Crushing It in Apartments and Commercial Real Estate

Success doesn't come to you by magic – it comes from a plan, grit, and a dedication to doing the work yourself.

1. Understand the Numbers Before Investing

Before diving into real estate, you need to calculate whether the property will generate income. Understanding financial terms like net operating income and cash-on-cash returns is essential. Net operating income is the annual income left after subtracting costs like taxes and maintenance. To calculate cash-on-cash returns, divide the net operating income by your upfront investment and convert it into a percentage.

Knowing these numbers helps you gauge if a property can provide consistent cash flow. Properties with high cash-on-cash returns pose less risk, ensuring you stay afloat financially even when challenges arise. Cash serves as a safeguard for mistakes, unexpected expenses, or economic downturns.

For example, properties that provide instant cash flow are less risky since they bring in revenue from day one. Understanding your numbers helps you identify opportunities with long-term investment potential and avoid financial setbacks.

Examples

• Calculate net operating income by subtracting annual property costs from rental income.
• A property with a 15% cash-on-cash return would be a steadier investment than one offering 5%.
• Knowing financial metrics allows you to spot red flags, like a rental property with low cash flow.

2. Avoid Overspending and Keep Your Day Job

Many new investors rush to splurge on office spaces or quit their jobs immediately after their first deal. This approach is risky. Starting out in real estate requires discipline, careful spending, and continuing to work a regular job until your investments can sustain you financially.

Bootstrapping is a practical strategy for new investors. Stretch your resources and reinvest profits into your business. For instance, instead of renting a fancy office space, use personal or less-desirable spaces to minimize costs. Saving every dollar in the beginning strengthens your foundation for growth.

The author, for example, kept his teaching job for seven years after starting in real estate. He remained frugal and focused, ensuring his business reached a steady $2 million in yearly revenue before leaving his initial career.

Examples

• Turn a basement utility closet into your office instead of investing in premium real estate.
• Keep your job and use the income to cover personal expenses while the business grows.
• Reinvest extra profit into new deals instead of spending it on unnecessary luxuries.

3. Real Estate Is Not Passive Income

Contrary to popular belief, owning property isn't a passive source of cash; it involves active management. Just like running a business, successful real estate investments demand close attention, effort, and decision-making.

Hiring managers or outsourcing various responsibilities can drain your revenue. Handling tasks yourself saves money and gives you control over your business. Tasks such as negotiating leases, maintenance work like snow removal, and landscaping can all contribute to maximizing profits if done in-house.

The author emphasizes self-management to eliminate unnecessary costs. By getting personally involved, you have better oversight of every operational detail, ensuring your property runs smoothly and profitably.

Examples

• Write and review leases yourself instead of paying legal teams or property managers.
• Commit personal time to tasks like landscaping or tenant relations to save money.
• Avoid middlemen or contractors whose fees cut into your earnings.

4. Attract Tenants by Charging Affordable Rent

Charging slightly below the market rate for rent often works better than pushing prices to the maximum. Affordable rates attract tenants who stay longer and help you retain steady income over time.

High rents can leave units vacant or result in frequent tenant turnover, which drives up marketing and turnover costs. Conversely, competitive rents boost tenant loyalty, making your tenants more likely to renew their leases. Long-term tenants also save you time and effort while fostering stable cash flow.

For instance, if you run a commercial property with small businesses, keeping rents modest allows them to thrive. Successful tenants will be more motivated to stay, maintaining your property's profitability.

Examples

• Offer rents 5–10% below market rates to outcompete nearby properties.
• Focus on long-term relationships with tenants rather than squeezing out every dollar.
• For commercial tenants, low rents help them succeed, reducing their need to leave.

5. Select Tenants Thoughtfully

Finding the right tenants is critical to maintaining harmony and maximizing property value. Tenant compatibility can make or break the usability and atmosphere of your property.

For example, elderly tenants looking for peace and quiet may conflict with college students in the same building. Similarly, a professional office building wouldn’t benefit from renting space to noisy or disruptive clients. When it comes to compatibility, ensuring that tenants complement one another creates a happy environment for all.

Property managers should keep their tenant mix in mind when marketing spaces for lease. A balanced, well-curated tenant roster helps establish a reputation for a desirable living or working space.

Examples

• Avoid placing a noisy bar next to a family-friendly café in a commercial property.
• Match tenant demographics, like pairing senior citizens in peaceful resident complexes.
• Attract businesses that align well with existing tenants’ needs and your target customers.

6. Build a Purpose Beyond Profit

Financial gain alone won’t sustain you through the challenges of real estate. Long-term motivation stems from having a deeper purpose behind your investments. Whether it’s building communities or helping tenants find their ideal spaces, connecting your business to personal values builds resilience.

The author found fulfillment in creating a meaningful business culture guided by core values like excellence and integrity. These principles shaped not only executive decisions but employees’ dedication and satisfaction within the company.

When the going got tough, focusing on helping others and contributing to the community kept morale high for the author and his team. Purpose also makes your work more enjoyable and gratifying over time.

Examples

• Focus on enhancing neighborhoods to inspire pride in tenants and residents.
• Create housing that genuinely improves quality of life for your renters.
• Use company values to establish trust and consistency in decision-making.

7. Think Long-Term and Avoid Selling Too Soon

Selling properties too quickly can erode your ability to create lasting value. Properties need time – often up to five years – to fully appreciate in value, especially if reinvested funds are used for improvements.

If you implement systems like energy-efficient utilities or upgraded spaces, the short-term costs may outweigh the immediate financial gain. However, over time, these improvements increase the property’s desirability and profitability. A longer holding period also helps you build a steady track record of success, which is valuable to future buyers.

Additionally, selling a property comes with expenses like transaction fees, real-estate broker commissions, and tax implications. Avoiding frequent sales minimizes these hidden costs.

Examples

• Wait until properties generate consistent revenue before considering a sale.
• Upgrade energy-use systems to cut costs and boost long-term value.
• Analyze tax implications and broker fees before rushing into a sale.

8. Adapt Space to Increase Value

A creative approach to how spaces are utilized can add significant value. By rethinking layouts and functions, properties can cater to a broader clientele while optimizing income-generating potential.

Unused areas can be transformed into revenue streams. For example, a common area could become office space, or oversized apartments could be restructured into smaller, more affordable units. Changes like these not only improve profitability but also appeal to new customer segments.

The author successfully converted a struggling hotel into practical studio apartments, making better use of the space while attracting new tenants.

Examples

• Convert underused storage into leasable offices or housing units.
• Split large apartments into multiple smaller units to appeal to diverse tenants.
• Repurpose failing businesses into services that align with market needs.

9. Save Every Dollar You Can Through DIY Efforts

Frugality goes far in maximizing your profits. Many tasks that property owners typically outsource can be completed independently, saving money while enhancing control over daily operations.

Whether it’s maintenance tasks, leasing documents, or tenant negotiations, doing the work yourself reduces reliance on outside firms and ensures your business is running efficiently with the lowest overhead costs.

The author’s commitment to DIY management allowed him to fund multiple new ventures, grow his portfolio, and avoid unnecessary expenses.

Examples

• Mow lawns or shovel snow to cut down on landscaping costs.
• Handle tenant communications personally to build trust and improve satisfaction.
• Write and negotiate your leases without hiring property managers.

Takeaways

1. Calculate numbers like cash-on-cash returns and net operating income before making any investment decisions.
2. Keep your day job and resist overspending until your real-estate business generates substantial revenue.
3. Hold on to properties longer to maximize their value while continually investing in improvements.