If you’re wholesaling apartment buildings, your job is finding deals. Not just good deals, great deals. This is what makes wholesaling work–deals so good that investors act fast to take them off the market, before other investors snatch them up.
The ideal market for this is one where there are plenty of properties available to buy and growing investor demand. This situation is most commonly found in markets that are transitioning from a downturn or depressed economic state to an expansion.
There are a quite a few ways to source multi-family deals, but these two approaches will provide you a steady flow of great deals that you can either flip for cash or buy and hold for cash flow.
Brokers are a good source of deals, though mainly in down markets. In hot markets, the money is flowing and brokers take on a Master Of The Universe attitude, making them difficult to deal with. Properties are selling at list–or being bid up. They don’t need you.
When a market correction comes though, the situation reverses. Banks outsource the liquidation of their REOs (Real Estate Owned) to asset managers, who in turn engage brokers, and there are waves of multi-family REO listings. Supply exceeds demand, and they need your help to turn the properties back into cash.
It’s never a laydown. Most brokers have made unrealistic promises to an asset manager as to what price they can bring in, so they are going to carry on with hardball inflexibility on price the first time you contact them.
What puts the negotiation in your favor is… the numbers. There are so many other properties on the market ready to be liquidated that the market just won’t support the price the broker wants you to pay. Eventually (if they want to sell) the price must come down.
Here’s how this plays out in reality… Buyer #1 offers list price, but after two months he finds he can’t raise the money, and the deal falls out of escrow. The broker is unhappy, but believes it was a flaky buyer at fault, not too high a price.
Three weeks later, Buyer #2 offers 95% of list price. But again, seven weeks into the contract the buyer backs out, unable to raise financing. The broker is disappointed and starting to lose some face, but he still blames “buyers.” He talks with the asset manager and lowers the list price by 10%.
This scenario plays itself out two more times, and the listing is about to expire a second time. The broker now feels there’s nothing to lose and advises the asset manager that: Due to market conditions, only a large price reduction will sell the property. He gets the OK.
Throughout this whole period, you’ve stayed in touch with the broker, knowing what you can pay and calling every two weeks to see if the property is available at that price. You may have made first contact during Buyer #1 or during Buyer #4.
Regardless, your professionalism, and relentless bi-weekly follow up contact puts you on the broker’s radar and ever closer to being the “go to” investor when price finally comes down.
Finally, the day arrives when the broker learns that Buyer #4 is not going to close. The broker may reach out and call you. If not, you catch the fact in your regular follow up. Now, with the seller and broker sufficiently smacked around by the market, both are motivated and open to an offer at your price.
You make the offer; it’s accepted. You easily find a buyer who pays you a six figure assignment fee for the opportunity to take over the property, stabilize it, and lock in seven figures in equity and a five-figure net monthly positive cash flow.
Play this contact and follow up activity out over five to ten brokers, and you have a steady flow of deals in development and coming to fruition. Over time, your reputation with brokers becomes gold plated, and deals start finding their way to you.
Brokers offer high leverage, and working them as above puts you in the path of great deals, one after the other. When the market heats up and the expansion phase gathers momentum, broker-sourced deals start to dry up. To tap into the broader pool of sellers (not serviced by brokers), you need other tools.
One of the most effective is direct mail.
You can get a list of all the apartment buildings in your county from the County Assessor. You can segment that list in a number of ways to uncover motivated apartment property owners needing a buyer to take their problem of their hands.
1. Out-of-Town Owners. One way to segment the list is to sort it for out-of-town owners. They’re inherently motivated sellers due to their distance from the property, lack of control, and high cost of doing anything about it.
Now you may think that this is obvious, but the truth is most people don’t like to spend the money it takes to put a mailing together and get it out. The funny thing is, most of us don’t blink at the $100 it costs for dinner and a movie, yet when it comes to investing $50-100 in a mailing campaign to get motivated sellers calling with deals that will yield five or six figures in profit, we balk.
As a result, these owners remain under-serviced, and the demand for buyers who can help them remains high. This will remain a great place for you to start looking for deals as long as people balk at the $50-100 required to put our a postcard campaign–i.e. forever.
2. Segment by size. Another way to segment the list is by apartment size. Most assessors have size range designations they put each property in. For example: 5-19 units, 20-40 units, and 40+ units in the case of my local county.
Once you have the list segmented into your desired target markets, mail them a postcard or letter quarterly. To stay busy, rotate through your different segments, one per month.
The result is a steady flow of apartment owners (at various stages of motivation) calling you to find out if you can help them out of the situation they’re in.
For each call you get, take the seller through a Lead Conversion Process that screens for motivation, the deal criteria you’re looking for, and floats an offer to the seller that provides a solution to the problem that’s driving them to call you.
If there’s firm interest, you proceed with closing. If the seller is interested, but not yet ready to go forward, put them on your follow-up list and stay in touch until they ready to sell on your terms or sell to someone else.
The qualifier for your following up with a seller is motivation–a factor in their situation that requires they sell. By following up with sellers who have genuine motivation driving them (partner dispute, inherited property, out-of-control management), you develop a pipeline of deals.
While there are other effective ways to source great multi-family deals, commercial brokers and direct mail are the two approaches you can count on to produce reliable results. Leave your comments below…
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