“Buying real estate is not only the best way, the quickest way, the safest way, but the only way to become wealthy.” – Marshall Field, entrepreneur.
So you have made your mind up and you are ready to dive into Multifamily Real Estate. Maybe you have tried to grow your single family portfolio but closing one or two units at a time is not getting you to your goal fast enough. You may have scaled up to duplexes, tri’s and quad’s, however even at that multiple, your goal of 100 units (or 1000 units) will take you 20 years. Frustrated, you may have turned on a podcast or two (or 100s in my case), and heard the terms “Multifamily”, “scaling your business” and statements like “it took the same amount of effort to close my duplex as it did my 100 unit!”. Your podcast education has also taught you that Off-Market deals can often be the best value, the least competition, the most lucrative and flexible when it comes to financing.
Bigger, Better, Faster, but How?
How do you find your first deal? How do you avoid “broker run-up” of pricing and overpaying for your first deal? Where do you search and how do you search? Not to brag…….but I am a “self proclaimed expert”(many may disagree!), in finding off market multifamily deals and you can be one too! The process requires a little “Hustle” on your part. This is NOT a passive process and over 50% of the work is NOT done sitting behind a computer. I should also preface, that my process (Hustle) works best in a localized market…….something within an hour from your domicile. I personally would suggest tackling your first MF in a distance that allows you to touch it, feel it, observe it and manage the purchase process hands-on. Many will disagree with this point, however I have found that I learned so much from being “present” in my first large MF purchase. I was physically at the property over 20 times during the negotiation and due diligence period, for everything from the 2.5 day inspection (even daring to enter crawl spaces, viewing structural issues), to the appraisal (picking the brain of the appraiser as to what he saw, calculated and what mattered to him in his numbers), meeting with the current manager regarding estoppel discrepancies (estoppels are a form filled out by the tenant verifying lease terms in case you are wondering), and meeting with contractors to get bids on fixes needed if we purchased. I believe my hands-on experience with my local MF will make it easier to invest out of state in the future.
The Process and the Hustle
- Get out from behind your computer and Drive! Investigate Class C neighborhoods and get to know them street by street. Take a “partner in crime” with you, so one person can drive, and the other can take down information. Next, look beyond your direct eyesight on Google Maps as you go.
- Watch for the distressed MF complexes, take note of handmade or unprofessional vacancy signs, which may be an indication of a disinterested owner, an aging owner or a broke owner versus a corporate owner and professional manager.
- Note complexes of all quality levels that do not show up on Apartments.com and other similar sites. Often Mom & Pop owner-managers rely on word of mouth to fill vacancies and may not employ the use of websites.
- Complexes with no signage at all. Jot down their location and cross streets so you can look them up later.
- Fill out a spreadsheet with the information your gathered. Name of Complex, address, approximate size, a short description of condition and add columns for last date sold, dollar amount of last sale, SEV (state equalized value , generally current value of building should be SEV X 2) Corporate Owner info, underlying owner, address, phone number and notes.
- Research your addresses via your County website………you may have to pay per search, but its worth it. Gather all relevant info while you are in there. Pull up Owner, LLC or Corporation info to research the underlying ownership.
- Go to your State Website and research LLC or Corporate Search for Members. It may take some looking but keep digging, every State has one. Now you have the names of the partners in the LLC or Corporation. Add them to your spreadsheet.
- Signup for a onetime or monthly subscription to whitepages.com. A 200 name search for a month is $19.99. Look up the underlying owners’ age, home address or associated address (for mailing purposes only – no stalking!), landline and mobile phone numbers. In this list, you may be surprised to know that I find the most important value extracted is the Owner Age! Especially if it’s a single member LLC.. Often owners in their 70s and 80s are ready to officially retire from Landlordship. These are the people you MOST want to talk too.
- Now here is the most important step, and the step least pursued. Its time to pickup the phone and call every owner and let them know you recently drove by their property and that you are interested in learning more about it. Ask the question, “Have you considered selling your property?” “Would you be interested in a valuation analysis?” “Could I stop in at the property sometime and meet up with you?” “I am a newer investor, would you be willing to meet up sometime and share your MF insights with me” “I also have multifamily in the area, is there anything you need help with, contractors? Vacancy leads?” More people will meet with you, than you would ever expect and accept your offered help.
- Follow up every call and voice mail with a letter acknowledging the call, providing your business card and requesting an informal meeting.
You are now WELL on your way to finding your first Multifamily Off-Market Deal.
You may ask yourself, why is she sharing her process and creating more competition for herself? There are several reasons. The first one, is that 90% of my Real Estate education was free and freely given by others and I want to pass that one. Secondly, I know that 98% of those reading this will not follow the whole process. Lastly, those that do follow part or all of the process may contact me in the future to help them “tackle” their first MF deal or take down a second or third deal that is bigger than expected. For those that take this process and run with it……..make sure to pass it on to the next hungry investor that needs your help. I can be reached at firstname.lastname@example.org or www.patriotrei.net if you want help looking at a new deal.