How to Get Deals in Today's HOT Market

[Michael Ealy]

In today's HOT real estate market, it's not smartest guy who gets the deal, it's not the most thorough, nor the most analytical, nor the ones with the most money...it's the one who knows the market intimately - so intimately that he/she knows a QUICK WAY to analyze deals.

Case in point: last week of December last year, we found a 279-unit portfolio of apartment buildings from a private owner (off-market deals baby!). He inherited the properties from his father who unfortunately, did not keep good records and his accountant (in my opinion) is not good at all (he puts in expenses as part of P&L that are not considered operating expenses like depreciation and capex). They don't have the T12 for 2019 or 2018. They have the updated rent roll and a P&L for 2016, 2017 and 2018 that they took from their tax returns!

It was a mess.

BUT, since we know the market intimately, we know that stabilized apartment buildings sell for $50K-$55K per unit. We looked at the apartments and we immediately determined that they need no more than $10K/unit in renovation (some of the buildings need as little as $3K, some need about $6K). And we got the apartments for less than $35K per unit. The rents are way under market by $200/mo to as much as $400/mo per unit (rents are way under $1.10/unit which is like the minimum we're getting for Cincinnati apartments).

It's a SLUM DUNK.

We made them an offer they cannot refuse.

In fact, the deal is so good we decided to keep the ones that take the least amount of work with the biggest upside and sold the rest (173 units). In less than a month, we got them sold to local buyers who also know the area and they were able to move really quickly.

People here on BP complain there are no good deals left.

And yes, they are fewer now vs. 2009 but if you know where to look and CAN ACT QUICKLY, you can still get great deals.

One simple measure we used is Price per Unit. Another is average rent/square foot.

What about the other apartment investors out there who are buying deals in today's market?

What other quick ways you're analyzing deals?

[Heshel Mangel]

@Michael Ealy I keep writing your name as Mike and it don't come up ;)

We are looking forward on closing some of those deals. Very impressive that it got all shopped out that quick. The right deals find the right buyers. 

The only caveat I have with rents per square foot, is that in lower-income neighborhoods and lower rents, prospective tenants generally don't look at the "per sq ft" cost and are instead looking at the "bulk" costs and comparing that to other rentals in the area. 

It's a good evaluation approach but when really digging into comps I think the total bulk amount matters as well.