Are you eyeing duplexes, 8-plexes, or smaller apartment complexes but haven't sealed the deal yet? Wanting to scale up in real estate but finding yourself hitting a wall can be incredibly frustrating.
If you’re nodding along and not sure of your next step, this article is tailor-made for you.
Today, we’re diving into the four most common traps that might be stopping you from closing your first multifamily deal, and I’ll show you how to navigate each one successfully.
The Four Biggest Mistakes You’re (probably) Making
I’ve seen a lot of new investors who are looking for deals quit because they either can’t find any or can’t close anything that comes across their plate.
They’re likely making one of four mistakes, and chances are you are too.
MISTAKE 1: You’re Not Deal Ready
The biggest thing I see in new investors is that they’re not “deal ready.”
- You don’t have sufficient knowledge
- You don’t know what they’re talking about
- You don’t know how to pick the right market
- You don’t have an all-star team built around them
You just start calling brokers and then surprise! Brokers aren’t taking you seriously or calling you back.
MISTAKE 2: You Don’t Know How to Analyze Deals the Right Way
The second problem I see in new investors is that they cannot analyze deals confidently. You might be spending your whole day analyzing a deal (which is too long) and still not know how much you can pay for it and why.
MISTAKE 3: You Don’t Have Deals in Your Pipeline
Maybe you know how to analyze a deal, but you’re not getting the deal flow you need. If you’re going on the MLS or Loopnet, you’re looking for deals the wrong way and that’s why you don’t have any new ones in your inbox.
MISTAKE 4: You Can’t Raise the Money You Need
If you come from a single-family house investing world like I did, you probably aren’t raising capital. Likely, you don’t know how and it’s holding you back from doing a deal.
The Four Pillars of Real Estate Investing
One or all of these may be holding you back. So what’s the solution? It’s what I call the four pillars of investing success:
- Deal Ready
- Deal Analysis
- Deal Flow
- Deal Capital
Let’s talk about all four of them.
Deal Ready
Being deal ready encompasses two things:
- Your education
Understand terms like “cap rate” or “reposition” to impress brokers with your knowledge.
- Your team
Before calling brokers, assemble a powerful team that includes a property manager, a lender, and an attorney to bolster your credibility.
You need both of these components to be deal ready.
Deal Analysis
The second pillar is deal analysis and this means two things:
- You need a strong financial model
You’ve probably used one for flipping (I did to calculate the ARV for a rental). In the apartment world, that model is the Syndicated Deal Analyzer – the most frequently used deal analyzer on the planet.
- You need to use the right numbers
It doesn’t matter if you’re using the SDA or not – you can make it say anything you want, but it’s useless if you don’t know the reasoning behind those assumptions.
This is where your team comes in. Ask your property manager about the rent projections. The expenses. Use those numbers in your analysis.
Deal Flow
With deal flow, you need to be in the right market.
Are incomes rising in the area? What about population? What are the crime rates? And is the market big enough to provide a consistent supply of potential deals?
The big question is, what is your current source of deals? You're looking in the wrong place if it’s the MLS or on sites like Loopnet. That’s where brokers list deals that no one in their contacts wants to buy.
The key to finding deals is through those brokers. Create a spreadsheet of brokers in your area from Loopnet and start engaging with them. You might have to chase them a little, but the goal is to get on their buyer's list so that they send you deals.
Deal Capital
This obviously relates to raising money. This might be daunting because you’ve never raised money before and probably don’t think you can … you’re not a salesman.
The key is to raise money before actually having a deal. How is that possible? The answer is the sample deal package. It’s used as a conversation piece. You find a real deal that’s very similar to the kind you’d buy and present it to the investor.
“If I had a deal that looked substantially like this and provided so-and-so returns over 4 years, would you be interested in investing with me?”
This is where you address their questions and concerns so that by the end, you have a verbal commitment from an investor. So if you have five people who want to invest $50,000, you have a quarter of a million dollars behind you before even having a deal. Do you see how that could greatly increase your confidence?
Evaluate yourself to see if you’re stuck in one or maybe all of those things and figure out how you can solve them. I go deeper on each of these pillars in my free course, Apartments 101 Masterclass.
I talk about how you can actually start to:
- Build your team
- Become more experienced than you think you are
- Raise capital
- Overcome the things you’re stuck in now
Hopefully, it helps you on your journey to get to that next level.
