Real Estate Investing

Death to Lazy Assets – Multifamily Refinances

By January 7, 2016 April 7th, 2019 4 Comments

My father taught my brother and me the value of hard work. He believed that just about anything could be achieved if you worked hard for it and he wasn’t about to raise lazy kids.

When dad was home, we were outside working with him. We chopped and stacked wood, built fences, mowed lawns, painted, and a whole host of other things. As a kid, it never really seemed like work being outside with dad.

Unfortunately, as time went on something terrible happened – we became TEENAGERS!

As teenagers, we got the notion that our time would be better spent doing other things like watching T.V., playing video games, and talking with our friends on the phone.

That didn’t sit well with my dad.

He was a child of depression era parents and knew the pains of growing up in poverty. He knew what it was like to go to bed hungry and to not have anything under the Christmas tree to unwrap.

He had worked hard his whole life and now he was faced with two entitled teenagers that wanted to sit around all day and do nothing.

He could have jumped up and down, screamed and yelled, or simply just forced us to work. Instead, my dad set out to teach us a lesson.

One day, mom was scheduled to be away for a few days. This was a highly unusual situation for my family. Nevertheless, it was just going to be my brother, father, and me.

To our delight, dad let us know that we could do whatever we wanted; he had no expectations of us. He also let us know that we shouldn’t have any expectations of him either.

It was awesome! At least initially?

Lunch was not provided, but my brother and I breezed through snacking on junk food and filling our day with reruns on the television. Eventually dinnertime came around and the crackers, chips, and cookies were getting kind of low. We got through it, but things were getting worse.

Before long, we had a real dilemma. We both knew how to make some basic meals, but our dishes were dirty and stacked high in the sink. The rest of the house could have been declared a disaster zone.

It wasn’t long before we went to our dad wanting to renegotiate the deal.

We had just been reminded of the importance of hard work and the consequences of laziness and wasting time.

We all know this.

The readers of this blog have achieved high levels of success largely due to an incredible work ethic. We wouldn’t be where we are today had we been lazy and we certainly don’t want our kids to be lazy.

And yet, when it comes to our investments, many of us tolerate having lazy assets.

“What are lazy assets?” ,you ask?

Lazy assets are those investments that are not performing or are underperforming in your portfolio.

Because I value time so highly, I demand that my assets work hard for me and make me money. If they don’t, then my days as a part-time doctor would be over. I’d have to go back to full-time work trading time for money.

I have no intention of doing that!

So let me show you one of my favorite strategies to keep my money working for me. It’s called a refinance and I had three of them in 2015.

  • Property A – $80,000 of equity placed in 2014
  • Property B – $100,000 invested in 2012
  • Property C – $100,000 in 2013

Over the years, I’ve enjoyed strong yield (cash-flow) from these properties. Additionally, excellent management was creating forced appreciation through rent raises, expense control, and renter retention programs.

Unlike the yield (cash-flow), which seemed to grow each year and put money in my pocket, the growth (appreciation) while material, was untapped.

By refinancing I was able to unleash a percentage of that equity and put it to work. Here are those results:

  • Property A supplemental loan (like a refinance, but with lower fees) = $12,866
  • Property B refinance = $34,450
  • Property C refinance = $55,820

I was able to harvest just over $100,000 of equity to redeploy into a new stable income producing apartment building without losing my ownership stake in the original three properties. I didn’t have to bring any more money to the table and I also didn’t have to pay any tax on that ($100,000+) as refinances are always tax free.

Over time, I have been able to create multiple streams of recurrent income that have grown bigger and have funded a lifestyle that has allowed me to only work part-time as a doctor.

Unfortunately, this may seem easy to you, but it really requires specialized knowledge to make it work.

First, you must invest in growing markets with strong economies and solid population growth. You should also invest in the better submarkets in those areas.

Second, you should either have expertise in managing these properties or hire someone who does. Third, you need to monitor your assets and their markets looking for opportunities and softening that might make is necessary to liquidate.

Lastly, you must avoid the temptation to over-leverage by staying within safe debt-service coverage ratios (DSCR) and break-even occupancy?(BEO).

Don’t let your assets get lazy. Keep them working for you so that you can use your time how you see fit.

P.S. Now remember that just because I’ve shared my results with you doesn’t mean that every commercial multifamily real estate investment will return the same. All investments have risk and the future is not guaranteed.

In fact, I feel comfortable saying that if you go it alone without knowing what you are doing, you likely will make mistakes. Personally, I don’t recommend becoming a landlord.

If you want to maximize your chances of success, then you should consider seeing if you qualify for free, no-obligation access to deal flow from a syndicator with an impeccable track record.

Contact me now using this link and make 2016 the year you put lazy assets to rest.

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Dennis Bethel

Dennis Bethel

After 18 years of working in the trenches of a broken health care system, Dennis Bethel, M.D. extricated himself from medicine utilizing the power of passive income from real estate. Now he helps others conquer their number one financial fear, cut their biggest expense, and tame the greatest threat to their careers.

4 Comments

  • Rik abe says:

    What average % income does most of your properties earn?

    • Dennis Bethel says:

      Hello Rik,

      I don’t invest in properties unless the numbers look advantageous enough to produce a double-digit overall annual return (appreciation, principal pay down, and cash-flow). As for the cash-flow, I’ve been enjoying anywhere from 5% – 10% per year. The longer I’ve owned the property the better it has been getting (from rent raises, etc.).

  • Lee Haak says:

    What is the minimum $$ to get started. No way my wife will attend an event unless I have a ballpark figure beforehand.

    • Dennis Bethel says:

      Hello Lee,

      The two most common minimums that I see in this space are $50K and $100K. I’ve certainly seen higher, but I’m sticking with my $50K group. Not because they are on the lower side, but because of their track record for success.

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