What You Missed April 2013 General Meeting
by Rob Earhart

The Path to Apartment Complex Investing

Presented by: Tom Stanley, II

April 2, 2013

Most people are interested in residential because itís local, easy to do, easy to collect, and usually close to home.

Iíve made a lot of money in residential but proceeded to lose it in the stock market. ďIf you are the person who will do it, I will help you,Ē says Tom. ďI will always tell it like it is.Ē I once had a radio show that cancelled me because I told the truth.

Weíre here to help you, but you have to search within yourself to see if it is a good fit. I built a chain of health clubs and, when I sold them, became a day trader. I lost that fortune in 2000 when the market tanked and I declared bankruptcy. Now we are building back and helping people to succeed in the process.

ďYou want to follow the person who knows what they are doing,Ē says Tom. You must have the drive and love the business. My passion is real estate and that drive is what makes people rich.

Running into the fire: once you find a niche, you have to go for it and the money will follow. ďIgnore the naysayers,Ē proclaimed Tom.

Economies of scale are the third way that rich people get rich.

I was aggressive and lost it all, but now I am methodical and have become wealthy once again.

1. Be open to mentorship. Find people whom you respect that possess successful experience. Listen and Learn. I started with my grandfatherís properties by fixing things around his complex.

Be Fearless. I started with Carleton Sheets and got excited. After graduating from high school, I went to the bank where I had a small account. I saw the vice president of commercial lending and told him what I wanted to do. He met me at the property and decided to fund my project, but was very hands on and mentored me. I spent 10 years doing every loan with Chuck Smith until he retired.

People will say no, but who cares. Thatís their own internal demons, but the people who are onboard really get it.

2. You have to think big. I parlayed a 20 by 20 health club in an exclusive area into the largest chain in the US, then sold it and began the stock market deal.

Run the numbers for single family housing and, unless you have a large number of houses, it is not profitable. I love single family homes but not for rentals. You have to turn and burn, as fast as you can do it.

3. Never give up. Drive through it. I lost everything in the crash in 2000 and went bankrupt in 2003. Then I started building spec homes. I had not purchased apartments since 2004; in 2009, I bought another, then accrued $30 million in 3 years in apartment buildings. We also bought bars, restaurants, etc.

4. Get out of apartments. Donít manage the apartments, manage the managers.

5. Avoid trends. I chase the bubbles until I find that everyone is in it. Then, run away.

6. Be a constant student. Go to seminars and learn..learn..learn.

Fix and flips. You can make a ton of money if you can detach yourself from it. Listen to people and have them help you.

I only purchase homes that will give me $100k in my pocket. If you are only going to get $20,000, you will lose $20,000. Something will come up and you will lose. If you are playing in the cheap neighborhoods, you need to at least double your money.

Do not be shy. If you are going to make $50k you need to get $50k off the purchase price. I may take 3 months to find a property but I have to protect my investors.

No permits. Do not get the government involved to delay and cost more.

The house has to fit the neighborhood. I want the ugly house that is in a normal neighborhood with no other ugly houses in that neighborhood.

Stick to homes that sell. No slums or mansions. The best homes are for the middle class, $120,000 to $220,000. If you are starting out, donít get into bad neighborhoods.

Donít be greedy. Always have several exit strategies. Do not get attached to a house. Itís just a thing. I had someone who offered $220,000 for a house he wanted $250,000 and ended up losing $10,000 because the next three sellers used up his equity.

Learn from othersí mistakes. Some are:
Couldnít pay the bills - Cash flow is king. Keep your jobs.
Ran out of investment money - Never stop looking for funds.
Ran out of investment properties - Never stop looking for properties.
Didnít follow timeline. Create a plan and stick to it.
Team was weak - Constantly interview to get the best staff.

You have to create a timeline so the trades do not step on toes.

Why Commercial Real Estate?
50% of commercial RE mortgages are underwater
Banks are not lending (downgraded outlook through 2013)
Generational opportunity
High rates of return (ROI)
Ongoing cash flow. Money comes in every month.
Passive ownership. 100 units: you have a team at each apt. building.
Economies of scale. Larger units are less expensive
People always need a place to live. They donít always need a place of business.

Commercial real estate loans are non-recourse loans because it is treated as a business and it qualifies itself. Residential is full recourse, you are on the hook for all of it.

Apartment starts at an all-time low. In 2009, it was only 80 units, almost zero, after 10 years of 250 starts.

21% of homes for sale in the US are tear downs. US population created 1.5 million households per year. Commercial is $1 mil low, residential down $2 mil. Total housing demand is $9 million in the hole.

You need to build a team: Investors, rehabbers, management, accountants, realtors, lenders, vendors, title companies, attorneys, maintenance.

Make sure you are SEC legal and compliant.

Wiggio is a free calendar; Rent Manager $5,000-$10,000 but only buy it after you purchase a building. E2E is the Property Evaluation Tool to use for making offers.

When I am doing a new building I allow people to learn or they can invest and make money with us. My project takes a year to find it, fix it, fill it. I want my kids to have things no matter what happens in this government.

Do it all yourself or let someone else do it. The hardest thing to do is to raise money. You have to go for it and push through it.

True ownership: quarterly dividends
PFS Growth: Ongoing cash flow. Never take cash
LLC Protection: Generational wealth

Every building is its own business, LLC. Keep your groups separate, keep separate bank accounts, the title is held in the LLC.

I will buy the building, say, for $1.5 mil, fix it, then after one year refinance for the $1.5 mil and pay back the investors. Then the investors split the Net Operating Income each quarter. Your return is infinity.

What do I see for the future? I see more government regulations slowing growth. It will be 20 years of making money in flipping.

You have to maintain at least 51% of the company to retain control. Invest in C+ to B types of buildings. The Aís are all the bankers, Bís are white collar workers; Cís are blue collar workers.

Tom indicated that those who want passive income could invest with him in his projects, while learning how the system works.

Jill Claypool is Tomís assistant and can be reached at 630-303-4730 for any questions or more information about Tomís projects.


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