086: Be Ready!

SHOW NOTES FOR EPISODE 086–BE READY!

If you are serious about real estate investing, you need to always be ready to act quickly.  Bill shares a personal experience where he was presented with a great deal but, because he was not ready, lost an excellent opportunity.  In this episode, he discusses the top areas where we always need to be ready for that perfect deal.

Running Multiple Marathons

In order to be successful at multifamily real estate investing you need to know something very important.  Nizan Mozery, one of my recent guests pointed out in episode #077,  it’s like running multiple marathons at the same time and trying to win and cross the finish lines all at the same time.

Also, as I’m speaking to you (March 24, 2017), it is an extremely competitive market right now because it is such a great time to buy.

There are many factors why it is so hot:

• There are still good deals out there to be found
• Impending interest rate increase
• Cap rate compression nationally and at the local level
• Many economic factors affecting investors in play with new Trump presidency
• Lots of money from institutional and other large investors are trying to buy all they can

Today, there are many investors, with plenty of money, willing to pay top dollar for properties.

These marathons/activities that happen at the same time include:

• SEEKING – Looking for deals (talking with brokers, referral sources, networking, scanning online listings, mailing direct mail pieces) – Without a deal, it’s hard to go to the next steps
• EVALUATING – Underwriting deals (working the numbers to see if it’s a good deal). You’re also evaluating potential new markets
• LEVERAGING – Making and negotiating offers (submitting LOIs and sales contracts)
• At the same time, you need to grow an maintain your funding sources:
• INVESTORS – Finding/growing/communicating with your investor pool
• BANKING – Finding, establishing and nurturing banking relationships
• ALIGNING – Partners/sponsors with the same goals and approach

Part of being successful in real estate is creating a funnel of new deals – the SEEKING

How do we do that?

• #1 lead source is a broker who can provide off-market or pocket listings
• Regularly scouring key online sites for deals (loopnet, costar, realtor.com, zillion, trulia
• Other referral sources
  • Property Managers
  • Realtors/agents
  • Inspectors
  • Bankers
  • Other investors
• Direct mail

I got a taste of this reality recently.

I got a call from a broker [Not just any call – THEE call – the one you worked so hard to get for the last year with this one broker!!!]  I have been working on this broker for a while.  He was the seller’s broker on the 22-unit I bought in Indy.  I liked the way he represented the seller and wanted him on my side.  So I pursued that relationship.  Spoke with him regularly, visited and looked at properties, always gave him feedback on the deals he presented, etc.  We have been talking for a while and he has been sending me deals but they were not that great – already listed and the numbers never worked.

Thee Deal

A couple of weeks ago, he calls me with his first “off-market” deal.  It sounded too good to be true:

• 78-units
• Built in the 80s
• Mom & Pop owner – meaning, not a sophisticated institutional investor, multi-apartment holding investor
  • The owner actually built the complex
  • Well maintained, in great shape
  • Units could maybe use light up-to-date upgrade
  • Completely paid-for – no mortgage!
  • His sister managed the apartments
  • Very picky about tenants – didn’t care if they rented a unit because they already had a great cash flow
• Rents significantly below market
• Good market, mostly upper middle class residential
• Fairly close to a university
• They were getting ready to list the property there was a short “window of opportunity”

My problem:

• Hung up on the number of units – 78 (I’m looking for 100 plus). I should have seen the opportunity beyond that
• Large vacancy numbers (spent too much time trying to get to the bottom of this to see if there was some other problem with property, market, etc.)
• Was busy with a bunch of other things going on in my life – many distractions
• Did not have my all my investors ready
• Took too long talking with potential partner, sending info back and forth, plus he had another deal that was a priority for him

My Shoulda, Coulda, Wouldas:

• I should have acted first. When I saw it was promising, I should have submitted an LOI.  If they accepted it, it would have bought me time to:
  • Dig deeper on due diligence
  • Present the deal to investors
  • Rally the potential partner

The bottom line for me:

• When you are ready to buy – BE READY!
• Get rid of all the distractions – the market will not be this good forever
• Be poised to move and move quickly – ready to drop what you are doing to evaluate and make an offer
• Get your ducks in a row:
  • Let your investors know you are looking NOW for a deal and what kinds of deals you are looking for
  • Be talking with bankers, mortgage brokers, know the rates
  • Feet on the ground
    • Property Manager
    • Attorney
    • Inspector
  • Have a well-drafted LOI ready to go

I learned my lesson and it’s one of many that I will continue to learn, as I seek to be an effective, successful investor.  This is where the “rubber meets the road!”  You need to take action to succeed.  Even if you don’t win every time.  It’s part of the educational process.

Well, that’s it for today

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