Finding a “Deal” in Multifamily Investments

Why would you as my real estate agent advise me to pay $10k more for a property? Most investors are looking for a “deal” when shopping for multifamily investment properties. It is often forgotten the reason for getting into real estate investments is to provide cash flow and build equity.

All to often great investments are missed by investors because the seller wouldn’t come down 10k and the buyer doesn’t feel like they are getting a “deal” and will walk away. I like to define a deal differently, a “deal” is one that will earn our investors a return that they are satisfied with. Often the negotiations become a winner and loser prospect. I am not saying you should pay more than you have to for a property, but paying what it is worth is often a much better”deal” than passing on a property. If a property will earn you a 15% return would you buy it? Then when buying properties this must be kept in mind. $10k on most loans is only a difference of $50/month. If a property is bringing in $1700/month and your expenses including mortgage are $1100 leaving you with $600/month on a $40k down payment. You are earning 18% cash on cash. If you pay $10k more for that property you cash on cash is only 15.5%. Yes you will have a little extra expenses and possibly some more cash outlay, but the main point is that you are still earning 15% on your money.

Let’s take a look at the real cost of not improving your offer by $10k. If you are continually missing out by trying to find a “deal” each month you are losing $550/month, it may take you 9 months to a year to find a property at a “deal”. This will cost you $6600 in lost revenue (opportunity cost from your business degree classes). It will also cost you about $4,000 of equity growth for your first year. As you can see, getting in to the game will earn you more money than finding a “Deal”. Another thing to remember is, why are you getting a deal? What did you miss that other investors didn’t. Why would the seller (likely an investor themselves) be dumping this property at a discount?

As your real estate agents we will fight to get the purchase price as low as possible, but we see many deals and hate to see an investor miss out on a good opportunity for the sake of saying they got a bargain.