The first step to locating a deal is to search for leads. Here are a few deal sources for multifamily.
1. Online listing services: Websites such as Craigslist, LoopNet, and Crexi list commercial properties. While these websites may not necessarily have the best deals, they do include the brokers that list properties that can be a great source for initial leads. Look for brokers with several listings in a specific market and then get in touch with them. Build a good relationship with them and show yourself as somebody who is a serious player.
2. Direct-to-owner marketing: This is my favorite method and is how my team has found the best deals. Some of the perks of this method are that there is no broker to pay, and you can work directly with the seller, write your contract, have the seller sign it, and take it to an attorney to close it. Two strategies our team has usually used to get these direct owner deals are direct mailing campaigns and cold calling.
3. Direct Mailing Campaigns: Direct mail includes sending out batches of postcards or letters to apartment owners to bring them under contract. The two important steps to this are the list and mailer. You should have an investment criterion before you make your list that will help you get to the properties that are in line with your investment goal. What kinds of properties are you interested in? There are a host of online services like Listsource that can help you craft your list, draft your letter, and get it sent out. Or you could use your local GIS data source in your city or county. As you go, you can tweak your mailer to make it more successful.
4. Cold Calling: When calling, you’re looking to see if the owner is interested in selling their property, so ask direct questions. They may offer a positive, negative, or unsure response. If the answer is ‘no,’ thank them for their time and ask if you can call again at a later date and schedule a time frame. If the answer is ‘yes’ then get their information. If they say that they are not sure, then schedule a time when you can call back after they have had some time to consider your proposal.
5. Commercial brokers: A commercial broker is not only a key member of your team but can also be a good source for deals. In particular, they can bring you in on pocket deals, or deals that have not been yet listed. A broker might keep a deal in their pocket so that they can make it available to a preferred buyer, and if it’s someone you have a good relationship with, that could be you. But keep in mind that these may not be the best deals for you, since the broker first and foremost works for the seller.
6. Networking: Networking with other real estate investors can be another great way to get a deal. However, since you are dealing with investors, naturally, they want to maximize their profit. For example, if another investor is feeding you information to you on a deal that you’re not in on together, there are reasons for why they passed that deal up. Also, be careful that you only work on leads passed on by investors that are trustworthy and respectable.
7. Auction sites: These are sites that usually include leads that need you to come in with either cash or bridge financing to get the deal. Often there are additional risks with these deals such as high vacancy, capital expenditure needs, or deferred maintenance. In addition, they don’t qualify for traditional financing. As such, you’ll want to be extremely careful when dealing with this type of property, and likely avoid them until you gain more experience.
8. Property managers/service providers: Once you begin to work with them, property managers can be a useful resource for leads. Typically, they will recommend brokers in their market. Utilize the people that you build relationships with in the real estate arena. Some other team members that you can look to for leads are home inspectors, contractors, mortgage brokers, and lawyers.
9. Community banks: Many banks have recourse debt, and so they foreclose. Banks don’t usually own multifamily real estate, so when they do, they’ll usually look to offload the asset onto a company with the experience of successfully running apartments that have loans. After you establish a working relationship with your bank, it may be beneficial to ask them about their non-performing assets.
Other leads on real estate may come as a result of local evictions, building code violations, delinquent taxes, or owners facing foreclosures. Lists for these kinds of housing issues can be found through your local clerk’s or sheriff’s offices.
These are some of the places where we search for deals. We never know which of them will work, so we cast a wide net and utilize all these strategies. If you are just beginning, online searches and direct-to-owner marketing strategies such as direct mailing campaigns and cold calling, will likely offer the highest chances of success. The other strategies will become more effective methods as you build your reputation and get more experience in the industry.
My many years of experience in real estate investing have shown me that multifamily investing is the surest path to passive income, and I created Myers Methods to help you build your own multifamily legacy. Through the Myers Methods real estate investing mentor program, I dispel myths around the real estate industry and share my 4-step method for successfully operating and owning apartments. Click here to get started.