This Issue: There's More Profit in Multi-Unit Properties

You cannot teach a man anything; you can only help him find it within himself.  - Galileo

I am a competitive person and to me, that’s a good thing. Staying competitive is the opposite of being complacent. Complacency is the ultimate enemy of success.

In fact, when people ask me how to achieve great success, I usually explain that the most important first step is to get out of their comfort zone, which is a bad place to be.

If you are happy in your comfort zone, you need to move out of it. How else can you find the greatness that lies within you? That means confronting your weaknesses and not just admiring your own strengths. Doing that means getting your ego out of the picture and asking questions of people who know more than you do about how to achieve success. In short, it means self-examination and the hunger to learn new things.

I don’t just direct this kind of thinking toward others and what I think they should do with their lives. I direct it toward myself too. I compete very hard with myself, which is the ultimate form of competition. Trying to best yourself can make your aspirations and your achievements even more significant.

For example, the readers and writers of Business Week voted me one of the top 10 most competitive businesspeople on the planet. To me, that is a great honor. I could have coasted for quite a long time on a credential like that. But instead, I let it drive me to do more and make even more significant things happen in my life.

Unless you plan to spend your time in a café, sipping cappuccino and watching life go by, I’d advise you to take similar steps towards making what you want happen in your life actually happen. The fact that you are reading this article now gives me a strong indication that you’re not a café type, but someone who is serious about success and achievement.

There is an old riddle that brings this to light: Five frogs were sitting on a log. Four decided to jump off. How many were left? Answer: Five. Why? Because there’s a difference between deciding and doing.

Think about that one for awhile and see if it pertains to you. If it does, there’s still time to get going and start making great things happen.

For some great insights about why multi-unit properties offer great investment opportunities, I urge you to read last Friday’s post on this blog.

But to invest safely, you also need to be aware of the risks. If you fail to ask these questions before real estate investing, you could be making a very big mistake:

Are all the rental units in the property legal? Have your attorney check with the municipality where the building is located to be sure that they are. If units turn out to be illegal and the city disallows them, that could damage your rent roll and turn the deal from good to bad.

Did the previous owner obtain the required work permits? Many buildings - older converted houses especially - can be full of non-approved renovations. If these violations are discovered after you take ownership, it can cost you a fortune or make you take legal action against previous owners to recoup your losses. The best time to discover such problems is before you buy.

Is the building really tenant-friendly? If units are not well sound-proofed, your tenant turnover will be high. Insufficient electrical power, low water pressure and parking hassles are three other things that make tenants leave as soon as their leases are up. Don’t ignore these problems when real estate investing because they can gnaw away at your bottom line.

Are any lawsuits currently in progress against the previous owner? Have your attorney investigate - and make sure that he or she takes steps to protect you from being liable for injuries, property damage or other problems that might have occurred in the past.

How will mortgage lenders estimate your rent roll before writing you a mortgage? It is not always true that your rent estimate (“The four units in the building will rent for a total of $6,200 a month . . .”) will be accepted by lenders. Some will adjust your projected rental income by assuming that units will be vacant for a certain a percentage of the year. So talk to lenders sooner, not later, and be sure to work with one who will be on your side.

Editor’s note: To get started investing in multi-unit properties, CLICK HERE. Trump University will be holding intensive retreats for investors in Las Vegas, Los Angeles and Orlando later this month.

For years, I’ve been preaching that when you own your own business, you can structure it to make your life easier and a lot more pleasurable. To give you an example, when I went into my first business, I made it a goal to go fishing every Wednesday throughout the summer. I did it. It was wonderful. I also had that goal to leave the office by 3:00 on Fridays. That was wonderful too. I have since stopped working on Friday altogether.

Now, there’s no way you could ever do that working for someone else.

However, I might have come across someone who has structured his business to suit his lifestyle in the ultimate way. He is Timothy Ferriss, who runs a million-dollar business in just four hours a week. He has even published a book about it, The 4-Hour Workweek. He used to work a full week, but through innovation, automation, rigid scheduling and outsourcing, he has cut his week down to four hours.

To read a CNN Business article about how he structured his business, CLICK HERE.

I am not certain this is a realistic scenario for everyone. However, my point is that owning a business is really the only way that you can ever realistically tailor your life to fit your schedule.

When you work for someone else, you’re on their clock. Buy a good business, and you set the time. Incidentally, the students who have taken my The Art of Buying a Business Course are telling me about the renewed sense of control and freedom they enjoy in their lives. I am not sure if any of them work just four hours a week. But I’ll ask - and let you know in a future post on this blog. I can also tell you that whatever hours you will work when you’re the boss will be infinitely more enjoyable that what you did as an employee.

Very few first-time real estate investors have a lot of money to get started. So to gain a foothold, they buy single-family homes and hope to expand from there.

Sounds logical, right? Maybe yes, maybe no, because there are many reasons why investing in smaller multi-family homes or apartment buildings offers a better way to start, provided you know how. There’s a very simple reason:

Leverage

It’s the near-magic principle of letting other people's dollars work for you. Let’s take a quick look at some advantages of multi-units:

They provide multiple income streams and enhanced cash flow. If you analyze the rent roll and fixed expenses on the properties you’re considering and buy wisely, you can sit back and watch your tenants pay your mortgage for you - and pay for their own heat, building upkeep and other expenses. Meanwhile, your building is growing in value. 

You generate positive cash flow shortly after you invest. If you buy a building that doesn’t require extensive renovation, you can have paying tenants in place soon. Perhaps they will already be in place when you buy the building. That’s a far cry from buying a single-family fixer-upper, which might not put a cent in your pocket until you sell it.

You get more value from every dollar you spend on upkeep. If you own and rent out five single-family homes, you have five furnaces to maintain and five roofs to replace. But if you have five tenants in one location, you only have to maintain one property.

It is easier to sell multi-units than one-family homes. Investors see them as sources of positive cash flow, not as investments that need to be improved before they can be sold. The result? People will line up to pay top dollar for a profitable multi-unit, even if the real estate market softens.

And there’s another significant advantage. Because multi-units yield excellent cash flow, you can hire a management company to manage them. That lets you use your time to locate other investments - or to enjoy the money that your building is earning for you. So you are not only leveraging your money - you are leveraging your time too.