#196: 7 Commandments for Cash Flow Investing


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So hey there, welcome back to Accelerated Real Estate Investor with Josh Cantwell. Thank you so much for joining me today. Today, I am by myself in this quick solo cast. I want to talk to you about the seven commandments that I have for investing in multifamily apartments, multifamily investments like mobile home parks, self-storage. Could be a hotel condo conversion into multifamily. But seven commandments that I live by and die by when I make these investments as a passive investor. Because I’m a passive investor in a number of syndications and as an active owner operator. So here we go. The Seven Commandments are number one. We always try to invest in deals where we can be all in for the purchase and a capex renovation and soft costs for approximately 70 percent of its future value. I’ll give you an example, 70 percent of its future value. I just bought a two hundred twenty-unit apartment building. We call it 220 Chevy. You can look it up on the Internet if you want. The the address is five five three one Chevrolet Boulevard in Parma, Ohio. The apartment complex is called Forest Ridge.

You can look it up on the Internet. You’ll find it. It is right across the street from a Chevy plant. It’s across the street from Pitt, Ohio, distribution facility just down the road from Wal-Mart, Menards, Home Depot, Lowe’s and all these other classic big box stores. And we bought this building for eleven point six, five million. We’re going to put about one point three million into it, plus our soft cost and our acquisition fee puts us all in for thirteen point four or five million dollars. Thirteen point four or five. The stabilized value of this building is eighteen point three million, eighteen point three million. So if I take eighteen point three million and I multiply eighteen point five million times, point seven, my all in number seventy percent of its future value is thirteen million dollars. OK, well part of that thirteen point five million that we’re all into it for three and fifty thousand of that is an acquisition fee that I paid myself when we boughtthe building. 

So we are truly all in for 70 percent of its future value. Commandment number two is we want to invest in deals that have a three-year return of capital. So. Thirty-six months we buy the property, fix it up, renovate it, either sell it or re-fi within thirty-six months and return all of the investors’ equity. OK, I know there’s a lot of syndications deals that go three, five, seven years. I prefer deals three years to get all my money back. My investors that invest passively with me three years prefer to get all their money back. That’s an important part of a deal. So that’s commandment number two. Return of capital in three years. Come in at number three is immediate cash flow. We want to have a scenario where the property has enough occupancy, very little vacancy we’re in immediately cash flows. And it might not a cash flow a lot for me as the owner operator, but a cash flows enough that I can pay my passive investors, I can pay my passive investors and they can get eight, nine, 10 percent preferred return. 

So I want enough immediate cash flow from all the revenues, pay all the expenses, pay the debt service and still have enough money left over to pay my passive investors their preferred return. Preferably, there’s also still enough money left over that the sponsor, which is also the general partner, can also. OK, you can also take some cash flow, but that doesn’t always happen sometimes. Worth the wait a year or two years, three years until the building’s really stabilized. OK. Commandment number four is that we want to invest with an experienced operator. If an operator is not experienced, we want that inexperienced operator to partner with an experienced operator that knows what they’re doing. So whether it’s self-storage, whether it’s a hotel to multifamily conversion, whether it’s office, whether it’s a cannabis dispensary, I don’t care. I want that sponsor to have experience, to have experience on their team doing what they say they’re going to do. I don’t like deals where the operator is learning on the job. I don’t like deals with the operators learning on my dime. 

OK, so that’s number four, experience operator number five is I prefer to invest in deals in the Midwest, the South and the Southeast. If you look at population migration over the last five years, everybody’s moving to Texas, the South, the Midwest, Florida, North Carolina, South Carolina, Georgia, the Midwest, the Southeast. Everybody’s moving there. Now, covid has exacerbated that. Also, the riots from the summer of 2020, the high taxes along California, Seattle and the northeast, Boston, New York, New Jersey. Those areas, high taxes, riots, Covid, lots of people, very expensive businesses now that are operating where they can operate virtually. They’re all moving. If you look at population migration in the cities that are growing the fastest, they’re all in the Midwest, the South and the Southeast. That’s where I want to invest. 

Number six is when I make an investment, whether, again, as an active operator or as a passive, limited partner, I want to invest in a deal that gives me equity in perpetuity. So if there’s a refinance event. I can get most or all of my capital back, which, again, is is commitment number to. And now I can get equity in perpetuity with no money in the deal and to create and create an income stream, then make another investment with that same capital, create a second income stream, a third income stream, a fourth income stream with the same capital. Finally, commandment number seven is to have multiple exit strategies. I don’t like deals where we’re just going to sell the property, OK, we’re going to pay four percent prof or a six percent profit. Just sell the property. That doesn’t really interest me. 

What I’m looking for is deals where there’s multiple exit strategies through a sale, a refinance, a 10, 30, one exchange, something along those lines where there’s multiple ways to make money, multiple ways to defer taxes. Because I’m not just interested in buying a property, fixing it up, selling it could be two years from now, could be three years from now, five, four years from now, selling it. And then I’ve got to go do it all again. I want multiple exit strategies where I can create multiple streams of income. And that way I know that even if a deal doesn’t happen exactly the way it was planned in the pro forma, that there’s still ways to get out, there’s still ways to return some or all of the investors’ equity. There’s still ways to create cash flow and have multiple exit strategies. 

Give an example. Right now, just actually, just yesterday I had a meeting with my commercial lender and my partners on a deal. We have one hundred and sixty for a unit that we bought in Shaker Heights in Cleveland Heights, Ohio. Well, it was right around the corner from Cleveland State University and Case Western Reserve University, Cleveland Clinic and other hospitals. A lot of the residents at these one hundred and sixty-four units, a lot of the residents are medical related. They’re medical professionals. There are students or their doctors or nurses or teachers, professors, et cetera. Well, with Covid, a lot of those students, didn’t go back to school. They didn’t go back to Case Western Reserve University. With Covid, a lot of them didn’t go to work in the hospitals that we’re literally seeing patients virtually. 

And so we didn’t have the kind of lift in rents that we needed. The goal was to get to a fourteen point four-million-dollar valuation and refinance and have about six hundred thousand dollars of cash out reified proceeds. The valuation came back at thirteen point three million, which still is a huge win because we bought the building for nine point two million. Imagine you buy a building 18 months ago for nine point two million. Eighteen months later, it values out at thirteen point three million. You’ve created over four million dollars of equity or around four million of equity, but it didn’t pencil out quite as large as we wanted. OK, so we could sell the building, we could refinance, return some or all of the investors’ equity. OK, there’s multiple exit strategies here. We could have new investors invest and get the other investors out. We could swap out investors and have new investors come in and new investors leave. So there’s multiple exit strategies. 

A lot of these deals that you’re seeing, especially the multifamily space, the operators counting on a sale five to seven years from now in order to exit the property. Well. What if they can’t sell? And what if we want long term equity in perpetuity? You know, if we sell, we don’t get equity in perpetuity. OK, so those are our seven commitments. Number one, be all in it, 70 percent of the value. Number two, three, return of capital. Number three, immediate cash flow. Number four, invest with an experienced operator. Number five, invest in the Midwest, South and Southeast. Number six, get equity in perpetuity. And number seven, get multiple exit strategies. 

Well, I hope you enjoyed this quick-hitting fast podcast and YouTube video. Don’t forget to hit the subscribe button, the like button, the five-star review button, the rating button. Let us know how we’re doing. Also, visit FreelandVentures.com to see our case studies, our deals, our YouTube channel. Download a free copy of my book FreelandVentures.com. You can also register on our investor portal there so you can actually see some of our deal flow. And don’t forget to join our private Facebook group for all of our accelerated real estate investors. Thank you so much for joining me on this episode. And we’ll see you next time. Take care. 

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You were just listening to the Accelerated Investor podcast with Josh Cantwell. If you enjoyed this episode and learned something new, help us build the A.I. community by leaving a review and five-star rating on our iTunes podcast channel. Also, don’t forget to subscribe so you never miss another episode. To see passive investing opportunities, visit FreelandVentures.com/passive. To start your journey toward the lifestyle you’ve always dreamed of with multifamily apartments, apply for one-on-one coaching with Josh at www.JoshCantwellCoaching.com.

Any time someone brings me a potential property to invest in, I measure it up against my seven commandments for investing in multifamily apartments. Not only am I an active owner-operator, but I’m also a passive investor in syndications. I apply these rules consistently across all of my deals. Inside this episode, not only am I going to lay out my commandments, but I’m also going to dive into my reasons for why I follow these rules.

  1. I’m not all in unless I can buy a property at 70% of its future value.
  2. I want a return of capital in three years.
  3. Immediate cash flow.
  4. I only invest with an experienced operator.
  5. I prefer deals in the Midwest, Southwest, and Southeast.
  6. I’m looking for equity in perpetuity.
  7. Every property needs multiple exit strategies.

See some of our deal flow when you register at Freeland Ventures so that you can get a better  idea of what my properties look like. Join our Facebook group for more investing insights and a chance to engage with other real estate investors. And of course, we love hearing comments and suggestions from our listeners, so leave us a comment or a review.

What’s Inside:

  • Following trends of where people are moving, I prefer to invest where the population is headed to, not where they’re leaving from.
  • I don’t like deals where we’re going to just sell the property in the end, and I’ll tell you why.
  • If your exit strategy is to sell the property in 5-7 years, what if you can’t sell the deal because of something like Covid?

Mentioned in this episode​

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