There’s no doubt that multifamily properties continue to be one of the very best investments in 2020 because they are an excellent way for investors to build wealth while generating consistent monthly cash flow. The big question though is due to the popularity of multifamily Investments, can investors still find distressed multifamily properties in this day in age? The answer is yes
Single-family investors use driving for dollars as a proven method for finding distressed single-family properties and the same principle can be used for finding vacant or distressed multifamily properties in cities or towns nationwide.
If you’ve been wondering how you can get started with searching for distressed multi-family properties in your city or state, this article will provide you with a step by step guide that will help you to use driving for dollars as a method for finding properties.
Driving for Dollars to Find Distressed Multifamily Properties
Driving for dollars is one of the most common practices that multifamily Real Estate Investors engage in because there’s nothing easier for an investor to do than to get in their vehicle and start driving around a city or town in search of vacant or distressed multifamily properties.
Since the “Great Recession”, there are many multifamily properties out there that are in distressed condition because the owner has fallen behind on maintenance or repairs due to lack of cash flow and these properties present opportunity for “eagle-eyed” investors.
Driving for dollars doesn’t mean that you’re going to be driving around aimlessly in a city all day long while you listen to your favorite podcast or songs on the radio. On the contrary, before you actually engage in the process of driving for dollars you should target a specific area or subdivision.
Tips for Establishing A Target Area
To establish a target area, there are a variety of things that you should consider including the tax assessed value of properties, local jobs market, average age of properties, crime rates, school districts and more.
For most investors, the main criteria that they use when driving for dollars are to target an area based upon the tax assessed value of properties there. Your criteria for what you’re searching for in a distressed property could be different, so it’s important to really spend the time defining what you’re looking for in an area before you start driving for dollars there.
What To Bring When Driving For Dollars
Before you hit the road to start driving for dollars, you’re going to need a few things with you on your journey. some of the things that you should bring with you include a camera, pen or pencil, notebook and a complete list of the subdivisions that you plan on visiting
During the process of driving for dollars, many investors like to break down the areas that they’re targeting by making a grid or checklist on paper. This way they have the ability to confirm that they’ve targeted every subdivision in a specific area without potentially missing a neighborhood that has a duplex, triplex, or apartment building that’s in distressed condition.
Key Times To Be Driving For Dollars
Before you actually hit the road to start driving for dollars, you may be wondering when is the best time that you should actually start your search? The answer to this question is between 10 a.m. to noon every single day. This is a great time to be out in neighborhoods because most people are at work during this time of day so you can take your time looking for distressed multifamily properties without alerting neighbors.
Tip – The holidays are a great time of year to be searching for distressed multifamily properties for the obvious reason that most people will be decorating their properties or leaving trash by the curb after Christmas is over. If you find a property that’s not been decorated or showing a “sign of life” during the holidays, this is a sign that it’s likely a vacant or distressed multifamily property.
Sure Fire Signs That A Multifamily Property Is Distressed Or Vacant
While you were out driving for dollars, there are some red flags that you should be on the lookout for including properties that have tall grass, broken windows, code enforcement notices that are taped on the doors, piled up newspapers and also deferred maintenance which is easy to spot.
When you find a distressed property while driving for dollars it’s important to take the time to thoroughly record your thoughts about the property including how the property currently looks, condition of the area, if it’s currently vacant or occupied, and the work that it may need to get rent ready.
You should also take plenty of pictures of the exterior of the property including some shots of the neighborhood because when you get back to your office you will have ample visual representation that will remind you of the condition of the property or area before you choose to investigate the distressed properties there further.
What To Do When You Actually Find A Distressed Multifamily Property
Finding a distressed multi-family property is different than finding a distressed single-family home because of the simple fact that you can’t leave a note in the mailbox, taped to the front door, or garage of the property, because it’s likely that the owner doesn’t live there.
The next step that you need to follow as an investor is to thoroughly investigate the distressed multifamily properties that you found at the city’s Central Appraisal District, or tax accesor. Here you can go through tax records to find the names and primary residences of each owner of the multifamily properties on your list.
While researching the multifamily properties that you found, it’s important to keep in mind that you may find one or two properties that are owned by a bank, in these cases it’s best to discard those leads in favor of properties which are owned by individual owners because banks can be difficult to deal with.
Tip – Thanks to the internet, it’s not always necessary to visit your local Central Appraisal District or tax assessor because it’s easy to research property tax information online and you may even be able to do this while you are out in the field using your mobile phone.
Start Marketing To Your Leads
Let’s say that you found and verified a list of 30 distressed multifamily properties, the next step is to actually start marking to the owners of those properties.
Most investors prefer to start marking to owners by sending out postcards or personalized letters to them. For the best response rates, you should consider sending out a custom invitation style envelope to each owner with the owner’s name and address on the envelope. This will help them to see that the letter is from a real person instead of a faceless corporation.
On the letter that you send to the owner, you should include a picture of the property itself which shows the condition that it’s currently in. Some investors also prefer to include a thumbnail picture of the property on the envelope because this also has been proven to capture the immediate attention of the owner and stop them from throwing the envelope in the trash.
Tip – As with any form of marketing, it’s important to market to the owners of the distressed properties that you found for at least three months. Why? Repeat mailings are important because it’s a proven fact that the average person has to see a piece of information up to 9 times before they make a buying or selling decision.
What To Do When You Can’t Find The Owner Of A Property
After sending out one or two letters to the owner of a distressed multifamily property that you’re interested in buying, you may find that one or more of those letters will be sent back to you because you have an incorrect address for the owner.
If after researching public information like tax documents for the property online, you may also be able to track down the owner of a property using a Skip Trace service. This is by far one of the most accurate ways to find an owner but it does come with a cost that ranges between $50 to $100 per person.
More Tips For Finding Distressed Properties
Besides driving for dollars to find distressed multi-family properties in a specific area, some of the other things that you should consider doing to find properties should include hiring a team of “bird dogs” or individuals that you will pay a guaranteed commission to any time they notify you of a distressed multifamily property that you are able to close on.
You should also consider forming relationships with the local mail personal and delivery drivers because these individuals should be considered to be the “boots on the ground” because they are typically in and out of neighborhoods on a daily basis and are the first people to usually spot vacant or distressed properties.
Tip – When recruiting “bird dogs”, mailman, delivery drivers, or anyone who is interested in finding distressed multifamily properties for you, you should agree to pay them a commission of at least $1,000 when you are able to close on a property. This commission rate will guarantee that they make a nice profit for their efforts and it will motivate them to always be on the lookout for a distressed property when they’re out and about the city working on a daily basis.
Driving for dollars one of the best ways to find distressed multifamily properties in any town nationwide, it does require some initial legwork and time but the time that you invest will be well worth your efforts!