Crushing It in Apartments and Commercial Real Estate

In "Crushing It in Apartments and Commercial Real Estate," Brian Murray shares his wealth of knowledge and experience in the real estate industry. This book is a practical guide for anyone interested in investing in commercial real estate, particularly apartments and office buildings. Murray, who started his real estate career while working as a teacher, provides valuable insights and strategies for success in this potentially lucrative field.

The book dispels common myths about real estate investing and offers a realistic view of what it takes to succeed. Murray emphasizes the importance of treating real estate investments as a business, rather than a passive income source. He provides practical advice on everything from financial calculations to tenant management, drawing from his own experiences and lessons learned.

Key Ideas

Understanding the Financials

Before diving into real estate investing, it's crucial to understand the financial aspects of property ownership. Murray introduces two key concepts: net operating income and cash-on-cash returns.

Net Operating Income

Net operating income is a simple but essential calculation for any property investor. Here's how to determine it:

1. Calculate the total annual income from the property. This includes rent from tenants, income from laundry facilities, pet fees, and any other sources of revenue.
2. Subtract the property's yearly expenses, such as property taxes, maintenance costs, and other operational expenses.
3. The difference between these two figures is the net operating income.

This number gives you a clear picture of how much money the property is actually generating after expenses.

Cash-on-Cash Returns

Once you have the net operating income, you can calculate the cash-on-cash returns:

1. Take the net operating income and divide it by the amount you've invested in the property upfront.
2. Multiply this number by 100 to get a percentage.

This percentage represents your cash-on-cash returns. The higher this percentage, the better the investment.

Murray emphasizes the importance of focusing on properties that provide immediate cash flow, as these tend to be less risky investments. By prioritizing properties with high cash-on-cash returns, you increase your cash flow and reduce overall investment risk.

Starting Your Real Estate Journey

When embarking on your real estate investment career, Murray advises caution and frugality. He shares an anecdote about a young investor who planned to quit her job and splurge on luxuries after her first property purchase. Murray strongly advises against this approach.

Bootstrapping

Instead of spending money on unnecessary expenses, Murray recommends bootstrapping – making the most of your available resources and stretching your funds as far as possible. This means:

1. Avoiding unnecessary expenses like fancy office space or expensive business cards.
2. Reinvesting any extra cash into new real estate deals.
3. Being willing to sacrifice personal comfort for the sake of maximizing income.

Murray shares his own experience of choosing a tiny utility closet in the basement as his office when he purchased his first office building. This allowed him to rent out the more desirable spaces and maximize his income.

Keeping Your Day Job

Another crucial piece of advice is to hold onto your day job until your real estate business is firmly established. Murray himself worked as a teacher for the first seven years of his real estate career. This approach provides several benefits:

1. It ensures a steady income while your business is growing.
2. It allows you to reinvest all of your real estate income back into the business.
3. It provides financial security during the challenging early years of your business.

Murray only quit his teaching job when his real estate business was bringing in $2 million annually, demonstrating the importance of patience and financial prudence.

Treating Real Estate as a Business

One of the most important lessons Murray emphasizes is the need to treat real estate investments as a business, not a passive income source. He debunks the myth that property ownership is a hands-off investment that generates easy money.

The Myth of Passive Income

The idea of real estate as a passive investment has been perpetuated for centuries, from the landed gentry of old to modern get-rich-quick schemes. However, Murray argues that this approach is not the path to maximizing revenue from your investments.

Active Management

Instead of relying on middlemen to manage your properties, Murray advocates for active, hands-on management. This involves:

1. Reviewing and writing leases yourself.
2. Brokering deals personally.
3. Taking care of manual labor such as snow removal and landscaping.

While this approach requires more time and effort, it offers several advantages:

1. It reduces expenses by eliminating the need for property managers and other middlemen.
2. It gives you more control over your investment.
3. It allows you to reinvest the money saved on management fees back into your properties.

Murray argues that no property management company will ever have as much at stake as you do, making self-management the best approach, especially in the early stages of your real estate career.

Tenant Management

Tenants are the lifeblood of any real estate investment, providing the income that makes your property valuable. Murray offers advice on two crucial aspects of tenant management: setting rent and selecting tenants.

Setting Rent

Contrary to what some might expect, Murray advises against charging the highest possible rent. Instead, he recommends setting rent slightly below the market rate. This strategy offers several benefits:

1. It makes your property more attractive to potential tenants, reducing vacancy rates.
2. It encourages tenants to renew their leases, reducing turnover and associated costs.
3. It helps commercial tenants' businesses flourish, making them more likely to stay long-term.

Selecting Tenants

When choosing tenants, Murray emphasizes the importance of creating a harmonious environment. This means considering not just individual tenants, but how they fit into the overall tenant mix. For example:

1. If most of your tenants are seniors who value peace and quiet, avoid renting to noisy college students.
2. In commercial properties, consider how different businesses might complement or conflict with each other.

The goal is to create an environment where tenants want to stay long-term, reducing turnover and creating a stable, profitable investment.

Finding Your Purpose

While making money is obviously a key motivation for real estate investing, Murray argues that it shouldn't be your only driving force. He believes that having a non-monetary purpose behind your investment can provide long-term motivation and satisfaction.

Identifying Your Purpose

To find your purpose, Murray suggests asking yourself questions like:

1. Why are you personally attracted to the real estate industry?
2. Do you like the idea of helping people find homes or workplaces?
3. Does the thought of improving communities through your properties appeal to you?

Establishing Company Values

Once you've identified your purpose, Murray recommends organizing your company values around it. These values will:

1. Guide employee decisions and behavior.
2. Shape your company culture.
3. Determine how you do business.

Murray shares his own company values of excellence, creativity, and integrity, which have helped keep his team motivated and focused during challenging times.

Long-Term Value Creation

While it can be tempting to sell properties once they become profitable, Murray advises holding onto properties for the long term to create lasting value.

The Benefits of Holding

Holding onto properties for an extended period offers several advantages:

1. It allows time for property improvements to fully impact value.
2. It provides a track record of profitability, which is crucial when selling.
3. It minimizes transaction costs associated with buying and selling properties.

The Five-Year Rule

As a general guideline, Murray suggests holding properties for at least five years. This timeframe allows for:

1. Implementation of value-adding improvements.
2. Establishment of a solid financial track record.
3. Maximization of property value.

Avoiding Transaction Costs

By holding onto properties, you can avoid significant costs associated with selling, including:

1. Transaction costs of 5-10% of the selling price.
2. Real estate broker commissions.
3. Capital gains taxes on property sales.

Adding Value to Your Properties

One of the most effective ways to increase the value of your properties is to rethink how they're used. Murray suggests several strategies:

1. Converting underutilized common spaces into leasable areas.
2. Upgrading storage spaces to office spaces.
3. Reconfiguring apartment layouts to create more units.

He shares an example from his own experience where he purchased a failing hotel and successfully converted it into studio apartments, significantly increasing the property's value.

The Importance of Patience and Perseverance

Throughout the book, Murray emphasizes the need for patience and perseverance in real estate investing. Success doesn't come overnight, and there will be challenges along the way. He encourages investors to:

1. Stay committed to their long-term goals.
2. Be willing to put in the hard work of self-management.
3. Continuously look for ways to add value to their properties.

Learning from Experience

Murray's advice is grounded in his own experiences as a real estate investor. He shares both his successes and his mistakes, providing valuable lessons for readers. Some key takeaways include:

1. The importance of thorough due diligence before purchasing properties.
2. The value of building relationships with tenants, contractors, and other industry professionals.
3. The need to stay adaptable and open to new opportunities in the ever-changing real estate market.

The Power of Education

Throughout the book, Murray stresses the importance of continuous learning in real estate investing. This includes:

1. Staying up-to-date with market trends and regulations.
2. Learning from other successful investors.
3. Being willing to admit what you don't know and seeking expert advice when needed.

Balancing Risk and Reward

Real estate investing, like any investment, involves risk. Murray provides strategies for managing and mitigating these risks:

1. Diversifying your portfolio across different types of properties and locations.
2. Maintaining adequate cash reserves for unexpected expenses.
3. Being conservative in your financial projections.

The Impact of Technology

While much of real estate investing remains hands-on, Murray acknowledges the growing impact of technology on the industry. He discusses:

1. The use of property management software to streamline operations.
2. The role of online platforms in marketing properties and finding tenants.
3. The importance of having a strong online presence for your real estate business.

Scaling Your Real Estate Business

As your real estate portfolio grows, Murray offers advice on scaling your business:

1. Building a reliable team of employees and contractors.
2. Developing systems and processes to manage multiple properties efficiently.
3. Considering the formation of partnerships or real estate investment trusts (REITs) for larger investments.

The Importance of Networking

Murray emphasizes the value of building a strong network in the real estate industry. This includes:

1. Attending industry events and conferences.
2. Joining local real estate investment associations.
3. Building relationships with lenders, real estate agents, and other property owners.

Navigating Economic Cycles

Real estate markets are subject to economic cycles, and Murray provides strategies for thriving in different market conditions:

1. Being prepared for market downturns by maintaining low debt levels and strong cash reserves.
2. Recognizing opportunities to buy properties at discounted prices during recessions.
3. Being cautious about overpaying for properties during market peaks.

The Role of Financing

While Murray advocates for conservative financial management, he also discusses the strategic use of financing to grow your real estate portfolio:

1. Understanding different types of loans available for real estate investors.
2. The pros and cons of leveraging properties to purchase additional investments.
3. The importance of maintaining good relationships with lenders.

Environmental Considerations

As environmental concerns become increasingly important, Murray touches on the growing trend of green building and sustainable property management:

1. The potential for energy-efficient upgrades to reduce operating costs and increase property value.
2. The appeal of environmentally friendly properties to certain tenant demographics.
3. The importance of staying informed about environmental regulations affecting real estate.

The Future of Real Estate Investing

In the final sections of the book, Murray offers his thoughts on the future of real estate investing:

1. The potential impact of demographic shifts on housing and commercial property demand.
2. The growing importance of mixed-use developments in urban areas.
3. The continued evolution of the retail sector and its impact on commercial real estate.

Conclusion

"Crushing It in Apartments and Commercial Real Estate" provides a comprehensive guide to success in real estate investing. Murray's approach emphasizes hands-on management, financial prudence, and long-term value creation. He debunks the myth of real estate as a passive investment and instead presents it as a business that requires active engagement and strategic thinking.

Key takeaways from the book include:

1. The importance of understanding and using financial metrics like net operating income and cash-on-cash returns.
2. The value of bootstrapping and maintaining a day job in the early stages of real estate investing.
3. The need to treat real estate as a business, with the investor serving as an active manager.
4. The benefits of setting rents slightly below market rate and carefully selecting tenants.
5. The importance of having a non-monetary purpose behind your real estate investments.
6. The advantages of holding properties for the long term to create lasting value.
7. The potential for adding value through creative repurposing of properties.

Murray's advice is practical, grounded in real-world experience, and applicable to both novice and experienced real estate investors. He provides a realistic view of the challenges and opportunities in real estate investing, emphasizing the need for patience, perseverance, and continuous learning.

While the book focuses primarily on apartments and commercial real estate, many of the principles Murray discusses can be applied to other types of real estate investments as well. His emphasis on financial analysis, active management, and long-term value creation provides a solid foundation for success in any area of real estate investing.

Ultimately, "Crushing It in Apartments and Commercial Real Estate" serves as both an inspirational and practical guide for anyone looking to build wealth through real estate. Murray's journey from teacher to successful real estate investor demonstrates that with the right approach, dedication, and willingness to learn, significant success in real estate is achievable.

The book encourages readers to take action, but to do so thoughtfully and strategically. By following Murray's advice – from careful financial analysis to hands-on property management – readers can position themselves for long-term success in the rewarding, albeit challenging, world of real estate investing.