Finding Off-Market Apartment Building Deals
There are still plenty of properties worth less than the debt, and there are more foreclosures to come. Most of the distressed multifamily properties are B, C and D class properties. These properties can provide great returns with cap rates from 8 percent to 12 percent on existing income, and in most cases have plenty of vacancy for even more upside.
Property sources:
Get to know the attorneys in the distressed market and the lenders with existing loans. Establish relationships with brokers who specialize in multifamily properties who track distressed apartments and have relationships with lenders. Offer to protect their reasonable fee for acquisition opportunities they source for you.
Notes:
Consider buying notes but be sure to understand the risks of stepping in the lender's shoes. Consider the collateral, the collateral title, the borrowers' intentions, and jurisdiction issues related to the foreclosure process and recent bankruptcy/cram down court decisions. Also consider the time, risks, and costs to get from lender to property owner.
Ability to close:
Provide your best proof of ability to close in writing with offers. Liquid cash in the bank sufficient to close all cash is best. If not, get as close to that as possible. Consider large earnest money deposits—of course with a solid contract and a safe escrow agent. Lenders in short sale, receivership or REO situations may not respond to offers without proof of ability to close.
Due diligence and underwriting:
To increase occupancy in most cases you should underwrite your lease rates and lease up conservatively. Make sure you understand the sales comps, lease comps, demographics, the job market in the area, the loan status of competing properties and all the costs to bring the property to stabilization. Sometimes when buying notes or when in a competitive bid situation, it pays to do your due diligence prior to making an offer.