Updated: Jan 9
Real estate investors who are actively buying real estate go through a great deal of effort. From finding the property, negotiating the price, managing all of the financing, and not to mention, finding the investors to make the deal actually work.
The good part of this is that you enjoy the work you’re doing. While it’s challenging to find the property with the right potential for your investors, it’s exhilarating as well. Not only do you get to use your real estate and financial knowledge, you get to use your vision and creativity to reposition or renovate a property so that it brings in additional cash flow and income, as well as an increase in appreciation.
For all of the hard work that you put in, you’ll be earning fees and commissions. There are challenges, however, but it’s just a matter of learning what they are and ways to overcome them. So let’s take a look at these challenges and some strategies you can implement.
Challenge #1 Finding Deals
Everyone knows that the multifamily market is hot. In fact, it’s burning hot. Buyers are overbidding just to get access to a multifamily property, even if the numbers don’t justify making the purchase. While that’s good news for building owners, it makes it harder on syndicators to find deals.
The best opportunities are in Class-B and Class-C properties, because with proper value-add improvements a syndicator can usually raise the rents, which will ultimately increase cash flow and appreciation. Look in secondary markets, and markets that haven’t seen prices skyrocketing for no apparent reason. I personally look for deals in Texas, Florida and the southeastern states, for example.
How to overcome the challenge?
Find new and creative ways to find deals. You can target off market deals that are often (though not always) offered at a reasonable price. One such way is to find the owner’s information on the deed or by using tools such as Yardimatrix.
Even among value-add deals competition is fierce. My advice to you is to stick to your investment criteria and never overpay just to get a deal. Stick to the financial guidelines that you use when evaluating a deal, and don’t get involved in a bidding war. Instead, make sure that the deal has an appropriate IRR return. If the deal doesn’t hit my minimum returns – then I simply don’t buy, unless there is a really good reason to do so.
Challenge #2 Upfront Costs
One of the challenges that surprise new syndicators is having to deal with upfront costs. Raising capital for renovation and loan downpayment is one thing, but until you raise that money, you will need to have significant expenses out of pocket. Yes, you will be reimbursed for those costs from the money you will raise, and it will be paid as part of the acquisitions fee, but until then you will need to come up with that money.
Let’s take a look at some of these costs: