Latest / REL Freedom Podcast / Mike Swenson - How To Invest In A 20 Unit Property
Transcript
- 0:00Speaker 1: if it's only one unit and that person doesn't pay rent or the property's vacant, they're missing 100% of their income, and so there's a lot of struggles out there with trying to go at it yourself.
- 0:11Speaker 1: And so when you do a 20-unit property, if one person doesn't pay your rent, you still have 19 people that are, and so you don't have to worry about 100% of your income going away because you still have 19 people that are paying.
- 0:24Speaker 1: And so we've heard that from people.
- 0:26Speaker 1: We've seen some of those stories from people where they don't want to take that risk.
- 0:30Speaker 1: Welcome to the Real Freedom Show, where we inspire you to pursue your passion to gain time and financial freedom through opportunities and real estate.
- 0:42Speaker 1: I'm your host, mike Swenson.
- 0:44Speaker 1: Let's get some real freedom together.
- 0:45Speaker 1: Hello everybody, welcome to another episode of Real Freedom, talking about building time and financial freedom through opportunities and real estate.
- 0:59Speaker 1: I am your host, mike Swenson, and today is a very special day for me, as those of you that have listened to the show know.
- 1:06Speaker 1: Many times we have guests on.
- 1:08Speaker 1: We're highlighting their stories and what they're doing, but every now and then we like to share some stories about us and what we're doing, and so what makes today so great.
- 1:17Speaker 1: As of the date of this earring now, I will say ahead of time we're recording this ahead of time, so our editors have a little bit of time, so it's possible things may have changed by a day or two or three here, but as of the date of this being released, we have just closed a property or we're going to be closing a property for a 20 unit apartment building, and what's so exciting about this is this is a deal that we get to do with other investors alongside of us, and so what makes it special is there's a lot of people here that haven't invested in real estate before.
- 1:50Speaker 1: This is their first time.
- 1:52Speaker 1: They're passively doing this, and so this is their inroads to becoming a real estate investor, based on how we set this deal up, and so I want to take a little bit of time and kind of talk about this deal.
- 2:03Speaker 1: If you're out there listening and you want to invest in real estate, you don't know how to get started.
- 2:08Speaker 1: You don't know what the steps are.
- 2:10Speaker 1: You've heard about all these different strategies.
- 2:13Speaker 1: Now might be a good time to find a good deal, find somebody that you know potentially us and then pick that deal, invest in that deal and get started, because you're not going to get better, you're not going to get to your goals until you get started with something today.
- 2:28Speaker 1: So this episode is going to talk a little bit about how this deal works, how we've set it up so that way you might be able to find somebody, whether it's locally, nationally, however you want to find somebody, you can work with them and invest in a deal passively, even if you don't have previous experience in real estate.
- 2:45Speaker 1: So a little bit about the deal.
- 2:47Speaker 1: So this is a 20 unit building that we ended up finding.
- 2:51Speaker 1: We analyze deals all day long, so we understand the numbers.
- 2:56Speaker 1: What makes sense?
- 2:57Speaker 1: There's a lot of factors out there in terms of the income coming in, the expenses, the type of building, the location of the building, who's selling it, why they're selling it, and so there's so much that those of you that are outside of real estate don't necessarily know, and so that's why somebody like us that this is what we do all day long.
- 3:16Speaker 1: Not only do we help investors buy their own buildings, we also work with people and buy our own buildings ourselves, and buy our own buildings along with people, and so we found this deal.
- 3:26Speaker 1: The numbers looked really good.
- 3:29Speaker 1: We had already had conversations with other people that we've been talking with about partnering on deals together, and so we had quite a few people that we already knew hey, if we run across the right deal, I would be willing to put my money up and be willing to invest in this deal.
- 3:44Speaker 1: And so I tell people all the time we're the real estate matchmaker, we're trying to match a property with somebody's strategy and strategy, more so than just long-term rental, location, price point and all that.
- 3:58Speaker 1: But what do they want to do?
- 4:00Speaker 1: How active do they want to be on the deal?
- 4:02Speaker 1: Do they want to manage it themselves?
- 4:04Speaker 1: Do they want to hire a property manager themselves?
- 4:06Speaker 1: And for a lot of people it's.
- 4:07Speaker 1: I don't want to do any of that.
- 4:09Speaker 1: I'd rather you guys just do it, which is what we did here.
- 4:12Speaker 1: So we already had a pulse on.
- 4:14Speaker 1: We had a group of investors that we know wanted to invest in passively into a deal.
- 4:19Speaker 1: They didn't necessarily have a lot of money, but they had some money to be able to make a dent, and so, based on how we put this deal together into a syndication, we were able to take the amount that each person wanted to invest, put it all together into one larger deal that somebody wouldn't have been able to find on their own, somebody wouldn't have been able to invest on their own with all these people we're working with, but together we can do that.
- 4:44Speaker 1: And so we knew the deal, we knew the type of deal people were looking for, and we found something that was a fit.
- 4:52Speaker 1: And so we told these people hey, we think we've got a property, we think it could be a good opportunity here, let's go through the process and continue to see if everything, all the boxes, are going to get checked, and if everything looks good, we'll continue to move forward.
- 5:07Speaker 1: And so that's what we did.
- 5:08Speaker 1: So what type of people are investing in this deal?
- 5:11Speaker 1: It's people that have jobs outside of real estate.
- 5:13Speaker 1: It's people that maybe have invested in a deal themselves.
- 5:17Speaker 1: They've been kind of sucked into an investment their time, their money.
- 5:22Speaker 1: Things didn't go well.
- 5:24Speaker 1: If it's only one unit and that person doesn't pay rent or the property's vacant, they're missing 100% of their income, and so there's a lot of struggles out there with trying to go at it yourself.
- 5:35Speaker 1: And so when you do a 20 unit property, if one person doesn't pay your rent, you still have 19 people that are, and so you don't have to worry about 100% of your income going away because you still have 19 people that are paying, and so we've heard that from people.
- 5:51Speaker 1: We've seen some of those stories from people where they don't want to take that risk, and so these are the type of people.
- 5:57Speaker 1: Another really cool thing about this deal is a lot of people that are on our real estate team are investing in this deal Agents that maybe haven't invested in a deal themselves, agents that are too busy working their residential real estate business that they maybe don't have the time to find a good deal like this or they don't have the money to be able to put together a deal by themselves, and so it's people outside of our team.
- 6:22Speaker 1: People inside of our team, outside of our team.
- 6:23Speaker 1: No experience, some experience, a lot of experience, and we were able to take all of that.
- 6:29Speaker 1: What was in common is I don't want to actively manage that deal myself.
- 6:34Speaker 1: Mike, I want you to help deal with that and you to be the one to do it.
- 6:38Speaker 1: I just want the updates, and so that's the piece that a lot of people resonated with is they don't want their time to get sucked in.
- 6:45Speaker 1: That's part of what we do is help to manage those assets for people, and so that's what we're doing, moving forward, and so we found enough of these people, put them together and we did it.
- 6:55Speaker 1: Now there's a couple of guidelines here based on how it's set up, and so this is called a real estate syndication.
- 7:02Speaker 1: So there's really two types of syndications and it's based on kind of the code and how they're governed as to the type of person that you can have into a deal.
- 7:10Speaker 1: So there's one type of deal called a 506B, one type of deal called a 506C.
- 7:17Speaker 1: Now, a 506C is only for people that are considered an accredited investor.
- 7:24Speaker 1: What is an accredited investor?
- 7:26Speaker 1: Well, these are people that have a certain net worth requirement.
- 7:29Speaker 1: They have to have over a million dollars in net worth outside of their primary property.
- 7:34Speaker 1: There's an income requirement.
- 7:36Speaker 1: They have to have over 200,000 dollars a year in income themselves the past two years, or 300,000 if they're filing jointly with a spouse, and so there's these requirements here, and so a lot of times when you're out there, you see these advertisements for, hey, invest in this deal, invest in this deal, invest in this deal from big name investors.
- 7:57Speaker 1: Those are typically 506C deals.
- 7:59Speaker 1: They can only work with accredited investors, people who have this bar of net worth, this bar of income coming in, and so those are the only types of funds that they can accept from people.
- 8:10Speaker 1: Part of that is, when you accept accredited investors, you can actively market this.
- 8:16Speaker 1: That's why I said you've probably seen these deals out there on websites or maybe radio ads, whatever it might be because you can advertise these deals when you're only looking for accredited investors, so that's the public piece.
- 8:28Speaker 1: The other type of deal, the one that we did, is actually for non accredited investors.
- 8:33Speaker 1: Now, you can't accept accredited investors, but the thing is is you can't market it, and this is what makes this deal so unique is we can't post out there and say, hey, we had this awesome deal.
- 8:44Speaker 1: Who wants to invest?
- 8:45Speaker 1: Because we're working with non-accredited investors, primarily people that don't have a million dollars in net worth outside of their primary property, people that don't make at least $200,000 per year, $300,000 jointly, which is a lot of you out there that are working your job, trying to find ways to put your money, but maybe don't have that real estate experience or don't have time to go get that real estate experience.
- 9:10Speaker 1: Now, one of the requirements of that is you can't advertise that publicly.
- 9:14Speaker 1: So it's people that you know the conversations you've had with people.
- 9:18Speaker 1: Hey, are you looking to invest here in the next couple of months?
- 9:20Speaker 1: Yeah, I am.
- 9:21Speaker 1: I can't find a deal, I don't have enough money myself, but here's the type of deal that I'm looking for.
- 9:26Speaker 1: That's how these deals get put together, and so we can't advertise to the public or to strangers that we don't know and say, hey, we've got this amazing deal.
- 9:35Speaker 1: So it's kind of funny, because we've been sitting on this deal, we've been working on this deal, but we couldn't talk about this deal publicly.
- 9:41Speaker 1: That's just the guideline on how this real estate syndication is put together as a 506B.
- 9:46Speaker 1: So we took non-accredited investors and, like I said, you can be accredited, but the guideline here with this 506B is we can't advertise it.
- 9:54Speaker 1: And so we found the people, we put them together and then we found that great deal.
- 9:58Speaker 1: And so how is this deal structured?
- 10:01Speaker 1: How it works, is you put in an amount of money?
- 10:04Speaker 1: Now, every deal is a little bit different and I'm not going to say return numbers or anything like that, because times change.
- 10:09Speaker 1: I don't know when you're going to listen to this episode, so we might be into the future and numbers may have changed, but typically how these deals are structured is if I'm putting in let's call it $10,000, $20,000, $30,000, what am I going to get in return?
- 10:23Speaker 1: Well, a general rule of thumb that people that do syndications strive to find is can we find a deal where maybe you can double your money in five years?
- 10:34Speaker 1: That's a good rule of thumb.
- 10:35Speaker 1: There's a lot of rules of thumb out there in the investing world the 1% rule, different things like that but we're trying to find deals where, if we can double your money in five years, it's probably going to be pretty worthwhile for you.
- 10:47Speaker 1: Now, that's going to come from either cash flow and or equity play, and so if we can put something together so that, on average, doubling your money in five years is about a 15-ish percent return on your money Every deal is a little bit different.
- 11:02Speaker 1: Obviously, I'm not a financial advisor.
- 11:04Speaker 1: You're going to have to consult with your financial advisor, your tax person, whatever that might be.
- 11:09Speaker 1: But to get $10,000 and turn it into $20,000, we know numbers, we know math and that's about a 15% rate of return.
- 11:18Speaker 1: Now how that's broken out is typically somebody who's going to accept your money into a real estate deal, they'll pay out some type of return on the cash flow, and so that might be monthly payout.
- 11:31Speaker 1: It might be a quarterly payout, depending on the type of property and the strategy.
- 11:35Speaker 1: It might not happen right away, because you might be buying a depressed asset that you need to renovate, raise the rents, get people in before you can afford to pay out those cash flows, but typically there'll be some sort of cash flow payout.
- 11:49Speaker 1: Now it could be like I said.
- 11:51Speaker 1: It could be happened immediately.
- 11:52Speaker 1: It could be delayed A lot of times.
- 11:55Speaker 1: You'll see a syndication where they have what's called a preferred return.
- 11:58Speaker 1: So what this means is you have the people like myself putting the deal together, and then you have the investors who are putting much of the money into it.
- 12:07Speaker 1: Now I will say a good deal.
- 12:08Speaker 1: You're going to want to have the person putting the deal together also putting their own money into it, which we did in this deal.
- 12:14Speaker 1: You want them to have some skin in the game, but we don't have all of our own money into it.
- 12:18Speaker 1: That's why we're having outsiders put money in.
- 12:20Speaker 1: So what happens is a preferred return.
- 12:23Speaker 1: What you're saying is for the cash that's available here to pay back our investors.
- 12:28Speaker 1: The first part of it is going to go to the people like you investing in this deal, the people that want to see some cash flow come in whether it's monthly, quarterly, whatever that might be probably quarterly get paid out.
- 12:40Speaker 1: The first amount of cash that's available goes to those investors.
- 12:44Speaker 1: It's not going to the people putting the deal together, it's not going to other places.
- 12:48Speaker 1: But preferred return means those investors get their money back first.
- 12:53Speaker 1: It's kind of the first fruits of the money that's available goes back to those people and then it might be a certain percentage.
- 12:59Speaker 1: And so, depending on the year, depending on the type of deal, you can find there's that preferred return.
- 13:04Speaker 1: Then, outside of the preferred return getting paid out from cash flow, there might be money left over.
- 13:09Speaker 1: That money typically would get split between the people putting the deal together and the people investing in the deal as passive investors and there's some sort of split on that depending on how you structure the deal.
- 13:22Speaker 1: And then really you can structure deal any way you want.
- 13:24Speaker 1: I'm just trying to tell you what typically happens.
- 13:26Speaker 1: So there's a preferred return saying I'm getting my X percent back every quarter for as long as I'm in this deal and I also might get back some remaining amount at a certain split, and then the other piece is an equity split.
- 13:39Speaker 1: So, more than likely, the amount of money you're putting in gets you a certain percentage share into the deal, of which, when the property gets sold three years, five years, 10 years, whatever that outlook is you would get a percentage of that back as well.
- 13:56Speaker 1: So you'd get some cash flow and you'd get some equity and then together that would make your total return which, like I said, a general rule of thumb people shoot for is can we get that to be double your money in five years?
- 14:08Speaker 1: General rule of thumb.
- 14:09Speaker 1: So that's the types of deals that we're going after.
- 14:12Speaker 1: So I'm sitting on some money here.
- 14:14Speaker 1: I don't know how to invest it.
- 14:15Speaker 1: If I put it into a deal like this, what would I get back?
- 14:18Speaker 1: Probably some sort of cash flow, maybe it's a guaranteed, maybe it's a preferred return, and then some sort of equity split, and so that's what you can expect to get back.
- 14:28Speaker 1: When the sale happens, or things get paid out over time, or maybe there's a refinance, they pay back the investors at that time.
- 14:36Speaker 1: So that's typically how that works.
- 14:38Speaker 1: And so the whole point of these types of deals and, honestly, the way they have to be structured is you, as the investor, have to be passive.
- 14:45Speaker 1: When I explain a syndication, I talk about if we were doing a deal together you and I working together on one deal.
- 14:51Speaker 1: It's like we've got our arms side by side, next to each other.
- 14:54Speaker 1: We're working on a deal together, we're both active in it, we're both doing it.
- 14:57Speaker 1: Now, if we're doing a deal like this, think about it, as we're sitting on opposite sides of the table.
- 15:03Speaker 1: So one side are the active people that have the decision making.
- 15:07Speaker 1: They're actively playing a role in managing the deal and executing on the strategy.
- 15:11Speaker 1: The people that are passive have to be passive.
- 15:13Speaker 1: That's how this type of deal is structured with this syndication, and so you actually don't have a say in how it's run.
- 15:20Speaker 1: Now, this is the importance of working with people that you know, like and trust, and you know that they're going to be able to manage it in a good way.
- 15:26Speaker 1: So the relationship is really important here to have that person that you know knows what they're doing, because what'll happen is they're responsible for managing it.
- 15:37Speaker 1: They're putting together the strategy.
- 15:39Speaker 1: Hey, here's the building.
- 15:41Speaker 1: Here's what we're going to do to the building, here's what the next five years are going to look like.
- 15:45Speaker 1: And then my job is to try to make sure what happens these next five years closely matches what we say is going to happen, as close as we can.
- 15:54Speaker 1: And so that's why we're the ones having calls with the property managers, we're the ones talking with contractors, we're the ones working out and adjusting.
- 16:02Speaker 1: If the strategy changes or if an outside situation changes, we're adjusting.
- 16:07Speaker 1: And then we're keeping you in the loop.
- 16:08Speaker 1: So it's probably some sort of monthly communication, whether it's an email, whether it's a meeting.
- 16:14Speaker 1: Maybe you do something quarterly, but we're keeping you up to date on what's happening with your money, what's happening with the building, where your money is going.
- 16:22Speaker 1: And so we're finding the deal, we're negotiating the deal, we're doing the inspection, we're negotiating after the inspection.
- 16:29Speaker 1: We're picking the property manager, we're managing the property manager, holding them accountable If something comes up and we need to change property managers, or we decide we need to update some units or a furnace goes out and we need to put in a new furnace.
- 16:44Speaker 1: We're taking care of all those decisions and then we're reporting back to you.
- 16:48Speaker 1: Hey, here's what happened this month, here's what happened this quarter.
- 16:52Speaker 1: We did better than expected.
- 16:53Speaker 1: We didn't do as great of expected.
- 16:54Speaker 1: If we didn't do as great of expected, how are we going to change that?
- 16:57Speaker 1: And so we're keeping you guys in the loop on what happens with that money.
- 17:02Speaker 1: So that's how that works.
- 17:03Speaker 1: We're active, the investor is typically passive, but we want to make sure you're in the loop.
- 17:08Speaker 1: You understand what's happening with the money invested in that deal.
- 17:11Speaker 1: Sometimes there might be a minimum amount that you have to put in.
- 17:14Speaker 1: I would say people that are more experienced, it might be a little bit higher if they're doing bigger deals.
- 17:19Speaker 1: If not, it can be whatever you want it to be, whatever that minimum is, but there's some sort of minimum, probably to get into that particular deal.
- 17:27Speaker 1: And then there might be some sort of maximum just because they don't want to have one particular person maybe have too much into a certain percentage into that deal, and so that's how that works.
- 17:37Speaker 1: And so every deal is different.
- 17:38Speaker 1: It depends on what's the strategy, what's the end plan here, what are we looking to do?
- 17:43Speaker 1: There's probably going to be some sort of value add component.
- 17:46Speaker 1: There's probably going to be something around raising rents with market to make sure that we can maximize the value of the building, and then, whatever that horizon is whether it's three years, five years, 10 years, we'll look to sell, we'll look to have that person get their money back and if they do a good job, it's hopefully close to or better than what was promised or what was stated initially.
- 18:06Speaker 1: And then you look to find the next deal.
- 18:08Speaker 1: Unless you don't want to take a tax hit there, you go, do a 1031 exchange into a future deal, and so this is really cool.
- 18:14Speaker 1: I really love this.
- 18:15Speaker 1: I got great feedback from people on I didn't know how to invest in real estate.
- 18:20Speaker 1: I didn't know what a good deal looked like.
- 18:22Speaker 1: I don't have the time to find a good deal, nor do I maybe have enough money to do a deal myself, and in a case like this you can get in on a 20 unit, 50 unit, 100 unit, 1000 unit building with whatever amount of money you have available, and so that's the cool thing about these syndications, and so hopefully that gives you a little bit of an outlook of what they look like.
- 18:42Speaker 1: But I wanted to just share number one.
- 18:44Speaker 1: I'm excited about this deal we just did.
- 18:46Speaker 1: I think it's going to be really cool.
- 18:48Speaker 1: I think it's going to be a great opportunity and we'll see what happens.
- 18:51Speaker 1: And then number two.
- 18:52Speaker 1: If you're out there listening to this and you want to invest in a deal, maybe passively, you want to latch on to somebody that knows a little bit more of what they're doing.
- 19:01Speaker 1: They have experience in this space and they have the time available to commit to managing an asset like this.
- 19:08Speaker 1: Reach out, let us know how we can help.
- 19:10Speaker 1: If it's not us, maybe we can find an asset class that works for you and introduce you to somebody else.
- 19:15Speaker 1: But these passive investment opportunities are out there where you can stash your money.
- 19:20Speaker 1: You get all the benefits all the upside of investing in real estate without the time suck of having to manage the deal yourself, find the deal, know how to recognize a good deal, you still have the same risks.
- 19:32Speaker 1: And so what can happen?
- 19:34Speaker 1: The building can fail, the plan can fail, but that's no different than if you're taking this on yourself versus going with somebody else.
- 19:40Speaker 1: The goal is hopefully going with somebody more experienced.
- 19:42Speaker 1: The likelihood of something like that happens is smaller, but these types of deals are out there.
- 19:47Speaker 1: So if you're looking for something, I'd love to hear from you.
- 19:50Speaker 1: I'd love to find out what type of deal you might be looking for.
- 19:53Speaker 1: Or hey, I just got some money to store.
- 19:55Speaker 1: We're coming up on the end of the year here.
- 19:57Speaker 1: There's a lot of people that need to put some money into real estate deals for tax purposes, and so they're out there.
- 20:02Speaker 1: And so if you're out there listening to this and you're like I just want to get started investing in real estate I don't want to have to figure it out on my own.
- 20:09Speaker 1: I maybe don't have a ton of money, but I've got a little bit of money set aside that I can put into a deal Let us know.
- 20:15Speaker 1: And so if you go to the website freedom through real estate that's freedom through real estate, those four words, freedom through real estatecom.
- 20:25Speaker 1: Click on partner.
- 20:27Speaker 1: It'll take you to a form to fill out where you can share a little bit more about yourself, a little bit more about what you're looking for, maybe a little bit about the amount of money you might have available, and then we'll connect, we'll have a conversation and say, hey, here's the types of deals that work for us.
- 20:42Speaker 1: The cool thing about this podcast is I run into a lot of people that invest in a lot of different places, different types of assets all over the place, and so, if not us, maybe I can introduce you to somebody that would be a good fit for what you're looking for.
- 20:55Speaker 1: But these deals are out there.
- 20:56Speaker 1: So, if you're an engineer, if you're a salesperson outside of real estate, even if you're inside of real estate and you don't know what to do in terms of investing in real estate, reach out.
- 21:07Speaker 1: Freedomthrurealestatecom, click on partner, fill out the form and maybe we can put you into our next deal, cause, like I said, these types of deals we're working with non-accredited investors.
- 21:19Speaker 1: We can't advertise them, so we can't say, hey, we've got this cool deal.
- 21:23Speaker 1: Who wants to invest?
- 21:24Speaker 1: We need to already have been in a conversation with you, understood your goals, what you're looking for and can be a good match for you.
- 21:31Speaker 1: So get on our list, let us know you're looking for these types of deals and if you don't invest in this one, no worries, we'll find you for the next one, but we got to get in touch with you to get started.
- 21:40Speaker 1: So freedomthrurealestatecom, click on partner.
- 21:43Speaker 1: Excited to work with you in the future or excited to introduce you to somebody that would be a great fit for you.
- 21:49Speaker 1: But these are amazing deals.
- 21:50Speaker 1: It's awesome to hear the stories of the people that are so excited to now be a part of a 20 unit apartment that they never thought they'd be able to be a part of because they didn't have the money, they didn't have the experience, maybe they didn't have the time to commit to these types of deals.
- 22:03Speaker 1: But that's the power of a real estate syndication and what it can do for you.
- 22:07Speaker 1: So excited to hear from you, freedomthrurealestatecom, click on partner and let's start a conversation.
- 22:13Speaker 1: Real estate agents, are you tired of letting the busyness of your real estate business get in the way of your real estate investing goals in your financial future?
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