is it tough to find properties with built in equity?

Question

how tough is it or what is the likelihood of finding an apartment building, on the larger end (80+ units) with 10-20% built in equity? Like are they out there but tough to find? or is it nearly impossible to get a great deal like that?

Brian Adams · Answer

@Jonathan Olivares finding deals with equity at closing is a lot of work. They are out there and you will look at a lot of product to find the right one.

I bought a 209 unit deal where at closing had $1.4 million in equity at closing, here is a link for you.

Bought 200+ Unit Apartment Complex, Increased Value Over $4 Mill

I bought a 240 unit where there was $500k at closing.

Just Closed a 240 unit Apartment Complex

I am buying a 556 unit deal that has $4.5 million at equity at closing.

Who has bought a 600 unit deal before?

It will take a lot of work and these deals weren't just handed to me. I have bought over 1000+ apartment units and have a track record so brokers know I can get deals done.

Be prepared to network and work your butt off and deals with built-in equity are out there.

Olatunbosun Idowu · Answer

Jonathan

What you need is not what you can readily see in the market you need not only search all available inventory on the market but also involve Investor's brokers and agents or better still get information on where and when there will be foreclosure sales of real property assets. The whole essence of real estate investing is to get a great deal with with both equity and cashflow potential but for an apartment building of 80+ units with built in equity may be a difficult one to pull off immediately because most of these apartments are most time owned in partnership or as a syndicate group or investors where even if they have plans to sell, it will take a long process of delibrating and  deciding on their plans to sell which I think may not happen quickly or may not even materialize.

I am not saying you can't get one that fits into your criteria but to great deal you must dig and dig deep into all available resources including foreclosures, auctions, short sales, it may take a long time to get what you want one.  Also ensure you perform your due diligence because such property are sold for a reason and you must do your best to find out why they want to sell it, so that you don't fall into any unforeseen trap of the seller.

Andrew Johnson · Answer

@Jonathan Olivares At the size level you're looking at it's probably either individuals with a solid bank account or some kind of syndication group.  Those groups of folks likely aren't going to sell for a 20% discount unless there's a good reason.  It's almost a certainty that there's professional management so many aspects of the "hassle" that motivate some sellers aren't there.  Even if the owner does want to sell (example: they've owned the property 27 years and see depreciation coming to an end) they'll know in advance and list it with time to spare and likely with a 1031 in mind.

Then again I also think it's hard to establish how "real" the equity is in many cases.  Is it based on what the appraiser says?  If that's the case then 100% of my investment properties were bought with built-in equity!  Yippee.  But the practical side of me knows that if I had to move the property in 60-90 days it will hard to actually extract that equity.  Which brings me back to one of the points above, it's highly unlikely that someone would HAVE to move the property in a compressed time-frame to justify selling it at 80% of the value.  And that's just with me messing around with ~25 unit buildings, no syndication to complicate things, etc.

By the way, I'd LOVE to hear that I'm wrong and there are ways out there to get commercial apartment buildings (that aren't value-add, based on a pie-in-the-sky pro-forma, or in a warzone) with a 20% discount in today's market.

Jeff B. · Answer

IMO, nearly impossible unless it's in bankruptcy.