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I do a lot of meetups and talk to many that say they want to get into real estate and multifamily real estate. There is always a recurring theme of reasons why they don’t start up their real estate dream. It’s either “I’ll wait until the crash,” “I’ll wait until my kids get into grade school so I have more time,” and my favorite one, that is “I don’t have any money”. Then, they go back to watching the news or some reality show only to wonder why that rich person on TV has it so easy. I’ll tell you something I discovered about the self-made wealthy: They are rich today because they took the time to understand how money works and how to use tools such as bank leverage, to multiply their money. They also took time out to network with others that have money. They dedicated their time to learning how to become masters at one single thing and filling in what they are not good at with a strong team. They didn’t spend time watching TV, going to sporting events or clubbing on the weekends, unless they used these activities as opportunities to network with others or to 10x their relationships. They trained hard knowing that at some point in the future, they could spend their time doing the fun things later. You see, all of us have been sold a lie. We were told to work 40 hours a week for 45 years and save our money for retirement. While you are doing all this, you buy a house, spend your weekends chilling, and start it all again on Monday. For many, it’s living in fear for those 8 hours because you just don’t know if you are the next one to get canned. But it doesn’t have to be this way. If you believe in yourself, you have the potential for more. I spent years doing the single-family and small multifamily thing early on. Later, I dedicated my time to studying real estate, getting in front of banks, finding amazing partners, and putting together a team that helps me run my business. Now, the only thing I do is large multifamily. The motivation in all this starts with the definition of "why". I want to leave a legacy for my family when I’m gone - not just in terms of money but also in terms of education. My "why" is strong enough for me to pull me forward even at the end of a long, exhausting day. Maybe your “why” hasn’t appeared yet or you are not sure of it. For some, it takes years to find their "why". But when you do, you won’t shake it. When you set aside the reasons and focus on your "why", there will be no “buts” or “someday”. I started in real estate using my own money and the rest from the bank. Today, we have investors that put money into our deals and the debt is provided by the U.S. government via agency debt. If you believe you can do the same thing, you will. It just requires to modify your priorities and focus on what you want to change in your life. Anyway, have you defined your “why”? Are you still trying to discover it? Let me know. I’d love to hear from you. If you liked this, go ahead and give it a thumbs up. Also, check out the Bulletproof Cashflow podcast on iTunes or Stitcher, and subscribe to our YouTube channel. We are working on getting new content out all the time to help you build your success in the world of multifamily. Be great. HELP US OUT Help us reach new listeners by leaving us a rating and review on Apple Podcasts! It takes less than 30 seconds and really helps our show grow, which allows us to bring on even better guests for you! Thank you in advance! ♡ HAVE A QUESTION? I am working on a new show where I answer your questions. To submit a question, go to www.bulletproofcashflow.com and you will see a widget where you can speak your question. If I use your question on the air, we'll send you our newly designed t-shirts. ✧✧✧✧✧✧ DOWNLOAD FREE EBOOKS ✧ Talk to Brokers: http://bit.ly/FindBroker ✧ Raise Capital: http://bit.ly/RseFunds LISTEN TO THE PODCAST ✧ BCF on iTunes: https://apple.co/2B4AvXp ✧ BCF on Stitcher: http://bit.ly/StitcherBCF SOCIAL MEDIA! DM me! I want to hear from you! ✧ IG: http://www.instagram.com/bulletproofc... ✧ FB: https://www.facebook.com/bulletproofc... ✧ LI: https://www.linkedin.com/company/bull... ✧ WE: https://www.bulletproofcashflow.com JOIN THE GROUP ✧ FB: https://www.facebook.com/groups/bulle... ♡ Be Bulletproof!

Today, I want to explain to friends, family, and anyone that is not familiar with multifamily syndication - the basics of what my partners and I do when we put a deal together. In real estate, as well as just about any industry a syndication is when a group of people or companies put their resources together - whether it be time, money or expertise to achieve a goal that would be difficult for each person to do on their own. For investors, this is a very effective way to pool their financial and intellectual resources to invest in projects much bigger than they could buy and run by themselves. As it relates to buying into a multifamily deal, when you invest with a syndicator, you own a percentage of the property along with the other investors in the deal. This means all the great benefits, such as accelerated depreciation and preservation of capital, are enjoyed by all the investors in the deal. There are many types of real estate syndication deals. You can join a syndication putting up a new building that is to be constructed, cashflow deals when wants to make an exit, or value-add deal, which is what my partners and I specialize in. This mainly consists of forcing the appreciation of the property by driving net operating income. In these scenarios, there are typically properties that have either fallen prey to mismanagement, have deferred maintenance, or have some big upside play where the property can be repositioned. In any case, the value-add properties we target are all cashflow deals. We are not buying deals for appreciation only. Now, you may be wondering, how does a syndication work. To get to that, let me first talk about the three main participants of a syndication deal. The people putting the deal together are called the Deal Sponsor. They are also referred to as the General Partner, Syndicator or Operator. Then you have the passive investors, known as the Limited Partners. The final part if the Property Management team. Aside from the structure, there are many supporting functions that go to work to put the entire structure together, like the lender, the SEC attorney, the real estate broker, the accountant, the title company and others. While there are many players and moving parts, the Deal Sponsor is the one that keeps it all together. They need to identify the market, work with the lender to get the financing locked in, execute the business plan, make sure the renovations are getting done, staying in constant contact with the property management company, and keeping the investors up to date. The Limited Partners, or the investors, provide the equity in the deal. They are bringing the cash to get the deal done. These people are typically accredited investors and do not have day-to-day operational responsibility. Rather, they rely on the Deal Sponsor to make sure they are doing what they said they would do for the return they targeted at the time they funded the deal. With that said, they usually have very limited decision making in the operation of the property, which reduces their personal liability if a lawsuit crops up. Additionally, they are not on the banknote so if things go very bad for the property, their exposure is what they originally invested and not the entire amount of the property itself. The Property Management group is of vital importance to the overall success of the deal. A strong management group knows the local area, knows the market’s strength and weaknesses, and has the know how to fill the units with quality tenants. They are also great at running teams of renovators and making sure the tenants are kept happy where they live. This group works closely with the Deal Sponsor in not only running deals, but also identifying opportunities, assisting with underwriting, and working on due diligence and new property on-boarding. So, let’s recap. So far, you’ve learned what a syndication deal is and its benefits, you learned a few types of multifamily deals and the participants of these deals, who are deal sponsors or syndicators, limited partners or investors, and property managers. When it comes to the overall deal strategy, there are 4 main parts: Market, Asset, Business Plan and Deal Exit Strategy. THE MARKET: The first part of any value-add strategy is the definition of the market. Typical target markets are in high growth metropolitan statistical areas, or MSAs with above-average job growth, a growing population, and employer diversification. The sponsor will also look at how the market rents are growing without any major renovations as well as the number of new units coming online and their absorption by the marketplace. All these things are indicative of a good market. THE ASSET: Once the market has been identified, the search is on to look for the right asset in that market. For many, they are looking for stabilized properties with conservative underwriting with room left for a value-add play.

Today, I will explore a touchy subject and explain why buying a home is a terrible investment. Before we go into why, let’s define how the dictionary defines an “investment”. According to the Merriam-Webster dictionary, it is “the outlay of money usually for income or profit”. To paraphrase, an investment is anything you put money into and expect to get more in return than what you put in. At this point you may be thinking that a house that appreciates overtime matches the definition of investment, but is it a good one? I will give you 5 reasons why your home is a terrible investment: 1) You Have Dead Equity Let’s say you have $75,000 or $100,000 saved up for a down payment on a $350,000 or $400,000 house. You hand it over to the bank for the opportunity to move into a house - a non-performing asset that does not give you a return every month. That money is trapped and you can’t do anything with it. You could use that same money and put it into an apartment and get cashflow every month. 2) You Are Sinking Money Month over Month After you tie up all this money you saved up, you are then obligated to send the lender a mortgage. Then, you need to pay taxes, insurance, and maintenance costs, which always go up. All this is aside from the fact you need to also spend hours mowing the lawn, trimming trees or shoveling snow. In a rental, the landlord handles all that so you don’t have to. 3) It Is A Depreciating Asset in Need of Updating As the property ages, your home requires updating as your tastes change. I’m sure many of you don’t like to see those kitchen cabinets and shag carpets from the ’60s in any house, let alone in yours! For example, generally speaking, people today like open floor plan with solid color formica or granite countertops and either stainless steel or black appliances. When tastes change, those will be out of style and the home will need to be renovated again. In a rental property, a good landlord will often update the units with modern colors, flooring and kitchens. 4) No Control of the Value The value of your home is directly tied to the surrounding homes. If the properties go up in value because Amazon just happens to open a fulfillment center 10 minutes away, that’s great! But, if a hospital nearby shuts down, and the neighborhood takes a hit, your home’s value will get crushed. Because the housing market fluctuates unpredictably, you can never count on your home appreciating. This means that you could be upside-down on the mortgage when you go to sell it. Perhaps you lose your job and you want to pull out some equity only to find out that you have none because the market value has gone down. You just don’t know. Think about it: If a home were such a great investment, why did so many people walk away from their houses in 2008? 5) You Are Stuck in One Place The days when you would go work for a company for 20 years and turn that job into a lifetime career are gone. If you lose your job or you want to take an opportunity in another state, you can’t just move. You need to unload the house and possibly take a loss if you are paying the mortgage while paying for the place you are going to. With a rental property you are much more flexible, not only because there are management companies that can do the job for you, but because your emotions are not so attached to your place. I know that both owning a home and renting an apartment has money coming out of your pocket. Both give you one thing in return: A place to live. I think of it as an expense just as you do with food, clothing, and fuel for my car, but definitely not as an investment. Making a profit on home ownership is so rare that I wouldn’t even call it an investment. It may turn out well, but for the most part, only the banks win. I’m not saying owning a home is bad. I’m just saying there is more to owning than what the “American Dream” used to be. Many people find happiness and enjoyment in doing home improvements, gardening or even mowing their lawns. They are happy to stake their claim on their own corner of Earth. If you don't care about investing in your future - outside of your IRA, trust or savings account - then you should buy a home. But if you are looking to build financial freedom, take all your cash and invest in properties that get you cashflow. Anyway, do you think homeownership is a generational phenomenon, due to life experience or the age gap? Do you agree? Let me know in the comments. I’d love to hear from you. If you liked this content, go ahead and give it a thumbs up and share it. Also, check out the Bulletproof Cashflow podcast on iTunes or Stitcher, and subscribe to our YouTube channel. We are working on getting new content out all the time to help you build your success in the world of multifamily. Be great.

As landlords and syndicators, our job is to preserve the investments we have made in our multifamily deals. Typically, A & B Class properties have many amenities and are newer and are in better overall condition. If you own an older, C-Class property, a little luxury can go a long way. As buyers of this asset class, we are looking for good neighborhoods in desirable area - preferably a B-Class area - that may just need need simple renovations or upgrades. By doing these three renovations, you can attract tenants that will pay at the very top of your market: 1. Get Stainless or Black Stainless Appliances Stainless steel and black stainless kitchen appliances are durable, look great and shows as fresh and modern and high-end style. Installing a new appliance package - a refrigerator, stove and microwave - you will be able to pull in more rent because people love their kitchens. This simple update could pull in $75-$150 more per month per unit, getting you a very healthy return. Many will justify paying the extra rent because the newer appliances are energy efficient. You could save some money buying 5 or more appliance packages from an wholesale or distributor appliance store. 2. Install New Flooring and Kitchen Decor Accents Installing laminate vinyl plank flooring is one way to make an instant positive impression when they walk into the unit. The modern feel of an ash wood on a grey wall with white trim feel modern and fresh. What’s more, that flooring will me much more durable than carpet. You can also install modern backsplashes and upgraded lighting in the kitchen. It brightens up the room and looks amazing. 3. Improve Overall Curb Appeal, Exterior and Entryways Aside from keeping the exterior clean from debris, painting the windows, putting up exterior louvered shutters on certain buildings, and trimmed up landscaping will give your property excellent curb appeal and a great first impression when the tenant shows up to the property. You can take it a step further and improve the vestibules at the property. When a tenant walks in, they make an emotional decision on whether they like what they see. It must be clean, secure and make the tenant proud to call home. Getting a boost in rent from the bottom of the market to the top of the market through these renovations will give you a higher NOI, driving the overall valuation of the property higher because of the higher cap rate. Many landlords have been able to bump rents 10% to 30%. Not all of these 3 things makes sense for every multifamily deal. Before you commit to a renovation, think about what makes sense for the tenant profile, the history of how the previous tenants have treated the property and how much should be invested. For instance, if tenants are notoriously hard on the carpets and they only stick around for 12 months at a time, consider a better laminate flooring. It is much more money upfront, but you shouldn’t need to touch it for years, especially if the installer offers an extended warranty. Again, make smart changes that will appeal to the tenant profile and always look to preserve the value of your investment. If you liked this content, go ahead and give it a thumbs up and share it. Also, check out the Bulletproof Cashflow podcast on iTunes or Stitcher, and subscribe to our YouTube channel. We are working on getting new content out all the time to help you build your success in the world of multifamily. Be great. HELP US OUT Help us reach new listeners by leaving us a rating and review on Apple Podcasts! It takes less than 30 seconds and really helps our show grow, which allows us to bring on even better guests for you! Thank you in advance! ♡ HAVE A QUESTION? I am working on a new show where I answer your questions. To submit a question, go to www.bulletproofcashflow.com and you will see a widget where you can speak your question. If I use your question on the air, we'll send you our newly designed t-shirts. ✧✧✧✧✧✧ DOWNLOAD FREE EBOOKS ✧ Talk to Brokers: http://bit.ly/FindBroker ✧ Raise Capital: http://bit.ly/RseFunds LISTEN TO THE PODCAST ✧ BCF on iTunes: https://apple.co/2B4AvXp ✧ BCF on Stitcher: http://bit.ly/StitcherBCF SOCIAL MEDIA! DM me! I want to hear from you! ✧ IG: http://www.instagram.com/bulletproofc... ✧ FB: https://www.facebook.com/bulletproofc... ✧ LI: https://www.linkedin.com/company/bull... ✧ WE: https://www.bulletproofcashflow.com JOIN THE GROUP ✧ FB: https://www.facebook.com/groups/bulle... ♡ Be Bulletproof!

If you’ve been listening for a while, you know that we are always talking about cashflow deals. From the first time you underwrite a property, we are looking for deals that not only cashflow, but also deliver returns for you and your investors. This is especially critical for people doing their first deal. I am not a big fan of buying and renting single family homes or putting big amounts of money into properties that do not throw off cash. Really, I often coach people to get into 12+ units for their first deal. While it may seem a little scary for a first deal, but there are many reasons why. Here are just 5 reasons: 1) Lower Cost per Door As you get into larger multifamily properties in a given asset class and market, the cost per door decreases as compared to the cost of a regular single family home. For example, if there is a B-Class 12 unit apartment building in a B-Class area, the cost per door in a typical midwest city like Cleveland Heights, Ohio might be $55,000. A home in the same area STARTS at $75,000 and goes up from there. Depending on the amenities, you could offer a community center, gym and upgraded security. All these things drive the income of the asset and hits your NOI. 2) Install Professional Property Management If you are looking to scale your portfolio of real estate, implementing professional property management is an absolute must - not only for their ability to manage the tenants but also so you can rely on their track record of experience. If you are going the single family route, you know that having 12 different homes in 12 different area, with 12 roofs and various demographics, it’s difficult to manage. It becomes even more difficult as you more to the mix. If you have homes in various parts of the city, you would need to become familiar with all the local landlord-tenant laws and deal with eviction court. Instead, having a professional management company that interacts with your tenants, handles collections, and maintain the property is easier when done by a professional. 3) Greater Cashflow Cashflow in the multifamily space is driven by units. The more units you have the more cashflow you get. The great thing about many units is that if the property is being managed well, and you put a little increase across all the units, it can impact the overall gross income substantially. For example, if you have that same 12 unit apartment building and you increase the rent by $25/unit/month, you will gross another $3,600 annually. This grows exponentially if you have many more units. But it does not end there; Because you have so many units, you can install coin operated laundry to drive additional income. On larger deals (greater than 40 units), you can put in other amenities like vending machines and reserved parking spaces. 4) Income Stability If your single tenant decides to leave the single family rental you have provided for them, you are now at 100% vacancy. The income of that property is at zero income as it takes you a 3 to 4 weeks, at best, to turn the unit, run the advertising, interview tenants and get it filled. In a multifamily, if you lose a tenant, you will still be cash flowing. If you lose 1 tenant in a 12 unit, you are at 8.3% vacancy. You can still pay the note, cover your expenses and even have money left over. In a multifamily deal, you are not nearly as exposed financially as a single family. deal. 5) Friendly Financing When you are getting into larger deals, they are actually easier to finance than a four-plex or even a single family. This is because in the smaller deals, the bank is looking at income. Since these types of deals are considered “residential”, they look at YOUR ability to make the payments. The bank is looking at your borrowing power, your income and credit report. As you move up to 5 units and beyond, financing deals becomes easier. If the deal is good and strong under $1.0MM, your local community bank would probably love to see it. If you get into a deal over $1.0MM, you leverage a larger lender or even the small-balance loan programs from Freddie Mac and Fannie Mae depending on your track record and that of a partner if you have one. There are long-term fixed rate HUD financing for larger deals available from national banks, private lenders, hedge funds and others that need to put large sums of money to work. Some lenders will even do interest-only for a to allow you time to stabilize the property, allowing you to cashflow even more. In this case, they are not looking so much at your personal income as much as they are looking at your team to make the deal a success. Anyway, are you looking to get into your first deal? Are you looking to do something small or go into something larger than 12 units? Let me know in the comments. I’d love to hear from you. We are working on getting new content out all the time to help you build your success in the world of multifamily.

When you are working with a lender or broker on a commercial loan, one item you will want to pay close attention to are prepayment penalties. Overlooking this would be an expensive mistake if you want to shorten your refinance period or make a significant reduction to your loan balance. For those that aren’t familiar, prepayment penalties aren't seen in residential mortgages. These prepayment penalties are regularly seen in the loans that many of you out there are making: commercial loans - loans for properties with 5 or more units. Before we go into some of the fee and penalties, let’s go into the “why”. The primary reason lenders charge a penalty is to recoup the cost of the loan if there is a change to the payoff of the term. You will notice that banks won’t charge you a higher interest rate or points as a hard money lender would. The penalty is in place so they can get that money back if you terminate the loan earlier than expected, whether through a refinance or just paying it off for the outstanding principal amount. A lender wants to keep a performing loan on their books. When the loan is paid off early, it introduces uncertainty to their forecasts. They put these fees in place to keep that loan in place. There are four common prepayment penalty structures for commercial real estate loans: 1) Yield Maintenance In this penalty structure the lender will charge you the interest as if you had made the payments for the entire period to maturity. They will calculate the net present value of the interest and hit you up for that amount at closing. This one is fairly common. 2) Defeasance This is primarily used by insurance companies; Basically, instead of paying cash to the lender, this option allows you to exchange the note with another cash-flowing asset. If you are doing this, the new collateral is usually much less risky than the original commercial real estate asset. There is a much longer explanation, but doing all this is not easy or cheap. This is primarily seen if the loan has been bundled with other loans and sold as debt security as a Commercial Mortgage-Backed Security (CMBS). Chances are that you will not see this on your loan docs. 3) Step-down This one is quite common and simple; In this case, the lender will put a prepayment fee schedule in place that will decline over time. For example, in a 3-2-1 scenario, you would pay 3% of the loan amount prepaid in Year 1, 2% in Year 2 and 1% in Year 3. If you are doing a refinance with the lender that has this provision, they will sometimes waive the penalty if you keep the loan with them. Be sure to ask this upfront. 4) Lockout This one is rare to see; It doesn’t allow for any prepayment at all during a specified period. Let’s say you have a 10-Year loan without contractual ability to prepay, or a lockout, in the first 6 years of the loan. There will be no option to refinance or even sell the property during that time. As you can imagine, this will not work for us in the world of commercial real estate. Avoid the lockout provision. There are many lenders with good rates and no prepayment penalties. You will see this with lenders that offer a floating rate loan. Depending on where we are in the economic cycle, you may be comfortable with this. Personally, I like to fix my rate so I know what to expect out of the monthly payment and know what my net operating income will be. There is sometimes room for negotiating the penalty. When you are presented with a term sheet, review it closely. Have your partners take a look as well and look for any prepayment penalties. If you need flexibility because of the deal you are working on - for example, a 3-Year refi and distribution to your investors - then a 5-Year step-down won’t work for you unless you are prepared to pay. Telling the lender what your plan is important. You can push for the prepayment you can commit to by swapping it for another penalty type. Perhaps you would be fine with a 3-Year Yield Maintenance and sell at the beginning of Year 4. Or, they may even eliminate the entire prepayment altogether by bumping the rate up a little. This may actually be a better choice for you depending on your plan with the property. Lenders like to mitigate risk whenever they can. By offering a prepayment mechanism that suits your needs, they are more likely to accept and help you get this deal closed. Anyway, have you ever been hit with prepayment fees? Have you heard of the ones I spoke about today? Let me know in the comments. I’d love to hear from you. If you liked this content, go ahead and give it a thumbs up and share it. Also, check out the Bulletproof Cashflow podcast on iTunes or Stitcher, and subscribe to our YouTube channel. We are working on getting new content out all the time to help you build your success in the world of multifamily. Be great.

For many families and individuals, pets are more than just companions. They are an extension of the family. Many multifamily owners and landlords recognize this and have shifted to more of a “pet-friendly” model. For other owners, they do not want pets in their units as they may cause damage or bother the other tenants. Prospective tenants will bring their pets along saying they are companion animals, leaving owners and landlords worried about fair housing issues if they don’t accept the animal in the unit. These days, it is now more important than ever to understand the fair housing rules around service and assistance animals and the potential problems for operators if they do not comply. Not understanding the differences could result in you inadvertently discriminating a person with a disability and, in turn, violate the Americans with Disabilities Act (ADA). Here is the long and short of it: The rule states that people with disabilities have the same rights to housing as those without disabilities. As an owner or operator, it is illegal to deny housing to someone because they have a mental or physical disability. Before we go into the problems you can face as an owner or operator, let’s go into the two primary scenarios you could be faced with: service animals and assistance animals. As I mentioned, service animals are covered by the Americans with Disabilities Act (ADA). A service animal is defined in the ADA as primarily a dog that perform tasks for a person with a disability. The tasks performed by the dog must be directly related to that person's disability. The important thing to note here is that there is no proof required by the tenant that the dog has been trained or even registered with the government. You are not allowed to set up designated units for tenants with service animals out of consideration for other tenants as they need to have the same opportunity to be in any units for people without disabilities. This means no “pet-friendly” units. You are also not allowed to charge pet rent or fees. Like I said before, it is illegal for you to deny housing - even if you have a “no pet” rule - to someone that has a service animal. Assistance animals are a little different. They are not covered by the ADA. Rather, they are covered by the Fair Housing Act (FHAct). An assistance animal may be a service animal, for someone that needs emotional support and alleviate their disability. Unlike the ADA that limits service animals to dogs, an assistance animal can be just about any animal within reason. There have been people that say that their alligator, skunks, and donkeys are assistance animals. It’s also worth noting that there is no restriction on dog breeds. Like the ADA, assistance animals do not need to be trained as they may be helping that person cope with a condition like anxiety. Any potential tenant that does not have an obvious disability and is seeking to have their assistance animal in the unit would make a formal request for accommodation. You are able to ask the person two questions regarding their request: if they have a disability and if there is a need for the animal. If your attorney determines that an accommodation request for an assistance animal is legitimate, then it cannot be treated as a pet. This means you cannot charge a pet deposit or pet rent. Now, you think a new or existing tenant may be trying to get around your no pet rule and pet fees. What do you do when they say they want an accommodation but they don’t appear to have a disability? To avoid trouble, you need to follow the HUD guidelines. You need to push back on the tenant and request a doctor's verification in writing of the tenant’s disability and whether the animal is needed because of the disability. The letter should confirm that a disability been established and that the animal is needed for the person to cope or serve as treatment of that disability. To limit your risk, use a third-party assistance animal validation provider. There are several on the Internet and are little to no cost for you. It’s worth noting that if you live on the property and you or a member of your family has an allergy to the animal, it may be possible to deny the service animal. Also, if the service or assistance animal shows aggression toward anyone, you can possibly deny that dog in your rental as well. It can’t be based on the breed or the size of the dog. It must be factual. Before you take that on either case, be sure to talk to your attorney and come up with an execution plan. When you are dealing with Federal law, you want to be careful. Anyway, how do you stay in compliance when tenants ask about service animals? How do you mitigate your risk today? Let me know in the comments. I’d love to hear from you.

Everyone, from the major national mortgage brokers to Kiplinger Magazine, are all saying the same thing: 2019 is still a hot market. Cheap debt and plenty of investor cash looking for returns in the multifamily market have supported the increased property values in recent years. If you are buying multifamily, you are probably seeing cap rate compression - where cap rates were usually in the high 7’s are now in the low 6’s - and deals are still selling fast. There is chatter of an economic slowdown, but we are not seeing it yet. I’m not sure about the exact “when”, but as long as you remain conservative in your underwriting and buy for cash flow, you should be good. Regardless, it’s a good time to think about how to protect yourself in case your respective market is at its peak.This means, continue buying for cash flow and not appreciation as I have covered in my previous material, optimizing the cash flow of your existing assets and picking up major rehab projects that are not risky to you or your investors. Here are five considerations to think about: 1) Always Be Active: This means not sitting by the sidelines or waiting for the cycle to drop. It just means you need to look for deals that make sense. In every market, there are always deals. If you are actively engaged with local brokers, attending meetups, and talking to other real estate pros, you will find deals. 2) Focus on the Cashflow: As the economic cycle rolls off its peak and begins its decline, active investors will see the value of their property ratchet down. What you need to remember is that as long as you have annual leases and you are treating the tenants right, you should cashflow just fine. That paper loss is only experienced if you sell the property. Keep your operations tight, make sure you have good financing in place and make sure the deal cashflows. 3) Put Liquid Cash in Illiquid Assets: The wealthy know that real estate is a safe haven when a bear market hits. Like I mentioned in the previous point, the primary concern for investors is returns. Many of these investors understand that owning multifamily properties financed with fixed-rate debt and increasing rents over time will perform very well in an inflationary period. There has been case study after case study on how cash-producing real estate has outperformed the stock market. The point is, if you’re committed to a buy-and-hold strategy, investing in cashflowing multifamily real estate in anticipation of a bear market will protect your net worth. Just make sure that the property has a diverse employer base with some history of making it through previous economic slowdowns. 4) People Still Need Shelter: For those of you that have lived through a recession, you know that jobs and businesses disappear. It never hits just one sector. A local economy will contain businesses that are dependent on others for commerce. Meaning, a local 500-person call center has people that go to the local gas station for fuel, the restaurant next door for lunch and the electronics shop up the street to buy a new phone. When a recession hits, all this stops. The call center vacates and all those businesses are negatively impacted as well. But just because the businesses are gone, it doesn’t mean the people are gone. Those people still need a place to live. As we saw in 2008 and previous recessions, people turn to renting to stay mobile and reduce their overall “real estate footprint” because of a job loss or their homes foreclosed on by the banks that actually stopped lending. It’s worth noting that during these recessions, multifamily real estate foreclosures were very low and occupancy was steady or even increased between 2008 and 2010 according to the U.S. Census bureau and DataQuick. 5) Cranes in the Air, Buyers Beware: This is in reference to the oversupply in a market. Rental rates and sale prices rise when inventory is tight. In previous U.S. recessions, new multifamily construction in many markets just stopped. So, new construction lagged behind population growth - especially since new construction is mainly Class A property in primary markets with all the amenities. With the market flooded with new supply, it's clear that there is a supply/demand imbalance that will take years to be absorbed by the local market. Be aware of the rental rates these new units are commanding. If they are having a tough time filling them, it could be a sign of trouble. As a real estate owner and operator for more than 15 years who made his way through recessions, the strategy that served me well is to either buy or turn around existing properties in well-located areas targeted to moderate-income renters. I like to hold my real estate for the long term and implement the planned increases as I go, making adjustments as needed. This has served me well in the past and I expect the same in the future.

Since we are now officially in tax season, I’m sure many of you are wondering how to protect your wealth from it being taken by the IRS. I have covered some of the tax benefits when it comes to multifamily, but I want to go a little deeper in the benefits and what it means to you as an active owner or a passive investor. Before I go into the 4 most powerful tax advantages of multifamily investing, please note that I am not a CPA or a tax attorney. All this information is based on my personal experience and advice from my advisors on deals. Really, this is a birdseye view of the most powerful tax benefits that any passive investor should understand and you should talk to your own tax planning advisors and strategists before executing these tactics. 1) Depreciation When you own or are invested in a multifamily deal, you are technically invested in a business. So everything related to that business, from paperclips to taxes, can be written off. One of the most powerful deductions you can write off is depreciation. This is how a straight line depreciation schedule works: The IRS ruled that resident-occupied real estate has a lifespan of 27.5 years. The land the property sits on cannot be depreciated as it has an infinite lifespan. Let’s say you want to buy a property for $6MM and the land is worth $400k. Applying the IRS rule, you are able to deduct 1/27.5 of the $5.6MM, or $203,636 from income for each year. This allows you to show a loss on paper as the deduction may eliminate most or all of the income from that property. Even though you show a loss on your tax return, that money is cash in your pocket and that of your investors. If you have a portfolio of other investments, you are then able to apply these paper losses to other areas of your portfolio. This means that your multifamily investment can lower your tax exposure on other investments you hold. Even as a passive investor on one of our deals, the depreciation in our multifamily deals flows through to our investors in proportion to their ownership percentage. Keep in mind that I am not saying that it is not an entire elimination of all taxes. But there are other tools you can use to defer taxes indefinitely and even accelerate depreciation 2) Cost Segregation Cost Seg is a great way of accelerating the depreciation of just about any commercial property - including multifamily. As I mentioned earlier, the IRS tax code says that real estate has a lifespan of 27.5 years. However, there are certain items that make up the building such as the plumbing fixtures to the cabinets to the appliances, that have a shorter lifespan. When a professional cost segregation study is performed, an engineer will come on site and walk each individual unit. From there, they will separate all the items from the overall value of the building and present you with a schedule for those individual items. Many of those items, the IRS deems them to to have up to 7 years of useful life. The cost segregation study identifies these items. In the previous example, I indicated that you would save $203,000 in taxes through depreciation. Let’s say that the cost segregation study of that $6MM property shows there is $5MM in building depreciation and $1MM from personal property appreciation. Your taxes look a lot different. We would take the ($5MM x 1/27.5 years) for $181,818 and ($1MM x 1/7 years) for $142,857, totalling $324,000 in annual depreciation expense - a significant savings over the $203,000 that we had calculated before! This will give you a great tax offset in income against other investment income. The only caveat with taking this approach is that you could get hit with a higher tax bill when you go to sell the property down the road. As I mentioned earlier, there are ways of rolling your gains without getting nailed on taxes. 3) Qualify as a Real Estate Professional For many people, real estate is a means to supplement their full-time job with some additional income. What many don’t know is that if you spend 750 hours or more annually in your real property business, such as managing rentals or turning units, you qualify as a Real Estate Professional. This means you are able to deduct 100% of your rental depreciation and ‘losses’ against any other income. This designation only helps you if you have ownership in a significant amount of rental property (i.e. more than just 1 unit) and you earn less than $150,000/year in Adjusted Gross Income. If you are an investor in one of our deals, you then have ownership and that may get you qualified. 4) 1031 Like-Kind Exchanges Earlier, I mentioned depreciation as a way to increase your deductions and reduce your gains. A great way to defer taxes on your gains is by using a “1031 like-kind exchange” to roll your gains and avoid getting nailed in taxes for an indefinite amount of time. As long as that cash stays in the 1031, you can keep multiplying it without any tax implications.

After the 2008 crash, the world of multifamily real estate has exploded mainly due to the low cost of capital by lenders and by individuals flush with cash. Sellers of multifamily understand that all this cash is looking to be put to work and this is driving prices to new heights across the U.S. Reports published by Black Creek Group show that almost ALL the 54 Metropolitan Statistical Areas they monitor are either currently in or about to be in hyperinflation. This explosion is not just limited to appreciation markets like New York or Los Angeles, but tertiary cashflow markets alike. My partners and I are shocked at the prices that the asking and sale prices for some of these apartments deals. Some of this heated market is commercial brokers inflating prices to get an institutional or foreign investor to overpay for deals. What’s more, many of these people are coming to the table with up-front non-refundable deposits before due diligence plus a 15% premium. Bear in mind that this was for a C-Class portfolio in a market that usually sits at about a 10% cap rate. They paid a 5.5% cap. Unless they are only worried about parking money, it will be hard to get a decent return on that investment. To me, it seems that these investors are going ahead and overpaying for deals and ignoring the fundamentals of this business such as cash-on-cash return, cash flow, and ROI. But why are they doing it? Here are some possible reasons: 1) Individual investors have 1031 exchange funds that need to be put into real estate to avoid being taxed by the IRS. Because there is a tight time constraint of getting those funds into another real estate deal, they are willing to take a slightly lesser return than have it taken by the IRS. 2) Institutional investors are lowering their bar and going after smaller deals. They used to just look at deals exceeding 250 units - usually 500+ units. There are so few deals out there that they are now going after smaller deals. They are willing to take the smaller returns to put their cash to work. 3) Out of state investors are not seeing the returns in their local markets because their respective markets are way too expensive. They look to the midwest and are attracted to a “cheap” cost per door. International investors want to put their cash into a stable and strong U.S. dollar and see the same cost per door as an easy way into the market. In both cases, they are still paying a premium as the buyers in the local market won’t even touch that deal. 4) Buyers and Syndicators believe that ALL markets are appreciation markets and will sacrifice a lower return for that they believe will be a huge boost in the sale price down the road. This is not the case in many markets. There is nothing wrong with buying for appreciation, but people need to understand what they are buying. 5) Buyers and Syndicators are bending their conservative rules and taking reduced cash flow and returns to get into a deal. They assume the market will continue its climb for the next 20 years with no economic disruption while tacking on rent increases of 4% to 6% a year in their financial models. 6) When these same Buyers and Syndicators perform their underwriting, they assume that bank interest rates will be as low as they currently in 5 years from now. If you look at the trend of the Federal Funds Rate Historical Chart, it’s on the way up. I’m willing to bet it will continue to climb. 7) That broker on Loopnet ACTUALLY returns a buyers’ call and tells them about a sweetheart, off-market deal that they just can’t pass up. However, they need to pay top dollar to win it. So they accept the broker’s proforma as truth and buy the property. The broker then takes that comp and puts it on the next deal they are peddling. I’m not saying that anyone making deals today doesn't know what they are doing or that any deal trading today is overpriced. The buyer may have access to an off-market deal or there is a true value-add play where the rents are 30% below market and occupancy is at 78%. In this case, you and your team are adding value by stabilizing the property. Regardless, the investors in these deals make sure it meets their minimum investment criteria and do not deviate. They also adjust the model to the work involved to stabilize it to the level of risk. I am a believer in buying for cash flow. My partners and I stick to the numbers and leave the broker's opinion and pro-forma out of our decision-making process. Unless you are getting into a big turnaround situation as I described before, your best bet is to apply conservative underwriting to your deal based on actual performance. If the deal performs well and you can still build in reserves while still satisfying your investment criteria, then you take that deal down. This means you will be analyzing a boatload of deals, but it’s the only way you won’t crash and burn on a deal.

I’ve been tracking the U.S. economy for some time. Most everyone from economists to multifamily real estate experts agrees that a recession is coming. Billionaire hedge fund investor Ray Dalio agrees that a recession is likely, we just don’t know when. As of today, mid-April 2019, I would venture to guess that we are one to two years away from a market correction. According to a recent article in the Wall Street Journal, job growth in early 2019 came in below expectations. U.S. Gross Domestic Products growth has been fading since that article, with an annualized rate in excess of 4 percent in the second quarter of last year, and has fallen just a bit. The Federal Reserve Bank forecast suggests that the first quarter of 2019 annual growth rate may fall below 1 percent. I personally believe this to be cyclical, but when the Federal Reserve sees these numbers, they will pull back on their plan to aggressively raise interest rates and shrink its balance sheet. The thing is, there is no way to know whether to wait 2 years or 8 years; it’s hard to predict. Rather than sitting on the sidelines, my team and I are staying active in the market, always looking for deals. We are tracking prices, looking for the asking and selling prices and watching for how long they are on the market. The best suggestion I give to others is to not overpay just to get into a deal. Buy on actuals and never on speculation or a broker proforma. Rather, be prepared to act quickly; Make certain your equity or down payment lined up, your banking relationships are ready, your credit score is good, and you convey your ability to close. Here are five strategies to make sure your investments are protected when there is a correction or an all-out recession. These strategies will be good for 2 years or 20 years. They will always be relevant: 1) Always Buy “In Demand” Locations - As long as there are people, there will be a need for housing. When there is a market slowdown, friends and family will move in together to save on living costs. They will likely want to have access to public transit and highways, close to amenities like grocery stores, retail, malls, and hospital and safe neighborhoods. We personally like B- value-add properties that have a lot of nearby commerce, jobs, and population growth. 2) Keep Up With Maintenance - Because people will move in together to save on housing, some owners may see their vacancy rate creep up. Inventory will be on the rise and you will be competing with other landlords for tenant dollars. You will want to make sure your units do not look old, dated and worn out. The competition will be heavy. I would even say that if you are turning units and you are able to put in better materials at a reasonable price, do it while the market is strong so you can recoup your investment faster. I’m not saying to “over-renovate”. Rather, if you are able to get a deal on ceramic flooring for a property that would usually call for vinyl, and the cost is marginal, go for the ceramic. 3) Set Up a Reserve Account - Knowing that a recession is coming, make sure to build up your reserve account to make up for any upcoming vacancies, repairs, and other expenses. If you set aside 7% of the total rent every month for 12 months, you will have one month’s rent saved up in your reserve. If you don’t use it, you can deploy to your investors or make a major improvement that will drive NOI. 4) Have Liquidity - This strategy is related mainly to new deals; Lenders will be hesitant to lend during a slowdown or recession and sellers will be on the lookout for cash buyers. During a recession, the loan to value numbers we see today (75% or 80%) will certainly be much lower. Some lender may not lend at all. Having cash at your disposal - either liquid or lining it up from investors today - will be important to taking down deals when the economic storm comes. 5) Know Your Numbers - Calculate and track your net operating income on a regular basis and know where your break-even point is. Meaning, know what the bottom line number is to cover the mortgage, property management, taxes, insurance, and other expenses. You also want to know what other landlords are renting their units to understand how the market is trending. If you buy and manage a good property with good strategies, you will always win. Yes, it would be great to pick up deep discounts if you manage to time things perfectly. I believe there is always a deal out there; You just need to work harder to find them. If you are waiting to time the market, you are foregoing the all the gains from today plus cash flow for the coming years. Like all investing, it takes patience and confidence to build success. Ultimately, you will have to make the call yourself on when you’re ready to take on a deal. Regardless, it’s been proven time and time again that getting into long-term, well-positioned and well-managed multifamily will deliver substantial inflation-beating returns.

As a real estate entrepreneur, you have two options when it comes to managing your property. You can either self-manage or you can hire a professional property manager. Here are tips if want to go the DIY route. 1) Screen your tenant prospects. Get an application with their signature that will allow you do to a credit, criminal and public record check. You will also want to look at their financial and income situation to make sure they can cover the rent. If the prospect had prior evictions, violent crimes or has some nasty lawsuit going on, you may want to reconsider having them as a tenant. Finally, call the previous landlord and their current employer to verify they actually work for them. If everything checks out, get to know them. You will want to ask if they have any pets and if they are housebroken. Do they plan on getting a roommate in the future? Do they work night shifts or odd hours? Do they smoke anything? If so, do they smoke indoors or outside? Do they have any friends that will be spending overnights at the unit and will not be on the lease? Be aware that you need to abide by fair housing rules; I created some content as it relates to pets and will include a link in the description. 2) Always get a lease. Having a standardized lease for all your units is critical to protecting you and the property. Make sure everyone that lives there over the age of 18 years signs the lease. Here is an example of why: You have a married couple move into the unit. The wife signs the annual lease, making her responsible for the rent. Two months later, the wife decides to leave the home and the relationship. The husband is not obligated to the terms of the lease because he didn’t sign it. Spend the money and get an attorney to draft a document that will hold up in court. There are many places online where you can just download a lease, but I don’t recommend that. Every state has very specific laws that cover everything from fair housing to late payments to security deposits. An experienced attorney will make sure all these laws are followed and keep you out of trouble. It’s also worth noting that having a lease in place will also help you when you go to sell or refinance the property as banks typically want this information for deal underwriting. 3) Document everything. When you are onboarding tenants, take plenty of video and photos of the property. Have it stored online so it can be accessed at any time. Be sure to have the tenant sign off on a checklist that outlines the current condition of the unit. After they get settled in, document any and all phone calls, emails and text messages as well as the outcome of the discussion. If you are unable to do it yourself, hire a virtual assistant to keep track of those items for you. All this will become important if you need to evict down the road. 4) Issue a 3 day if they are late or violate the terms of the lease. This part is important; If they do not pay, send the 3-day notice immediately by certified mail and taping it to their door. I prefer my managers hand it to them as the counting of three days will not begin until the tenant has the document in their hands. When they have the notice, the tenant will have 3 days to either pay the rent or move out. You can offer them help in the form of contacts at the local church for food and money to cover the rent, but make certain you kick off the 3 day without delay. It will be up to you if you want to accept partial payments or work with the tenant to get them caught up. It really depends on their track record and how far behind they are. Further, you will need to turn the unit once they leave, which could cost you thousands. This is something you will want to consider on a case by case basis. Besides the cost of turning the unit, it is expensive and time consuming to go through the eviction process. Regardless, you are under no obligation to do anything outside the terms of the lease. My personal experience says that most times, it’s just best to cut your losses with that tenant that is always late and push on with an eviction. 5) File the eviction. In some areas, it could take as long as 60 days to get a Writ of Possession that will ultimately get a non-payer out of your unit. In that time, you will not only lose rent, but they will also poison the other tenants. You will be surprised what a tenant will come up in terms of deferred maintenance and inaction on your part as an owner. This is why documenting any and all interactions are critical. While all this is going on, you as a landlord can’t turn off the utilities, change the locks or have all their belongings moved. Those sorts of actions will get you sued. As a side note, make sure you have the right insurance on the property in case of damage caused by the tenant or if you get unscrupulous tenants that may try to sue you.

Hey guys! When you are looking at properties and the area they are located in, you will hear about different classifications: Class B area or a Class C building. Getting to know these important factors will help in outlining the quality and rating of a property. Today, we go into what the classes for buildings and areas are and why it matters. If you are new here, welcome. My name is Agostino and I’m a real estate entrepreneur, syndicator, and investor. I like to share stories, lessons, and advice from my journey in - real estate, particularly, multifamily real estate, and I enjoy helping others to get into the business. I do that through the Bulletproof Cashflow social media channels and through coaching, both online and in person. If you haven’t subscribed, do that now and turn on notifications so that you don’t miss anything. Also, I’d love to know who you are and what you’re up to, so say hi on social. Property and area classifications will reflect the risk and return of the deal because they are graded according to a combination of physical and geographical characteristics, respectively. The letter grades are subjective. They are given to properties by brokers, buyers and sellers that consider the combination of factors like the age of the property, location, tenant income, amenities and rental rate. This variety of items will drive the cap rate, that as you may already know will shift also with the supply and demand cycle of the market. But if you are in tune with your area, you can determine whether the asking price is in line with the market. There is no formula by which properties are placed into classes, but the common breakdown is A, B, C and D. From here, there are two different classification when we talk about a property: 1) The Area Class and 2) The Property Class. The Property Class is centered around the physical condition, the age of the building, amenities, and the demographics of the community. With the Area Class, on the other hand, you look at the age of the neighborhood and what is local to the neighborhood. You consider crime rates, the demographics, typically broken down by zip code. You are also looking at what kind of commerce or retail is in that area. For instance, if there are a handful of national stores near your property versus an industrial trucking side across the street from the property, those are two different areas with two different classes. Before we get into the classes of the area and property, let's go over why we use them in multifamily and commercial investments in the first place. When a broker or a seller tells us the classification of a property, it is supposed to let us know what kind of demographics and neighborhood we are talking about and the condition of the property take a look at it. Classes also tells us what the cap rate of the property and the area are. Classes are like grades - from Class A to Class D. The higher the grade, the better the property condition. The better the property is, the lower the cap rate. When it comes to Class A, think of properties that you will find at a busy downtown area. It could be an all glass multifamily tower with pool, sauna, shopping on the first floor and a very affluent tenant profile. A building like this may cost $50M. The cap rate will be low on an asset like this, but a large hedge fund with money to put to work wants that degree of certainty and doesn't mind paying a premium for these great properties. Keep in mind that classes of property not only vary from A to D, but there are degrees within each one. You will have A- or B+ properties. Perhaps you will have a C- property but in a B area. Generally, the rating will go all the way from D- to A+ and everything in between. And because brokers, sellers and other people classify the property or area differently, it can be a bit subjective. This is especially important to remember when you get a new offering memorandum from a broker with a bright-colored Photoshopped building on the front, meant to show a higher property classification. It's worth noting that the classification of the area is far more important than the classification of the property. If you have a C- building in a B+ area, you can make renovations and drive higher rents to get that property to a B+ like the area it's in. In contrast, if you have a B+ property in a C- area, it will be hard to get the affluent people to move there as they will not want to be in an area where they do not have the amenities they want or where they don’t feel safe spending time outside the property. As I mentioned, getting into the area classes is much more important than the property classes. In a Class A area, you are in the best neighborhood in the city. It will have the best schools, lots of high-end retail, maybe a top shopping mall nearby and plenty of restaurants. The neighborhood is typically no more than 5 years old.

Hey guys! Getting the right financing for your property purchase is one of the most important things you’ll do when putting a deal together. Getting the right amount of debt along with the best rates will impact your cash flow and your returns. Today, we go into what you should look for when putting a deal with your biggest partner in your income-producing deal: the bank. If you are new here, my name is Agostino and I’m a real estate entrepreneur, syndicator, and investor. I like to share stories, lessons, and advice from my journey in - real estate, particularly, multifamily real estate, and I enjoy helping others to get into the business. I do that through the Bulletproof Cashflow social media channels and through coaching, both online and in person. If you haven’t subscribed, do that now and turn on notifications so that you don’t miss anything. Also, I’d love to know who you are and what you’re up to, so say hi on social. For starters, this discussion is centered around income producing properties. A home is not part of this discussion because a house does not produce any cash flow. In fact, it is a way for a bank to hold your money hostage and just means dead equity for you. I explain more of that in a video I will link in the description, but in short, you have all that down payment locked up in a house that you cannot invest. On an income producing asset, like a multifamily property, cash flow is coming to you month over month. This is the reason banks will partner and bring money to your deal. Getting this loan is not just based on your credit, it’s based on the property’s income. While commercial loans are tougher to get than residential ones, they are not impossible. After you find the deal and negotiate the price, getting financing in place becomes key. Each lender is different and will adjust their rates depending on the deal and how they feel about the risk level. Conceivably, you already have a banking relationship before you land a deal and you have already vetted the bank and the ability to perform. Doing this work upfront with a banking relationship manager will help in getting any proof of financing you may need when submitting LOIs on your deals. The bank is going to look for these four things, in order of importance: 1. Your net worth. 2. Your personal credit. 3. Your personal background (bankruptcy, liens, criminal, etc). 4. Your track record with similar assets, in this case, multifamily assets. If you are new to the game and are already discouraged thinking that you will never get into your first deal, don’t worry. You can partner with someone that can offset the deficiencies in your net worth or credit. In this case, you can give the partner equity in the deal and the bank will look at their financial background to get the deal done. If you do this, be sure you are also bringing something to the table other than the deal itself, like sweat equity, property management or raising the equity. Ultimately, the bank is looking for certainty when it comes to financing a deal. If the bank is comfortable with these four things, they will present various financing options. Many times a bank will offer an interest-only loan with only a few points above Treasury rate. These days, many investors are getting up to 4 years of interest only money on larger deals greater than 100 units. This is great for cash flow while you improve the property to raise the NOI and overall valuation. Again, all this depends on the lender and you will need to compare rates to find the best loan and length of term for your deal. From there, the leverage will come into play. Meaning, how much will the bank lend and what do you need to bring as a down payment. Unlike buying and financing a home, we don't care too much about paying down the principal. In the case of a commercial loan on a cash producing property, it's about how much NOI it generates. As the property’s value appreciates, you keep pushing rents up and keep expenses in line, you increase cash flow. This flow covers the debt payment and gives you passive income. There is no value in paying more to bring the debt down. This is why those interest only loans I mentioned a bit ago are so interesting. Because financing is so important in these types of deals, spend time negotiating financing rather than being so focused on the price. Lenders will sometimes make you believe that these rates and terms are not negotiable. This is not the case, specially on larger deals. This is also why you should vet the bank early and establish a relationship so they can independently underwrite deals you are considering and do the legwork to get the best financing they can. A difference of just a quarter of a percentage point in the interest rate can mean paying thousands of dollars more a year.

The general consensus among most investors and economists is that there is a recession coming. The question is when. The great thing is that there are ways to prepare for it. Industry experts say that multifamily occupancy and returns will be fine in a recession. Today, we go into why the experts think this and I will give you three reasons why multifamily makes for a recession-resistant investment. If you are new here, my name is Agostino and I’m a real estate entrepreneur, syndicator, and investor. I like to share stories, lessons, and advice from my journey in real estate, particularly, multifamily real estate, and I enjoy helping others to get into the business. I do that through the Bulletproof Cashflow social media channels and through coaching, both online and in person. If you haven’t subscribed, do that now and turn on notifications so that you don’t miss anything. Also, I’d love to know who you are and what you’re up to, so say hi on social. If you’ve gone through an economic crash, you may already know that rising prices, a sharp rise in bankruptcy and high unemployment make people stockpile cash and causes others to panic - and for good reason. There is no predictability. For those that went through the last crash, many of those who lost their entire life’s savings still have not recovered to this day. You need a safer instrument to protect yourself. You need something that is much more predictable. This means investing in the right asset classes. For instance, vacation homes were hit hard in the 2008 crash and in past recessions. This is because in tough times, an owner will make the payment on their primary residence before paying the mortgage on a second home. It may be possible to do Airbnb, but we have yet to see how that fares in a recession. Another example is small retail. If a small business, like an independent cafe, bookstore or retail shop has a hard time weathering an economic slowdown, you would have a vacancy on your hands. And depending on location, some of those commercial spaces stay vacant for a very long time. This translates into no cash flow. Investing in cash-producing real estate - specifically multifamily - is where many store their wealth. This is not only for the returns and tax benefits but because of what happens in a recession. People lose their houses or lose their jobs. They need to rent until they get back on their feet. Reason 1: People rent during a recession, or move to a lower class rental When we are talking recession-resistant multifamily though, we are not talking Class A deals - those beautiful luxury places with the resort-style pool, clubhouse, fitness centers, and a doorman. If anything, Class A is getting overbuilt and the rents are high. Even today, there is so much competition that people in two-year-old Class A properties are moving to brand new Class A’s. In a downturn, these affluent residents may experience an income hit and move down to a Class B apartment unit. This is what happened in the previous recession and it is bound to happen again. According to economists at RealPage, they have seen owners of Class A apartments cut their rents to pull renters from Class B properties. This is something to keep an eye out and is an indicator as more of these high-end units are built up. Even with these weaknesses, during good economic times these Class A’s will find people to move into the units. These new developments are typically in upscale downtown markets, where there are plenty of jobs, local amenities, and nightlife. The major cities, like New York, Chicago, and Miami are attractive places for great talent - something employers need during any market cycle. Things will change in terms of income of the tenant profile when the slowdown hits. This needs to be considered. And this is what makes Class B & C properties recession-resistant. Reason 2: People losing their houses will move to a rental No matter what happens in the economy, people will always need a place to live. When there is an economic slowdown or recession, people tighten their belts. Those that are in Class A units move to a Class B. Those that are in a Class B move to a Class C. In the last recession, there was an explosion in foreclosures. People needed rentals because they either lost their homes or just walked away from them. The need for multifamily housing increased. This caused multifamily owners and landlords to keep their rents where they were, to keep vacancies low.

In 1995, billionaire investor and friend of Warren Buffett, Charlie Munger, outlined 25 psychological tendencies that cause us to draw incorrect conclusions. These misjudgments, known as “cognitive biases” can shortcut our decision-making abilities - and sometimes cause us to make bad investments. They have been with us for thousands of years to help us make quick decisions for everyday life. Now that life is more complex, the decisions we need to make are more complex, and our cognitive biases will trick us into making bad decisions. Today, we go into three of these biases, what they are, and how they can affect our judgment as investors in deals. Imagine this. Sixty days ago, you decided to rehab a property. But, you have already put a lot of cash into the deal - about the same as others on the market - and it’s still not done! What’s worse, you think you are still months away from completion. And yet, you are still putting time, money and energy into the failing deal. You may say, “I can’t quit now. I’ve already invested so much into the deal!” Welcome to the interesting and annoying world of cognitive biases. These cognitive biases only exist in our heads, but they affect everything we do - from how we live, how we work and even how we invest. As humans, we did not evolve to make logical decisions like a computer. We evolved to survive. Our brains evolved to expend as few resources as possible to conserve energy. To improve our ability to respond to external stimuli efficiently - as an attack by a hungry lion or spending days foraging for food - these biases helped us by providing shortcuts to keep us safe and alive. Think of cognitive biases as mental shortcuts designed to help us survive the hunter-gatherer world from tens of thousands of years ago. In today’s modern world, we do not have these concerns. Many of our scenarios demand more rational calculations than supporting the skills of hunter-gatherers. So, most times, we are left frustrated when what we think is best doesn't get us the result we want or expect. While we can’t eliminate our cognitive biases, we can better understand them and even use them to our advantage, not only for ourselves but also as it impacts others. Here are three cognitive biases that will impact us as investors and some tools that can help you keep them in check. I’m not going to go deep into the science behind why these biases exist - unless you want me to. And if you do, leave a comment and let me know. I can expand on the topic and tell you about other biases that impact how we live. 1) The Anchoring Effect The anchoring effect happens when we give priority to the first information we encounter - even when the information we uncover later is much more relevant or applicable. We tend to be overly influenced by the first piece of information that we hear. For example, a broker reaches out to you about a pocket listing and throws out a price. With the anchoring effect, they have now set the expectation of what the sale price should be. That sale price becomes the anchoring point from which all further negotiations are based regardless of what your inspection or appraisal says. This is a common tactic in our line of business. It becomes even more important to bid according to your predefined criteria and not overpay. You need to stick to your metrics and not justify price based on emotion or justifications by the broker. 2) Optimism Bias The optimism bias is our tendency to overestimate the likelihood that good things will happen to us and underestimate the likelihood of anything bad happening to us. We assume things like a job loss, divorce or even death will happen to someone else, but never to us. On the flip side, it’s worth noting that the optimism bias helps us create excitement for the future, especially as it relates to goal setting. This bias keeps us engaged and moving forward to achieve our goals. The optimism bias helps us as entrepreneurs to push the limits when it comes to taking risks and driving innovation. Optimism is important to helping us find success, but if we get overly optimistic it can be a huge waste of time, money and resources. For example, you buy into a broker’s report of how a building is in an “up and coming” neighborhood. But, there are rough areas less than one block away. So, while you see great things happening in the nearby neighborhood, there are gunshots and crimes happening nearby. Instead of succumbing to the optimism, you need to be skeptical of the rosy expectations. Anticipate and budget to assume it will be more difficult and expensive than you think. Good ideas need hard work rather than just positive thinking. 3) Sunk Cost Fallacy The sunk cost fallacy describes our inclination to commit to a project, person or thing because we have invested time, money or resources into it - even if it would be better to cut our losses and move on.

Do you ever wonder why some people think investing in multifamily real estate is risky but putting money into a tech startup or a Wall Street stock isn't? While any investment with the opportunity for a return has some level of risk, the one thing that reduces risk is knowledge. Today, we will talk about the perceptions of the risks of real estate investing. If this is the first time here, welcome. My name is Agostino and I’m a real estate entrepreneur, syndicator, and investor. In this channel, I share stories, lessons, and advice from my journey in multifamily real estate. If you haven’t subscribed, make sure you push the subscribe button and the notification bell so that you get all the content to stay ahead of the game. As a real estate investor active on social media, I get calls from time to time from people asking me to invest in their venture or deal. Last time, it was a friend looking for me to invest in their tech venture. This friend has been a successful C-Level executive with several companies and is very familiar with the world of technology and business. He was looking to raise a total of $3.0MM in $100,000 chunks in exchange for a return plus equity in the business. During the conversation, he says, “I know the multifamily real estate you do is very risky as you are handing out some good returns. I figured you may want to invest in something that is not as risky. Maybe you or someone from your investor network may be interested in our tech concept. It’s going to change the world!” Here is a guy that ran multi-million dollar budgets, international teams and many high-level projects. I’ve known him for a long time and can tell you he is very intelligent. However, he was brainwashed into thinking that real estate is risky. Prior to making my leap into real estate 15 years ago, I didn’t even consider real estate as something to invest in. Besides, the perceived risk level of sitting on a mortgage in the hopes that the tenants would cover it was a scary thought. I began to understand the nuances of the business once I got into the real estate game. I started with single families and small multifamilies. I studied everything I could about real estate and spoke to mentors to get a deep understanding on how to purchase and operate deals large and small. Today, my team and I run our real estate portfolio as a business. I don’t do e-commerce, bitcoin or own a retail shop. All I do is real estate. My team and I are all in. I don’t consider any investments that deviate from my objectives. Getting back to the conversation, I decided to address the risk of real estate. I asked him: “When was the building you live in, built?” He responded, “Maybe, 30 years ago”. So, for the past 30 years, that building has been throwing off cash. For 3 decades - every single month there was cash flow. Then I asked him, “Do you think that building will be around in another 30 years?”. He says, “I imagine so”. By that logic, that building will continue cash flowing for another 3 decades. I know where his building is and I know that as long as they operate the property well, it will continue performing. When I look at an investment, I have two strict criteria: 1) I want capital preservation and 2) I want cash flow. Of course, there are the tax benefits and forced appreciation, but that’s the icing on the cake. I want to know that the cash we are putting into the asset will outpace inflation and still get us cash month over month. This is what we offer our investors as a way to preserve their wealth and offset earned income from the taxman while diversifying from risky stocks and indexes. To me, stocks are a risky endeavor because I don’t know what kind of return I will expect the first week of the month. But, I can tell you that in my 126 unit apartment deal, I will have $90,000 in rents coming in next month. Your 401k can’t tell you that and neither will your stock. What’s more, if a tornado swept in from the sky and took out that entire building, insurance would not only cover loss of rents but also give us the cash to rebuild that property. My background is in engineering technology, so I understood the tech my friend was pitching and it’s really interesting, but it’s a somewhat risky proposition. I don’t know if any of my investors would want to invest in something like that - especially since they are looking for reliable and steady cash flow. Sure, a multifamily deal may not be as sexy as a Silicon Valley startup, but the assets we invest in are real and will be around for decades to come. With that, I told my friend that I would have to pass on the tech venture and will stick to the slow and steady cash flow of multifamily real estate. As I said, it may not be as fun as venture capital investing or trading stocks, but everyone has different risk tolerances. Anyway, do you think stocks are a safe bet? Let me know in the comments.