A lot of apartment building investors are having a tough time finding good deals.
As syndicators, we have it even harder because we need to provide a good return for our investors and leave a slice of the pie left over for us. But what kind of returns are reasonable?
I started a Bigger Pockets forum thread posted entitled “What Kind of Returns Are you ACTUALLY Seeing?” because I wanted to see what kind of deals people are actually doing and what kinds of returns they’re seeing. In the 22 responses as of the time of this writing, the responses were quite varied but at the same time they had a common thread:
IT’S REALLY HARD RIGHT NOW TO FIND GOOD DEALS.
So, whew, it’s not just me -;)
Nevertheless, this doesn’t change the fact that we need to do deals, right? I suppose we could sit on the sidelines for the next 5-10 years and wait for the market to change, but what’s the fun in that? Plus, isn’t there anything we can do in the meantime?
Here are 5 things other investors are telling me we can do NOW when apartment building deals are hard to find.
1. Re-Evaluate Our Returns
What returns should we be looking for? And what should those returns be for our investors if we’re syndicating?
This is a difficult question to answer because (as usual), the answer depends. It depends on:
- Who your investors are and what returns they’re happy with;
- How stable the asset is that you’re purchasing; and
- Your track record.
If your investors are sophisticated investors, they’ll want to see returns of 15% – 20%. If you’re dealing with friends and family investors, they will be ecstatic with returns of around 10%. If you’re taking money from high-net worth individuals, they’ll be looking for returns somewhere in the middle. If you have a solid track record and are investing in stable properties in good areas, then you can get away with lower returns in each category.
The lesson here is: re-evaluate the kinds of investors you are seeking to raise money from. Getting 15%+ average annual returns when you’re syndicating a deal is REALLY tough to do right now.
It’s not impossible, but it’s much harder. So instead of talking with sophisticated investors, you may consider raising money from friends, family and acquaintances so that you have a better shot of finding deals that will work for your investors.
2. Consider Other Real Estate Strategies
The real estate market changes constantly, and the good real estate investor proactively adjusts his strategy based on that changing market.
Some apartment building investors I’m talking to have already changed their strategy or are seriously considering it. For example, instead of buy and hold multi-family properties, you might consider building a portfolio of single family houses.
I haven’t come to that conclusion myself because I haven’t given up on apartment buildings yet, but it’s something I need to strongly consider also.
3. Mail Letters to Apartment Building Owners
I did this back in 2005 and 2006 as the market was white hot and anything listed had multiple offers above asking.
It cost money and time and the response rate was low and the success rate even lower. Then the market crashed and deals were everywhere, and so I stopped mailing letters and relied on my brokers and wholesalers to bring me deals.
It may be time to dust off the old marketing play book and get back to basics: mailing out letters to owners of apartment buildings and waiting for the phone to ring.
4. Expand Our Network to Increase Deal Flow
Another option is to work to expand our network of commercial real estate brokers.
We may have had some success with a handful of brokers that have been feeding us deals. We may have to hit the phones and cold-call more brokers so that we increase our deal flow. Then we can also call property managers, attorneys, even residential real estate agents, all of whom might know of a property owner interested in selling without a broker.
I still think that good brokers are the best way to find deals. I think I can do better at expanding my network to increase deal flow. How about you?
5. Expand Our Geography
If you’re looking in only one area, it may be time to consider investing out of area.
It will take some additional time and money to do but it can be done. I’ve decided to expand my geography from Washington DC to Baltimore and Richmond. It is more work since you have to learn multiple markets and build networks in each area, but sometimes you gotta do what you gotta do.
Watch my video blog post “Everything You Need To Know About Investing Out-Of-State (In Under 5 Minutes)” for some more ideas on this topic.
What Are You Doing to Find Deals?
I think a lot of people want to hear what’s working and what’s not.
Be sure to leave your comments below!