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How to Find the Best Commercial Apartment Deals

by Joey Wang on October 18, 2011 · 9 comments

  
how to find commercial apartment deals

The Leap to Commercial Real Estate Investments
The stage is set . . . you’re ready to jump into the world of commercial real estate investments. Maybe you’ve been buying or selling single family homes, and your success is prompting you to think bigger, possibly on acquiring apartments — or, maybe you’re a new investor with initial sights set towards apartments.

Just so we’re clear on definitions, apartments — a type of commercial property — are multifamily buildings with five or more units; anything with four or less units is considered residential, including: SFHs, duplexes, triplexes, and quadruplexes.

Finding Apartments For Sale
You start browsing the MLS searching for apartments. You see a few here and there, but you quickly begin to wonder, “Is this really all there is? There’s got to be more for sale than what I can see here.” Well, you’re right. Unlike residential properties where you’ll find most to be on the MLS, many commercial listings rarely see the light of day. The closest thing resembling the MLS for commercial properties is LoopNet but even that doesn’t come close to uncovering all the commercial investment opportunities.

The Shotgun Approach
Let’s pretend you’ve reached the pinnacle of success in your career. You’re a multi-millionaire, and you own a multi-million dollar mansion that is up for sale, which is stunning, and you want top dollar for it.

You list it on the MLS for mass exposure.

You figure that with more exposure, more competition will drive up the price. Brilliant! Numerous calls come in from people expressing interest and who would like a tour. Naturally, you’re excited and you think “With so much interest, I should have no problem selling it.” But months go by and the only accomplishment you achieved was finding that really expensive house cleaner to keep your property in pristine condition as people come through your amazing property. You did enter escrow a few times, but alas, those well-intentioned buyers just couldn’t obtain a loan. After a while, you’re fed up, “These prospective buyers aren’t even buyers at all. They just want free admission to tour my property and most aren’t even qualified buyers!”

Targeted Marketing Prevails

Whether selling a mansion or a commercial investment property, both require targeted marketing to the appropriate audience. An apartment owner only wants to entertain serious prospective buyers. Property tours must be kept to a minimum to avoid inconvenience to current tenants. Escrows should be one and done. Owners want to only deal with suitable prospective buyers who are serious about buying and are capable of closing. So who’s best suited to assist them?

The Commercial Real Estate Investment Broker
The well-trained commercial broker is constantly out in the market talking to property owners and prospective investors. These brokers know when potential sale opportunities are coming since they are in constant communication with property owners. When these owners do decide to list their investment properties, the brokers have already identified suitable prospects from their list of investors.

The Commercial Investment Broker’s job is, first and foremost, to play matchmaker between the apartment owner and a potential buyer. These investors have previously disclosed their investment parameters and have the capital or can quickly raise the funds needed. It is in the interest of the seller and its representing broker to find a buyer who can close the deal quickly. After all, if you were the seller, would you really want to have a property on the market for months on end?

At times, a broker may exhaust their list of investors; in this case, the property may still not make it to the open market because they may contact other brokers and determine if suitable investors are available. Only when all procurement options are exhausted will the property be made available to the public for all to see.

Finding Those Hidden Opportunities
If you’re serious about apartment investing, then one of the most important first steps you can take is to get to know commercial real estate brokers who specialize in the areas you’re interested in. Find the reputable brokers. Establish relationships. Stay in touch so they remember you when opportunities come along.

By doing this, you’ll learn about those off-market opportunities that you won’t find on LoopNet and other listing services. Just a word of caution, it’s critically important you find a broker who you can trust.

Photo: Archibald Ballantine

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{ 9 comments… read them below or add one }

jay October 19, 2011 at 3:10 pm

what advice do you have for agents that want to specialize in apartment properties and need to find available units that investors are expecting them to have ?

Reply

Joey Wang October 19, 2011 at 11:12 pm

Jay, good question. If an investor has told you his search criteria, first it’s important to understand how realistic their parameters are. If the investor wants a high cap while the properties that fit his description are selling for lower, then you’re wasting your time. Otherwise, call around owners of buildings that fit your client’s description and inquire about their plans for the property. Also, call around other brokers in the area for their available listings. Of course, you should scour LoopNet and other listing services as well. I will warn you though, your efforts are best used to procure listings, not as a buyer rep. Hope this answers your question.

Reply

Ronald Cagape October 24, 2011 at 8:39 am

Hi Joey, this is a great writeup. In your comment above, why do you say that your best effort should be to procure listings? Shouldn’t you do both equally well?

Reply

Joey Wang October 24, 2011 at 7:20 pm

Ronald, yes indeed – an agent should be knowledgeable and competent to be able to represent any side of a transaction. What I meant by my previous comment is that as an agent, it’s generally more productive to focus time and effort towards exclusive seller listings vs exclusive buyer representation.

Reply

Ronald Cagape October 24, 2011 at 10:41 pm

Thanks, Joey for clarifying. Do you have articles on how to develop that skill of getting exclusive seller listings? I recognize that need but right now, that’s still a weakness I need to address.

Reply

Joey Wang October 25, 2011 at 9:54 am

Ronald, it’s a good topic. I’ll consider it for future articles.

Joel Owens November 1, 2011 at 8:28 am

I specialize in apartments as well as a commercial broker in Georgia.

Naturally if you take inventory you will build a buyers list pretty fast.

You have to watch out for wholesalers,assigners,and all the other pretenders in chains that don’t have a dime to their name.

If you allow the property to go under contract to them and waste the sellers time it is a great way to lose credibility with a big whale that knows other apartment owners.I find buyers need to be educated on the local market they are buying in.

I might have an investor expecting to hit a 14 CAP when we are selling at a 9 to 10 CAP. Now they can hit a 12 if the property is say 50% occupied and needs work to fully stabilize.They can also do a better return with a totally vacant building but the risk and stabilization times are much greater. So yes they have to be realistic.There is a difference between wanting a great deal and wanting pie in the sky for the area.

I used to get those calls last year for retail.”We are looking for an anchored shopping center with a Publix or Kroger etc. that is 60% to 70% occupied for a 10 CAP or better”

So there are thousands of buyers chasing this elusive property.The banks say rather than taking a 8 to 10 million dollar hair cut on the loan we will simply work with the borrower on this trophy property and wait for the market to recover.They just put a few hundred k on the back end of the loan.

If buyers understood how these deals really work they wouldn’t come up with all of this fairy tale stuff.

Reply

Gregr Hanson January 1, 2014 at 9:23 am

Hi Joey, Great information it just doesn’t actually match the Title/Teaser. I’m sure you know the info, I would love to see you write some more articles. I haven’t read all of yours I admit as I have some others here.

Reply

charles February 24, 2014 at 12:47 am

Any tips on targeting prospects w/ direct mail? What would be a good group to target? Do you mentor? Thanks

Reply

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