Strategies of Real Estate Investing: Which is Right for You?

 

Real Estate Riches Radio

Host: Trey Stone

Trey Stone has owned over $300 million dollars’ worth of apartment complexes in greater Houston, served as the 2014 President of Houston Apartment Association, & has been investing in apartment buildings for the last 20 years.

Trey’s Company is called “Real Estate Riches.” To learn more about his company, listen to other episodes, find out how to view one of his properties, or learn about investing with him, visit the website at www.realestateriches.com or email him at trey@realestateriches.com

Episode Topic: 

Types of Deals- strategies for real estate & which one is right for you

Correcting the course for real estate investors who chose the wrong path

 

Episode Co-Host:

Bobby Duncan

 

Real Estate Matchmaking: Finding the Right Deal for the Right Investor

Types of Investors:

Trey finds that there’s a huge diversity of ideas about why someone walks in the door to learn about real estate investing. Whatever got their attention and made them think about doing it, is typically the motivator.

 

  • People kind of vanilla/new to it as they’ve moved.
  • People who have been brought into it from some advertisement about flipping houses- especially with the advent of the popular tv shows about flipping houses. 
  • Others are approaching retirement and realizing they need additional income- in a state of fear or anxiety that they’ll outlive their money so they’re looking for post-retirement income.

No matter why you decide to invest, Trey advises to focus on a strategy or niche and become the best in that space rather than try to be a jack of all trades.

Real Estate Investment Strategies:

Trey has had the experience in a variety of real estate investments: homes, apartment complexes, and indoor shopping malls to name a few. He has even worked with folks who owned storage facilities. Trey doesn’t know how to do all of them but he has an idea of what style will give someone the best shot. Trey invests in multi-family investments/apartment complexes. 

Sometimes investors come in through a program that has one style of investing so that’s all they know or all that they’ve learned about investing. In actuality, there are several different types of real estate investment strategies. Before choosing an investment strategy, he recommends that investors asses their resources and goals.

Every investor should NOT choose the same approach. Investors should choose a strategy personalized for themselves and their family. Investors can follow a strategy already in place, don’t need to create their own but there are many options and they should choose the best one for their situation. 

 

 

Understanding Your Resources

 If you’re thinking about investing in real estate, ask yourself these questions

1. Do you have enough money to invest?

2. Do you have time to spend on real estate investments?

3. Does your health permit this?

4. How does geography play a role? Do you plan to invest where you live?

5. Do you have good credit?

6. Do you have any experience?

*Time, money, credit, experience all have a major impact on the right solution for real estate investing

 

Good Deals & Good Investors

According to Trey, it is without question a lot easier to find investors than it is to find good deals. People may think it is the opposite. Trey is choosy about investors; he doesn’t want to choose family or close friends. He engages with potential investors through a vetting process to get to know them before getting into a deal with them. Even so, good deals are tougher to find.

A lot of the good deals other people think are plentiful, Trey often identifies it as not a good deal. Typically, the best deals in apartments flow to highly experienced investors in the brokerage community for deals in that asset type.

For example, Trey has a friend who buys storage units. If Trey pokes around he can find deals in that asset type but he’s not going to get a phone call about it like Dan would. In the same way, opportunities present themselves to Trey because of his experience and long-term relationships in his niche- apartment complexes. For Trey, deals are easier to find. For new investors or less-experienced investors, finding good deals sometimes entails waiting for deals people like Trey pass on. 

 

 

Mistakes in Strategy Choices

Robert Kiyosaki : People who have failed at something are people who are doing something… and people who are doing something have a chance

If you failed, it doesn’t mean you can’t do it- you just have the wrong strategy for your resources or needs or goals. It doesn’t mean you did something wrong and you’re a loser- you’re trying. With a little bit of guidance, people who have failed previously could probably do well.

Examples of Poor Strategy Choices

It’s easy to spot these potential mistakes up front:

  1. Seeking a deal where you’ll be very active but you’re really the type of person that, based on your resources, you should be passive. 
  2. Not using enough leverage/credit- maybe you pay all cash or you put 50% down.
  3. Using too much leverage
  4. Shooting at everything that moves and can’t stay away from deals. Too hasty to jump into anything and everything

Sometimes, mistakes aren’t detected until you realize your results are not desirable:

Can be because an investor’s whole paradigm about how they see the investment and how they see themselves is disconnected. In these instances, sometimes it takes longer to tell that they picked the wrong strategy.

  1. There is a discrepancy in what they think they are good at vs. what they are actually good at. 
  2. There is a discrepancy in what they think they want vs what they actually want. 

 

Reactions to Poor Choices

Gratitude, anger, denial- reactions can be all over the place when someone is told they made a poor choice. Often, they’re in pain because by realizing that they made a mistake and pursued the wrong strategy for years, there’s a sense of loss that they can’t get that time back. Sometimes you can become the focal point of that pain.

Other times, it’s the opposite where they’re a first-time investor going down the wrong path but they’re new so they’re either confused or they’re really grateful and adjust their path. 

 

Getting Back on Track

If someone has been following the wrong path for a long time, it is still possible to correct it. It’s possible that Trey can help but it depends on the person and family. Sometimes they must adjust their strategy but also their goals. Sometimes it is about being more realistic. They will come in and start with what they want to accomplish but then there is a massive mismatch between their goal and their resources. It is possible to buy deals with no money down, but it is not really Trey’s specialty. He prefers to invest with a moderate amount of debt because it gives him the ability to buy an income stream plus capital gain over time with value added to the property. 

Trey Stone: “It’s an investment because you have to invest some money into it to see that success.”

 

Success stories happen without the investment, but it is not something that happens often. The people who have that expectation need to adjust. Some of those same people have taken this feedback into account and adjusted their budget to make a start on something like a rent house. They eventually get to their goals from that initial adjustment and small start. 

Right Deal for Right Investor

One example of this is Trey’s friend, Paul. He’s done a lot of different types of deals - single family rentals, the grey area between single and multifamily which is 4,6,8 family properties, and larger apartment complex deals as a passive investor. He was an oil and gas executive and accountant for 3 ½ decades. He is now retired and living on his real estate. 

This deal was special to Trey because not everyone has the opportunity to get to know him really well and the mentor/mentee relationship became something really special. Paul even said to Trey that it changed his life.

Trey had a property where he wanted to sell a portion of it. He chose Paul because he has experience with active roles and passive roles in a deal. Paul ended up making a 280% return on his investment being completely passive. 

“It was the right deal for the right guy”

Trey and Paul’s relationship was strong. Trey needed a partner on the same page so he could continue to reposition the property and give him the gain. Sometimes you need a partner that shares that vision. Sometimes it’s going to get worse before it gets better. Paul wanted to be a passive investor but he also wanted a deal where he didn’t have a huge amount of risk. In this instance, his biggest risk was going to be who he trusted to run the deal he was getting into. Trey already bought the property, had completed some renovations, leased some of the property, and eliminated some risks. There was still more room to grow rents from there and Paul saw that combination of some risk eliminated but more risks to take. This was the right size deal- not too big. This deal had a partner, risk/reward ratio, timeline of several years and Paul was comfortable with all of those things. That might not be the case for every investor but those key things that were identified at the front end, created a successful match between investor and specific property.

 

Wrong Deal for an Investor

One example of this mismatch is with an investor named Scott. He was an engineer and a really nice person. He bought several deals at one time over a period of about a year and a half. The challenge is that he kept a full time job. This was a problem because he was supposed to be an active investor, running point for all the partners in the deal. He thought he could do this during evenings, weekends, and vacation time but that wasn’t realistic and it didn’t set him or his partners up for success. Worse, the properties needed a lot of renovation. If you’re trying to do renovations across a dozen different trades- it’s a lot to keep track of just on one property and in this instance he was doing it over 7 locations simultaneously while holding a full time job. It is just too much. This is an extreme example but it happens often where investors bite off more than they can chew.

Another example involves a deal with Trey did with some investors and a small property. Trey learned from this deal and ultimately it ended fine but it was challenging because the investors in the deal wanted cash flow early in the deal but it was a capital gains play. It was in a redeveloping area of town.  This property was a longer-term hold because it takes time for an area moving and developing. The property was on the edge of a developing area- that area wasn’t developed yet but it was next. Happy ending was Trey bought them all out with a profit. The investors re-deployed their funds and invested with more properties that did well. Trey learned you must be more cautious as a lead investor when you’re bringing people into deals. There’s a range of situations and not every deal plays out the same way. Lessons learned makes Trey refine business models to be more specific so there is less room for deviation and Trey can let people know if they’re not a good fit. Even within that specificity there’s still a range in terms of timelines and how quickly you get into positive cash flow and capital gains. 

 

 

 

How to get into a deal with Trey

Most people get into deals with Trey via referrals, but others are coming through the radio show. Trey takes a personal approach to connecting about potential deals. The best way is to go on a tour of a property Trey owns, meet the employees, meet his business partner Chad and get a feel for everything. Sometimes this first step takes place over two meetings so you can see different property types and get the confidence of understanding what these things look like in person.

Trey asks potential investors to bring their financials and he assesses if it’s a good fit based on the answers to these questions:

 

  1. What are you trying to accomplish?
  2. How much money do you have? 
  3. What kind of deal are you looking for?
  4. What’s your risk tolerance?
  5. What’s your time frame?
  6. What are your goals?
  7. Are you an accredited investor or not? There are deals available for both.
  8. Are you more focused on cash flor or capital gain?
  9. Do you want to be an active investor or a passive investor?
    • Are you someone that is doing this to learn because you want to go be a lead investor or are you someone that is really happy to be in a passive role where you know enough to understand the business and you read the financials, go to the investor meetings for the deal, but you’re not looking to put together the deal yourself or be there on site to run it?

If someone comes in and says, “I have 10k and I’d like to get into a deal with you and make $50k this year.” Trey will show you everything they do and then send you on your way hoping you’ve learned something from that- but that’s not the direction of his deals because it’s not a realistic expectation.

If someone comes in and says I’ve got 20 million dollars and I might invest $5k in something, Trey will say well that might not be effective either

He tries to find a happy medium where it’s a good partnership. Beyond the balance sheet and their qualifications, Trey wants to focus on goals. After Trey gets to know you through all of the above questions- there is a separate meeting to review all of the paperwork for the current deal. It takes a couple hours to go through every single possible thing that could go wrong. By doing that and focusing on a specific niche/asset category and business cycle, there’s a margin of safety that can protect people whether it’s an up or down market.

 

pastedGraphic.png

Prepared by Lisa Larsen, Adore Digital Marketing

sales@adoredigitalmarketing.com

www.adoredigitalmarketing.com

504.327.6683

Back to Blog