If you are thinking of investing in multifamily apartment buildings as an ACTIVE investor, here are the 10 steps that we go through to purchase assets that meet our financial and business objectives. As an active investor, you are leading the charge – from deal identification to closing to asset management. Think of yourself as the captain of the ship.
Don’t have the time or know-how? Become a PASSIVE investor and partner with someone that is leading the charge with their own deals. Partner with them by investing your money in the project while they do all the work.
1. Determine Your Reason For Investing
Solidify your ‘why’ and clearly identify your financial goals. Cash flow or equity growth. Based on your short-term and long-term financial goals, what does investing in multifamily apartment buildings need to do for you?
2. Select Your Macro-Market
Identify the city or town that helps achieve your financial goals. There is often a trade-off between high cash flow and equity growth markets. There are a number of resources that are available online in addition to local real estate investing meet-ups and groups that you can tap into for this strategic insight.
Here are a few:
A wealth of knowledge on the top markets in Canada as well as insights related to the impact of economic fundamentals on rental demand.
Market trends, rental demand, housing statistics and much more can be found here. Use this to help identify growth markets.
3. Select your micro-market
Values can vary from street to street. Ensure you have local market expertise and have a strong grasp of local dynamics. Select a neighbourhood that aligns with your objectives. Once you have an idea of which micro-market(s) to potentially invest in, get your “boots on the ground”. Visit the neighbourhood, walk around, visit the local businesses, have coffee in the local coffee shops to get a better feel of the area and potential tenant profile you will be looking to attract.
4. Source potential properties
Lead flow is an important part of the process. Once you have decided to move forward with investing in multifamily apartments, leverage your network to start sourcing potential properties to buy.
Connect with brokers, wholesalers, building owners, and fellow investors in the local area. Attend local association meetings to network.
5. Onsite property walk-through
Visit as many buildings as you can to strengthen your market knowledge. Thoroughly walk-through high potential deals. This process will give you deeper insight into property valuation that no online source can. Walk through with a Property Visit Checklist to help make sure you are.
6. Deal Valuation
With insights from your onsite visit and market knowledge, conduct a first-level valuation and pro format to determine if the deal passes your own hurdle rates.
7. Financing Strategy
While financing should be considered early in the process, equipped with more insights, finalize financing options and prepare to submit an offer. Discuss with broker or direct lender.
Get creative! There are many ways to structure financing for multifamily apartment building purchases to suit your needs. Work with a team of experienced brokers or investors that have the knowledge to navigate this step.
8. Submit Offer And Put Under Contract
Since each deal is unique, consider all aspects including seller motivation, creative financing options such as a vendor take-back (VTB). 30-90 conditional periods depending on property.
9. Final Due Diligence
With an accepted offer, your final and most thorough due diligence phase begins. Ensure all aspects of the deal are thoroughly evaluated. Leverage experts and professionals for this phase.
10. Sign-Off On Conditions. Go firm!
Once you have satisfied all your conditions and confirmed that the property meets all of your criteria, sign-off on all conditions and officially go firm on the deal.
Good luck on your multifamily apartment building investing journey!