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9 Key Tips For Investing In Apartments and Multifamily Real Estate - Winston Rowe & Associates
Winston Rowe & Associates, a no upfront fee commercial real estate finance and advisory firm has identified 9 time-tested tips to follow that can help you have more success with your apartment and multifamily acquisitions.
By: Winston Rowe and Associates
#1: Think Big
If buying a 5-unit apartment requires you to get commercial financing, which is more of a hassle, then why bother? I would recommend buying properties with at least 10 units. Remember that the more units you buy, the cheaper they are per unit. Also, Dave Lindahl has been quoted as saying, "It's no harder to manage 50 units than it is 10."
#2: Don't Choose Apartments by Default
There's nothing wrong with investing in residential apartments per se. I'm just pointing out that since most investors are already comfortable with residential property, they tend to look for apartments without considering the other types of commercial property, such as office buildings, industrial, mobile home parks, land, etc. Weigh all of these property types and choose your own niche based on whatever will help you reach your unique goals, regardless of your comfort zone.
#3: Learn the New Formulas
If you're buying houses, you may use certain formulas, like buying at 75% of After-Repaired Value, minus estimated repairs. Commercial property will have new and different formulas to get used to, such as Net Operating Income and Cap Rates. Learn what is considered good in your area and get familiar with them when making offers.
#4: Be Prepared to Spend More Time at First
Fight the temptation to get discouraged if you haven't done your first deal yet, or if you are spending more time per deal than your previous ones. Houses are so similar that it's easy to make a cookie-cutter system for buying and selling them. “When I begin looking for commercial properties, I was surprised at how long it took me in the beginning to screen deals and make offers” per Dave Lindahl, a real estate guru. Just remember that there is a learning curve, like with anything else, and that things will go faster over time.
#5: Be Prepared to Lose Due Diligence Money
After your offer is accepted, you have a period of time (just like with houses) to do your due diligence. You should get an appraisal, property inspection, and other tests and inspections required by law. The only problem is that these cost a lot more than they do for smaller deals. You might spend $5,000-$10,000 on a deal, only to find out you don't want to buy it after all. While this is always better than buying a bad deal, you should still be prepared for these kinds of expenses.
#6: Relationships Are Even More Important
Relationships with other investors, private lenders and consulting firms like Winston Rowe & Associates are important when investing in real estate, but they are even more so when buying commercial properties. For one, properties costing a million dollars or more are probably not within the financial wherewithal of most of us individually, so you probably have no choice but to get to know and work with partners. Also, many commercial properties are sold without being listing first, so the more people in your network who know what you're looking for, the more deals you'll find.
#7: Find A Funding olution In Advance - Winston Rowe & Associates
Commercial loans are a different animal than residential loans and in some ways better. The down payments needed are usually a higher percentage than loans on single-family houses, which means you’ll have to put more down (or get your partner to put more down). However, there is often no personal liability if the deal goes south, and they are more lenient about letting you borrow the down payment money from someone else. Nevertheless, before making offers, ask around and find out who the best lenders are in your area to use when buying commercial properties, as it may make the difference between qualifying for one or not.
#8: Winston Rowe & Associates Are Partners to Your Bridge to Wealth
Buying million-dollar properties is not something most people can qualify for on their own (in fact, getting a loan to buy a house is hard enough!) So make sure that you spend a lot of time finding private lenders or deal partners to help you out. A partner can provide the cash and/or credit needed to purchase a property, and you can compensate them by paying a fixed interest rate or a percentage of the cash flow or proceeds from the sale.
#9: Know Where to Get Tough Questions Answered
Lastly, it's imperative that you associate with experienced commercial investors who can answer questions that come up while you are evaluating properties. There's no sense in losing a deal or buying a bad property because you didn't understand certain environmental regulations or estimating what trash collection really costs. Know who you can ask to get fast answers when you need them, and make them your new best friends.
Winston Rowe & Associates has an excellent knowledge based investor resource for commercial real estate valuation and market analysis located at: http://www.winstonrowe.com/
Winston Rowe & Associates provides no upfront commercial real estate funding solutions in the following states.
Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, Washington DC, West Virginia, Wisconsin, Wyoming