Landlording & Rental Properties

The Key to Finding Off-Market Multifamily Properties

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white apartment complex

There are many reasons someone enters the field of real estate investing. A natural progression through the field for many includes starting with local single family units (so that the investment stays small and the management simple) and progressing all the way to large-scale multifamily units that can actually encompass hundreds of apartments and take a great deal of investment knowledge and management capabilities.

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Multifamily apartments can be as small as four or five units or be many floors with dozens. Some multifamily units can also encompass complexes with several buildings present. The possibilities are boundless.

Individuals that invest in real estate know there is always some risk involved. But starting with single family, shifting to smaller multifamily units, and then moving on to much larger multifamily apartments is a common path among many serious investors.

However, once the progression to large multifamily is made, there are ways to make significantly more income by looking for “off-market” deals. The larger and newer multifamily units are typically listed with a broker, although some online sources for these also exist. These multifamily housing units (MFH) typically range from newer units that are considered Class A to older multifamily units that are considered Class D.

The quality value-add MFH are typically difficult to find, as they are not readily advertised or listed. Searching for larger multifamily that are off market Class B can be a wise alternative. However, finding these is a lot of work. The larger and more desirable the complex that an investor is seeking, the harder it can be to find such a thing off-market.

Skyline of downtown Charlotte in north carolina, USA

Getting Creative to Find Great Off-Market Deals

The major obstacle to finding off-market MFH opportunities—especially those that are 40 to 100 units, Class B to C+, in a 60-mile radius of a larger MSA (metropolitan statistical area)—is that many of the deals that are made on these types of properties are found through extensive networking, relationships, or referrals from one investor to the next (or one Realtor or industry insider to the next).

Let’s use the Charlotte MSA as an example of a larger metro area. It is primed for great growth and has been continuously expanding since the 2017 census. In fact, according to Wikipedia, the Charlotte MSA in 2017 had 2,525,305 residents and is the 17th largest city and 22nd largest metropolitan area in the United States—so, it’s really booming and attracting real estate investors.

However, finding good Class B MFH remains a problem for many serious investors in these types of areas.

In real estate, there are plenty of programs and online resources to search when looking for single family housing (SFH). But this is not especially true for MFH deals. So, what does a real estate investor do to locate a good off-market apartment building? Options do exist but thinking outside the box is imperative.

Related: Multifamily Myths: Why Newbies Think Multifamily is Easy to Buy & Finance

Driving for Dollars

The first option is the one that is missed by many when seeking these types of deals: Driving around throughout the area in which one is seeking the deal is often not even considered!

Since many listings are not posted or advertised anywhere, driving around can reveal good large-scale apartment buildings. Signs might be posted or a search for the property through online research or even court records can then be initiated.

A savvy investor can save time, money, and aggravation by simply hiring someone to do the driving through areas in which they have an interest in purchasing a property. It is possible then that a simple cold call to the owner or owners of the property can result in a potential deal to purchase being made down the road.

The reason for non-listings seems to be that sellers of MFH properties don’t have the time to waste on individuals who are not a good prospective buyer—especially on the larger Class B investment properties. Actively driving around looking for a property can make a seller more responsive to showing the property, as time was taken by the potential buyer initially.

Tapping Into Relationships

Another great option for finding these types of multi-unit properties is by establishing good relationships with brokers, insurance agents, property managers, and others involved highly in the real estate business. This is relationship and referral marketing at its best.

Establish Criteria for Your Search

Any type of serious investor in MFH properties in any large MSA should always have guidelines in place before they even begin their search.

These guidelines should include:

  1. Identifying Criteria: Where to purchase, when to purchase, the overall size sought, the classification of an area/property, and of course, the costs of purchase. Overall, any potential investor must know how much they can afford comfortably and know what their financial expectations are. Any property, even Class B, must always bring in enough money to cover the initial investment and sufficiently provide enough dividend yield. Research is needed above all else.
  2. Approaching Owners: This was touched on above. Finding a property that can be affordable and is attractive to a potential buyer can be achieved by cold calling owners, real estate agents, insurance agents, or others somewhat involved in the real estate investment field. Well-crafted letters can also be sent to those involved in any way in the real estate investment field.
  3. Establishing Relationships With Others: This may be the very best way to find good Class B, large-scale properties. Relationships with the right brokers, insurance agents, attorneys, and property management companies can yield information on upcoming sales of Class B properties. Attending real estate meetup events, seminars, and conferences can be enjoyable, informative, and most of all, productive in the years following attendance. Maintaining solid relationships with brokers and others in the real estate field can really yield significant results in locating properties for years to come and garnering knowledge of impending sales long before these properties even hit the market. The old saying “the early bird catches the worm” really applies to this methodology. Relationships are everything!
  4. Having Financing Options Identified: Whether financing privately with money already in-hand or financing with a loan or other options, it's useless to even consider approaching anyone about a sale of a Class B large scale property without the necessary financing already in progress or fully established. No seller anywhere is going to seriously consider any potential real estate investor if the financing is not possible.

All in all, it is an achievable task for a serious real estate investor to find good off-market properties with enough time, determination, and effort put into the search.

Related: Single Family, 2-4 Unit Multifamily, or 5+ Unit Multifamily? Explore the Benefits of Each Here!

Let’s consider an example. An investor that we will call “George” was seeking a 60- to 100-unit Class B property in the Charlotte MSA for a year with little success. Then, he attended a small real estate meetup event and met a seasoned investor, from whom he learned that his requirements needed to be more specific. George was advised to engage in more cold calling and write more letters to property owners.

However, since Class B properties are in such high demand, it is essential to take into consideration some factors before even approaching any owner with a request for a possible sale. The experienced investor explained to George that the requirements of a good MFH property should include:

  1. Age of Property: The older, the less valuable (usually) and more upgrades might be needed.
  2. Location: Is the location seeing a population rise or decline? Having enough individuals to rent to is essential.
  3. Tenant Income Levels: Again, if income levels are spiraling downward, the investor may want to back away immediately.
  4. Appreciation Rate: Is this going up or down based on age, population, and other demographics?
  5. Overall Monthly Income Level: Does the monthly income level justify the outlying capital invested? How long will it take to recoup the initial investment?
  6. Amenities: These do count in income levels. Typically, the more amenities a property includes, the more rent that can be charged per unit.

So, by building solid relationships, George eventually bought a good off-market multifamily property that he could comfortably afford and that generated years of solid income for him and his family. Without doing so, and without thorough researching plus cold calling and other forms of marketing himself, he would not have found this property.

In the end, investors looking for good Class B, off-market, large-scale properties MUST learn not to just look for the properties but also to learn to market themselves!

George was a little shy about letters and cold calling initially, but after doing it a few times, he became more comfortable. Nine months later, his efforts paid off with the acquisition of a great property that he had his sights set on.

Being proactive is always the best approach in any type of real estate endeavor. That and patience, of course!

Questions about the strategies above?

Let’s talk in the comment section below.

Alina is the founder and managing partner of SAMO Financial, a boutique private equity firm specializing in helping a select group of people passively i...
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    Michael P. Lindekugel Real Estate Broker from Seattle, WA
    Replied 9 months ago
    why would an owner sell off market for less than FMV?
    Alina Trigub Rental Property Investor from Glen Rock, NJ
    Replied 9 months ago
    I didn't say an owner would sell it for less than FMV. However when you're buying directly from an owner, they don't have to pay broker's fee, hence you're getting that discount right off the bat.
    Tchaka Owen Flipper/Rehabber from Merritt Island, FL
    Replied 9 months ago
    Or "shared discount". Often people think that buying without an agent means the buyer saves all of that, however there are two sides and both benefit from the savings.
    Alina Trigub Rental Property Investor from Glen Rock, NJ
    Replied 9 months ago
    Absolutely Tchaka. Each deal is different and should be looked at on a deal by deal basis.
    Charles Dobens from Duxbury, MA
    Replied 9 months ago
    Michael, owners can and do sell for less than FMV. Happens all the time. The problem is finding these owners before others do. WHich is th epoing of Alina's article. Multifamily is a sales and marketing business. you have to hustle to get those deals before anyone else.
    Vaughn K. from Seattle, WA
    Replied 9 months ago
    It also depends on what you mean by "fair market value" in the first place. If a place has been allowed to slowly decline into disrepair, an investor interested in dropping the cash to fix a place up, and deal with all the hassle that entails, could be paying "fair market value" for the bad condition it is currently in... Which doesn't mean there isn't plenty of upside post improvements. So even with millions of value to potentially be created, and paying fair market value for the current condition it is in, you still have to FIND the deal in the first place to be able to buy it.
    Alina Trigub Rental Property Investor from Glen Rock, NJ
    Replied 9 months ago
    Exactly Charles. Thank you for your feedback. While it doesn't happen often, if one puts in the hours, persistence and dedication to establish and build the relationships with property owners, over time such results may be achieved.
    Joel David
    Replied 9 months ago
    You mention getting all the financing in order and approved ahead of time, however, is there some kind of "pre approval" you can do for commercial loans? I have my tax returns and a PFS in with a commercial mortgage division at my bank but they said they can't get a approved until they see the building details. I would like to get as many ducks in a row as possible ahead of time so just wondering if there is something a seller would want to see when getting an offer that will give them that warm fuzzy feeling?
    Alina Trigub Rental Property Investor from Glen Rock, NJ
    Replied 9 months ago
    Joel, If you are just starting out commercial investing, I suggest reach out to several commercial bankers as well as to a commercial broker. Complete your PFS (Personal Financial Statement, but could be called something else) with them. And ask for recommendations and suggestions. These steps will help you get ahead of the game and be prepared when the time comes to get a loan.
    Mel Barnes Real Estate Investor from Henderson, Nevada
    Replied 9 months ago
    Cold calling is not effective for midsize multifamily. Almost all are owned by LLCs or corporations which cannot be skip traced. The name on the formation documents are usually their attorney. So letters are the only real way go approach them in mass. Owner is typically not present at the property either.
    Alina Trigub Rental Property Investor from Glen Rock, NJ
    Replied 9 months ago
    Mel, I'd say it depends on several variables. It differs from area to area, secondary versus tertiary, plus also depends on how you define mid-size. So while letters may work best in one area, cold calling work in another.
    John G. Rental Property Investor from Brainerd, MN
    Replied 9 months ago
    @Alina Trigub Great article! I would agree with you on many levels. I am finally on the other side of it where I have been cold calling over the spread of 4 or 5 years. This has brought deals to me personally and people around me. The initial cold call is the beginning, then setting them up on a constant contact schedule of every month, 3 months, etc. depending on how hot of a lead you got from them. For example, 3 years ago I cold called a lady and she slammed a door in my face. I wanted the house and showed back up again, and again, and built a relationship from there. I didn't give up and I now own that property. Results are not always instant but persistence will pay off!! As stated above having financing in order definitely helps. But, its still possible to cold call and work a contract for deed deal.
    Alina Trigub Rental Property Investor from Glen Rock, NJ
    Replied 9 months ago
    John, Wow, what a story! Thank you so much for sharing your journey! I salute you for your persistence, dedication and grit! Awesome results!
    Dave Rav from Summerville, SC
    Replied 8 months ago
    @Michael P. Lindekugel Yes, as others have stated, this happens all the time. Folks have varying reasons for motivation. I am a walking example of someone who bought one of these. An investor friend sold me a MF property due to a need for cash to payoff another investment. Motivation
    Alina Trigub Rental Property Investor from Glen Rock, NJ
    Replied 8 months ago
    Dave, Congratulations on your successes!
    Andrew Melvil Investor from Louisville, KY
    Replied 5 months ago
    Thank you for this article!
    Alina Trigub Rental Property Investor from Glen Rock, NJ
    Replied 5 months ago
    Andrey, My pleasure!