So you have found a multifamily property and you would like to close the deal. How do you close it if you want to hold it? Do you know the process that is involved? There is a simple 3 step process to follow to wrap up your multifamily deal. It involves qualifying the deal, due diligence and closing.
Qualify the Deal: This is the first step in closing your deal. It actually has a two part phase: validating the income and expenses and driving by the property. Up until this point, you have just been talking on the phone with the seller and you have not even seen the property. Now you need to validate income and expenses.
You need to look at whatever financials they send you in the context of how you can improve the situation. For instance, if the occupancy went from 72% to 85% how would you increase your cap rate? If it went to 95% how would that increase your cap rate? You need to wear your “money goggles” because you are looking at the property with regard to making money on this deal.
Once you have seen the numbers and it looks like a potential deal, you need to visit the property. Again, you want to make an evaluation as to how you can make money on this deal. What could you do to make it more appealing for leasing? Does it look like a lot of deferred maintenance? Look at the property as the asset manager to determine what needs to be done to generate more NOI.
Due Diligence: Now that you have looked at the property and confirmed that it is indeed a good deal, you want to issue a letter of intent to get the property tied up. The letter of intent is basically a statement that the seller is looking to sell the multifamily property and that you are looking to buy the property and that you agree on the stated terms within the letter. The letter allows for an inspection period which is due diligence. It also allows for a financing period.
Closing: Once you have your letter of intent signed by yourself and the seller, you move right into the contract. You can use any formal contract that you and the seller can agree upon. You will be signing the contract as well as additional legal documents. Money will change hands and you will take the title and you are now the proud owner of a multifamily property!
Once you are aware of the process that needs to be followed when putting together a multifamily deal, it becomes much less intimidating. Again, educate yourself on the process and not only will you be more confident when dealing with the seller but the seller will be assured of your knowledge and ability.
Welcome to 2009. I’m proud to be greeting the New Year with you – at least virtually.
As I say, “Everything happens for a reason and it serves me.” Well, 2008 was the preparation for 2009. And 2009 is the Year of the Entrepreneur, the Apartment Entrepreneur.
Are you prepared?
Lance
P.S. Remember: Success = Skillset + Mindset (TM)
I wanted to share an example of the power of the network.
Last night on our weekly Apprentice call, one of my Apprentices told the group that he was looking for $30,000 for his earnest money. He asked who was interested in being his private money source…
Another Apprentice immediately came on the line, “I’ll do it. What’s your email?” It took 3 minutes, maybe.
That’s the power of the network and the mastermind community.
Private money is easy.
But first you need a deal and the mindset and skillset to approach private money sources.
Another Apprentice has a Commitment Letter for $20 million on a single apartment deal. That’s right – $20 million.
That’s 100% financing for the acquisition, closing, rehab and his syndication fee.
He’s earning cash up-front (like a wholesaler) and he’s getting a huge cash flow as well.
And 12 months ago, he wasn’t even considering doing apartments.
That’s the power of the success formula:
Success = Skillset + Mindset (+ Community) (TM).
Lance
Everyone likes a great deal. You may have everything in place to put together a deal but do you know how to make it a great deal? Do you know how to do it in such a way that it won’t cost you too much? Let’s get some pointers on structuring the deal.
Structuring the deal is creating a deal that allows the private money source to feel comfortable with the amount of control and have minimal risk. The first thing an investor is interested in is whether they will get their money back, or they are interested in the preservation of their capital. Both of these concerns address the investor’s comfort level of the deal. What you need to focus on is publicizing the features of your deals that provide control and low risk for your private investors.
Control means such things as the private lender or investor never releases the money until some promised event has occurred. For example, they only release the 20% down payment to an escrow at closing rather than to you directly. Another method is to have the lender only release rehab monies when they have certified that certain parts of the rehab are complete. This is part of the strategy of preeminence; you are showing your private investors that you thought of their interest when you set up the deal.
Low Risk means that the investor believes that their investment is secure. That’s one of the great things about real estate because you have a hard asset that serves as collateral. Part of the security comes from the loan to value ratio because that’s a hard asset and in the worst case scenario, if you don’t perform to their expectations, they can get access to the property and that redeems their investment. For income producing property, the primary indicator of value is how much income it produces.
The more time you spend on Control and Low Risk, the less time you will have to give in return. Your goal is to set up a deal in such a way that the person involved is better off even if they don’t buy from you.
SECURE AND CONFIDENTIAL