The majority of investors start their investing journey by investing in single-family homes. And once they get to know the market, they start diversifying their portfolio.
They switch to multifamily investing for different reasons. It could be dealing with the maintenance of each house individually, or it could be managing all these single-family homes and having cash flow dependent on the occupancy of a single tenant in a property unlike many in a multifamily complex.
No matter what the reason is, you will have to refresh your system as multifamily investing is no single-family investment. It is very a lot different.
The Importance of a Deal Funnel
Deal funnel is the driving wheel behind every business and real estate isn’t an exception. In order to scale your multifamily real estate business, you will need a new team and a great deal funnel.
Some investors consider this a hurdle and they just step back from multifamily space. Today we will remove this obstacle by discussing the important steps. This will make life easier for most investors and will make the jump from single-family homes to multifamily a smooth transition between steps.
Understand your goals
This is a critical step and it needs serious attention. Because your goals are the driving force behind your everyday struggle and your decisions. So, before you even start working and set up a funnel, figure out your goals. You could be investing for
Appreciation
Diversifying your portfolio
Cash flow
Or a mix of these three
Find out how your life aligns with your financial goals
Analyze your lifestyle and life routine and find out the time you can make available for multifamily investments. This assessment will help you find out the kind of properties that are most suitable to invest in. What suits you best?
Turnkey properties? These are the kind of properties that you immediately rent out and it starts generating a handsome cash flow from the first day with little to no value-add. Just buy and rent out.
Value-add properties? Properties that need minor fixes, extra touches for upgrades ultimately increase the value and hence you can expect higher rent.
Opportunistic properties? These properties are not in good conditions and hence hardly offer any cash flow at acquisition. These properties have the potential once you make major improvements which adds value to the property and it results in a nice cash flow.
After you have figure out the class, you will need to think about a market you want to invest in. Next, ask yourself about the budget you have. Once you figure out the class, market. This will assist you in finding the price bracket you fall in, if you are not comfortable with the price you found, you will have to think about another market.
Start searching the deals
You have developed a hypothesis and it is time to put it to a test. See if there are deals in the market that fits your criteria. Here is what you can do
Find out fifty properties that fit your criteria in your target market that are for sale or sold out in the last year.
Find another fifty multifamily properties that are not currently for sale but are for rent instead.
Keep taking notes, as you might get an opportunity to through an offer at the exact same properties in the near future. And in the process, you might find a great realtor to work with in the future.
Now, your hypothesis has passed the test and there are deals in the market that fits your criteria. It is time to set up your funnel.
The process of setting up a deal funnel for multifamily is similar to that of a single-family. But the sources being used are different.
Start looking for emails using LoopNet, SVN, Collier’s, and Marcus & Millichap.
Get in touch with the Realtors
You already have a list of 50 properties. Contact the realtors who closed the deals you listed and the deals you would like in the future. Request them to put you on the list for future deals. Don’t just request and leave it there. Develop a relationship with them because you don’t want to miss those off-market deals that they may bring in the future. Make sure they keep you on the off-market deals as well.
Learn how to analyze a deal
You need to learn how to analyze a deal. Don’t be lazy and don’t wait for someone to train you. Take initiative and learn this skill. After you learn this skill, practice it to make it near perfect. You need to educate yourself, gain enough knowledge and be quick. Realtors want you to make decisions and provide precise feedback so that they are able to find the deal that suits your criteria best.
Expand your network
In order to stand out from the crowd, you need to have a strong network. This will help you in setting up an off-market funnel. Having off-market opportunities will give you an edge and you won’t need to compete on the deals. How would you build your network?
There are a number of ways you can do it.
Attend all multifamily investing meetups. Talk to people in those meetups and connect with like-minded investors.
Find out your local multifamily developers and connect with them. They can help you find deals or directly sell you a property they developed.
Find out your local hard money lenders and other lenders. They can help you find deals.
Finally, connect with the multifamily wholesalers.
Sellers
If you sit here and wait for deals, don’t expect great success in the multifamily space. Don’t just sit and wait, go out and find those deals. They are out there and you have to find them. Here is how you can find sellers and get in touch directly.
There are a ton of resources on the internet. Scrap contact information from those resources and get in touch with the sellers.
Analyze your 50 properties that are on rent and contact the owner directly and ask if he is willing to sell. If he is facing vacancy issues, you have a higher chance of getting the deal.
Contact the property managers of the properties you have eyes on and talk to them. If the owner of those properties is not interested in selling them, property managers might have other deals he can refer to.
Build a mailing list and keep sending emails consistently.
Look for local auctions. Don’t miss out on opportunities.
Find out properties that are being held for more than four years in the property record. The owners might want to sell the properties after holding them for more than four years.
Keep in mind that having successful relationships takes months. Don’t assume it will take you a few days to connect with everyone and establish a strong relationship in a few days or weeks.
How do you all this while having a busy life?
I often get this question from new investors, “How do we do all this while having a busy life?”
There are a few key points to follow.
Clarity in goals
Criteria, market, and budget
Automate as much as possible
You don’t have to set up a complicated process to automate. You can rely on excel sheets or Google sheets.
Add all your details to the sheets you are using. For example, the location of the apartment complex, the price you are going to offer, how many units are on the property, what class property it is, what gross income can it generate, how much would it cost to operate, and its occupancy rate. Apply simple formulas on different columns and have it calculate your NOI, net cash flow, etc.
Make sure you write the contact information you have with the property on the sheets. For instance contact info of the realtor, property manager, and owner.
Then devised a procedure and write it down. Since you can’t outsource your deal analysis, you want to do that yourself. Go ahead and outsource the sourcing procedure to a virtual assistant or have someone take care of it for you. Now you can spend your energy on deal analysis, networking, and building valuable relationships.
Multifamily space is becoming more competitive, so start working on your initial funnel without wasting time. Want to learn more about multifamily investments? Read more on our blog.
Join our FREE Membership and network with like-minded investors.