Rental Property Investor · Napa, CA · Member since 2016 · 68 posts · 57 votes
Hey BP - I'm hoping to get some feedback on a project I'm rolling out shortly.
I have a list of multi-family properties (16-120 units) in multiple cities that I'm interested in purchasing in North Carolina, Tennessee, and Texas.
I want to present the owners with a preliminary offer to them based on only Co-Star and public record data I have on-hand (also have Propstream and Reonomy). I have not spoken with these owners and do not have information on rents, operating costs, conditions, etc
The goal is to present a ballpark figure via direct mail to gauge interest, initiate conversations, reduce tire-kicking, and have more productive conversations.
What is the best way to approach presenting a preliminary offer to a multi-family property owner before having spoken to them?
Some ideas I had were:
- Finding cost/door data for recent sales for each city
- Assuming NOI based on market rent data
Obviously each of these methods has limitations, but I'm curious on everyone's thoughts on the most accurate way to get a ballpark offer price, based on limited amount of information.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
4y
I could be wrong but making an offer without knowing the financials will likely result in the offer being too low (which will get limited to no response) or too high which may get you a response but then having to pull the offer or lower it once you realize the financials do not support your offer amount. Perhaps making contact with them and gauging their interest in selling should be step 1. When you get into the 100+ doors, you are typically going to be dealing with more savvy investors as well so your results can vary depending on the size you are marketing to.
Brokers should be a source for you, especially for the larger complexes and you will need to form a relationship with them first and prove your ability to perform.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
4y
I could be wrong but making an offer without knowing the financials will likely result in the offer being too low (which will get limited to no response) or too high which may get you a response but then having to pull the offer or lower it once you realize the financials do not support your offer amount. Perhaps making contact with them and gauging their interest in selling should be step 1. When you get into the 100+ doors, you are typically going to be dealing with more savvy investors as well so your results can vary depending on the size you are marketing to.
Brokers should be a source for you, especially for the larger complexes and you will need to form a relationship with them first and prove your ability to perform.
Investor · CT · Member since 2021 · 20 posts · 16 votes
4y
@Tim McGarvey Hi Tim, good question and very pertinent too, as I am working on a campaign for mid-sized Multifamily in Connecticut. I can see why having an preliminary offer would be a good attraction, but, I held off because I thought it would most often be far off target and end up leading to seller disappointment. I was thinking of going with a more generic statement such as "...ready to evaluate your property and provide you with a fair, market value offer within X hours" I plan on doing some A/B testing to test a few options to see what works best. You might want to consider that too, you seem to have a large enough dataset to support it. But I could be wrong so I'm curious to hear what as worked for others or end up trying.
Realtor · Cleveland, OH · Member since 2021 · 1k+ posts · 1k+ votes
4y
I would consider sending a letter that shows your interest, qualifications and education on the local market. Having the owner know that you are serous is a great first step and this way you don't risk throwing out an offer that is over or under which will end up disappointing a party.
Developer · Boulder, CO · Member since 2018 · 530 posts · 365 votes
4y
@Tim McGarvey how about making an offer that ties your purchase price to meet a stated acquisition cap rate subject to verification of T-12 performance?
Lender · Vienna, VA · Member since 2021 · 61 posts · 33 votes
4y
It's not prudent to make an offer until you have adequate information. However, you most certainly could and should reach out communicating your interest in acquiring the property. Interestingly enough, you may actually be able to acquire the property for much less than you initially anticipated offering if there is a situation related to the property about which you are unaware (probate, etc).
BTW, I love reonomy just for this type of strategy. Good luck, and let me know if I can be helpful in introducing financing.
Investor · Detroit, MI · Member since 2014 · 97 posts · 40 votes
4y
@Tim McGarvey I think your first initial contact with a potential seller should express how strongly interested you are in the property, how experienced you and your team are in the multifamily space and how you can add value to the seller. With the second contact you could ask for financials, underwrite the deal then put in an offer.
Real Estate Consultant · Lawrence, MA · Member since 2020 · 216 posts · 157 votes
4y
I agree with a lot of the sentiment about offers here. You can get away with it a bit more with single families, but with multi's, especially of this size, there are too many factors that could +/- the valuation in a significant way.
How many prospects are you targeting @Tim McGarvey? If its a few hundred, I'd suggest to just start mailing. If you need help with messaging, I'm happy to share examples.
if your list is under 100, I'd suggest doing the research on valuation, and sending them a kickass personalized letter, complete with offers/contigencies/etc. I'd still warm them up with a couple letters first, simply expressing interest.
Investor · Northern California · Member since 2020 · 33 posts · 17 votes
4y
@Tim McGarvey, I am curious why you want to put a price in the direct mail. It seems that there is an underlying assumption that owners will be willing to speak with you if you put an offer price in the letter. Did you see this tactic work well for you or anyone you know? However, placing a price in the initial marketing letter seems risky. If the property is performing well, and you are going with averages, the owner will be disappointed.
On the other hand, if the property is performing poorly and you offer a lower valuation, the owner will think the letter was a bait and switch. Therefore, my recommendation is not to put a price. Instead, play up your other strengths such as experience, ability to close quickly, etc.
Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
4y
Be careful as you can inadvertently cause reputational damage to yourself. There is no good way to both make a strong offer and provide a bunch of caveats for yourself, and by trying you risk being seen as an amateur who throws out lots of offers and nothing happens...
If you want to put a number on it, you have to be comfortable that this number sticks.