Six Ways to Locate Properties
Finding just the right property can sometimes prove to be challenging. Utilizing a comprehensive approach will provide you with the greatest chances for success. You must be willing to exercise patience and diligence in your search. Doing so will enable you to minimize your risk and maximize the return on your hard-earned investment capital. The more sources you have available in your arsenal, the better your odds of locating the type of property most suited to your objectives. In my experience, the following have all proven to be useful at one time or another.
2 Flats for Sale in Chicago – X Plus Real Estate from Six Ways to Locate Your Properties / Apartment, source:xplusrealestate.com
Six Ways to Locate Properties
1. Real estate brokers.
2. Classified advertisements. Industry-specific real estate publications.
4. Local and national Web sites.
5. Associations and real estate investment clubs.
Real Estate Brokers
Having two or three real estate brokers scouting properties for you is one of the most effective ways to quickly and efficiently identify potential multifamily property acquisitions. I must stress that it is crucial to your success to ensure the competence of the brokerage team you put together. I have worked with many brokers; their range of expertise and experience varies greatly. There are residential brokers who focus primarily on single-family dwellings and occasionally sell a duplex or triplex and suddenly think they are qualified to represent you in a large multifamily property transaction; in truth, they will have no clue as to the intrinsic value of the apartment building you are considering because the valuation approaches are so different. Single-family property appraisals are largely based on comparable sales, while multifamily property valuations are driven primarily by income. Then there are commercial real estate brokers who focus on a mix of income-producing properties. These will often include office buildings, retail strip centers, small businesses, hotels and motels, industrial sites, and, finally, apartment buildings. This group of brokers is certainly more qualified than the residential brokers, because they are used to valuing properties on an income basis rather than on comparable sales. To clarify, comparable sales are taken into account when valuing apartments, but the values are predominately derived from the income approach, which is discussed in much greater detail in the next chapter.
Finally, there are those brokers who focus solely on multifamily properties and nothing else. These are the people you want on your team! These brokers are generally experts in the multifamily property industry who have migrated from single-family or commercial sales for one reason or another. Their specialized knowledge can save you a great deal of time, energy, and money. Apartment brokers are well informed and are in direct contact with buyers and sellers every single day. They know which areas of town are hot and which are not. They also know when new properties are about to be made available for sale, so if they know what you are looking for, they can notify you immediately when an apartment building that meets your criteria hits the market. It is important to note that a Multiple Listing Service (MLS) such as the one used for single-family houses does not exist for apartment buildings, but apartment brokers are plugged into a network of similar brokers, and they will be among the first to know when a building becomes available. This can vary, however, because brokers will sometimes attempt to keep a listing in-house and offer it to their own lists of buyers to avoid splitting the commission with another agent.
An additional advantage apartment brokers can offer is that they often maintain an extensive database of apartment owners they can contact. Even if an apartment is not officially listed for sale, the broker may know from a prior conversation that if the right buyer comes along at the right price, the owner would consider an offer.
Most larger metropolitan newspapers carry an “Apartment” or “Multifamily” heading in the real estate section; this will often provide a handful of listings. Sometimes they may be found in the commercial property section. The information in these ads is usually fairly limited. They are designed to get you, the investor, to call the broker for more information. This can be an effective way to get to know apartment brokers.
Industry-Specific Real Estate Publications
Companies and organizations in many areas periodically publish books or magazines that are specific to the commercial or multifamily real estate industry. Some of these are regional, while others are national. The national publications are often geared toward larger investors, as such investors tend to diversify by investing in many areas throughout the country. These publications can be a very good source for locating potential deals. You will also find many helpful real estate–related advertisers in these publications, such as apartment brokers, lenders, appraisers, environmental engineers, and surveyors.
Local and National Web Sites
There are a number of Web sites that offer all kinds of information about apartment buildings. You can do a local search by keying in a phrase such as “multifamily listings Dallas,” for example, and you should be able to find something. The most comprehensive and well-known Web site related to commercial properties is LoopNet. You can find it on the Web at www .loopnet.com. LoopNet boasts more than 130,000 listings for various income-producing properties, including office, retail, hotel and motel, industrial, multifamily, mobile home park, and land listings. With approximately 1.5 billion square feet, it also maintains the largest inventory of commercial space available for lease. It is essentially the Multiple Listing Service for income-producing properties. Unlike the MLS, you do not have to be a real estate agent to access LoopNet’s listings. It is very much like a public MLS for commercial properties made available to anyone with a computer and access to the Web. You can search by property type, state, county, city, price range, and minimum and maximum square feet, as well as several other criteria. Most listings provide a descriptive overview of the property, photos, and limited financial and offering information.
Associations and Real Estate Investment Clubs
Most cities have a number of real estate investment–related associations and clubs. These clubs provide an excellent opportunity for you to network with others who share similar interests. Members often include investors like yourself, real estate brokers, tax and real estate attorneys, engineers, appraisers, and other real estate professionals. Club and association members will usually meet on a periodic basis, such as monthly, to discuss current events and share information. In addition, they will frequently feature guest speakers who provide insight into a given area of expertise.
Smaller local or regional banks can also be a good resource for locating properties. Lenders, of course, are not in the business of managing real estate, nor do they want to be. The very nature of their business, however, demands that they assume risk with every loan they extend to borrowers. Unfortunately for the banks, those borrowers sometimes default; when they do, the lender forecloses on the property, and the real estate is transferred into the lender’s real estate owned (REO) portfolio. The last thing banks want to do is be in the business of collecting rents, so they will usually have property management firms manage their REO portfolios.
Lenders are often quite flexible in the terms and conditions they are willing to offer, which may result in an opportunity for you to reach an agreement that is acceptable to both of you. The basis for the lender’s starting point will likely be determined by the hard costs the bank has sunk into the property. While the bank will no doubt make every effort to minimize its losses, if it is anxious to get the property off its books, there is a good chance it will be willing to negotiate in your favor by agreeing to write down a portion of the loan. If the deal does not make sense for you as an investor, you are better off letting the bank keep the property.
The best approach to identifying the property best suited to your specific needs will include using as many of these tools as possible. The most important thing to remember is to be patient. You will find the right property at the right price with the right terms. As the employer of your capital, your task is to have your employees (your capital) working as hard for you as possible. This means that your investment must offer an acceptable rate of return to you. Only you can determine what is acceptable. It is best to establish what is an acceptable rate of return early in the process, so you don’t make the mistake of lowering your standard because you think you have found a property that is okay. Determine what your investment criteria and objectives are; implement them as an initial filtering device; and, when the time comes, be prepared to execute your acquisition strategy.