Cody breaks down the optimization stage of real estate investing: raise rents through renovations and market alignment, cut operating costs with tools like AppFolio, and restructure debt using fixed-rate mortgages to fund improvements. These moves boost cash flow and asset value before the final debt payoff phase.
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I love hitting pay now because I don't feel the pain until I actually check my bank account. So it's much easier for me to click that button. However, when I do that for my apartment, I'm not worried regardless of what the rent is. Today we're talking about optimization. And what does that mean? We're talking about the real estate, the debt, and the income on that real estate. So stay tuned. Welcome back to the channel. My name is Cody, and today we're talking about stage 3 in our 4-stage cycle. This is optimization. Now, if you're not familiar with our past few videos, you should check those out, link in the description down below. However, this is a really important stage. Once you've been operating real estate for a couple years, you hit your build phase and you've got consistency across the portfolio. Optimization has to do with getting the highest and best use of every asset. Now, this does not just mean we're getting the highest income and the lowest expenses and we've got it renovated. However, You also have to optimize the debt. So let's talk about this. When you go in and you look at a piece of real estate, let's say everybody's paying, your 6-plex is full, everybody's paying, you have consistent expenses. That's phenomenal. However, market rents $1,100 and you're collecting $800 a unit. There's a little gap there. It's not the highest value it could be, meaning that your asset value is going to be pretty low in comparison. So when we go in, we have to figure out, okay, how do we get the income up? Does it take renovations? Does it take painting the exterior? Does it take new siding, new windows, new doors? What's it going to take to get that income to the next level? And this is what you're going to have to figure out during optimization phase. It could be efficiencies and just getting a better software to collect rents. Some tenants hate sending checks. Some people hate paying in cash, but they don't have a simple way to do it. We use AppFolio, and AppFolio has a pay now button. I love hitting pay now because I don't feel the pain until I actually check my bank account. So it's much easier for me to click that button. However, when I do that for my apartment, I'm not worried regardless of what the rent is. Little things like that, fixing up the building. This is where optimization phase is really going to start boosting not only your net worth, but also your cash flow. We talk about cash flow and appreciation on commercial multifamily. This is the phase that's going to make all the bank for you. Now, when it comes to actually optimizing the debt, because one way to increase cash flow is optimize the debt. What we're doing right now in our portfolio is we're ripping cash out of the portfolio with long-term fixed rate mortgages. We're taking all that money and improving the asset. We're going in doing all the renovations so that down the road we don't have any big capital expenditures that we're going to have to worry about. It's nice to have consistency, But it's nice to have that forever. And if we have new roofs, new pavement, new siding, new windows, new doors, new plumbing and electrical, I'm not super worried about anything huge or major popping out of the blue that I didn't expect. So we're ripping money out, optimizing the debt product with long-term fixed rate mortgages that allow us to cash flow. And we use all that money. We fix up the building so that we know that for the next 10, 20, 30 years, we're not going to have any hiccups that can ruin our day. All of this is encompassed in optimization. You've already built the portfolio, you've gotten consistent income, but now you are pushing up the values by getting the incomes up, the expenses down, and you're eliminating all the capital expenditures so that you know for the long haul that you can hold this real estate forever. Now, if you're curious about stage 4, that is debt payoff. Now, not a lot of people like to do the debt hammer. They don't like to pay off the debt. They want to leverage till they drop. That is an actual saying. We don't agree with that saying. So stay tuned for next week's video. Hit the subscribe button and we'll see you there next time.
