We have our eyes on an out of state multifamily 80 units property right under $2 mil. The numbers look very good, meeting the 2% rule. The location is good, safe, but the schools are bad. The seller is putting in an call for offers, though the property seems to be on the market for quite a while(almost half an year judging from the snow covered ground pictures).
So what could be the pitfalls for such a seemingly good deal? The building is about 65 years old, and at least one building has water leaking issues.
We had the first exchange of emails with the listing agent. Should we still consider a buyers agent in such case? If we do get an agent, would that be considered as a negative by the seller because of added commission cost so as to lower our chance of further reducing prices? Me and my partners are new to multifamily REI.
A 65 year old building places it at 1949 vintage. LOTS of problems with that vintage year.
Likely have galvanized water main and plumbing, cast iron sewer, wonky electrical, asbestos, lead based paint and on and on.
Most of my clients are buying in warmer client states. The cold states except for urban to some suburban are dying off and contracting as baby boomer retirees are moving away. That drives job growth, pop. growth, etc. to other warmer climate states. Also many of the colder climate states tend not to be business friendly and do not have friendly tenants laws in favor of the landlord.
The seller signed a listing agreement with the listing agent that almost 100% of the time offers a co-op to the buyers broker so it is not a negative to the seller.
Your last sentence tells it all. You are new to multifamily which is why you definitely need a broker on your side. Someone who not only is a specialist but knows the multifamily as an investor themselves.
Do not believe the numbers the seller tells you...... : )
All the best.
1. Education before Investing - Books, Seminars, Local REIA, plus your RE Mentor/Network
2. Start Small and Work up - Fail Small at Begining not Large.
3. If this property is for families - Poor Choice, but if it's for single adult, No Problem!
4. Representation- You need many people - CPA, Lawyer , Property Management
Advisor & an Experienced Commercial Multifamily Broker/Agent.
5. Who will be your Buyer in the Future of this property ?
6. Look at ~ 100-400 properties before buying.
Best Wishes & Good Luck, Mitch S.
Hi @Joel Owens:
Thanks for the advice. Yes, we definitely will be looking at the south as we'll be moving south in a few years. For our first property, we are looking somewhere we can easily get to if needed.
We plan to use a broker now. What questions do you think we should ask to help screen for a good agent?
I'm also concerned about the truth of the seller's numbers. But how can I get to the bottom of the real numbers? Will the detailed tenant roll, signed lease agreements, and rent payment status, etc over past 12-24 months help?
Hi @Mitch Stanley:
Thanks for the suggestions. They are very good advice. We'll use this property as an educational opportunity to get our feet wet. We don't necessarily have to buy it in the end. It'll be interesting to get involved in the real life ins and outs of the mf investment.
What questions do you need to ask a broker/ agent??
1. Are they specialized in the asset class you want to buy in??
2. Do they have development experience to know not only what a property is but what it could be ( highest and best use)??
3. Are they an investor themselves and understand it from the ownership perspective as well as the broker side??
I transact all over the country for clients. I have commercial development experience, my asset class specialties are retail and multifamily, and I am an investor myself.
Before you look at any property you need someone to look at your PFS statement and liquidity and net worth levels. I can usually tell right away what you will qualify for and what you will not.
The property doesn't have to be local if you buy with a certain scale and quality. I usually talk to people on the phone to help find their direction.
All good advice here! Keep in mind, the MF space is full of fluffed up numbers, so you really need to have your eyes wide open when looking at deals. When you have looked at 100 properties, you will be able to sift through the fluff and spot a deal worth pursuing.
Who can assist you? A good broker, other investors with experience, a good property manager who manages similar buildings...
I agree with Joel regarding warm weather climates. (of course I am biased)
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