Epic Real Estate Investing - The Most Profitable Part of Real Estate | 935

Episode Date: February 21, 2020

In today’s episode, Matt reveals what aspect of real estate generates the most profit! Moreover, he shares tips on how you can enhance return on investment with your properties and why you should choose your mentors wisely. Tune in and find out more! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. Success in real estate has nothing to do with shiny objects. It has everything to do with mastering the basics. The three pillars of real estate investing. Attract, convert, exit. Matt Terrio has been helping real estate investors do just that for more than a decade now. If you want to make money in real estate, keep listening. If you want it faster, visit r-e-i-aise.com.

Here's Matt. Hey, rock star. Matt here from Epic Real Estate and I'm at a loss of what to talk about because sometimes the pressure's on. I got to come up with something. It's really easy, though, for me to come up with an idea as my go-to move is just to go and look at a real estate investing forum. Look at a little long thread of conversation and typically that'll inspire something right away. And so today I want to let you in on the most profitable part of real estate. as this was the question that I did see tonight and I saw the answer

or I saw the question asked and then I saw the answers come in and I just got to preface this all by saying this is why I love doing this every once in a while is going to these forums and looking at what people are talking about you got to be really, really careful as to what you read out there and there's a lot of people out there that certainly know what they're talking about there's a lot of people that don't

and there's a lot of people that think they do and they got half right half wrong and there's everything in between. And just really be careful here. Whenever you see somebody and they're writing something like everybody, if they use that word, everybody or nobody, or if they're using words like always or never using those types of statements, you know, like everybody's wholesaling now.

There's no more deals. Or nobody is motivated to sell anymore. All the sellers want full market value, right? Or you should always leave a written offer behind. Or you should never leave a written offer behind. or you should never leave a written offer behind. When you hear the always never statements or the everybody or nobody's statements, you've got to be really, really careful of those.

And when it comes to real estate with so many variables, with so many moving parts, with the insertion of people, when you put in that big variable, when you've got people working with people, any answer to any question in real estate that doesn't begin with, it depends, you should probably keep. your ears perked up and take it in all with a grain of salt. So when I read this question, I really couldn't wait to read the answer. And oh, by the way, congrats to all the rockstar

epic investors is absolutely crushing it and sharing your wins inside the epic community. And thanks, Ash, for spreading the word, offering an encouragement and acknowledging the greatness that's happening inside of there. She's great. She's very much engaged with the community. She's watching. She's rooting. And she doesn't. all of that herself. She takes all of this on herself and she puts that together. And so I'm grateful for her and I'm really glad that she gets to share everybody sharing their wins. Because it's really important. You see when it comes to a community like this, because, you know, there's not too much more that are going to boost someone's confidence than the evidence that of

what you're aspiring to do actually works. So when you've got to win, you got to be quick to share because there's someone in the community that needs to see it right now. They need to see it right away. They're at a moment in their business where they could really just get some, just some confirmation as to what they're doing. It works. And when you don't have a win to share, that's when you need to see someone else's win to give you that confirmation, to give you that evidence and that encouragement to keep going. It just really helps and drives everyone's investing forward. So the people that have the most success inside the epic community are, those the first that are that are quick to implement. The second is they're quick to ask questions.

And the third is that they're quick to share their wins. And again, thanks, Ash, for putting the spotlight on those people because they deserve it. And everyone else needs it. They need to see it. All right. So anyway, where were we? Oh yeah. So what's the most profitable part of real estate? So the answer went like this. Just as with most things I've run across, the profits are made on any deal when you buy. If you buy real estate at the asking price, you may have to wait a long time for appreciation or rental income to provide you with a profit. However, if you offer 65, 75, or 80% of the asking price on a property, you've instantly made a profit. And I went out to talk about this one deal that he had. And oh, that's another thing, though. If anyone is trying to make their

point off of one experience, that's something to be really wary of, too. And you hear that all the time with people that have their landlord experiences. They had one property with one tenant that went bad and they just swear they'll never, ever do that again just because they had that one experience or they know somebody who had that one experience. I see those types of comments on our YouTube channel all the time. Like, yeah, well, a 401k is so much safer than real estate because you don't have bad tenants in a 401k.

And I was like, really? Really? Anyway, excuse me, I'll stay on topic. I like the answer. You know, it is possible to make a huge profit when you buy at a discount, right? If you buy a property with profit already in place, it's a great way to do it. But the question was, specifically, what aspect of real estate do you think generates the most profit? All right?

Certainly buying right can generate a ton of profit. It's a great way to do it. And I'll never advise against it. Buying at a discount is what you should be doing. buying low so you can eventually sell high at some point. But the question is all around, what's the most profit? What aspect of real estate do you think generates the most profit? Well, the answer?

It depends. And it depends on a whole lot of stuff. It depends on what kind of real estate, right? Residential, is it commercial, industrial? Is it land? And there are so many, I mean, there are countless variations of each one of those. I mean, residential comes in a single family. It comes in condominiums.

It comes in duplexes and threeplexes. And the commercial can come in a shopping center. It can come in, you know, giant multifamily building. And come in mixed use buildings. And then the industrial. I mean, and it goes on and on and on. So it's a pretty big and broad question to where anyone answering that question, anyone taking a stab at giving an answer to that question inside of that forum,

they're going to have to make a lot of assumptions, a ton of assumptions about the real estate that's in question. But I'll give them credit. Buying right. That's a good one. But I'm going to give you a few more that could produce even greater profits. And greater profits, even if you didn't buy right. So number one is changing a property's use, changing the use of the property. For example, say, turning a single family residence into an assisted living facility.

You know, you get a four or five bedroom house, and you could buy the house and rent it out to a single family. Or you could do something different, change its use and turn it into an assisted living facility. Just one example. And so where instead of having a single tenant leasing the whole house from you to live, you could have multiple tenants leasing individual bedrooms and paying for light medical care and those types of conveniences and amenities. I mean, that's like going from $1,000 a month to $20,000 a month. I mean, this is a strategy that it's really catching on right now. And it could be an absolute goldmine for those that execute it well. And the reason why why it's really good timing for this is just basically why, you know, the same thing that

impacts just about every industry. And it's the demographics and the generations and what's going on with just people. Because the baby boomers are a very large portion, I think it's 77 million people born in an 11-year period, something like that. It's been a while since I've had to recall on those statistics, but I think that's pretty close. But they're reaching that age to where it won't be long that the demand for facilities like these are going to outgrow the supply. And we all know when demand increases supply, that really drives prices up. But already right now, as it exists, the demand is really high, and you can charge a premium for that type of service. And that's, like I said, that's just one example of changing a piece of real estate to use.

So I just want to give you at least one example, what that is. Number two would be to subdivide real estate. Now, subdividing property, what that means is dividing a property into several parts. You have this big, giant piece of land, and you can divide up into a bunch of little pieces of land. And landowners, they'll typically subdivide their property into multiple residential units. And this usually increases the value of the land. So when the land is subdivided into more than one lot, each lot is then sold to one or more buyers, to where the collective individual sales will amount to a sum greater than if the one big lot pre-subdivision,

before it was subdivided, it was sold as a whole. It's kind of like, you know, I guess the strategy for car thieves. I don't know if this is the best metaphor, but the strategy for car thieves is to steal the car and then go ahead and take it apart and sell those parts individually because you make a lot more money when you sell those parts individually than if you sold the car as a whole. and real estate works very much in the same way. And now if you were able to combine, you know, subdividing with changing use, you know, such as those two strategies together,

such as building houses on each one of those subdivided lots, or maybe multi-units on each one of those subdivided lots, when the profits there can be absolutely huge. I mean, that's essentially how the country was built, right? The structure or the residence that you live in right now, it's a result of those two strategies. And that's the strategy that's probably responsible for more profit than just about any other. It's probably what gives real estate the whole identity that it is the final frontier where the average person can create significant wealth for themselves.

It is what's given it that brand of it's produced more wealth than any other industry or investment vehicle. Just that right there because we're people. We have this. We represent this really strong demand. and that supply is real estate, right? Stuff that we live in. And that's not going to change until, you know, just maybe if a roof over our head somehow goes out of fashion.

But anyway, so that's number two, subdividing. Number one was changing a property's use. Number two is subdividing. And if you combine those two, you can get double the profit there. The third one that can produce significant profits is forced appreciation. Forced appreciation. I mean, when I first heard that, and it's been a while, but when I first heard that, it almost sounded illegal. Like, how do you force appreciation?

That sounds like manipulation, right? Well, that's exactly what it is. So another strategy that can produce monster profits is by forcing appreciation on a piece of real estate. And forced appreciation refers to the increase in the value of the real estate investment property due to the investor's action. So they can take action. They can wield their, their, expertise or wield their resources onto a piece of property and impact its value. And that's as opposed to natural appreciation. We all know what that is, right? That refers to an increase in the

value of your real estate due to changes that may occur in the real estate market. And that's something that none of us have any control over, right? We have no control over the natural appreciation. But the forced appreciation, that's right there in the word, we can force it to happen. And most commonly, the appreciation can be forced on real estate by adding amenities to a property, doing capital enhancements. And most significantly and probably most commonly is raising the income of a property. You know, like, for example, increasing monthly rents or providing more living space to rent, right? Or working on the exterior enhancing a property is a parent. So increasing the value of being able to impact their rents.

adding extras to the properties. You know, one way to force appreciation is, you know, put a cell phone tower on the roof of your building. There's extra income. Got one of the units and put in a laundry facility. You don't have to do the math to make sure it earns more than the rent, but that's another way. Or you add storage facilities onto the property. All of those increase the income. And then the other end that you can work from, the other camels,

that you could burn from, so to speak, is start decreasing the expenses. So, you know, you go ahead and you negotiate with the landscapers. You negotiate with the trash people. You negotiate with the cleaning crew, whatever it may be, whatever other expenses the property has. You start negotiating that and you start creating this profit, this net operating income.

You start increasing that. And the way that commercial properties, industrial properties are evaluated, or where they get their value from, how their value is assessed is by how much income, how much money they produce. And it gets produced at a multiple of whatever the cap rate is. So, for example, a $10,000 increase in income can increase the property's value by $100,000. So it's not just $10,000 a year.

It's $100,000 an overall value. So those are different ways that you can force appreciation. and you get really good at that and start generating additional income streams from a property in addition to just the people that are leasing their space, you can impact its value pretty darn quickly and significantly. So those are just three ideas around the most profitable aspects of real estate. I'm sure there's others, but those were the first three that came to mind, changing a property's use, subdividing the property,

and then forcing the appreciation by manipulating its income manipulating its net, operating income specifically. And all of which of those can make up for a poorly purchased property. But, you know, if you got them all together, you know, you're making a ton of money. And that's why the answer to this specific question should be answered with a big giant, it depends. There's probably some other ideas that some of you are thinking about right now that I didn't even mention.

But it's not just buying. It's not just cash flow. It's not just waiting for a market to appreciate. one of the magic things about real estate is there's just so many ways that you can make money from it, so many ways that you can generate a profit. And I think when the question is asked, what's the most profitable aspect? It's probably limited only by your creativity, right? There's just so many different ways to make money in real estate.

And that's why it is the great wealth creator that it is because so many people have figured out so many different ways. And stick around here, listen to the show, share it with your friends, and we'll continue to talk about all of those different ways. All righty. So thanks for listening. That's all for today. God bless to your success. I'm Matt Terrio, living the dream.

Take care. Yeah, yeah, we got the cash flow. Yeah, yeah, we got the cash flow. Yeah, yeah, we got the cash flow. You didn't know home for the world. We got the cash flow. This podcast is a part of the C-Suite Radio Network. For more top business podcasts, visit c-sweetradio.com.

Thank you.