How to choose a multi-family realtor?

Question

Hi, I'm new to the site, although I've been lurking for awhile. Later in 2016, we plan to buy our first investment property. We're shooting for a small apartment building in the 8 to 14 door range. That being said, we don't actually have a clue what the cost is going to be like in our city (Calgary). That's why we're getting hooked up with a realtor so that we can watch the market and learn more about it over the next 9-12 months.

The residential realtor that we've used for years (and think is great) is giving us a list of 2 or 3 realtors that she recommends that specialize in this sort of thing, and we plan to go for a coffee and interview each one. Besides emphasizing that we are numbers driven investors, is there anything else we should be looking for in a commercial realtor? Personality is important, because we plan on having a business relationship with this person that will span many years. Any suggestions for other qualities a realtor should have, or questions that we should be asking would be very welcome. Thanks!

Roy N. · Answer

Account ClosedYou want to find yourself a reputable commercial broker who's area is commercial apartment buildings of that size range. Most residential real estate agents will be worse than useless when you are hunting big game.I would also start meeting with banks, local credit unions and other lenders as the commercial financing is different than residential mortgages. Commercial lending units with many of the bigger banks won't want to bother with deals <$1M - $2M in size, so start hunting now for someone who will happily play in the $500K - $1.5M range.

Joel Florek · Answer

Account Closed So far I have never met a realtor in my area that understands what a good investment property is from a bad investment property. That being said, I would be sure you know what your criteria is for defining a good rental property and pass that criteria to your realtor and tell them to get to work and find you deals that match that criteria. Items that may be on that list could include cost per unit, location, amenities like covered parking, or sub metered utilities. You could also discuss the needs for cap rate with financial data. When looking at a multi family property, before you even get to walking into any of the units you need financial data and only a quick drive by. If the numbers look compelling enough then seeing the units to view value add opportunities is the next logical step. If you don't get specific about the criteria, your realtor is going to likely lead you down a winding road of "investment properties" that could be very poor financial decisions. With all that being said, if you can find the 1% who know what to look for in investment properties then you may be in for a great experience. Regardless, have the criteria sheet ready to go!

Account Closed · Answer

@Joel Florek I've heard this sentiment a fair bit concerning realtors, they often think it's a good deal, but fail to dig deeper other than making a few comps with neighboring properties.I just finished reading Ken McElroy's ABC's of Real Estate Investing, and need to study more on the valuation of such a building. We are definitely hoping to find a diamond in the rough - something that we can upgrade to gain forced appreciation. And it's a great idea to run the numbers first before taking a closer look at the property. I think without the numbers in place first, it would really be easy to make a decision based on emotion instead of reality. I hadn't thought as far as making a criteria list - another great suggestion. At this point, this building and its features are really just an amorphous blob of ideas floating around in my head. I'm going to get pen to paper and start defining my criteria. I think this will also help pinpoint the neighborhoods that we'd like to own in.

Samuel Sedore · Answer

I work for Keller Williams and it is a great company, but I would recommend a brokerage specializing in Commercial realty. Colliers is usually pretty good. Most residential realtors won't know there ass from there head if you try to get them in on a commercial over 8 units.I would ask for a track record, look for a realtor who owns some themselves. You want a realtor who doubles as an investor.

Cary P. · Answer

Another thing to consider with your realtor is current rent roles vs pro forma. If you aren't on solid ground with current rents, then it isn't a good investment. If you aren't breaking even until pro forma rents are captured, then you're sunk. Your REA should also have a great inspector and point out obvious maintenance issues - not just deferred items, but items that might be coming up soon - how old are the central systems? Roof, boiler, furnaces, windows, plumbing, electrical, etc. Also, how are you planning on managing the property? By yourselves or with a PM company? Accounting/bookkeeping, collections, evictions, maintenance, etc.

Jeff B. · Answer

I have found that Keller Williams has suburb brokers and agents.Use acronyms an expect them to know what you're talking about.Start talking in terms of GSI, ROI, CapRate and GRM and see how the agent reacts;what Cap Rate is normal locally and is the GSI hi or low?If they whence and start babbling non-sense, move on.Do you get many 1031's and which accommodaters do you prefer?ask about MFU inventory (you need to know what MFU is before you ask!)ask about MFU 2-4 DOM for the area (days on the market)

Joel Owens · Answer

Marcia you will know pretty quickly if the broker or agent is full of bull.Commercial brokers and agents in high demand do not need to sell anyone on anything. Client is first and money is secondary although a broker will run an efficient profit model and business.Believe it or not 1 million in commercial is like a 50,000 house in residential. Local banks mainly fund that kind of thing.Ask the commercial broker if they are an investor themselves? It's one thing to sell an asset but quite another to also own properties and truly understand the risks and rewards and share real experience with your clients.

William Hochstedler · Answer

Account ClosedI would also recommend talking to property managers. Do they require a license?A good PM should understand market rents, individual neighborhoods, and common lifecycle issues. They might even have a client looking to sell.Good luck.

Cary P. · Answer

I bought one property for about half price where the rents reflected the neglect. Because of the city it is in, I did not have the luxury of 12-18 months, but I did not know this during purchase - I blame that on a number of factors: wrong REA, not having done enough research on the city I was buying in, and thinking I could be hands off. I've learned a lot in the past 15 months and I wouldn't change any of it because of the long term pay offs. That being said, if you have the construction people available, I totally think buying a more neglected property that you know you need to put money into. Just make sure you quadruple check your numbers and the expected maintenance. When we bought the place, average rents were $650, now average is $963 and rising. So, a 50% in rents almost out of the gate, but an average of a 30% in cost per door for maintenance. But the price of the building is up almost 100%. So, bought for $2m, put $1m into it, now with $4m - in about 15 months. My cash flow is almost where I need it to be, but money spent was well worth it. Just TONS of blood, sweat, and tears.

Gary McGowan · Answer

Hi Account Closed I would certainly only work with a realtor that owns multi family buildings. I can recommend one if you liked that works in the Calgary market. Send me pm