Tuesday, February 21, 2017

How To Find Distressed Multifamily Properties | Multifamily Marketing Funnel

How to find distressed multifamily properties. I hate to disappoint you, but you won’t find these on any list.

Good deals, deals that are really “deals”, deals where there is a healthy profit for you, are a needle in a haystack.

hHow to find distressed multifamily propertiesTo really ”get” this reality, grab a list of absentee apartment owners and start calling them, asking if they want to sell. See how long you last.

The deals are there. But where? Will you keep calling until you find them?

The answer is “no”, you won’t. Unless you love confrontation and rejection, it’s just too painful.

Having a system for lead generation and lead conversion is how you find distressed multifamily properties, develop profitable deals, and extract the needle from the haystack.

The System Is The Solution

Before setting out on your quest to put a smoking hot deal under contract, bear in mind, there are forces arrayed against you whose aim is to achieve the exact opposite; that is, to get you to pay more than you should.

There is a whole industry set up to assume you are the dumb money. So you have to be smart.

Profitable deals come from motivated sellers, people who don’t want their property, and want to end their ownership of it, so they can be free of the problem the property represents and can move on with their lives.

It’s important to realize, a seller only reaches this state after every other option to get a higher, usually unjustified, price has been exhausted. There is a lot of denial and magical thinking the seller indulges in before accepting the reality they will not get what they want, and (god forbid) have to lower their price, and/or be more flexible on terms.

Hand Me That 2 by 4

As the buyer, spending time on sellers who are not dealing with reality is time completely wasted. You want only to be spending your personal time and attention on a seller after they have been slapped around by the market. Ideally, right after they have been smacked up side of the head with a 2 by 4 and their ears are still ringing.

For example, after 18 months on the market the property has fallen out of closing for the third time, the REO manager responsible won’t meet his numbers for the quarter and his job is on the line.

Or, two years after first making contact with a seller, you follow up to touch base about a cash offer you made that was originally deemed “insulting”. The then vacancy rate of 16% has recently jumped to 41%, the seller is suddenly struggling with negative cashflow and non-paying tenants.

The fourth or fifth follow up call is a very different conversation to the first contact where you gathered information and floated the initial offer.

In both cases, the deal wasn’t found, it was developed.

Situations Change WIth Time And Circumstances

The needle, to continue the metaphor, is found only after all the hay has been blown away by time, dumb money, and retail market activity.

How do you get to the needle, or needles?

By developing a lead generation system that identifies all potential deals (i.e. properties with value plays) in the market you are working in, making your initial offer, and following up until the seller has either sold to someone else, or sold to you.

So what does this look like in reality?

Step 1. Generate leads. This is creating the core list of properties that have the buying criteria that would make for profitable deals if/when you get your price/terms.

If you are using a commercial broker you would be calling on every listed property, identifying prospective deals, and getting the broker to send you unlisted deals as well. Of all of these listings, you identify those that meet your buying criteria.

If you are using direct mail you would be obtaining a list of all apartment buildings in the county you are working. This can be obtained by contacting the County Assessor and asking for a spreadsheet of the multifamily property tax roll, which they will send to you free of charge. If you are willing to pay a few dollars you can use a service like ProspectNow, from which you can create a list of the names and mailing addresses of the property owners, along with their phone numbers. You can then mail a letter or postcard to the list, or a section of the list, once every three months.  Each mailing will produce a number of calls from apartment owners interested in selling their property. On each call you screen the seller and the property for your buying criteria.

If you are cold contacting distressed apartment owners, you would be looking for signs of hHow to find distressed multifamily propertiesdistress so you can choose properties to visit and walk into the leasing office, asking to speak to the owner. You would build your list of prospects with, properties in the county you are working that have low star ratings and bitter tenant complaints on websites like Apartmentratings.com, 5+ unit properties with mortgages in default, or in foreclosure, 5+ units with property taxes in arrears, boarded up properties you notice while out visiting owners of other apartment buildings. For properties in all of these situations, you visit the property, talk to the owner, get information about the property and the owner’s situation.

Step 2. Do deal analysis. For any lead you generate via a commercial broker, direct mail, or visiting the property, you get the property information, fill out a Property Information Worksheet, and figure out what price/terms it would make sense for you to pay for the property in its current condition. If you own the Apartment Wholesaling System you have a process for doing this. If you are not yet a Member, here is deal analysis in broad strokes.

  1. Get the information about the property, including number of units, unit mix, unit size, vacancy rate, individually metered, master metered, current rents, current expenses, cost of repairs needed
  2. Calculate current NOI
  3. Divide NOI by Market Cap Rate to arrive at current business value of the property
  4. Calculate stabilized NOI using market rents and market vacancy rate
  5. Divide NOI by Market Cap Rate to arrive at stabilized value of the property
  6. Use the Cap rate approach or the MAO formula to arrive at an offer price, depending on current vacancy rate, NOI, and level of repairs needed.

Step 3. Make initial offer (Letter Of Intent) to the seller
. After doing deal analysis on a property, you have an offer price and terms you can present to the seller.

In making your offer, the basic objective here is to:

  1. let the seller know the detail of what you can pay, and the terms
  2. prick the bubble of the seller’s unrealistic notion of what their property is worth. AKA: “smacking heads” with the seller (remember, they want you to be dumb money)
  3. reorient the seller’s idea of what he/she can expect to receive for the property, at least from a serious buyer like you
  4. place a flag in the ground of where the market is for this property.

If dealing with a commercial broker, the LOI is submitted through them. Given the price and terms of your LOI are going to be significantly less than the asking price, you will get an immediate return phone call from the broker, either enquiring about the offer and why it is so low, or trying to get you to raise your offer to be more in line with the seller’s asking price.

It is important you don’t engage the broker in their mindset. His/her interests lie in avoiding acknowledging what the property is really worth (i.e. your price), and trying to get you to do something against your interests (i.e. pay the asking price).

Your Frame to Broker, “I’m the Prize”

In a neutral tone of voice, simply inform them, “this is what I can pay based on the information I have.” If the broker gives any pushback, you could elaborate slightly to the effect of, “I know the seller wants to get full price, but this property’s got significant problems, and from my standpoint, being the one who’s  going to own those problems as soon as we close, the asking price isn’t justified.” If broker continues to talk, simply say, “Look. I’ve made a good offer. I’d appreciate it  if you submit my LOI to the seller.”

If dealing direct with the seller, you are usually untangling a mess, so the situation varies. Sometimes you are dealing with a single owner, sometimes partners, sometimes multiple owners who are not talking to eachother.

Acknowledgement as Oxygen

¨How to find distressed multifamily properties

The overall best approach is to adopt a problem-solving posture while gathering information. You show concern and interest in the seller personally, allow them to vent the frustrations associated with the project that may have built up over the years. Get it all out. With a relationship of trust between you and the seller, they feel secure in speaking freely about the real causes of problems and what is going wrong with the property.

With accurate information about the cause of the problem, you are able to craft an offer that addresses the problem(s) directly, and provide a real solution to the seller (and partners).

***Important point: a ‘real solution’ may not involve cash, or high price. When the seller’s problem is genuinely solved, and emotions are acknowledged, issues addressed, the property becomes secondary. When everyone feels they are being treated fairly, and have what they need to move on, the deal comes together, and closes.

This is simply the most effective way to have your offer received in the most favorable light. But also, when there are partners unhappy with eachother, or not talking to eachother, to have one partner, or trusted representative be an advocate for your offer.

Ultimately your objective is to get your offer in the hands of all the owners so they have it for their consideration.

Granted, their first reaction will be to sniff ond snort at it, or to throw it back in your face, but that’s their business. Your job is to get yourt offer into their hands.

Step 4. Follow up on your offer.

If the seller is genuinely motivated, they have to sell … to someone.

Your initial offer may be sneered at, dismissed, demeaned, flat rejected, ignored.

But … if there is a breakdown in communication among the owners, and the property management is suffering, at some point in the future the property will go into foreclosure and the owner’s investment will be lost.

It could be the previous owner died, and now in probate the management company is milking the property, while at the same time vacancies are increasing, deferred maintenance is piling up. Income is vanishing … foreclosure looms.

Tax credits expire, divorce, illness, there are many situations that result in owners taking their focus off property management.

Disciplined, rigorous property management is what creates maximum income and wealth in multifamily properties. Once the emphasis is taken off property management, the property enters a downward spiral, that, once begun is hard to reverse.

The one certainty is though, if the owner(s) do not address the situation, he/she/they will lose the property.

Deals Are Created, Not Found

So for your apartment wholesaling marketing funnel to be effective at producing deals at the low prices and/or crazy good terms that make cash buyers clamor for the property when you ring the bell … following up on your initial offer is critical.

It doesn’t have to sophisticated, or artful, you simply have to do it.

It is as simple as an email, phone call, or letter.

A contact management system is critical for making follow-up happen. There are the classic apps like ACT!, or apps like Salesforce.com. If you use ProspectNow, it has a contact management function included.

Initially you may need to do this yourself, however after your first deal, or whenever you can afford it, this is definitely work to assign a VA. Because:

  1. It is work that doesn’t require your level of skill to do
  2. Your time is better spent on higher dollar activities, like, negotiating with sellers, closing deals in process
  3. If you make it someone else’s job, someone who will be fired if they don’t do it, it will get done.

The content of the follow-up contact is very straightforward. It’s purpose is to simply put you back on the radar of the seller, and remind them of your offer. It can be as simple as the following:

Hi James,

This is Ben from Schumpeter Capital.

Just a quick note to touch base on the 88 unit on 25 Pitt St, Sherman Oaks. Is the property still available?

If so, I’m still interested in buying the property. If you remember, I made a cash offer on Feb 2, 2017. I’m still interested in buying the property for cash.

If the property is still available and you are still interested in cashing out of the property, give me a call. I’d love to talk with you.

Looking forward to hearing from you soon.

Ben Ker
Schumpeter Capital
(310) 555-1212

If you made an owner financed offer, stress ‘getting out from under the property’ instead of ‘cashing out’.
how to find distressed multifamily properties

Vary the media in which you send the message. Follow-up #1 may be a phone call, #2 may be an email, #3 may be a phone call, #4 may be a letter, #5 may be an email, #6 may be a phone call, and so on. The point is, do them. Make them happen.

Your VA should have phone skills and be able to make a certain number of calls every day. After a while you should expand to two, (or more) VAs manning your Follow-up Team, one doing the computer work, one doing phone calls.

So your Follow-up Strategy is simple.

  1. Identify motivated sellers with properties that are “deals”
  2. Present the initial offer
  3. Follow up with all sellers you have presented offers to
  4. Keep identifying deals and adding them to the follow-up list.

The end game here is you have identified every property in your target market that is (at your price) a “deal”, and are periodically “pinging” sellers, waiting them out until they are ready to sell.

You don’t compete with amateurs, or dumb money that gets lured into paying too much. Those deals, for the most part, fall out of closing, helping sellers along the way to their breaking point

You simply wait.

When the seller is ready, and sees it’s, a) lose the property, or b) sell to you … you get a call. Or, you are greeted happily, like a long, lost friend next time you connect with a follow up phone call. It is comical sometimes, the difference in attitude of the seller to your initial offer, to the follow up call six or twelve months later.

(The market is not kind to sellers in denial.)

Past sins are forgotten. Your deal is now on the table.

I hope you can see, having a steady flow of smoking hot multifamily deals to wholesale (and collect fat assignment fees from) isn’t about being a supernatural negotiator, or a real estate genius. Rather, it’s about being systematic, and having a lead generation and lead conversion system that identifies and develops deals, to your exact buying criteria in a predictable, systematic way.

This is the way of the successful apartment wholesaler.




Article Source Here: How To Find Distressed Multifamily Properties | Multifamily Marketing Funnel

Monday, February 13, 2017

Best Markets For Apartment Deals When The Bubble Bursts

best markets for apartment deals So when prices do plummet, where do you want to be buying (apartment buildings)?

Finding the best markets for apartment deals is always top-of-mind for the apartment wholesaler. Life is easier, deals go through. But … there’s a crash coming in the real estate market.

Soon. And everything will change.

In fact, it’s overdue, it should have happened already. Since 2000 the money printers at the US Federal Reserve have been injecting liquidity into the economy, artificially inflating real estate prices, really kicking into high gear in 2009 with QE (“quantitative easing”) to stave off the market correction that is trying earnestly to happen.

Where are we today?

If you need a sign, 220 Central Park South, an apartment in NYC is selling for $250M, and has a buyer. Think about that for a second. It is more than double the previous most expensive NYC apartment sale. It may be a signal the run-up in prices that has been going unabated since 2009 is nearing it’s end.

Market tops are always hard to pick. Everyone is used to how things are, and no-one wants them to end. But here we are at the tippy tip top of this real estate bubble market. Prices are incredible, and there is simply no connection to any fundamental economic forces related to demand that would cause house prices to increase further.

The “only” thing keeping real estate prices where they are is the determination of the Federal Reserve Bank to keep interest rates artificially low by printing money.

Before too long, that won’t work either … and down we go!
Where the demand is, of course. But where is that?
Well, bubble prices have already started an exodus from overpriced cities and rental markets to more affordable areas.
Who is moving and where are they moving to? United Van Lines gives us some insight.
Retirees are continuing to move to the Mountain and Pacific West. The Western U.S. is represented on the high-inbound list by Oregon (67 percent), Idaho (65 percent), Washington (58 percent), Nevada (58 percent) and Arizona (57 percent). Of moves to Oregon, the highest ranking Western state, a new job or company transfer (53 percent) and retirement (19 percent) led the reasons for most inbound moves.
The Southern states also saw a high number of people moving in with 53 percent of total moves being inbound. United Van Lines found the top reasons for moving south included company transfer/new job, retirement and proximity to family.
The Northeast continues to experience a moving deficit with New Jersey (63 percent outbound), New York (63 percent) and Connecticut (60 percent) making the list of top outbound states for the second consecutive year. Pennsylvania (56 percent) also joined the top outbound list this year.
Pretty interesting! So according to United Van Lines moving statistics, the top 10 states people are moving to are:
Moving In: The top inbound states of 2016 were:
  1. South Dakota
  2. Vermont
  3. Oregon
  4. Idaho
  5. South Carolina
  6. Washington
  7. District of Columbia
  8. North Carolina
  9. Nevada
  10. Arizona 
… and the top 10 states people are moving away from are:
Moving Out: The top outbound states for 2016 were:
  1. New Jersey
  2. Illinois
  3. New York
  4. Connecticut
  5. Kansas
  6. Kentucky
  7. West Virginia
  8. Ohio
  9. Utah
  10. Pennsylvania
So, knowing the states where there is currently increasing demand for housing is probably good enough information by itself. Just contact a broker in Souix Falls, SD, Charlotte, NC, or Cour d’Alene, ID, and you will have deals with plenty of buyers.

But there is a huge, once in a generation real estate market crash looming. If you recall, in 2008 there were deals everywhere, and it stayed that way for 18 months, until Fed Chairman Bernanke decided to halt the natural market process of deleveraging that was under way, and opened the money printing spigot with QE. The natural clearing out of all the bad loans, the expungement of all of the bad decisions, bad judgement, bone-headed greed, and the death of the companies that made them, that takes place when a market is allowed to take it’s natural course … was interrupted. So prices came down only 34% off their 2007 peaks, instead of being allowed to fall as far as they needed to before being met by countervailing demand.

So in 2017, or 2018, whenever the downturn begins, the correction in prices will be roughly “twice” the 2008 decline. Take a look at the Standard and Poor’s Case Schiller US 10 City Index, with levels drawn at where prices were when the current bubble began, courtesy of Harry Dent and Dent Research.
best markets for apartment deals

As Harry Dent points out in Real Estate: The Downside Risk in 20 Major U.S. Cities:
You’ll notice this bubble had started to burst with a 34% crash during the subprime crisis, then ticked back up when the Fed and central banks around the world decided to inject our markets full of crack (read, quantitative easing).
So when this bubble bursts, for the final time this round, we’re looking at returning to either the 2000 or 1996 levels – 1996 being the worst scenario.
OK, so depending on where you believe the Bubble began, in 1996, when Greenspan abandoned his Sound Money beliefs and fired up the printing press to counter the Mexican Peso Crisis, or in 2000, where the trifecta of Glass-Steagall repeal, derivatives unregulated by Mega-Bozo Treasury Secretary Larry Summers, and Greenspan responding to the Tech Bubble burst by stepping up the money printing further, all came together, where prices stop falling in the coming crash will be at one of these two levels.

But this chart is showing data on house prices.

Apartment building prices rise and fall in a reciprocal relationship to house prices. When house prices fall because fewer people are able to buy them, multifamily prices rise because there is increased demand for units. People have to live somewhere. If they can’t buy a house, they have to rent.

So bearing this in mind, it would be useful to know which cities are set to see the biggest declines in house prices, and see if any of those cities are in states people are moving to.
The combination would give an apartment wholesaler some pretty healthy markets to work in. Plenty of deals, mainly REOs, and plenty of buyers, investors happy to center their investment activity on rental markets with rising demand.

According to Dent Research the following cities are set to see the biggest declines in value.
best markets for apartment deals 
Of these cities, Washington D.C., Portland, Seattle, Phoenix, Las Vegas, and Charlotte are also in the Top 10 Inbound States noted by United Van Lines above.

At some point in the coming 24 months there will be a sudden, wrenching, value-destroying real estate market crash. When that happens, these are the six markets that, in my humble opinion, will provide both the biggest opportunities, and the best market environment for wholesaling apartment buildings.

Plenty of rock bottom price deals, and plenty of serious cash buyers.

OK. So what now?

Baron Jacob Rothschild commented, “I made my fortune while selling always a little too early.”

Meaning, selling ‘near’ the top is good enough, while having stores of cash to buy at the market bottom is essential. If you own property you don’t plan on holding for the rest of your life, now would be a good time to dispose of it, convert it to cash at peak value.

After a full deleveraging, home prices won’t be returning to 2007 highs, probably ever. Deflation is what lies ahead, not inflation. And in a deflationary environment, cash, and things that produce cashflow are what hold value.

I like the lump sums of cash that come from wholesaling apartment buildings. I also like the cashflow that comes from owning Class C apartment buildings.

How about you?

Monday, February 6, 2017

How To Find Multifamily Deals Others Can’t See

A little appreciated but highly effective way of uncovering apartment deals to wholesale is, wait for it … door knocking. That is, walking into the leasing office of an apartment building and asking to speak with the owner.

I know, just reading these words, you’re already dismissing the idea. Cold hard reality? For working your local market this is one of the most productive things you can do. For a number of reasons.

1) When you walk into the leasing office and ask to speak to the owner, and then start speaking with the owner, you uncover situations that do not show up anywhere else. The owner knows the property like no other, and he/she alone knows when there is trouble brewing, and if selling now may be a good idea. There may be partner trouble, the death of a principal, foreclosure looming. Previous to any legal notice, the only signs of any of it would be the stress lines on the owners face. When you knock on a troubled apartment owner’s door; a) he/she sees you as a godsend, b) this is your motivated seller and no-one else’s.

Here’s how this conversation might go:

Saturday, October 22, 2016

6 Tips to Maximize the Value of your Apartment Investment

One thing I like most about apartment investing is that it gives any investor
the ability to have a solid cash flow via multiplied profits. Additionally, I
want to find a way to increase those returns and ultimately, increase the
overall value of the commercial property. How can I do that? Using the concept
of forced appreciation, investors can make low- to no- cost changes and
receive huge returns. Here are a few key ideas to maximize the value of your
multi family real estate investment.