Let’s assume you find the idea of buying and occupying a small apartment building interesting. How do you go about actually doing it? After all, buying an apartment building with a mortgage is basically doing a leveraged buyout on a small business … there’s plenty of upside, but also some risk.
How do you maximize the former and minimize the latter? Our company, Adaptive Realty, grew out of our experience buying, renovating and then selling 13 buildings on the Eastside between 2009 and 2012 (and many more since!). Eventually, friends started asking if we would help them buy their own buildings, so we set up a brokerage to help them and people like them.
Here’s how it works:
Step 1: A conversation
Every single deal starts with a long conversation where we mostly listen to you. It’s true we have definite opinions about what makes a successful apartment investment. But there’s a wide range of potentially successful deals, and we need to know your experience, goals, and resources to tailor our advice to your situation.
Step 2: Pre-qualification and proof of funds
When you make an offer to a seller, you’re saying “Please agree not to sell this building to anyone else for 30 days while I work on buying it.” No sane seller will make you that promise without proof you can actually close. So the next step is putting you with a good loan broker to determine the size and terms of the loans available to you. The resulting “pre-approval letter,” plus some proof of your liquid assets (cash, stocks, etc.), serves as the proof a seller needs to take your offers seriously.
Step 3: Evaluating opportunities
Every day, we scour the market for relevant opportunities for our clients using the same ruthlessly quantitative approach we use for our own deals. We create a spreadsheet for you that estimates rents, expenses and forecast return on investment for each possible acquisition target. You don’t have to buy the property with the highest forecast return, but it’s a good way to make rough “apples-to-apples” comparisons. Then, if you decide to buy the lower return deal because you like the area better, at least you can quantify what you’re giving up.
Step 4: Writing offers
If you’re looking for someone to drive you around looking at buildings and discussing feng shui, look elsewhere. There are few good deals out there and many people looking for them. When we find one we collectively agree makes sense for you, you need to write an offer or pass on it quickly. Later, when we get an interesting deal in escrow, there will be time to investigate, evaluate, ask questions and, if necessary, back out. Now is the time for action.
Does the above sound harsh? Remember: Buying an apartment building with a mortgage is effectively doing a leveraged buyout on a small business. You want to approach the process with cold-eyed calculation, expert knowledge, and a bit of street-smarts. That, in a nutshell, is what we’re offering.
Missed last week’s post? Click here to read about building wealth by buying and living in a small apartment building.
Next week: Going from getting the offer accepted through closing.
If you’re ready to get started now, check out Kagansblog.com.
President, Adaptive Realty, Inc.
1670 Beverly Blvd., Ste. 1, LA, CA 90026
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