Large apartment complexes. How do people get them?

Question

So, full disclosure (if you couldn't tell) I'm new around here. I'm reading everything that I can get my hands on, listening to the BP podcasts and webinars, and all around studying like my life depends on it. I don't own any properties yet. My goal is at least two for 2018, my first home and my first rental. So I've lived in the same apartment complex for the last three years, just north of Boston. I've had a couple of apartments here as I've needed to upgrade to bigger places, and they've always made each place I move into look brand new. Stainless steel appliances, refinished floors, the whole nine yards. I've always felt that this place was pretty nice, and the rent less than it should be, compared to the surrounding area. There must be close to 130-140 units here (12 buildings, 10-12 units each).

I just found out today that it's been on the market and hasn't sold. There are so many reasons why that could be, and I fully understand that, but my real question is how do people find places like this? It's not listed anywhere from what I'm told by management. There's no official asking price. I'm sure that networking plays a massive role here, but who steps forward to get a place like this? A group of investors? A single corporate entity? I'd love to own something like this place, but the numbers are obviously way beyond me. Sorry for going off on a tangent, but I really want to understand this part of this business and how one builds themselves up to being able to get property like this. Thanks for reading!

David Thompson · Answer

Another technique that a value add syndicator will do is renovate a few or say 25% to 50% of the apt community to show the potential buyer a proven strategy of what renovations can do.  Ex.  you do these upgrades at "x" cost and you get "y" higher rent.  We have purchased several properties like this from other value add syndicators, then with "meat still on the bone" we will continue w/the renovation process.  We are not always only looking for a complete unrenovated apt community.

Why do this as a seller?  Could be lack of budget, could be their balloon loan is coming due, but often its because there is a much larger pool of value add buyers than buyers who want stabilized properties.  A broker once told me its a 10:1 ratio of value add buyers to institutional buyers.

David Thompson · Answer

Benjamin,

You are describing an apartment that sounds like it's already been upgraded and stabilized.  The investors that buy this type of property are typically institutional investors like REITs.  They like steady eddy 8-10% returns.  What you really want to own are value add apt properties.  A larger deal like this would usually be put together by a syndication team that pools investor money from someone like yourself who wants to invest in apartments but doesn't have the capital, knowledge or time to pull off something like this.  The syndicate will typically renovate the apartment to command higher rents, bring in expert property management to further optimize the property including focusing on expense reduction and other income producing opportunities that may have been overlooked.

The returns on this can be 15 - 20% IRR over say a 5 year hold that includes income paid out to investors along the way in the area of say 8-10% CoC.  If you can envision a house flip, this is akin to that w/apartments, but takes a few years minimum because you only renovate vacant units when they come up and move those w/expiring leases into the upgraded units to start renovating their old unit for the next resident.  So, yes, you noticed something that attracts you as a renter, renovated older apartments that can rent a lot cheaper than  brand new apts.  It's call value add investing and is a great space to be in where there is less risk than buying new.  Here's a couple blogs to get familiar w/the opportunity.

https://www.biggerpockets.com/blogs/9145/65780-syn...

https://www.biggerpockets.com/blogs/9145/53820-why...

Salvatore Lentini · Answer

@Benjamin Verrill you said it's on the market but it's not listed?  I find the best way to find multi family deals is through networking... lots of networking.

Andrew Johnson · Answer

@Benjamin Verrill In order to answer the question it might be helpful to know "found out from who?" that it's been on the market and hasn't sold.  If someone sends me a letter in the mail about want to buy my apartment building and I call them back, is it now "on the market?"  My property manager has more than a few other property owners that she knows are "open to selling".  But the property isn't on the market officially, there's no specified asking price, there's little to no seller-data about NOI, cap-rate, etc. and the most you'll get is basic info about what they rent for.  So I guess those properties are kind of...unofficially...potentially on the market?  There's another owner that she knows that says "these will be on the market in two years after I finish XYZ development".  That's not to say that the 140 unit complex you're living in hasn't been on the market but there's a huge difference between "I want to sell" and "I'm open to an offer".

Furthermore, while I don't know Woburn from a hole in the ground, in a lot of areas outside of a core metro the number of buyers/sellers for 140 unit property are pretty slim.  Heck, the number of buyers for a 50 unit property are pretty small.  If you rule out the national REITs it leaves a group where property managers all know who they are, they all know the same small group of commercial lenders, the agents/brokers know them as well, etc.  So it's not to hard to float around that someone is open to selling in less than a day with some text messages and calls.  From my (limited) experience it's just a different world than buying a random SFR.

Jeff Kehl · Answer

@Benjamin Verrill So what is your point in posting this? What is your question?

Benjamin Verrill · Answer

@David Thompson That makes sense, David. I know that there are still quite a few apartments that they need to renovate, and I believe they're also looking to add additional buildings as well. The exterior is plain brick, and I wouldn't be surprised if they were looking to update the look of that too. Thanks for the input, and thanks for the additional resources!

Benjamin Verrill · Answer

Thanks for your input, guys!

Robbie Reutzel · Answer

@Benjamin Verrill

Our preferred methods are direct mail, cold-calling and broker relationships.  The first two have been more successful lately since everyone and their brother wants to buy apartment buildings these days ;-)

You can target owners who have a balloon payment coming up, have high equity etc.  Those lists can be bought through a list broker.

Good luck!

Large apartment complexes. How do people get them?

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