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Get ready to find your recipe for a successful real estate lifestyle from America's top experts here at Greenlight REI with your host, Lance Edwards.

Hi, this is Lance Edwards. Welcome to this edition of our Apartment wealth nuggets. These are a quick shortcut to small apartment investing. And this one is a topic I'm sure you're going to be interested in. Your path to $1 million in small apartments. I'm going to show you how you can do it. Well, actually I advertise four moves, less than four moves, but this I will share with you. What I'm about to share with you right now is what initially attracted me into small apartments. I've been on a path to single family and the logic of this. I immediately switched over this 20 something years ago and have remained on this path because I'm exactly what I'm going to demonstrate to you today and which most people do not realize. Do not realize. So with that and what we're going to do today, of course I'm gonna go through my, it's gonna be short, short and to the point as a nugget. And then I'm going to answer your questions live. So at any point you have a question, type it in the chat box. Let me answer those questions at the end of my prepared remarks. We'll be about 15, 20 minutes here on the formal remarks presentation. All right, what this all builds around is, it's called forced appreciation in the industry. And this is a powerful phenomenon in commercial income producing real estate is the idea that we can force appreciation up, we can force the value up in a predictable manner on these apartment buildings. And it's based upon these two formulas. I call these the first and second laws of apartment alchemy. These are how I've coined the phrase, because this is, this is no less powerful than Newton's laws of motion as far as I'm concerned. And the first one is the value of an apartment building is the net operating income divided by the market cap rate. Now the market cap rate is a fixed number in a market. It moves very, very slowly. Like typically right now market cap rate around six and a half percent. And the NOI is the net operating income is the revenue minus the expenses. Revenue from rent, revenue from other income. If you raise the occupancy that gets your revenue up. Expenses includes everything needed to operate the property with the exception of the mortgage payment, otherwise known as the debt service. So it doesn't include the debt service. Debt service comes later. But these are two powerful, powerful formulas that what they Basically say, when you stick in the math. So if you make a $100 rent increase on a property, well, a $100 rent increase per month per door is a $100 net operating income increase. Because if you raise the rent, the expenses don't go up. This is an important point. You raise the rent, the expenses do not go up. So that $100 per rent drops to the net operating income. So if you assume $100 per month times 12 months, times 90% average occupancy, that goes to do it right now, $100. If I just had one. If I just raise the rent on one unit, $100 per month times 12 months is $1200 per year per apartment door. Let's assume 90% average occupancy times 0.9. So it's $1080. $1080 is my net operating income increase per door where I raise the rent $100. Okay, so that's my noi, $1,080. I'm gonna divide it by the market cap rate. Let's say the market cap rate, 6.5% divided by 0.065, that is $16,600 per door. Now I've rounded it down to $15,000 per door. This is source depreciation. And this is what I, you know, attracts everyone into apartments. This is different than single family, where appreciation is market appreciation. It's driven by market forces, and commercial is driven by forces that we control. We can, you know, by enhancing the experience for our residents, we can raise the rents. We're exchanging value for value. And this is what I do in my projects. I enhance their experience and exchange. I get extra rent and other income. So besides, you know, the $15,000 per door increase in the property value, plus you get extra cash flow, in this case, $1,080 per year. All right? This is the heart of how your wealth is created in a, in a small apartment or farms of any size. Now, there's 50 ways to raise the net operating income when we work together. I'll give you the 50 ways list. Actually, it's more than 50 ways now, but rent is just one of them. Just one of them. But forced appreciation is not the only way that you're gonna profit. That's certainly a way, a substantial way. But on top of that, we get the cash flow. We get, you know, we get five years of. Let's, let's take a five year window of time. Let's say I'm gonna own a property for Five years. And in five years I'm gonna sell it, or five years I'm gonna refinance it and pull some cash out. So over five years, I get five years of forced appreciation. Every time I raise the rent, the value is going up. Over five years, the cash flow is going up. And over five years, we're paying down the mortgage every month. More specifically, our renters are paying down the mortgage. Right? We're paying down the principal. So over five years, the bigger the mortgage, the bigger is paid down, and the bigger is the equity creation that goes to us. So this is a powerful part of it. Just paying down the mortgage is a guaranteed equity gain for us. And the fourth way we profit is tax deductions. This is not a presentation on tax deductions, but there are huge tax breaks as apartment owners. Something called bonus depreciation, which is very substantial. I bought a property last year, $3.1 million. My tax deduction for that one property was $530,000 for last year. Okay, bonus depreciation. Write that down. We'll talk about that in another session. So those are four ways we're getting profit. What does that all mean to us? Well, that means over five years, if you buy an apartment and hold on to it for five years and you're tweaking the rents and you're tweaking, you know, you keep enhancing the experience for the residents. So you collect other, other income, you raise the rent, you raise the occupancy, you get five years of forced appreciation, five years of cash flow, five years of paying down the mortgage, and five years of tax deductions. That should net you a minimum of $20,000 per door for each apartment unit over five years. Now, let's compare that. I just showed you $100 rent increase, by itself, done once, is worth $15,000 per door. So that's why when you add cash flow, mortgage pay down tax deductions, and you're doing it over five years, this minimum $20,000 per door net. I say net. This is after paying all your expenses, after paying your lenders, after paying your private investors, net to you is minimum $20,000 per door. Minimum. Underscore that minimum because of the four ways that we're profiting and because of what I call apartment alchemy. In those two laws I just showed you, that's how the wealth and the cash flow is created. So knowing that if you expect minimum $20,000 per door, net, you buy five doors, hang on, for five years, that's minimum $100,000. If you buy 50 doors, that's minimum, $1 million. Now I just, you know, the topic for this nugget is your path to a million dollars in small apartments. I just showed you one path is accumulate 50 doors and hang on to them for five years and just tweak the rent, tweak the experience along the way. Your management company will do it, but you got to tell them what to do. I'm going to give you the 50 ways list. Here's a path to a million dollars. 50 doors. If you're only getting the minimum of $20,000 per door net, and of course 100 doors is double that, that's $2 million. Now I put a hundred doors because a hundred doors is the most common target that people that are getting started or looking to scale, that's their first, you know, initial milestone. You know, when I was getting involved in real estate back in 2001, at the time I thought I was gonna do it in single family before I saw what I'm sharing with you. And at that time when I was looking at single family, I was thinking, my goal is to accumulate 100 doors. I couldn't imagine anything I would not do. I can't imagine anything I would rather not do. Then got to go buy a hundred houses because I'm gonna show you in a minute how to do four moves. Remember, those are the minimums. So going back to my story, if I'm gonna accumulate a hundred doors because I want $2 million over five years to do that by single family, I gotta buy a hundred houses. Do I really want to try to go buy a hundred houses, Make, I don't know, a thousand offers, a lot of work? And the idea of the leverage afforded me in small apartments is another reason I jumped from single family into small apartments. And I jumped. I never did a deal in single family. I was learning single family when a mentor showed this to me. And then that changed the course of my life. And that was a defining moment. And you know, here we are today. So, you know, I think what's better, that's what I, the conclusion I came to. And what I teach is you start with small apartments and you scale up. And so let's say, let me show you the strategy, let me show you the four moves. I showed you a four step plan. Here's a four step plan. You're not limited to this four step plan, but this is your catch up strategy. Many of you are here because you want to catch up on your retirement plan or you want to catch up on your kids college savings or grandkids college saving. But you want to catch up. Perfect. The smaller farmers are for to catch up. Let's stick with the 100 door. Now you can stick in any number you want here, but 100 doors is the most common initial target that people are shooting for. I call this the leapfrog strategy. This is how you're going to leapfrog your way to 100 doors. How you do it in four moves. First apartment you buy, you're going to buy a seven unit building. And then every time you buy an apartment you're going to buy one that's double the size of the previous one. So let's say this year you buy a seven unit and next year you buy a 14 unit. So now you got 21 doors and the year after that, year three you buy a 28 unit and year four you buy a 56 unit. That's 105 doors. If you just do one project per year, okay, one project per year, that $100 is worth a minimum of $2 million to you over five years. We just cover that math. Doing one project per year, which means you can do this strictly, strictly, strictly part time. And the cash flow to you is minimum $10,000 a month cash flow. Because what I teach is how to buy these assets that yield at least a hundred dollars per month per door, cash flow minimum to you. So there's your four step plan right there. And I'll show you how to do it. I'll show you how to do it. It's that straightforward? It's that straightforward. I'm saying one project per year because I think anybody can do one project per year. You want to get there faster than four years, do two per year. But you see my point. This is the leapfrog strategy. It's the apartment alchemy leverage. You know what alchemy means? That was the old term, medieval times, trying to convert lead into gold. And that is what we are doing. We're taking properties that are performing at a lower level and we're enhancing the resident experience, enhancing the level of experience. And they're in exchange giving us more rent, giving us other income. And we are creating gold. We're boosting the value. And that is a lifelong process. It never ends. It never ends. It goes on and on and on. There's over 50 ways that we do this. This is your path to a million dollars in small apartments. And again it's assuming you're only making the minimum $20,000 per door. That's the minimum. And you can do this on one to two hours per day? How do I know? Because I did it. I used to work one block from here as engineer, working 60 hours per week. And this is how I escaped within three years, that 20 year job. The power of this math right here.

You'Ve been listening to. Interview with the Experts with Lance Edwards. Let us now blatantly and shamelessly bribe you toward creating your own real estate lifestyle by offering you a whole bunch of free stuff. Go to greenlight reinvesting.com and get you some free stuff. And this session's show notes, that's Greenlight reinvesting. Com.