Master Real Estate Investing: The Guide to Zoning, Analysis, and Winning Negotiation Strategies
Unlock the secrets to successful real estate investing with our comprehensive guide! In this video, we delve into the essential aspects you need to master before diving into the property market. Whether you're a beginner or looking to sharpen your skills, this tutorial has something for everyone.
What You'll Learn:
Zoning Analysis: Understand the importance of zoning laws and how they can impact your investment strategy. Learn how to navigate these regulations to find the best opportunities.
Legal Analysis: Get to grips with the legalities of real estate to ensure your investments are secure and compliant with all necessary regulations.
Business Analysis: Explore how to assess the financial viability of properties and identify the most lucrative investment opportunities.
Negotiation Strategies: Gain valuable insights into negotiation tactics that can help you close deals more effectively and maximize your investment returns.
Whether you’re planning your first investment or looking to expand your portfolio, this video will equip you with the knowledge to make informed decisions and thrive in the real estate market. Don’t miss out on these expert tips and strategies that could transform your approach to property investment!
Transcript of Video:
Welcome everybody. So today we're going to do a little presentation on what it takes to invest in a piece of real estate. I get this question a lot from clients. Hey, how do I buy? What are the steps involved? What do I need to look out for when it comes to my first real estate acquisition? And I figure you know what rather than repeating myself 200 times over, I'm gonna create this little video for you, which will give you an overview and at some point down the road I'll expand on these individual topics to talk about all the little individual steps and what to look out for there. So with that in mind, let's just go ahead and go straight into an overview of what it takes to buy a piece of property and what to look out for. The very first thing is selecting a market. When we're talking about market, I'm going to think about two particular areas. First is the product type and the second is where geographically it's going to be located. You can be as specific as I want to have only retail spaces in West Los Angeles between X Block and Y Block. That is very very specific. That's a very clear niche that you're looking for and maybe you have a strategy around that type of real estate investment which will support your investment thesis. Alternatively, you can be as general as I’m looking for apartments within Las Vegas area, Clark County, or maybe you're looking at the Western United States and I’m only looking to buy hotels over there. It doesn't really matter what the asset class or the market is. The most important thing is that it supports a certain investment decision, a certain investment proposal that you're considering to walk down the line towards and this is kind of the path that you want to specialize in. So with that in mind, I would say that if you don't know, you should probably do a bit of research first and feel what type of asset class and what type of market you feel comfortable with. The most obvious one, especially if you're starting out, apartments because apartments are very easy to understand. You at some point probably have lived in an apartment. You understand what it takes to do a residential lease. You understand kind of generally speaking what the rights and responsibilities are of a landlord and most likely the area that you're going to want to do it is somewhere in your backyard. You can drive to it within an hour distance of wherever you currently live. That way you can physically see it and know it. On top of that, if you're buying something within your geographic area, you know that particular city better than anyone. The number one thing I say to most of my clients is that a good solid real estate investment is one where you have a story behind it. If you can tell a good story about why this particular investment or why this particular purchase is the right one, then you're on the right path. What I mean by story is they're going to open up a high-end shopping center three blocks away from my apartment. That's probably going to drive a lot more demand for this area. We're going to see a light rail line go in there. Another great investment opportunity might juice up your rents quite a bit as well. That's generally what we're talking about when we're thinking about market. Like I said, if you're going to start off, it's probably going to be residential with some aspect of it being in your backyard. You can graduate or diversify out into other asset classes and other markets when and if you feel more comfortable. Once you've determined that story, then the next question is going to be, does it make financial sense? You can have the greatest story on earth. You've got the public transportation. You've got the high-end shopping center. You have the value add opportunity. But if the price is wrong, then your returns aren't going to be there. You might even end up losing money. And of course, the worst real estate investment you can ever make is one where you're writing a check to cover the property every single month. In our world, we like to see our properties generate cash flow and give us that return, which will make our bank account happy. And it'll help us delever by bringing down our debt every single month by servicing the mortgage. So with that in mind, I would tell you that the first thing you've got to do after you've selected this market, put the numbers to paper. Make your rent assumptions. What are they? Comp it to other similar properties in the area. Look at operating expenses. Right. What are they like these days? What's the current condition? Hey, for example, if you're in California, guess what's going up these days? Insurance. So you've got to factor in a 25, maybe 30, 40 percent bump over what it has been in previous years because insurance companies are less interested in taking on that risk in this state, for example. So make sure you have your financial assumptions in there. If you're not so sure, you get the opportunity to go out and speak to all the professionals who work on this type of stuff. Insurance brokers know insurance, for example. Talk to repair maintenance guys for what it costs to repair things these days. And you're going to look at property taxes, which is fairly straightforward. You can calculate it based off what the county is. Talk to lenders, talk to debt brokers as well to figure out what the cost of financing is when you're determining your cash flow. But all this stuff has got to go on paper, even if you know with almost absolute certainty that this particular investment you selected is going to be a home run. In addition to that, you're going to want to look a little bit at the legal considerations surrounding your potential real estate investment, especially in states like, again, we're very big on California here. Recently, tenant protections have ramped up significantly. And if you're considering being a landlord, you've got to be aware of what your rights and also what your obligations are as a landlord to service your tenants and not get into a situation where you're losing lots of money and or getting sued, which is an absolute nightmare. On top of that, it's very beneficial to look into local zoning of where the property is. You want to look at physically what does this property sit on? What type of land is it? Is it on a hillside? What's the zoning around that if you ever want to change any of the characteristics of your property? Is there value opportunity in the future? Could you perhaps expand the property by adding ADUs or by adding additional square footage? And does the zoning provider allow for that? You may not necessarily do that right off the bat when you buy the property, but it's a good value add opportunity in the future, which could really juice up your returns and provide a really solid investment thesis as well. Once we've covered the legal analysis, let's move on to the actual analysis of the building itself. You're going to have to assess the physical condition of the property. It's important for a property to look aesthetically pleasing, but it's also really important to understand what's behind those walls. What's the condition of the plumbing like? What's the condition of the electrical? Is the exterior properly waterproof. Does the roof look like it's good shape? If they don't have these type of check marks checked off, then you might have a problem with your property down the road. Something that looks reasonably innocent may result in tons and tons of repairs and maintenance down the road. For example, a bad roof can result in leaking into the property, which will then cause mold and which will cause all sorts of water damage, which can result in hundreds of thousands of dollars, which might have been avoided or mitigated completely had you gone out and assessed the condition of the roof properly. So make sure that you at least have a really solid building inspector and you may even possibly want to get a general contractor out there and an engineer to assess the condition of the building from a structural as well as a fit and finish perspective as well. Next, we're going to talk about pricing and negotiation. Once you've considered an investment opportunity that you're looking into buying, you've got to pay for it somehow. OK. And quite honestly, the thing I always say to any of my clients is I'll do any deal, any time, anywhere for the right price. You hand me an office building, which at the time of this video is currently not a great or favored asset classes in most major cities. But would I pay three hundred million dollars for that office building today? Probably not. Would I spend ten thousand dollars on it? Of course, it's a no brainer. Just the materials alone in that building can be recycled for much more than that. Once we've assessed the condition of the building and we feel like this is a potentially good opportunity here, then we're going to want to focus a little bit on negotiation strategy. I don't mean literally in this order. Obviously, you're going to make an offer before we even get to do all this due diligence. However, when we're thinking about negotiation and what the price point should be, it's going to depend on a lot of factors, right? It's going to depend on your market analysis. It's going to depend on what you bring to the table as well. But I say to a lot of my clients is both of us can look at the same deal. One of us can conclude it's a good deal. One of us can conclude it's a bad deal. And we're both right. Why is that? I might look at an office building and I'm not an office operator, I’m primarily a real estate developer around apartment buildings. The cost of me taking on that building might be much higher than somebody who owns 20 other office buildings in a particular area because they have something called scale. And so with that in mind, you have to consider what you're willing to pay for this particular property and what the seller and what the market is willing to accept as well. Some really good negotiation strategies that I recommend is, first of all, just doing a little bit of market analysis and figuring out what your cap rates are in the area and what the property like the one you're considering investing in would typically go for as a good offer, a good starting point. My opinion, if you start way too low on the offer, you're generally not going to be taken seriously. And most sellers are going to not even look at your offer much more than the passing glance. So I'd recommend at least coming in somewhere strong at a market rate. And then at that point, you can have the opportunity to negotiate with seller and figure out what their objectives are. You might be thinking, well, the sole objective is get the highest price possible. And that's generally true in a lot of circumstances. But in some cases, the sellers might have other considerations as well. For example, low risk of close. They want to have a really qualified buyer versus not necessarily just the highest bidding buyer, because what ends up happening, a lot of deals, which might be a shock to you, is that buyers will come in and make a bad faith offer. They'll bid over ask or they'll come in with some very high offer. And then right before it comes time to release contingencies and go hard on their deposit, they retread or renegotiate on the deal. And you know, the seller is kind of in a bad spot at that point. Sellers hate this. We all hate it. Nobody likes to have somebody go back on their word for no good reason. And so you've got to understand what they are looking for. Are they looking for risk of close? Are they looking for timing? Are they just looking for the highest price? Once you have that, you can then direct your negotiation strategy towards one that will ultimately culminate in your offer being accepted and your ability to close as well. So in short, I hope these points sort of help guide you in terms of what you need to look out for when you're thinking about buying a property. This is clearly not all encompassing. I will dive into other specific negotiation issues and share with you some war stories on deals that I've worked on in the past and how we were able to get past some of the challenges. But at least it should give you a good feel of, hey, you're trying to assess the market. You're trying to figure out what type of product you're looking for. You're going to do a financial analysis. You'll consider legal and zoning. And then finally, you're moving into understanding what it'll take for you to get the deal through negotiation. So if you have any questions, particularly if you're thinking about buying a property in the near future, contact us here at this email address. And we'll be more than happy to guide you through your next real estate acquisition. And stay tuned for more videos in the future where we'll dive into a lot of the specific areas around what it takes to be a successful real estate investor. Thanks so much for watching.
