BY LANCE EDWARDS— The most important part of multifamily investing is finding the deals. The person who controls the deals holds the “keys to the kingdom”. Every business has two core elements: marketing and innovation. With apartments, you are always marketing for three things: deals, money and tenants.
Finding deals is the biggest part of real estate. It is simple but it is not necessarily easy. It does require work and if you do it right, it actually becomes boring to use the system. You will have to sift through many chunks of coal to find your diamond in the rough. In many ways, it is a numbers game but you do not want to waste too much of your time evaluating the chunks of coal.
You need to nail down what exactly you are looking for. The number one thing you are looking for is a motivated seller. You are looking for an owner who is ready to move his property on very advantageous terms. You are looking for deals that have value play.
Value play is increasing NOI, increasing occupancy, and creating equity. The property you are looking at is under market and you can create quick value with it. You will discover that apartments are owned by entities such as LLC’s or limited partnerships.
Even if there are a number of people involved in the partnership, there is probably one person that is doing the most to tell the other partners to get out of the partnership and sell. That is the person that you want to get to. The important thing is not to be consumed with why somebody would sell at a discount.
Some reasons why somebody might sell at a discount are landlord burnout, a need for cash or poor property management by a third party. Again, the “why” does not matter; it has no bearing on the situation. Your job is to find people who are eager to sell at a discount.
The second thing you market for when pursuing multifamily deals is tenants. Marketing for tenants is what your property manager will take care of for you. But you have to be aware that if you do not keep those places full, you are not creating value. If your property manager is doing his or her job effectively, then your occupancy rate should reflect that.
The third thing you market for is, of course, money. There can be cash in the deal but it is an investor’s cash and not yours. Or there may be no cash in the deal when a seller does all of the financing.
Your ability to market for deals, tenants and money, will greatly affect the types of deals you find and affect your ability to move properties. Do not neglect the importance of marketing in your multifamily investing business.