With the record amount of residential foreclosures in recent years, there poses a great opportunity to profit from rental housing by investing in Apartment Buildings. However, even if you recognize this opportunity, you must know how to go about financing any potential apartment investment that you come across.
In today’s turbulent economy the best real estate opportunities will be awarded to the investors who have access to capital. It is not enough to rely strictly on traditional financing or hard money lenders to finance your apartment deals.
How to Analyze a Real Estate Deal
Deal analysis is one of the best ways to learn real estate investing and it comes down to fundamental comfort in estimating expenses, rents, and cash flow. This guide will give you the knowledge you need to begin analyzing properties with confidence.
Here are 4 Alternative Methods to Finance Your Apartment Investments
1.) Finance Companies – Joint Ventures are an excellent method for financing apartment deals or any commercial real estate for that matter. One of the best methods for finding joint venture partners is to seek out finance companies that not only offer traditional mortgages, but also joint venture with real estate investors on projects that make sense.
A great resource to find these finance companies is through the Scotsman Guide. The Scotsman Guide is the leading trade magazine for mortgage originators. You can go to their website and search for lenders who specialize in commercial real estate and more specifically multi-family properties. You can search for lenders through their lender “matrix” and you will instantly have access to lenders who provide commercial financing. You will also be able to see which lenders accept joint venture proposals, what part of the country they specialize in, and their minimum and maximum loan amounts.
Once you gather this information, the next step is to contact them and see what their procedure is in regards to accepting joint venture proposals. You can also take it a step further and see if you can connect with a decision maker through social media sites such as LinkedIn, Facebook, Twitter, etc. Now you will have to bring some money to the table and you typically will have to pay for all of the upfront due diligence fees before they give you a financing commitment, but for what it’s worth, you now have another potential source of funding for your commercial real estate deals.
2.) Small Private Equity Firms – Small private equity firms are also a good source for financing for your apartment investments. The keyword here is “small”! Many private equity firms will only consider funding your project if it is $50 million or higher, but there are funding opportunities and joint venture opportunities with smaller private equity firms.
The private equity market is vast and sometimes it can be difficult to find a firm that specializes in the type of deal that you are interested in acquiring. Every firm has their own criteria in terms of property criteria, loan amounts, demographics, risk tolerance, return of investment (ROI), etc. Finding a firm that is a good fit for you will take some time, so you should get started early and work hard to develop meaning relationships that can benefit you in the future.
The best way to find potential private equity firms is to totally immerse yourself in the world of private equity. You should constantly be on the lookout for Private Equity blogs, magazines, and trade associations.
3.) Registered Investment Advisors – Investment Advisors provide an additional way to get your deals funded. Investment Advisors generally manage the assets of high net-worth individuals and institutional investors. These advisors are responsible for analyzing and recommending suitable investments for their clients. Every advisor or advisory firm has their own criteria in terms of the investments in which they specialize. Most firms specialize in the equities market, but there are numerous firms that specialize strictly in real estate and other alternative asset classes.
Registered advisors typically overlap with the private equity market, so you will probably come across advisory firms in your search for private equity firms. However, a quick Google search will allow you to find firms that specialize in real estate. Simply Google “real estate” AND “register investment advisor” OR “investment advisor” OR “wealth management”, etc. By conducting this search regularly and scouring the web for advisory blogs and trade magazine, you are destine to find a variety of advisors who specialize in real estate. Contact them and see what their procedure for acquiring real estate.
4.) Private Real Estate Investment Firms – Private real estate firms is a broad term for any person or company that invests in commercial real estate. These companies might be traditional development companies or simply a group of private investors who invest in real estate in their spare time. It is your job to see them out and contact them to see if they are actively seeking new projects, and if so, find out the criteria of what they are looking to purchase and find out if they joint venture with other investment firms.
You can find these companies with a simple Google search of “private real estate investment firm”. Once you begin to navigate these company’s websites you will begin to see similar industry jargon such as: “asset management”, wealth management”, etc. Conduct additional search using this specific jargon and “real estate” and you will find an abundance of companies that are actively looking for deals and joint venture opportunities.
In the general scheme of things all four of alternative financing sources above fall into the “private equity” realm. In order to compete in the current market you must have access to private capital either directly through your own private investors or indirectly through the sources above.
Hopefully, this article was helpful and provided you with more insight on additional methods to finance your deals. If you have any questions, we can carry the conversation over into the comments below so please let me know your thoughts and comment below.
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