What’s the big deal with apartments? If you’re not convinced apartments are a smart move for a real estate investor, this example might just change your mind.
A buddy of mine recently did a massive apartment deal. He repositioned the apartments to improve the tenant base and drive up rent. Most of the repositioning was work like redoing some of the finishes on the property—granite countertops, that kind of thing.
He also brought in a management company, which cut the expenses by $500,000 right off the bat. Instead of paying for every service separately, he bundled services. He used his personal assets to find discount options that cut the cost of different services like trash collection and maintenance.
Ok, ready for the juicy details on this deal? Take a look:
- Purchased at just over $4M
- Put $650,000 into renovations
- Will be at about $5.5M after repositioning
- Outcome: $850,000 profit
Ready to learn more about how to identify these massive deals and make them happen? Keep reading.
Checks and Balances Lead to Paychecks
Not all apartment deals are good deals. Setting up a system of checks and balances helps you make sure you’re looking at a good deal. When someone on my staff finds a deal, I have them underwrite it and tell me whether it’s good.
Then I do the numbers myself (not checking their numbers, actually doing my own numbers).
If I’m liking what I’m seeing, I send it to the bank. I don’t send them our numbers, I just ask them if they think it’s a good deal. Now I’ve got three sets of numbers to compare.
Once that’s done, if everything still looks good I send the deal over to my broker.
Why Brokers Are Crucial
I always deal through brokers. If you have a good one, they will help keep everything in line. They’ll track deadlines, do due diligence, track the financing, and ultimately make sure everyone gets to closing on time.
Sure, brokers want to get paid, but so does everyone else. To me, it’s worth paying that fee to have the deal run extra smoothly.
Still Not Done with Checks and Balances (and Your Paychecks)
With apartment deals, it’s important to have someone, in my case an excellent management company, doing due diligence on the deal. My management company does lease audits and utility audits. They check for any side deals. For example, they find out whether the owner is claiming the money he makes on laundry.
On more than one deal they’ve discovered there’s a 10-year contract on the laundry with an automatic renewal. You better believe I negotiated to remove that.
Think about it. There’s a big difference between rent at $600 a month and rent at $650 a month for 200 units—a $10,000 difference. That’s why, in addition to your management company, you should be doing your own checks and comparing notes to be sure you get all the information you need.
The Investor Deal
Structures vary from deal to deal, but most investors have a typical deal structure. Here’s one typical structure that’s sure to appeal to investors:
- Investors earn 60%, you earn 40%
- Investors earn 75–80% of the down payment
- Payments begin 6 months after the deal, once the property is stabilized
- Returns are delivered quarterly
In addition, underestimate your cash-on-cash return when talking about partnerships with investors. For example, you might tell your investors you give a 10% cash-on-cash return, but when the deal is done the return is actually closer to 15%. This keeps everyone happy and coming back for more.
Don’t Forget Your Home Team
While they might not be part of your daily deal-making, your family is crucial to your success. As you tackle new deals and explore new apartment investments, remember your family is a key part of your team, too.
Share Your Goals
Your family can’t read your mind. Be honest with them—and be vulnerable too. Let them know what you’re planning, and that you don’t have all the answers. Ask for feedback. Make them part of your short-term and long-term goals.
You might be in a busy season, working long hours without any days off. Recognize that, not just personally, but as a family. And make sure your family is on board. If they’re not supporting you, you’re not going to succeed. Your “I did it” speech should be a “We did it” speech with a shout-out to your family for all their love and support.
When you need to work extra-hard for a season, don’t shy away from that. But make sure it’s only a season. I’ve started to take mini-retirements. I’m not guaranteed good health into my 90s, so I want to enjoy my time now (without sacrificing my business). Put processes in place that keep your business running when you slow down for a little while. And make sure that slower pace is just a season, too.
If you’ve got some hustle, you can find yourself the ideal apartment deal. And with the right people on your team, you can reduce the surprises waiting for you after you close the deal. And then you can move on to your next apartment deal.
So what’s your goal? How many doors are you planning to add this year? If you haven’t made a goal yet, write one down and go for it!