All Forum Posts by: Christian Brodin

With over $700 million worth of apartment investing experience, and experience from analysing several hundred apartment properties each year I will teach you the secrets that will allow you to analyse a new property in no time.

 Brandon,

My last two deals were a 249 unit new development project in Milwaukee, WI and a 460 unit property in Austin, TX. They were brought to us through our network of developers and lenders.

It sounds like you already know what you are looking for so I wont talk about that here, but I did want to say something about finding deals. 

4 years ago we had brokers throwing deals after us as there were very few buyers out there, but as you know times have changed, and now you are competing to get the brokers/sellers attention alongside a gazillion other buyers.

If there is one thing that I know makes all the difference with getting deals it is to show that you are a serious buyer, and that you can close, fast and with no re-trading. (not to give you bad news, but it might take closing on a deal or two before you will be in "good" standing with the best brokers and sellers). 

There is always the chance that you can find a deal on loopnet, but I would count those chances as very slim, especially if you are in a competitive market.

My best advice for you is:

1. Focus on a single market, an area of a city and a zip code.

2. Know exactly how much you are willing to pay for a property based on your data. I.e. are you a buyer at a 4% cap rate, or are you a buyer at a 12% cap rate

3. Get your ducks lined up, i.e. know that you can get financing, know that you have inspectors or engineers to walk a property with you, know that you have enough equity to close on the size of property you want etc. It literally means that you know that you can close.

4a. Go out and start talking to commercial brokers that operate in your area. Have a conversation about what you can and cannot do. Brokers hate to waste their time. Give them your criteria and have them set up an automated search. This is super easy, and should take no time on their part. Once a deal shows up you will hear about it, or get an email directly. 

4b. Start a search using a website like Redfin where you can search for available properties (predominantly 2-4 units, but sometimes you can find larger apartment complexes). Redfin actually allows you to search the MLS and find properties based on very specific criteria. The function is called Map Properties. ( I use it for finding comps too when analyzing properties).

4.c Talk to the property managers/ management companies in the area that you are looking. They usually know what is going on with competitors etc. 

4d. Use your BP community, plenty of people here looking for co-investors etc. You never know what you can find!

4e. Contact local lenders, title company, your chamber of commerce and anyone else that you think you can help you in finding sellers. Build a relationship! 

In summary:

There is no shortage of deals out there, but the ones where you can actually make great money on are getting very hard to find. In my experience only a personal connection will land you the best deals. However, you have to start somewhere. Using one of the above strategies find a deal that works for you, and make sure you close on it. This will open the doors to more deal flow!

Hope this helps. If not let me know what other questions you have.

Best,

Christian 

PS: If I missed anything feel free to chime in!

Finding great deals are taking more and more time, so why waste time on analysing deals that won't work anyway?

In This Webinar You Will...

• Learn to identify the 5 most important elements of a successful deal
• Learn how to make a model that works again and again. No more need for expensive software or books.
• Learn the "billionaire mindset" that will separate you from the rest of the apartment investors, and have you build cash flow and long term wealth

With over $700 million worth of apartment investing experience, and experience from analysing several hundred apartment properties each year I will teach you the secrets that will allow you to analyse a new property in no time.

All you have to do is to follow this link and reserve your seat before it is too late (seats are limited)

http://www.theapartmentinvestor.com/freewebinar

Thanks and see you soon.

Christian

PS: You can sign up here http://www.theapartmentinvestor.com/freewebinar

With over $700 million worth of apartment investing experience, and experience from analysing several hundred apartment properties each year I will teach you the secrets that will allow you to analyse a new property in no time.

In This Webinar You Will...

• Learn to identify the 5 most important elements of a successful deal
• Learn how to make a model that works again and again. No more need for expensive software or books.
• Learn the "billionaire mindset" that will separate you from the rest of the apartment investors, and have you build cash flow and long term wealth

All you have to do is to follow this link and reserve your seat before it is too late (seats are limited)

http://www.theapartmentinvestor.com/freewebinar

Thanks and see you soon.

Christian

PS: You can sign up here http://www.theapartmentinvestor.com/freewebinar

With over $700 million worth of apartment investing experience, and experience from analysing several hundred apartment properties each year I will teach you the secrets that will allow you to analyse a new property in no time.

In This Webinar You Will...

• Learn to identify the 5 most important elements of a successful deal
• Learn how to make a model that works again and again. No more need for expensive software or books.
• Learn the "billionaire mindset" that will separate you from the rest of the apartment investors, and have you build cash flow and long term wealth

All you have to do is to follow this link and reserve your seat before it is too late (seats are limited)

http://www.theapartmentinvestor.com/freewebinar

Thanks and see you soon.

Christian

PS: You can sign up here http://www.theapartmentinvestor.com/freewebinar

With over $700 million worth of apartment investing experience, and experience from analysing several hundred apartment properties each year I will teach you the secrets that will allow you to analyse a new property in no time.

In This Webinar You Will...

• Learn to identify the 5 most important elements of a successful deal
• Learn how to make a model that works again and again. No more need for expensive software or books.
• Learn the "billionaire mindset" that will separate you from the rest of the apartment investors, and have you build cash flow and long term wealth

All you have to do is to follow this link and reserve your seat before it is too late (seats are limited)

http://www.theapartmentinvestor.com/freewebinar

Thanks and see you soon.

Christian

PS: You can sign up here http://www.theapartmentinvestor.com/freewebinar

Jason,

In my experience a 24 unit property does not warrant a property manager, wether is is onsite or not onsite. You can use a management company, but then you will have to pay 8% of net revenue. If you are close to the property I would manage it myself, and save that money. A full time person is usually somewhere from 1,000 to 1,500 per unit. You could use a resident, but then you will have to manage that person, and the result could be all over the place.

So my advice. Self manage. 24 units should be ok.

Christian 

Milan, I just noticed that you said 10 units and not 15. so occupancy drops to 80% if two people move out.

Also you expenses are then $2,200 per unit. Much more realistic, but still light if this is the only deal you manage. only 3000 for management might be unrealistic as a property management company would charge you 8% vs your 5%.

Christian 

Milan,

Congratulations on being a multifamily owner and closing on a deal! It means you are playing on the court, not sitting in the stands.

On the surface your numbers look great, but when I looked at your per unit cost your expenses seem very light. Our best run property in GA operates at $2,500/unit and we are using our leverage of managing over 1000 apartments in the same area to get great deals with vendors etc.. Your number is $1,490 which is very, very low. That said your expenses as a % of net revenue  is at 37% so not all too bad.

Vacancy seems low if this is a C asset, in a C location. More likely it will be 8-10%. If your 2 non section 8 units are vacant you are already at 86% occupancy!!

I would also factor in concessions, and bad debt. (there is a reason the property is cheap, and that's because you will probably put in a lot of sweat equity collecting rents and dealing with residents)

On to the actual management and what to expect .

As you are discovering that closing on the deal is just the beginning, now starts the real work: Getting the property to perform consistently and provide you with cash flow!

Since you are self-managing I will answer your question from there.

Here is what I would do after taking over a new property (not in any particular order):

0. Join the local landlord association (this is invaluable with access to their documents and services like legal advice etc.)

1. Re-key the office or common areas

2. Conduct lease audit and make sure all documents are there (application, lease, proof of income, proof of payments for security deposit etc.) Make sure that documents are signed by both parties. 

3. Market Research (you may have done this already before the purchase, but time to update your information!)

- what are market rents from your comps (call them, use craigslist and whatever other resource you have to get this)

- what is the condition of units for your competitors (shop them!)

- what amenities doe your comps have

- what floor plans does your comps have (size, number of bedrooms and bathrooms)

- do they offer concessions/move in specials

- what term leases do they offer (just 12 months, shorter or longer)

4. Create a Budget with actual numbers not just estimates

- 12 months (plan your work and work your plan!)

- CAPEX (what will be your needs 1,2,3,4,5 years down the road). Get prices now so you know.

- get actual bids from your vendors

5. Accounting

- Complete your acquisition accounting

- setup accounting in quickbooks or apt managment software

- bank accounts (separate for operations and security deposits)

6. Switching Master Utilities (meters) account to new owner 

- Will they notify you when residents switch over to their name

7. Establish list of critical vendors/services with summarized contract info and contact details:

- Pest control (termite bonds?)

- Trash Collection (did you assume a contract or will you start a new contract?)

- Insurance company (are you shopping for best rates and coverage)

- Unit Turn Vendors (Paint, Cleaning, Flooring, again are you shopping for best rates and quality?)

- Emergency Maintenance (Plumber, Electrician etc.)

- Lawyer specializing in landlord tenant law (again you can use your landlord association and get familiar with local laws for bad debt collection, evictions etc)

- Police department, do they have community outreach programs that you can join to decrease chances of crime (Cameras and lights are great, but prevention is best!)

- Accountant for tax filings

- Tax appeal lawyer (?)

8. Remove old management information 

- Signs, phone numbers, website etc.

9. Establish critical documents for operation:

- what lease agreements you will use 

- leasing/screening criteria you will have in place. You can get this from your local landlord association.  DO NOT  DISCRIMINATE! Have fair standards that you apply to all renters and applicants (income requirements, criminal background checks, identification and document needs, etc.). Charge an application fee if needed to cover your expenses for this.

- rental application

- promise to pay notice for residents that pay late

- notice letters

- eviction letters and legal documentation

- unit inventory sheets

- unit inspection forms

10. Letter to residents for change in management (your landlord association may have a template with information they will need like phone numbers, mailing addresses etc.)

11. Meet and greet all of your residents, (if you haven't done this already, combine it with a complete unit inspection to assess capex needs/maintenance needs/ smoke detector/ leaks etc). (You should walk your units at least twice every year. Or whenever you go to replace filters for HVAC.)

Im sure there is much more you could do, but this is just the basic things that I can think about when taking over the property. 

As for management software we use ResMan and we are extremely happy with their software and their customer service. (we use them on everything from duplexes to several hundred unit properties). I cant remember what we pay per unit now, but can find out if you are interested. 

I hope this helps.

Please let me know if I have missed something.

Christian

Nick,

Every year I screen 150 to 200 deals. In my experience a lot of the classification has to do with the overall quality of the building and amenities. In addition to the location.

So there are two essential parts: Location and Quality of the building and amenities

Quality of the building and amenities

When it comes to the Quality of the building and amenitieshere is how I would approach it.

A Class, also referred to an institutional product (meaning that a REIT, a Pension Fund etc. would buy this property)

If you have a new apartment complex (less than 4 years old), with high end finishes in the units (Bluetooth speakers in the showers anyone?) and amazing amenities like climbing walls, resort style pools, rooftop gardens, AND renters that are willing to pay top dollar for rents you have an A Class building.

Ceiling heights will be 9’, and most new apartment complexes will have a parking garage vs ground floor parking.

Most professional real estate investors look for the exit (who will buy the property at time of sale) when they build or buy apartment buildings. If you are in the A class property game your most likely buyer would be an institution that want no hassles and as close to a stable performance as possible.

B Class

Age of the apartment complex will typically be 5 to 10 years, the building is of good quality, but is "dated". Building techniques changes a lot, and over the years you will see a marked difference in the way the buildings were built. So does style of interiors and amenities too. It used to be that people wanted tennis courts, now a new buildings comes with climbing walls and Crossfit gyms. Some properties also have fitness instructors, spinning class rooms, yoga studios, you name it.

Interiors will also differ. A lot. Older properties tend to have carpets, and dated kitchen counters/cabinet. Appliances might be your typical white or black standard quality. My guess is that rents will be 15-25% lower than A class.

So, if you want to know what a B class properties are, think of them as (slightly) dated A class properties.

C Class

Now we are talking buildings that are 15+ years old. Styles and construction techniques will vary greatly. Many buildings in this era were built with a floor plan layout that doesn’t match the need of more modern generations. , i.e. 2 bedroom 1 bath instead of 2 bedroom 2 bathroom. Ceiling heights will be 8’ vs new buildings with 9 feet ceilings.

Finishes are dated. Typically these properties will be of the garden style type, where 2-3 floor buildings are spread out over a greater area. Parking is typically a big open space. Upgrades may or may not have been done over the years, but have long passed, and upkeep is kept at a minimum.

You might encounter aluminum electrical wiring, galvanized steel plumbing, led paint and even asbestos because of the age of the property.

Because rents are substantially lower the income demographics of the residents may be towards the lower end too.

D Class

Now we are talking C Class properties where the owners for various reasons have not maintained the property. The quality is noticeably low and it is in need of immediate, and substantial repairs.

In my experience these properties are located in areas with very low income demographics.

Location:

The second criteria that I look for when I classify an apartment complex is location. Location is in my opinion maybe more important than the quality of the building at the time of purchase (of course within reason).

A location.

A location is the area where you are getting premium rents. There is no shortage of renters willing to rent at this location, and they are willing to pay up to live in this area.

It will usually be in an area with plenty of amenities like shopping, restaurants, bars, or other features like great schools. Weather you have a C class asset, a B class asset or an A class asset you get the highest rents in the area. In my opinion an A location can be in cities like New York and San Francisco, and in other markets too like Chattanooga TN, or Milwaukee, WI.

I guess I can tack on the notion of super A locations. Like Park Avenue in New York where ultra-high net worth individuals would buy million dollar condos, but this is far beyond the A location that I typically use for an apartment complex.

B location

A B location might be an area that is up and coming, and where people are moving too. Or it could be a more suburban area that still see nice homes and strong home prices, but further away in terms of amenities.

Schools are good to very good and it still has a lot of amenities. Rent levels are strong and stable, and have potential to grow. Income demographics would be mixed between good paying blue collar jobs and white collar jobs.

C location

A C location would be an area with lower income demographics, schools will probably be in the mid to lower range. (You can use Zillow.com to look for school classifications/rankings).

Rents are generally lower, and vacancy might be higher due to higher turnover of residents.

Amenities are not great, and might have more fast food chains, car dealerships and pawnshops that other businesses.

D location

A D location is to say it bluntly a low income demographic area, and will very often be marked by high levels of crime, poor schools, abandoned buildings, and sprawl.

Regardless of the quality of the building and amenities, and the location, I have met, and continue to meet investors who specialize in all sorts of locations and with all sorts of buildings and amenities. And they are successful at what they do.

Some investors prefer the stable returns of A class apartment complexes in A locations, and some people prefer the more management intensive buildings in D locations.

In this blog post my intention was to clarify how you can classify an apartment complex and a location. I hope I have managed to do that in an easy-to-understand way.

I would love to hear your thoughts, and get your input if I left something out.

Thanks,

Christian