How do you actually make money investing in apartment buildings? Like where does your
revenue come from? Most people think it's just rents, but that's leaving
the majority of the money on the table. All that and more, coming up.
In this video, I'm going to show you the 3 ways you can make money
investing in apartments and believe me, you're going to want to stick around to the last one
because that one is my favorite and it's the one where you can start making money immediately. So, of
course the very first way you make money investing in apartments is through your property income.
The very first one is your rent. Every single month every tenant is going to pay you rent and that is
going to be a significant portion of your income. Also, it's important to remember, raising those
rents as fast and as sustainable as possible is one of the fastest and easiest ways to see more
income show up to your pocket every single month. The 2nd way is through application fees. When
people fill out an application to be a resident in your apartment, you can charge an application fee
so that you can cover the time it takes for either your property manager, you, or somebody else to look
over those applications and find the best fit for your property. But this is another way to generate
revenue that has nothing to do with rent. The 3rd way to make money in your property income
is in parking. This really only applies to bigger cities and areas where there's limited parking.
If you own a duplex out in the rural area of Indiana, you're probably not going to be able
to charge somebody to park in the driveway. But if you own a property in a bigger city where there's
only street parking or you have a very small lot for the size building you have, you can rent out
each spot for a monthly fee if people would like to leverage that parking and not pay for street
parking. A 4th way to make money off of property income is through laundry. A lot of places install
coin operated washer and dryers so the tenants can use those and of course they pay just like they
would at a laundromat every time they wash their clothes. They have to put coins in the machines to
make them work and that's another way for you to generate revenue at your properties. Aside
note on laundry, there are companies that actually exist that will do this for you. They will supply
the machines, they'll service the machines, they'll do everything and they'll take most of the revenue
but they'll give you a little piece of it. But the good news about that is you never have to maintain
any of the machines. If a machine breaks, they fix it. If a machine needs to be repaired or updated,
they fix it, you don't. You get a smaller piece of revenue but it takes the guesswork and the risk
completely off your hands. The 5th way to make money in your property income is through fees. This
could be late fees people, who pay rent not quite on time. You charge a late fee when they do pay. And
also, pet fees. A lot of times when people have pets and bring them into apartments, you can charge a 25,
$50, $75 pet fee depending on where you are in the country and where you are in the world and you
can charge them to have their pet inside. Now, a lot of people get a little iffy on this one, especially
our pet lovers, and they say, "Why would you charge somebody to have a pet?" What this allows us to do
is make sure we have enough money to clean those apartments if those pets aren't taken care of,
so we add a pet fee in order to cover us if people aren't taking care of their pets
as good as we wish they would. And the last way you can make money inside your property income
is what I call packaged amenities and it really comes in 2 forms: wi-fi and cable. What you can
do is buy a package wi-fi from the wi-fi provider and you can charge each tenant to use the wi-fi.
So, you get a package discount because you're having so much wi-fi added to a location and
you charge each tenant a lesser fee than it would cost for them to actually go get it on
their own, but you still make money each unit by offering wi-fi to your tenants. It's a win for you
and it's a win for your tenant. And the same applies to cable, you go to your cable provider and
you buy a package for your apartment building, or whatever size multi-family you own, and you charge
each tenant to have access to the cable. These are 2 different ways for, again, you to make money
and your tenant to pay less than they would if they went and got it on their own. It's a win-win.
The 2nd way you make money in your multi-family is through appreciation, both natural appreciation
and forced appreciation. Forced appreciation is where you raise the income or lower the expenses
so the property is more profitable, that raises the value of your property. Natural appreciation,
the apartments become in greater demand and that raises the value of your apartment building. Here's
the cool thing about appreciation, appreciation is where you will make most of your money in
multi-family. The biggest amount of revenue to be made in multi-family real estate is in
appreciation, both forced and natural appreciation. You always make more in appreciation than you do
in cash flow. When you're talking to your investors and you're talking about the cash flow it provides
and they start to get a little nervous because the cash flow is low, help them see how much more
they're going to make in the appreciation so they don't get scared off by low cash on cash numbers.
I made that mistake early on in my career. I didn't want to take deals to investors that
had low cash on cash return even if they had a really strong appreciation ability because I just
felt like who would invest in something with this little of return? Well, that's really short-sighted.
Now, I understand most of the money's made in appreciation. How does an investor make 14 to 25%
on a multi-family? It's not because of the cash flow, it's because of that appreciation.
That's where they see that big spike up in revenue so they can experience larger than
normal returns. Appreciation is where the bulk of wealth is made in multi-family real estate.
Before I give you my very favorite tip, make sure you subscribe to the channel and also turn on that
bell notification so you get notified every time we do a video and smash that thumbs up button so
we can keep bringing you amazing content. Now, let's get to my favorite tip. The 3rd way you
make money in multi-family real estate is through fees. If you want to build a real estate business,
it's really hard to build a real estate business on cash flow only. Let's say you buy a property
and you make $500 a month, well you have to buy quite a few properties in order to really replace
your income. But when you learn about fees, you learn how you can actually replace your income
by only doing a couple properties a year. The very first fee is an acquisitions fee. This one is my
favorite and let me tell you why. An acquisitions fee is where you actually charge your investors
in order to find the deal, to put the funding together, to raise the capital, to fill out all
the paperwork with the bank, to hire a property manager. All that work that goes into a deal, you
charge your investors for. The acquisition fee is anywhere from 1 to 4% and I would say,
start lower when you're a newer investor and the more deals you do, scale that up and I like
that sweet spot of 3, that tends to be my sweet spot, of 3%. Why? Here's a ninja
tip for you, because the broker's fee is 3% on both sides of the fence, the seller
and the buyer. So, that 3% fee is just kind of an accepted percentage in the industry. So,
when you're charging 3%, it looks like oh you're taking your 3% cut as well.
It's a very easy number to palette as an investor when you're doing as much work as you're doing.
So, think about this, you close on a million dollar property, a 2% acquisition fee, that's 20
grand just for putting the deal together. That's not counting your cash flow, appreciation, when you
sell the building. It's just your acquisition fee, amazing ability to scale your revenue. If
you do 3 of those a year, that's a $60,000 a year salary that can really launch your career.
This is why charging an acquisition fee changed everything for me. When I first started investing
in real estate, I was nervous to charge an acquisition fee because I was like, "My investors
aren't going to really want to pay this fee." And then I realized, "Without me, they don't have a deal
and they don't have anybody to run it. They don't have the expertise, they don't have the access to
properties that I have access to." All this time I spend with brokers building relationships
and relationships with my lenders, all the years I've spent building this, who pays me for that?
Your acquisition fee is what covers your time to actually run your business. Cash flow is just icing
on the cake. The 2nd fee you can charge inside of a multi-family deal is an asset management fee
usually about 2%. An asset management fee basically covers your time to manage the asset.
So, for example, if a property manager is managing the property but something really
big happens. The roof leaks and it needs to be replaced, who do they call? They don't call your
investors, they call you. So, all of a sudden, you've got to pick up the phone so you have
to interface with your property manager to make sure that property is being managed very well,
and then when money comes in, you have to cut money to your investors. And then when money comes in, you
have to distribute the money to your investors. You have to continue to interface with your investors
and interface with your property manager. Well, who covers that time? If you run your business well and
you pick a good property manager, you won't have to spend tons of time on the phone with them.
But charging that asset management fee covers your time when you do have to dive in and problem solve
on your property. Because you are the first line of defense, you are what protects your investors time,
but somebody has to absorb the time needed. You absorb that, somebody needs to pay you for that
and an asset management fee is another way for you to earn revenue in order to make money investing
in multi-family real estate. Oh, by the way, and it has nothing to do with cash flow. You still
make your cash flow and you still earn money on appreciation. This is another way to earn revenue.
And the 3rd fee you can charge is a disposition fee. Let's say the time comes to sell that property.
You have 5 or 6 investors that have invested in your property, you've been managing that asset,
you force appreciated the building and it's time to sell it. It's time to list that property, get it
with a broker and get it to another investor and realize all that return and maybe go into another
deal. But let me ask you a question, who covers your time to meet with brokers to make sure the
offer memorandum or the marketing packet they put together for your property looks good and all the
content's right and getting all the financials to them and when other investors have questions of
the seller, who are they gonna call? You're the one who's gonna get that phone call. A disposition fee
is your charging for all the work it takes to actually sell a property. And again, the disposition
fee matches the acquisition fee. I would say, in that 1 to 4% range. When you're newer,
start at 1, as you continue to do more projects move that up a bit. But these fees
change the world for you as an investor. Most people come in thinking cash flow is their
main form of revenue and then they learn this and they're like, "Wow, I can actually do a couple
deals a year and actually replace my income a whole lot faster than I thought." I've made
more money investing in multi-family real estate than any other investment I've made in the world
and I want you to get in on that too. I've actually created a free gift for you, it's
called the multi-family master class. Make sure you click the link in the description, hop into that
training, do yourself a favor and go through that training word for word because that's the content
that I've spent years learning and I want to give it to you for free. I'll see you in the training.