While most investors concentrate on some aspect of single-family houses, I was always interested in apartment houses first, and then single-family homes as a means of getting more apartment houses.
From the very beginning, I liked the idea that a group of people (the tenants in a building) would pool their money to pay down the mortgage on a property. And I liked the idea that they would also pool their money to pay for the maintenance of the building.
I especially liked the idea that they would give the owner so much money that he would have a bunch of it left over at the end of every month that he could use to re-invest, save, or go out and have a good time with.
Essentially, I liked the idea that other people were willing to help make me wealthy.
The first property I purchased was a three-family apartment house. I used credit cards to fund the down payment. When I was in the process of purchasing my third three-family, I realized that there were a lot of good deals out there … and I needed a system to come up with down payments.
That’s how I developed my “Chunker Strategy.” What I do is buy a single-family house with little or no money down (through private money or partners), and flip it. Then I use one chunk of the profits for my living expenses – and another chunk as a down payment for another apartment house.
I became an expert at flipping single-family houses. I learned to do wholesale, retail, pre-foreclosure, rehab, subject to, and lease-option deals. I became a transaction engineer, because I didn’t want to lose any potential deal that might be available to me.
I soon came to realize that I could also do wholesale, retail, pre-foreclosure, rehab, subject to, and lease-option deals with apartment houses.
You see, when I throw out my marketing dragnet for single-family houses, I find that I also attract motivated sellers of smaller apartment houses. If, for some reason, I’m not interested in holding an apartment house for cash flow, I can make a chunk of money flipping it with one of the methods I described above.
Learning how to invest in apartment houses is like adding another tool to your toolbox. You might not need it every day – but when you get the chance to use it, it pays for itself over and over again.
Every once in a while, you come across a great deal on an apartment house. A deal that is going to bring in a monthly cash flow of $800 a month or more. These deals are actually more common than you think. You just haven’t trained your mind to recognize them.
Imagine, for a minute, that as you are buying and selling your single-family houses, you start “collecting” apartment houses with cash flows of at least $800 a month. (If you are buying 3+ units, you will want at least a net positive cash flow of $800 a month – unless you are in the first half of a rising market. Then, and only then, should you get less.) You will find these deals by working with motivated sellers – not (usually) through real estate agents.
Let’s say you collect just four apartment houses a year, one every three months. At the end of the first year, you will have a net positive cash flow of $3,200 per month. That would equal $38,400 per year.
Now, let’s say you continue to flip single-family houses, and, using my Chunker Strategy, collect four apartment houses the next year. You have just increased your monthly income from your apartments to $6,400 per month, and your total yearly net positive cash flow to $76,800.
Let’s jump forward to the end of year four. You have now collected a total of 16 apartment houses. Your monthly income from your apartments is $12,800 per month, and your yearly net positive cash flow is $153,600.
So if you want to take off all of year five and do nothing – no flipping single-family houses, no buying more apartments – you would still get $153,600 as a net positive cash flow from your existing apartments.
You might be thinking, “Whoa! What about all those tenants! I don’t want to deal with any tenants.” Well, you don’t have to. When you’re purchasing a property, you factor in the cost of a good management company. If the property still cash flows properly, buy it. If it doesn’t … go on to the next deal.
Some people don’t mind managing their own buildings. I did it for two and a half years, but soon realized that dealing with my tenants took time out of finding more deals. So I systemized the management of my buildings and hired a woman to work in my office and do it.
I haven’t talked to or taken a call from a tenant in over four years, Yet, I happily deposit those cash flow checks in my bank account every month.
Cash flow is the reason you should consider buying apartment houses while you’re doing your single-family investing. The cash flow gives you the freedom to do what you want when you want … go where you want when you want … and buy what you want when you want. (And that, after all, is why we are in the real estate game.)
What if you decide not to invest in apartment houses?
Okay. It’s now four years later. You’ve been flipping a lot of houses and are making some good money. Heck, you’ve even got some single-family houses that you’re holding for long-term cash flow.
Let’s look at the reality of the situation. If you want another payday, you have to buy and sell another house. The cash flow on your single-family keepers averages $300 per month. What happens if you lose your tenant for just one month? You’ve probably lost your profits for most of the year.
But if you were collecting apartment houses during that same four years – while buying those single-family houses – you would have a payday to the tune of $12,800 per month each and every month for doing nothing. You’re not even doing any of the management work yourself! If you lose a tenant in your three-family building, no problemo. The other two tenants still pay enough to cover your expenses and also give you a little cash flow.
Not only that, but you are creating more and more equity in those apartment buildings through the pay down of the mortgage and the appreciation that takes place every month that goes by. You’re setting yourself up for some huge paydays further on down the road.
How do you become wealthier, faster by investing in real estate? Just start collecting some apartment buildings while you buy and sell those single-family homes.[Ed. Note: David Lindahl, also known as the “Apartment King,” has been successfully investing in single-family homes and apartments for the last eight years.
Read about how Dave makes $27,000+ in passive, month-after-month income … and how you too can reap huge positive cash flows from real estate – with less risk, less money down, and no tenant headaches: Dave Lindahl’s Apartment House Riches.]