I get this question a lot, especially, during or just after a presentation showing an apartment complex illustrating a ‘cash on cash’ return in excess of 20%.
If you went to a Commercial Broker and told them you were looking for properties with a 20% COCR, they’d do one of two things;
- They would buy the property themselves if they ever found one with a 20% COCR
- They’d hang up on you because they’d think your expectations are unrealistic.
You probably won’t find an Apartment complex advertised with a 20% COCR. However, you can increase your chances of finding some great deals by doing a few things differently.
First off, there’s no big secret in ‘finding’ Apartment complexes for sale. Start by using the same vehicles most investors use. For instance, you can search through Loopnet.com or go to any of the major or regional Commercial Brokerage web sites such as Marcus & Millichap (MarcusMillichap.com), CB Richard Ellis (CBRE.com) or Sperry Van Ness (SVN.com) just to name a few.
Another way to find Apartments for sale is to ask Property Managers or Commercial Financiers that work in the area you’re looking to purchase in. Often times, they know owners who are looking for another property and have to sell their first one to move on or they know someone who’s just ready to retire.
But WHERE to find deals is really the tip of the iceberg. Like many things in real estate, the real key is about RELATIONSHIPS.
The first thing I do once I’ve decided on a market where I want to buy a building is to find 5-6 brokers preferably with a CCIM designation, and I call them to introduce myself. I ask them about the market conditions, recent sales in the area and their own experience as a commercial broker. It’s amazing how much information you can get when you ask the right questions. You also get a pretty good feel for the person about whether or not you see yourself having a long-term relationship with them.
Once I have a good feel for 3-4 of the agents I’ve spoken with, I give them the criteria I’m searching for in a complex. My criteria will include number of units, unit mix, minimum Cap Rate, price range, the quality of the complex (A, B or C) and area of the city. I follow-up my phone conversations by emailing my contact information and criteria to the brokers. Then, I phone or email the brokers every 1-2 weeks to stay in contact with them.
Since the brokers know exactly what I’m looking for it makes it easier for them to find something that fits my criteria. The ones that bring me deals I take care of. Obviously, they get their commission, but it’s the extra little things I do that I believe makes a difference such as sending them a restaurant gift card to take their spouse or significant other out for a night on the town at my expense or maybe tickets to a local sporting event or bottle of wine. That way, I am always in the front of their mind anytime a good deal comes across their desk.
You’ve probably heard the term ‘Pocket Listing’. Well, my goal is to be a ‘Pocket Client’. When the broker gets a new listing, I want to be one of the few clients they call first, sometimes before they even release the details to other brokers in their own office. And that’s the key to finding great deals.
If you think about it, everyone out there has access to the same sources for deals, but it’s the people who have nurtured and cultivated their relationship with the broker that reaps the bumper crop! They will even tend to go to bat for you with the seller if you’re looking to do something other than just put down a traditional 20%-25%. They will be in your corner helping you explain to the seller why it would be better financially for them to carry-back some or the entire purchase price then to just sell the property outright and make you bring in new financing.
Even in the commercial world, it’s about relationships. Once you have those relationships established you have a much greater chance at turning an average deal into a great deal. A 10% COC return into a 20% COC return. That relationship just helped you double your cash flow. How much is that worth to you?