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Michael Blank is an entrepreneur through and through. His experience ranges from software start-up and restaurants to real estate investment as in flipping houses and apartment buildings. Below is what I learned from a Q and A session with Michael.
Question: Michael, what do you think is the best investment on the planet?
Michael: This is a difficult question to answer if you put it that way, but I’m up to the task.
I’ve had a variety of different businesses but I believe that real estate is the best investment of them all.
There are two kinds of real estate investments: single family houses and commercial real estate, specifically apartment buildings.
I’ll present the pros and cons for each and you can make your own decision.
I’m not opposed to investing in single family homes. In fact, I renovated and flipped about 34 myself and held on to a few.
Here are the things I liked about single-family house investing:
- It’s more affordable: it’s much easier for investors to afford a single-family rental than an apartment building.
- Good cash flow: whether you’re flipping houses or renting them out, single family house investing is a good way to generate cash.
- Easier to find: even though it’s tougher to find good apartment building deals, finding reasonably good rentals even in hotter areas is much easier.
But there are several disadvantages to flipping or holding single family houses:
- It’s a very hands-on and active activity. If I stopped buying, renovating and selling, I wasn’t making money. Even with a team in place, there was nothing very passive about this kind of investing.
- The strategy has a higher dependency on the market: most of my flipping occurred between 2009 and 2012, a time in the Washington DC area that was very unique: massive supply of foreclosures combined with a recovering retail market created a unique money-making opportunity that dried up beginning in 2013.
- Loss of Income: In my rentals, if I had a vacancy, I had temporarily lost 100% of the income of that property.
- The rentals were difficult and expensive to manage: property managers charge more for managing single family houses (typically 10% of income).
- Not as scalable: I have to grow my portfolio one house at a time.
- Recourse financing: unless you have a very large portfolio, you are personally guaranteeing the loans.
Question: You told me you purchased your first commercial real estate in 2011, a 12-unit apartment building. How did that compare to single family house investing, and what did you like better?
Michael: I actually like commercial real estate better than single-family investing for several reasons:
- Easier and cheaper to manage multiple units all under one roof. Property managers charge between 4% and 7% of income to manage an apartment building, much cheaper than single family houses.
- More passive income: while I argue that there are very few, truly passive investments, if you have a good property manager in place, apartment building investing comes pretty close.
- More scalable: I can add multiple units to my portfolio with just one transaction.
- Non-recourse financing: It’s not uncommon to get non-recourse financing for loan balances greater than $1M – nice.
- Greater wealth-creation potential: with commercial real estate, I have more of an ability to control the value of the property. If I’m able to increase income and decrease costs, I can raise the value of the property. This allows me to purchase properties with problems at fair market value and make improvements to increase the income. Even relatively minor increases in income can have a huge effect on value. Not only can commercial real estate produce income, but the wealth-creation potential is much greater than with single family houses.
Is getting into commercial real estate harder? Sure. But is it more worth while in the long run? Absolutely.
Question: Are there any special skills that folks need for this type of investing that they don’t need when investing in single family homes? What advice to have for someone that is just starting out (with commercial properties)?
Michael: Yes. There are 2 skills people need to develop to start investing in commercial real estate. There are others, of course, but there are two MAJOR ones that are the most important to do first than anything else.
Skill # 1: Learn the lingo
Don’t sound like a newbie. Do this by reading articles and books about the asset class you want to invest in (apartment buildings, retail, self-storage, etc).
Skill # 2: Learn how to quickly analyze deals and make offers
Commercial real estate is a numbers game like any real estate is. When I first got started, it took me 4 hours to answer the question “what is the most I should pay for this building and why?” That’s way too much time. You shouldn’t spend more than 10 minutes to analyze a deal and make an offer on it.
The problem is that if it takes you too long to analyze a deal, you’ll make less offers and get less deals done. Or worse, you’ll feel so overwhelmed that you never get started.
Because this is such a big issue and I get questions about this all of the time, I just released a free ebook on this very topic called “The 10-Minute Offer”.
Please feel free to download it at Click Here! This will help you waste less of your time, make more offers, and ultimately get more deals done.
Question: That’s good stuff, Michael, I appreciate you sharing all of this info with me and my subscribers.
If *you* have ever wanted to get into commercial real estate, you’ve got to download Michael’s eBook. I checked out his “10-Minute Offer” methodology and it really boggled my mind. It’s so simple yet so effective. So just go grab the free e-book here: Click Here!