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🔍 Buying an Apartment

Brokers

The make money when you close. A lot of it. Broker takes about flat 150,000 for above 8 million. Don't retrade them, and convince them you can close. We once got a property $150,000 less than the top bid because we were local and had several units in the area already.

You can get the short list by looking on CoStar for whoever’s done the most transactions in your area.

Questions you should ask Broker
  • Volume
  • Successful closes
  • Years of experience, and in apartments
  • Current number of listing
  • How do you get your deals
  • Do you offer pocket listings
  • Stage of local apart market
  • Specialty
  • Fees
  • Difference from other local brokers
  • References Flex
  • Previous experience
  • Verbal commitments from passive investors
  • Qualifying for financing
  • Other businesses
  • Sell team members
  • Consulting fee 150/hour even if they don't find a qualified deal.
  • Follow up on the brokers 10 most recent listings
  • FOLLOW UP
Questions you should answer
  • Who's our property management company
  • How many units do we manage
  • Local?
  • Have you purchased an apartment building before
  • Types of deal looking for
  • Which markets
  • How will you fund
  • How did you find me
  • Exclusive agreement?
  • Expectations
  • Bios of you and partners

Property Managers

These people help you make money, but they can also gank you for money. They become more professional after 100 units, or go in house. They take any where from 3-10% depending on your size. You can run your own but they only get profitable after 6,000 units. (Glenn Gonzales)

Double check their financials and check to see actual cash on hand. Visit the property by surprise every once in a while. Check to make sure they aren't taking kick backs from contractors for projects, trust but verify with a 3rd party. (Chris Tao)

Questions to ask PM
  • advise on neighborhoods
  • proforma on how they could manage -
  • locations of prospective properties based on business model -
  • same time as broker search -
  • want someone that does more than 1000 -
  • how many do they own, maybe even joint venture -
  • concentration on class of property -
  • due dilgence services? -
  • success with value add -
  • renovation management.
  • Status track.
  • Who manages contractors.
  • Invoice/bid verification.
  • Who approves work.
  • Fees -
  • properties -
  • special training -
  • online reputation of property -
  • fees for over 100 is 3 to 5% of revenue. % based on gross rents or collected total income. what is separate from management fee -
  • software -
  • turn over times -
  • payment methods -
  • cell phone number -
  • distinguishing -
  • current references similar to my building -
  • confirm underwriting US -
Questions you should answer
  • Who's our broker -
  • Have we purchased apartment building before -
  • Type of property interested in -
  • Working with other property management companies -
  • Expectation of their duties -
  • how do you underwrite -
  • bios of partners
Extra due diligence questions

payroll, round if out of range maintenance, contractors, turn over, advertising, admin, utilites, management fee, ask prop manager - taxes, adjusted after a sale - insurance

💡 If you assume a loan, you can delay property reassessment by your local municipality. We encountered this recently in Jacksonville Florida and managed to delay property tax increases which is extremely valuable while you're doing value add.

If you assume a loan, you can delay property reassessment by your local municipality. We encountered this recently in Jacksonville Florida and managed to delay property tax increases which is extremely valuable while you're doing value add.

Major rehab

Call your city first and ask what’s needed, especially when adding units.

Lending

Don’t colliers as your appraiser. Ask the bank to use a different person just in case

Valuing (TODO move this to underwriting)

Alright with multifamily at this point the real estate has become a business. Like any business its going to be valued as the cashflow and a multiple. This is just standard industry practice in any practice. So what you need to do is find out how much money its worth and its multiple. The golden equation you should examine.

There is a great chapter on this for the ABC of investing that i would struggly recoemnd.

NOI = Income - Expenses

NOI/Cap Rate = Price

You can find the cap rate on google. What can’t you find on google?

Five Step property Evalutation

  1. Verify property income
  2. Verify expenses
  3. Determine net operating income
  4. find the cap rate and valuation
  5. calcualte the loan payment and your profit or cash on cash

Step 1: Verify Property Income

Income this is very straightforward. You ask the broker for what the current rent rates are.

Again, CURRENT, not future or pro forma. Realtors will try to sell you on potential growth, while great to know your opportunity, be discplined and use current valuations.

Try to avoid retal purchase at all costs. buying right means buying at wholesale. when you buy wholeale, your mortgage is lower and right out fo the gate that means you are maximizing your profitability on the property.

LOOK AT ACTUAL RENTS OF THE PROPERTY AND DO NOT LOOK AT PROJECTIONS

Now for expenses

For vacancy rate: look atht vacant rate of the area and use that

Step 2: Verify Expenses

Expenses are the second important valraible to consider. Unlike the income claculation where our goal was to be 100% on the money in terms of accuracy, with expenses the goal is to get reasonably close. Factor in:

  • Taxes
    • You can go pull this up on the site
  • Insurance
    • Grab a quote, dont cheap out.
  • Replacement reserves
  • Maintenance
  • water/sewer
  • Garbage
  • landscaping
All wiki pages