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How to get into apartment building deals in Edmonton

REIGirl

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Hello, so my husband and I have purchased a few single family rentals as buy and holds. We are nearing our debt to income ratio capacity for purchasing such buildings in our name and are therefore considering to get into apartment building deals to improve our wealth creation and cash flow. Any advice as to how to start? What factors do we need to consider? How do we go about analyzing such deals? Also, we have no experience with JVs, how might we go about this: finding the JVs, structuring the deals, returning the capital investment with profits to JV partners while still maintaining ownership (i.e. not selling)? Thanks!
 

Victor Pidkowich

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Howdy from Calgary! I have several duplexes in Saskatchewan. I have no apartment experience but because apartments are in my long term plan, a few key people have been on my radar.

I know many REIN members might back me up when I say Pierre Paul Turgeon is the leading authority on this topic.

He recently did an interview around exactly what your up against.

http://mrhamilton.ca/2017/05/graduate-apartment-building-investing-pierre-paul-turgeon/
 

Thomas Beyer

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REIN has a good multi family binder. Start there.

The steps in general are

Line up the cash so you know how big a building you want to buy

Contact realtors to find suitable assets ( with the strong caveat that realtors do not wish to waste their time showing rookies buildings they can't afford or can't buy due to lack of cash)

Know the numbers like DCR, NOI and cap rates to know what kind of mortgage you can get

Inspect building and analyze numbers based on known or likely required expenditure

Find a good property manager

Have a decent lawyer that can help with contracts

Know the difference between reality and realtor enhanced proformas.
 

REIGirl

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Thank you both for your replies! I just came across the podcast/interview done with Pierre Paul Turgeon and I did get some good insight. Where may I find the REIN multi-family binder? We are not yet members of REIN but hubby is attending the W.I.N. event this evening in Edmonton and will be getting a membership soon
 

Marnie

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Hi there! You can click here to find the Multi Family Investing Secrets binder. I hope your husband enjoyed the W.I.N. event last night! If you or your husband have any questions please feel free to reach out to [email protected] or call the office.
 

REIGirl

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Great! Thank you for the link. The W.I.N. event was definitely time well spent. Husband got a membership last night. Looking forward to learning and growing with REIN!
 

Thomas Beyer

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For commercial and multi-family assets you have to decide if you want cash-flow or a high ROI ! More on that here: http://myreinspace.com/threads/what-is-better-cash-flow-or-higher-roi.26596/

Another major issue to consider is if one wants to attract JV money. You need 650-700,000 cash for your average 20 suiter in Edmonton ( roughly 600,000 cash to close if price is 120/door with 25% down, 50,000 closing costs and 50,000 reserves depending on vacancy levels and quality of the asset). Some more deliberations on how to compensate red money, green money & blue money i.e. how to get paid as an investor or as an expert in a win/win fashion. is here: http://myreinspace.com/threads/blue...expert-deserves-to-make-some-money-too.29091/

For a successful JV aim for win/win. See here http://www.donrcampbell.com/is-a-5050-joint-venture-fair

If you take too much, investor loses or is uninterested. If you take too little, you lose interest. Both sides have to be happy. An acquisition fee of 1% to 3% of asset value is not uncommon, or a 0.25% to 0.75% annual asset management fee (of gross asset value), or a 1-2% fee of equity, or a 15 to 50% share of profits. The combination of fees plus operators equity varies but the total matters. Some deals are very risky but very profitable while others are lower risk with lower ROI.

Ask yourself: would I invest in your deal as a money partner under the proposed terms ?
 
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Caleb West

Multi Family Commercial|Collaborative Office|
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That list is great lol , very similar to mine.
Limited partners have 3 tasks to my 40 or so

1)Write a check to us
2) go live life on their terms
3)Deposit a checks from us
 

Matt Crowley

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@vpidkowich The leading authority on the subject is BOMA. Also review Canadian Apartment Magazine. Look for property manager industry magazines not infomercial / information marketing material. I could make those thin booklets in two hours using google and Word.

If it is your first building, you will basically get slogged with the crap (quality or pricing) apartments that real estate funds and PE funds think are overvalued. Every Realtor will gladly add you to that list, but remember that the funds have already done their due diligence on all of the buildings and passed on them... Not to discourage you but just so you know what you are up against.
 

Victor Pidkowich

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@Matt Crowley Thank you for the course correction. Can you confirm BOMA is Buiding Owner and Managers Association with a number of sub groups across the world? http://www.boma.org. And I agree on the non-infomercial type content, I just wasn't aware of any other authorities. Thanks again!
 

Thomas Beyer

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@vpidkowich ...

If it is your first building, you will basically get slogged with the crap (quality or pricing) apartments that real estate funds and PE funds think are overvalued. Every Realtor will gladly add you to that list, but remember that the funds have already done their due diligence on all of the buildings and passed on them... Not to discourage you but just so you know what you are up against.

Keep in mind though that most larger PE funds (such as us), REITs or larger investors such as high net worth individuals do not buy small buildings, say 20 or less units so the 20 and below space is usually novice investor or smaller investor territory. The only large firm I know that aggregates smaller buildings is Mainstreet Equities (stock symbol: MEQ), and it tends to low ball and buy in cash, with few conditions attached, unlike like most novice buyers that drag sellers through 3-4 month due diligence periods to drive them nuts, so they sell to MEQ for $10,000/door less, in cash. We too have done that in the past on occasion.

Enjoy the profitable ride (if done well) !
 

Cory Sperle

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Very good read. I really like the Mainstreet strategy as it has worked quite well for them. I recently sold a 15 suiter, and accepted a higher 'conditional' offer vs. a cash one that was slightly less so it may drive some sellers nuts but will go well if good realtors are involved. Buying unconditionally is insane in my opinion, especially if you are new, as you need 3-4 months to do it properly and obtain the financing, where the bank essentially 'has your back' and can find items you may have overlooked. If this drives the seller nuts it's usually because they are hiding something they don't want you to find out.

Yes 12 to 24 suites is the sweet spot where larger players tend to stay away, but I would say a 20 suiter @ 120/door you should budget 800K, with $120,000 of that for reserve/vacancy on a 5 year hold as you will have a lot of turnover and repair costs, especially in the first couple of years.

There is almost nothing for sale however, so carry on with single family but have a large line of credit/cash or investors ready for when a deal does come along.
 

TangoWhiskey

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Read Dave Lindahl's Multifamily Millions. Best book on real estate investing in MF there is IMHO. I think Thomas' book 80K to 80 million is a very good broader book that I refer to once in a while - conscious kaizen is a great technique. There are a few other good MF books, all out of the US but applicable here.

If you're willing to really focus, choose the area of the city you like at the price you can afford and get in your car and drive it. Get the addresses of each apt bldg you see, take a photo of the bldg for your files and go count the number of mailboxes in the lobby to tell you # units. Once you have a few dozen candidates go to your land registry system, find out who owns the ones you want, and send out a mailing campaign to all the owners. Watch the open market deals to know what is available and the pricing while you work on taking down an off-market deal. KNOW the rent levels and vacancy levels for 1 and 2 bed units in that area and then just keep growing your mailing list as sooner or later one of your letters will land on someone who is willing to sell due to death divorce bankruptcy inheritance whatever. Even in a high competition market sooner or later your letter will turn up results. You only need 1 and when there's this amount of capital at play this should be considered basic due diligence.

If you are disciplined and can wait for that and do the research and work to get those letters out, your 1st deal should be as good as you can get. You can also work on creating relationship with the top 3 commercial realtors, but they will have pocket buyers already so that avenue to get a great deal is less likely unless we are in a down cycle for RE.

This set me and other people I know free. Good luck.
 

Cory Sperle

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Some great insight here as well. I have not had much success with mailings, or know anyone who has. As an owner I have received them, but always felt they were tire kickers trying to steal a project when I could always fetch more on the open market. MF seems to be one asset class where folks seem to pay ridiculous amounts of money, especially if it's their first project. Forget the JV route until you have done a few deals from purchase to sale. Get your ducks in a row, cash in hand, do some research, then contact some agents and be prepared to write offers. I would also recommend getting pre-qualified and set up with a quality mortgage broker who knows the market well.
 

TangoWhiskey

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I know what you mean Cory - its a lot of work and most contacts you get are tire kickers :( but a great way to learn your market.
I focus on smaller secondary markets around Halifax to get the highest cash on cash returns and these markets have much higher hit rates as the owner professionalism is often lower. A good investor friend who had very little money used this technique in another smaller regional hospital town and Boom goes the dynamite! - a 70 year old lady had inherited a debt free portfolio of 6 smaller multi family bldgs totalling 26 units concentrated on the 3 roughest streets. After 4 years of prop mgmt hassle she threw in the towel and sold it to him for the unbelievable price of 200K as she liked him and what he was doing on those streets in his other buildings. My friend took that deal to a hard money lender and got 100 % financing plus renos. A year later that portfolio appraised at 700 K, hard money lender paid out and 200K cheque to my friend (who when he started 2 years prior was so financially in the hole he didn't even have a car, riding his bike to meet JV partners). The amazing thing about that story was that in January he had written out his goal to double his portfolio and posted it on the wall of his office. As winter rolled around he was bummed out he wasn't going to meet his goal. Phone rings and the rest is history ... she had received that letter 3 years prior and sat on it until she had had enough.
I think those stories are possible in big cities as well, its having the most hooks in the ocean and being disciplined waiting for the big big fish.
Ultimately good deals come from motivated uninformed sellers, good timing and luck - the kind you create for yourself.
 

Tina Myrvang

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Great! Thank you for the link. The W.I.N. event was definitely time well spent. Husband got a membership last night. Looking forward to learning and growing with REIN!
I just wanted to jump into this conversation. Since your husband is a member now, he will get a discount on the Multi Family Home Study. Please email me at [email protected] or call me at 888-824-7346 and I will support him in ordering the product and getting the right price.

Also, I have some information that I share with REIN members on Multi Family and information that can be generated from the Member Back Office. I would also like to set up a tutorial with your husband on our websites.

Talk to you soon,
 
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