Podcast Summary
Self storage offers unique opportunities in real estate investing: Investing in self storage provides less management hassle, readily available contractors, and alternative passive income opportunities through platforms or no money down deals.
Self storage real estate investing offers unique opportunities to increase income and extract value with ease compared to traditional residential real estate. Self storage requires less management hassle and has readily available contractors for value-add projects. Paul Moore, a BiggerPockets author, shares his insights on entering the self storage game, highlighting its advantages over residential real estate. Additionally, there's an alternative to traditional real estate investing through platforms like Connect Invest, which offers passive income opportunities with a minimum investment of $500. Another intriguing investment option is Rent to Retirement, which offers no money down deals on turnkey rental properties. Overall, these strategies can help investors diversify their portfolios and achieve passive income with minimal upfront capital.
From Residential to Commercial Real Estate: A Path to Larger Returns and Mathematical Principles: Paul Moore, a successful real estate investor, transitioned from residential to commercial investing for larger returns and mathematical principles, consistently paying preferred returns and never losing investors' capital.
Paul Moore, the founder of BAM Capital, has a successful track record in real estate investing, having consistently paid preferred returns for over 50 consecutive months and never lost investors' capital. He started his career in residential real estate, but shifted to commercial investing due to the potential for larger returns and the math-driven nature of the industry. His investments have included multifamily properties and oil and gas facilities. Moore's book, "The Perfect Investment," shares his insights on commercial multifamily investing. Despite some challenges, such as the oil price drop affecting one of his oil production housing facilities, his commercial investments have generally performed well. Moore's inspiration for shifting to commercial real estate was the observation that the wealthiest people in the world own commercial real estate, as it allows for larger investments and operates on mathematical principles.
Increasing asset value in commercial real estate: Experienced operators can boost asset value by enhancing NOI or compressing cap rates, attracting institutional buyers with professional portfolios and value-add strategies.
Commercial real estate offers more control for experienced operators to increase asset value through strategies like increasing net operating income (NOI) or compressing cap rates, which can lead to significant appreciation. This is particularly attractive for institutional investors looking for stabilized assets. Self-storage is a popular asset class due to its recession-resistant nature and potential for value-add opportunities. To attract institutional buyers, operators should build a professional portfolio of similarly managed assets and approach potential buyers like life insurance companies, hedge funds, or industry giants. The upcoming book "Storing Up Profits" by the speaker provides insights into self-storage investing, including why it's a compelling asset class and strategies for maximizing value.
Exploring the Appeal and Strategies of Self Storage Investments: Self storage investments offer stability and cater to various life events. Strategies include buying existing facilities, adding value, developing new ones, and repurposing old structures, each with unique risks and potential rewards.
Self storage is a resilient investment option, performing well during good times and bad. It caters to various life events like downsizing, dislocation, death, and divorce. The first part of a self storage investment book discusses the appeal of this asset type. The second part outlines four strategies to build a self storage empire: buying an existing stabilized facility (momentum play), adding value to an existing facility (value add strategy), developing a new facility from the ground up (ground up development), and repurposing old structures into self storage facilities (retrofit and repurpose strategy). Each strategy offers unique risks and potential rewards. For instance, the value add strategy involves enhancing a facility's value by adding amenities or services. These strategies can lead to significant returns on investment.
Repurposing buildings and extracting intrinsic value: Repurposing old buildings and improving online presence can generate substantial returns without extensive rehabs. Intrinsic value extraction from mom-and-pop assets can significantly increase income and investor wealth.
There are various ways to add value to real estate investments beyond traditional rehabs, such as repurposing old buildings into self-storage facilities or improving online presence. These strategies can involve different types of contractors and may require minimal investment in comparison to cosmetic rehabs. Moreover, there's often untapped value in mom-and-pop assets, and skilled operators can extract that value to significantly increase income and investor wealth. This concept is known as intrinsic value extraction. For instance, adding a website, improving occupancy rates, or even offering U-Haul rentals can generate substantial returns.
Boosting asset value in commercial real estate: Improve property income to increase equity value. Strategies include buying, improving, leasing, refinancing, or selling. Understand regulations for capital raising and deal finding.
Commercial real estate offers significant opportunities to increase asset value and generate impressive returns. By improving the income of a property, an investor can significantly boost the value of their equity. One strategy for getting started in this asset class is the "long and winding road," which involves buying a small property, improving it, leasing it up, and then either refinancing or selling it to move up to a larger asset. Another path is becoming a capital raiser, where one can raise funds for a deal but must be involved as a principal. However, it's essential to understand the regulations surrounding this activity. Additionally, being a deal finder, while tempting, is generally not legal for unlicensed individuals to negotiate deals or request commissions. It's crucial to familiarize yourself with the rules and regulations of commercial real estate investing to maximize opportunities and minimize potential risks.
Negotiating roles and compensation upfront: To avoid misunderstandings and disagreements, negotiate your role and compensation in a deal beforehand, and be transparent about potential risks and rewards.
As an unlicensed person, you cannot negotiate deals, offer deals, or write contracts, and trying to do so while seeking a commission can be problematic. Instead, it's recommended to aim to be a part of the deal and negotiate your role and compensation upfront. This approach can help avoid potential misunderstandings, hurt feelings, and disagreements that could derail the deal. Additionally, entering into a partnership with someone you don't know well requires careful consideration and clear communication, especially regarding exit strategies and roles and responsibilities. Ultimately, it's essential to approach these situations with transparency and a clear understanding of the potential risks and rewards.
Earning Profits as a Deal Finder in Real Estate Syndications: Deal finders in real estate syndications can earn a portion of profits, typically ranging from a small percentage to 10% of GP's share, providing an entry into the business and valuable experience.
In real estate syndications, the person who brings the deal to the table, known as a deal finder, can earn a portion of the deal's profits. This can range from a small percentage up to 10% of the general partnership's 30% ownership, equating to around 3% of the overall deal. This strategy can be an effective way to enter the real estate business, allowing one to gain experience and add the deal to their resume. However, it's important to note that this is just one path to building a successful real estate career. Other options include gaining knowledge and experience through training, reading, and podcasts, or starting with a large investment and assembling a strong asset management team. Regardless of the chosen path, it's essential to understand the ins and outs of real estate investing to minimize the risk of financial loss.
Evaluating Real Estate Investments: Experience Matters: Experience and track record of the manager, understanding of the asset and market, and focusing on both net operating income and capitalization rate are crucial for successful real estate investments.
When considering an investment in real estate, it's crucial to evaluate not just the asset class or potential returns, but also the experience and track record of the person managing the deal. Buying a large property without proper knowledge and experience can lead to significant losses, especially when other people's money is involved. A rising real estate market can make inexperienced investors appear successful, but a market downturn will reveal who is truly skilled. Moreover, when assessing a property's value, the net operating income (profit) and capitalization rate (valuation) form a critical formula. Lower capitalization rates make the deal more attractive, as they result in a higher profit per dollar invested. Conversely, increasing the net operating income is less impactful compared to reducing the capitalization rate. In summary, investing in real estate requires a thorough understanding of the asset, the market, and the people involved. Focusing on both the numerator (net operating income) and denominator (capitalization rate) will help maximize the value of the investment.
Identifying strong operators is key to successful real estate investments: Successful real estate investments depend on strong operators who can navigate market conditions and extract value, regardless of cap rates. Consider building industry experience as a broker or lender before investing.
While the real estate market may experience fluctuations in cap rates, the success of an investment ultimately depends on the strength of the underlying business and its ability to generate healthy net operating income. The speaker emphasizes the importance of identifying strong operators who can navigate market conditions and extract intrinsic value, even when external factors like cap rates are beyond our control. Additionally, the speaker suggests that getting a job in the commercial real estate industry, such as becoming a commercial property broker or a lender, can be a sound strategy for building experience and expertise before venturing out on one's own.
Paths to Getting Started in Real Estate Investing: Learning the business through a job, investing passively, or finding a mentor/coach are ways to get started in real estate investing. Small cost savings in real estate can lead to significant returns due to the high value of real estate assets.
There are various paths to getting started in self storage or commercial real estate investing, and each has its advantages and considerations. One is through getting a job to learn the business, another is taking a passive approach by investing with a sponsor or syndicator, and the third is finding a mentor or paid coach. The power of a dollar in real estate investing refers to the significance of seemingly small cost savings, which can accumulate significantly over time due to the high value of real estate assets. For instance, Amazon's founder, Jeff Bezos, recognized the value of saving a dollar a month, which translates to over $600 in wealth for him and his shareholders, given Amazon's high PE ratio. Similarly, small cost savings in commercial real estate can lead to substantial returns.
Increase asset value through improvements and additions: Improvements and additions to commercial real estate assets can lead to substantial value increases, while tax benefits offer additional financial growth opportunities.
Investing in commercial real estate can lead to significant financial gains through various means. One way is by increasing the value of the asset through small improvements or additions, which can translate to substantial increases in asset value when considering leverage. For instance, raising rents or adding complementary businesses like U-Haul storage can significantly boost the value of a facility. Another advantage is the tax benefits associated with real estate investing. The tax code is designed to incentivize investors, and strategies like hiring a tax strategist and having a K-1 investment can lead to significant tax savings. Overall, commercial real estate offers opportunities for substantial financial growth through both revenue enhancements and tax advantages.
Maximizing real estate returns through tax strategies: Investors can utilize tax-free returns, accelerated depreciation, proper expense classification, refinancing, 1031 exchanges, and self-directed IRAs to minimize tax liabilities and grow wealth in real estate
Real estate investors can utilize various tax strategies to maximize their returns and minimize their tax liabilities. One such strategy is returning capital to investors tax-free in the early years, allowing them to reinvest and defer taxes. Another strategy is accelerated depreciation through cost segregation studies, which enable investors to depreciate personal property much faster than the building structure. Properly classifying repairs as either capital expenses or maintenance can also lead to significant tax savings. Refinancing, 1031 exchanges, and using self-directed IRAs are additional strategies that can help investors minimize their tax burden and grow their wealth in real estate.
Become a real estate professional for tax savings: Real estate investors can save on taxes by investing over 750 hours annually and improving properties, creating jobs and revenue for the government.
Real estate investors can significantly reduce their tax liability by becoming a qualified real estate professional and investing in real estate properties for over 750 hours per year. This strategy not only offers tax savings but also creates jobs and generates revenue for the government through sales taxes and increased economic activity. It's a common misconception that real estate investors don't pay taxes, but in fact, they contribute to the economy by improving properties and creating value. The government incentivizes this investment by allowing depreciation deductions due to the associated risks and benefits. This concept was highlighted in an interview with Tom Wheelwright, a tax strategist, and emphasizes the importance of private investment in a capitalistic economy. If you're interested in learning more about the benefits of investing in self-storage properties specifically, Paul's book on the subject is a valuable resource. Despite any guilt investors may feel about tax savings, the revenue generated through property improvement far outweighs what would be generated without their investment.
Discovering purpose beyond financial gains: Finding personal passions and causes can bring greater happiness than just focusing on financial gains. Human trafficking is a prevalent issue, and supporting organizations that help prevent and rescue victims can make a meaningful impact.
Importance of having a "big why" in life, especially when pursuing financial goals. Paul Moore shared his personal experience of making significant wealth but still not feeling fulfilled, leading him to discover the issue of human trafficking and using his commercial real estate profits to make a difference. He encourages listeners to find their own passions and causes to support, as it can bring greater happiness than just focusing on financial gains. Additionally, Paul highlighted the prevalence of human trafficking and the importance of supporting organizations that help prevent and rescue victims. Lastly, he mentioned his resource for those interested in commercial real estate and encouraged listeners to check out his self-storage book on BiggerPockets.com.
Connect with investor-friendly agents on BiggerPockets.com/deals: Use BiggerPockets.com/deals to connect with agents, navigate the real estate investing process, but remember, investing comes with risks and consult advisors before making decisions.
BiggerPockets.com/deals is a valuable free resource for those looking to invest in real estate and get closer to financial freedom. By using this platform, you can connect with investor-friendly agents to help you get started and navigate the process. However, it's important to remember that investing in real estate, or any asset, comes with risks and past performance is not indicative of future results. Always consult with qualified advisors before making any investment decisions and only risk capital that you can afford to lose. BiggerPockets LLC disclaims all liability for any damages arising from reliance upon the information presented in this podcast. In essence, BiggerPockets.com/deals is a crucial tool for real estate investors, but it's essential to approach investing with caution and thorough research.
