Want to know how to do your first apartment building deal in the next 90 days? Then watch the video and/or read below to find out how (andmake sure you download the bonus downloads, too!)
Bonus downloads for today's lesson (download ZIP file):
- The “10-Minute Offer Duplex Tracking Sheet”: a spreadsheet to help you quickly analyze several duplexes side by side.
- 90-Day Fast Track Checklist to your FIRST Duplex Deal (PDF)
- Letter of Intent Template (Word): Download and modify it and start making offers.
- Sample Deal Package Template (Word): Download and modify it and use it to start raising money.
Download the Bonus Downloads (1.1MB ZIP file)
Why a duplex? Buying a duplex short-cuts the process of getting into multifamily (MF) investing for several reasons:
- Reason # 1: There’s more of them and they’re easier to find: There are many more duplexes and quads than larger MF properties. You don’t need to build relationships with commercial real estate brokers so they take you seriously. Just go to realtor.com or call your local real estate agent, and you’ll have dozens of duplexes to choose from.
- Reason # 2: You need less money. In many parts of the country, you can buy a duplex for the price of a single family house (SFH). According to realtor.com, the median home price in the U.S. is $188,900. If you assume you need 20% down, you only need about $38K of cash to close – a lot more doable than requiring $200K for a million dollar apartment building.
- Reason # 3: They’re easier to analyze: analyzing a duplex is like buying a SFH rental: you calculate the cash flow and potentially the after repaired value if you’re renovating, and you make sure you make the cash on cash return you’re looking for. With duplexes, you don’t have all of the expenses you have with MF properties: you really only have property taxes, insurance, repairs, and the mortgage.
- Reason # 4: You don’t need to build a huge team. To get into the MF business, you’ll need to build a trusted team of property managers, attorneys, brokers and lenders. To do your first duplex deal, you don’t need to spend weeks building a team: you’ll probably self-manage the duplex and your local real estate agent will help you take care of the closing and will refer you to their local lender to get the financing. Easy peasy.
- Reason # 5: Cash flow per unit tends to be better than for larger MF properties. It turns out that SFH rentals actually make more money per unit than larger multi’s. While finding MF deals with a cash on cash return of 10% or higher might be challenging, it’s considerably easier with SFH or duplexes.
In short, finding a duplex is easier, faster, cheaper and more profitable PER UNIT than a larger MF deal. As a result, it’s not unreasonable to buy your first duplex in the first 90 days when a larger MF might take longer.
Wondering how to buy your first duplex? Let's get started …
The 90-Day Checklist to Buy Your First Duplex
Here's what you're going to do in the first four weeks:
Week 1: Educate Yourself. During this week you're going to complete a course or seminar or read all that you can about SFH and apartment building investing. While investing in duplexes is less complex than larger MF, you should still know about finding and analyzing duplexes, raising money, and property management.
Week 2: Determine your investing area. Decide where you're going to look. Because good duplexes are more readily available, there's a good chance you can invest closer to home.
Week 3: Analyze 5 deals. Here are the steps I recommend to analyze and track your duplexes:
- Go to realtor.com and get the listings of 5 duplexes. Make sure you get the # of bedrooms, square footage and the rent they're currently getting from the listing broker. If they can supply you with expenses, that's even better but not required.
- Create a spreadsheet where you can track your deals side by side. Include the asking price, your offer price, # of units, and square footage, and rental income.
- For each duplex, create a simple profit and loss summary. Use the rental income supplied by the listing or realtor and assume you'll have 10% vacancy per year. For expenses, you can use the realtor.com figures (towards the bottom of the listing) to calculate your real estate taxes, insurance, and mortgage payment. I suggest purchasing a home warranty plan ($450 per year) that has a $100 deductible. Then budget $100 per month for repairs (the larger items should be taken care of by the home warranty).
I created this spreadsheet for you, I call it the “The 10-Minute Offer Duplex Tracking Sheet” (contained in the Bonus Downloads ZIP file).
I then evaluate each deal according to these three criteria to determine if the deal is good:
- Are the current rents at market or is there a chance to raise them? Find out by going to rentometer.com which will give you the median rent for similar properties in that area.
- What's the current or After Repaired Value? What is the value of comparable properties? Are you getting a deal or overpaying? If you're renovating the property, what is the After Repaired Value?
- What is the cash on cash return? Compare the cash flow of one duplex to the cash flow of another. Does it meet your minimum return? Focus on the deals with the highest cash on cash return (but at least 10%).
In the “The 10-Minute Offer Duplex Tracking Sheet” I have a “red-light / green light” section that allows you to view these side by side.
Week 4: Create your “Sample Deal Package” and start raising money. If you've followed me for any length of time you know that I strongly suggest that you learn how to raise money to fund your deals.
In this step, you create your “Sample Deal Package” which looks and feels like the same document you give investors when you have a deal under contract EXCEPT that you don't actually have it under contract.
To see an example of a Sample Deal Package, download the Bonus Downloads ZIP file.
So in the first four weeks you laid the groundwork for what's next: you educated yourself, finalized your investing geography, created your deal analysis and tracking sheet and crafted your Sample Deal Package. For the next 60 days you're going to focus on 2 activities:
Activity # 1: Schedule One Investor Meeting Per Week
Using the Sample Deal Package you developed previously, reach out to your sphere of influence and schedule meetings with people who might be interested in investing in your first duplex deal.
I've written extensively the Bigger Pockets about raising money, so please see these articles for more details:
- The # 1 Secret to Raising Money to Invest in Apartment Buildings [free ebook]
- How to Find Investors To Fund Your Real Estate Deals
- A Step-by-Step Guide to Ace Your First Investor Meeting
- How to Structure Syndicated Investor Deals: What Investors Are Looking For
If you follow this step, you'll have 8 meetings and at least one of those will agree to fund your first duplex.
If you have your own funds for the first deal – great! But I still want you to start the money raising process now so that you have the funds for the next deal.
Activity # 2: Make 5 Offers Per Week
Continue adding deals to your offer tracking spreadsheet and make offers as you go along. If you make 5 offers per week (not hard to do), that's 40 offers in 60 days and your goal is to get just ONE accepted (also a reasonable goal).
To see a sample Letter of Intent to use to make offers, download the Bonus Downloads ZIP file.
That's it! Your 90-day plan to buying your first duplex.
DISCLAIMER: I realize that duplexes are not technically multifamily, but so what? It's a step in the right direction. I have also simplified the process somewhat, so don't flame me for skipping some of the details – I can only cover so much in one article. My main goal was to OPEN YOUR EYES and SHIFT YOUR MIND to the possibilities. I also want you to get started with apartment building investing, and this is a great way to do it.
So if you thought that you needed tons of cash, experience, or time to get into apartment building investing, then I got news for you: YOU DON'T! Instead of giving up on that first 20+ unit deal, do a duplex deal. Once you have that under your belt, either do another one or shoot for something a little bigger.
Either way, you're in the game and on the path to achieving your financial goals with real estate investing!
To your success …!
P.S. If you're serious about getting started with apartment building investing, then consider my course The Ultimate Guide to Buying Apartment Buildings with Private Money. It not only contains a detailed step-by-step video module and check list to buy your first duplex in the next 90 days, but it covers all aspects of buying larger apartment buildings from A to Z, including finding the deals, making offers, raising money, building your team, getting financing, and property management.