by Theresa Bradley-Banta
A new multifamily investor recently asked me, “Is LoopNet a good source for finding properties?”
“It’s unlikely” would be the short answer. Yet CityFeet, LoopNet and other online listing services such as CoStar (whose acquisition of LoopNet was complete in April 2012) are the first stop for many new multifamily investors.
This may not come as a surprise to you but finding a great, never-before-seen deal on LoopNet will most likely never happen for a number of reasons.
- The deal has already been “shopped around”—the listing broker’s contacts have already had an early look.
- The property is, in all liklihood, overpriced.
Now for the good news
There are many ways to use multifamily property listing services like LoopNet to your advantage—especially if you are a new investor looking to buy multifamily properties or apartment buildings.
These sites are also a valuable resource for taking a look at new and unfamiliar markets.
How to utilize LoopNet and other major multifamily property listing services:
- Find a broker.
- Study average cap rates (with caveat below).
- Determine average price per door (with caveat below).
- Learn about property types, conditions, market sizzle and amenities.
- Practice analyzing multifamily deals.
- Sell a property.
Find a Multifamily Commercial Broker
Online commercial real estate listing services are an incredible source for finding active, experienced commercial brokers in your market.
If you’re seriously considering a market as a potential investment area you definitely want to talk with at least three or four brokers who specialize in that market.
Visit sites like LoopNet to find commercial brokers who have listings in your market. Call them up or send them an e-mail and let them know of your interest in properties in their area. Start building relationships. And if you’re looking for some great questions to ask that will help you drill down to submarket information read Should You Hire a Commercial Broker When Buying Apartment Buildings?
Get a Feel for Average Market Cap Rates, GRM and Price Per Door
One of my biggest observations about online listing services is that properties are generally overpriced. Asking prices are frequently based on proforma financials that support inflated offering prices. As a result, cap rates, GRM (gross rent multiplier) and price/unit are also grossly exaggerated.
Nevertheless, you can still get an at-a-glance look at where these numbers are on an idealized basis. In my experience, they’re generally not so far off as to be grossly inaccurate. So for example, if you’ve been told you can buy a property in a certain market at a 10-13% cap and most listings are averaging 6-8% you know the number is most likely high.
(Cap rates, GRM and other property screening tools are covered in detail in Invest In Apartment Buildings: Profit Without The Pitfalls.)
Learn About Property Types, Conditions, Amenities and “Market Sizzle”
Commercial real estate listing sites are also informative places to take a quick look at the types of listings that are in a particular market. This is especially helpful if you are new to an area. At a glance you can get an idea of the typical building styles common to that market such as:
- Property subtypes including garden/low-rise, mid/high-rise, duplex/triplex/fourplex.
- Year built.
- Number of bedrooms.
- Construction material such as solid brick or wood frame.
- Walk-up or interior entry.
- Converted single-family.
With a little more investigation into individual listings you can get a feel for:
- Neighborhoods: Is the market urban? Suburban? Close to cultural activities? Universities? Employment centers?
- Average property amenities: Do most properties have swimming pools? Offer in unit washers and dryers? Balconies? Wood floors?
- Deferred maintenance: Are properties listed as having major upgrades? Or do most seem in need of improvements?
Typically the listing descriptions include information that you as new owner want to know about. They also promote the types of things your tenants are looking for. The market “sizzle”.
Practice Analyzing Multifamily Deals
Most listings include several ways to contact the listing broker. You can pick up the phone and call or you can e-mail right from the listing page online and request additional information about the property.
In most cases a broker will be happy to send you the listing brochure or offering memorandum. Here’s a tip. Don’t stop there. Ask for the seller’s 12-month trailing financials on the property including a recent rent roll. Don’t take “No” for an answer. Your lender will want this information. And so do you. I won’t even visit a property or attend a property showing until I’ve had a chance to underwrite the property using the actual financials—not proformas.
If you’re new to multifamily investing, or new to a particular market, it’s your job to analyze at least a handful of deals in that market so that you are operating from a good baseline. You can read more about obtaining historical operating financials from a seller in What Are Typical Apartment Building Operating Expenses?
Sell a Multifamily Property
I think it goes without saying that if you are selling a property the more people who see your listing the better. The only reservation I’ve had with listing my properties with a service like LoopNet is if I feel the property won’t sell right away.
There’s nothing worse than a “stale” listing or a property that appears online for months and months and months. If you’ve significantly overpriced your property you might want to think twice about putting it online. But if your property is priced right an online service can reach a worldwide market.
A Last Word About Finding Multifamily Properties
Are you networking?
It’s time for some honest soul searching here. Networking is your best friend when it comes to sourcing deals that others haven’t already seen. Are you actively making contacts?
Through networking you may find multifamily owners who are ready to sell but haven’t made a move in that direction yet.
Also know that in real estate investing patience is key. Start contacting everyone you can think of and plant the seed in their mind that you are actively looking to buy multifamily properties.
Some great places to start are:
- Apartment building third party property managers.
- Vendors and service providers to the apartment industry.
- Friends and family who know real estate investors.
- Accountants, certified financial planners, bankers and attorneys.
Using the Property Listing Service To Your Advantage
Your understanding of a real estate market is critical to your success as an investor. Networking and connecting with professionals in commercial real estate is equally critical to your success.
Don’t stop at looking at a few listings online.
Start analyzing deals. Pick up the phone and talk to commercial brokers. Find and connect with successful multifamily real estate investors whether they are selling a property today or not.