Navigating the Mechanics of an Apartment Deal

Navigating the Mechanics of an Apartment Deal

From the types of roof, electrical wiring, heating and cooling to the parking lot condition, windows and hot water heaters there are alot of checklist items to consider when negotiating your apartment deal.

Nathan Tabor shares his insight into some of the the nitty gritty so you won’t be left in the lurch after closing. Read on to find out what you may not have been thinking about for your ideal setup.

 

Check for city complaints

How do you know if the plumbing is alright? Or the electrical connections are okay?

“So the number one thing on top of my list that I do first when I start due diligence is to go to the housing authority or whoever is writing city complaints and get the last two years’ worth of city complaints. The reason why – I got burned on this.” says Nathan Tabor.

This will give you a general idea as to what issues you’ll be facing. From the housing complaints, you can determine what else is probably wrong with property revealing any expenses you will incur so you can factor them into your deal.

 

Thinking about the roof

The type of roof you have not only impacts your installation and maintenance costs, but plays a part in insurance costs as well.

Let’s look at pitched vs flat roofs. A flat roof is cheaper to install but that’s about as far as the benefits go. A pitched roof has a longer life span and has a more appealing appearance while flat roofs have an institutional vibe. You see a flat roof and the first thing you’re thinking about is a medical facility as opposed to something that feels like home.

Usually, flat roofs cost more to insure because they’re not going to last for very long and also have a greater chance of developing leaks. Not to mention the host of other problems a leaky roof would present in your apartment building.

Nathan on flat roofs: “…[With flat roofs] you’ve gotta climb up there often, make sure that the drains are unstopped… Depending on where you are in the South, flat roofs just make your electrical bills more, because in the summer it’s hotter, and in the winter you don’t get the sun.”

 

Look out for fire hydrants and mailboxes

Nathan sheds light on some other hidden costs:

“Do you know who owns the fire hydrants on the complex you’re getting ready to buy?”

Most folks would never think of this until there’s a gigantic puddle next to the fire hydrant. Sure, you can call the fire department to come over and fix it, but since it’s on private property you could be on the hook for a surprise $6,000 expense.

Nathan on multi-unit aluminum mailboxes: “I just thought hey, it’s stamped on the side of it “Property of the USPS”, they maintain it. Guess what they don’t do? They don’t maintain them.”

When Nathan looked into the replacement cost of a 4’x4’ mailbox seven years ago it was…wait for it…$1,800.

 

Water metering

Having one meter on a multi-unit complex means you’re footing the bill for your tenants no matter who is taking 20-minute showers, outside washing their cars or letting their faucets run. Having individually metered units means you can bill your tenants individually holding them responsible for their own water needs. If you’re looking at buying a complex with a single meter find out the the average cost of the total water bill. Then weigh the cost of conversion and savings over time to help you decide which route you want to take.

What does your due diligence look like? Let us know in the comments.

 

Image courtesy of Pixabay

Property Development or Fix-and-Flip Deals: Which is Better for Your Strategy?

You’re ready to make money in real estate and watch your bank account grow to new levels. But how? Should you focus on building new construction or on rehabbing existing properties?

 

The truth is, property development can be an extremely lucrative option if you’re presented with the right market and the right opportunity. And it’s a great way to generate equity as well. Fix-and-flip real estate can also be a good way to go if you’re looking to make a significant return on your investment.

 

So, which is better for your strategy? The answer isn’t black and white, as it ultimately depends on a number of factors, including your personal goals and your industry experience. These strategies are different, so we’ll take an in-depth look at both below. But the reality is that both real estate development and a fix and flip business plan offer great promise if you know what properties to look for.

A Glimpse at Property Development

In years past, people treated real estate development like a niche career field. Only people with robust real estate experience and cash reserves were active players in this industry. However, in today’s world, property development is becoming increasingly popular due to current efforts to gentrify neighborhoods, improve the stock of housing, and promote urban consolidation.

 

Of course, this field does carry a great deal of risk, but it can also be rewarding for those who have development and construction experience—if you pursue opportunities in a hot market.

 

It’s also a viable option if you’re willing to overcome the learning curve associated with developing your own project. By the same token, it’s a good move if you find it easier to build something from the ground up versus working with an existing property. You’ve got to have patience, though, as developing properties takes time.

Growing Markets for Development

Desirable areas in large cities can often be good places to target for property development. That’s because the demand for brand-new homes—especially apartments—and their supporting infrastructure in these areas is continuous. Co-living accommodation is an especially growing trend, where people live in communities that are supportive instead of in isolated homes. So, smart developers in the years ahead will jump on it.

Funding for Development

A perk of going the development route is that, if you’re working with a traditional lender who is relatively conservative, you may find it easier to secure financing than you would for a flip. You can get great terms if your development prospect happens to be very good. Part of the reason why conservative lenders like development is that new development usually features fewer unknowns compared with flipping. Plus, the returns can be easier to predict with new development versus fixing and flipping a property.

Funding Future Investments

Let’s say you choose to treat your development like a long-term real estate investment. The value of the investment will keep increasing over time. Then, you can use it to fund other projects down the road.

 

What’s especially great about this strategy is that it offers you some “insurance” in the event that the market experiences a shift at some point. That’s because you can hold onto your properties and then simply rent these properties out to generate cash flow until it’s a good time to sell them.

A Glimpse at Fix-and-Flip Deals

What’s great about a fix and flip business plan is that you can make a profit relatively quickly compared with developing a property. In fact, it’s not impossible to earn significant returns in just a few months.

 

However, it’s critical that you do market research prior to buying a property to flip. Looking at homes that have sold recently should provide you with a glimpse at what buyers are searching for in an area. For instance, although modern designs might be in demand in certain areas, traditional designs may be big winners elsewhere.

Personal Development during Fix-and-Flip Deals

Another reason to choose a fix and flip business plan over property development? Fix-and-flip deals are generally a great way to get your feet wet in real estate investing if you don’t have much of a background in this industry.

What You’ll Learn

During these types of deals, you’ll learn firsthand about budgeting for unanticipated costs, like holding costs if you cannot sell your fix-and-flip property as rapidly as initially expected. Other unexpected costs may include those related to contractor disputes, material delivery delays, construction delays, and building permits.

 

In addition, you’ll learn about real estate in general. This may include learning about how foreclosures or short sales work, for example. You’ll also learn about the different financing options that are available to investors like you. Yet another skill you’ll have an opportunity to hone is negotiation, as you’ll be doing a lot of negotiating to get the best deals on properties and materials.

Boost Your Network Both Development and Fix-and-Flip Deals

A common benefit of both property development and a fix and flip business plan is that you can grow your real estate network relationships like never before. That’s because you’ll develop many new contacts, such as other investors, insurance brokers, building inspectors, contractors, attorneys, and real estate agents. All of these contacts may prove helpful for future investments.

Start Making Money through Property Development or Fix-and-Flip Deals Today!

If you’d like to increase your earnings this year, you can’t go wrong with developing properties or flipping houses. The challenge you could face, of course, may be how to find the right properties and approach transactions involving development and flipping.

The great news is that you do not have to figure it all out on your own. Get in touch with me, Joe Fairless, to find out more about the unique benefits of property development and fix-and-flip deals. I may be able to help you build your investment strategy; acquire the resources you need to make it a success; and capitalize on it, full speed ahead.

The Pros of Finding Private Investors vs Investment Property Loans

You’ve got the passion and the business sense you need to flourish in the competitive real estate market, but do you have a healthy bank account to go with it?

 

If you could use some outside funds to help you to kick start your real estate investing business, there’s good news. The lending market for commercial real estate was robust last year, despite increased trade tensions coupled with volatility in the financial markets. So, there’s promise that it will fare well this year, too.

 

The question that remains, though, is, should you seek funding from a private investor or should you stick with real estate investment loans from the bank? The reality is that choosing to find private investors offers several advantages over seeking out traditional bank loans. Let’s take a look at a few of them.

Flexibility

This is one of the major benefits of choosing private investors. The grim reality is that banks usually have requirements for credit scores, down payments, and income verification that are very rigid. You’ll basically need a credit score that is near perfect, a financial history that is squeaky clean, and an explanation of your outgoing and incoming funds.

 

Other documents you’ll need when seeking investment property loans from a bank include 1099 or W2 forms, bank statements, personal financial statements, profit/loss statements, and tax records. And there’s more. Be prepared to submit paycheck stubs, records of your existing mortgage payments, and a list of your current assets and debts. If what you look like on paper doesn’t match what the bank is looking for, you likely won’t get the loan you need.

 

Private investors you find as you network, on the other hand, are more interested in your track record of finding and making great deals and the proposed asset’s value. You get to know them on a personal level and will likely work with them over and over. These kinds of working relationships provide you with some flexibility based on trust.

Speed

In addition to being inflexible, banks usually have lengthy approval processes. With a bank, you may not secure cash for a whopping 90 days. That’s because gathering all of the abovementioned documents takes time and can be challenging. In addition, the paperwork itself can be extensive and you’ve got several levels you have to clear.

 

Meanwhile, with capital from a private lender, the process of qualifying for funding is less complicated and thus less time-consuming. Instead of having to clear multiple levels and deal with an annoying middle man, you’ll be dealing with your lender directly. And this lender raises and controls all of the funds and makes its decisions in-house.

 

As a result, you won’t see your approval times dragging on for several weeks. Instead, your private lender will work with you directly and will simply assess your particular project to see if you qualify for the hard money loan you need. Same-day approvals are not uncommon, so you can easily expect your funding within one week.

Customization

If you decide to find private investors, you’ll quickly learn that you’ll have much more liberty to develop a repayment plan that is based on ROI. With large financial institutions, this freedom simply doesn’t exist. Instead, you’ll have no choice but to accept the bank’s payment terms. You might be able to make some adjustments, but more often than not, you’ll have to abide by the bank’s established payment structure. And to make matters worse, you may face hefty pre-payment penalties.

 

Once you find investors with whom you’d like to work, you’ll simply start discussing with them your financial need. Then, you’ll work toward a mutually satisfactory plan in which you each receive a portion of the monthly rent (if you invest in a rental) and the final sales price. You can easily come to your own terms since no established lending requirements typically exist.

Cost Benefits

When you choose to find private investors, you’re essentially choosing to save money in closing costs and fees. That’s because bank investment property loans tend to be more costly in these areas.

 

You will also not end up shelling out thousands in interest rates if you work with investors. Many banking institutions demand application fees upfront, even before you are approved. In addition, rates and terms may vary significantly. Still, banks often offer fixed rates and lower interest rates that you can repay over a certain number of years if you’re actually able to secure funding. If your loan terms are fluctuating, or adjustable, you may end up with higher payments over time.

Find Private Investors and Start Investing in Real Estate Today!

If you’re ready to take the plunge into real estate investing, now couldn’t be a better time to try to find private investors. They’ll help you to get started on your real estate investing career without the hassle you’ll experience with big banks.

 

Understandably, though, knowing where to start when it comes to finding the right lender can be challenging. As with any type of loan, it’s critical that you understanding your investment property loan terms as well as the impact it will have on your financial health. This is where doing your due diligence in researching your various lending options comes in. That’s the only way you’ll get the best deal available to you right now.

 

Get in touch with me, Joe Fairless, to find out more about how to find private investors and kick your real estate business into gear.

black and white businessmen

4 Ways to Partner with a Property Management Company on Your First Apartment Syndication Deal

 

The major challenge first-time apartment syndicators face when pursuing a deal is a lack of credibility. They’ve never done a deal before and don’t have a proven track record. To put it lightly, being taken seriously by real estate brokers, apartment owners and passive investors isn’t a guarantee.

 

However, there are many ways to portray yourself as a credible syndicator who is capable of closing on the deal. For example, a long-term strategy is to create a thought leadership platform. But if you find a deal before you’ve established a thought leadership platform, a faster technique is to find and partner with a property management company. By partnering with a property management company, the you can leverage the management company’s experience in order to establish credibility with the seller, the lender, and your private money investors.

 

Based on my syndication experience, there are four distinct ways a first-time syndicator can partner with an established property management company.

 

Method #1 – Sign the Loan

 

The first way to partner with a property management company is to have them sign on the loan. As a result, they will become a general partner in the deal.

 

This is ideal if the syndicator doesn’t personally have the liquidity or net worth to qualify with a commercial lender. By having the property management company’s signature, the syndicator can leverage their liquidity to be approved for a loan.

 

To compensate the property management company, the syndicator can offer a one-time fee of 0.25% to 2% of the loan balance paid at closing, or offer a general partnership ownership interest, or a combination of the two.

 

Method #2 – Invest in Deal

 

Another way is to have a property management company invest in the deal and as a result, become limited partners. For this method, they will have the same compensation structure as your passive investors.

 

Method #3 – Bring on Investors

 

A third way is to have the property management company invest in the deal and/or bring in their own investors. The extra benefit of following this method is that it adds another layer of credibility (i.e. the property management company’s investors) and it adds another level of alignment of interests since the property management company and their investors have their own skin in the game.

 

Similar to method #2, they will have the same compensation structure as your passive investors.

 

Method #4 – Ownership Interest

 

The final way that a syndicator can partner with a property management company is to exchange the property management fee for ownership interest in the general partnership.

 

The benefits of this method are three-fold. First, it establishes credibility right out of the gate for all parties, as the experience property management company is part of the general partnership. Two, the first-time syndicator can leverage the property management company’s liquidity or net worth to qualify for the loan. And three, since the property management company will likely bring in their own money and/or their investor’s money, it decreases the amount of money the syndicator must raise.

 

Are There Any Downsides?

 

The downside of bringing on a property management company as a general partner is that they and the syndicator are essentially married. Therefore, if the management company falls off the face of the earth, completely forsakes the property, or they turn out to be bad people, the syndicator is going to have a very messy divorce. If this happens, the syndicator will have to buy them out in some form or fashion.

 

If you decide to follow any of the four methods, in order to mitigate your risk, you need to make sure that you have proper clauses in the contract that stipulates a buyout process. Also, you have to be careful about who you select as a property management company. (See All You Need to Know About Building a Solid Real Estate Team)

 

From personal experiences, I believe the benefits of partnering with a property management company outweigh the potential downsides, as long as you’ve planned for them in advance. I have successfully overcome the challenges mentioned earlier (i.e. lacking in credibility and/or liquidity/net worth) by partnering with property management companies on past deals using all four of the methods described above.

 

 

Subscribe to my weekly newsletter for even more Best Ever advice www.BestEverNewsletter.com

 

 

chalkboard inspiration

Best Ever Success Habit of the Nation’s #1 Landlord Aid

Linda Libertore, who created the number one tenant communication and payment assistant company in the nation that supports over 1,000 landlords, is one of many speakers who will be presenting at the 1st annual Best Real Estate Investing Advice Ever Conference in Denver, CO February 24th to 25th.

 

I interviewed Linda on my podcast mid last year and she provided her Best Ever Advice, which is a sneak preview of the information she will be presenting at the conference. The main, practical takeaway I had from our conversation was find something, a habit, technique, etc., that needs to be done to further your success and do it on a daily basis.

 

Linda attributes much of her success to being a big “daily person.” In other words, she is always looking for specific activities that will bring or has brought her tangible success. When she discovers one, she exploits that success habit by doing it on a daily basis. Not on odd days or even days only, and not weekly or monthly, but she makes the commitment to doing it daily.

 

When Linda first began her tenant communication and payment assistant company, she was starting from scratch. The only real estate experience she had was obtaining a real estate license, so she did not have many connections with landlords. The only way she could expand her business was by conducting everyone’s favorite activity – cold calling. Being a “daily person” and understanding the power of consistent and persistent activity, she committed to making a certain number of cold calls every single day, no matter what. Linda knew that if she wanted to create a large, successful business, she couldn’t give up in the face of rejection or even miss a single day.

 

Another habit that Linda commits to daily is widening her education of the real estate industry. She is involved in eight local real estate associations. In order to add value to those meetings and not just sit silently, she must perform research prior to attending meetings and remain dedicated to her self-taught education. And with eight meetings to attend every month, she has committed to conducting some from of research or self-education every day in order to continuously have information she can provide to others.

 

Education and cold calling are just two of many examples of success habits you can introduce to your daily routine. Reading, journaling, running numbers on deals, or creating posts on BiggerPockets are a few other examples of success habits that you can implement daily, but your options are basically limitless. Once you find an activity, habit, exercise, etc. that furthers your real estate success and brings you tangible benefits, exploit that activity by performing it each and every day, no matter what.

 

What are some of your daily habits that have furthered your real estate success?

 

 

Want to learn other real estate professional success habits, as well as a wide range of other real estate niches? Attend the 1st Annual Best Ever Conference February 24-25 in Denver, CO. It’s the only real estate investing conference whose content and speakers are curated based on the expressed needs of the audience. Visit www.besteverconference.com to learn more!

 

 

Related: Best Ever Speak Brie Schmidt Sneak Peek How to Avoid the Shiny Object Syndrome in Real Estate Investor

 

Related: Best Ever Speaker Kevin Bupp Sneak Peek Lessons Learned From Losing Everything During the Financial Crash

 

Related: Best Ever Speaker Theresa Bradley-Banta Sneak Peek Don’t Invest in Real Estate on Unfounded Optimism and Emotions

tenant

How to Create the Ultimate Tenant Experience


“If you go above and beyond, so will your bank account” is the mantra of Susan Colwell, who has spent 5 years of managing two successful vacation rental companies. In our recent conversation, she provided her best ever tactics on how to give yourself an advantage over the competition. While this advice was provided in the context of vacation rentals, one can easily tweak these techniques and apply them to almost any aspect of real estate investing.

 

Professional Photography

 

The main tactic Susan attributes to her success is taking the hotel or resort experience and applying it to her rental portfolio. And the best way to emulate that experience is to hire a professional photographer to take amazing pictures for all of your listings. Photos are the first windows a potential tenant is going to look through to see what you have to offer. Therefore, you don’t want low quality iPhone photos, or worse, junk in your shots. Rather, you want to portray a 5-star experience, even if you have a modest property. That means your property must be immaculately clean, well lit, and inviting, which you bring together with a great photographer that captures it all and conveys that feeling to the tenant.

 

Before preparing a listing, Susan will go on various hotel websites, browse through the pictures of the highest quality rooms being offered, and model her pictures after that. Typically, it is as simple as getting some nice fluffy pillows for the bed and furniture, making sure nothing is wrinkled or cluttered, among other small additions, which makes everything in the unit look pristine. All of this ties into the aspirational aspect of vacations. Tenants aren’t just looking for a place to rent. They are looking for the entire luxurious experience.

 

 

Provide Phenomenal Customer Service

 

The next area of focus is backing up the experience you’ve promised from your amazing photos with phenomenal customer service. Susan has an amazing assistant, and between the two, their top priority is to make sure that the tenants are taken care of. Their service starts before the tenant even arrives, because they work towards anticipating specific needs before they occur. For example, Susan provides all of her tenants with a list of local amenities, like food delivery services and nearby restaurants, shops, parking locations, etc. Or, if a property has a unique feature, (one of Susan’s properties has a steep spiral staircase) she discloses that information upfront so that there are not any surprises. Essentially, she offers a service that is similar to what a hotel concierge service provides and is completely truthful and transparent about the features of the property.

 

It is also important to anticipate a game plan for when things go wrong, because in real estate, unforeseen issues are almost a given (A/C breaks down, minor flooding, clogged toilets, etc.). Since you know that these types of things will happen, how you deal with them is key. For Susan, when an “expected” unexpected issue arises, depending on the severity, she will give the tenant money to get dinner or will provide a discount. However, at the very least, you must commit to answering any problems – or questions – as soon as possible. It helps to identify with their frustrations by putting yourself in their shoes. Ask yourself, “If I were renting a property and the toilet goes out, what type of response would you want?”

 

As the owner, it is about understanding the frustration and easing the pain as quickly as possible. If you’ve followed the “professional photography” advice and are selling a high quality experience, you don’t want people to think that you did a bait and switch. You really have to follow up on that amazing experience that matches the amazing photos that you put out there.

 

 

 

 

a helping hand

Best Ever Success Habit of the Nation’s #1 Landlord Helper

 

In my conversation with Linda Liberatore, who created the number one tenant communication and payment assistant company in the nation that supports over 1,000 landlords, she provided me with her Best Ever success habit: find something that needs to be done to further your success and do it on a daily basis.

 

Linda can attributed much of her success to being a big “daily person.” If she finds a specific activity that brings her tangible success, she exploits it by doing it daily. Not on odd days or even days only, but she makes the commitment to doing it daily.

 

When Linda first began her tenant communication and payment assistant company, she was starting from scratch. She had previously obtained her real estate license, but did not have many connections with landlords. Therefore, the only way she could expand her business was by conducting everyone’s favorite activity – cold calling. Being a “daily person” and understanding the power of consistent activity, she committed to making a certain number of cold calls every single day, no matter what. Linda knew that if she wanted to create a large, successful business, she couldn’t give up and miss a day.

 

Another habit that Linda commits to daily is her education of the real estate industry. She is apart of 8 real estate associations locally. In order to add value to those meetings, she must perform research and self-education. And with 8 meetings to attend every month, she has committed to gaining knowledge every day to always have information she can provide to others.

 

Education and cold calling are just two of many examples of success habits you can instill to you daily routine. Reading, journaling, running numbers on deals, creating posts on BiggerPockets are a few other examples of success habits that you can implement daily, but the options are basically limitless. Once you find an activity, habit, exercise, etc. that furthers your real estate success, exploit that activity by performing it each and every day, no matter what.

 

What are some of your daily habits that have furthered your real estate success?

 

Awesome Resident Recognition Ideas

Recently I was brainstorming ways to recognize my residents of a large apartment community. I want to let them know we value their role in our community and appreciate everything they do.  That’s the human objective. The business objective is to develop more of a sense of community and goodwill which in turn will lower turnover and increase the NOI. 

My criteria:

  • No rent concessions
  • Costs $5 or less per resident
  • Minimal coordination required to pull off

For the brainstorm process, I posted on BiggerPockets.com to get some ideas from other landlords. (view post here).

I got a ton of great responses, some of the highlights:

A community garden

  • While this takes a bit more time to create (breaks one of my rules above) I love the idea because I could buy in bulk from a local flower shop (helps them get more biz), it would make the property look nicer and could lower turnover because residents who garden want to stay. Plus, it strengthens the community since the residents will likely interact with each other more as a result of the garden

Five crispy dollar bills with a note that says “High Five! Thank you for making 123 Elm St. Apartments Your Home. We really do appreciate you.”

A handwritten thank you card

Some other ideas I had:

Portrait of Family Drawn by Artist

  • You could go on Fiverr.com and get that for $5. This is more involved as I’d need to get a picture of them. However, I like how it lasts a long time and is something they might treasure

Give everyone a $1 scratch-off lottery ticket with a nice note

Give everyone a cutting board (or something else that helps keep property looking nice)

  • If they have a cutting board they’d be less likely to cut on the counter top therefore our countertops would last longer

Partner with a local restaurant to offer free or discounted food

 

I’m going to be implementing something in the next couple months and will report back on how it goes.

 

 

 

 

 

 

 

3 Rental Ad MUSTS

If you’re a landlord finding tenants, there are only three things you need to include in your ad to create a successful real estate ad. I define success by potential tenant taking the action you desire.

And, if you follow my stuff, you’ll know that I ALWAYS use a property mgmt company so this info is based on my experience working with them and doing some first-hand testing for my latest acquisition (a 168-unit apt community).

Here we go:

Big, beautiful pictures – think you’ve got more than enough in the ad already? Add 5 more. Seriously, pictures are the key. A good online program my management company uses is Smore.com. It’s a free online service gives you design templates so you just plug in copy and pics and you’ve got a nice looking online flyer in minutes. I have zero design skills so this was a godsend when I came across it.

Contact info stated multiple times in multiple ways. This is your call-to-action and needs to be stated multiple times. Make sure to give the address, email address and phone number. Everyone likes to communicate in different ways so you’ll want to give them all three options.

Include legitimate scarcity or urgency. If you have an apartment building and only have one 2-bedroom left then say it. People want what others have deemed as valuable. If you have a move-in special program then end it on a holiday weekend so you can have a definitive deadline for the potential tenant.

Go ahead and try this approach. Let me know how these ads do compared to your normal ones. If it’s anything like my properties, you’ll be pleased with the results.

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