Multifamily

Creating Cashflow With Apartment Wholesaling | Building Wealth

Creating Cashflow with apartment wholesalingCreating 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.

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Posted by aws - April 28, 2017 at 3:11 pm

Categories: Multifamily   Tags: , , , ,

How Do I Get Started Wholesaling My First Apartment Building?

Get Started Wholesaling My First Apartment BuildingIf 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.Get Started Wholesaling My First Apartment Building

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.

Get Started Wholesaling My First Apartment Building

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.

 

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Posted by aws - April 25, 2017 at 10:16 am

Categories: Multifamily   Tags: , , , , , , , ,

Buying An Apartment Building Beginners Guide

buying an apartment deal beginnersBuying 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”. 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.

Image Credit: Bigger Pockets

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.

buying an apartment building beginners

Whether the property is pretty or ugly, the value of the property, and your ability to influence 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.

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

Image Credit: Cincy Project

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.

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Posted by aws - April 20, 2017 at 12:52 pm

Categories: Multifamily   Tags: , , , , , , ,