Entrepreneur of the Week Alon Gilmore # Post 2
* Hebrew is a gender language. Although the posts were written in masculine language - the intention is absolute, for both sexes. Thanks
We make 35,000 decisions a day.
We are bursting with information, and wisdom, and ideas, and of course, we all have the tactics. Obviously. We are Israelis, of course.
But what about an earlier strategy?
Your investment strategy.
I'm back to the beginning of yesterday's post: What do you want?
Long, long before any tactics, or examining one investment or another - make sure you have an investment strategy first.
No gold tactic will get you to a destination without a strategy above it. Next year you should be worth more than today.
this is your house. It's the family's money. This is for you.
Let's be precise.
In fact, the real question is, not what is the best strategy, but what is the best strategy for you.
For this, you need to first decide who you are:
Do you want to be ALL-IN in activity, and be an entrepreneur on all the meanings of it
That you want to be a passive investor - that someone else will do the hard work for you?
Each of the options has a very different strategy.
And in the second stage: what is your goal? Increasing equity? Supplementary income? Building cash flow? Personal value? Private pension?
Maybe you just enjoy the work itself? Can not blame you.
What are your resources on Day 1? How much money ?
What can be done with a million dollars — you can not do with 100, you know.
Friends, the concept of economic freedom, has become the most common term on the net and is unfortunately sometimes used a bit in marketing cheapness.
Come on, with $ 100, even the most bonanza investment, will not bring you financial freedom. Reaching $ 2 million in equity is a way. Different thinking is needed, which will include more financial income along the way, proper leverage, financing and taxation planning and the patience of quite a few years. In short… Strategy!
I promised there was a way to get there. I did not promise it would be easy and fast.
And now that you've answered the questions above, let's start talking about real estate strategies:
And I remember what the title of this post is- I get there.
Did you know that there are about 30 different real estate strategies in the United States?
Common ones you know:
Fast deals - Fix & flip, Longer deals Rentals Buy & Hold, Commercial, Land, Flips on land, New construction, Change of use, Warehouses, Multifamily residential, Offices, Shopping centers, AIRBNB, Condos, Condo-hotels,
Seller financing, and more and more.
So how do you choose the best way?
Look, before I think as an entrepreneur, I think as an investor. After all, I will invest in these projects, long before my investor even enters the picture.
And when I compare the main strategies I measure them in these parameters:
Profitability, and a number of profit centers
4. Difficulty (effort)
5. Investment diversification
6. Durability in a volatile market
7. How much funding will I need for the project
So to the question in the title: The question is is there one strategy that wins them all? My answer is - yes!
We have a very broad strategy and here it is in front of you in 2 concise words:
Cash flow is the king.
Sounds simple to you, huh? But an entire Torah stands behind it. (Fascinating extension and a must in post 4- Multifamily)
Want a peek at entrepreneurial planning? Here's Get:
Here I'm reproducing to you exactly, how Shay and I, after all our years of joint experience, built this in one conversation in a cafe near our office, pretty much in the beginning.
Come and see, it was like this:
We ordered coffee first.
Then we took out a paper and asked:
How much do we each want, for passive income, say pension? What is the numerical target?
Then what we needed was 2 data:
How much net cash do I have from each property unit?
What product, how many doors, or property units should I have?
Then we wrote down. Enough small paper. Complete strategy. So far - simple.
See? Here I got to the number really fast.
Even without a degree.
(For the avoidance of doubt - Shai CPA with a master's degree, yes? Come…)
People think small, others think big, and what is mediocre at all? Not true or not, but for the sake of example only:
Suppose you want to reach a modest income of 20,000 shekels ($ 6,000) per month passive income from the assets. Suppose. And suppose each property produces you a $ 250 flu straw.
You know you need to get investments that hold 24 units.
An alternative and even simpler calculation: if you know how to invest in investments that produce 8% per year, then you know that in order to reach NIS 20,000 private pension - you will need to reach capital or equity of NIS 3 million.
For those of you who think this is too far-fetched, or unattainable, think again:
A. In Israel, as of today, for such an apartment, you will receive a rent of about NIS 7,000, perhaps? We will flow at 7,500.
B. In provident funds and other well-known pension products - in general you will forget about it
third. Consider a few points:
1. It will not happen in a year or in 5, in fact according to a model I will bring in post No. 6, we are talking about about 15 years to build a pension for economic freedom, (for a much higher income than the 20,000 NIS) when of course it depends on each rate. Those that will shorten the time and vice versa, but this is a very possible plan - and probably the best option to get there without taking big risks.
2. This is still the fastest way to get there, from any other low risk option, in my opinion.
3. Keep in mind that I did not calculate capital gains that are no less than the return on investment, and that the value of assets increases over time.
4. Also keep in mind that the increase in this model is exponential - and also consists of elements of compound interest, when I use the same dollar twice at the same time.
5. The smart leverages along the way - which are repeatedly extracted from the fund by refinance - accelerate the process
6. Tax benefits built into smart planning
7. The mortgages in the USA - work in your direction instead of against you as the seller in our country flows the milk and honey. (About that in tomorrow's post)
The next step was to ask about what kind of assets we want to build it on? Singles? commercial? Owner financing? Which is a whole area of expertise in itself.
Already at this stage we knew that what we want for our families - this is what we want for the partner investors - and thus we will build the whole investment model and vision. Why if not for this, we set up the entrepreneurial company?
However, here I must be honest with you. When you have the ability to purchase such assets below value, and you have the option to manage them in this way, would I not want to purchase them alone without investors? Of course it is. When asked do you like your occupation so much that you would do it for free? The answer is Hell no! If you are an entrepreneur, you know how much work is required until such a deal is brought.
After the 2008 collapse, the new real estate law is Kashpalou, not on value. Appreciation is the beautiful but also the speculative part of investing.
It can be built through a group of scattered houses (singles) under one ownership (we made groups of 15 houses each, which behave like a multifamily - and you can even get a commercial loan for it) or by investing in a multi-family residential.
The focus in homes (singles) is on their value in the market, while in multiples it is on cash flow. The houses depend on the market. The multi is not damaged even in tougher periods because it is measured by the income it generates.
Flips - can be done - but it's a business-like job. With risk and involvement at another level. And when you calculate your profit from a flip if there was a profit at all, for the amount of hours you put into it, with the taxation it usually entails, you will sometimes find that your hourly wage is lower than the minimum wage.
It's important for me to clarify: I do not rule out the field of flips, absolutely not.
I myself occasionally do this in properties that fit it. I may not be a flipper, but as part of the market, if there is an asset that fits the flip, we will consider it.
What about new construction? In new construction, there is potentially more profit. Also more risk.
But I, Alon, would not name this field as the best strategy for building economic freedom as an investor. (As a specialized entrepreneur the story is completely different).
Remember: the market is always stronger than any asset, any transaction.
Affordable, multifamily apartments are in constant need, and now more than 44 million Americans rent homes in the United States.
Rents are rising year after year, and there is a sharp 10% drop in home ownership in favor of tenants.
Tenants and homeowners pay more than 50% of their income on housing.
In homes - prices are rising because of investors,
And times are changing.
Young people prefer to rent, not just out of choice but out of coercion.
There is a shortage of construction of 350,000-400,000 units per year -
Multi-family is a necessary product, and it is the ideal investment to create a flow of life.
Multifamily is the most durable bus for times of crisis because at the end of the day everyone needs a roof. Even those who lost their homes.
Of course for Kashplowo - there should be a growing equity wave of time. More fruit - bigger tree. Or more trees.
Do not worry, I'll talk a lot about this this week - but the goal, the focus, a steady, growing revenue stream that will shorten my path to financial freedom, and to my personal pension.
And here's a summary of what we do, very simply. (For understanding not to perform):
We locate and purchase C-class residential buildings (multi-family), located in B-class areas. In areas rich in employers / income / everything related to workplaces (and of course other criteria - in post 4).
Poorly managed buildings, or for some other reason you can add value to them and perform Forced Appreciation, really force the building to rise in value (more on that in Wednesday's post). Of course we purchase below value, renovate it and rebrand the building, until it is stabilized, and finally realized in a sale or additional refinance.
Just like in the song "How was a song born"? like a baby. At first it hurts, managing the renovations, etc., but then comes out (i.e. stabilized) and everyone is happy and suddenly what a beauty, he goes alone, then the bank gives refinance (refinancing according to the new value), how is equity born? Like Tino-O-O-O-K.
And here a significant part of the capital invested is extracted for the following investments, and the rent returns also increase greatly (maximum rent sitting on a little equity - because we extracted most of it) and finally - the realization of the property after 4-6 years.
And what if it turns out that the crystal ball was flying, and it turns out that ahead of the planned exit, not only is there no profit but no prices at all in the market, because there is a global crisis, because a new variant called Putin was discovered (I was already confused by all the events this year)?
We will simply continue to manage the assets as income-producing assets until recovery and return on capital gains. In the meantime we are on fantastic returns from rent sitting on little equity (remember we extracted it in refinance?).
Unlike the capital-asset market, this is not a stock that has evaporated. That's why I'm building my pension this way.
And returns for goodness sake, along with the funds extracted from the first loan recycling. And again God forbid.
And here's our strategy.
In conclusion, so what interests us?
We focus on building and managing syndicates in the area of residential, multifamily, Oklahoma and Texas according to the model I described.
We have also built and managed a portfolio of many dozens of singles (ground-level private homes) - which behave just like Multi-Family, (Multi-Units) in Pittsburgh.
Tomorrow, we will dive deeper into the wondrous world of the inside of examining deals in the eyes of an entrepreneur, (I promised I would give you a peek, right?) And we will also talk about the difference between a single investment in an income-producing property versus a group investment.
In the meantime, I'm also doing Build up - for a post that will deal with the multifamily magic, and how to hold the baton correctly.
Lori has now entered the room, rattling loudly in the tail to take her down for a night walk, and having to do what needs to be done.
See you tomorrow in the post Financial Education.
Thank you so much for the happy responses I received today, from the bottom of my heart.