There are a lot of people looking to get into buying multifamily apartments these days. It is a great asset with a reliable revenue stream.
The ones new to the space might be thinking the broker will give them a look, the seller will accept their offer, and the bank will give them a loan.
This may be true for a small deal where you have the financial wherewithal, but to go after the bigger deals you need someone with experience to sign on with you. Partnering is a big part of multifamily investing and why you often hear the buzz phrase “multifamily is a team sport”.
Building Your Team
The team should be the focus for acquiring multifamily assets. The team starts with the General Partnership. This is the group of people that will be acquiring and operating the building. Here is a list of people you will need on your team in addition to the General Partners:
- Broker
- Mortgage Broker
- Attorney
- Property Management Company
- Contractors
- Insurance Agent
- Mentor
- Investors or Limited Partners
- Vendors
All these teammates can make or break your deal. Be sure to do due diligence and ask around.
Working with Multifamily Brokers
The easiest way to explain working with brokers is to give you a scenario with 2 options and let you choose. I think it will make it obvious:
Let us say you are the broker selling a 150-unit apartment complex for $20 million in Dallas. The owner of the property signed an exclusive agreement with you to sell their property and to ensure a close.
Option 1
The first buyer has been watching motivational videos about real estate investing. The guru in the videos told them they could do it! They do not want to share their financial situation and have no multifamily experience. Still, the guru has them convinced they can get that first one! The broker asks about experience, net worth, and liquidity. The buyer says they will show them after they are awarded the deal. They have never raised any money.
Option 2
The buyer has owned and operated apartment complexes for decades and taken deals full cycle. They currently own and manage 10,000 units. They send the brokers their resume, personal financial statement, schedule of real estate owned, and who the loan guarantors or key principals are. From a lending perspective, they are fully qualified. They have raised millions of dollars from their database.
As the broker you are presented with these two options. Which option do you choose to win the deal and why?
Winning the Deal
The option is obvious, obviously. Not everyone is going to be that new and most will not be that experienced. However, you get the idea. If you start working with brokers, the way to win a deal is to show them why you are the right person or team. Sign exclusive agreements with them, show the experience of the sponsorship team, and prove the loan guarantors have the net worth and liquidity to be approved by a lender. That will get you in the winner’s circle.
A lender will not give someone $20 million because they watched a YouTube video on multifamily. Net worth and post-close liquidity are a requirement. They want to see a track record of experience so they know the property will be run properly.
Conclusion
Experience in multifamily matters when trying to win a deal. There are ways to build that experience if you do not want to partner—smaller deals with lower leverage and recourse. Sometimes it is necessary to climb the rungs of the ladder in this business and start that way. However, if you want to start getting those higher quality assets then the relationships and experience matter.
