don't know of anyone personally in the Orlando area, but I think all of the same principles apply no matter where you are geographically.  You need to create a lead generation machine.

I would take the following steps:

1. Determine what kinds of properties you want to buy. This may sound simplistic, but you need to get laser focused on exactly what you want so that you can then plan your marketing campaigns.

2. Build a database of all of these properties in a CRM preferably

3. Find all of the owners contact information(cell phones, correct mailing addresses, emails, etc)

4. Market to these people on a consistent basis:

a. Calling them(either you can do this or you can hire someone to)

b. Mailing them

c. Emailing them

d. Using facebook ads to stay in front of them

e. Using google adwords to target them.

If you are going to generate all of these leads, you need to properly monetize all of them, meaning that you make sure that you are making as much money on all of them that you can so that you are getting back all of the dollars you are spending and then some. This means that you are:

1. Buying the absolute best deals that come from these leads(you cherry pick the best ones)

2. Wholesale the deals that are just "ok" to other investors who are desperate for deals and are sick of buying on the MLS

3. Have an agent partner that you are referring the deals to that are not interested in a true investor offer(this will be 80% of your leads)

4. Have an agent partner who can help you generate and profit from generating buyer leads on all of the listings that you have(there is big money in this if you do it right and it is pretty easy to do)

I am not local to your area, but I am in a similar market(Boston).

I would highly recommend not buying any investment property where you are not cash flow positive on day 1. Banking on appreciation that may never come is not a great strategy(especially where the market is so high right now).

If you are positive cash flow on day 1, you will be able to hold onto the property for as long as you need in order to get that positive appreciation, whereas if you buy with negative appreciation and can’t afford to float negative cash flow, you may end up losing it.

There are so many great deals where you can make money every month on day 1 that I would definitely go down that route whenever possible

Ethan, here are the steps I'd recommend:

Step 1: Determine what type of houses you want to invest in. This may seem simplistic but you really want to know exactly the types of houses that you want. For example, what geographic area, style of house, multi unit versus single family, size of the house etc.

Step 2: Once you know what you want to target, that allows you to then build the list. For example, if you want to buy single family ranges in a particular town, that narrows the search down and then you can move on onto step 3

Step 3: Find contact info for every one of these people: cell phone, home phone, emails, social media profile, home address, etc

Step 4: Put the information into a database: I like using a CRM like Follow Up Boss, but you can use an excel sheet to start

Step 5: Market to these people: call(on a dialer), email, message on social media, door knock, mail, etc. until you get one on one appointments with them

Step 6: Make offers that allow you enough room to make money

Austin,

There are a few options for this:

1.  Go to a commercial lender.  Commercial lenders will do these deals all day long at good rates if you are able to put down 20-30%

2.  Go to a hard money lender: This will be much more expensive but you will get an approval much easier than a commercial lender and will likely be able to put less money down

3.  Find private investors to fund the deal(this is what I do)  

Doing deals with none of your own money is not the easiest thing in the world but 100% doable. I have been a real estate investor and have done over 500 deals in the last 5 years without any of my owner money.

You are going to need to get really good at raising private capital. There is an enormous opportunity right now to raise money from private investors who are sick of getting paid nothing for keeping their money in the bank and are also not that interested in putting their money in the stock market.

In general, you need to offer a rate of return that is high enough to get them excited, which means anywhere from 8-15%. If you are buying your properties correctly, you should have no problem paying this rate.

The best place to start for this is to go out to your centers of influence and let them know about the investment opportunities that you have. You will need to put together a nice presentation that explains the benefits to them, but if you meet with enough people, you will be able to find investors.

As you grow, and do more deals these investors will eventually seek you out and you will be able to fund any deal that you have.  

Hi Alex,

Doing deals with none of your own money is not the easiest thing in the world but 100% doable. I have been a real estate investor and have done over 500 deals in the last 5 years without any of my owner money.

You are going to need to get really good at raising private capital. There is an enormous opportunity right now to raise money from private investors who are sick of getting paid nothing for keeping their money in the bank and are also not that interested in putting their money in the stock market.

In general, you need to offer a rate of return that is high enough to get them excited, which means anywhere from 8-15%. If you are buying your properties correctly, you should have no problem paying this rate.

The best place to start for this is to go out to your centers of influence and let them know about the investment opportunities that you have. You will need to put together a nice presentation that explains the benefits to them, but if you meet with enough people, you will be able to find investors.

As you grow, and do more deals these investors will eventually seek you out and you will be able to fund any deal that you have.  

Hi Phil,

If you want to get good deals, stay far away from the MLS. It is nearly impossible to get a good deal there. You want to be fishing in a pond where no one else is, and once stuff hits MLS, you will be competing with too many people in order to get a great deal.

Direct marketing is definitely the way to go.  

I would take the following steps:

1. Determine what kinds of properties you want to buy. This may sound simplistic, but you need to get laser focused on exactly what you want so that you can then plan your marketing campaigns.

2. Build a database of all of these properties in a CRM preferably

3. Find all of the owners contact information(cell phones, correct mailing addresses, emails, etc)

4. Market to these people on a consistent basis:

a. Calling them(either you can do this or you can hire someone to)

b. Mailing them

c. Emailing them

d. Using facebook ads to stay in front of them

e. Using google adwords to target them.

If you are going to generate all of these leads, you need to properly monetize all of them, meaning that you make sure that you are making as much money on all of them that you can so that you are getting back all of the dollars you are spending and then some. This means that you are:

1. Buying the absolute best deals that come from these leads(you cherry pick the best ones)

2. Wholesale the deals that are just "ok" to other investors who are desperate for deals and are sick of buying on the MLS

3. Have an agent partner that you are referring the deals to that are not interested in a true investor offer(this will be 80% of your leads)

4. Have an agent partner who can help you generate and profit from generating buyer leads on all of the listings that you have(there is big money in this if you do it right and it is pretty easy to do)

Regarding the agent partner: when you are marketing for motivated sellers, you are going to end up getting one on one appointments with a lot of sellers. The reality is that roughly 80% of sellers are not going to want to take an investor offer.

When you meet with a seller that does not want to take an investor offer, almost all of the time, they still want to sell. The better option for these kinds of people is to refer them to an agent partner of yours to help them get top dollar for their house. If you are a licensed agent yourself, you can take a referral fee on this.

It is important to make sure you montetize(make money on) every single lead that you get because if you don't you will be throwing marketing dollars out the window.  

Yes I can explain it for sure.  When you are marketing for motivated sellers, you are going to end up getting one on one appointments with a lot of sellers.  The reality is that roughly 80% of sellers are not going to want to take an investor offer. 

When you meet with a seller that does not want to take an investor offer, almost all of the time, they still want to sell.  The better option for these kinds of people is to refer them to an agent partner of yours to help them get top dollar for their house.  If you are a licensed agent yourself, you can take a referral fee on this.  

It is important to make sure you montetize(make money on) every single lead that you get because if you don't you will be throwing marketing dollars out the window.