206: Q&A with Jennifer de Jesus
Episode Transcript
Welcome to Episode Six of Season Two of the Growing Empire Show. Today we are back with our question and answer segment, so stay tuned.
00:10
Welcome to Growing Empires hosted by real estate entrepreneur and trusted investment advisor Jennifer de Jesus. Growing Empires provides insight to building wealth through passive income producing real estate investments for those who want to build and manage a more profitable real estate portfolio.
00:29
Here we are again at our question and answer episode. And I'm so excited about this. I just love these questions that are pouring in from our investors. So let's get right to it.
First question is: Should I buy a property with or without tenants? What is your advice and why? This is a great question posed by one of our investors. And part of it, I think, is really just your tolerance. Because whether you buy deals with tenants or without different things will happen. I personally buy properties with tenants. I believe that you have a 50/50 shot as to whether or not you have a great tenant. And if you're on the positive side of that 50/50 equation, the result is that you have money coming in, so you have more spendable cash or equity to put back into the property to improve it. So I've always found that buying properties with tenants, although you do assume some risk because you don't always know the quality of tenant that's in the in the property, I do find that having some streams of cash flow while you're trying to make improvements to the overall condition of the building is very, very valuable. Going back to what I said, though, about that 50/50 shot, you've got a 50/50 shot of whether that person is going to stay and pay, or whether you're going to end up having to evict the tenant. On the contrary, though, having no tenants is very costly. So if you go the route of buying a property that is vacant, unless the property is currently in a habitable condition, it's going to take some time for you to rehab or renovate that property. And then it's going to take additional time to market and locate and screen potential tenants for occupancy there. And then there's going to be a little bit more lag time on when that tenant can actually move in. So you do really need to pick which one you have more tolerance for. I personally have found that buying properties with tenants gets me a little bit closer to my end goal a little bit faster, which is having a property that creates steady streams of cash flow. But I'm certainly not opposed to any investor buying a property that's vacant, as long as your timeline to occupancy is a very, very short timeline. Because again, every day that goes by is costly, and money has to be spent. Even if there's no overall maintenance, you still have taxes and insurance that you got to think about, and maybe even a mortgage.
02:50
Next question: When should I walk away from a deal? I think that real estate in general is full of emotion. And as an investor, you want to make sure that you always remain calm. I always advise my clients to not worry about what you think the intentions are of the other person. In general, I think that that thought makes you a little crazy. And it allows you to get more invested in an emotional decision versus a logical and thought out decision. And for investments, buying a good property is very much a strategic decision than it is an emotional decision. So how do you know when you should walk away from a deal? It would be at the point where you feel that the income that you propose to generate from the property is no longer achievable. That's when you should walk away. It should be 100% provoked by the income and the ability for that property to cash flow, and not really determined by any other method. So some of the things that could cause that would be you're doing inspections or you're doing due diligence period. And the income or the expenses that the seller disclosed up front are not realistic. Maybe you caught something that was inaccurate, maybe it was truly a mistake. But if it affects your overall income or expenses to the property that is going to affect your bottom line. And that would be a moment where you need to make a decision whether it's worth it for you to pursue the deal. The other thing could be inspections or improvements. Maybe your home inspector or your contractor found something at the property that you were not expecting a potential structural problem. Well, if that structural problem and that potential for a structural problem can be identified during your due diligence period, that would be ideal. And if you find that you're going to be required to spend more money than initially anticipated - again, if it throws off your cash flow projections, you may want to consider walking away from the deal. No matter what your decision is, though, I highly advise that your decisions are always made based on financial, you know, strictly financial decisions, not emotional decisions. And remember, there's no perfect deal. For an investor, you need to be able to throw a lot of stuff against the wall to find the right one to stick.
05:12
How do I predict a bad deal? It's a similar question to what we just went over, but there's some other things that could happen that could potentially make this a bad deal. One is finding some undisclosed items during your due diligence period. So let's say for example, the seller said, “I never had a flood. And I've never had any kind of wet basements or anything like that.” And then you go out and you have your inspector look at the home or your contractor, and they can show you where the home did, in fact, have water that it took on. Maybe it wasn't recent, but it was something that absolutely happened, that would be my first indication to a bad deal. If you find something that was that the seller failed to disclose, that could be an indication that there are other things that this seller failed to disclose. And I always advise investors never want the deal so bad that you're willing to adjust your numbers to make the deal work. When you go into purchasing a deal, you have numbers that you've determined to be your cash flow for you to be able to get a number to actually offer. Then when you go through your due diligence period, and you're sorting out and proving all of these things that you believe to be true at the time of offer - as you're going through those items - if something comes up that requires your cash flow to be used in a way that you weren't initially expecting, don't try to figure out how to make the deal work. Figure out how to get out of the deal. Because again, that could be an indication that you're about to buy something that's going to require a lot of invested cash.
06:52
The episode will continue in just a moment.
06:56
As a real estate investor, understanding the nuances of the market is critical to sourcing the right property for your portfolio. Knowing what a market will support in terms of lease ability and potential rental income is a vital part of that equation. You want your property to be in good condition and in a location that's attractive to high quality tenants. If you wish to acquire a property that becomes the gem of your portfolio, you're going to need help to do it right. The good news is you have a great resource who can help you slice through the challenges of finding your ideal property. And that's me. So whether you're just getting started and are unsure of which market to start with, or whether you know the market but can't find the right property, I can help visit GrowingEmpires.com and schedule a call with me today. One simple conversation can help you avoid wasted hours, days, and weeks, and also help you avoid costly mistakes that will weaken your portfolio. Schedule that call with me today at GrowingEmpires.com. That's g-r-o-w-i-n-g-e-m-p-i-r-e-s.com. And I'll make sure that I help you find that home run property to add to your portfolio.
8:00
I own the property. Now what? I think that's a great question. And, you know, a lot of times people get so excited about buying real estate that we forget to keep thinking ahead. And once you own the property, it's kind of too late to figure out what's next. I really believe that during the term of your contract, you should be really thinking about next steps. You should be thinking about once you own the property: what improvements are you going to make? What are you going to do with the tenant population? If the property is vacant, how long is it going to take you to get estimates? And do any renovations that are necessary for you to get occupancy to the property. And you're going to want to take some of your due diligence period, or the period of time where you're waiting through the contract from contract to close, to start identifying and getting estimates for the things that you need to do post closing, so that you can get a jump on it. Keep in mind that when you own the property, today is closing. Everyday beyond today starts to cost you money. So anything that you can do to expedite the process post closing is going to be very, very beneficial to you in your ownership and is going to definitely have an impact on your cash flow. There have been opportunities in the past where I've been able to pre-lease properties while in contract and before somebody owned the property. I would ask for permission during contract term of the seller to have access to the property as I would for inspection purposes or any other reason, so that I can start to show the property to prospective tenants. And we have been very successful at securing tenants that would move in after the ownership change took place and didn't require us to spend the next 20 or 30 days looking for a tenant. So instead of cash flowing 30 days from purchase or cash flowing the day or two after purchase. There's a lot of things that you can do to set yourself up for success. Knowing who's going to manage your property is something that you need to identify prior to you owning the property. You wouldn't want to wait to own the property then to try to figure out who's going to be the property manager, because what's going to happen between the time that you purchase the property - the time that a new management company takes over - every day cost money, and for you to be able to create consistent cash flow, you need to always have your eyes on the prize. Your focus should be heavily on increasing income and decreasing expenses. And you want to identify the quickest ways to accomplish those two things. So anything that you can do in contract time prior to your actual ownership will be very beneficial to you as you move forward with your investment purchase. Thank you to everybody that submitted questions for this week's episode. I hope you enjoy. Until next time, take care.
10:51
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