Why It Takes 200 Deals Before You Find “The One”

It’s normal that you do have to look at a hundred deals before you really find out what makes sense. But with the competitive nature, where we are now in the market cycle, it’s 150 to 200 for a lot of groups. Charles Seaman can definitely attest to that.

So almost all of his deals come through broker relationships. If he is doing smaller properties, he advice's you could probably go direct to the seller in certain cases. But when you’re looking at 100-unit apartment buildings, they’re almost always going to be listed with a broker, so you want to have strong broker relations. Most of his deals did come through there. He had looked at a lot of different deals, but the 92-unit actually came to us by way of the person that sponsored it. So, he had a good relationship with the gentleman that sponsored it. It was somebody that he had looked at previous deals with and something that we submitted offers on but didn't pan out for one reason or another. He’s based in the Atlanta market. So, he has a lot of good connections there, and somebody had presented this deal to him. But it wasn't the right fit for him personally, because he does 300 and 400-unit deals. So, somebody just starting out probably saying, “Who wouldn't want a 92-unit deal?” But when you’re doing 300 and 400-unit deals, 92 units is like a baby deal. So, he thought of him, because he worked with us a couple of times. He said, “You know, I know you’re actively looking for something. Do you guys want it?” We took a look at it. The numbers made sense, and then we went forward from there.

There’s a few different things that he does. So, he has an underwriting template he uses that just kind of shows us where the property is at now and where it will be when he acquires it. Then after that, if it has any potential initially, he’d write out further, usually over a five-year schedule, so he can see what the projections will look like. Most times, his goal is that he wants to see something that's really going to be delivering at least a 10% cash-on-cash return by the time that he has his value-adds implemented. So that may not be an acquisition. For somebody just starting out who’s not aware of it, your value-adds are going to be all the things you’re going to do to increase the value of the property. Most deals, unless it’s a major repossession with a lot of upgrade work, he tries to implement the value-adds in year one. So, by the end of year one, he wants his cash-on-cash return for the investors to be at 10%. The annualized rate of return that he looks for is a least 60%, because according to him that’s what helps attract investors.

Listen to full episode: https://lifebridgecapital.com/2019/10/ws363-why-it-takes-200-deals-before-you-find-the-one-with-charles-seaman/