So, you want to own a multifamily property because most investors are telling you that you will enjoy more income when you own apartments, fourplexes, triplexes or a duplex. This is an excellent goal to have but the reality is that before you actually own a multifamily property, you have to start submitting offers on properties.
Assuming that you’ve done your “due diligence”, have found a great multifamily investment property and have reviewed the terms and conditions of the contract, this article will provide you with a clear strategy that you can use for submitting an offer on a property.
Submit the Offer
The strategy for submitting an offer on a multifamily property begins with you actually submitting your offer on a property.
Tip – Before submitting an offer on a property, we recommend that you hire an attorney or partner with someone who has done it before. This will eliminate errors and ensure that you submit an accurate offer.
Submitting an offer on a property can be done two ways, the first is submitting a Letter of Intent. With this method, you’re going to submit a very short letter that outlines your terms that you would agree to enter for purchasing the apartment building.
Your letter of intent should include information like the following:
- Your name and the name of your company
- The purchase price that you would like to pay for the property
- The amount of earnest money that you are going to deposit into the escrow
- Your due diligence timeframe
- Closing costs for the property
Let’s say that you don’t want to submit a Letter of Intent, this is okay, you can also submit a Comprehensive Proposal Letter instead. This letter is more in-depth than a Letter of Intent and includes more detailed information. With this letter, you can also provide information like your proforma financials and how you arrived at your purchase price.
With your proposal letter, you can also provide even more information like making a case for your ability to buy the property, any risk that you might pose for the seller and the upside that you expect to receive when you purchase the property.
These methods may strike some people as odd since they may be expecting a magic process for buying a multifamily investment property but the reality is that with most multifamily properties, the actual negotiations will only start after an offer has been made than accepted by the owner of the property.
Once you are under contract, you will have time to get all of the big things done in the buying process like inspections, due diligence, negotiations, possible seller credits and of course lender financing agreements.
After submitting your offer on a multifamily property, you’re going to find that this is the period where ongoing negotiations will actually start. Some of the ongoing negotiations that you can expect include:
Undisclosed expenses – These will be revealed when you analyze the owner’s current tenant leases and their year-to-day financial information.
Problem maintenance issues – Another thing to negotiate after submitting an offer on a multifamily property is potential maintenance issues that were uncovered during your inspection of the property.
Purchase Price – Besides what we’ve mentioned so far, you may also be able to negotiate the actual price that the owner is asking for the property especially if it was determined by an appraiser that the price, they are asking for the property exceeds the actual properties value.
Buying A Multifamily Property Is Easier Than You Think
One of the biggest problems with buying a multifamily property is that most people think it’s a difficult process and they don’t actually get started with getting their first deal.
If you follow the steps above, you will be in a good position to own your first multifamily property, just make sure that you thoroughly analyze the investment property before submitting an offer.
Some of the pieces of data that you should be analyzing before submitting an offer on a multifamily deal include:
- Review the Rent Roll – Analyzing the rent roll, or a building’s profit and loss is critical because your goal as an investor is to review the P&L to make sure that the profits haven’t been inflated to make the investment look more attractive than it really is.
- Investigate the Value – To determine the real value of a property, you should hire a Real Estate broker and have a comparable analysis of other properties in the area done. The broker will review properties that have sold in the last few months and compare the prices that properties have sold for to their NOT.
- Get Financing – Since multifamily properties are a large expense, you most likely are going to need financing. During the process of shopping for financing, it’s best to have at least 15% ready for a down payment and you should take the time to shop around for the very best terms.
The biggest takeaway that we want you to learn from this article is that you can’t be scared of submitting an offer on a multifamily property.
As long as you do your due diligence, partner with an experienced broker in the beginning and take the time to thoroughly review a property before submitting an offer, you will be able to purchase a great property that will be awesome for your investment portfolio.