Building your Team and Relationships
In the first article of this multi-part series, we touched on how to research, identify and choose the right market when investing in multifamily apartment buildings in the US. So, by this point, you should have your market of choice on hand and perhaps already started looking at a few potential properties.
Today, we are turning our focus on how to build your A-team and cultivate robust business relationships. After all, good relationships and strong teams result in great business deals. And the same is true when it comes to buying multifamily apartments.
The bigger question here is: who should you include in your team? Let’s take a closer look at some of the most important primary team members.
Real Estate Broker(s)
The value of a real estate broker to your team is absolute, but finding the right one can be a little daunting. That’s why you need to find and onboard several brokers instead of relying on just the one.
As a newbie in the market, most brokers would probably hesitate to work with you. It’s crucial that you build a relationship and get to know each other. Take your potential broker(s) to lunch or dinner, and ask as many questions as you can.
- How long have you been a broker in the market A, B or C?
- What are your credentials, and can peruse through them?
- Do you specialize in multifamily housing?
- How many multifamily apartments did you help buy or sell in the last 12 months?
- What is the cap rate in your market?
- Can you identify the path of progress in your market?
- Can you recommend any professionals for my team, such as Property Managers, Insurance Brokers, Lawyers, lenders?
Don’t be afraid to ask the tough questions. Listen carefully to their answers while watching out for certain red flags. If a broker inflates their numbers or mentions non-existent deals, that’s your cue to run.
Learn to speak the language of the Multifamily business. Brokers, Lenders and more experience investors won’t take you seriously until you can speak the language. Make sure you understand the following terms: Net Operating Income (NOI), Capitalization rate (Cap rate), Operating Expenses (OPEX), Capital expenditures (CapEx), Cash-on-Cash return, Debt Coverage Ratio (DCR), Gross Scheduled Income (GSI), Gross Potential Income (GOI), Gross Operating Income (GOI) Loss To Lease, and Loan To Value (LTV).
Lawyer and/or Title Company
Whether you need a lawyer on your team or not will often boil down to the state you intend to buy your multifamily apartment buildings in. In saying that, it’s a wise idea to have one now, rather than be sorry later. A lawyer will help draw up and execute purchase and sale agreements and leases, as well as file proper forms for your LLC.
In some states, a Title Company will open escrow and handle the transaction to insure closing. They will issue a “title commitment”, which is basically the title company’s promise to issue a title insurance policy for the property after closing. They will carry out a title search which will reveal all outstanding mortgages, liens, judgments, and unpaid taxes.
An experienced real estate account is an indispensable team member. The right one can help you with bookkeeping, saving money on real estate taxes, discovering cost-saving strategies, and ensuring your books are in proper order.
Questions to ask an accountant:
- Do you own any investment properties?
- Do you do cost segregation research?
- What are your cost-saving strategies?
- In what type of entity do you like to hold real estate?
- Do I qualify as a real estate professional for tax purposes?
- Can you Represent me in all the states where I do business?
- Do you communicate by email or other online means?
Mortgage Broker or Local Bank
Chances are, you will want to secure financing from a local lender or bank. That’s where an experienced mortgage broker will come in handy. The role of a mortgage broker is to apply for loans with different lenders on your behalf, shop for competitive mortgage rates and negotiate terms. Working with a local bank has its own benefits, because the lender is the company that is actually funding the loan. You will work with a loan officer that is an employee of the Bank. The lending business is also a relationship based business. Having good relationships and a great track record with local loan officers can be very beneficial, especially when you need to close on a deal in a short timeframe or require a bridge loan.
A good insurance broker will help find and source coverage for your multifamily property. He or she should know the ins and outs of the market in order to advise accordingly on what kind of insurance is perfect for your investment. To find a good insurance broker in your market, ask for referrals from fellow local investors, lenders or brokers.
Mentors or Coach for Education
Getting your feet wet in a new market can be quite challenging, which makes adding a mentor to your team a no-brainer. A good mentor is an industry leader who is ready to share their wide-ranging expertise and market knowledge with you. Their guidance will help with setting up a strategy towards achieving your investment and personal goals. A mentor or coach can shorten your timeline to success, you should leverage their experience to avoid pitfalls and costly mistakes. This is a knowledgeable and insightful professional who will help you become accountable from start to finish. In fact, a great mentor can turn into a perfect business partner.
You don’t want apartments that are riddled with problems. That’s why you need to bring on board an inspector who has an eye for detail, is thorough, and knows what they are doing.
Handymen, Renovation and Property Services Companies
These include plumbers, electricians, kitchen remodelers, roofers, general contractors, painters, flooring companies, pest control, landscapers and lawn care, waste management, ratio utility billing system (RUBS) operators, and other technicians who’ll ensure the apartments run without a hitch.
Boots On The Ground
Can be your trusted local property manager, handyman, business partner or project manager.
A good third party property management company could be worth their weight in gold.
You can contact a property management company or hire a dedicated on-site manager as a part of your team. Either way, make sure they know the costs associated with running each apartment building.
With a strong local knowledge and expertise they can assist you with the following:
- Identify which areas are good or which areas to stay away from
- Establishing market rents in your targeted area
- Advise of typical operating expenses in the market
- Market trends: advise which areas are in demand and which amenities could add value
- Share their list of vetted contractors with you
- Connect you with a property owner that is considering selling off-market and much more
This is a professional who will determine the market value of the property, making it easy to apply for loans, get insurance, and whatnot.
An engineer will work to ensure the property you intend to buy is up to building codes and is of sound structure.
These are just the most crucial members of your team. You might also want to bring in a professional photographer, website specialist, lease sign company, cost segregation consultant, and a laundry company, just to name a few more.