I really believe it is smart thing to study others who are successful in the field you desire to be successful in. Don’t you? With that said, I have observed, experienced, and gathered seven wealth-building habits for apartment investors. Pay close attention to them as some of them are counter-intuitive to traditional real estate training and investing.
Habit #1 – They Only Invest in Apartments…The Power of Focus!
- The best and the brightest apartment owners are the best and brightest at one thing – buying apartments. They don’t stray away from their specialty, but rather focus on apartments only. They don’t try to be “jack-of-all-trades”. Neither should you if you want to be one of the best and brightest. Focus plus follow-through brings about quantum results.
- It is also true that you will tend to focus on something you like or are passionate about. I first had a passion for and focused on buying and converting single family homes to rental units. Then, my focus and passion shifted to 4-plexes. After that, my passion and focus graduated to large apartment complexes. So you can see that my focus shifted, but always remained on apartments.
Habit #2 – Not Over-Leveraging DEBT…Cuz It’s a 4-letter Word!
- Heavy debt is a cash-flow killer. Even though debt is pretty much the norm on most deals, be smart about it. Having high debt is a trap that snares cash-flow and equity. Proverbs says that the “borrower is slave to the debtor” and that is so true. Having high debt is like having high credit card debt. There’s little if no personal cash flow every month as a result.
- An easy way of measuring your “debt-safety” level is to figure out your break-even-occupancy percentage. To do this quickly, simply add up all of your annual operating expenses plus your all debt. Then, divide that number by your potential gross income. You’ll find that your operating expenses will typically not vary much, but that your debt can have a huge impact on your break-even point in occupancy. The higher the debt load, the higher the break-even point in occupancy needed. For example, if your break-even occupancy point is calculated to be 60%, then after that, it’s all cash flow. But if your calculation comes out to be 90%, that spells trouble. You have no room for error and must keep your apartments 90% occupied just to pay the bills.
- Even though there are financing programs available that allow you to perhaps finance an investment with no down payment, it may not be a good idea. Run your numbers. Be prudent.
- Having 50% debt (or 50%LTV) on your properties is ideal and not easy to achieve, but it will keep you out of trouble and allow you to enjoy greater cash flow.
Habit #3 – Properties Are Managed Effectively and Professionally
- Having top-of-the-line property management, whether you do it yourself or hire a company to do it for you is a major key to success.
- In a nutshell, a top management company’s ultimate goal is to maximize potential rental income, reduce operating costs, strengthen tenant retention and relations, enhance visual appeal of property, and increase property value. If they can do this, you have a winner.
- Apartments that have the best reputation in the community have the highest rents, the lowest turnover, and have sound and solid property management.
- Good property management have well-oiled systems of accountability for the 4Ms: money, marketing, maintenance, and managing the staff.
You’re wondering where Habits #4, #5, #6, and #7 are? I ran out of space, you’ll have to catch my next post. See ya then!!