Smaller VS Larger Deals

TRANSCRIPTION

Hey this is Terry Hale.
Want to talk with you about doing smaller
deals versus larger deals and why it’s
so important for you to focus on projects
that are actually going to produce income.
Now, of course, you can start off in this business
and you can do a smaller project. It makes sense.
It’s not big and scary.
It’s an easy project for you to say,
“Hey, you know, what? $300,000.
$500,00. $750,000.” Right?
It’s a smaller price point,
it’s a way to get in to start building a portfolio.
I refer to those as the footprint projects.
A footprint deal – just getting started.
That’s okay.
But you don’t want a continue to just do these
smaller projects, eventually, you want to graduate
and do something that’s got some size,
you want to do something that’s bigger,
that’s going to produce more
actual revenue for you – more cash flow.
I have a lot of clients that come to me, and they’re like,
“Hey, Terry, you know?
I want to make $50,000 a month – cash flow.
Is that possible?”
Yeah, it’s possible.
It’s just not possible continuously doing footprint deals.
It’s kind of like the house buying business,
are you going to become a multi-millionaire
and be worth 10 or $20 million from doing
the house buying business? Chances are…
No. You know, the fact is,
if you’re dealing with larger projects that
are producing income, obviously,
it’s pretty elementary, but you’re going to make more money.
So here’s the secret sauce.
This is where I’d like to see all
of you take things to the next level.
The first thing is to stop looking at just monthly debt service, right?
Don’t look at it as just a monthly number,
because that’ll drive you crazy, it looks risky.
And it quite possibly could look kind of crazy, right?
If you’re saying to yourself, “Wow,
if I get into this project,
I’m going to have to potentially debt service,
you know, $25,000 or $35,000 or $50,000 a month,
and that could look scary.”
But if you understand that income,
net income is on an annual basis, it’s all about a year,
that’s 12 months of actual income.
And then your debt services
also looked at as 12-month actual debt service.
And if you look at things in that fashion,
now you look at your gross,
that’s all the money the project made,
minus the yearly expenses equals your net,
which is your yearly income.
Now, if you look at things like that,
on a year projection on what it’s
truly going to make in the future, all of a sudden,
it doesn’t seem so scary.
The reason why it doesn’t seem scary
is because you’re taking out that one
element of having to do monthly debt service.
And you’re saying yourself, okay,
this is a business.
This is a property, its commercial property.
And everything is looked at over a yearly basis.
And the property has got to produce
enough money to cover its debt service.
And we’re not into breakeven deals,
we’re into actually making money.
So when you’re looking at those types of projects,
look at the projections,
but also understand that the property
has got to carry its debt.
We buy in its “as-is” current condition.
We’re not into breakeven deals,
and we’re looking for future upside.
The upside potential.
So here are the key factors, write this down.
We’re looking for value add from vacancy.
So we’re looking
at a property that’s existing, that looks great,
that’s in great locations, but
it’s suffering from occupancy.
So it’s got low occupancy,
it’s got vacancy, okay?
That’s one. The second thing is low rents.
And the third thing is when the management
is not doing tight collections
and they’re not doing a proper job.
A lot of times what we can do is lower expenses,
sometimes replaced management,
that is a heavy expense,
and all these things add to the bottom line,
and just look for the deals that have all the potential.
Alright, I hope you liked the segment.
If so, go ahead and click the link below.
Check out some more videos or better yet,
just go to terryhale.com
and I look forward to engaging again
with you again real soon.
Take care.