Questions to Ask When Evaluating an Apartment Building Deal

Let's discuss how to quickly evaluate an apartment building deal. With so many deals available, it's crucial to determine which ones are worth your time. Here are five essential questions you should always ask:

1. What is the net operating income (NOI)?
2. What is the asking price?
3. What is the upside potential?
4. What is the deferred maintenance?
5. Why is the seller looking to sell?

Let's delve into a bit more detail about these questions:

First, it's important to find out the NOI. This is crucial information because it helps determine what type of income the property generates and what expenses are being incurred. You will need to verify their income and expenses later, but for now, use the figures they provide.

Next, take the NOI and divide it by the asking price to determine the cap rate (the financial return of the property if you paid all cash).

For example, if the NOI is $35,935 and the asking price is $650,000, then the cap rate is 5.5%. This is a good rate for a property located in a desirable area.

If you don't know the asking price or are attempting to determine what you should offer, then you will need to find the market cap rate for similar properties in that area. One option is to ask brokers or property management companies.

For example, if the NOI is $550,000 and the market cap rate is 9%, then a fair price would be $6,111,111.

Here are some rule-of-thumb assumptions that can help you run some numbers if you don't have all the information:

• Assume between $3,000-$3,500 expense per unit per year if no expenses are given.
• Assume a 25% down payment, 5.5% interest rate, amortized over 25 years with a 10-year balloon payment if you have no idea about debt service.

NOTE: these assumptions are not always accurate, and should be used initially to run some numbers and determine if the deal meets your buying guidelines. To truly analyze the deal, you will need to obtain concrete information from the seller.

Now that you know the basic financials of the property, it's time to dig deeper. Here are the top three questions that you must always ask about the property:

• What is the upside potential?
• What is the deferred maintenance?
• What is the seller's motivation?

Here's what we didn't cover in this post: Market fundamentals. Investing in the right market is the most important variable for success. Buying in a bad market can result in failure. This is a longer conversation for another day, but it's important to know that the above post assumes that your market is performing well.

Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.

Negotiating Tips that have Worked Against Me

Throughout my career, I’ve been involved in many negotiations, both in real estate and in general full-time job circumstances. In this article, I'll share three negotiating tactics that were used against me and worked. But don't worry, I'm not here to scare you! I just want to give you some pointers so you can be better prepared for your next negotiation.

They are so damn likable.

Problem: Do you find it tough to negotiate against someone you really like? It can be awkward at first because you may not want to offend them, but there’s some serious business that needs to be addressed.

Solution: Stick to the facts. Facts are emotionless. They do not contain trigger phrases like “this is unacceptable,” “but it’s not fair,” “but I’ve worked really hard on this,” “but I’ve been here so long,” or curse words. When you maintain a calculated and logical approach to the negotiation, your stance cannot be disputed.

They demonstrate they have more knowledge on the topic than you (and gray hair helps)

Problem: The opposition may have more experience in the industry, more knowledge about the topic, and may be older. When they talk, it’s clear they know more about the topic than you do. This can be a daunting situation.

Solution: Align yourself with people who have the knowledge and experience you lack, and bring them in to actively participate with you. If that’s not possible, dismiss any irrelevant information and focus only on the outcome. Think of yourself going 1000 mph and all the stuff they are saying are the blurry objects. They might say a lot of stuff, but only focus on the info that will get you to your outcome. It requires concentration, but it works.

They devalue your contribution (e.g. payment, time, thoughts)

Problem: The opposition may undervalue your contribution and indicate that they are losing money on the deal. However, they still go through with the transaction and somehow stay in business and are happy with the outcome.

Solution: Create a list of five reasons why the opposition should do the deal. This helps you understand from their perspective why it is favorable. You can choose to bring up those points or just keep them in your head. Regardless, remind yourself of the value you’re bringing to the table. They wouldn’t be having this conversation with you if they didn’t agree you bring value. Whether it’s money or time, you are adding tremendous value to this arrangement, and don’t let them tell you otherwise.

What are some negotiating tactics that you’ve seen work?

How to Find a Property Management Company for Your Real Estate Investing Team

Real estate investing can be a lucrative business, but managing properties can be a hassle. That's why many investors hire a property management company to help them with the day-to-day operations of their rental properties. However, finding the right company can be a daunting task. Here are two ways to find a property management company for your real estate investing team.

Referrals from Other Investors

One of the best ways to find a property management company is to ask for referrals from other investors. Real estate investing is a tight-knit community, and many investors are more than happy to share their experience with property management companies. Reach out to local real estate investment clubs or associations and ask for recommendations. You can also ask for referrals from real estate agents or brokers who specialize in investment properties.

When asking for a referral, be sure to ask about the company's experience, their fees, and their communication style. It's also a good idea to ask for references from current or past clients. Once you have a few referrals, do your due diligence and research the companies further. Check their reviews online and ask for a copy of their contract to review.

Online Directories

Another way to find a property management company is to use online directories. There are several directories available that specialize in connecting investors with property management companies. These directories allow you to search for companies based on location, services offered, and fees.

Some popular directories include All Property Management, Buildium, and Cozy. These directories typically have a vetting process for the companies listed, so you can be assured that the companies you find are reputable. However, it's still important to do your own research and read reviews before making a final decision.

Conclusion

Finding the right property management company for your real estate investing team can take some time and effort. However, by asking for referrals from other investors and using online directories, you can narrow down your options and find a company that fits your needs. Remember to do your research and ask the right questions before making a final decision. With the right property management team in place, you can focus on growing your real estate portfolio and increasing your profits.

5 Signs That You Should Walk Away From a Property Deal

Real estate investing can be a lucrative business, but it's not without its challenges. One of the biggest challenges is knowing when to walk away from a property deal. It's important to recognize the signs that a deal may not be worth pursuing before investing your time and money. Here are five signs that you should walk away from a property deal.

1. The Property Has Serious Issues

If the property you're considering has serious issues like structural damage, mold, or a faulty foundation, it's best to walk away. These issues can be costly to repair and may make the property difficult to sell in the future. Unless you're prepared to take on a major renovation project, it's best to look for a property that's in better condition.

2. The Numbers Don't Add Up

Before investing in a property, it's important to crunch the numbers and make sure the deal makes financial sense. If the numbers don't add up, it's best to walk away. This could mean that the property is overpriced, the repairs are more expensive than anticipated, or the rental income won't cover the expenses. It's important to be realistic about the potential profit and make sure the deal is worth your investment.

3. The Seller Isn't Cooperative

If the seller isn't willing to provide the information you need, won't allow you to inspect the property, or is unresponsive, it's best to walk away. A lack of cooperation from the seller can be a red flag and may indicate that they're hiding something or aren't serious about selling the property. It's important to work with a seller who is transparent and willing to work with you.

4. The Property Is In a Bad Location

Location is key when it comes to real estate investing. If the property is in a bad location, it may be difficult to find tenants or sell the property in the future. Factors like high crime rates, poor school districts, and a lack of amenities can all make a property less desirable. It's important to consider the location carefully before investing in a property.

5. You Have a Bad Feeling About the Deal

Sometimes, your intuition can be a powerful tool in real estate investing. If you have a bad feeling about a deal, it's best to trust your instincts and walk away. This could be a sign that the deal is too good to be true, the seller isn't trustworthy, or there are hidden issues with the property. It's always better to err on the side of caution and avoid a deal that doesn't feel right.

Conclusion

Walking away from a property deal can be difficult, especially if you've invested time and money into the process. However, it's important to recognize the signs that a deal may not be worth pursuing and to trust your instincts. By avoiding bad deals, you can save yourself time, money, and headaches in the long run.