CAP RATES FOR MULTI FAMILY REAL ESTATE AND GROUP HOMES

WHAT ARE REAL ESTATE CAP RATES AND HOW TO EASILY THUMB-NAIL A MULTI FAMILY CAP RATE CALCULATION

One of my students in Los Angeles reached out to me the other day. I have been coaching him since the recession back in 2008 or so. At that time, I pushed him HARD to get into the multi-family real estate game because the CAP RATES WERE (past tense) amazing. Fast FWD to 2018 – the cap rates suck. Will they go down further and may you be able to sell to the “Greater Fool”? YES! It very well may happen. I do not have a crystal ball. But what I DO, is play conservative and invest for YIELD. GROUP HOME CAP RATES are HUGE…..READ ON!

Although it is a bit more work than class A or class B; the yields (CAP RATES) and opportunities were very lucrative in the C and D grade space back then. He had the capital, the time and the energy to build up a strong portfolio – although he opted NOT to get into the Group Home game as he didn’t feel like he had the management experience at the time or the personnel resources available to act as house managers.

At the time, he was buying stuff for $60 – $80 per square foot in downtown LA. Heck, even back then the build-costs were upwards of $200. I figure his buy-in cash yield (cap rate) at the time was 9-11%…To give you an idea, nowadays, people are buying stuff in Inglewood and elsewhere out there in the mid 3%’s (although they are probably marketing them as 5%’s)

Today I want to give you a quick tip on how to easily compute a cap rate (or yield) on your total investment and then also give you an idea of what type of return you can generate if you set up a group home

 

 

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HOW TO EASILY THUMB-NAIL A CAP RATE (CAPITALIZATION RATE OR YIELD)

Step 1: Determine total annual revenues (tip: take monthly gross rents X 12)

Step 2: Divide by 2

Step 3: Take that number and divide by your all-in cost (purchase price + repairs + fees)

EXAMPLE:

Revenues are $100,000 per year. Divide by 2 = $50,000. Your all in costs are $1,000,000.
$50,000 / $1,000,000 = 5%

That is your return or CAP rate

Those types of returns are pretty typical in non-tier 1 markets (assuming tier 1 = San Fran, LA, NYC etc) for C grade properties. As you can imagine, it will take A LONG TIME to get your money back and get rich this way (unless you plan to fix and flip or add value in some capacity)

GROUP HOME RETURNS

I am a strong advocate of locating deals (10 CAP RATE or better) and then turning them into group homes. Once your group home is up and running, you should be able to increase your net yield on that property to 20% – 30% or better. In fact, most of the time, I don’t even bother calculating it.

As Warren Buffet says, “If you need a calculator to determine your return….chances are it is not a good deal!”

                                                                                    SUMMARY

When you operate group homes, you are operating a business. Most small businesses should enjoy 20-35% returns.– REMEMBER, these can be calculated using the cap rate formula I taught you above.  Often times even more. With Group Homes, you should be able to generate 1000% returns (not including the real estate) which should bring your net ROI / CAP RATE / YIELD of your group home and the real estate to anywhere between 20% – 40% depending on your location.

Stay Strong,

Andy

2018 – What is your Group Home Game Plan

This Group Home Room = Your Retirement

Group Home Room
Group Home Room

(THIS ONE ROOM in our Group Home = Over $1,500 in NET MONTHLY INCOME)

Hi ,

I’m putting up this Group Home Blog Post this Saturday afternoon with 1 tip and 1 inspirational story.

Group Home TIP #1

Group Home Automation. When you get your first group home up and going, furnished and making money your next step is to AUTOMATE. One of the easiest ways of automating is setting up your website and marketing systems to produce inbound leads for you while you sleep.

  • You can do this by coming up with a group home marketing flyer and 10-15 pre-scripted emails that go out to the nurses, case workers, social workers and doctors in you area one to two times per month.
  • You can set this up on auto-pilot using any old email system. Total cost Free – $99/month depending on how advanced you want it to be.
  • We actually include group home campaigns like this targeted toward disabled vets and other similar areas that you can use to build up your client base. All of this is included in my GOLD COURSE and you can literally just copy, past and change your company name and contact #. The calls will start rolling in in order to get your group home occupancy full and generating income ASAP.

Group Home TIP#2.

I have been absolutely slammed the last 6-9 months working on new projects – all primarily recent real estate acquisitions (in order to add more Group Homes to the portfolio) The past few weeks, my family and I decided to head out of town for a small break (quicker flight than Hawaii)- and so I am here right now writing this from my phone. The trip will cost a small fortune – but let me tell you a great inspirational story. Just last night one of my Group Home Managers told me he had received a call from a case worker needing to house a special needs client. We signed the guy up on a $3,500 three month contract. My margins on just that one client will probably be close to 90% because we will not be paying for food, and the social services agency is covering his gas, water and electric. Not bad! I just paid for half my trip with just one client without doing much if any work at all.

This is the power of the GROUP HOME AND HALFWAY HOME business. There are literally millions of people that need a place to live. I show people, step by step in my GOLD COURSE exactly how to do this and automate it so that you too can travel the world while others pay You!

Thoughts?

Questions?

Dont believe me?? Or dont think you can do it?? Think again! You CAN DO IT!

Send me an email and lets talk!

 

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You Need Situational Adaptability With Group Homes

I can’t stress how important situational adaptability is for group home entrepreneurs. The ability to see that your plan does not fit the current situation, and a minor pivot is called for in order to resolve the issue. Unfortunately, we have this beaten out of us by the school system because we are so used to stick to the guidelines and throwing away all of our creativity that we forget we can always find a way.

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Who are some of the larger group home, transitional living home and sober home operators?

The Narco Freedom is the number one outpatient sober home and substance abuse recovery home in the new york area.  As a matter of fact, according to tax returns, Narco Freedom had revenue of $46,700,000 in 2011. What are the profit margins? We don’t have access to that information, but 20% – 50% is not uncommon.

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How To Meet Bankers and Investors

The beauty of the assisted living, transition home, care home and group home business (whatever you want to call it) is that it takes a “MINIMAL AMOUNT” of capital to get started. As a matter of fact, we have been doing this for years. In particular, teaching, training and consulting others on this business model as well. Moreover, as you should know by now you can simply go out and rent or lease a home and turn it into a care home. YOU DO NOT NEED TO OWN THE REAL ESTATE.

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Want a Video Tour of Our Group Homes? Watch This!

The group home business is not a fancy one. A lot of people make the mistake of spending too much money to furnish their homes. Forgetting the fact that many people living in group homes are coming from tough situations. Furthermore, they don’t need fancy plush carpets or stainless steel appliances. What they need is food and a roof over their head. The question is when are you going to get serious about helping these people? There is nothing stopping you from operating a home just like the one in this video. The tour is meant to break down how easy this can be. We can have you moving forward with your first group home in no time.

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The Law of 33%

For success in life, it is vital that you spend time with people at different levels. The fact that you are reading this means you want to better your life. The reality is that you probably spend most of your time with people playing the game of life at a lower level than you. They are not trying to grow, they may hate their life and their job but they just keep going because they feel they have no other choice. Being a group home owner actually puts you in a perfect position to apply the law of 33%.

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How to Build an Effective Group Home Website

We have come to notice a scary trend amongst our clients. Many decide not to build websites and then wonder why they struggle with marketing. Well stop and think for a second, how much time do you spend on the internet everyday? How much time do your kids spend on the internet each day? It is probably not a small number. It is fact that as a society in the USA we depend on internet and we even want it FAST too. Most business decisions are made after extensive online research by a customer. The problem is, how can anyone research?

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Own a Group Home and Make a Difference

You were made to make an impact on the world. When you put your hand to your chest and you feel that thing beating, that is your heart, and that is a reminder that you have PURPOSE! Your purpose was not to just get by in life scrapping together whatever you can to live. You were meant to be prosperous and help others prosper and there is no better way to do this then to start a group home.

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