What is the leading indicator for your success in buying a profitable apartment building?
Rookie or veteran, without a steady stream of potential apartment deals coming across your desk every week, you won’t be doing many deals. With consistent dealflow, however, it becomes a numbers game, and doing the basic things right, deals are just a matter of time.
One very effective way of creating dealflow is using commercial brokers. Of course, sourcing deals through commercial brokers has the benefit of being “free”. They find the deal, the Seller pays the broker a commission when you buy.
When starting out, you can use brokers and their listings to practise on; to get over your initial nerves talking with real estate professionals, and do deal analysis on the listed properties in the process.
The main benefit of using commercial brokers though is you are able to leverage their network. Each broker has done a lot of work to go out and meet apartment owners, to network and meet people who know apartment owners, and to do all of the work associated with listing a property once finding an apartment owner wanting to sell. When you build a relationship with a broker and he/she knows what you are looking for, you get the benefit of all of that.
Even more powerful is when you build up a network of brokers, with all of their networks, individual and combined, reaching out into the local market and beyond working to pull in deals that fit your buying criteria. It’s pretty powerful, and not hard to get up and working for you.
Here is what to do:
Avoiding competition is a key part of finding a deal that is really a deal, so what are other sources of apartment deals that are not advertised? There are four main sources.
1) Direct Mail: Obtain a list of every apartment building and it’s owner from the Assessor in the County you are buying in. Then segment the list into out of town owners and local owners. Also, some owners have multiple properties and show up once for each property they own, so delete duplications. Mail a letter to the out of town owners first, as they by their circumstances are most motivated, then mail to the local owners. The list may contain a few thousand owners, so if you have limited funds starting out just mail 100 letters at a time.
This will give you a steady flow of motivated apartment property owners calling you to talk to about buying their property. As it is you that has contacted them, odds are you are the only person talking to them about buying their property. There may be other investors mailing to them, however if your letter is non-hype and to the point, you will find motivated sellers calling you when they haven’t responded to others.
Motivated sellers are the life blood of any real estate venture, and especially with apartment investing. The most reliable way to make money with apartment investing is not to wait for wait for market appreciation, but to look for deals where you can force appreciation by improving the property.
Opportunities for forced appreciation occur in properties with correctable deficiencies such as deferred maintenance, poor management,vacancies and below market rents. You are looking for properties with the right things wrong with them so you can buy them, correct the deficiencies, thereby increasing the income. By increasing the income on the property you force the appreciation of the property within a short period on time.
The top five ways to find properties with the right things wrong with them are:
1) Commercial real estate brokers. To find good apartment deals you want to find a broker who works only in apartments. Avoid the agent who makes their bread and butter in residential and does a bit of commercial on the side. You can find the full time apartment brokers by looking in the newspaper in the Apartments For Sale section. The key to finding a broker who will bring you deals is giving them very specific criteria for the deals you want buy. For example: “I’m looking for 30-100 unit properties that are at least 25% vacant and in Class C areas. What won’t work is, “I’m looking for good deals, call me when you get one.” Tell the broker exactly what you want, with confidence, and the deals will come.
2) Evictions. One thing that makes a seller motivated is pain. There’s nothing quite as frustrating and painful for an apartment owner as a tenant who has stopped paying the rent. It’s painful because the tenant is still taking up space in the property, but no money is coming in from that unit, so the landlord has to go through the messy process of eviction to get his property back. Evictions are good leads to pursue because they allow you to catch the landlord at a time when he wishes he didn’t own the property, and is highly open to selling. You can find evictions at the Clerks Office, or the Recorders office in your County courthouse. Have an assistant search the records and collate the list of property owners every week, then send the owners a letter offering to buy their property.