I had a very good interview Michael Blank over lunch.
He is one of my graduated students and became hugely successful with flipping houses.
Michael’s an entrepreneur through and through.
His experience ranges from software start-ups and restaurants, to flipping houses and apartment buildings.
I asked him what he thinks the best real estate investment strategy is, since he’s done so many different kinds of deals and has a unique perspective.
Here’s what he said…
Michael, if you had to pick between wholesaling, flipping houses, landlording, commercial real estate or others, which would you pick and why?
I’ve done a few of these myself, and they all have pros and cons. I’ll share those with you now and each can make their own decision.
Here’s what I like about single-family house investing:
1. It’s more affordable: it’s much easier for investors to afford a single-family rental than an apartment building.
2. Good cash flow: whether you’re flipping houses or renting them out, single family house investing is a good way to generate cash.
3. Easier to find: even though it’s tougher to find good apartment building deals, finding reasonably good rentals even in hotter areas is much easier.
Here are some of things I don’t like as much about single-family house investing:
1. It’s a very hands-on and active activity. If I stopped buying, renovating and selling, I wasn’t making money. Even with a team in place, there was nothing very passive about this kind of investing.
2. The strategy has a higher dependency on the market: most of my flipping occurred between 2009 and 2012, a time in the Washington DC area that was very unique: massive supply of foreclosures combined with a recovering retail market created a unique money-making opportunity that dried up beginning in 2013.
3. Not as scalable: If I wanted to buy and hold and build a portfolio of units, I have to grow my portfolio one house at a time. For each unit I want to add, I would have to buy a house. And as you know, buying a house is a lot of work.
You told me you purchased your first commercial real estate in 2011, a 12-unit apartment building. How did that compare to single family house investing, and what did you like about it?
Here’s what I really like about apartment buildings:
1. It’s a more passive type of investment: while I argue that there are very few, truly passive investments, if you have a good property manager in place, apartment building investing comes pretty close.
2. More scalable: I can add multiple units to my portfolio with just one transaction.
3. Non-recourse financing: It’s not uncommon to get non-recourse financing for loan balances greater than $1M – nice. With single family houses, it’s much more common to have to personally guarantee the loan.
4. Greater wealth-creation potential: with commercial real estate, I have more of an ability to control the value of the property. If I’m able to increase income and decrease costs (if only just a little), I can raise the value of the property (oftentimes substantially).
I can show you how it’s possible to add a $1M to your net worth by purchasing a 21-unit apartment building and raising the rents by $100 per month. It’s amazing how such a small change can have such a big impact on your profit.
Is getting into commercial real estate harder? Sure. But is it more worthwhile in the long run?
I think so.
I know people who are doing both: they’re continuing to flip or wholesale while getting into apartment building investing. This makes a lot of sense.
Are there any special skills that folks need for this type of investing that they don’t need when investing in single family homes? What advice to have for someone that is just starting out (with commercial properties)?
Yes. There are 2 skills people need to develop to start investing in commercial real estate.
Skill # 1:
Learn the lingo.
Don’t sound like a newbie. Do this by reading articles and books about the asset class you want to invest in (apartment buildings, retail, self-storage, etc). Consider investing in your education.
Skill # 2:
Learn how to quickly analyze deals and make offers.
Commercial real estate is a numbers game like any real estate is.
When I first got started, it took me 4 hours to answer the question “what is the most I should pay for this building and why?” That’s way too much time. Now it takes me 10 minutes to analyze a deal and make my first offer.
The problem is that if it takes you too long to analyze a deal, you’ll make less offers and get less deals done. Or worse, you’ll feel so overwhelmed that you never get started.
Because this is such a big issue and I get questions about this all of the time, I just released a free ebook called “The 10-Minute Offer”.
Please download the ebook now:
I wrote this ebook to help you get started with apartment building investing. After reading it you’ll be able to make an offer on a building within 10 minutes of receiving the marketing package from a broker.
Once you have this skill, you will waste less of your time, make more offers, and ultimately get more deals done.
That’s good stuff, Michael. I appreciate you sharing all of this info.
I like your “10-Minute Offer” methodology. It’s simple yet effective. It removes a lot of the mystery of analyzing a deal and making an offer on it.
If you have ever wanted to get into commercial real estate, you’ve got to download Michael’s eBook.
Download it for no charge here:
Traction Real Estate Mentors