Block Of Units Investment: Australian Market Guide
Block Of Units Investment Guide
Many investors looking to get started in real estate look at a block of units investment. Unit blocks investing is a great way to begin investing in real estate. This is because units or apartments are something that we all have had some introduction to and are familiar with.
We all understand that “people will always need a roof over their heads”. And that is the nice thing about investing in unit buildings. Getting started will take some time, and if you begin with the basics, you will be well ahead of most investors just starting out.
Block Of Units Investment Basic Principles
Although historically owning a block of units is considered a quality, relatively safe investment, it takes some knowledge understanding, planning, and carefully choosing the right property to do so.
It is important, and meaningful, for potential investors, to pay keen attention, to these 6 basic principles, about the realities, of doing so, With that in mind, here will attempt to examine these.
1. Down payment is usually higher
When one purchases a block of units unless he lives there, lenders consider it differently, from the perspective of how much down-payment is required if using a mortgage as part of the purchase. While rules and conditions often differ, the normal conventional mortgage for a block of units is 20%, but, for a non-owner-occupied one, it is 25%.
2. Additional requirement, predicted income, cash flow
Lenders, usually when offering mortgages for a block of units base their decisions on the appraised value and a set of numbers, ratios, etc, believed to represent a borrower’s ability to afford to repay.
However, with a block of units scenarios, a key requirement is based on the predicted revenues from rents, anticipated income, and cash flow. This is done, to minimize the lender’s risks.
3. All the costs
Know all the costs of owning and operating the specific property from the onset. These considerations should consider the owner’s responsibilities for real estate taxes, utilities, maintenance, repairs, cleaning between tenants, maintaining common areas and or, grounds, etc. All of these expenses should be factored into one’s decision to purchase a specific property.
4. The 6% rule
A smart, rule-of-thumb, I call the 6% rule, means the revenues (stated conservatively), minus all costs of ownership (paid monthly or averaged that way), is the Cash Flow. This means, unless or until the true Cash Flow, is at least, 6% positive.
5. The 75% occupancy guidance
When, calculating, anticipated revenues, take into consideration, vacancies will happen and be prepared. Thus, after determining the revenues, using market rates rents, reduce the number to 75% occupancy, to account for this, contingency.
6. Demand for renting
Consider the specific real estate rental market if it is difficult or challenging to rent when there are vacancies. Research how long on average similar units take to rent in this geographic area.
Position yourself, to make the wisest real estate decisions by considering at least these 6 relevant factors, prior to investing in a specific property! Will you proceed with the discipline to be a wiser investor?
Benefits of Investing in Residential units Complexes
Cash Flow
Bought properly, unit buildings will provide a steady source of income for the owner. If you purchase a building in a good area with good management, your units will remain occupied, putting money in your pocket every time the rent is due.
The nice thing is that all of this can more-or-less happen on autopilot because you can hire a property manager to handle the day-to-day activities.
Appreciation
This is an area where unit buildings shine. Because the value is based on the income it provides to the owner, when you increase the net income, you increase the value of the property. Period. It is that simple.
You simply purchase properties where you can increase rents and reduce expenses, realistically, while keeping everything properly managed and maintained.
Try doing something, anything to increase the value of your stock portfolio. You have no control whatsoever over your investment.
Equity Increase
Your equity also increases every single month. How? Because your tenants are paying off your mortgage. It may not be large equity jumps like when you manage the income and expenses. However, every single month your mortgage principal balance is reduced, thereby increasing your wealth. Month in and month out.
Tax Advantages
A block of units investment provides the owner tax benefits through depreciation while owning the property. I don’t buy based on the tax benefits, but they are a nice bonus to get involved with real estate investing.
Visit the Australian Taxation Office (ATO) to learn more about residential rental properties.
Steps to Getting Started Investing in Units
Education
Begin by educating yourself on real estate investing and property management. Even if you are going to hire someone else for property management, you will want to have some knowledge base to go from. Start out by going through some units investment courses, they are difficult to find but well worth looking for.
In addition, if you can attend a live event with other investors, you will benefit from that, as well. Just by getting around others with like minds, you will be heading in the right direction.
Property Analysis
Remember no matter how nice a building looks, how new it is, or how great the neighborhood is, it all comes down to the numbers. Never, ever lose sight of that fact. Decide what your goals are for investing in unit blocks and choose the properties that will help you get there fastest.
Take Action
One of the biggest mistakes I see is a would-be investor who invests in his or her education and never buys their first property. Take your time getting educated and going through the process, but I would encourage you to follow through and take action when the time is right. Then keep going. Get your first property and keep building your wealth over time.
Creating Passive Income With Multi-Units Investing
Investing in units is a great way to diversify your portfolio. multi-units investing is the fastest way to create wealth in real estate. One of the attractive aspects is that you have some measure of control over the success of your asset.
For you more adventurous types, there are value-add deals to be had. For the risk-averse, there are stabilized deals that will pay themselves off, leaving you with an asset that you own free and clear, allowing you to refinance, pull cash out and reinvest it with no tax penalties.
Here are the 6 reasons that multi-unit investing can secure your future:
1. Economies of Scale – having many heads in beds at one location dramatically reduces the expenses compared with many roofs and the associated costs for every single rental property.
2. Tax Advantages – There are very few investments where you can make income and claim a loss through deprecation – this is where a savvy accountant can make or break your deal.
3. Mitigated Risk – Because of #1 (economies of scale), when one tenant moves out, there are others supporting your bottom line. Here’s where larger deals really make sense. You’re also personally driving results at your property through your property manager.
4. Historic Demand – Demand for flats is at an all-time high, and the supporting demographics; (Millennials, Boomers) show no sign of slowing down.
5. Equity Creation – Your tenants pay down your mortgage while you receive ongoing cash flow. Many investors then refinance to buy another building.
6. Potential Value Creation – There are various ways to implement this strategy; from rebranding a property to gut-renovations, as long as you buy right, you can dramatically affect positive bottom-line changes to your property.
For even conservative investors, real estate offers stability. Units are an excellent hedge against an unsure future.
I am confident that there is a deal out there for you. Even if you only do one deal a year, think of how this will change your financial future! This is how you can truly create a “personal pension” that will continue to pay you now and in the future.
Maximizing The Value of Your Unit Complex
One thing I like most about unit investing is that it gives an investor the ability to have a solid cash flow via multiplied profits. Additionally, I want to find a way to increase those returns and ultimately, increase the overall value of my property.
How can I do that? Using the concept of forced appreciation, investors can make low- to no-cost changes and receive huge returns. Here are a few key ideas to maximize the value of your investment.
Raising Rents
Many flats aren’t being rented at market value. In fact, what you’ll find is that many (especially those managed by the owners themselves) are rented for 10% – 20% below market value to attract and keep tenants long term.
This is a great strategy and one that is easily executed however, keep in mind that the leases must expire before you can raise rents. This period can be anywhere from six months to annually.
Decreasing Expenses
Look for opportunities to decrease expenses. By that, I don’t mean that you should be cheap and cut costs on maintenance and repairs. I also don’t mean that you should take on property management responsibilities.
What I mean is that there are improvements that can be made. You can find cheaper alternatives for marketing your property, shop for lower insurance rates, and possibly even investigate if there are ways to save on taxes. Decrease your expenses, but don’t be cheap about it.
Improving Tenancy Rates
While there is no single trick to improve tenancy rates, every investor still has to find ways to tackle this challenge. First, take a look at the tenant base of your building. It will give you some idea of who is attracted to renting in your building.
This information will then help you strategize your advertising to attract qualified tenants that are looking for the living experience you offer. I would also consider going beyond traditional print advertising and the internet methods and include avenues such as referral incentives and move-in specials.
Changing the Tenant Base
Some buildings have tenants who aren’t the best for your investment. These tenants often include those who make late payments, no payments, or those who are involved in criminal activities. These kinds of tenants not only affect your bottom line, they also won’t help you attract tenants who are the exact opposite.
Start to get rid of these kinds of tenants and focus on doing what it takes to attract your target tenant profile. This may mean that you’ll have to invest in repairs and upgrades, but in the long run, it’ll pay off big time.
Upgrading the Facility
Contrary to popular belief, upgrading your facility does not always include having major work done. While there are often, costs involved, the financial impact can be minimal compared to the returns you’ll receive.
I’ve already mentioned several options for upgrading your building, but other simple, low-cost changes could be replacing property signage, upgrading the landscaping, and repaving the parking lot.
Adding the Extras
There are other opportunities that will not only add convenience for your tenants but will improve your bottom line. You might also consider adding larger scale opportunities such as parking or storage facilities. These added amenities will make your building more attractive to potential renters and help retain current renters longer.
Forced appreciation is a powerful strategy any investor can use to gain multiplied returns on their block of units investment. Among their options, investors can do simple things such as raise revenues, decrease expenses, upgrade the building.
These changes are relatively easy to make and often have low or no cost. Like any real estate investment, each property is unique and I recommend that you research your options thoroughly to determine which changes suit your property the best.
Rethinking About Buying Investment Properties
If you truly want to generate recurring income in this economy, it’s time you rethought how you are going about your investing. The days of saving and waiting are long gone. You need a more aggressive approach. But aggressive doesn’t have to mean you gamble. No, you just need to try something new.
It’s a new age and a new approach is in order
In recent years, more and more people have jumped on the “flipping house” bandwagon thanks to publicity on television and on the internet, more and more average people have found themselves scooping up these properties and attempting to resell or rent them.
The result? Buying undervalued homes that will truly result in capital gains or positive cash flow is getting more and more difficult. It’s a simple issue of supply and demand.
Yet this isn’t the case with a block of units investment. What can you expect? If done right, you can generate some nice recurring cash flow and take a giant leap towards financial freedom and security.
Already involved in rental homes? block of units investment should be your next step
If you already have experience with smaller, single rental properties, then you are in the prime position to engage in a block of units investment.
Yes, I understand that purchasing a multi-unit building is a bit scarier than a rental home. After all, you’re dealing with more money, so it seems that more is at stake.
As far as more money equaling more risk it just isn’t true. The fact is, through unit blocks investing you spread the risk across multiple renters. So in actuality, if you make a good buying decision, you are actually decreasing the risk involved. And not just that, but everything is located in one place.
Instead of paying to maintain multiple lawns for multiple rental homes, you are paying for one location. The same line of logic applies to other maintenance issues.
Help is available, you just have to know where to look.
Good advice is out there for units block investing. Although not widespread, through a careful search you can find someone to mentor you as you get your feet wet. This coach will help you set your initial goals, make your plans, find properties, and make good decisions all along the way.
How can you find them? Hit the search engines. Simply search a term like “real estate mentoring” or something similar and browse the results. What you are looking for is a company that is obviously not just trying to sell you their educational tools. Instead, they offer free workshops aimed at unit investing education.
Bock of Units Investment Business Plan
The most important part of your business plan “Setting a goal is not the main thing. It is deciding how you will go about achieving it and staying with that plan.”
I would say that about 71% of the unit blocks investors in the market are running their investment business without a business plan. I say “business” lightly because many of these folks would be better characterized as “mom and pop landlords.”
There is nothing really wrong with that if that is your goal. However, the most successful investors I have worked with over the years have written business plans. This is not to say they have 100-page documents with 4-color charts and graphs inside of them. Far from it…
The wealthiest investors have focused, targeted business plans that simply get the job done. In fact, these individuals would not have time to work on a glossy business plan. This is because they are too busy building their wealth and working on increasing the cash flow from their properties.
Having a written business plan for your property investments places you above most of your competition. One of the most frequently asked questions I get from investors is, “What is the most important part of a block of units investment business plan?”
Many would believe that the most important part of their business plan is the current market information, their experience as an investor, their education, or even property-specific information such as income, expenses, and net income.
These are all big pieces of the puzzle. But the most important part of your business plan is what I would call, “mental toughness and unit complex Investing.” This is the area of your plan where you are going to look inward vs outward to identify exactly what you want to achieve as an investor.
Here are some examples of the questions investors work on as part of their business plan:
1. What do you truly want to achieve as a result of owning properties?
2. Which is most important for you; maximizing cash flow, minimizing management headaches, building wealth, or planning for retirement?
3. What kind of returns do you expect?
4. How much time, effort, and energy are you willing to put into building your investment business?
5. Where do you want to be in one year, three years, five years, and beyond? This piece is very important.
I can go on, but I think you get the picture. It is an inward exercise vs an outward fact-finding section, such as market surveys and identifying your Dream Team Members.
All of the sections of your business plan are good to have, but when you take the time to focus on the Mental Toughness area, you will be much further ahead of your competition because you will be able to quickly identify the properties that will help you achieve your Big Picture Goals.
Block of Units Investment Strategies
Top Strategies Real Estate Investors Use to Turbocharge Their Businesses
Have you ever wondered why some real estate investors seem to make it all look so easy? We have all heard the stories about how one investor made over $100,000 in a week by flipping a house. Or maybe about how another one bought a multimillion dollar unit complex and walked away with cash on settlement day.
So how do these people do it? And is it something the average person off the street can learn to do? Well, those are some of the same questions I had when I first started in the business. So I spent months of research and tens of thousands of dollars to learn what strategies these successful people use that the rest of us do not.
What follows is a brief summary of what I learned. Some may surprise you, others may not. However, I found these to be common words of wisdom from every successful investor.
1. Real Estate Investing is a Business, Not a Hobby
Every successful real estate investor I know operates their endeavors strictly as a business, even if it’s just a part-time thing. This means setting up a Corporation, Limited Liability Company, Limited Partnership, or typically some combination of these entities.
Talk to a knowledgeable real estate attorney in your area for a better idea of which ones are right for you and your goals. Not only will the right entities protect you and your assets, but will allow you to take advantage of certain tax advantages you would otherwise not have. If you stop reading here and take no other advice from me please, do this one.
2. Build A Team of Experts
Few, if any, business owners succeed without a team of experts to guide them. These people can save you a tremendous amount of time and money and possibly even legal problems.
Your business team should consist of a good real estate attorney who understands the state laws and an accountant. I recommend finding an accountant who is also a real estate investor if possible.
You should also have a realtor in each area you are considering investing in, an appraiser, a home inspector, a mortgage broker, other investors, a general contractor, and an insurance agent. There are other specialists you should also consider for special cases such as an architect, a surveyor, an environmental company, etc.
3. Have a Plan
Develop a business plan for your real estate investing venture even if you are not new to it. After all, this is a business and few really reach their potential without a good plan. I promise you, spending a few hours putting it down on paper will be well worth it. And it’s always good to revisit your plan often to keep you on target.
4. Network, Network, Network
Real estate is people’s business. If you haven’t done so already, get good at shmoozing. Join your local real estate investment club, become a member of a church if you aren’t already, just get involved! Get to understand what the seller’s or buyer’s needs are. This means listening! Get to know what other investors are looking for and who the local “players” are.
You may be able to do a partnership on a deal or refer them to a deal that may not be exactly what you’re looking for. Above all, treat everyone you meet with respect whether they’re your team, sellers, or buyers and they will respect you. If you do these things, more deals will come your way than you can possibly handle. I can think of a lot worse problems to have!
5. Know Your Market
Spend some time getting to know the areas where you plan to invest. Go to some open houses and talk to the agents. Drive the neighborhood and look for the “For Sale” signs. Look for homes that appear vacant or in disrepair. Learn how much unit buildings go for in the area and what the local trends are.
Talk to some of the local residents and learn what the community is like. Is there crime in the area, how good are the schools, is the area growing, what are the local demographics? This information will serve you well when it comes time to invest.
6. Never Buy A Property Without At Least One Solid Exit Strategy
In real estate, you make your money when you buy, not when you sell. So what am I trying to say here? For each offer you make, you should know exactly how you are going to make your money from it.
It could be as a rental for which you should have a positive monthly cash flow. It could be as a reno and flip for a profit. Or maybe you may offer it as a lease with an option to buy. Or, it could be hold for the equity growth. Run your numbers for each strategy. If the numbers don’t work, don’t do the deal no matter how much you like the property!
7. Treat Your Agents Like Gold
Real estate agents can make or break your business and a good one is worth their weight in gold. They will do much of the legwork for you and bring you potential deals.
They know their areas inside and out and can steer you away from potential problems. They will even find you, buyers, for your properties as well as show it while you are out looking for more deals. And, they work only for commissions based on the sales price of properties that sell.
However, most real estate investors don’t buy and sometimes don’t sell the property at full market prices. This could directly affect your agent’s commission and their motivation to support what you want can diminish.
I suggest paying your agents commissions based on market price regardless of the ultimate sales price. Yes, it may impact your profits some but you’ll have a very loyal agent. And guess who gets the first phone call when a hot property comes up!
8. Don’t Be Afraid
Many new investors make the mistake of trying to squeeze the maximum profit out of every deal and then wonder why they can’t find any buyers.
Don’t be afraid to leave something on the table for the next guy, especially if you’re selling to other investors. It’s better to make a lot of smaller profits over and over than it is to make one big profit. This strategy should have potential buyers lining up at your door when you have a property to sell.
9. Offers, Offers, Offers!
You’ll never make any money if you don’t first start with an offer. But for some reason, this seems to be the biggest hurdle for most new investors. Don’t spend a lot of time trying to figure out what the perfect offer will be, just make one. Remember, if the first offer doesn’t embarrass you, it’s too high.
Most successful investors will make 25 or more offers a week of which maybe only two or three may eventually end up being accepted. Of those, maybe one will make it to closing. But let’s see, one deal a week, $5-10,000 profit each, you get the picture.
10. Have Fun Investing
Like any business, real estate investing has its challenges. Sometimes deals fall through at the last minute, renters can be a real pain, or you find out about the sewer line collapsing at one of your properties that needs $15,000 in unexpected expenses to fix it.
There will always be obstacles to overcome but the rewards can be well worth it. So have fun with it! If you truly enjoy it, it will show on you and suddenly the problems don’t seem like such a big deal anymore.
There are many more tricks to the trade depending upon which niche you decide to invest in. But the basics are the same across the board. Apply these secrets and you too can become the next multimillionaire!
Block Of Units Investment Long Term Success Tips
For a shark to survive, it must continue to swim. If it stops swimming, it dies. And that’s what happens to most investors in real estate. What would happen if you stopped? What would happen if you decided not to work for a year? Most investors are like sharks, their business would die.
That’s why apartment buildings make more sense. You can buy and sell multi-unit properties without spending an extraordinary amount of time doing it. And, if you stop, your investment continues to flourish, if you know what to do.
What are the biggest mistakes investors make when finding and analyzing properties?
How do successful investors look for the right opportunities? They start by avoiding these common mistakes:
Tax-Deferred
There’s nothing wrong with making a quick profit, but the fastest way to make millions of dollars in this business is tax-deferred asset accumulation of capital. Investing is like running a marathon (think long-term). Marathon runners train differently than those running a sprint. Be cautious of why and how you’re running the race. Those who think long-term last a lot longer and usually make millions more than those who do not.
Due Diligence
Buying unit block buildings is exciting. I get energized when I find a property I really like. But we have to be careful to make sure the numbers make sense.
Verifying and properly projecting operating expenses are to your investment what armor is to a warrior, you just need to do it right. Too often investors let emotion get the best of them and they begin to justify questionable numbers. Don’t let that happen to you.
Important Questions About Analysis of the Property
Start by pre-analyzing the property. Does it fit into your investment plan? When you look at unit buildings there should be three questions you ask yourself first:
-Why is the seller selling?
-Do the preliminary numbers make sense? If not, why not? Is there a genuinely justifiable reason?
-If you had to sell the building tomorrow, would you get your money back?
Start by doing a quick analysis of the property and then move into the other items. You’ll save yourself a lot of time and mental energy.
Overly Optimistic Investors
There’s nothing fun about being negative. Most buyers invest in real estate because it’s not only fun, but it also provides for all the other benefits we look forward to enjoying, such as financial security. Because of that, we tend to be optimists. I encourage people to be negative optimists. Again, there’s nothing fun about being negative, but you don’t want to be overly optimistic either.
Many investors push expected operating expenses down, as discussed above, to turn a marginal opportunity into something it’s not. They do the same thing when they project rental income. Be careful of accepting any “market rent” an agent or seller claims you can attain. Do your own rent study and understand where the property is really positioned in the market.
Indecision
Good opportunities don’t stay good opportunities for long. Somebody else is looking for a property just like you. If you find a building that makes sense, something you’d like to own, don’t wait. The Purchase and Sale Agreement (PSA) gives you plenty of provisions to back out if things are not what they seem.
Some investors sit on the sidelines for years waiting for that one property that will make them a million dollars. Meanwhile, the two dozen they rejected are making someone else 10 times that. Don’t be afraid to pull the trigger. You’ll have plenty of outs if you need them.
No Property Analysis
Some gurus teach that long-term, you can’t lose when you buy real estate. That’s why some investors buy property without analyzing anything. They don’t do effective due diligence. They pay little attention to the numbers.
The best way to get run over by a steel ball is to try pushing one up a steep hill. If your goal is to lose a lot of money, buy real estate without analyzing the numbers or the property. If, on the other hand, you want to make money in this business, take the time and energy needed to properly analyze the opportunity.
