I am curious- does anyone have experience with purchasing foreclosed apartment buildings? Is there a specific site to find listings? Is that a business worth looking in to?
I am specifically interested in the smaller complexes- 10-50 units maybe?
Please give me your thoughts.
@Jesse K. - They will often be on the MLS. I found one on auction.com one time and made a really easy $1000 bird-dog fee just by referring it to another investor that I know who eventually bought it.
Also, this is not really related to your question Jesse, but I see a lot of newbies on here who mistakenly think that multi-families and apartments are "safer" investment because they have more units under one roof or whatever. But the fact that these often go into foreclosure too indicates that they are not necessarily "safe".
I've purchased several smaller multi-family units out of foreclosure (two - 12 unit buildings). One building was a completely vacant gut rehab and was fairly straight forward. The other building was 80% occupied and was slightly more complicated. @Bryan L. is somewhat correct about foreclosures being listed on the MLS due to the listing guidelines given to the broker by the banks. However most larger multi-families are not listed on the MLS however are listed through Loopnet. Larger buildings 50+ units will generally have a competent receiver in place and/or a local property management company assigned to the property that can "somewhat" help with due diligence. With smaller foreclosure buildings you could be dealing with a 100% no records type deal. Basically where the bank has no leases, no financial data, no historical data etc. You need to assume the worst when underwriting a project like this. You also need to account for higher reserves than normal. Right now foreclosure deals are really hot and few and far between (depending on your area). There is a lot of competition when buying these assets because of the exposure they are seeing. I've been out bid on deals over 2-3MM from all cash buyers. If you are buying a vacant or highly distressed foreclosure deal then you will need to bring cash to the table as most banks won't lend on these assets (depending on your relationship). What's your goal?
I stopped messing with transacting them years ago. A low use of my time as a commercial broker.
If a property is a vacant gut job and sells for 4,000 a door at 50 doors that that is only 200,000 sales price. These properties usually have tons of issues to mitigate. For my time I am only looking at 6,000 commission.
These days I only look at properties that are larger units 50% occupied that trade at say 25,000 a door or more. If you are going to go after these smaller foreclosures that are vacant you need to live close by. Watch the contractors and everything else with the property. Limit how nice you make it on rehab and have lower rents year one to pick the best tenants and get performing fast. A buyer purchasing after you stabilize the banks lending on it will want usually 3 years history but will go for 2. Some will do 1 stabilized but they are harder to find and might require more down than 25% for a buyer when you flip it after turning around.
Thanks for all the replies!
@Bryan L. - totally know it isn't an "easy" investment. We have one 11 unit building that we own and it is definitely having some challenges. No matter what kind of deal, you still need to do due diligence and and make sure your prepped for whatever comes with it.
@Chris Winterhalter - Looks like you are in the Cincinnati area? Is that where your two deals came from? Our long term goal is to own apartment complexes for long term cash flow. We wouldn't mind a little bit of work on the properties, but obviously would be looking to turn them into cash-flowing machines pretty quickly.
@Joel Owens - I'm not ready for a totally vacant project yet in my career. I'm still working full time and investing is just a hobby for now. Hopefully we can retire from our jobs in the next few years though.
Anyone have ideas on financing these deals? Would the banks that own them finance them? Some of the comments above say Cash Only, but it looks like those are the deals that are the bigger project deals?
Thanks again for the input- again, I'm just checking to see if this strategy has potential or if it is something that may work in my season of life now.
- My comments about the "safety" of multi-families was more for the benefits of any newbies who might be reading this later. There are so many newbies on here who have some strange idea that mf are somehow "safer" than single-family investing. And they have no clue that they can lose their shirt even with good due diligence.