Strategic Funding for Real Estate Investors Involving Nate Mack
Residential lender Nate Mack gave great insights on financing techniques for real estate investors in a recent Mastermind session with Foudner & CEO of REsimpli, Sharad Mehta. Expert in managing investors, Nate underlined the need for keeping an eye on the state of the market and optimizing cash flow. Although interest rates are down, Nate urged investors to concentrate on cash flow instead of attempting to precisely time the market as refinancing prospects might materialize shortly.
Nate pointed out the appealing investments in middle-American towns such as Gary, Indiana and Columbus, Ohio, where declining property prices and rising rental demand provide possibilities. He also spoke about the freedom investors have when financing houses—that single-family homes might have as low as 15% while multi-unit complexes need 25%.
By dividing debt with their partner utilizing loan consolidation techniques, investors might avoid the 10 financed properties restriction and open space for more properties. Considering potential increased value, Nate also noted inventive financing options include deferred financing and renovation loans, which allow investors to use home equity to cover both purchase and remodeling expenditures.
Avoiding typical blunders including erroneous reporting of rental revenue, which may restrict an investor’s financing alternatives, depends critically on a qualified contractor, friendly lender, and professional CPA. Nate emphasized at last the need for having a qualified team in place. Combining the appropriate tactics and personnel lets investors navigate the always shifting real estate market and boldly increase their holdings.
Key Takeaways:
Expert Insights on Real Estate Lending: Sharad introduced Nate, an expert residential lender, sharing his gratitude for Nate’s assistance in securing a loan for his own home. Nate reflected on his 5-year journey working with investors and stressed the value of having a team that aligns with the investor’s goals, not just a loan officer. (00:01:00)
Navigating Interest Rates in Real Estate Investing: Sharad and Nate tackled the current interest rate environment and its effect on investors. Nate shared that rates are trending downward but cautioned against paying too much to lower rates, as future refinancing opportunities may arise. He noted that a 1% drop is typically a good indicator to refinance. They also explored market trends, highlighting the strength of middle American markets for investors. While Sharad inquired about 30-year fixed loan rates, no specific figures were mentioned. (00:03:27)
Refinancing and Market Opportunities for Investors: Nate discussed the current decline in interest rates, advising investors to avoid spending too much on buying down rates, as future refinancing opportunities are likely. He suggested waiting for a 1% drop in rates before refinancing. Nate highlighted middle American markets, like Columbus, Ohio, as strong areas for investment due to lower taxes and growing property values. He also noted that investment property loans come with higher rates compared to primary mortgages. (00:05:00)
Investment Property Requirements and Strategies: Nate explained that purchasing investment properties comes with higher interest rates and typically requires a 15% down payment for single-family homes and 25% for multi-unit properties. He also noted strategies like consolidating debts or moving them out of personal names to bypass the 10-financed properties limit. When Sharad asked about avoiding the 20% down payment and property limit, Nate confirmed these are standard but mentioned there are ways to work around them. (00:10:44)
Loan Strategies and Debt Consolidation: Nate discussed how investors can handle the 10-loan limit, suggesting strategies like splitting loans between spouses or consolidating smaller loans through refinancing. He also mentioned moving debts out of personal names and into the commercial space, which can free up room for additional conventional loans. This approach helps investors continue expanding their portfolios while managing existing debt. (00:14:00)
Strategic Planning: Nate and Sharad stressed the need for a solid investment strategy, including working with a knowledgeable CPA and lender to assess cash flow. They pointed out common mistakes by new investors, like failing to document rental income or claim depreciation. Nate also emphasized how lenders view investment properties as both assets and liabilities. They wrapped up by discussing potential benefits from programs and incentives available in specific cities and states. (00:16:21)
Boosting Cash Flow and Using Incentives: Nate emphasized documenting rental income accurately and claiming depreciation to maximize cash flow for future investments. He also mentioned underused city and state programs offering incentives, particularly in areas like Indiana, that can help investors finance properties more creatively. (00:20:00)
Lender Strategies and Asset Protection: Nate and Sharad discussed lender incentives for low-income areas, like closing cost discounts. Nate recommended using a trust for asset protection instead of an LLC. They also covered transferring property titles post-closing, which doesn’t typically cause issues if debts are paid. Lastly, Nate explained that buying properties with existing financing or assuming loans is possible if lender guidelines are followed. (00:23:47)
Market Growth and Property Valuation: Sharad and Nate discussed rising property values in Midwest markets, especially Gary, Indiana. Nate explained that appraisers focus on recent purchases and renovations when assessing values, with some flexibility in their evaluations. They also explored how this market growth influences investor activity. (00:29:58)
First-Time Investor Tips and Loan Options: Sharad and Nate discussed buying multi-unit properties with FHA loans, living in one unit, and renting the others. Nate also covered cash-out refinance rules, delayed financing, and renovation loans. Sharad expressed interest, and Nate shared his contact for more details. (00:33:46)
Scaling Your Real Estate Business: Insights from the REsimpli Mastermind with Ian Horowitz and Sharad Mehta
Sharad Mehta welcomes former firefighter turned real estate investor Ian Horowitz for this REsimpli Mastermind episode. Ian recounts his story of managing a $70 million portfolio of self-storage and varied real estate from purchasing a $25,000 house in 2012.
Starting with single-family houses, Ian stresses the need to learn basic skills before entering the commercial real estate market. Fortune favours not only the brave but also those who work hard and arrive ready. Based on experience, he counsels readers on their own degree of preparedness as well as on little gestures.
Emphasizing openness and clear expectations for equity investors, the conversation also examines the variations between debt and equity investments. The useful ability to observe little details and keenly notice changes can go a long way in this business. Clarity is power, because it helps save time by avoiding miscommunications and conflicts.
The discussion also covers how political circumstances and municipal rules affect property investments; as self-storage facilities provide greater operational freedom than residential buildings. Ian considers his 12-year route and wonders whether early engagement with commercial banking and real estate might have hastened his development.
The program ends with an offer to network with colleagues from the real estate sector, therefore underlining the need for cooperation in this sector.
For real estate investors striving to grow their company and change their strategy, this episode offers a lot of smart advise. Discover the complete podcast to learn and interact with the most recent breakthroughs in real estate management with fresh ideas from REsimpli!
Ready for expansion of your company on real estate? Acquire these techniques and begin immediately to change your business!
Key Takeaways:
Start of Something Great:
Ian describes a tough time with overtime and company closures, prompting him to seek financial security through real estate. His first purchase was a $25,000 house, with $25,000 to $35,000 in improvements. It generated $1,250 in Section 8 rent and $600 monthly cash flow. This success hooked him, and now he owns and operates nearly $70 million in real estate nationwide.(00:03:57)
Big Deals, Less Efforts:
Ian explains that he prefers fewer but, larger deals now. Previously, he did 30 to 40 deals a year, flipping or adding houses to his rental portfolio. This year, doing five deals would be significant. He mentions closing a million-dollar deal quickly and working on a $13 million deal projected to be worth $20 million. This approach allows for a more methodical and less rushed process.(00:06:10)
Do What Makes You Happy:
He acknowledges that many people get discouraged because they’re not yet where they want to be in their real estate journey. He advises focusing on the present and making the best of current opportunities, aiming to reach desired goals in a few years. Ian highlights that different people have different aspirations; some may start with one flip a year and scale up, while others might aim for commercial deals. The key is to pursue what makes you happy. (00:11:54)
Success Factor:
Ian reflects on the fear and risk involved when first entering real estate, emphasizing that growth requires taking risks and getting uncomfortable. He notes that people often get too comfortable, but advancing from single-family to commercial real estate required him to rebuild the underwriting process and learn to communicate with banks. He highlights that success in real estate isn’t about the properties themselves but the willingness to push beyond comfort zones to achieve the next level. (00:20:18)
What It’s Like Being An Equity Investor:
Ian discusses the importance of setting transparent expectations when raising capital. Using the movie “The Big Short” as an analogy, he illustrates how equity investors are in it for the long haul, experiencing ups and downs. He emphasizes that success relies on the ability to navigate challenges, making sure they understand it will be a wild, bumpy ride, but they are along for the journey. (00:23:31)
Difference In Transaction Cost:
Ian explains the differences in eviction timelines across various states. In Mississippi, Louisiana, and Texas, he can evict tenants within 30 days if rent is unpaid. However, in Arkansas, the process takes 75 days, which he finds lengthy. He contrasts this with even longer timelines in states like Illinois and California, highlighting the varying challenges landlords face depending on the state. (00:31:28)
Eviction Timelines: Comparing States:
Ian advises identifying states that are easier to operate in based on property taxes, transfer and recordation taxes, and whether they are pro-tenant or pro-landlord. He highlights Louisiana as an example, describing it as a blue state with favorable tenant laws. He shares an experience where, after filing an eviction on a Thursday for a special needs tenant, he had a court date the following Wednesday and the sheriff was involved by Friday, completing the process in just eight days.(00:15:43)
Lead Communication Order:
Ian explains that commercial real estate offers more opportunities to create and scale a true company. He notes that unlike some investments, you don’t always see the inner workings or need to broadcast every deal.(00:43:00)
Investment Sizes and Accreditation Requirements:
Their average investment size is around $50,000, but they accept amounts as small as $10,000 and as large as investors wish to contribute. For non-accredited investors, a pre-existing relationship must be established before proceeding, highlighting the need for ongoing interactions rather than a one-time meeting. (00:44:20)
No Hesitation:
Previously, he lacked the maturity to enter commercial real estate sooner, regretting his eight-year delay. Fear of financing held him back despite opportunities. He now wishes he had trusted their capabilities earlier but remains optimistic about making up for lost time. The host commends Ian for his openness and approachability in sharing his business experiences. (00:19:24)
Net Operating Income (NOI) is an important indicator in the planning and management of property portfolios of all sizes—whether you have one property or hundreds. It is important because it is the simplest way to accurately show the financial effectiveness of a property.
NOI differs from other financial metrics by filtering out the effects of financing and tax responsibilities and revealing the genuine profits stemming from the property’s core operations. This can be indispensable for investors, property managers, and analysts, as it offers a uniform gauge to demonstrate the vitality and prospects of real estate ventures.
Stakeholders can use this information to make important decisions around acquisitions, financing, and property valuation, and it enables a comprehensive comparison of cash flow potentials across different properties, aiding in strategic buy, sell, or refinance choices.
Essentially, when used correctly, NOI can play a central role in steering both operational and strategic decisions, rendering it a fundamental tool for real estate investors at all levels.
In this blog, we’ll take a more detailed look at NOI, show how to calculate it, and give an overview of the pros and cons.
What is Net Operating Income (NOI)?
Net operating income, as the name might suggest, is the income you make from your property once all expenses are deducted. It’s the figure that remains when debts, maintenance, and other regular outgoings associated with the priority have been paid. It considers all revenue streams, such as rent and service charges, and subtracts the costs necessary for property upkeep and administration, such as maintenance, insurance, and taxes.
There are, however, some exclusions to NOI: It turns a blind eye to debt service charges, capital expenditures, depreciation, and income taxes, ensuring a focus on the property’s operational profitability without the distortion from financing or capital investments. These can be left out of the calculation as they are non-operating expenses. This exclusion ensures the NOI reflects the operational efficiency and earning power of the property independent of the financing structure or capital improvements that may vary significantly from one investor to another.
Why does NOI Matter?
For investment analysis, NOI is an excellent gauge of profitability, serving as a direct reflection of a property’s income-generating ability—minus the operational expenses—and offering a clear picture of its financial health. NOI is also a comparative tool at the investment analysis level. By providing a standardized measure, it allows investors to line up potential property investments side by side and evaluate their performance on a level playing field.
Once the property is part of the portfolio, NOI is useful for expense management and strategic planning: it can help target specific areas where costs and efficiencies can be improved, and it can provide insights for strategic portfolio expansion or consolidation.
NOI is crucial for:
Evaluating Property Value: NOI is instrumental in determining the value of a property, influencing both selling price and purchase decisions.
Financing and Refinancing Decisions: Lenders often look at NOI to assess a property’s ability to cover loan obligations.
Investment Strategy: Investors can detect trends, identify opportunities, and make educated decisions regarding their real estate portfolios by analyzing changes in NOI.
Understanding NOI
NOI measures a property’s operational performance by focusing only on the income generated from its core operations. This includes all forms of revenue, such as rent, parking fees, service charges, and any other income produced through the property’s use.
Operating expenses are then deducted. These expenses are the costs incurred in the day-to-day management and maintenance of the property, including (but not limited to) property management fees, utility expenses, maintenance costs, insurance, and property taxes.
It’s important to re-emphasize that NOI omits non-operating expenses. This means the figure you arrive at will not consider costs such as mortgage payments, capital expenditure (e.g., renovations or major repairs that extend the property’s life), depreciation, and income taxes.
Key Reasons for NOI’s Importance
Net Operating Income (NOI) is an important metric in the real estate sector for a variety of reasons:
Evaluating Investments: NOI is great for investors to gauge the income-generating potential of a property compared to its operational expenses. This insight is vital for assessing the property’s profitability.
Valuing Properties: When it comes to determining a property’s market value, NOI is often the preferred method. Utilizing the capitalization rate method, which involves dividing the NOI by the market cap rate, provides a good estimate of a property’s market value.
Influencing Financing: During the loan application process for real estate investments, lenders will closely review the property’s NOI. A strong NOI shows the property’s ability to cover loan payments and can play a significant role in the decision-making process of lenders.
Benchmarking Performance: NOI enables a comparison of financial performance across different properties or the same property over time, helping make informed decisions regarding acquisitions, sales, or operational changes to boost profitability.
How to Calculate NOI in Real Estate
The process to calculate NOI is straightforward, focusing on accurately capturing all income and operating expenses. Here’s the net operating income formula:
NOI = Total Revenue – Operating Expenses
Common components of total revenue and operating expenses are:
Revenue Sources
Rental income
Fees for additional services (e.g., parking or laundry)
Revenue from ancillary services (e.g., vending machines)
Operating Costs
Staffing and property management costs
Utility expenses (for utilities not paid by tenants)
Maintenance and repair expenditures
Insurance payments
Property tax obligations
The most difficult part of calculating NOI is collating the information you need. To do so, you need to fully understand what your income and expenses are:
Total Rental Income: This is the sum of all income produced by the property, including rent from tenants and any additional revenue streams, such as fees for amenities, parking, and the like, excluding proceeds from property sales.
Operating Costs: These represent the regular expenses necessary for the property’s upkeep and operations. Common items under this category encompass management fees, taxes on the property, insurance premiums, utility charges, maintenance, repairs, and other essential operational costs.
Remember, since NOI excludes financing costs, taxes, and capital expenses, it offers a pure look at the operational success of the property.
What is a Good NOI in Real Estate?
A positive NOI suggests that the property’s operational income surpasses its operating costs, indicating a potentially sound investment.
A negative NOI, however, points to operational expenses outweighing income, possibly indicating inefficiencies or a devaluation of the property.
Strategies for Enhancing Net Operating Income
Improving a property’s Net Operating Income (NOI) can be done by increasing the revenue streams and/or decreasing the operational costs. Property owners and managers can adopt a series of targeted actions to achieve this balance:
Revenue Enhancement Strategies
Optimize Rental Rates: Regularly analyze the local market and ensure rental prices reflect current market conditions. Adjusting rents accordingly can maximize income without risking high vacancy rates.
Increase Occupancy Rates: Use marketing strategies and incentives to attract and retain tenants, thereby reducing vacancy periods and increasing steady income flow.
Diversify Income Sources: Explore opportunities to add new services or amenities that tenants value and are willing to pay for, such as parking, storage, or enhanced security features.
Upgrade Property Features: Investing in property improvements can justify higher rents, attract a higher caliber of tenants, and reduce turnover. Upgrades can range from cosmetic updates to more significant renovations.
Implement Fee-Based Services: Consider offering additional paid services, such as laundry, cleaning, or pet fees. These will improve tenant convenience and contribute to the property’s income.
Expense Reduction Strategies
Streamline Operations: Review and optimize operational processes to eliminate inefficiencies. Using technology for property management tasks can reduce labor costs and improve service quality.
Energy Efficiency: Invest in energy-efficient upgrades, such as LED lighting, energy-efficient appliances, and smart thermostats. These can significantly reduce utility costs over time.
Preventative Maintenance: Taking a more proactive approach to maintenance can prevent minor issues from escalating into costly repairs and reduce overall maintenance expenses.
Negotiate with Vendors: Regularly review contracts with service providers and negotiate for better rates or discounts for long-term agreements.
Property Tax Appeals: Assess and challenge property tax assessments if they seem disproportionately high compared to similar properties, potentially lowering one of the bigger expenses for property owners.
While implementing these strategies, it’s essential to maintain a balance between enhancing the property’s value to justify higher rents and managing the cost-effectiveness of upgrades and services offered. A detailed analysis of tenant demographics and preferences can guide which amenities and services will be most valued and are, therefore, most likely to increase NOI.
Property owners and managers can significantly impact their property’s financial performance by focusing on both sides of the NOI equation and increasing income while managing and reducing expenses. This approach will improve the immediate cash flow as well as contribute to the long-term appreciation and competitiveness of the property in the market.
NOI Calculations
Calculating Net Operating Income (NOI) is a straightforward process for real estate investors, property managers, and analysts. Here’s a step-by-step guide to accurately calculating NOI, along with key components and practical examples.
Step 1: Gather All Income Sources
The first step in calculating NOI is compiling all the income the property generates. This primarily includes rental income but can also encompass other sources, such as parking fees, service charges, or income from on-site facilities (e.g., vending machines and laundry services).
Example: Consider a multi-family property with 40 units, each renting for $1,400 per month. The annual rental income would be $1,400 x 40 units x 12 months = $672,000.
Step 2: Account for Vacancy Rate
Properties rarely maintain 100% occupancy throughout the year. The vacancy rate represents the percentage of time units are unoccupied and not generating rental income. It’s important to take this into account by subtracting the income lost to vacancies from the total potential rental income to get a realistic figure.
Example: If the aforementioned property has a 5% vacancy rate, the annual income loss due to vacancies would be $672,000 x 5% = $33,600. The effective rental income, after accounting for vacancies, would then be $672,000 – $33,600 = $638,400.
Step 3: Add Other Income Sources
Beyond rental income, properties may generate additional revenue through various means. This can include laundry services, parking fees, or any special amenities offered to tenants for a fee. You’ll need to add these income streams to the effective rental income.
Example: Suppose the property also earns $12,000 annually from a coin-operated laundry. The total income, combining rental and other sources, would then be $638,400 (from Step 2) + $12,000 = $650,400.
Step 4: Calculate Operating Expenses
Operating expenses are the costs associated with running and maintaining the property. This includes property management fees, utilities (if not paid by tenants), maintenance, insurance, and property taxes.
Example: Property operating expenses might include $60,000 in maintenance and repairs, $40,000 in property management fees, $50,000 in utilities, $40,000 in insurance, and $30,000 in property taxes, totaling $220,000.
Step 5: Subtract Operating Expenses from Total Income
The final step in calculating NOI is to subtract the total operating expenses from the total income derived from the property.
Example: Using the figures from the examples above, the NOI would be calculated as $650,400 (total income) – $220,000 (operating expenses) = $430,400.
Key Components of NOI Calculation
Rental Income: This is usually the most significant source of income for a property. It’s vital to base this figure on actual rents received, considering the market rates and any concessions or incentives given to tenants.
Vacancy Rate: A realistic vacancy rate should be applied to account for the cyclical nature of tenancy and market fluctuations. This rate can be derived from historical data of the property or comparable market averages.
Operating Expenses: These expenses should be carefully reviewed as they directly impact NOI. Not all expenses associated with the property are included; for example, mortgage payments and capital expenditures are excluded from NOI calculations.
Other Income Sources: This can vary significantly between properties but should be included to reflect the total earning potential of the investment.
Practical Scenario
Imagine a commercial property with an annual potential rental income of $500,000, a 10% vacancy rate, and other income sources amounting to $20,000. Operating expenses for the year total $200,000.
1. Calculate the effective rental income considering the vacancy rate: $500,000 – ($500,000 x 10%) = $450,000.
2. Add other income sources to the effective rental income: $450,000 + $20,000 = $470,000.
3. Subtract operating expenses from the total income to find NOI: $470,000 – $200,000 = $270,000.
This step-by-step approach to calculating NOI shows its role as a critical measure of a property’s operational profitability. By carefully accounting for all income sources and operating expenses, real estate professionals can make truly data-driven decisions.
Pros and Cons of Using NOI
Utilizing Net Operating Income (NOI) as a financial metric in real estate investment analysis comes with a host of advantages, but there are limitations. It’s important to know these strengths and weaknesses before you use the calculation to make any decisions.
Advantages of Utilizing NOI
Objective Performance Measurement: NOI provides a clear, objective measure of a property’s operational profitability by focusing solely on income generated from its core operations. This allows investors to assess the effectiveness of property management and operational efficiency without the influence of financing structures or tax considerations.
Facilitates Comparison: Because NOI is calculated consistently across properties, it enables investors to compare the financial performance of different investments on an even footing. This comparability is invaluable for portfolio management and investment strategy development, helping investors identify underperforming assets and potential growth opportunities.
Valuation and Financing: NOI plays a central role in property valuation, particularly through the capitalization rate (cap rate) method. Investors can estimate a property’s value by dividing the NOI by the current market cap rate. Lenders also frequently use NOI to determine a property’s ability to cover debt service, making it a key factor in financing decisions.
Informs Investment Decisions: Through careful analysis of NOI trends over time, investors can make informed decisions about acquisitions, dispositions, and refinancing. A rising NOI might signal an opportune time to sell for a profit or refinance to take advantage of increased equity, while a declining NOI could prompt a review of operational practices or costs.
Limitations and Potential Drawbacks of Using NOI
Excludes Capital Expenditures: While excluding non-operational expenses, such as capital expenditures (CapEx), from NOI calculations provides a focused view of operational income, it can also mask the true cost of maintaining or improving a property. Significant CapEx can impact the overall financial health of an investment, making reliance on NOI alone insufficient for comprehensive investment analysis.
Ignores Financing Costs: NOI omits financing costs, such as mortgage payments, which can vary widely among investors based on their financing strategies. This exclusion means NOI does not provide a complete picture of an investment’s cash flow or its ability to service debt—critical considerations for investors using leverage.
Lacks Tax Considerations: NOI does not account for the impact of income taxes, which can significantly affect an investor’s net return. Different tax treatments for interest, depreciation, and other factors mean that two investments with identical NOIs can have very different after-tax outcomes.
Market and Economic Sensitivity: While NOI is a useful measure of a property’s current operational performance, it can be sensitive to market and economic changes. Factors such as occupancy rates, rental demand, and operating costs can fluctuate, affecting NOI and potentially leading investors to overestimate the stability of their income.
Operational Focus Limits Scope: The operational focus of NOI means it does not capture the full financial picture of a real estate investment, particularly for properties undergoing significant redevelopment or repositioning. In these cases, the initial low or negative NOI might not reflect the property’s future income potential.
Balancing the Pros and Cons
To effectively leverage NOI in real estate investment analysis, investors should:
Complement NOI with Other Metrics: Use additional financial metrics, such as cash flow, cash-on-cash return, and internal rate of return (IRR), to gain a more comprehensive understanding of an investment’s financial performance.
Consider Capital Expenditures: Factor in anticipated CapEx when evaluating an investment’s long-term profitability and maintenance requirements, ensuring these costs are planned for and managed.
Analyze Debt Service Coverage: Calculate the debt service coverage ratio (DSCR) to understand how well NOI covers mortgage payments and other financing costs, giving you an insight into the investment’s leverage and risk profile.
Perform Scenario Analysis: Use NOI projections under different market conditions to assess the sensitivity of the investment’s income potential to economic and market changes.
While NOI is a powerful tool for analyzing the operational profitability of real estate investments, it should not be used in isolation. By understanding its advantages and limitations, you can more accurately assess the financial health and potential of your properties and make strategic decisions that enhance portfolio performance and achieve investment goals.
Conclusion
Mastering the concept of net operating income is fundamental to evaluating the financial performance and health of investment properties. NOI should be seen as a crucial metric, providing a clear vision of the operational success of real estate investments, distinctly separated from the convolutions of financing and tax intricacies. It zeroes in on the income coming from a property’s operations after deducting operating expenses and gives only the property’s income-generating capacity.
This simplicity in calculation lets investors benchmark the performance of diverse properties, regardless of their unique financing arrangements or tax scenarios.
Of course, as with any metric, it is important to look at both the merits and constraints of relying on one calculation. There are benefits and drawbacks to using NOI, but it is still very much indispensable in the realm of real estate analytics. The exclusion of financing costs and capital expenditures from NOI paves the way for a concentrated examination of a property’s operational profitability, but conversely, such exclusions necessitate a comprehensive analytical approach, incorporating a broader spectrum of financial indicators to capture an investment’s overall performance and viability.
The indispensability of NOI in the real estate sector is irrefutable. It is a key instrument for appraising property profitability and a foundational pillar for informed investment decision-making. The proficient calculation and interpretation of NOI provide investors with the acumen to discern high-potential opportunities, handle risks with dexterity, and devise strategies aimed at sustained growth and profitability.
Investors are advised to embed NOI within their analytical arsenal, employing it in concert with other evaluative metrics to thoroughly vet and juxtapose investment prospects. Such a balanced approach ensures investment choices are anchored in a robust comprehension of each property’s operational effectiveness and income-generation prospects. Additionally, investors should remain agile, acknowledging the fluctuating nature of the real estate market and the dynamic utility of NOI within an adaptive investment strategy.
In essence, Net Operating Income goes beyond its role as a mere numerical value on financial statements; it is a data-centric aid to help investors through the complexities of real estate investment. The meticulous calculation and strategic application of NOI lay a foundation for grasping property performance.
In sum, Net Operating Income is a linchpin in the architecture of real estate investment, a metric that not only shows the operational efficacy of properties but also enriches strategic decision-making. Its analytical potency and strategic application are instrumental to succeeding in the investment world, ensuring investors are well-equipped to enhance their portfolio’s growth and profitability in the ever-dynamic real estate market.
Through a deep understanding and adept application of NOI, investors can move closer to achieving their investment goals with clarity, confidence, and precision. For more in-depth analysis of real estate terms, strategies, and news, check out our blogs here.
Real Estate Drip Campaign consists series of customized, scheduled, and automated contact activities, or drips, that investors use to optimize lead follow-up. Each activity is scheduled and executed without additional work from the real estate investor.
From automated calls and SMS to ringless voicemails and automated email marketing, the scheduled activities take place over time, a little here, a little there, like a dripping faucet.
REsimpli users can choose from a variety of real estate drip campaign templates or create customized marketing campaigns. Streamline follow-up and build better relationships.
Stop missing out on potential motivated seller leads. Set up drips to work for you.
Miracle deals happen: an investor is in just the right place, at just the right time, and meets an extremely motivated seller who is ready to sell now. True success, however, doesn’t come from closing one miraculous deal.
To unlock real success and sustainable business growth in real estate, investors need to close great deals consistently.
Locating target properties is just the first step. The key to real estate success is consistent, quality lead follow-up.
Discover the power of lead follow-up and drip campaigns.
Did you know that only 2% of sales occur during the first contact with a lead? Out of all of the first phone calls that investors make, or direct mailers they send, only 2% of those contact attempts lead to our s0-called “miracle deals.”
Real estate is a numbers game.
Let’s break it down:
If you were to send out 10,000 Direct Mail pieces, you may hear back from 100 people. Of the 100 people that do call back, you might get incredibly lucky and speak with one or two ready-to-sell motivated homeowners and close one deal.
If you don’t follow up with the other 99 leads, you could be leaving a lot of money on the table.
Let’s do some quick maths with two scenarios.
First scenario: You spent $5,000 in Direct Mail marketing and landed one deal. Considering your average revenue per deal is $15,000, your ROI would be:
Return on Investment (ROI) = $15000/$5000=3x Cost per Deal = $5000/1= $5000
What if you were able to close one extra deal from the same campaign without spending any extra money?
Let’s do the math again…
Second Scenario: You spent $5000 on direct mail. You closed 2 deals this time and made a revenue of 2*$15000=$30000
Return on Investment (ROI) = $30000/$5000= 6x Cost per Deal = $5000/2= $2500
Converting one extra deal means doubling down your ROI and cutting down your Cost per Deal to half.
This is where the power of drip campaign comes in. It helps you convert more deals from your existing 99 leads by automating the follow-up process eventually resulting in much higher ROI.
Pro Investor Tip: To run successful drips, make sure you’re not missing leads through the cracks.
Money is in the follow-ups!
Sign up for REsimpli’s 14-day free trial and if you think that you like it, get 50%
off on your first month!
How many lead follow-up attempts should you make?
The number of deals real estate investors close directly correlates to the number of contact attempts they make. Whether contacting past clients or leads from your target audience, the lead response rate increases the more you reach out.
real estate success rates compared to lead contact attempts:
1st attempt: 2%
2nd attempt: 3%
3rd attempt: 5%
4th attempt: 10%
Investors start to really see success rates grow after their fifth contact attempt. In fact, 80% of deals occur between the 5th and 12th attempts.
If you give up on a lead too early, it could cost you, and your small business, big time.
How many real estate investors follow up with leads?
When a lead comes in, a switch flips in the minds of most investors: it’s all about the money. The faster you reach out to a motivated seller, the higher the likelihood that you’ll close a deal.
You would think that all investors have fast fingers and are quick to call leads back, but that isn’t the case.
44% of investors never follow up with prospects, and 25% give up after the second attempt. 12% of investors make three contact attempts or more, with only 8% of all investors contacting leads five times or more, even though the majority of deals close after five or more attempts.
Why don’t investors follow up with leads?
Investors may not touch base with leads for a variety of reasons, such as:
They have a fear of rejection.
They lack automated tools.
They have a difficult sales plan in place.
They have a small business without enough help.
If you miss the initial call from a lead, reconnecting can be difficult, but the investors with the most success are persistent.
They keep calling. They send direct mail. They follow up, and then they do it again.
Over and over.
Investors reach out to leads consistently, or they set up a drip campaign to do the hard work for them.
real estate drip campaign examples
Outperform competitors with REsimpli real estate drip campaigns.
Although it can feel disheartening, to reach out repeatedly with no response, investors who reach out to non-responsive leads consistently have an advantage over investors who give up quickly.
Swooping in on the competition’s missed opportunities is a great way to become the foremost investor in a seller’s mind, but who has the time to make hundreds of phone calls each day or design, print, and send dozens of direct mailers each week?
What is Automated real estate drip campaigns?
Automated real estate campaigns consists series of customized, scheduled, and automated contact activities, or drips, that investors use to optimize lead follow-up. Each activity is scheduled and executed without additional work from the real estate investor.
From automated calls and SMS to ringless voicemails and automated Email campaign for real estate agents, the scheduled activities take place over time, a little here, a little there, like a dripping faucet.
REsimpli users can choose from a variety of drip campaign templates or create customized marketing campaigns. Streamline follow-up and build better relationships.
A drip campaign acts like an automated salesperson that works on your behalf, 24-7. They identify what needs to be done, when it needs to be done, and make it happen.
Picture an automated virtual assistant with access to your marketing strategy, to-do list, specific instructions, and infinite energy
With REsimpli’s built-in automated drip campaigns, busy real estate investors can set it and forget it.
The sequence you set continues to work for you, even when you’re not around. Using automated drips, you can keep up with leads and drive traffic to your business, even when you’re away from your desk or out of the office entirely.
You may not have time to individually SMS 998 leads, but REsimpli does.
What is a drip sequence?
A campaign’s drip sequence is the sequence that automated software follows; it is the order of events in a drip campaign. If the campaign is a faucet, each drip in the sequence is an additional attempt to reach the seller, slowly but steadily continuing over time.
You may be waiting to hear back on an offer, for example, but aren’t having luck getting in touch with the owner. Set up a chronological sequence of contact activities and reminders, to ensure that the lead doesn’t get lost or forgotten and that no deals fall through the cracks
What actions do drip campaigns include?
Most investors create sequences that include multiple different contact methods. The most common drip campaign activities include phone call reminders, SMS, ringless voicemail, direct mail, and email drip campaigns.
Investors choose which communications to include in the campaign and in which order by assigning leads to a particular campaign.
Are email drip campaigns effective?
While email drip campaigns are popular marketing efforts in many industries, real estate investors have more success with telephone calls, SMS, and direct mail than email automation.
How do you use a drip campaign?
When a new lead comes in, the first thing you want to do is add the lead to a drip campaign, either by selecting an existing campaign or by creating one of your own.
In addition to new leads, drips are also powerful tools for continuing communication efforts with homeowners you’ve spoken with before but who are not responding now.
REsimpli users can assign a new lead to a campaign in just a few steps.
Step 1: Open the lead.
Search for the lead in your system to open and locate existing leads. If the lead doesn’t exist already, create a new lead with the information you have.
Step 2: Skip trace for missing property information.
Skip trace the lead to fill in missing property information, such as missing phone numbers or an absent mailing address.
For example, you may have received a missed call, but the owner’s not responding to return calls. Skip trace to find an updated email address or current mailing address so you can attempt to contact via other methods.
Step 3: Add the lead to a campaign.
Depending on the level of communication you’ve had with a seller, your contact needs will change. For example, you’d communicate differently with a seller that you’ve made an offer to than you would if you were following up regarding an appointment.
Common campaign name examples include: Real estate drip campaign sample
Made Offer-No Response
Reschedule Appointment-No Response
Website Lead
Direct Mail Lead
Long-Term Follow-up
Select an existing campaign that suits the lead type and current situation. The actions detailed in the campaign sequence will automatically be applied to the new lead.
Step 4: Set the campaign’s start and end date.
Determine when the first and last drip action will take place, as well as the frequency of actions in-between.
If you don’t want the first action to take place immediately, add a delay. A delay of one week, for example, tells the CRM to kick off the campaign in one week.
Step 5: Set it and forget it
Confirm the details of your campaign, and you’re done! You’ll receive automated task reminders when it’s time to give the lead a call. As REsimpli completes scheduled activities, the system tracks the lead status, contact attempts, and any notes added along the way.
If you receive a no-contact request from a homeowner, simply remove the lead from the assigned campaign.
Creating new customized drip campaigns
In addition to assigning leads to created campaigns, REsimpli users can create new custom campaigns designed to fit the homeowner’s contact preferences and communication style, as well as the investor’s objective.
To create a new campaign, open a lead. Instead of attaching the lead to an existing campaign, create a new drip campaign instead.
Naming new campaigns
Give new campaigns an informative name, making it easy to identify the purpose and target of the drip.
example campaign names include:
No name/No Address: A call came in, but you have no name or address for the caller.
Text drip campaign real estate: You received a lead text, but have not had direct contact yet.
Contact made-No Appointment: You have spoken with the lead, but have not scheduled an appointment.
Offer-Went Dark: You made the homeowner an offer, but have not heard back yet.
Setting up the campaign’s sequence
Select the first action you want to attach to the lead and schedule it.
For example, you may want to give the lead a follow-up call in one week. If so, select a telephone call as the first action in the sequence. Next, confirm the date and time for the call. As the scheduled drip approaches, REsimpli will send you call reminders.
If you’ve already had contact with a homeowner, and are calling to follow up, add any relevant lead notes to remind you of important details to cover during the call or to remind you of previous discussions. Lead notes make it easy to keep track of and share lead details with your team.
Scheduling automated drips
In addition to sending automated call reminders, REsimpli automatically completes a variety of contact attempts on your behalf.
automated drip Actions include:
Text messages
Direct Mailers
Ringless Voicemails
Automated emails
Additional task reminders
Select the next action you want to add to the sequence. Select the date, time, and frequency that you would like the automated action to occur. At the scheduled time, REsimpli completes the action and logs drip activity in the CRM.
Detailing campaign parameters
In addition to selecting the date and time that drip actions will take place, REsimpli users are in complete control of how and when the campaign occurs. Fully customizable, the CRM allows you to set a variety of drip parameters, such as:
Delay duration
Msg frequency
Office hours/availability
Duration of campaign
When/where calls are routed
Tell the system to skip holidays and weekends so you don’t bother homeowners over the holidays or during weekend family time. If the drip falls on a holiday, REsimpli reschedules it to take place on the next business day instead.
Personalizing your drip campaign
Select SMS text or email body from preloaded templates and select which lead details you would like to pre-populate into your message from the message field list. There are a variety of pre-populated message fields users can add, including:
First name,
Last name,
Date,
Property Address, and more.
Select from the list of built-in message options, or write your own messages, designed to appeal to the type of seller you’re targeting.
Personalized marketing text messages
If you receive a missed call from a no-name lead, your SMS copy may look something like this:
“Hello, this is Robin. I’m sorry I missed your call. I’m just curious if you had any interest in selling your property? If not, my apologies for disturbing you.”
If you’ve made an offer to a lead, but then they went dark, your SMS will likely include a more detailed message, such as:
“Hi, Tom. It’s Robin from Max House Buyer. Have you had a chance to think about the offer I made for you recently? I’m still VERY interested in the property on Dealing Avenue. If you’re ready to sell, give me a call at 555-323-2232. If you’re still thinking things over, no biggie.”
What sequence should drip campaigns follow?
Campaign sequences vary depending on the type of seller you’re trying to contact and the contact information available in the lead.
Choose the right contact methods.
If the lead includes a landline number and mailing address, but not a cell number, you wouldn’t add text messages to the sequence. You would include call task reminders and direct mail instead.
Are you contacting a lead for the first time? Consider starting with a welcome call reminder, followed by an SMS, and then a direct mailer. Leave a ringless voicemail for the homeowner before starting the cycle again.
Schedule subsequent contact attempts in intervals so that you stay top of mind with homeowners without getting on their nerves
Create specialized campaigns.
Investors can create as many campaigns as they want, adjusting the action sequence, changing message text, and tweaking important elements as needed.
Professional investors tend to work with a multitude of campaigns to target different audiences (e.g., motivated sellers, clients, or first-time homebuyers). A portion of their drips are often highly specialized; they were created for a specific purpose, and are only used to reach a target audience or specific property owner type.
How are drip actions triggered?
Typically, all drip actions are executed on the date and time that they were scheduled to occur (unless affected by a holiday or similar circumstance). Some drip campaigns, however, may be affected by the seller’s actions or behavior.
If a lead receives an automated SMS and responds with a request to opt-out, the investor is notified and can remove the lead from the remainder of the automated SMS sequence.
If a homeowner shows interest in a recent piece of marketing or an offer, but never answers return calls and gets annoyed when you text, switch up the game plan.
Remove the lead from the remaining SMS sequence, and consider trying drip emails instead. Keep the homeowner warm with lead nurturing emails, reminding them of their current opportunity and the interested buyers excited to hear from them.
How successful are drip campaigns?
70-75% of REsimpli users report success closing deals as a result of consistent follow-up. At Max House Buyers, LLC, 2.5 deals are closed each month as a result of follow-up from their drip campaigns.
But don’t take our word for it…
Utilizing drip campaigns give investors a massive advantage over real others who are contacting leads manually.
Take it from Ryan, an investor with Crushing REI and Lakeshore Home Buyer, who has a lot of experience working with different CRMs.
Like many investors, Ryan struggled to keep up with leads for years. He wasn’t busy closing deals, so he had the time, but he was still struggling to stay in touch with leads. After switching to REsimpli, and harnessing the power of automated drips, Ryan pulls in dozens of new leads each week. He’s consistent, he’s organized, and he’s closing major deals.
As of August, Ryan has already closed four deals this year, earning $50,000 so far in 2022 alone. He’s turned cold leads into warm leads, warm leads into hot leads, and hot leads into deals, with just a few clicks.
After a lead from 2021 canceled their appointment, Ryan was having trouble reaching the once motivated seller, Chris. After adding Chris to an automated drip, Ryan received an enthusiastic response to his 5th SMS message and closed a $26,900 deal.
“Would I have got that deal if I didn’t put Chris on a drip campaign? Probably not. It’s all about timing with motivated sellers and if you miss out on that timing you often times miss out on the deal. Chris was talking to a few other “we buy houses” companies and it was my quick response and competitive offer that won him over.” – Ryan
Optimize lead management with REsimpli
The only all-in-one CRM for real estate investors, REsimpli users have access to customizable drip campaigns, skip tracing tools, a built-in Driving for Dollars app, and so much more. A comprehensive business management system, REsimpli was created by real estate investors for real estate investors to help you through every step of the sales journey
Keep track of new contacts, existing contacts, buyer leads, real estate leads, property sales, contact attempts, and more–all in one place.
REsimpli users can quickly identify different drip campaigns to—
Track lead activity,
Analyze channel performance,
Identify successful campaigns, and
Maximize their marketing budget.
Organize your seller leads with drip tags, helping you categorize and track different lead and seller types. Thanks to REsimpli’s new Webform integration, you can now add lead tags and assign Webform leads to drip campaigns automatically through the CRM.
With automated drip marketing campaigns and completely customizable templates, REsimpli users create drips that fit their needs and business goals. Use built-in system tools, or build your own.
REsimpli’s automated services to work on your behalf so you can leave work at work when you depart the office for the day.
Keep your offer top of mind using REsimpli, the real estate CRM with drip campaign technology
How To Make Sure You Never Let A Lead Fall Through The Cracks
Sharad Mehta, owner and CEO of REsimpli, summarizes the way his company works with REsimpli to optimize lead scoring, tracking, and follow through.
Using the preloaded functions on REsimpli, you are able to see a high-level overview of your tasks due, open leads, and your internal inbox. The best way to make sure you don’t lose out on real estate wholesale leads? At the end of the day, ensure all these fields are as close to 0 as possible. Actionable items need to be dealt with and delegated ASAP, and hot leads can’t be waited on so they fizzle out.
Tasks Due: Tasks assigned to you within REsimpli show up under this module. This is easy to toggle through depending on team member and task type, as well as due date. The best way to ensure all tasks are done is to delegate them if they aren’t feasible, or to adjust the due dates to best reflect bandwidth. Minor house-keeeping, including fixing due dates or marking tasks as “completed” are necessary to ensure proper workflow and to follow up and optimize leads.
Open Leads: Open Leads are any new marketing or self-sourced leads that have been imported into REsimpli. These are automatically categorized based on several customizable fields, including unqualified, uncontacted, and dead leads. The only leads that will show up as Open Leads on this dashboard are those that are newly imported and uncontacted (No Contact Made), leads that have contacted you and are awaiting a response (Contact Made), or even dead leads that have recently contacted you as well (Dead Leads). Leads that have unfinished appointments (Appointments Set) or those that are with an agent (Referred to Agent) also show up on this dashboard. These can be cleared by archiving those that require no more attention, delegating them to whomever they are referred to, or actioning those leads and contacting them appropriately. Once leads are contacted through REsimpli, they are automatically unmarked as an open lead–it’s only when action is taken externally that they need to be manually archived or changed.
Internal Inbox: The Internal Inbox is the communication between team members regarding tasks and deliverables. These are resolved by simply clicking on the option or replying to the message. All teams use this function differently, but this is often where team members go for second opinions, so the importance of having this as a 0 on your dashboard means you’re not bottle necking any deals or disrupting workflow. The best way to optimize leads is to ensure your team communication is as transparent as possible.
New Features
There are several product features for this dashboard in the pipeline–specifically, filter for preset or custom time period. This information is accessible by clicking on each module as they are, but ultimately this filter will streamline that process and increase your real estate wholesale profitability and accountability.
Watch the entire video below, or on YouTube, for more tips and tricks as well as a Q&A from new and old REsimpli users alike. Better yet, join our Mastermind for Real Estate Wholesalers Facebook group.
About the Author
Sharad Mehta is the owner and CEO of REsimpli. As an active investor in northwest Indiana, Sharad mostly deals in fix-and-flip to retail buyers or rental and property management. REsimpli’s conception came from the lack of inclusive, comprehensive software for tracking the many needs of real estate wholesale. He set out to develop a CRM to manage all his properties and his business. REsimpli’s intuitive, click-and-go CRM makes all your bases are covered, from list stacking, direct mail, cold calling, and more. It also includes functionality PPC tracking, direct mail, SMS, and other external advertising.
Much safer than stocks and bonds, real estate wholesaling and investing provides a much more tangible opportunity to grow your personal wealth and secure your financial future. Whereas stocks and bonds are volatile and subject to the market and DOW, real estate is a secure financial investment as it is a human necessity. Want to learn more about how to wholesale real estate, and where to get started? Read on as we detail the ins and outs of real estate wholesaling, and how it differs from other types of real estate investment.
Real estate wholesaling is when a wholesaler contracts a home with a seller, then finds an interested party to buy it. Essentially, the wholesaler acts as an intermediary, finding a seller to buy the deed before the house even hits market, or is off-market. The real estate market is currently very amenable to this kind of selling model – the real estate market valuation in the United States alone has increased by 3.8% consistently over the last three years and is expected to increase still by 3.4% in 2022.
How does real estate wholesaling work?
Real estate wholesaling, unlike its well-known retail counterpart, does not involve large quantity buys. If anything, it involves better quality buys.
Real estate wholesalers sell a home to a buyer before the original homeowner’s contract expires. This is a great short-term solution as no money moves hands between the wholesaler and the seller, at least until the wholesaler finds a customer. The profit earned by the wholesaler is the difference between the price paid by the buyer and the price paid by the wholesaler.
The first step in wholesaling is to identify the ideal property. Homeowners who own distressed properties or off-market homes are often eager to sell and make excellent prospects. These homes can be highly appealing to potential investors, especially if they are in a good location, have desirable amenities, and are priced appropriately. Before you make an offer, consider what repairs or expansions the house will require.
The key to wholesaling is to include a contingency in the purchase contract that permits the distributor to pull out if they cannot locate a buyer before the planned closing date. The wholesaler’s risk is thereby reduced, making an even greater case for wholesaling.
What’s the difference between real estate wholesaling and flipping?
Flipping and wholesaling share a similar framework, with some key differences.
The time frame for wholesaling is substantially shorter. The wholesaler often makes no repairs or alterations to the house, instead passing that responsibility to the prospective buyer.
Real estate wholesaling is also far less dangerous than flipping because the wholesaler never actually buys a home. The latter frequently entails renovations as well as ongoing expenses like a mortgage, property taxes, and insurance. Wholesaling is a safe alternative as it essentially includes location services and acts almost as a brokerage.
Real estate wholesaling also requires far less money than flipping. Earnest money deposits on a few properties are usually enough. The wholesaler’s market knowledge and connections to investors are essential for speedy sales.
How can I break into real estate wholesaling?
While the market is hot and interest in real estate is high, it’s important to ensure you are equipped with the right tools and know how to enter the industry successfully. Wholesaling is relatively safe as compared to other investment options, but investment properties are still large purchases.
It might be hard to find “the right kind” of property, or to juggle prospective buyers, sellers, and connect the two. Real estate investment software, like REsimpli, allows you to easily list and monitor properties so deals can be closed faster, more efficiently, and through a variety of mediums. SMS, email, and mojo dialer capabilities are all included in real estate customer management software.
To learn more about how REsimpli can help you find properties, sellers, and to close more deals faster, request a free demo with one of our experienced agents.
