The Advanced Guide to Real Estate Investing by Ken McElroy

Author:Ken McElroy [McElroy, Ken]
Language: eng
Format: epub
ISBN: 9781937832520
Publisher: RDA Press, LLC

Chapter Four

Investing in Apartment Buildings

In this chapter I will debunk the common misconceptions people have about investing in apartment buildings. Then, once we’ve moved past that, I’ll show you how to begin looking for your perfect multifamily investment through my three-part research process. I’ll also show you some positive trends and factors you should be looking for when beginning your search for a multi-family investment.

Myth #1: You Need a Lot of Money

This is by far the most common excuse that people give me for not investing in multifamily properties. But it just simply isn’t true. You don’t need a lot of money. What you do need is a good deal. By a good deal, I mean an investment property that has profit potential and that is based on solid financials. Just by reading this book and continuing your financial education with the Rich Dad team you are taking great steps to combat the mind-set that money will fix your problems.

Remember the property I purchased in Flagstaff? That building was a $ 19.7 million deal, and I raised almost all the equity with outside investors, or OPM. You’re probably thinking how can that be, since you’ll remember that the down payment for that building was around $4 million. But I swear it’s true. I had very little money in the deal, yet we own the building.

As I’ve done so many times before, I gave the majority of the ownership to those who put money down to purchase it. The concept is simple: You find a great apartment investment, raise the equity required to purchase it, and give the equity participants on your team the majority ownership— keeping an interest for yourself.

Many people don’t like the idea of partnerships. “I’m leaving too much money on the table,” they think to themselves. But nothing could be further from the truth. In a partnership investment, you have much more purchasing power than you would by yourself. That means you can purchase a building that is of higher quality and that has more income-producing potential.

Think of it this way: Maybe by yourself you have $20,000 to invest in a piece of real estate. That means that you can purchase a $100,000 building. Well, first off you aren’t going to find many $100,000 multifamily investments available. Secondly, which would you rather have, the $100,000 building that cost you $20,000 in your own cash, or like me, the partnered ownership of a $19.7 million building that cost very little? A 20 percent ownership stake equals out to be $3,940,000—money that I generated out of thin air because I had enough vision to find a great deal and to find investors who were looking for a great deal.

When it came to finding investors for my Flagstaff property, I had to do very little selling. The deal was very good. Here’s a secret you should know: There’s a nearly inexhaustible supply of people who are looking to invest their money in a good deal. All you need to do is find it and the hardest part is done.

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