Creating Cashflow With Apartment Wholesaling | Building Wealth

Creating cashflow with apartment wholesaling. If you were talking about this with another real estate entrepreneur the conversation would probably revolve around doing more deals. A series of lump sum cash assignment fees occurring more frequently.

This would definitely be the case if you were flipping single family homes. The deals are simpler to do, they don’t take as long. But it’s different with apartment buildings.

Apartment buildings are income property. So 3-6 months after you wholesale a property to a new buyer, that investor (assuming they get straight to work on their turnaround plan) will soon be earning increased amounts of net operating income.

This creates options for you as an apartment wholesaler you don’t really have when flipping houses.

Your edge as an apartment wholesaler is to put extra time, effort, and emphasis on marketing and negotiating in order to assemble a lot of sellers with seeds of motivation in their ownership of the property, that then germinate and grow into a full on crisis that requires rapid liquidation of the property at rock bottom price.

Due to this being all you do, you can afford to put all your time and effort into identifying motivated apartment owners, and following up with them. This is how you get your double discount cash prices, and inordinately favorable (to you) terms for owner financing.

 

You Create Value

 

So even when you mark up deals with your assignment fee, they still stand out as a smoking hot deal in the company of all the other retail or mediocre listing prices, and investors start bombarding your phone, email, and LinkedIn inbox.

20 units, worth $1.1M fully stabilized. 55% vacancy, below market rents, needing repairs, you negotiate $405K with the seller, and start promoting the deal with your $50K assignment fee factored in, at $455K.

Before the week is out you have 15+ buyers you haven identified as “serious”; one in particular who is completely unfazed by whatever obstacle you put in front of him. He clearly wants the deal.

At this point you have some options in how you take your $50,000 assignment fee.

 

Creative Financing

 

You can take it as an all-cash payment, which is typical. But, you can also take it as a note; say, interest only payments of $417 per month, with a three-year balloon. You can take it as a combination; $20K cash at closing, a $30K note paying $250 per month with a four year balloon.

Whatever you and the new buyer agree to, whatever makes sense for the deal and both parties involved.

Usually, carrying a note for your assignment fee will be negotiated in as a way to lower the cash require the buyer needs to bring to the closing table, and thus a big plus for him/her. Part of the conditions for you doing that would be the note is secured by ownership units in the LLC, rather than sitting in 2^nd position behind bridge or other financing. So in the case of any default, there’s no messing around with foreclosure, or being foreclosed off.

Buyer doesn’t want to do that? Fine, just pay the entire fee in cash at closing. Your choice.

For the most though, your buyer screening will have netted you a serious buyer who is appreciative of your creativity and flexibility, is well funded and has no intention of doing anything except executing on their turnaround plan in military fashion to get the NOI up, so they can refi at the earliest opportunity.

 

 

You, A Banker?

So which position would you rather be in? The apartment operator who is running around every month fixing properties, leasing units, whipping tenants to get the rent paid in? Or would you rather be the noteholder, whose main concern each month the payment due them is paid in on time?

Sure it’s less money, but you are leveraging the time and effort of the apartment operator, who is doing everything they need to do to collect rents and make sure the property is a viable business unit … so the payment can be made to you on the first of the month.

Does this sound familiar?

It should. This is what banks do; create notes, let their borrowers work their buns off to make the money to pay the interest each month. Banks do it using other people’s money to make the loans. You are doing buy using another person’s property to create a value-add upside opportunity for an apartment investor

 

Bigger Deals, Bigger Payments

The example used here was a 20 unit building. Nothing changes when the property is a 100 unit, or 200 unit building, except the size of the note. $250 per month becomes $2,500 per month, or $4,000 per month.

Over time these notes add up, and you are developing some meaningful cashflow. You may have to take a property back here and there, but it’s transfer of ownership, not foreclosure. You get a second bite at the apple on the same property.

It is more efficient, and in the end, more profitable.

If you are looking at creating cashflow with apartment wholesaling, this is how to do it.

Original Post Here: Creating Cashflow With Apartment Wholesaling | Building Wealth

How Do I Get Started Wholesaling My First Apartment Building?

If you’re excited by the potential, but the big question weighing on you is, “how do I get started wholesaling my first apartment building”, don’t worry, this is well trodden territory. You have been snared by an insidious trap, but there is an answer, and a way out.

When it comes to wholesaling apartment buildings, there is more fear involved than wholesaling a house because … well, the numbers are bigger. The asking and selling prices are usually in excess of $500.,000. That’s out of the comfort zone of most beginning wholesalers.

The result is fear. Blind fear. The numbers way exceed your financial experience to this point, and your brain scrambles. It’s easier to look away and go back to where you feel in control.

Image Credit: Wikimedia

And that’s perfectly fine. In fact, it’s more than fine. It’s smart. Start where you are, build experience, and build your confidence. Keep it simple. Flipping houses is a simple process, that you at whatever level you comfort zone currently is.

Start where you are, but get started.

As Dwan Bent-Twyford notes, $10 is all you need to secure a house to flip for $10,000 or more:

Wholesaling Real Estate Step by Step

To make the contract binding, you have to leave a deposit with the homeowner at the time of signing. We typically leave a $10 deposit. This way, if we are unable to wholesale the property, we are not out a lot of money.

$10! Who would take that? Everyone! When we first started asking homeowners to take a $10 deposit, we thought we'd get kicked out of the house. To our surprise, no one gave us any grief.

If you say it like this: "We typically give a $10 deposit and close in 45 days. That won't be a problem, will it?" They always say, "Okay." The only reason a homeowner won't take $10 is because of the way you present it. Speak with confidence.

 

Image Credit: Wikimedia

As Dwan points out, wholesaling houses is very simple.

1. Find a bargain property and put it under contract
2. Build your buyers list
3. Negotiate a higher price with a bargain-hunter buyer
4. Hand both contracts to the closing attorney … close.

There are a few differences with apartment buildings due to their being income property, and larger in size, but in every way that matters, you are still following the above four steps.

The key is though … getting started.

In the past, what was actually not that long ago but today seems like a bygone era, the problem was a lack of information. In pre-internet times, learning there was such a thing as  a real estate ‘club’ was a revelation. ‘How do I get started wholesaling my first apartment building’ probably wouldn’t even be a question you’d ask.

Today, things have reversed themselves. Now there’s info overload, on every conceivable subject.

As Brandon Turner writes in Bigger Pockets, learning is great, but easing yourself into the real world of real estate is actually more important.

How to Start Wholesaling: Getting Past The Education and Into the Field

There are a million guru guides and programs that will give you the exact, step-by-step, process for talking with sellers, what to write on your bandit signs, etc. Yes – this stuff will probably work, but these are just the building materials delivered to your job site. The gurus claim “all you need to do is this simple 10 step process” but in reality – no two deals are the same. If all you do is follow the steps outlined by a guru – you’ll be lost in no time. You have to grow your knowledge, skill, and business techniques organically.

Important point***: You may not want to move on from single family to multifamily. You may find your niche as a rehabber, or just flipping a few houses each month (both provide 6 figure incomes). You’ll know when you get there.

If you wish to start wholesaling multi-family though, the key is to start small, keep it simple, and work your way upwards.

With a few house flips under your belt, negotiating a Master Lease-Option, or Owner Financing on an 8 unit would not present that much of a challenge. It is a slight step up in price range, though not a lot. You are also being introduced to the additional due diligence of multi-family, but with only 8 units you are not being overwhelmed by it.

Wholesaling Single Family Vs Multifamily

Importantly though, you can see how similar flipping an apartment building (albeit a small one) is to flipping a house. The main difference being the due diligence issues around tenancy and vacancies.

Especially in the case of a Master Lease Option, the financing is the MLO Agreement. All the new buyer needs to come to the table with is the Option Consideration and your assignment fee. They have 3-5 years to turn the property around and get financing.

Image Credit: Wikimedia

This is a best-case scenario for the investor. MLOs are very easy to find buyers for.

You may stick with small multi-family for a while. When you feel ready for the challenge, start looking for bigger properties. Start controlling the property with a Purchase Agreement in order to capture larger assignment fees.

With your market activity in small multifamily and growing experience and skills, when it comes time to raise private money for earnest money on a bigger deal, you will have a network of people to talk to about it.

Expand Your Comfort Zone

Just as you moved from single family to an 8 unit, your familiarity with 8-10 unit buildings makes looking at a 20 unit building seem like not that big a deal, and definitely doable. And from there, a 40 unit building seems like it’s now basically in the same ballpark as the 20 unit.

And so you progress upwards.

Make no mistake, you are pushing outside the bounds of your comfort zone every time you stretch for a larger goal, but in a way you can see as a challenge. The butterflies may be fluttering, but your brain doesn’t scramble.

How long will it take before you are flipping a 200 unit apartment building (with a six figure assignment fee)?

I don’t how long it will take. But I do know you will get there.

 

Source Here: How Do I Get Started Wholesaling My First Apartment Building?

Buying An Apartment Building Beginners Guide

Buying an apartment building beginners guide. No doubt, buying a multifamily property is a great idea to begin building wealth and cashflow for years to come. But if you want to make a success of your venture, there are a few things to bear in mind.

First, unless you want to be stuck managing an apartment property yourself for not much money, or worse, that is costing you money, you must identify a property that has “upside”
 Image Credit: Bigger Pockets

Upside is a term that basically means potential for increase in value.

Apartment buildings are income property, the amount of income they produce determine their value. So when a property has vacant units, below market rents, and deferred maintenance that may be causing good tenants to not want to live there, the property has “upside”, or potential to increase the income, and therefore the value of the property.

In his moving account, Michael Blank describes how saw the potential upside in his first deal:

How I Bought a 12-Unit Apartment Building with No Money Down (And How it Nearly Bankrupted Me…)
The seller was a widow who was slowly selling her deceased husband’s assets, including this building. She was motivated, but not super-motivated. My sense was that the purchase price would be at fair market value based on the financials on the building, but that this might be a value-play opportunity. I felt that if the rents could be increased from $500 per unit to $750, we could add significant value over time.

The “value play” mentioned is the presence of the elements, like below market rents, vacancies, that give you the ability to increase income when you correct them. It is important to buy properties with value plays as it gives you the ability to have a low cost basis, and strong cashflow 12-18 months after buying, putting you (and the property) in a strong financial position.

Second, you want to be under no illusions; buying income property is an exercise in mathematics. Yes, your character will be tested, and you’ll need oversized portions of faith to see your project through, but unless you have a keen grasp of the numbers of the property, you won’t get very far.

Whether the property is pretty or ugly, the value of the property, and your ability toinfluence it comes from the numbers the property generates and how you make them go up or down, respectively. An apartment building is a business, so you have to judge it, and tend to the issues affecting it by the numbers it produces.

Image Credit: Cincy Project

As Jay Jenkins writes in his article for The Motley Fool, the P&L and Rent Roll are key to understanding this:

Buying an Apartment Complex Is Easier Than You Think
... when evaluating an apartment building, you will want to review both the property's profit & loss (P&L) statement and a document called a "rent roll."

The P&L is obvious -- just like you'd want to review a rental home's historical income and expenses, you also need to see the apartment building's profits over time as well. Don't just accept the P&L given to you by the seller as 100% accurate. Review it with a critical eye and make sure that the profits haven't been inflated to make the investment look more attractive than it really is.

The rent roll may be a new concept for beginning apartment investors. The rent roll is a list of all the current tenants with a summary of the terms of their lease. You'll see that Unit A is a two bedroom leased for $1,500 per month to John Doe. You'll see that Unit B is a studio apartment leased to Jane Doe for $800 per month, and so on for every unit in the complex.

As a beginner to apartment investing you may be thinking more about how you are going to get financed, or find a good broker, property inspector, real estate attorney to help you. Without a doubt, those things are important. Hell, they’re part of the process.

But whether your first foray into multifamily investing is a cash-flowing success, or a demoralizing failure depends on these two mindsets, and adopting them before going out and buying a property.

Buying an apartment building is an exciting time for beginners. They are the first steps on your path to building potentially great wealth. Make sure you take the right steps. Buy property with value plays and legitimate upside, and keep a keen eye on the numbers ... always.

Article Source Here: Buying An Apartment Building Beginners Guide

How To Find Cash Buyers For Apartment Buildings

 How to find cash buyers for apartment buildings. It’s the second most important part of the process, right in there behind finding a smoking hot deal. It is where the money comes from to close the deal, so it’s definitely importantHow to find cash buyers for apartment buildings. It’s the second most important part of the process, right in there behind finding a smoking hot deal. It is where the money comes from to close the deal, so it’s definitely important.

Too often though, ‘important’ gets equated to hard, or difficult.

If you have done your work properly in finding and negotiating a deal worth doing, and not cut any corners, finding a serious buyer with cash who wants to close asap, is almost a formality. There is work involved, of course, but the right tools and process flush out an end-buyer pretty easily.

How To Build A Buyers List

For the sake of example, you have a deal coming together. The seller is motivated, occupancy is 50%, rents haven’t been raised in 5 years, there is deferred maintenance, you have sent your LOI to the owner and after a bit of back and forth he signs and faxes you a copy of the signed agreement.

The property is in Lawrence Township, Indianapolis.

Time to get going with finding a buyer. Faxed LOI in hand and hard copies in the mail, this is the perfect opportunity to reach out and make contact with potential buyers.

So think, if you have a deal in a certain part of town, who are the people most likely to want to buy it?

Well, other apartment owners successfully operating apartment buildings in the same area.

Wouldn’t you agree?

Key word: “successfully”.

They already know the area, have done the research, and are comfortable owning property there. Owning another property nearby their existing property increases the return on their original research,  helps create synergy with marketing for tenants, and builds their brand.

Plus buying out your competitors is always a good business move.

So a good sized list of high probability buyers are right there in your immediate vicinity. All you need to do is contact them, and ask them if they’re interested. (more…)

Originally Published Here: How To Find Cash Buyers For Apartment Buildings

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.

To 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 distress 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

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.

Best,
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’.

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

Best Markets For Apartment Deals When The Bubble Bursts

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.


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.
 
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?

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: