Ross is Ken McElroy's partner in their business MC Properties. Kim and I are often financial partners with Ken and Ross in a number of their projects and have done very well financially, even in tough economic times.
There are three primary reasons why our investments with Ross do so well. The first reason is that he is a builder. He understands the ins and outs of the construction industry. Second, he is a property manager. This is important because the key to long-term investing in real estate is professional property management. And third, Ross is exceptional at finance by managing the ratios between debt, equity, and expenses. When it comes to real estate investing, he is the complete package. On top of that, he is a great guy. He is fair and honest.
In 2002, when the Tucson apartment market was hot, Ross's background allowed us not only to do well buying existing apartment houses but also building new apartment houses. One of our first investments together was the purchase of an existing apartment complex his company was managing. This gave us an advantage because we knew the numbers were honest—which is important since most pro forma numbers provided by realtors are lies. Second, the property had an additional ten acres of vacant land. Once we bought the existing apartment house, our next step was to begin construction on an additional one hundred units on the vacant land. Then with the increased rents a few years later, Ross refinanced the property, and Kim and I got all of our initial investment money back. This means each month we receive a check from the positive cash flow, and Kim and I have zero invested in the project. If you do the math, this means Kim and I have an infinite return on our money. In layman's terms, an infinite return is truly money for nothing... every month.
This is why Kim and I love being partners with Ross McCallister and Ken McElroy.
Perhaps you've already read and maybe even re-read Rich Dad Poor Dad by Robert Kiyosaki, as well as my partner Ken McElroy's book, The Advanced Guide to Real Estate Investing, and now you are ready to take the plunge and invest in real estate on your own. That's probably why you bought this book written by real estate professionals, each of whom have been earning their livings in real estate for decades.
There are pages in this book that are full of tremendous opportunities and innovative ways to make money in real estate. But one avenue of investment you may not have thought of and may want to consider is to develop your own project from the ground up.
The profits you have heard about from real estate development are mind boggling, and if you are like most people, the numbers leave you frothing at the mouth for a piece of the development pie. Yes, there is tremendous profit to be made from real estate development, but as with any high reward venture there is also the possibility of tremendous financial losses if you let your emotions override good judgment, or if you don't know what you are doing.
In this chapter I will outline some of the steps you need to take to evaluate a development opportunity, steps I've gleaned from my expertise in developing apartment communities during the past three decades and from some twenty-plus projects of about four thousand units. And because my experience is primarily in apartment development, that is what we will talk about. However, these fundamentals apply to any commercial development, such as office or retail, and to any size apartment community, be it four or four hundred units.
For me, development from the ground up is the most exciting way to invest in real estate. There are few professional accomplishments more rewarding than to see a project go from conception to reality. And it's even better when that project produces positive financial results. Yet, with that said, nothing can be more frustrating than working for years (yes, years!) to start your project and battling through environmental and governmental regulations, market con-
ditions, financial institutions, and your own continuous questioning about whether all this frustration and risk is worth it. That side of the business is a reality, too, even for those of us who have many projects already under our belts.
I know you can see yourself as the owner of that "perfect" corner lot at Main and Better Main, graced with a structure and a monument sign bearing the name you have been dreaming about for years. Maybe it's (insert your dream name here!) in large letters on the monument sign in the front. You can see all the happy families living there, and you can hear the ka-ching of the cash register as the rents roll in every month. But before you build that sign or take that cash to the bank, let's talk about some of the decisions you must make first before you consider embarking upon this adventure.
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