Top 10 Multifamily Investing Tips

By Beau Beery, Author of Multifamily Investors Who Dominate 

Investing in real estate Shutterstock_575663935 (1) As a broker who has been helping investors buy and sell multifamily investments for over 20 years, I’ve had plenty of opportunities to help investors both small and large add to their portfolios.  I’ve seen some of the most elite players explode in growth and maintain dominance. I’ve also seen plenty of knuckleheads do all the wrong things that killed their reputation and quickly ended their chances for dominance.   

Here are my 10 tips that if you follow will assuredly bring you monster success over a long career: 

 

#1. Calculate the “Love Factor”  

Let’s discuss something I call the Love Factor. This is a measure of your reputation in the marketplace. It’s calculated by taking the total number of properties presented to you for purchase and divided by the total number of deals done in the market. So, if you were sent 10 properties and you know that 98 deals closed that year, then your love factor is 10.2% (10 divided by 98). Successful investors typically have a Love Factor of at least 80%. The more relationships you develop with brokers and others in the business, the higher your Love Factor will climb.  One of the biggest differences between the Elite and everyone else is they see more deals. 

#2. Buy Class B 

I did a study several years ago and determined that buying a Class B asset had the largest jump in value when value adding.  For example, when buying B- and value adding to a B, or B to B+, or B+ to an A, there is on average a $40k/unit jump in value.  Any other classification averaged $15-20k/unit.  That doesn’t mean you shouldn’t buy Class A or Class C because you certainly should if the numbers are right.  B class assets represent about 35% of all closings.   

#3. Cover More Areas 

You also want to be sure you cover a large enough geography so that you see enough deals.  Most elite investors are covering at least half a state, usually an entire state, and oftentimes multiple states.  The trick is you can only cover enough geography that still allows you to be an absolute expert in those markets.   

#4. Analyze Every Deal 

Don’t ignore a deal because it doesn’t fit your perfect vision of the “right” deal. I see too many investors that pass on a ton of deals because they are concentrating too hard on clearing their email inbox instead of diving deeper in to each deal. If you see a 4.0% cap rate advertised, don’t automatically assume that is too expensive.  If you do, you’re relying on the broker or seller to be calculating an IRR or cash on cash return the same way you do and that is almost never true.   

#5. Tour the Asset 

The earlier the better. If you can’t tour it before submitting an offer, be sure to do it before the Best and Final Offers (assuming you made it to the second round after Call for Offers).  It is very powerful for the broker to meet you so they can talk you up to the seller.  No listing broker or seller wants to choose an offeror that hasn’t even been on site.   

#6. Create a Bio Package for Yourself 

Regardless of whether you’re a new or a seasoned investor, brokers and other investors should know who you are. Creating a bio package is the best way to introduce yourself. It should include a cover letter, a list of assets you own with addresses, and letters of recommendation from brokers, lenders, and other investors you’ve bought from. Letters of recommendation are the most powerful.  I’ve seen numerous buyers win deals, without the biggest price, simply because the seller saw letters of recommendation from brokers they knew.   

#7. Make Your Communications Professional 

If you want to be taken seriously and your offer to make it beyond the trash can, make sure it’s presented in a formal fashion and includes the appropriate terms. It should be on your letterhead, signed, and addressed to the seller. Don’t just send an email with a price in the body of the email. Or a text offer.  Going with a Letter of Intent as a first offer is best practice.      

#8. Set Competitive Terms 

When it comes to presenting an offer, you want the terms to be competitive and favorable. 

  • Don’t include a financing contingency if you’re able to. Even if you are financing the deal, it shows that you’re confident in getting the financing and that regardless you’ll be able to close.   
  • Make the deposit large enough to convey your seriousness and ability. Depending on the size of the deal, 5.0% or more usually grabs attention. 
  • In most circumstances, there is no reason to have more than 30 days to inspect and 30 days after that to close. Any more than that and it can send up a red flag and make your offer no longer competitive. 
  • There shouldn’t be any closing extensions, even if you include non-refundable deposits for those extensions. Closing extensions to a seller says you’re already not believing you can work within the time periods.  If you have a 30-day closing and ask for two 30 day extensions, all the buyer hears is a 90 day close. 
  • Finally, don’t send a 10-page Letter of Intent for goodness sakes. If there’s too many clauses to read it raises red flags and again, makes your offer no longer competitive. You’re trying to make it easy to choose your offer.  Keep it under 2 pages if possible. 

#9. Present a Competitive Offer 

 It’s common to want a good deal, but too often investors try to pay “just enough” to win the deal and as a result always end up losing to someone who pays as much as they possible can.  In other words, stop trying to figure out the minimum that will win the deal. You don’t get any second chances in this business.  Instead, figure out in your pro-forma what the absolute maximum is you can pay and offer that. You should have no regrets if you lose the deal.  I can’t tell you how many times a losing offeror calls me after they see the closing price and say, “Beau, I would’ve paid $500K more, why didn’t you tell me?”  

#10. Don’t Sweat the Small Stuff 

When you’re in contract on a deal and something comes up during inspections, never re-trade your initial offer unless it substantially changes your IRR and cash on cash returns.   

About the Author:

Beau Beery image Beau Beery book cover

 

Beau Beery’s book, Multifamily Investors Who Dominate, provides additional details and steps to take to implement all the tips above, including how to collect and track the data needed to determine your Love Factor, how to get more deals to come to you, and the importance of having the right team and how your team can affect your brand.