A Beginner’s Guide: How to Find Profitable Multifamily Deals

Multifamily property investing is one of the (if not the) very best ways to create semi-passive monthly income, equity, and raise your net worth quickly, but there’s a lot to learn when you’re new to the business.

Fortunately, you can easily avoid mistakes when you know what to look for in great multifamily deals. Today, we’ll guide you through what to look for (and what to avoid) when finding and choosing multifamily deals.

Step 1: Do Your Research on the Area(s)

It’s common for those new to multifamily deals to put the cart before the horse and start looking for new deals before properly researching where they want to buy. While there’s absolutely nothing wrong with searching for potential properties online when you first start thinking about investing, but when you’re actually thinking about putting in an offer, you need to do your research first.

In many cases, the area you are buying into is of more concern than the building. An older building may need work to be brought up to standard, but if it’s in a sought-after location, you could make good money from your tenants and increase its value. Since, as we’ll learn shortly, large online multiple listing services aren’t often the best place to find a deal, start with the location(s) you want to invest in.

Consider:

  • The local economy (growing/decline/plateau?)
  • The quality of local education
  • Is the population growing?
  • Is there a healthy rental market?
  • What types of people rent in this area?
  • What transport connections are there?

Step 2: Outline Your Search Parameters

Now you have a clear picture of which areas you’d be happy to invest in, you need to outline the parameters for the type and size of property you’re looking for and your investment strategy.

Do you:

  • Want to keep it simple with a duplex (2-family), triplex or fourplex?
  • Are you looking for an apartment building?

Next, you need to consider what type of property or properties will be best for your investment strategy. Consider:

  • Which class of property are you interested in?
    • Class A – highest quality buildings, high-income tenants (doctors, lawyers, entrepreneurs, executives, etc.), low vacancy rates, well located, high demand. They require a high level of care (residents expect issues to be taken care of ASAP) and, of course, a high upfront investment.
    • Class B – a step down from class A, perhaps a little older or finished to a lower quality, rental income a little lower, mid-income tenants (young professionals, teachers, professional services), which will put up with some deferred maintenance issues. Riskier than Class A.
    • Class C – older properties and/or in a less desirable area. Generally in need of renovation. Lowest rental rates though this can be bolstered with updating. Tenants are typically manual workers, assistants, trainees, and so on.
  • Do you plan to manage the properties yourself or hire a management company so you can be hands-off?
  • Want a property to renovate or one that’s ready for tenants?
  • Would you be interested in splitting a larger property into multiple units?

Step 3: Check You Have the Financing 

The last thing anyone wants is to find a great deal and make an offer, only to find that your financing won’t cover your offer or someone else interested can move more quickly than you. Now you’ve narrowed down what you’d like to buy, you’ll have a good idea of the investment you’ll need, so double check you’ve got your financing in place before you take your next steps.

Don’t forget that you’ll need a buffer and may need a significant amount for renovations – you won’t know this for sure until you find a property you like, but it’s something to keep in mind if you want to find a property you can add significant value to. 

Step 4: Find Quality Leads

Now the hard work really begins! Now it’s time to start developing leads and actively searching for your next investment.

The best ways to search for leads are:

  • Use Multiple Listing Services & Sites
  • Search for Neglected Rentals
  • Network
  • Get Boots (or Tires) on the Ground

Use Multiple Listing Services and Sites

You won’t always find the best deals on MLS and popular listing sites, but that doesn’t mean they aren’t worth keeping an eye on. They’re great for research, as we’ll cover in the next couple of sections, and when used well, could help you jump on a new lead quickly.

The benefit of using an MLS is that you can get a clear overview of what’s out there, and they’re intuitive to use, and the properties on there are actively for sale. The con, of course, is that everyone has access to it.

Multifamily listing sites to use are:

You can also use popular property listing sites, though some will be better than others. On these sites, set up push notifications so you’ll be notified when a potential property comes onto the market. Sites you may want to use are:

Search for Neglected Rentals and Listings

This is a great way to find potential properties that aren’t actively on the market but may have motivated sellers. Head to any of the major rental sites for the areas you’re looking to buy in and search for individual rental units you may find in that type of property. Skip over listings that have quality photos and recently-renovated units, and look for:

  • Listings with badly taken photos
  • Listings with units that need updating
  • Listings with low rental prices

These three indicators can show that a landlord doesn’t have the cash or the desire to keep up the building to a standard that will maximize return and so may be open to an offer so they can shrug off the responsibility.

If you find a listing with one or all of these signs, investigate further. Check out the location and compare it to your research, see if you can find out anything else about the building, and look up the owner information in the public record so you can find a way to reach out to them if you’re interested. If you find it belongs to an individual rather than an LLC, you could be on to a winner since they’re often more likely to be willing to sell.

Network

Networking is essential here, as it is in nearly every other facet of life. There are a few different types of people you should be interested in connecting with:

  • Realtors and Commercial Real Estate Brokers
  • Other Landlords
  • Companies That Serve Landlords

Realtors

Find realtors in your area that have great community connections and network with them. If you let them know exactly what you’re in the market for, they’ll call you when they have or hear something.

It is also worth finding CREs (Commercial Real Estate Brokers) to connect with, especially if you plan to make multiple deals in the near future. To find those that work with the kind of property you’re looking for, head to Loopnet or a similar multifamily property site and search for the kind of property you’re looking for. When you find one—even if it has sold—note down the name of the broker and reach out to them.

Other Landlords

Do your research and find out if there are any landlord associations or organizations in the area. If so, join them and attend any meetings. This will offer you the opportunity to network with potential partners, learn from other landlord’s experience in your area, and gives you the potential of being one of the first to know when a landlord is thinking about selling.

Don’t forget to find communities online, too, such as forums and Facebook groups. If you own a local business, ask your social media followers to reach out if they know of anything that may be suitable. This is a great way to tap your extended network, especially if you have roots in the community.

Talk to Vendors

Unless you’re planning to DIY every aspect of your investment, you’re going to need to use services to run your property portfolio. Of course, you are not the only landlord in the area, so reach out to companies that serve landlords now to connect. Not only can you line up businesses you could call upon in the future, but they serve dozens of other landlords in your area and so can keep their ear to the ground for you and let you know if one of their clients is thinking about selling. (It would be a win for them, too, since if you purchased the property, they wouldn’t lose a client.)

Get Boots (or Tires) on the Ground

Don’t underestimate the value of getting out into the area you’re looking to buy in and simply driving around to see what’s out there. This is one of the best ways to get a feel for the area if you aren’t familiar with it already (as may be the case if you’re looking at class C properties) and see what multifamily properties are in the area. You could pay someone to do this for you if it’s not something you can or desire to do.

If you see a property that interests you, note down the address and look up the owner through public records. If it’s owned by an LLC, you can do the same using a site like Mantra or Bizpedia. Again, those in an individual’s name may be more open to an offer, but if a building looks like it could use a little TLC and is owned by an LLC, there could be an opportunity there.

If you contact anyone and they aren’t interested in selling, make a connection so they can contact you if/when they decide to.

 

Step 5: Vet Potential Properties

When you find a potential property, it’s time to see if it is as good a deal as you hope it to be. Consider:

  • Age of the property
    • Does it have additional maintenance needs?
    • Could there be issues if you do major renovations?
    • Is the age a selling point or a negative in your area?
  • Condition of property
  • Amenities the property has
    • What added value do these provide?
    • What additional maintenance costs do these incur?
  • Location in general
    • (Hopefully, you did this in the initial stages) is it improving or on a decline?
    • What is its reputation?
    • Is the property value in the area increasing, plateauing, or on a decline?
  • Location
    • Is it close to amenities?
    • Is it close to public transport?
    • What kind of transport is used most in the area?
    • What are the local schools like?
    • Is there a nearby college?
    • Are there job opportunities within 5-25 minutes of the property?
  • Tenants
    • What kind of tenants does this property have/attract?
    • Is the average income of tenants trending up or down?
  • Profitability
    • Do the numbers work out?
    • Will you make money even if a unit or units are empty?
    • Does this type of property in this area experience long vacancies?
    • Is there an opportunity to increase the property’s value?

By answering these questions, you’ll be able to move forward in any negotiation with your eyes open. The last thing you want is to be stung with hidden costs or find you can’t get the rental income you need from the property once all is said and done. Finding great deals takes time; you need to do your research, avoid making assumptions, and connect with the right people. While it can be frustrating to wait for the right deal when you’re ready to start making an income, a great deal will ensure you have every opportunity to make a healthy profit and go on to make other profitable multifamily deals.

Look Professional

To be taken seriously by brokers or anyone else, you need to look like a serious player who can actually close on a deal.  When you contact brokers and other important people, often they will do a Google search for you to see what comes up.  What will they find?

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