#1 – They Only Invest in Apartments...The Power of Focus!
• The best and the brightest apartment owners are the best and brightest at one thing – buying apartments. They don’t stray away from their specialty, but rather focus on apartments only. They don’t try to be “jack-of-all-trades”. Neither should you if you want to be one of the best and brightest.
#2 – Not Over-Leveraging DEBT…Cuz It’s a 4-letter Word!
• Heavy debt is a cash-flow killer. Even though debt is pretty much the norm on most deals, be smart about it. Having high debt is a trap that snares cash-flow and equity. Proverbs says that the “borrower is slave to the debtor”.
• An easy way of measuring your “debt-safety” level is to figure out your breakeven-occupancy percentage. To do this quickly, simply add up all of your annual operating expenses plus your all debt. Then, divide that number by your potential gross income. You’ll find that your operating expenses will typically not vary much, but that your debt can have a huge impact on your breakeven point in occupancy. The higher the debt load, the higher the breakeven point in occupancy. For example, if your breakeven occupancy point is calculated to be 60%, then after that, it’s all cash flow. But if your calculation comes out to be 90%, that spells trouble. You have no room for error and must keep your apartments 90% occupied just to pay the bills.
• Even though there are financing programs available that allow you to perhaps finance an investment with no down payment, it may not be a good idea. Run your numbers. Be prudent.
#3 – Properties Are Managed Effectively and Professionally
• Having top-of-the-line property management, whether you do it yourself or hire a company to do it for you is a major key to success.
• In a nutshell, a top management company’s ultimate goal is to maximize potential rental income, reduce operating costs, strengthen tenant retention and relations, enhance visual appeal of property, and increase property value. If they can do this, you have a winner.
• Apartments that have the best reputation in the community have the highest rents, the lowest turnover, and have sound and solid property management.
#4 – Patiently Acquiring and Having Tolerance for Mistakes
• Rome was not built in a day. Building a good-sized and wealthy portfolio requires years to build and is built one property at a time. Successful apartment owners take their time and strategically plan out their acquisitions over a period of years. The real estate cycle and market conditions have to be just right in order to make the best buying/selling decisions. Time and timing are the keys.
• Have you noticed that life tends to have built-in provisions for the mistakes we make? The most successful apartment owners that I personally know, made huge mistakes in the past that have brought them literally to their knees, but the most successful ones bounce back to do even bigger deals.
• Allow yourself room and grace to make mistakes. It is the highest form of learning that we know of.
#5 – Effectively Partner
• Proverbs 15:22 states, “plans fail for lack of counsel, but with many advisors they succeed.” Throughout history, no one has achieved impossible dreams or built amazing companies without effective partnering and/or outside advice.
• The apartment investment business can be very dynamic with lots of moving parts to it. Don’t be average over a lot and master of none. Do what you do best and hire out the rest to the best.
• Successful apartment owners know the value of relationships. Success is a relationship business. Finding the best deals, solving the biggest problems, and finding the money for your deals come from relationships.
#6 – All Business Systems are Accountable
• Well-run and profitable apartment investments seem to go under the radar. But what you will hear more of are the apartment communities that are failing or are in deep trouble. Upon deep inspection, you’ll find that the troubled apartments have a key component to their operation that has stopped working. And that failed component has caused or will cause other facets of the operation to fail down the line soon. Nonetheless, a profitable apartment business has nearly every business component running at good to satisfactory levels.
• Successful apartment owners have excellent internal communications and accurate financial and operational reporting. Their systems allow them to hold their apartment’s business systems accountable to those responsible. Here is a sampling of typical apartment business systems: accounting, revenue, internal controls, property staff, marketing system, maintenance, and marketplace.
#7 – Well-insured and Entities are Set Up For Maximum Protection
• “Plan for the worst and be happy if it doesn’t happen” is the attitude and habit of the most successful apartment owners.
• Their goals are to build a legal fortress with insurance coverage and with the use of entities such as LLCs, LLPs, Corporations, TICs, etc.
• A poorly protected investor may not only lose his or her properties to a real or frivolous lawsuit, but personal property as well. As of 2006, there are over one million attorneys in the U.S., all wanting to deploy their skills (on your property).
• Before doing any of this on your own, consult an attorney and tax strategist first.
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