Many of the people were investing in single-family properties, but I’d seen an interview on television with a guy named Harry Helmsley from New York.
A lot of people know Leona Helmsly. She was known as the “Queen of Mean”. But Harry Helmsley was a multi-millionaire real estate investor in his own right.
Harry talked in this interview about starting out buying and selling multi-family properties. He ended up owning the Empire State Building.
During the program, the interviewer said, “Harry, what is it about multi-family properties that got you going?” Harry said, “I always like the idea that a group of people would pool their money together and give it to me so I could pay off the mortgage on one of my buildings.”
In essence, the tenants are buying the buildings for us!
Harry said, “I always liked the idea that the same group of people would pool their money together and give it to me so I could pay for all the maintenance on my property too, so I could sell it for top dollar. They’d give me so much money that, at the end of the month, I would have cash flow, money I could either reinvest, put into a savings account, or perhaps just go out and have some fun with.”
Well that did it for me. Right then and there, Harry Helmsley got me hooked on multi-family properties. I thought to myself, “I’m going to go out and I’m going to attract as many of those people as I can find. I’m going to have them pay off as many buildings as I can, and let them give me as much cash flow as they want to.”
Sure, some people start with single-family properties. There’s nothing wrong with that. You should always start where you’re comfortable. But remember this: The road to wealth is paved with multi-family properties.
You can make money buying and selling single-family properties. But if you want to be truly wealthy investing in real estate, eventually you’re going to get to multi-families. Why not just take the shortcut and start with them? That’s what I did.
The multi-family property investing is valued differently from single-family properties. With single-family properties, we use what’s called the “comparable method” and we compare like-kind properties to each other rot determine their value.
With multi-family properties, we use the “Income approach” or the “capitalization rate”. That rate is simply the return that you expect to get on your investment.
The way we figure out that capitalization rate can be a little bit confusing. So I took a complicated formula and I broke it down to a simple formula which I call the “Times 10 Valuation Calculation”.
This is what you do: You take the yearly income, and you subtract the yearly expenses not including mortgage. Yearly income minus yearly expenses equals your net operating income, or “NOI”.
You’ll hear this a lot in multi-family investing: NOI, net operating income. If you take that NOI and multiply it by ten that give you the approximate value of the property. This is a very basic formula you can use over and over with multi-family properties to quickly figure out value.
For example, the Property:
Income $34,000 Minus Expenses $15,300 = Net Operating Income (NOI) of $18,700
So the value of the property in very rough terms is 10 times the NOI.
If you pay $140,000 for the property, you will profit $47,000 on that property.
The best news is that there are deals like this in every down in America.
Excerpt of Massive Passive Income Creator – by David Lindahl