Here’s How I Plan to Get From 83 to 1,000 Rental Units
With 83 doors, I'm currently a long way away from my goal of 1,000. Since purchasing one large multifamily, I've gained valuable experience in operating an apartment complex. Most components to building a multifamily business are universally necessary.
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Anyone who owns a property with 75-100 units, ultimately realizes that the economies of scale favor larger properties. Leveraging operating costs is a valuable tool to maximize profits. I’m looking for bigger deals, but I’m open to smaller ones too.
I’m Planning to Buy Right
I was out to dinner with a commercial developer last week. He said something that resonated with me: “You don’t make money the day you sell, you make the money the day you buy.” True. But buying for the right price implies acquiring good debt at a favorable rate.
In the past 30 days, we’ve seen a spike in mortgage rates as the 10-year treasury has been lifted to three-year highs. This move implies that cap rates are going to be compressed and possibly move up to correlate with the increased cost of borrowing. This hasn’t happened quite yet, but I’m anticipating this move.
Borrowing from lenders just got more expensive. Hypothetically, if asset prices do not move in tandem with the rise in interest rates, net cash flow numbers will decrease. I'm preparing to bring extra equity to secure favorable loans. In a market with rising rates, a low-interest-rate assumable loan can become a tool to negotiate with.
You need to be able to speak with lenders and always be willing to negotiate. Reaching out to lenders now is a terrific idea, and one that I’m actively pursuing. Finding competitive loans in this environment can be crucial to adding value to deals.
I make it a habit to call lenders throughout the week to simply give them a wink and a nod for when a deal emerges. Leverage can be a powerful tool if used correctly. When used improperly, it can be a catalyst for financial ruin. If interest rates continues to rise, smart debt with a reputable lender can make life much easier. Get those ducks in a row now.
Property Management Choice Is Vital
Property management is the engine that keeps the machine running. Bad property management can create nightmares. Solid property management can become a gold mine to scale with. After prospecting an area, I sift through the property management companies on Google and ask brokers for recommendations.
Once a few have been chosen as candidates, I like to call the properties they manage and pretend I am a prospective tenant. It’s a test to see first-hand what the process entails. The way a property management company handles customer experience and tenant showings is vital. I investigate as much as possible before making a choice.
Brokers Can be Your Best Source to Find Deals
Brokers are a key component of the team. I’m a firm believer in consistently reaching out to brokers to remind them you’re there. They are the marketing boots on the ground to bring you listings before they reach the masses.
Half of my property-seeking days are spent reaching out to brokers and reminding them that I’m looking. I also reinforce my criteria so that a clear and concise product is in mind for the broker. As is the case with most multifamily players in this market, money isn’t the problem right now, deals are.
Consistently Making Offers Has to Become Habit
I tend to have very strict underwriting guidelines and have room for improvement here. I take a risk-averse strategy that probably excludes doable deals. It insures success on the executed deals. In this market, deals aren’t there for the taking the way they were in the past.
An investor has to have a coherent strategy for finding off-market deals or having brokers bring them deals. Aimlessly hoping deals will fall in my lap is not a winning strategy. Reaching out to brokers and reminding them of buying criteria is an excellent thing to do. I am striving to do more of this every week. The chances of getting a deal done are proportional to the amount of deals analyzed. The amount of offers are proportional to the latter.
This Is a Marathon, Not a Sprint
Volatility can happen any time in a real estate market. With so much uncertainty, I’m reverting to my poker days of being a grinder. You must be patient and avoid mistakes. Real estate is a war of attrition, and mistakes can become illiquid sizable setbacks.
How do you plan to increase your number of units?
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