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This post is intended to help those that are in the hunt for apartment buildings. I consider the market for properties in the 5-19 unit range to be in the "challenged" zone so this is really geared for the 20 unit and up range. While this method will still work for 10 units, it starts to get back into the typical MLS and less specialized at some point.
There is also an assumption that you have done all the homework required to determine a location. You are now ready to move forward in the search for a building to purchase.
Contacts are important. You will need a good mortgage broker or bank on your side. Insurance is critical as well. Property management will make or break your investment and can play a vital role in the due diligence portion of your purchase.
Finding agents (that's right, agents plural) that will bring deals to you is key. It sounds easy but in reality this is a major challenge. The nuturing of these relationships will pay off if you do it right.
The first step is to identify them. A good place to start is on www.loopnet.com. You can look up your desired location and see which agents and brokerage houses have listings. This is where is gets tough. You want to find an agent that is hungry enough to work with you but experienced and well connected enough to get you access to the good deals.
My first phone call is usually to someone in the agency that has a number of listings. I call all of the different brokerage houses that appear to specialize in apartments though. The conversation is around good mortgage brokers and property management companies. These are the people that can tell me who the good agents to work with are.
I have gone into markets and called agents only to get little response and lots of frustration. The current market conditions will dictate how much attention you will get. Fortunately, if you are looking to purchase in a soft market, the agents will tend to be more amiable to the buyers. This does not mean you will get attention without nurturing your contacts though.
If you can put yourself into the heads of these agents it helps to understand where they are coming from. An agent only gets paid when a deal is completed. If there are more buyers than sellers, the agents are going to be spending their time trying to court sellers. These deals will be taken to their tried and true buyers. This is probably not a good time for you to buy anyway.
Even if the table is turned and there is an imbalance with more sellers, the agents will not spend time with you based on a quick phone call. They get a lot of calls from people that are feeling a market out. Everyone tells them they are ready to buy. You need to convince them that you are ready.
Getting yourself access to the deals before they are mass marketed is important. Agents will tend to call the people that they know are ready to buy and are proven performers in the purchase process. Getting yourself on the top of the list is difficult to do. Until the relationship is established, steady contact needs to be kept. If they are not calling you with deals, you need to call them on a regular basis.
Loopnet is a great website with a lot of information. Most of the properties listed have been there for a fairly long period of time and are overpriced. Occasionally, there is a way to work these into deals. Keep in touch with the listing agents. Mention that you would be interested in talking to them if they get motivated with time. I kept in touch with an agent on a property for a year before we came to a deal. I ended up paying 20% less than they originally wanted.
Some of the best deals never make it to Loopnet. They are communicated through the circles and sold prior to a mass marketing effort. Some of the brokerages require that a all of the listings in their service go through the full process. These will end up on Loopnet. If the property is a deal, it will likely have a number of people bidding on it. I will usually (not always) try to stay out of the mix of buyers but may come back in once the original flurry is over.
If the deal is really good, you may need to join the fray. Then an offer needs to be made that may raise you above the level of the other potential buyers. As a starter, you can forgo the financing contingency and shorten the due diligence process. this is risky but can be minimized by working with the lender at an early stage of the game. If you have 3 weeks for the inspection, you need to get a fairly strong committment from the lender (be careful here, there can be a lot of deception). If not, dump the deal. I have actually gone so far as to offer a non-refundable deposit on the day the contract is signed.
Speaking of dumping deals. You don't want to do this too often. The sales agent should understand if you have a good reason to let a deal go prior to the expiration of the inspection period. They will have another opinion if you tie up deals and then bail out for no apparent reason. This is a quick way to lose the reputation and relationship that you worked so hard to establish in the first place.
There is also an assumption that you have done all the homework required to determine a location. You are now ready to move forward in the search for a building to purchase.
Contacts are important. You will need a good mortgage broker or bank on your side. Insurance is critical as well. Property management will make or break your investment and can play a vital role in the due diligence portion of your purchase.
Finding agents (that's right, agents plural) that will bring deals to you is key. It sounds easy but in reality this is a major challenge. The nuturing of these relationships will pay off if you do it right.
The first step is to identify them. A good place to start is on www.loopnet.com. You can look up your desired location and see which agents and brokerage houses have listings. This is where is gets tough. You want to find an agent that is hungry enough to work with you but experienced and well connected enough to get you access to the good deals.
My first phone call is usually to someone in the agency that has a number of listings. I call all of the different brokerage houses that appear to specialize in apartments though. The conversation is around good mortgage brokers and property management companies. These are the people that can tell me who the good agents to work with are.
I have gone into markets and called agents only to get little response and lots of frustration. The current market conditions will dictate how much attention you will get. Fortunately, if you are looking to purchase in a soft market, the agents will tend to be more amiable to the buyers. This does not mean you will get attention without nurturing your contacts though.
If you can put yourself into the heads of these agents it helps to understand where they are coming from. An agent only gets paid when a deal is completed. If there are more buyers than sellers, the agents are going to be spending their time trying to court sellers. These deals will be taken to their tried and true buyers. This is probably not a good time for you to buy anyway.
Even if the table is turned and there is an imbalance with more sellers, the agents will not spend time with you based on a quick phone call. They get a lot of calls from people that are feeling a market out. Everyone tells them they are ready to buy. You need to convince them that you are ready.
Getting yourself access to the deals before they are mass marketed is important. Agents will tend to call the people that they know are ready to buy and are proven performers in the purchase process. Getting yourself on the top of the list is difficult to do. Until the relationship is established, steady contact needs to be kept. If they are not calling you with deals, you need to call them on a regular basis.
Loopnet is a great website with a lot of information. Most of the properties listed have been there for a fairly long period of time and are overpriced. Occasionally, there is a way to work these into deals. Keep in touch with the listing agents. Mention that you would be interested in talking to them if they get motivated with time. I kept in touch with an agent on a property for a year before we came to a deal. I ended up paying 20% less than they originally wanted.
Some of the best deals never make it to Loopnet. They are communicated through the circles and sold prior to a mass marketing effort. Some of the brokerages require that a all of the listings in their service go through the full process. These will end up on Loopnet. If the property is a deal, it will likely have a number of people bidding on it. I will usually (not always) try to stay out of the mix of buyers but may come back in once the original flurry is over.
If the deal is really good, you may need to join the fray. Then an offer needs to be made that may raise you above the level of the other potential buyers. As a starter, you can forgo the financing contingency and shorten the due diligence process. this is risky but can be minimized by working with the lender at an early stage of the game. If you have 3 weeks for the inspection, you need to get a fairly strong committment from the lender (be careful here, there can be a lot of deception). If not, dump the deal. I have actually gone so far as to offer a non-refundable deposit on the day the contract is signed.
Speaking of dumping deals. You don't want to do this too often. The sales agent should understand if you have a good reason to let a deal go prior to the expiration of the inspection period. They will have another opinion if you tie up deals and then bail out for no apparent reason. This is a quick way to lose the reputation and relationship that you worked so hard to establish in the first place.
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