Real Estate Investment Q&A
I’ve been investing in real estate for years and have bought and sold hundreds of millions of dollars in assets. I currently operate almost 4000 units in Florida, Tennessee, Georgia, and North Carolina. Every Monday I go live on GrantCardoneTV to discuss real estate and explain the deals I bought and why I bought them and to help you with deals you are looking at. There is risk in any investment, and the only way to reduce risk is to know what you are doing. I want to do a little real estate Q&A taken from some recent episodes:
What is NOI?
The NOI is Net Operating Income. You have income, expenses, and then you have NOI. 5 units and above are dependent on NOI. It’s what the price is based on, what the banks look at, and what the cap rate is made from. To determine the NOI you take Gross income minus expenses = NOI. The higher the NOI the more cash flow it’s going to produce.
Should I care about the T12?
Yes, you want to see this. The T12 is the trailing 12 months of what the property actually operated at with income and expenses. The Pro Forma meanwhile is a fictional piece of paper that the seller makes up to inflate the price of the property and make the cap rate appear higher than it really is. The pro forma is what the seller wishes were true — higher rents and lower expenses — but isn’t. If it were true, they would have done it already and it would be in the T12.
When you see a deal, what are the steps?
First, there is the subjective part: how do I feel about the deal? Second — does it make sense? Meaning, in a worst case scenario, does it still make money? Third, do a letter of intent, which could be written or video. Have a letter from other real estate agents showing you know what you are doing. Don’t call about price first, this makes you look cheap. Act interested in the deal and claim you are the buyer.
Do you set up an LLC?
Don’t worry about it, the bank will take care of it. The bank is partnering with you in the deal so don’t even worry about the legal stuff. I’ve never had a lawyer for this stuff.
Is LoopNet.com the best place to find a deal?
I don’t go to LoopNet for the deals, but to find brokers. It’s the brokers you need to know. LoopNet.com is the garbage dump for properties that aren’t selling.
What’s one tip you can give me in real estate?
Never trust a number that ends in a 0.
Should I rent or buy a house to live in?
It’s better to pay too much rent than be stuck in a house. Millions of people in 2009 were stuck in houses worth 150K that they thought were worth 210K. You are a slave to your house. Rent where you live and own what you rent out.
Can you simplify for me how to get wealthy?
First, you need to get money, then you need to keep it, then you need to invest it. Get, keep, invest — 3 simple steps. Most people don’t know how to get the money, many can’t keep it, and very few know how to multiply it.
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