John Wilhoit is a real estate professional specializing in residential asset management and property management. John has an undergraduate Degree in Business and a Master’s Degree in Urban Studies. Learn more about John here.
Today’s segment is about understanding leverage and liquidity in real estate investing. We want to focus on real estate financing. To frame this conversation, I’m talking about real estate assets, or investments, under five-million dollars. Once you get about five-million dollars then you’re competing in the professional class. With assets under five-million dollars, most of those real estate assets are purchased by local people in local markets.
Property management for small properties can benefit from many of the same business principles deployed by much larger apartment owners in terms of implementing systems and processes. Creating a consistent product, having consistent response times to maintenance, running the business “as a business” are all part of running a small rental business.
Energy efficiency is not the most exciting topic but frankly it can be when you convert the topics that we’re discussing into dollars and cents. If it’s only $5 people are not going to pay attention. Yet, take the body of work in energy efficiency in the last ten years and it is a huge amount of change that can affect every household and rental property owner.
Investing in single-family homes versus multifamily represents two completely different business models and required operational management. They are not the same at all. Multifamily, with the potential for higher rewards, moves at a completely different velocity than does single-family.
The way some people invest in real estate you would think an EMT (Emergency Medical Technician) should be on call at all hours. There is another EMT that can more directly impact your real estate investments. The EMT I am referring to is expertise, money and time. A successful real estate investor needs all three working together to have a successful investment.
Expertise, money and time applied to real property assets is the trifecta of a quality investment. Throwing money at real estate, or any investment, without oversight or up front thinking about intended outcomes creates a vacuum. And we all know vacuum’s suck up everything- including money.
Most instruction on house flipping teaches people how to do a segment of the house flipping business so they can be involved in the process. Well, the process is very extensive. You have to be able to purchase, repair and market the property. And you have to do all three very well to be successful in the home flipping business. Most people do not have the capitalization and/or skill set to do all of those things. Let’s break it down a little bit more.
Most people know these sources but they’re not necessarily all in one place at one time so that’s the purpose of today’s episode: to have all five types of return on investment from real estate in one place while you are contemplating future investments and use this list to analyze your current investments, to measure if you are gaining yield from all five sources with your existing portfolio.