078: How to Buy Apartments That Aren’t For Sale

SHOW NOTES FOR EPISODE 078 –  HOW TO BUY APARTMENTS THAT AREN’T FOR SALE

Finding good apartment deals is getting increasingly difficult as more people are scanning the horizon for those “diamonds in the rough.” In this episode, Bill Manassero presents a helpful tip for investors on how to find apartments that no one else knows about.

Introduction

The good news is:  this is a great time to buy apartment buildings.  The bad news is:  everyone knows it!

Finding good deals is getting increasingly difficult as more people are scanning the horizon for those “diamonds in the rough.”.

So, how can you a find great apartment building at a great price?  You could start with the newspaper, a call to a broker, or a search online – and these are all good ways.  Of course, since you’re looking at the same properties as every other investor, it’s not always easy to beat the competition to the great deals.  You might get an incoming call from your broker on an off-market deal but, especially if you are just starting out, these calls may not be too frequent.  Is there a better way?

Why not look for properties that aren’t yet for sale, and make an offer?  This is where you will find the “diamonds in the rough.”  An ad in craigslist.com, for example,  stating exactly what you are looking for, can attract someone interested in selling.  Or maybe a personalized letter or postcard sent to long-term owners of properties in your target area that you tracked down in the county assessor records.    These methods can take you direct to the seller, not thru agents or brokers .  By avoiding the middleman, so to speak, there are great advantages.  Besides just getting a good price you may also uncover  the option for seller financing.

You can get a good price, and both you and the seller will save a real estate agent’s commission.

Buying apartment buildings that aren’t for sale starts with a three-step search process.  First, decide what you’re looking for – clearly identify your target property.  Do you want duplexes and four-plexes, or larger apartment buildings?  The second step is to start looking for properties that fit your criteria (for example, mom and pop ownership, cash-on-cash return of 15%, 10 CAP rate, build between 1975-1990, price 15% undermarket, etc.).  Finally, you contact the owners.

How To Buy An Apartment Building From Non-Sellers

First of all, don’t limit yourself to just “fixer-uppers” or other “problem” properties that seem more likely to have owners willing to sell.   Most owners of rental properties have thought of selling at one time or another, so you can start with almost any building.  How can you tell when or why a landlord is ready to call it quits?  By asking.

Of course, tact is everything.  When you call the owner, say you’re an investor, not a broker.  Then, tell him or her what you see, and that you can have an offer ready in a week if their interested.   What if the owner’s not interested?  Thank him or her politely and hang up, but send the owner a nice follow-up note or letter with your card.   Investors often buy from owners that change their minds.

If the owner is interested, explain that you are an investor, so your offer will have to be based upon your return on investment.  That means you’ll need to see the books, also the rent roll listing the units and what they rent for, plus current occupancy.  You’ll also need the total income and operating expenses for the 12-24 monhts.

Prepare a confidentiality agreement ready before you call, and let the owner know you’ll sign it and deliver it before you see the books.  It’s possible the owner doesn’t want the tenants to know he or she is thinking of selling and this document insures that you will not make the fact that the owner is selling “public.”  If so, inspecting the units may have to wait until you make an offer.  Just make it clear in your offer that an acceptable inspection is a contingency in the offer.

Summary

Why should you buy income properties this way?  It’s simple.  Having no competition and no sales commission can mean a better price.  You may also be able to obtain seller financing.  Also, instead of waiting for a broker to call you with that perfect property, you speed up the process and just make it happen now.

Look for it, find it, and make an offer.  That’s how to buy a great apartment building at a great price.

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