How to find a good multifamily

Question

Hi every body,

As a new agent and after 6 successful transactions in the first 3 month of my new career as a Realtor, I am moving forward and want to find a multifamily for the investor I am working with in Houston TX.

I have found some in MLS with his criteria but before going to the properties I want to know how should I have numbers and comps and rent ranges for different units.

Does any one have any idea about having my reports and numbers to make sure that the deal worth spending time or not.

Thank you in advance

Gideon Sylvan · Answer

Does he have a price range?  How will he be buying?  You should eventually learn these things, but in the mean time, I would just set up an auto-alert and send him everything that fits that criteria.  If the cap rate is really high, then maybe go the extra step of partially verifying the numbers first.

As @William Yeh said, you should always do the due diligence, but you can do this after you know your client is interested in making an offer.  You should be able to obtain most of the information from the listing agent (or unrepresented seller), but you should also verify the actual book numbers as a contingency in the offer.

If you want to go the extra mile without spending too much time, add some notes before you send it over with a quick comment about the condition of the property (as seen from images).  Better yet, call the listing agent on every deal; not only will this get you more notes to share with your buyer, but it will help your name be remembered just a tad more when there are comparable offers.  Your buyer should like this, especially if he is working with other agents who don't go the extra mile.

Speaking of other agents, consider asking your buyer for a non-exclusive buyer's agreement or at least ask if they have any agreements with other agents in the area "so you know what not to send."  Holding deals back from a buyer (especially after you've been sending him great notes for weeks) and showing your a firm negotiator (with him, with sellers) should help.

William Yeh · Answer

@Ned Nav First off, the onus of due diligence should not fall on you, the agent, unless you have such a strong relationship with the seller that you don't believe they will sue you if the asset doesn't perform as you've suggested it will. From one agent to another, I can't stress this point enough.

That said, as an agent, you should help facilitate the deal and provide your input on the due diligence items provided, assuming you have the appropriate expertise. Financial reports provided by the seller are a good starting point but contrary to what @Danger Brown suggested, I would not take them at face value. They're a starting point from which to refine the financial analysis of the asset. Owners can easily pad the numbers to make an asset appear to perform stronger than it actually dues (ie. free rent or other incentives to lease up a property which won't appear on the pro forma)

Yes the tax return will be some indication of the actual performance of the asset but it's still not something you can completely rely on. Major items that WILL impact the new owner's financial results vs. the old owners include a new tax basis based on the sale price of the property (normally higher than the previous transacted price), deferred maintenance, changes in management, lease up incentives, etc.

Steps you can take to corroborate the numbers include comp sales, comp rents from property managers in the same area with similar units rented, inspections by licensed inspectors to determine useful life of major cap ex items, checking with county assessor/tax collector's office to determine new tax rate based on sales price, etc. This advice should really be provided to your investor but it's a good education for you the agent none the less.

Hope that helps and best of luck.

Gideon Sylvan · Answer

What is his criteria and what are his goals?

There's a decent chance that everything you found is not ideal, simply by the fact that it's still for sale.  A good deal will go fast as multiple parties compete (especially in an active city like Houston and with a property class that is owned by investors who also want to maximize profits), so rather than focusing on finding the perfect deal, find every deal where the numbers work and write offers as competitively as he will go.

A good investor (i.e. the kind you want as a client) should make an offer on anything they can afford that pencil's out.

To work this strategy, look at and run the numbers on every multifamily property that hits the market (at least once a day).  For every opportunity, look at the cap rate; if it's good verify it with your own numbers, which includes researching current rents (high rents with high turnover can be a trap, and low rents can be an opportunity to buy a discount); if the numbers are still good, send it to the investor.  Your goal here is to be the information provider, not the salesperson, since a good deal will often sell itself.

With this in mind, there are casual investors who will be happy investing in a stale offer if it is cash flow positive (i.e. profitable after all costs, including maintenance, projected vacancies, and property management), and there's nothing necessarily wrong with that.  Hence the opening question: what is his criteria and what are his goals?

Christian Hutchinson · Answer

I have a couple of Multi-Families in Metro Detroit. The first question, which is the biggest is? What is his goal?

Does he want Cash Flow or upside of sale? Is he trying to help out a down on their luck family member/friend, but still pull a good return?

Though they say the the current owner is a great source for the actual market, I have found the owners I bought from either couldn't leverage, or didn't know how to leverage technology to increase their rental price, and renter pool. I have a couple places, where the the previous owners, worked strictly on word of mouth, classified ads in the NEWSPAPER.  They failed to leverage CL, Facebook, Twitter, or Postlets(it posts your property on 30 websites by filling out one form: Zillow, Hotpads, Trulia, etc).  Owners who said they were having trouble finding one person at $500/month I found 4-5 people willing to pay $700/month.

Any multi-family make sure your roof and HVAC are in top condition, spare no expense. Its worth it. Same goes with Plumbing.  If the plumbing isn't done correctly spend the money to correct, its not worth the hassle. One problem multiples very quickly in a multi-family. I don't use coin operated machines, I charge $50 more a money to have a Washer and Dryer on each unit, its a luxury.  Make it known that there is zero tolerance for non-building residents to use the facilities.

If the Unit provides "additional storage" like say a 3 car garage, or some sort of barn/shed outside of the building, monetize it.

William Yeh · Answer

Hi Neda Navidnia . The best place to get numbers on a property is from the seller directly. You can always share your opinion on whether the numbers are realistic but there's no better source unique to the property in question than from the seller.

Danger Brown · Answer

During the due diligence phase the seller will be obligated to provide paperwork proving the income. This may include bank account statements, lease agreements, contracts with service providers (like snow removal or lawn mowing) ....ad infinitum.

Danger Brown · Answer

It is reasonable for you to take the numbers at face value. Just make sure they are not pro-forma. Or if they are pro-forma they should be labeled as such and you can provide both sets of numbers. Then once a contract is in place it is the buyer's responsibility to do due diligence where the numbers will be proved out before the checks are signed.

Christian Hutchinson · Answer

Try to find out is there any deferred maintenance.  Also, track if the rents are going up or going down, and how the units track with the area Market in general.

Neda Navidnia · Answer

@Christian Hutchinson He is looking for the cash flow and since he has a good experience in rehabbing, he can estimate any required repair cost or maintenance by just looking at the property. So I don't have any problem with that part.

My point is having numbers before showing him the property, as I have said earlier his desired cap is 7+. I want to know what questions should I ask the seller. I can ask other managers in that area about the rent and vacancy rate, etc.

He has set up a great system for his Property Management company, now he is using that for his single families and I believe it will work great for the multifamily as well. It includes advertisement, tenant portal, maintenance team, complete screening and background check. So I believe he has the ability to have bigger amount of cash flow in future. But right now I want a complex that has a great cash flow so that it can pay for its improvement and upgrading.

(Sorry if my English is not that good).

Neda Navidnia · Answer

@William Yeh I will keep reading your advice, I learnt a lot and I will use them all as much as I can.

It is absolutely helpful.

Thank you so much.

How to find a good multifamily

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