It’s time for a little tough love. The truth is you may make several if not many offers to purchase an apartment building before you actually close on a property. In fact, serious negotiations on your deal might not begin until after you are in contract.
Often times you will get in contract and a deal will never close. Knowing this, can you see why waiting to find—and make on offer on—that “perfect” apartment building may backfire? Your fear may be stopping you from finding and negotiating a great deal. It might also be stopping you from finding the money to fund a deal.
Here’s the tough love part:
If you are not actively making offers, it is unlikely you will ever acquire a property.
Fear is a natural part of the process
You might have some reasonable sounding excuses (a.k.a. fears) about why you’re holding back from making offers, such as:
- You’re afraid of having an offer rejected.
- You’re focused on learning absolutely everything there is to know about multifamily investing before you “make your move.”
- You think you might lose the earnest money if the deal doesn’t close.
- You’re afraid you might buy an apartment building that was never a good deal to begin with.
- You’re not entirely sure how to make an offer and you don’t want to risk looking foolish in front of a seller or broker.
- You’re not fully funded.
These are natural fears. Most beginning investors face them. Even experienced investors can get hung up on concerns like these. I’ve faced them. And as the deals get larger in size, I continue to feel those little jitters common to taking a huge financial step. You’re not alone—being fearful of making a large financial commitment is normal human behavior.
Negotiations start when you are in contract
The truth is most negotiations begin after you are in contract. Many commercial property contract terms and conditions allow for ongoing negotiations. These negotiation points include:
- Undisclosed maintenance and repair issues uncovered during inspections.
- Undisclosed expenses (or inflated income numbers) uncovered in a review of the seller’s Year-to-Date financials and current tenant leases.
- Unsatisfactory availability, terms, conditions and costs for a new loan. In other words, you may not be able to find acceptable financing.
- A purchase price that exceeds the property’s evaluation determined by an appraiser.
Tip: When you negotiate a great deal on an apartment building you will attract funds and financing.
Caveat: Be sure to review all terms and conditions before signing a contract. Working with a good mentor, attorney or commercial broker, especially if you are new to investing, is essential to success.
Start making offers on apartment buildings
When I work with mentoring students we don’t sit around in a classroom. After determining which market my students want to pursue, we get in the streets and start making offers on real deals. It’s the best way to get out of analysis paralysis and on your way to becoming an apartment building owner.
Don’t sit on the sidelines paralyzed by fear. Get a sufficient education through books, mentoring, and seminars and by networking with successful apartment building investors. Put a great support system in place.
Then get going.
Once you are in contract to buy an apartment building your learning curve will skyrocket. You will be amazed at how much—and at how fast— you learn when real money is on the table. You will learn how to:
- Analyze an apartment deal by using actual property financials on a genuine deal—not in the classroom using a “case study” property.
- Conduct thorough due diligence and inspections.
- Determine who needs to be on your team and how to get the best team in place.
- Offer a fair purchase price.
- Fine-tune your negotiating skills.
- Say “No.”
The best learning is in the street.
There are a number of simple ways to get your offer in front of a seller.
Letter of Intent (LOI)
A Letter of Intent is a short document outlining the terms under which you would enter an agreement to buy an apartment building. The terms must be acceptable to both parties. It will include items such as:
- Your name or company name.
- Purchase price.
- Earnest money deposit to escrow.
- Due diligence timeframe.
- Closing costs.
Comprehensive Proposal Letter
This letter substantiates your purchase price by presenting a brief financial analysis of your offering. Here you make your case for the current and proforma financials used in arriving at your offered purchase price. You can also make a case for your ability to purchase the property and outline the potential risk and potential upside to acquiring the apartment building. This letter can accompany your initial offer via a LOI.
Bonus: This letter can also be used to bolster your offer price if/when you receive a ridiculously low counter offer from a seller.
You will find a sample Letter of Intent and a sample Comprehensive Proposal Letter in my free Apartment Investing Resources document.
A last word
Hire an attorney, commercial real estate broker or an experienced multifamily investing mentor to present a formal Contract To Buy and Sell Real Estate. Keep in mind most standardized contracts cover the basics and you will want to hire a professional to include your precise concerns and terms in the language of the contract.
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