Wholesaling apartment communities

9 Replies

Hi everyone,

I am a real estate investor and agent in the Oklahoma City metro area. I have been selling wholesale real estate for the past 6 months primarily single family investment properties. I have recently began moving package deals such as rental portfolios. Currently the most I have moved in one transaction is 9 single family homes. The company I work for is also getting into smaller multi family deals such 4-plexes and small apartment communities. 

Does anyone have experience buying or selling wholesale deals with apartment complexes? I would like to know how the transaction should be structured because there is so much more due diligence that must be done on a larger transaction. I would think that a 60 day inspection period would be good enough for a larger building (20+ units). There are lots of value add opportunities in the Oklahoma City metro area but I have not yet sold a complex. We may be getting a 61 unit apartment community under contract in the next week or so and I would like to sell it as soon as possible. I have been studying large multifamily real estate for the past year so I have an ample amount of knowledge to evaluate the deals and calculate ROI, Cash on Cash returns, NOI, Cap rates, expenses, etc.

I am always striving to learn as much as I can from experienced investors. I also think one of the best ways to learn in this industry is to take action, start doing deals, and learn from what troubles or mistakes may arise. Thanks in advance for all of your help! I am happy to hear anyones input on the situation or anything that can be said about 20+ unit deals.  

Happy new year!

@Wougi Heap of Birds First, is that your real name?! Pretty fascinating! :)

Though apartment buildings are larger deals compared to SFR, the same idea still prevails in that the buyer will still have to undergo a due diligence period and if you, as the wholesaler, has a good relationship with the seller and he/she knows that you are essentially brokering the deal, so I don't really see any problems here.

Now, for a deal of this magnitude to be successful, you will need to a ton of "vettable" information to the buyer meaning you would have to tease out T12, leases, P/L and other documents from the seller. The more information you have on an apartment building the better your chances of successfully wholesaling the deal.

Hope this helps. Good luck. Thanks! - Ola 

Hey @Ola Dantis thanks! Yes that is my real name. Cheyenne Arapahoe from Oklahoma. Thank you for the valuable information. I will be getting the T12, leases, P/L etc. from the seller before we get it under contract. I also believe it is very important to create quality and transparent relationships with anyone I do business with so I appreciate you mentioning that.

Thanks again and happy new year

@Wougi Heap of Birds due diligence at that scale becomes more than one type of inspection.  Once you start scaling up, I'd recommend running separate due diligence periods for title, financials, lease agreements, physical structure, financing, consecutively.  I think 60 days if you're just talking about a building inspection is waaaaay too long.  There's no reason that you can't inspect a 25 unit apartment building in two to three weeks.  It should take half a day to get it done with a team or a full day with one person if you're really looking in every nook and cranny.  

Usually I structure my due diligence periods in phases that only conclude after the requirements of the previous one have been satisfied (i.e. all financials requested are received + 7 days to review documents).

Contract to close, most multifamily deals, unless there's some significant changes or external approvals needed (i.e. city permits needed to rehab a rundown apartment complex), shouldn't take more than 90 days, and see many close in 60 or less.  More complex deals can certainly take longer, but the cut and dry ones where its just multifamily sales are fairly straightforward if the seller is adequately prepared and has the information readily available.  

Hi @Matt Lefebvre ,

Thank you for the advice. I appreciate that you clarified your methods pertaining to inspections. I will make sure to set up time frames with my transactions that will allow for inspections and allotted time for the review of gathered information. 

Thanks again!

@Wougi Heap of Birds I own one 20+ unit apartment but it wasn't purchased from a wholesaler. What I would say is that you buyer pool is likely completely different from someone who is buying an SFR or a group of SFRs. I don't know what your buyer pool looks like today but financing also comes into play. So many wholesalers here need the "quick close cash-buyer" in order to make their turnaround time (assuming you're not flipping). The group of people that can come up with $150K for an SFR is monumentally larger than the group that can come up with $1.8MM cash (just guessing $30K per unit for 61 units).

Consequently, you might not need 60 days for an "inspection" but finding a buyer...with cash...that can do their due diligence...and is willing to close...in 60 days...that could be a real challenge.

What could/would help is if the properties were professionally managed today. At least then there's a potential "neutral" 3rd party that is providing the T12s, leases, etc. I know whenever I've vetted a deal I don't give too much weight to owner provided numbers, opinions of a listing agent, etc. I'll listen to my agent and give solid weight to any 3rd party produced T12 from a reputable management company.

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@Wougi Heap Of Birds we just closed on a 125 door townhome community in Lexington, Ky in December. Our timelines included: Accepted LOI, 10 days to PSA (actually took 13), 30 day Due Diligence period, 30 Days to close, with up to 2 (15) day extension periods. One extension period was used (when requested we had to put more $$ hard). We also had to put $$ hard up front to secure the deal. While it was tight, that timeline was more than adequate. Savvy sellers in this tight market will likely get squeamish if you push for timelines which are much different than the above.

You don't need to close on the deal to wholesale it. Either get it under contract or act as the bird dog and allow the buyer to negotiate. If you have a contract between you and the buyer or seller, then you still will get paid. I would want a full 30-45 DD period and 30-45 day closing period to close as a buyer. 

Thank you @Andrew Johnson for you insight on 20+ unit deals. I currently have a buyers list of about 230 investors but only 2%-3% of them would be able to purchase anything over 20 units. As you stated, finding a cash buyer that can close quickly for something like this is hard to find. I would like to get in contact with more REITs brother funds that purchase large multifamily buildings.

Thanks again for your knowledge and experience!

-Wougi

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