With this post about investing in multi family apartments, we will look at how to actually go about finding the apartments that can be for sale and how to put these deals together. Usually there is a person that is actively looking for apartments for sale and making the initial offers on the buildings. Then, they will typically will raise money through partnerships in order to have enough capital to purchase and repair the building after closing. There are several ways you can go about finding these deals, and just as many ways to put them together for the investor.
First, the person that is typically looking for the apartment gems out there is called the deal sponsor. Kind of a front end sales person or negotiator that interfaces directly with the seller or broker. The deal sponsor is the person responsible for making offer to the sellers of these buildings and acts as a facilitator to get the ball rolling. Once the offer is accepted by the seller of the building, which you will be dealing with either the owner direct, or the commercial broker of the owner, the work starts from there. We typically hire our guy who is a mover Woodstock GA to clean all exteriors of our buildings. Although that is after purchase. At that point it is the deal sponsors responsibility to gather all of the financial documents of the building and make sure that it cash flows and performs well enough to purchase. If it doesn’t then the offer needs to be lowered to account for all that. There is a lot of work to be done on the front end of an apartment deal such as making the offer, negotiating the offer, ordering the inspection, checking the financials to make sure it works, and aligning the financing of the building.
After the offer is accepted and the financials seem to work out, then the deal sponsor will need to get in touch with a financier of Apartment buildings to get financing lined up. Typically this has already been done up front, and verbally <!–more–>discussed with a few lenders who have agreed to finance buildings of a particular size and cash flow numbers. So it isn’t just hoping one will finance you, this has already been investigated thoroughly up front. Then the deal sponsor will determine the capital required to get the deal to the closing table. On a routine apartment deal of say 1 million dollar purchase price, the buyer will need to have 20% down payment for the building. So, $200,000 in this example.
After the financing is lined up, the deal sponsor needs to raise some money from financial partners to get it to the closing table, provided that he doesn’t have the $200,000 sitting around to do himself. So, he would approach some money partners who will put up half, one quarter, one third, etc. to see what they can arrange. Once the $200,000 is arranged and raised, they then decide on percentages of the deal in terms of splitting the cash flow and back end equity upon selling or refinancing.
I hope this article helps in laying out the anatomy of an apartment deal and how a typical transaction works. Usually there are multiple partners on a deal that put together their funds for the acquisition of the building and they get a lot larger return on their capital than the banks are currently paying. Not to mention a great tax write off of the expenses each month on the building.