Wealth Wisdom System

For those of you following my progress with Monica Main’s Apartment Building Cashflow System, or if you’re trying to get financing for you own apartment building, I thought you’d like to see this email I received from Mr. Tracy A. Beer, Managing Director at MCB Madison.

There are many things to complain about in financing these days, but rates are not one of them. We are still enjoying Historically low rates. People say historically about a lot of things, but these rates really are unusual. In the last 40 years, rates have been at 7% or lower only 3 times. Up until the early 2000’s rates have gotten this low for only a total of about 2 years of market time.

Fannie can get under 5% on low leverage deals, Banks can do things in 5’s and Lifecos can reach into the low 6% range on some things. This is cheap rent for capital!

Going Up?

Lot’s of talk out there about rising rates. Here’s what we think will impact rates in order of how soon it might happen.

1) The Feds have been buying massive amounts of Residential loans and paper. This was to help keep rates down for Home-owners and Buyers. The Feds are now backing out of the market and will be entirely divested by early March. Residential rates WILL rise then and this will likely have the same effect on commercial rates.

2) Higher rates help Lenders heal and helps Lenders overcome risk fears. Lifecos are now starting to quote higher rates for higher loan to value ratios. This makes good business sense and we are a bit at a loss as to why the Lifecos have kept rates as low as they have. This is changing.

3) Fannie & Freddie are very sick, money losing institutions now effectively owned by the Feds. Fannie & Freddie routinely quote well below the competition for no good reason. This will change in the coming few months.

4) As I said, I write this in order of “how soon”. Inflation will come and it will push up rates, just when this will begin to assert itself is not clear.

The biggest problem for Borrowers is getting the loan amount they need. Once rates get to about 8.50% the Debt Coverage Ratios begin to dictate loan amount, as opposed to the LTV’s doing so. When that happens and as rates rise further, the coverage ratio requirements will push loan amounts below even permitted maximums. That won’t be fun.

So what do you do? If you can do a deal now, do it. For deals coming due in the next couple years DO THEM NOW!

In my last post about my progress with Monica Main’s Apartment Building Cash Flow System, I told you about the first deal I submitted to Monica, and how I learned that the 126-unit complex was overpriced…and the seller wasn’t willing to come down on the price.

You know how the holiday’s get a little crazy, what with all the baking and the future in-laws to visit? There were a lot of days were I didn’t have the time I wanted to review properties. I’m big into using my time as productively as I can, especially during all that time that’s usually wasted — you know, while you’re waiting for your doctor to honor his time commitment to you, or when you’re waiting for a second post office employee to get back from lunch. So during those little scraps of time I managed to read a small volume by Dan Kennedy called No B.S. Time Management for Entrepreneurs: The Ultimate, No Holds Barred, Kick Butt, Take No Prisoners, Guide to Time, Productivity, and Sanity (Self-Counsel Business Series)

I also did an exercise [pdf] that’s supposed to be way more effective than the standard New Year’s Resolutions. My word is “visionary.” You’ll understand what that means after you do the exercise.

Once things settled down, all my pent-up desire to get back to reviewing properties kind of exploded, and, within a few days, I had three potential deals:

1. a 192-unit property that cash flows at $24,353 per month
2. a 134-unit property that cash flows at $14,283 per month
3. a 164-unit property that cash flows at $18,185 per month

I’ve sent them to Monica and am awaiting word.

But now that I’m awaiting word, I don’t just sit around fantasizing about what precisely I would do with $56,821 per month. I’m still reviewing properties and talking to brokers. Today I talked to my first seller.

He owns a 115 unit property and wants to sell because he has three kids in college right now. They’ve got properties all over the country, so he figured he’d just sell off one of them to pay his kids’ tuition. My question is: why would his kids want to waste four or five years buying a permission slip for an entry level position when their father already knows how to generate a passive income? Anyway, he’s going to send me more information so that I can use Monica’s spreadsheet to see if it would be a good deal or not.

If you haven’t already done so, I encourage you to get your copy of Monica’s apartment building course here.

I’ll let you know what Monica says about my three deals when I find out.

A few days ago I told you how I submitted a deal to Monica to see if she wanted to partner with me on it. To a newbie like me, it looked like a great deal, but there were a couple of things that I wondered about. For example, what was the relationship between the seller’s asking price ($3,500,000) and the appraisal value ($?,???,???)? I knew from speaking with the broker that the seller wasn’t “motivated.” He was selling because his taxes were about to go up, and besides, her already had 600 units and just wanted to cut back a little and spend more time with his kids. Not exactly someone who’s willing to cut a fabulous deal.

So I sent my spreadsheet to Monica and she got back to me the next day. She asked if I could get the seller down to $2,800,000. I knew it was a long shot simply because the seller wasn’t desperate to sell, but I was glad to have Monica’s expertise upon which to rely in apartment building valuation. She recommends using this service to value apartment buildings. From what I’ve read on their website, it looks like a huge frustration saver. Why?

Question:
Why do I need your service? Can’t I just call my Realtor or Lender to find out what the property is worth?

Answer:
Please do call them! See what happens! If you’re like me, you’ll be infuriated by the answers, or lack there of, that you get. You’ll waste $1,000’s and a month of your life and wish you had used our service first!

What your Realtor will tell you is that the value of the property is based on a Comparative Market Analysis (”comps”) of similar properties that have recently sold in the area. Comps need to be within the last 3 months, within 1 mile of the subject property and be of like kind.

But what your Realtor won’t tell you is that with commercial property it is ALMOST IMPOSSIBLE to determine the value of the property based on these “comps.” Why is that? Because there are so few similar commercial properties in any given metropolitan area that finding suitable comps is very difficult!

With residential real estate, finding comps is easy because there are so many similar properties in any given 1 mile radius. For example, my 3 bedroom 2 bath single family house built in 1990, half a mile away from your 3 bedroom 2 bath house build in 1989 is going to be worth about the same amount.

However, with commercial property, a 12 unit apartment building built in 1947 that needs $100,000 in rehab work IS IN NO way similar to a 23 unit apartment building built in 1985 that has been meticulously maintained and needs no rehab work at all and that is 3 miles away! There is no way you can compare those two! So what do you do? How do you determine what the value of the property really is?

The only way to determine the true value of any commercial property is to use the elaborate mathematical equation that banks and lending institutions have been using for the past 100 years. What none of them want you to know though is that this equation exists…and that YOU can use it too!

I discovered this complex mathematical equation after spending $7000 on Real Estate Investing training from the #1 leader in the industry, Robert Allen, and after working one-on-one with a mentor for 2 years that had worked in the Commercial Loan Industry for over a dozen years. You too can have this well-guarded mathematical secret if you spend $7,000 on training and 2 years of your life working with an industry expert mentor….or you can use our easy online service that does all the math for you.

So, if banking and lending institutions use this equation every day, why don’t I just call one up and ask them for it? Again, go ahead and try! I did and got the run around so many times I got dizzy! No one wanted to tell me what the formula for this complex equation was…or that one even existed!

Every lender I asked told me that they have no “secret equation” for quickly and easily determining the value of a property and that they left that up to professional appraisers, which cost $1,000 to $7,000 depending on the size of the property.

My Commercial Loan mentor broke the silence and shared with me this secret mathematical equation that lenders use EVERY DAY to quickly and easily determine the value of commercial property. He shared with me that ONLY the actual “loan approvers” are privy to this secret mathematical equation and that my calls to lenders were in vain because not everyone in the industry is aware that it even exists.

Doesn’t it make sense that you should use this equation BEFORE you make an offer on a property? Imagine spending a month of your life getting a property under contract…paying $3,000 for an appraisal…$1,000 on building inspections and bank fees…only to have the bank tell you…”Sorry, but we will only loan you 70% of the price you have agreed to buy the property for, because that’s all WE feel the property is worth.”

How would you like to spend $4,000 and a whole month of your life only to find out that the property isn’t worth what the seller wants?! And that the bank won’t loan you more than 70% of “what they feel” the value is?! Like me, you would feel HORRIBLE! And you’d feel damn ANGRY!

So, why don’t they just share with you this complex, secret mathematical equation? Wouldn’t it make life easier for everyone? Because, as my mentor put it, if they did, you wouldn’t bring as many deals their way because you wouldn’t pursue as many deals.

They’d rather you bring deals their way blindly so that they are GUARANTEED to get their fees and so they can then sell you a MUCH MORE EXPENSIVE second mortgage! Plus, explaining the equation is very difficult and time consuming! Lenders want to lend money, not teach people how to use Trigonometry.

I feel just the opposite about the whole matter! I want to empower you to know the value of the property BEFORE you spend any time and money on visiting the property, interviewing tenants, negotiating with the seller, reviewing the rent roll and past years expenses, getting a building inspection, a termite inspection, an expensive professional appraisal, etc.

So, save yourself a month of time and $1,000’s and always use our service 1st!

That’s why.

So anyway, the broker came back and told me that with 15 investors trying to get financing for the full asking price, there was no way the seller would come down on the price. I remembered what he had told me in an earlier conversation about how it had been under contract this summer but the guy’s financing fell through. So maybe that would just keep happening until either the seller came down on his price or someone came in with an all cash offer. Fine. Next.

I have been on a treasure hunt these past few days. I’ve got Monica’s criteria up on my screen, my spreadsheet, and various documents that brokers have emailed me. It’s kind of exciting.

When I first see a property online that looks like it might be okay, I start a new spreadsheet for it and fill in as much information as I can. Then I email the broker and ask for the other information that I need. Most brokers are good about getting back to me within a day or two. Then I finish filling in the rest of the numbers. Then I start to ask questions: Why are certain expenses high? Why is the occupancy low? Why why why? At that point, I’ll call up the broker and ask them what the story is behind the property.

Then I start to play with the numbers a little bit. What if I shaved $50,000 off the asking price, then what will the cash flow look like? What will the cap rate be? When I find a number that works, I bring it back to the broker so that they can talk to the seller. And I don’t waste any time day dreaming about what the seller might say — I get right on to the next property.

It truly is a treasure hunt. I’ll let you know more about my progress as I go.

UPDATE: I identify 3 apartment buildings that I think might be good deals. Together they put off a passive income of $56,821 per month.

I’ve read through Monica’s entire 311-page course (newly updated for 2010), listened to her 31 audios, read her bonus PDFs — “Get Cash Back at Closing” and “Use the Right Property Management.” I’ve been trying out different numbers in her Cash Flow Evaluator spreadsheet. I’ve called a lot of brokers, run a lot of numbers, and identified my market. I’ve identified a number of potential properties within that market.

Even though Monica mostly talks about doing a lease option deal with the owner, or a partial seller carryback plus traditional financing, I was delighted to see that her Resource Guide lists SIX different brokerage that can do up to 100% LTV financing! Of course, she also lists a bunch of brokerages that can do as much as up to 85% LTV loans with a partial seller carryback and a little of your own money.

Next I started doing some research on the city itself. I had been to this city a few times myself, but I didn’t know a lot about their local economy. What I found out stopped me dead in my tracks: a large unemployment rate.

I felt wary of investing in a place where my potential tenants were at such high risk of losing their jobs. I also felt pretty unsure of the property that I was looking at since it was a foreclosure and the broker wasn’t able to give me any rent rolls or income/expense reports since the bank had taken it over.

So I started my search over. It was much faster this time. I’m beginning to feel familiar with the kind of numbers I’m looking for, and familiar with the lingo as well. I definitely feel more confident than when I first began this course 17 days ago.

Because I had already done a search, I was able to do another one much more quickly. Within an hour I found another city with a stronger local economy and a much lower unemployment rate. When I did some sample analyses of some of the apartment buildings for sale there, I discovered a much higher CAP rate, and much nicer cash flow.

UPDATE: I submit a potential partnership deal to Monica.

It’s been a couple of days since I updates you on my progress with Monica Main’s Apartment Building Cash Flow System. Here’s what I’ve done since I last wrote about it:

• Identified four potential areas in which to invest
• Identified a number of properties in each area
• Spoke to all of the brokers who represent those properties
• Used Monica’s spreadsheet to run the numbers

Next I’ll be reviewing the numbers to identify my market.

The other day, I got an email from Monica. She has a surprise gift — a free CD. So I gave her my mailing address.

The next day, I got another email from her. She had just updated her 302-page 2009 manual with a 311-page 2010 version that she just finished, plus a new 2010 version of her Quick Start PDF, and 2010 versions of her resource guide and grant guide. I love that she’s keeping me up-to-date. When I purchased her system, she promised free updates for a year. I didn’t think it would come so soon!

I’m really interested in getting grants to use for a down payment, so I looked through her grant resource guide. She gives a number of Federal websites, plus a website for each state, where you can get more information about getting grants. What I found particularly helpful is that she also gives you the name and grant number of relevant federal grants.

Update:
I’ve identified my market and am now doing more in-depth analysis of a particular property. While going over the rent rolls, I’ve noticed something strange: Sometimes people will skip a month of rent! Sometimes, some people will pay $635 in rent, and then, one month, pay only $170! What is going on here? Is the owner trading rent for labor (BAD idea!)? Is the owner being “lenient” (VERY BAD idea!)? I’ve also noticed — and you probably could have guessed this from what I just told you — there’s no management expense, which means this owner is probably trying to manage this thing himself. What a mistake! No wonder he wants to sell!

More updates: I learn more about my market, decide to go with another market, and start looking at my financing options

Yesterday I read the first 100 pages of Monica Main’s 302 page Apartment Building Cash Flow System course.

I have read a lot of books about real estate investing and asset protection, so I was a little surprised to learn a brilliant strategy for naming your real estate-containing LLCs to add even more protection. I can’t believe no one else teaches this.

This morning I’m going to focus on the audios that came with the course. She includes audios from 2007, 2009, and new audios for 2010.

I started with the audios from 2007. Monica starts out by telling people the failure rate when starting a new business. The fact is, most people are just too scared (or too “busy”) and they talk themselves out of taking this seriously. The fact is, you WILL make mistakes. (Did making mistakes scare you away from learning how to walk? How about learning how to talk?)

Then — I couldn’t believe this — Monica talks about what paperwork you need to submit to her office if you’d like to partner on deals with her! Most gurus out there make you pay an additional fee if you want to partner with them. I know of one short sale guru who makes you pay $97 per month just to have access to a special website to upload your partner deals to them.

Monica also says that if it’s a deal that they don’t want to do, they’ll still try to help you and give you suggestions for doing it yourself.

Update:
Monica’s 31 Audios — I love this!

Yesterday I gave you my notes on Monica Main’s free report. Today let’s cover some frequently asked questions.

1) Can someone really money money in apartment building investing having no cash or no credit to start with?

Yes! What most people don’t understand is that apartment building purchases are based on the cash flow of the property. Think of it in terms of purchasing a business. If you were to get financing through a bank to purchase a business…say, a bakery, for instance…the bank would base their lending decision on the cash flow of the business. Purchasing a commercial building such as an apartment building is looked at the same way by banks and lending institutions. The cash flow of the property is the basis of the lending decision and NOT the credit.

2) Okay, that covers the credit. But how can I invest without using any cash?

There are 3 ways you can get an apartment building (or any real estate property, for that matter) with no cash down: (1) Ask the seller to finance at least 20% of the property purchase in the form of a private mortgage note where you will make monthly payments to the (former) owner after you close escrow, (2) Get a hard cash loan for the down payment and we have many resources (included in the course) to get these funds, or (3) Purchase the property at 80% of the market value and use the property equity of 20% as the “down payment.” In this market we’ve been able to acquire hundreds of properties using the first option because these apartment building owners CANNOT SELL THEIR PROPERTIES and WILL offer a private note just to get out from under the property.

3) Why would an apartment building owner want to get rid of a cash flow property?

After 15 years the property doesn’t offer any tax benefits and they suddenly get killed in taxes. Many apartment building owners want to ditch their properties at this point and either use the proceeds to buy another property or just get out of the business altogether. Another reason someone may want to get rid of a cash flow property is because of mismanagement, they are tired of the business, or they inherited the property (or acquired the property in a divorce) and just want to get rid of it.

4) Are you a successful apartment house real estate investor?

Yes.

5) Is it possible to make $24,000 per month in cash flow within 60 – 90 days of starting?

Yes, absolutely! You just have to work the step-by-step instructions provided in the course.

6) Can I do this part time? How many hours a week are required to do this?

If you are serious about making money doing this then please be prepared to dedicate 8 – 10 hours per week doing this. You will have to look for properties (usually on the internet) then look at the properties. You will have to contact listing agents or apartment building owners and draw up letters of intent or property bids. This takes time.

7) I’ve been wanting to become a successful real estate investor for years but I’ve bought into many courses and seminars that were all scams. How do I know this is legitimate?

We offer the best information on this subject in the industry. We actually practice what we preach and invest using the very same techniques we teach you to use. There are lots of scams out there and we can appreciate your skepticism. However, you’ll never know what you can accomplish unless you give it a shot. Remember, there is a 60-day money back guarantee on this downloadable course so you have nothing to lose and everything to gain.

I’ll add more updates as I go…

Yesterday I wrote about how I was going to take on a challenge — I was going to review Monica Main’s Apartment Building Cash Flow System by actually purchasing the program, giving it my best shot, and reporting my results back to you. I was inspired to do this because, in my own search for a fair review, it seemed that none of the “reviewers” had actually used Monica’s information.

Today I read Monica Main’s free report (Get yours here) and I took some notes that I wanted to share with you.

• The big money is not made with residential properties as taught by Ron Legrand and Carleton Sheets, but rather in commercial properties
• NEVER GET AN INTEREST ONLY LOAN. The whole point of purchasing investment property is to, (a) build equity, and (b) pay it off someday. You can build some equity as the market goes up with an interest only loan but you will NEVER pay off your loan.
• Monica focuses on apartment buildings, but when she says “commercial building” keep in mind that these can refer to:
  1. Office buildings
  2. Strip centers
  3. Retail storefronts
  4. Raw land
  5. New construction
  6. Industrial/warehouse
  7. Multi-unit residential properties (5 units or more are considered commercial properties)
• When you buy a larger number of units at once as part of one deal, you will have a lesser cost-per-unit verses if you bought one unit (house, condo, townhouse, etc.) at a time.
• Monica paid $770 per month for the first apartment (a new 1+1 in a nice area) she rented fourteen years ago. Today, an equivalent apartment would rent for $1485. That same apartment, now 14 years old, would rent for $1200. That’s $430 per month extra just because the cost of housing keeps going up.
• Monica invests in real estate because “Nothing will change the fact that everyone needs a place to live.” Why not invest in stocks? Nobody needs stocks!

Some people will even go years without buying new clothes but most of the population still pay a monthly rent or mortgage EVERY MONTH LIKE CLOCKWORK NO MATTER WHAT!

• Believe it or not, you can invest in property with no money and no credit.
• It’s never a good idea to start your investing career when the market is HOT.
• Now is the best time to get started because properties aren’t moving. Owners who are trying to sell will offer all kinds of incentives from lowering their asking price to doing seller financing just to dump their property!
• Good deals are found in a down market.
• Creative financing is done in this kind of market, especially since traditional financing is harder to get.
• People who have lost their homes need a place to live and they naturally gravitate toward something affordable like an apartment, making them in VERY HIGH DEMAND right now.
• People who think that they missed the opportunity when the market peaked out couldn’t be more wrong.
• The true opportunity is when the markets are down like this.
• Real estate millionaires are made when the market is at a bottom.

When you are collecting rent from many units each month, if the market levels out or drops the rents you charge on each unit won’t drop. Your monthly mortgage won’t increase. It’s BUSINESS AS USUAL no matter what the state of the economy. Your incoming rents stay the same and your monthly building expenses, including mortgage payment, STAYS THE SAME. Your monthly cash flow STAYS THE SAME. NOTHING CHANGES!!

• You don’t have to have good credit or money down for a commercial property.
• You don’t have to show income.
• It’s actually EASIER to get a commercial loan than a residential loan for a home for yourself.

Then her free report gets really exciting as she goes into more detail about how to contact owners, and how to make them such a sweet deal that they’ll want to sell to you. She outlines a number of creative financing techniques that you’ll want to know about (I don’t want to put them all here — that’s not fair to Monica).

Then Monica outlines why you want to hold onto your apartment buildings forever. You don’t want to flip properties all the time because:

• Uncle Sam will KILL you on capital gains taxes.
• You aren’t securing residual (passive) income for your future.
• You aren’t building equity in our buildings long term.

The report is a nice condensed resource of what Monica teaches in her course, but it’s not enough information to go out there and start buying apartment buildings the no cash/no credit way. There are some things that you still need to get from Monica:

• The letter needed to get commercial property owners interested in selling (or lease-optioning) their property to you.
• The source/connection to find all of these commercial property owners’ addresses.
• Contracts to do all of your real estate deals.
• A broker to get money for your deals despite your credit. No money down.
• Exactly how to approach these property owners, what to say, and how to structure a deal.

The biggest reason that people don’t get started investing is that they are afraid. They lack confidence and don’t think it’s possible for them to be part of the game. Nothing could be further from the truth. You can become part of the game just as well as anyone else. You just need the proper education!

Enter your name and email address here to get Monica’s free report — Invest in Apartment Buildings Without Using Cash or Credit

Too many people psych themselves out and never end up doing anything with their lives. They talk about it. Dream about it. Wish things were different. And yet they never take the appropriate steps to make the change.

UPDATE:
Monica’s Apartment Building Cash Flow System FAQ