Weekly Housing Trends View — Data Week November 27, 2021

DECEMBER 2, 2021

Our research team releases regular monthly housing trends reports. These reports break down inventory metrics like the number of active listings and the pace of the market. In addition, we continue to give readers more timely weekly updates, an effort that began in response to the rapid changes in the economy and housing as a result of the COVID-19 pandemic. Generally, you can look forward to a Weekly Housing Trends View on Thursdays with a weekly video update from our economists on Fridays. Here’s what the housing market looked like over the last week.

What this Week’s Data Means:

Compared to the last lockdown Thanksgiving, 6.3 million more Americans planned to travel to celebrate with their families and friends this year. As a result, it was not surprising to see more sellers pause their selling plans than last Thanksgiving, which led to a drop of 12% in new listings compared to year-ago levels. The double-digit decline in house supply intensified competition relative to last year: median listing price grew by 8.9%, the highest growth rate within the past 11 weeks. However, active inventory counts and home selling acceleration rates remained in the same range we’ve seen over the last few months. There were 27% fewer homes available for sale, and homes sold 8 days faster than last year.

Nevertheless, buyers should not feel over-stressed by the abnormal drop in housing supply in the last week, especially when considering the unusual conditions during the last thanksgiving. In fact, according to Realtor.com® 2022 Housing Market Forecast and Predictions, Americans will have a better chance to find a home next year.

• Inventory is expected to grow 0.3%.
• Home sales are predicted to grow by 6.6%.
• Home prices are predicted to advance at a more moderate pace of 2.6%.     

Key Findings:

• The median listing price grew by 8.9 percent over last year. After an early-September uptick, home price growth has shifted back into high single-digit territory and displayed consistency. Home prices have risen by 8.5% to 8.9% relative to one year ago in 13 of the last 16 weeks. Home prices continue to rise due to a mismatch between supply and demand, stemming from a decade-long shortage of homebuilding. This means that housing affordability will be an increasingly important consideration for buyers, but with rents rising by 13.6%, buying may be the relatively more affordable housing option for some.
• New listings–a measure of sellers putting homes up for sale–were down 12 percent from last year. New listings dropped for the second week in a row, and the year-over-year growth rate fell by 10 percentage points in just two weeks. This double-digit drop is the biggest decline after March 2021, and holiday celebrations could play an important role in cooling down the new listing supply. Although Thanksgiving’s impact on new listings could be temporary, availability of for-sale homes is an ongoing challenge and potential limiting factor. However, an improvement could be on the horizon, with more homeowners planning to sell in the next 6 months and single-family home construction continuing at 1 million+ pace.
• Active inventory continues to fall short and is down 27 percent from a year ago. With significant declines in new listings this week, it is not surprising to see an ongoing large gap in inventory,  reflecting continuous imbalance between buyer interest and home selling. On the surface, this trend seems like it’s purely a buyer’s challenge, but notably, the majority of home sellers will also buy another home. Thus, buyer challenges can impact seller participation. In fact, more than 1 in 4 homeowners who are not planning to sell indicated that the reason holding them back is that they can’t find a new home in their price range.
• Time on market was down 8 days from last year. With fewer homes for sale now than this time last year, a typical home spent 50 days on market last week, continuing to move fast. And other research suggests that gaps are likely even larger in the competitive suburban housing markets that have remained popular this year. This means buyers in today’s housing market still need to be prepared to act quickly even as the fall gives buyers a few extra days to make decisions relative to what was common in spring and summer.  Buyers can focus their home search using online tools to personalize their results so they can act quickly on listings that are the best fit. 

Data Summary:

Data Summary:

All Changes year-over-year	Year-to-Date 2021	Week ending November 13, 2021	Week ending November 20, 2021	Week ending November 27, 2021
Median Listing Prices	+11.3%	+8.7%	+8.6%	+8.9%
New Listings	-2%	+1%	-2%	-12%
Active Listings	-40%	-25%	-27%	-27%
Time on Market	17 days faster	10 days faster	11 days faster	8 days faster

Buying an apartment complex is more involved than investing in single-family properties and requires a deeper understanding of managing property finances. Typically, you can learn how to buy an apartment building in seven steps, including deciding if apartment complexes are right for you and what type of apartment to purchase.

If you need financing when buying an apartment complex, check out Muevo They offer short-term and long-term apartment complex loans with short-term loans up to 90% of the cost. Apply online and get prequalified in just a few minutes.

Buying an apartment building can be simplified into the following seven steps:

1. Decide if Buying an Apartment Complex Is Right for You

Before you start an apartment investing business, you want to make sure it’s the right investment strategy for you. Compared to purchasing single-family homes and small multifamily properties, an apartment building requires more research, more time, and oftentimes more capital and additional expenses. It’s important to weigh the pros and cons before buying apartment complexes.

Pros of Buying Apartment Complexes

There are many benefits to apartment investing. These include recurring income, spreading income across many units, lower per-unit maintenance costs, and the potential for extra income beyond collected rents. Lenders typically base their financing criteria on the property’s performance. The property’s value is often determined by rental income and its overall performance.

Recurring Income

One of the main reasons for buying apartment buildings is ongoing income. If the deal is right and the finances are sound, a good apartment building will throw off recurring monthly income as a positive cash-on-cash return.

Diversifying Income

If you’re an investor who rents single-family properties, you’re probably familiar with a common vacancy problem. If you have no tenants, you lose 100% of your income. Apartment buildings mitigate the effects of a high vacancy rate. If one unit goes vacant, you still have the others to generate income to cover expenses and perhaps still generate positive cash flow.

Lower Per-unit Maintenance

Economies of scale work in favor of the apartment building owner. For example, if you must redo a roof, it’s not just for one unit. That repair serves all the units in the building. If you need to repaint, you can use the same paint for multiple units and not waste materials resulting from only one unit’s need.

Extra Sources of Income

The larger the building, the more likely you can add additional sources of income, such as vending machines, ATMs, and coin-operated laundry facilities. Renting parking spaces and space for billboard advertising can also provide additional income. One pro tip is to charge additional monthly rent for air conditioning units, upgraded appliances, and upgraded kitchens and bathrooms.

Revenue-based Financing

Unlike a single-family property, financing for apartment buildings is based mainly on the financial performance of the building (as opposed to your personal financial and credit situation). So, banks will look mainly at the financial situation with the building for approving a loan. This is advantageous if your FICO score is low.

Valuations Based on Rent Rolls

When buying apartment buildings, the value of the investment is determined in great part by the financial performance of the building. So, if you can increase rents, you can increase the value of your holding.

Cons of Buying Apartment Complexes

Buying an apartment building is more complex than acquiring a single-family home or even a small multi-unit property. The management will be a bit more intensive and the nature of tenants will be different. In addition, expect more frequent maintenance and property management to be more expensive.

Intensive Management

Once buildings are larger than four units, management becomes a much more intensive process. The ability to manage the property yourself becomes an issue, and you need to consider some form of outside management.

One option is hiring a professional property management company. In other cases, you’ll hire an onsite manager. Both come with additional costs and the need to supervise the manager. Typically, property managers charge 10% to 12% of gross monthly rents.

High Tenant Turnover

When tenants move into a single-family dwelling, they usually plan to stay for a long time. They typically become more invested in the property, engage more in community events, and become familiar with the neighborhood. Tenants in apartments, on the other hand, are much more transient.

In a single-family home, it’s not uncommon for a tenant to stay five or more years. In an apartment, tenants stay, on average, less than two years. When buying an apartment building, plan for tenant turnover and higher marketing costs to acquire new tenants.

Less Tenant Care

A renter in a single-family dwelling will tend to treat the property like their own home. However, tenants in an apartment are different. Tenants sometimes don’t treat apartments with the same care, so repairs and maintenance beyond normal wear and tear will be much more common with apartments.

Higher Maintenance Costs

When buying an apartment building, be prepared for higher tenant turnover and less care of the units. You’ll also have more ongoing maintenance with apartments than with single-family properties. Per-unit maintenance costs will be lower the more units a building has, but more time is needed for maintenance and repairs.

Overall maintenance costs are typically higher in apartment buildings. Avail CEO Ryan Coon cautions investors to consider that when major problems arise, such as heating system failure, it will impact more tenants, and repairs will be more costly. Replacing the plumbing system for a single-family home with one bathroom is cheaper than replacing the plumbing for a five-story building.

2. Choose the Type of Apartment Complex to Buy

If you’ve decided that buying an apartment complex is a good option for you, the next step is to consider the type of apartment building you want to acquire. This involves examining your personal and financial criteria for the purchase, the number of units desired, and understanding the class of apartments available for purchase.

More items to consider when choosing the type of apartment building to buy are:

Examine Your Personal & Financial Criteria Before Investing in an Apartment Complex

Consider your level of ambition and risk threshold, since both will affect the kind of apartment investments you’ll consider. The two main considerations along those lines are the number of units and the return on investment (ROI) you’re seeking.

Consider the Number of Units

If you’re conservative and only looking to supplement your retirement income or have a side income, you may want to stay with buildings no larger than six units. If you’re looking for higher income, and willing to take on the associated risks, consider larger buildings with 12 to more than 20 units.

Know the Types & Classes of Apartments

Apartment buildings come in a variety of forms. There are converted houses with multiple units, garden apartments with two stories, and properties with a dozen or more units in a single building. There are also multi-story mid-rise and high-rise apartments with scores of rental units.

In the U.S., there’s a rating scale with letters ranging from A to D, which attempts to classify the caliber of apartment buildings:

• Class “A” apartment building: Luxury rentals less than 10 years old, or older renovated buildings; garden, mid-rise, or high-rise buildings; amenities (e.g., pools, tennis courts, and clubhouses)
• Class “B” apartment building: Up to 20 years old; generally well-maintained; may have amenities; facilities are more dated than in Class “A” apartment buildings
• Class “C” apartment building: Up to 30 years old; limited or no amenities; may have an apparent need for renovation and repair
• Class “D” apartment building: Typically, over 30 years old; sometimes low-income, subsidized housing; few amenities; buildings usually need renovations and repairs

Most investors purchase class “B” and “C” properties because their cost is typically lower than class “A” properties, yet class “B” and “C” properties don’t demand the repairs, renovations, and intense management that class “D” properties require.

Consider Your Return on Investment

When apartment investing, you want to consider your return on investment (ROI). How much profit a building generates is a function of its size, income, and how much cash you have invested in the property. A smaller building with fewer units isn’t going to have the money-making potential of a larger property, but it won’t require as much cash to purchase or be as management-intensive.

Larger buildings with more rental units can produce more income, but they will require a larger upfront investment. Plus, the more units, the more you’ll need to consider how complex the day-to-day management will be. If you hire a property management company, it will take from your overall cash flow.

3. Locate an Apartment Complex to Buy

There are many ways to locate an apartment building to buy. You can search for yourself, without professional help. Local Real Estate Investment Associations (called REIAs) may be helpful with buying an apartment building. Or, you can enlist the services of professionals, including real estate agents, commercial real estate agents, or business brokers.

Some of the ways you can locate an apartment complex to buy are:

Search ‘For Sale by Owner’ Apartment Complexes

A great advantage of for sale by owner (FSBO) properties is that the seller is not paying a real estate commission. That’s 6% or 7% you might be able to negotiate off the asking price. Some FSBOs list higher prices knowing buyers will deduct commissions from their offer. You also may be able to get favorable terms, such as owner financing, and not have to get a bank loan.

Use a Local Real Estate Investment Association (REIA) to Find an Apartment Complex

If you search for an apartment building yourself, consider joining a local real estate investment club such as those offered by the Real Estate Investors Association (REIA). These groups provide networking with other investors who may have apartment buildings for sale, or know someone who does.

Engage a Real Estate Agent

The real estate sales and brokerage industry provide access to the largest body of properties for sale, including apartment buildings. Every real estate agent has access to one or more Multiple Listing Services (MLS) that list all the properties for sale by every agency that participates in that MLS. Multiple-unit properties and apartment buildings are also listed in that database.

Real estate agents know the market and know how to determine values, so buildings will tend to be priced at the maximum allowable market value. Not every agent is experienced with selling apartments, so you’ll want to be sure you are working with someone who has a track record of multi-unit apartment complex sales.

Consider a Commercial Real Estate Agent When Buying an Apartment Complex

Commercial real estate agents specialize in selling commercial properties and have better access to apartment building listings. They also have access to the listings of other commercial brokerages that are not part of the typical MLS and know more details about the properties currently on the market. Commercial real estate agent commissions are typically in the 7% to 10% range.

Commercial real estate agents understand the different metrics used to evaluate apartment buildings and other financial principles you may not yet be familiar with. If you’re just learning how to buy an apartment complex, let them know you are a beginner and ask them to clarify things you don’t understand. Also, consider working with a buyer’s broker who can represent you during the transaction.

Consider Using a Business Broker

Business brokers sell businesses, but they also sell mixed-use properties such as commercial buildings that have residential units, smaller apartment buildings of five to 10 units, and apartment buildings. Like commercial real estate agents, business brokers might use business or finance terms you’re unfamiliar with. Don’t be afraid to ask for clarification.

4. Evaluate the Potential Apartment Complex & Neighborhood

When evaluating and buying an apartment building, be sure to consider the location, the numbers and sizes of units, the property’s amenities, if any, and any construction or renovation issues so you can address these early on.

Perform two financial assessments. The first is a basic estimate of income and expenses to see if the property will generate positive cash flow. If it does, perform a full evaluation of the building’s financials, including rent rolls, vacancy rates, rental loss, and any expenses you will acquire with the property (such as utilities and municipal costs). This is to make sure the purchase is viable.

More details about evaluating the apartment building and neighborhood are:

Assess the Location of the Apartment Complex

As with any real estate investment, you want to purchase an apartment building in a desirable area. Consider the outcomes of buying properties in blighted neighborhoods no matter how enticing a cheap purchase may seem. Some investors do make purchases in tough neighborhoods work, but if it is not in alignment with your goals, or you don’t have the skills to manage these properties, you may want to look elsewhere.

Better-located properties provide a stronger base of tenants, better tenants who will take better care of your property, higher rents, and a greater chance of appreciation for the building.

Consider the Number & Size of Units in the Apartment Complex

As mentioned earlier, if you are considering buying apartment buildings, you’ll want to consider how many units each property has. You’ll also want to consider the square footage of those units and the number of bedrooms and baths.

Studio or efficiency units can be difficult to rent outside of college campuses and high population areas. One-bedroom units are easier to rent than studios, but your best bet is two-bedroom units and larger. A couple, particularly with a child, will want that second bedroom. Even a single person may want a second bedroom for guests or as a home office. It opens a larger market of potential renters than a one-bedroom does.

Note Apartment Complex Amenities

Amenities help drive interest in your property. These include everything from washers and dryers in the units to covered parking or garages, convenience stores, vending machines, swimming pools, spas, and gyms. The more amenities the property has, the more desirable it will be to tenants, and may command higher rents.

Pay Attention to Construction Details When Buying an Apartment Complex

The five most common problem areas of apartment building construction are:

1. Flat Roof

Flat roofs tend to breed all kinds of problems, particularly related to leaks. However, it’s somewhat hard to avoid them because so many older apartment buildings have flat roofs. Just be aware they can be problematic.

2. All Frame vs Brick

If a building is all wood frame, it’s prone to exterior paint and rot issues. That means the more exterior wood, the more exterior maintenance you’ll have to pay for. It also causes a more expensive insurance rating for fire.

3. Old Plumbing

If the building is more than 30 years old and the plumbing has never been replaced, be prepared for frequent plumbing repairs. Old pipes can leak and deteriorate. More importantly, you can have issues with lead, and pipes wrapped in asbestos mean more expenses to remove it.

4. Shared Utilities

Older apartments sometimes have shared systems for heat and electricity. This means the landlord pays for those utilities and tries to prorate it among tenants by charging higher rent. Since tenants aren’t paying for heat, and it’s not uncommon for some to raise the heat with a window open in the winter, increasing the landlord’s utility costs.

5. Asbestos & Lead Paint

Old buildings often contain asbestos in the insulation, HVAC systems, and exterior siding. Additionally, the interior may contain lead-based paint. Depending on where you live, you may have to mitigate those issues. It’s important to have a building inspector look for those materials, and check with your city and state to find out what remedies are required if they are present in the building.

Examine the Basic Numbers Before Buying an Apartment Complex

There are several basic numbers you can look at as you are evaluating an apartment building, including rent rolls, occupancy rate, and cost per unit. These will provide a preliminary look at the profit potential before you make a more thorough examination of the property’s financials.

The numbers you should examine before buying an apartment building are:

Apartment Complex Rent Rolls

Get the current rental amounts for every unit. Total those and multiply by 12 to get a ballpark idea of the gross annual rent. This is called the rent roll. A tool used by investors based on the rent roll to compare apartment building purchases is the gross rent multiplier. It compares the value of the building as a function of rents.

Apartment Complex Occupancy Rate

Occupancy rates tell you how much of the time a building is occupied. Vacancy rates tell you how much of the time a building is vacant. Ask about the property’s occupancy and vacancy rates. Check with real estate agents and landlord groups in your area to find out what vacancy rates are typical. Compare the figures to local industry averages.

Cost per Unit in an Apartment Complex

This is calculated by dividing the building’s purchase price by the number of units it contains. It will allow you to make comparisons with other apartment buildings you are considering and compare that figure with local average per-unit pricing. This figure can become a good bargaining tool if you want to purchase the building but the price is too high.

Evaluate the Full Financials Prior to Buying an Apartment Complex

Evaluating basic numbers gives a snapshot of the property’s financial performance. Before you make an offer, you need to get detailed financials for the property for one to five years. Gross operating (rental) income, expenses, vacancy rates, and certain ratios examine the viability of an apartment building and will affect your ability to get financing.

The numbers to help you evaluate an apartment complex include:

Gross Operating Income

Gross operating income is the total rent collected from the property. If you are buying a vacant apartment building, you may need to perform a potential rental income (PRI) analysis. A PRI is based on a rental market analysisaccording to the leases and terms of comparable properties in the area.

Expenses

Expenses when buying apartment buildings include mortgages, interest, insurance, advertising, maintenance, repairs, utilities, municipal costs, property and other taxes, fees, management expenses, business expenses, and professional services.

It’s important to know what the total expenses are for the year, and what the patterns of expenses look like each month. Some months will have higher expenses than others, such as heating and snow removal in winter months, and cooling and landscaping in warm months.

Net Operating Income (NOI)

Net operating income is what remains from collected rent after paying all expenses. It’s a good idea to examine net operating income both monthly and annually. Net operating income is also known as cash flow. Cash flow can be positive, meaning you made money during that period, or it can be negative, meaning the property cost you money during that period of time.

Net Operating Income Example

	Monthly	Annually
Potential Rent Roll	$3,600	$43,200
– Vacancy (10%)	-$360	-$4,320
= Gross Operating Income	$3,240	$38,800
– Expenses	$2,160	$25,920
= Net Operating Income (Cash Flow)	$1,080	$12,960

This is an example of computing net operating income for a six-unit building, with each unit renting for $600 per month. In this example, the cash flow is positive, with $1,080 in monthly income ($12,960 per year).

Profit & Loss Statement

The table above is a simplified version of presenting monthly and annual finances. You should be provided with a cash flow statement, income statement, or profit and loss statement. Fundamentally, these are the same thing. They give a complete picture by itemizing all income and expenses, allowing you to examine each expense category instead of one combined sum as in our example above.

Capitalization Rate

The capitalization rate (cap rate) shows the rate of return on the investment. It’s an important figure that allows you to compare one investment scenario against another, or one property against another. The cap rate does not include mortgage debt.

The formula is:

Cap rate = Net operating income / Purchase price

Let’s use the example from above with a purchase price of $200,000.

Cap rate = $12,960 / $200,000
Cap rate = 6.48%

Whether 6.48% is a good cap rate depends on a couple of things. First, it depends on other properties in the area you are considering. If two other similar properties in the area have cap rates of 11% and 12%, then the one above isn’t as good a choice.

It also matters how you buy the property. In the NOI example above, let’s presume the $25,920 included interest of approximately $7,000 per year. If you paid all cash for the building, you would not have the interest expense. Therefore, your expenses would have been $18,920, resulting in higher net operating income of $7,000 per month, or $19,960 annually with a cap rate of 9.98%.

Due Diligence When Buying Apartment Complexes

If you’ve decided to move forward with a purchase, you need to investigate a few more things. Some of these should be written into your offer to purchase and subject to your approval, e.g., satisfactory review of leases, the profit and loss statement, and property inspections.

Determine Why the Owner Is Selling

When buying an apartment building, try to ascertain why the owners are selling. The seller’s circumstances are an important consideration for negotiating a deal. For example, if a seller wants to retire and move, his or her motivations are very different than if faced with a property needing major repairs or in preforeclosure.

It’s challenging trying to unearth something with the property that a seller tried to hide. As a general rule, sellers are required to disclose property conditions they are aware of. Undisclosed problems are costly, so you want to discover issues and ask for the seller to remedy them or you will inherit them.

Obtain Copies of Apartment Complex Leases

Leases contain rent amounts, terms of the lease, pet policies, security deposits, and who pays for utilities. If you keep the existing tenants after you take ownership, you inherit the existing leases, so you need to be familiar with them.

Request Apartment Complex Tax Returns

Request the property accounting records and tax returns, and further investigate any discrepancies. For example, if the seller shows $12,000 in net operating income in their accounting records, but counts $9,500 on the tax return, that needs to be explained.

Conduct Inspections of the Apartment Complex

You will want to have a licensed building inspector perform a thorough inspection of the property. Apartment buildings frequently have shared systems, various levels of condition throughout each unit, and potential issues with common areas and amenities. You’ll want a detailed inspection report of what needs to be repaired and negotiate serious issues.

5. Make an Offer on the Apartment Complex

Making a good offer on a property involves knowing the current market value for similar properties in the area and the potential for profit. You may find it helpful to perform a rental market analysis, where you compare recently sold properties, properties currently for sale, and expired listings.

Get an Appraisal of the Apartment Complex

Appraisals for apartment buildings are different than they are for residential rental properties. There are three methods used together to determine current market value: market value, replacement cost, and income approach.

Here are the three methods of an apartment building appraisal:

Market Value Approach

Market value will look at similar properties and their selling prices. For example, if you are considering purchasing a six-unit building with six two-bedroom apartments, the appraiser will look at similar buildings and what they sold for within the prior year. Market value per-unit is considered in this approach.

Replacement Cost Approach

Replacement cost examines the amount it would cost per square foot to build a similar building. If you are looking at a four-unit building with 4,000 square feet, and construction costs in your area run $100 per square foot, the replacement cost will be valued at $400,000.

Income Approach

The income approach uses the net operating income and local capitalization rates to determine the value of the investment. To accomplish this, take the net operating income and divide it by the cap rate.

Value = Net operating income / Cap rate

For example, if the net operating income of the building is $46,000 and the cap rate in your area is 10%, then:

Value = $46,000 / 10% = $460,000

Rent Affects the Apartment Building’s Value

It’s important to understand that if you increase rental income, you increase the property’s value.

For example, assume you purchased the above building for $460,000 and raised the rents 20%, increasing the net operating income to $55,200. Using the income approach, the building’s value would now be $520,000 ($55,200 / 10% = $552,000). You will have increased the property’s value to $92,000.

6. Finance the Purchase of an Apartment Complex

When buying an apartment building, successful funding requires understanding the types of financing available for buying apartment complexes, recourse versus non-recourse loans, and lender required reserves. Also, because it affects net operating income, how lenders look at occupancy during the loan approval process is also important.

The areas you need to consider when you finance the purchase of an apartment building are:

Types of Financing for Apartments

Financing for apartments is fundamentally different than residential purchases. Commercial lending, as opposed to residential lending, is what you will likely use, with conventional loans, seller financing, or private loans your typical options.

Commercial as Opposed to Residential Lending

Apartment buildings will often be financed with commercial as opposed to residential loans. While residential loans may be an option for two- to four-unit buildings, particularly if you are going to live in one of the units, you should familiarize yourself with commercial loans.

Conventional Loans

Unless the multi-unit building is four units or less and you plan on living in one of the units, government loans such as the Federal Housing Authority (FHA) and Veterans Administration (VA) loans are not available. The vast majority of apartment financing comes in the form of commercial loans from banks and financial institutions.

Private Loans & Seller Financing

Instead of conventional lending through a bank, you can consider owner financing, where the seller acts as a lender. Sellers of commercial or investment property are sometimes willing to offer seller financing because the interest they earn means a greater return on their investment.

With the potential for interest rate income, you might find private lenders or investors willing to lend money on good apartment deals. Instead of going to a bank, these lenders provide the purchase money and you’ll make payments to them.

Using Your Retirement Funds to Finance Your Purchase

An alternative means of financing your apartment complex purchase is to tap into your retirement funds. If you have savings in an IRA or a Solo 401(k) plan, you can open a self-directed retirement account to invest in a variety of assets, including real estate.

With a provider such as Rocket Dollar, you can rollover an existing plan or make direct contributions, allowing you to take advantage of tax-deferred retirement funds and invest in real estate while staying IRS-compliant. Rocket Dollar can get you set up for a $360 registration fee plus $15/month. Schedule a free call today to learn more.

Visit Rocket Dollar

Recourse vs Non-recourse Loans

With a recourse loan, if you default on payments, the lender can pursue financial remedies beyond foreclosure. With a non-recourse loan, the lender can only go after the property. Non-recourse loans are the obvious choice, but harder to get since lenders require steeper down payments. These loans also typically carry higher interest rates.

Putting the Apartment Complex in a Legal Entity

If the lender allows it, it is best to not buy an apartment building in your name. Because of the complexities and risks inherent in apartment ownership, you should only buy an apartment building in the name of a business entity. Your accountant and attorney can advise you whether a limited liability company (LLC) or corporation is a better choice.

Lender Required Reserves for Buying an Apartment Complex

Lenders will typically require you to maintain one or two common types of reserves. The first is interest reserves, which will help ensure you can meet the periodic payments. The other is cash reserves to ensure you can meet operating expenses, insurance, taxes, and repairs.

Combined, reserves may total as much as six months of payments.

Key Items Considered by Lenders During the Loan Approval Process

Because net operating income is so important to real estate investing, especially when buying an apartment building, lenders will look favorably on properties with good market potential, high occupancy rates, and long-term tenants. This is another argument in favor of doing your due diligence upfront by evaluating income, expenses, vacancy rates, and the property’s condition.

7. Close on the Purchase of the Apartment Complex

Three things to consider when closing on an apartment investment include selecting an escrow agent or title company experienced with apartments, closing on a financially advantageous day of the month, and having security deposits properly transferred to you.

Select an Escrow Agent or Title Company Experienced With Apartments

As with any kind of real property purchase, you need to select an escrow agent or title company to close the transaction. In some states, attorneys handle real estate closings. In other states, title or escrow companies are used. Make sure the company you work with has experience with apartment investments.

Close on the Apartment Complex on a Financially Advantageous Day of the Month

The best time to close is either the last couple of days or the first few days of the month. Rents are paid in advance. Mortgage payments are made in arrears. Closing right after rents are collected provides almost a full month of cushion before the next mortgage payment is due. Closing on the last day of the month can also be advantageous since it can save on interest payments.

Ensure Apartment Complex Security Deposits Are Properly Transferred to You

When you close on the property, security deposits become your responsibility. Most states require landlords to keep the security deposits in a separate escrow account. Even if your state doesn’t require this, that money, with interest, belongs the tenants unless it’s required for damage or unpaid rent. Make sure security deposits are turned over at closing and get them into separate escrow accounts for each tenant.

How to Buy an Apartment Complex Frequently Asked Questions (FAQs)

Below, we’re going to answer some of the most frequently asked questions on how to buy an apartment building.

Some of the most frequently asked questions about how to buy an apartment building are:

How much money can you make if you buy an apartment complex?

Buying an apartment building can be lucrative if you find a good deal, the property has positive cash flow, and the ROI is high. However, there can be a lot of expenses (e.g., property management fees, rental property insurance, and property taxes). These affect how much money you make after you buy an apartment complex.

How do you buy an apartment complex with no money down?

Typically, you’ll need at least 10% down to buy an apartment building. However, while rare, there are ways to buy an apartment building with no money down. This can be done if you wholesale the property, partner with an investor, or find a hard money lender who will finance 100% of the loan.

Are there any tax benefits of buying an apartment complex?

There are typically rental property tax benefits involved with an apartment building. Some of these tax benefits include writing off mortgage interest, expenses, and repairs, and depreciating the building.

Bottom Line

Buying an apartment complex is typically best for more experienced investors. First, decide if buying an apartment building is right for you, and then choose the type of building to purchase based on research and evaluation of the property. If you’re not paying with all cash, you’ll typically need to find an apartment building loan.

If you’re wondering where to get an apartment building loan, check out Muevo. They will typically fund up to 90% of the cost on short-term loans and up to 75% of the value on five- to 30-year loan terms. They offer competitive rates and you can get prequalified online within just a few minutes.

Visit Muevo.

What is a Bridge Loan?

Bridge loans are essentially short-term loans used until a company or person can secure permanent financing or remove an obligation. These loans allow you to meet your current obligations by providing you with immediate cash flow. Bridge loans are only short term, up to one year.

They are also usually equipped with high-interest rates that are backed by a form of collateral. The collateral is usually in the form of real estate or inventory.

How Do Bridge Loans Work?

Bridge loans are often referred to as bridging loans, interim financing, gap financing, or swing loans. They essentially bridge the gap when financing is needed but not available at the current time. Hence the name bridge loan. 

These types of loans can be customized for different situations. They help homeowners purchase their new home while waiting for their previous one to sell. Borrowers use the equity in their current home as a down payment for their next home. They also help commercial property investors purchase new property without having the financing needed on hand.

These loans are fantastic for allowing a little extra time which results in peace of mind. While these loans are often accompanied by a higher interest rate, they are the only choice for some people. Compared to other options, they are a rather good choice. 

They are often made with a clear exit plan along with how the borrower is going to actually pay off the loan. Lenders will consider many things before providing you with the loan. 

Bridge Loans in Residential Real Estate

Bridge loans are extremely common in the real estate industry. Often, if a buyer has a large period between purchasing a new property and selling the other, they will opt for a bridge loan. 

Usually, lenders will only consider bridge loans in real estate to borrowers who harbor an excellent credit rating. Low debt-to-income ratios are also helpful. With these loans, buyers are offered flexibility as their old house is waiting to sell. In this instance, bridge loans combine the mortgages of both houses.

Commercial Real Estate Bridge Loan Use

Commercial bridge loans can be used by real estate investors, other commercial borrowers, and developers in circumstances such as:

• Cash-out to finish a financially exhausted construction project
• Refinancing an expiring term balloon loan for a permanent loan that is more favorable
• To stabilize a multifamily property to qualify for a permanent loan
• Making repairs in the short term with cash-out so that properties will qualify for commercial bank loans
• Carry a subdivision development until homes are able to be sold

Bridge Loan vs Traditional Loan

When it comes to bridge loans, you will find that they have a far faster application process. Approval and funding are also far faster than traditional loans. However, what they have in convenience, they lack in other areas.

Bridge loans often have short terms, high-interest rates, and inflated origination fees. Borrowers usually just accept these terms because they need access to funds in a quick manner. They are happy to pay the inflated high-interest rates because of the short-term nature of the loan. 

It is also favorable because they can pay it off with low-interest, long-term financing quicker than usual. Most bridge loans also don’t have repayment penalties which is why they are so popular.

Common Types of Bridge Loan Financing 

Bridge loans aren’t a one-size-fits-all type thing. In fact, they come in all types of forms. However, certain scenarios are far more common than others. 

Some of these include, but are not limited to:

• Non-recourse loans from 8% up to 75% LTV
• No FICO or foreign nationals up to 75% LTV
• Bridge loan rates between 6.99% to 8% for loans up to 60% LTV without a prepayment penalty
• Non-recourse payments starting at $5M with interest-only payments
• Bridge loans on multifamily, retail, office, industrial, hospitality, and mixed-use commercial real estate
• Interest-only, fixed-rate payments
• Customized bridge loans that meet business requirements
• Six-month term loan from 85% LTV from $3M to $100M

If you need a bridge loan, the aforementioned information should help you find the right option for your situation.

What is a Bridge Loan?

An investment property line of credit (LOC) is a short-term financing option for properties on which the owner does not live or work. It’s similar to a home equity line of credit (HELOC), only the lien is placed on investment property, not someone’s primary residence. Investors who get a LOC draw cash from the available equity as needed. It acts like a revolving line of credit on a credit card, and finance charges only accrue on the money that is used.

Types of Investment Property Lines of Credit

There are two types of investment property LOCs. The first type is a single investment property line of credit intended for investors who want one line of credit on one investment property. The second type is an investment property line of credit on a portfolio of properties. This is for larger investment projects requiring $1 million or more.

If you’re an investor looking for a line of credit on investment property of $1 million or more, contact CoreVest. It offers fix-and-flip credit lines for investment properties with rates starting at 6.5% and terms of 12 or 24 months. You only have to pay back what you use.

A line of credit on investment property is great for accessing cash for repairs, completing renovations, or buying additional investment properties to build a real estate portfolio. You’ll need 40% equity and will need to specify how you will use the money. Borrower criteria are stringent. If you don’t qualify, we offer some alternatives like HELOCs, hard money loans, bridge loans, and rehab loans.

Single Investment Property Line of Credit

The investment property LOC is right for investors with one investment property who are looking for a single line of credit to use at their leisure. Investors can draw funds for anything related to their investment property, but borrowers frequently use the financing to pay for rehabs and renovations.

Single Investment Property Line of Credit Rates & Terms

Single investment property lines of credit are good for borrowers who want to draw from the equity in a single property for rehabilitation or renovations. Interest accrues on any outstanding borrowed amount during the initial 10-year draw period, but investors have up to an additional 20-years to pay it back. The terms can vary and are set by the lender. There’s usually a three-year minimum on most LOCs, meaning if the credit line is paid off before three years, you’ll face a prepayment penalty.

Single LOC Rates & Terms

Interest Rate	Prime plus 1% to 3% of amount borrowed
Maximum Allowable LOC	60% loan-to-value (LTV)
Minimum Amount Borrowed	$25,000
Available Loan Terms	30 years—10-year draw period and 20-year repayment period.
Closing Costs	1% to 5% closing costs on amount borrowed
Fees	Annual service fee $75; prepayment penalty $300
Where to Find	Visit Muevo Investments

Single Investment Property Line of Credit Qualifications

An investment property line of credit has both borrower and investment property qualifications that must be met to get the line of credit. Borrowers must meet minimum equity and credit score requirements. The lender also will evaluate the borrower’s DTI Debts, including the LOC, cannot exceed 45% of the borrower’s income.

Single LOC Qualifications

Minimum Credit Score	660
Maximum Debt-to-Income (DTI) Ratio	45%
Remaining Equity Needed After LOC	10% to 20%

Where to Find a Single Line of Credit on Investment Property

Many banks, credit unions, and online lenders offer lines of credit for a single investment property. Some private money lenders offer a cash-out refinance loan instead of a line of credit. For example, Muevo Investments offers a 30-year rental cash-out refinance loan for up to $2.5 million and 80% loan-to-value (LTV) ratio. Rates start at 3.5%, and you can get funding in as few as 21 days. Fill out a short form to apply, and a representative will get in touch with your options.

Investment Property Portfolio Line of Credit

Investors with more than $1 million in equity on a large single-asset project, such as a high-rise or apartment complex with more than 20 units, or investors who own a portfolio of properties might want to consider an investment property portfolio line of credit. Portfolio investors often use this type of LOC as an alternative to raising capital or purchasing new properties as well as rehab new and existing investment properties.

Investment Property Portfolio Line of Credit Rates & Terms

Investment property portfolio lines of credit have higher interest rates than single-family investment property LOCs. The terms are usually 18 to 24 months, and interest rates range from 5% to 8% of the loan amount. Closing costs vary, and there generally are no fees or prepayment penalties associated with portfolio lines of credit.

Portfolio LOC Rates & Terms

Interest rate	5% to 8% of amount borrowed
Maximum Allowable LOC	75% loan-to-value (LTV); $50 million
Minimum Amount Borrowed	$1 million
Available Loan Terms	18 to 24 months
Closing Costs	Varies by lender
Fees	None
Where to Find	Visit Muevo Investments

Investment Property Portfolio Line of Credit Qualifications

A portfolio line of credit on investment property has certain qualifications that a borrower and their property must meet to get approved. These qualifications include a high FICO score but are based more on the investor’s overall financial picture, including his assets, salary, and investments.

Portfolio LOC Qualifications

Minimum Credit Score	700
Investor Criteria	Strong financials and completion of two or three past projects
Remaining Equity Needed After LOC	20% or assets that can be used as collateral

Where to Find an Investment Property Portfolio Line of Credit

Since this is such a specialty loan product, only certain financial institutions offer them. They aren’t always available at local banks and credit unions. However, check with commercial lending departments to see if an investment property line of credit for large properties or portfolios exists. It offers lines of credit starting at $1 million, with interest rates starting at 7%. You can apply online and get an investor’s personal representative to work with you.

How to Apply for an Investment Property Line of Credit

You can apply for a line of credit on investment property on the financial institution’s website or over the phone with a representative. You can apply in person if they have a brick-and-mortar location. You will need to have proof of property ownership, such as the settlement sheet or the deed in hand, along with other requirements.

4 Steps to Apply for an Investment Property Line of Credit

1. Choose the Right LOC

Choose the right LOC based on your investment property and your financial goals. If you own one investment property and have $100,000 worth of equity in the property, a single-home investment property line of credit is best. If you own a portfolio of properties and need $1 million to purchase another property, then a portfolio LOC is right for you.

2. Gather Required Documents

Besides providing proof of property ownership, you will need the lien holder’s information if there’s already a mortgage on the property. Have all your property-related documents ready to speed up the application process. The lender also will check your credit score and employment information, so have a copy of your pay stubs and bank statements handy as well as your last two years of tax returns.

3. Apply Online

Applying online is the fastest and easiest way to apply for a LOC. It gives you the flexibility to apply from the comfort of your home or office when it’s convenient for you. You won’t have to worry about what time the lender is open. After you finish your online application, a representative will contact you to go over your application with you.

4. Get Approved

The LOC representative will call you using the contact information you provided in your application. They will ask for any outstanding documents and will then be able to let you know if you’re approved. This will be followed up with a formal letter of approval. The process can usually be done within 30 days.

How an Investment Property Line of Credit Works

A line of credit on investment property gives you access to funds that are secured by the equity in your investment property. You use the funds when you need them and only pay interest on the money you use. These LOCs are flexible, and you repay them monthly or in a lump sum before the due date.

An investment property line of credit allows you to pay off the amount you draw and use the funds again. For example, if you have a $100,000 line of credit on investment property and only spend $25,000, you only pay interest on the $25,000 until you repay it. Once you pay back the $25,000, it’s available to spend again, similar to a business credit card.

Investors use an investment property line of credit for:

• Rehabbing an existing property in their portfolio
• Purchasing a turnkey property
• Paying off expensive debt, like a private money loan
• Purchasing and renovating a new property
  

Investment Property Line of Credit Allowable Uses

When you apply for a line of credit on investment property, you need to specify on your application how you will use the funds. Your investment property will be the collateral for the LOC. Once you receive the funds, you can do with them what you like, but it’s recommended to use them for the purpose stated on the application, such as to consolidate debt, rehab, renovate, or to purchase another property.

Most lenders allow the funds to be used to purchase additional properties while some discourage it. The majority of lenders don’t allow the funds to be used to invest in a business due to the high level of risk. If you need the money to fund a business, use a business loan instead.

The lender can terminate the LOC and require that it be immediately paid back if you use it for something it doesn’t permit. The loan documents will tell you if the LOC can’t be used for a certain type of investment.

Who an Investment Property Line of Credit Is Right For

An investment property LOC is right for real estate investors who have substantial equity in their property and a high credit score but might be short on cash. It’s also right for an investor who wants to either fix up their current property to increase the rental income or buy an additional investment property.

A fix-and-flip investor can take advantage of the short-term loan, rehab the property, and then flip it to pay off the line of credit. A line of credit for investment property is also beneficial for landlords. They can use the funds to renovate their investment property, increase its value, and collect higher rents.

An investor looking to purchase properties and build their real estate portfolio will typically use a portfolio loan but may also consider an investment property line of credit. Lenders generally allow one line of credit per investment property as long as the borrower and the property meet their qualifications. These lines of credit can be used in conjunction with cash or other financing to purchase additional properties.

Investment Property Line of Credit Pros & Cons

Pros of an investment property line of credit include:

• Long repayment term
• Tax Benefits on the interest paid
• Relatively low interest rate
• Interest is only paid on what you draw
• A first mortgage is accepted
• Fast access to cash

Cons of an investment property line of credit include:

• High credit score needed to qualify
• A 60% LTV ratio
• High equity needed in the property
• Can’t use the money to fund a business
• Limitations on how many units the property has; some lenders will allow up to four units and others will finance up to 20 units

Investment Property Line of Credit Alternatives

If you need a higher LTV ratio or if you don’t qualify due to personal credit issues, here are some alternative financing methods available for real estate investors.

Home Equity Line of Credit

A HELOC is a revolving line of credit on a borrower’s primary residence. The home equity line of credit can generally be used for anything you like. Popular HELOC uses are renovating a home or investment property, paying for college tuition, or consolidating credit card debt. You can withdraw the money as you need it, and only pay interest on the funds that you use.

HELOCs have low interest rates of about 0.25% above prime for first position HELOCs and slightly higher rates for second position HELOCs. A minimum 620 credit score is usually required for a HELOC, but each bank has its own requirements.

Hard Money Loans

A hard money loan is short-term financing for investors looking to purchase and renovate a property, then flip it for profit. Hard money lenders offer short terms, interest-only payments, and higher interest rates. Because the payments are interest-only, investors can keep the carrying costs relatively low.

A hard money loan is ideal for investors who want a short-term loan that can close quickly. Unlike LOCs, hard money loans aren’t intended for buy-and-hold property purchases. Instead, they’re ideal for fix-and-flip properties with an exit strategy in mind. Hard money loans have higher interest rates than LOCs. Investors typically use hard money loans when they have a house-flipping business.

Bridge Loans

A bridge loan is a short-term loan used as interim financing, providing a bridge between an existing short-term loan and permanent long-term financing. Unlike LOCs, bridge loans can be used by both owner-occupants and investors. Bridge loans have higher interest rates and fees than LOCs. Bridge loans are typically used when permanent financing isn’t an option, due to the property being in poor condition, high vacancy rates, or when trying to secure a property in a short time period.

Rehab Loans

Both fix-and-flippers and buy-and-hold investors use rehab loans. Rehab loans offer interest-only payments, which help keep carrying costs low. Rehab loans can be permanent financing or short-term loans used to fix up one or more properties at the same time with a blanket mortgage.

Investment Property Line of Credit Frequently Asked Questions (FAQs)

In this article, we have done our best to detail your options for using a line of credit on investment property. However, as with any type of financing, some questions are asked more frequently than others, and we have tried to address those here.

Are investment property LOCs better than cash-out refinancing?

If you don’t need the funds right away, a LOC may be the better option. You can draw from it as needed, but the rates and fees are typically higher on a LOC. If you need the money right away, a cash-out refinance may be the better choice. Calculate the overall cost of each.

Are HELOCs a good choice for investment property?

A lender may restrict a HELOC on investment property. It also can carry risk if the rental property doesn’t perform as anticipated, so you’ll need a backup plan on how to cover the HELOC debt if the investment property is not able to. Ideally, the investment property should pay for the HELOC.

Is mortgage interest from my LOC deductible?

If you use the investment property LOC to produce income, you can deduct the interest when you file your taxes. However, you are not allowed to deduct interest on any part of the LOC that you used to cover personal expenses. For rental property, use IRS Schedule E, line 12 to claim the interest expense.

Bottom Line

An investment property line of credit can be a smart financing resource for investors looking for access to funds to fix up an investment property or buy additional investment properties. Although there are some stringent qualifications, it’s great since you only pay interest on the money that you draw and have access to the funds for up to 10 years.

If you’re looking to invest in a multifamily property in this market, it’s just a fact: Expect to analyze and make offers on multiple properties to find the right fit.

So, having a system in place to do the necessary due diligence will help you not only move faster but also make fewer mistakes. Our multifamily due diligence checklist is your starting point; click below to download it now. This is the curated list our commercial team leans on as we help buyers analyze potential multifamily acquisitions, but can serve both buyers and sellers.

We’ve broken the checklist down into six sections: Financial Audit, Rent Roll Audit, Building Inspection, Market Analysis, Legal Audit, and Marketing Audit.If you’re looking to invest in a multifamily property in this market, it’s just a fact: Expect to analyze and make offers on multiple properties to find the right fit. CLICK TO TWEET

In practice, this checklist would typically be used by a buyer who just put a property under contract. So, using the information provided by a seller on an offering memorandum or marketing package, a buyer has run those details through their underwriting model, determined that this deal makes sense, submitted a letter of intent or purchase and sale agreement, and now has the property under contract. At that point, our commercial team uses this checklist to make sure we haven’t forgotten any important items as we move toward closing.

Financial Audit

We review two years of income statements, vendor contracts, and various invoices to confirm the numbers we put together before submitting our offer. Quite often, the seller’s financials are inflated or incorrect, and we are looking not only for items that are wrong but line items that have been left off. For example, often the seller performs maintenance or landscaping or manages the property, and these expenses need to be accounted for.

Rent Roll Audit

Putting a solid rent roll together means reviewing all leases, understanding what delinquencies look like, and making sure we know what prepaid rents and concessions will survive closing. Some lenders require estoppels—and it is not a bad idea to add this to your workflow. Many sellers won’t be familiar with estoppels, and if you plan on using them, you should add them to the purchase and sale agreement as a special stipulation, since they are quite disruptive to tenants and most sellers will not allow you to go door to door to talk to each tenant. See this article on estoppels for a template and background on how to use them.

We will also perform a rent study to understand what competing for comparable properties are renting for, which will help you project where your rents should be. Click here for an article on rent studies and how to perform them.

The final step is to interview potential property management companies and select one that can help advise you on rent rates and the local market.

Building Inspection

It’s important to thoroughly understand the condition of the property and future maintenance expenses. Roofs, electrical systems, plumbing systems, and HVAC systems should all be included. A thorough review of the plat and deed should be performed to understand any easements across the property, the locations of water and sewer lines, and any potential boundary issues. Your lender may require you to have a Phase I environmental report and an appraisal—these items can be time-intensive, so make sure they are ordered early in the process. Some municipalities are very strict when it comes to certificates of occupancy, permits, and inspections, so ask for copies of past inspections, along with permits for prior work performed.

Market Analysis

We could write a book on market analysis, but at a high level, you just want to make sure you understand the neighborhood and general trends in the market. Are things getting better or worse in this area? Have there been new job announcements in the area?

Legal Audit

We review insurance policies and exceptions, as well as five years’ worth of loss runs. It’s a good idea to ask if there are any unrecorded agreements affecting the property, such as neighbors driving across the property or using the dumpster, for example. The seller should disclose any potential lawsuits facing the property at this point. Also, we review the community rules, the lease form itself, and the current application form. There may be fair housing issues or blatant errors in the forms, and these should be considered and corrected immediately.

Marketing Audit

We collect as much information as we can from the seller regarding their current marketing package. This includes floorplans, brochures, logos, and a review of their website and current management system. Often, we find a wide gap between the current rents and what the rent study suggests the market rents should be, and this could be attributed to a lack of marketing. You will also want to review the property’s website and confirm that the domain and branding are a part of the sale and included in the contract.

Download Due Diligence Checklist HERE

We encourage you to use the checklist on potential deals you’re working on, but if you would like an advisor to help you in the acquisition process from start to finish, email us to schedule a time to discuss a buyer representation assignment with one of our brokers.

That’s it! Please also let us know how we can improve our process in the comments below. Are there any items we’ve left off the checklist? What are the biggest mistakes you’ve made in the past that could have been solved with one of these bullet points?

Due Diligence Checklist for Multifamily Acquisition

In most of the largest metropolitan areas in the U.S., the typical cost of rent exceeds the typical cost of a monthly mortgage payment – and that spells opportunity for homeowners considering renting out their properties in those locales, according to real estate website Zillow.

The company said it ran the numbers and found that typical rent payments were higher than mortgages in 33 of the nation’s 50 biggest metros, with Memphis, Tenn., having the greatest gap, followed by Miami and Atlanta. Southern cities dominated the top 10, but a few Midwestern metros hit the rankings, too.

Zillow also pointed to a recent study by the Pew Research Center, which showed that seven out of 10 rental properties in the U.S. are owned by individuals and that those individuals typically own just one or two properties. 

RENTERS CAN AFFORD TO LIVE ALONE IN THESE CITIES IN 2021: REPORT

“Single-family homes comprise about one-third of the nation’s total rental stock,” Zillow economist Alexandra Lee said in a statement. “Owners who do rent out their properties can provide both much-needed rental inventory in tight markets as well as sought-after space and amenities for families looking to move up from an apartment.”

Zillow also reported its data shows that while rent growth across the U.S. slowed dramatically following the coronavirus outbreak, it rebounded quickly in 2021 with Zillow’s numbers showing rents in July are up annually in all 50 major metros. 

Here’s a breakdown of the top 10 cities in the U.S. where typical rents are more than typical mortgage payments.

Top 10 cities where rents exceed mortgages:

Memphis, Tennessee (iStock)

1. Memphis

Typical monthly rent: $1,504

Typical monthly mortgage: $948

Difference: $556

Size ranking: 41

2. Miami

Typical monthly rent: $2,249

Typical monthly mortgage: $1,727

Difference: $522

Size ranking: 8

3. Atlanta

Typical monthly rent: $1,787

Typical monthly mortgage: $1,363

Difference: $424

Size ranking: 9

4. Birmingham

Typical monthly rent: $1,271

Typical monthly mortgage: $868

Difference: $403

Size ranking: 49

5. Tampa

Typical monthly rent: $1,819

Typical monthly mortgage: $1,435

Difference: $384

Size ranking: 19

6. Indianapolis

Typical monthly rent: $1,375

Typical monthly mortgage: $1,044

Difference: $331

Size ranking: 33

7. Orlando

Typical monthly rent: $1,758

Typical monthly mortgage: $1,444

Difference: $314

Size ranking: 27

8. Charlotte

Typical monthly rent: $1,628

Typical monthly mortgage: $1,339

Difference: $290

Size ranking: 24

9. Oklahoma City

Typical monthly rent: $1,210

Typical monthly mortgage: $931

Difference: $279

Size ranking: 42

10. Detroit

Typical monthly rent: $1,387

Typical monthly mortgage: $1,119

Difference: $268

Size ranking: 12

https://www.foxbusiness.com/real-estate/cities-with-higher-rent-payments-vs-mortgages

Would you say this statement is true?

You love awful surprises that cost you a lot of money during your commercial real estate venture.

No? Who would?

That’s why doing your due diligence is vital before purchasing a commercial property. When the dust settles, you want to have a profitable investment on your hands — not a liability that eats up all of your time and money.

The best way to avoid this is to do your due diligence before signing anything or handing over any money.

What Is Due Diligence in Real Estate?

It might seem like experienced commercial real estate buyers just pick a property out of thin air and enjoy a successful venture. They have “the magic touch” when it comes to choosing commercial properties.

Nope.

What they have developed over their years of experience are investigational skills and a keen attention to detail.

Before you purchase a piece of property, you want to know about all the potential downsides — and you can’t trust the seller to tell you. The seller may try to paint the property with a rosier light than reality and may outright hide undesirable information.

To limit the possibility of this happening to you, it’s crucial to do your own investigation. Preferably before signing the purchase contract.

Types of Due Diligence in Real Estate

There is a myriad of matters you have to investigate to perform proper due diligence on a commercial property. They all fall loosely into three categories. Let’s break it down.

Financial Due Diligence

Before you start sinking too much money and time into a property, you want to know the investment potential. How much profit can you feasibly earn from the venture?

Start by finding out how much money the property is currently earning. Be aware that many sellers will present a “pro forma” financial with the listing. This statement usually does not represent the actual financials of the property but rather the “gross potential income.” In other words, the amount of income the property can earn if 100% of the units are rented 100% of the time.

Obviously, this is not always sustainable in the real world.

A more accurate picture is to look at the actual financials for the property going back at least 3 years. You should request the tax returns for the current property owner, current and past years’ rent rolls, and lease information for each of the tenants.

And don’t forget about the expense side of things. Request past property taxes, utility bills, insurance policies, and risk assessment information gathered by the insurance company to get an accurate picture.

Physical Due Diligence

If the financials are looking promising, it’s time to dig into the physical structure of the building(s). This part is a little costly as you’ll have to pay experts to inspect every inch of the property.

However, this money is well spent. If the building(s) have major structural issues, pest infestations, or other problems, you could end up in a world of financial hurt after the sale.

Keep in mind that while some unscrupulous sellers might try to hide these problems, others may not even be aware of them.

Also, be aware that even most brand-new buildings will have something wrong with them. The point of the physical inspection is not to find a perfect building, but rather to be aware of any issues and make an informed decision about whether you want to take them on.

Legal Due Diligence

Finally, you’ve got to do your legal due diligence. The title insurance company will help you with this and ultimately issue a title insurance policy to cover you if something is missed.

Keep in mind that there are common exclusions that title policies will not cover. These can include easements, rights-of-way, restrictions, and covenants. Always be aware of what your policy does and does not cover and if any of the aforementioned items apply to your property.

Generally, before the title can be insured, all property taxes must be up to date and any liens on the property must be released. Finally, the deed must be approved, executed, delivered, and filed on record.

Never Skip Due Diligence

Now that you understand a little more about what due diligence is, you probably also understand why it is so important. You don’t want to get an amazing deal on a “pristine” property only to have the roof cave in a few weeks later. Or you don’t want to be stuck paying a previous owner’s back taxes or being responsible for their debts in the form of liens on the property.

And, most importantly, you want to purchase a property that has the realistic potential to offer a return on your investment.

Why Due Diligence is a Critical Step Before Purchasing a Commercial Property

There’s a clever subset of real estate investors who aren’t landlords at all. Here’s how you can make a profit from real estate without owning a single rental property.

Did you know that you can make money from real estate without ever owning a home? Not only is it possible, but many people are doing it right now.  

There’s a subset of real estate investors who avoid the hassle of the three Ts: tenants, taxes, and trash. That pesky trio can make being a landlord a daunting task for property owners trying to eke out meager margins. Plus, the mental load and debt burden can make some think that real estate just isn’t worth it.  

Think again. Here are just a handful of ways to profit from real estate without owning a single rental property.

1. Sublet your rental. 

Subletting happens when a tenant rents out their space to another person who isn’t on the original lease with the landlord. This could be a temporary arrangement while the lessee is away on business or vacation. But it could also be a long-term arrangement where there’s just one lessee who takes responsibility for renting out vacant rooms in an apartment or house. 

If this is allowed in your lease (not all leases allow it), it is highly likely that there’s no limitation on how much you could charge. In cities without rent control, a lessee could demand whatever the market allows. This could mean that the subletter ends up footing the bill for the majority of the rent, allowing the leaseholder to profit from the savings on their own housing costs. 

2. Get into real estate investment trusts. 

Real estate investment trusts, or REITs, function a bit like mutual funds. A company owns a portfolio of properties: commercial, residential, land, and more. They seek investors to pay the development costs and to float operational expenses for the properties they own. And when those properties become profitable, the investors get dividends. 

There are some private REITs, but hundreds trade publicly on the stock market. This form of investing is perfect for someone who wants to be totally hands-off and enjoys hedging their bets across many different types of properties around the country. If you still can’t decide, consider Real Estate Mutual Funds and Exchange Traded Funds (ETFs), which can pool together a few different REITs so you don’t have to pick just one. 

3. Crowdfund your investment. 

Crowdfunding isn’t just for donations and charities anymore. These days, you can invest in major real estate deals by using a very similar funding structure on sites like Fundrise, Realty Mogul, and Peer Street. Each has different minimum investments and vetting requirements, but most people get stuck trying to figure out what exactly is the difference between crowdfunding and a REIT.

Sure Dividend offers a comprehensive explanation, but the main difference is that when you invest in a REIT, you’re investing in a company that owns real estate. In crowdfunding, you and a pool of other like-minded people invest directly in the properties of your choice. Essentially, you cherry-pick the ones you like and ditch the ones you don’t. Either way, you’re not involved in the day-to-day management-and you still get your dividend check in the mail. 

4. Lend a lump sum. 

Hard money loans are a great way for someone with extra cash to make a hefty profit without owning a single piece of property. Essentially, you can lend to a borrower who doesn’t want a traditional mortgage loan. For example, a person who plans to buy a property in cash to flip a house isn’t always able to access a bank loan quickly. So, they search for someone willing to lend a lump sum of cash and pay a premium for it. 

If the loan falls through, instead of repossessing the investors’ car or garnishing their wages, the loan is secured by that investment property. If things go downhill, well, that property is yours. But since seizing the property isn’t your end game, there are many ways to identify a seasoned investor with a great track record of delivering on their projects and getting their investors serious returns. Many loans have high interest rates and fast repayment periods that both parties find mutually beneficial. It is common to see 10-15% returns in just a year or two. And if you find the right borrower, this relationship could be long and lucrative. 

5. Become a wholesaler. 

Wholesaling is simply being the middleman in a real estate transaction. In such situations, a person who is behind on their mortgage or tax payments might be willing to sell their house below market value to avoid foreclosure. People in this situation are often experiencing many other challenges, so the idea of selling their house to unravel their finances might not be top of mind. Also, their home might need repairs that they can’t afford and wouldn’t pass inspection otherwise, making it hard for them to list their place on the traditional market. 

If you can help that person find a buyer who likes the house and is willing to take it in its current condition, there could be money in it for you. Matching the right seller with the right buyer can easily generate $10,000-$20,000 for every deal closed. The drawback is that it can take time to figure out how to find deals. For that, there are mentors and courses to overcome the steep learning curve. The upside is that most wholesalers work virtually from their own home, which means they never even set foot in the properties that are bankrolling their financial future. 
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In this article, we’ll look at the different types of commercial real estate loans. We’ll describe each loan type, who uses them, typical terms and rates, and then look at the commercial lenders that provide them.

Types of Commercial Real Estate Loans

For the following professionals, understanding the commercial loan process is vitally important:

• An investor seeking a new loan for an existing property.
• A developer seeking a loan for an upcoming project.
• A mortgage broker trying to find the right loan for a client.
• A commercial lender of any kind.

In general, commercial real estate loan types can be broken out into three broad categories—loans for investment, loans for development, and loans for businesses.

To cut through some of the complexities of the lending process, and to aid in your property debt research, we’ll look at six different loan types, including new loans and refinance loans.

Conventional Commercial Mortgage Loans

What is a Conventional Commercial loan?

Conventional commercial loans are similar to what you’d get when purchasing a single-family home, but often with shorter terms.

A large portion of commercial real estate investors still purchase property using traditional, fixed-rate mortgages.

Conventional Commercial Loan Terms

Lenders typically require a 25% down payment (minimum) in exchange for a fixed-rate mortgage ranging from 5 to 30 years.

While home loans can last 20-30 years in a lot of cases, commercial mortgages will more often fall in the 5-10 year-term range.

Lenders will order an appraisal to confirm the value of the property, and will want to see a copy of the financials to determine whether the existing rents can support the debt service.

Who uses Conventional Commercial Loans?

Traditional, fixed-rate mortgages are more frequently used by investors looking to buy an existing, occupied asset with positive cash flow.

Investors have to have good credit (700+), but in return, are able to access low-cost capital relative to the other loan products available to investors.

Conventional Commercial Loan Lenders

Most of the big American banks offer conventional commercial mortgages.

From JPMorgan Chase, to Wells Fargo, Capital One, Bank of America and so on, you can usually turn your local big bank for a conventional home or commercial loan.

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➤ “Lender from TD Bank Turns Days of Work to Minutes”

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Lenders might also include other large entities like insurance companies or property investment firms—MetLife and Prudential serving as prominent examples there.

For a list of commercial lenders of all types, you can visit Scotsman Guide’s lengthy lender directory.

Commercial Bridge Loans

What is a Commercial Bridge Loan?

A commercial bridge loan is a source of short-term capital that is often used for debt service until an owner improves, refinances, leases, sells or otherwise completes a property transaction.

For instance, a commercial bridge loan may be used by an investor that has a balloon payment coming due.

The bridge loan may be used to fund the balloon payment before refinancing into a more traditional commercial loan.

Commercial Bridge Loan Terms

The short-term nature of these loans means that they come with a higher interest rate than a permanent commercial mortgage loan.

Generally, commercial bridge loans are intended to provide 6-12 months’ worth of financing before repayment is due.

The interest rate tends to be 50 to 200 basis points higher than a traditional, fixed-rate mortgage – though the interest rate will fluctuate depending on the nature of the deal.

An example of when you might use a commercial bridge loan:

Let’s say you’re under agreement on a 200-unit apartment building that is running at a 30% vacancy rate.

You have an option on the property for $10 million, but your team believes that $2 million worth of upgrades could increase the property’s value to $18 million.

Those renovations will take six to eight months to finish, after which time you should be able to raise rents.

In this situation, you might use a commercial bridge loan worth $12 million to fund the acquisition and improvements. After you complete the renovations, you’d refinance the property into a traditional fixed-rate mortgage.

A 75% loan-to-value mortgage on a property valued at $18 million would be $13.5 million.

At this point, you’d easily be able to pay off the commercial bridge loan, and increased rents would cover the debt service on the new $13.5 million mortgage.

Commercial Bridge Loan Lenders

Lenders for commercial bridge loans are a bit harder to come by compared to conventional loans, and will usually be offered by companies with more robust capital solutions.

Nationwide examples include Century Capital Partners, Avatar Financial Group, Silver Arch Capital Partners, and Money360.

Commercial Hard Money Loans

What is a Commercial Hard Money Loan?

Hard money loans are an alternative form of capital, provided outside of traditional lending channels, either by individuals or companies.

Hard money loans are secured by using commercial real estate as collateral. They’re a source of short-term capital, referred to by Investopedia as a loan of “last resort.”

These loans are used by individuals who need to move quickly in order to purchase, refinance or renovate a property. Hard money loans tend to have lower underwriting standards, but in exchange, have quick turnaround times.

Hard money lenders have a bigger focus on the value and equity of a property rather than the creditworthiness of the borrower.

Unlike traditional or bridge loans, hard money loans are not subject to the same regulations that apply to financial institutions.

As such, the proceeds can be used for a wider variety of purposes without significant scrutiny.

Commercial Hard Money Loan Terms

Hard money loans tend to be used in high-risk situations, or in situations where traditional financing is not an option. Therefore, they tend to be one of the higher-cost forms of capital with interest rates typically ranging between 10% and 20%.

While not appropriate for every situation, hard money loans can be a good source of short-term capital when real estate investors need to move quickly or with a great deal of flexibility.

To put it in perspective, it may take a bank 30 to 60 days to approve and fund a traditional commercial real estate loan whereas a hard money lender may be able to release funds within a week.

Commercial Hard Money Loan Lenders

Commercial hard money lenders include many of the same lenders offering commercial bridge loans across the country.

Examples of nationwide hard money lenders include LendTerra, Prescient Capital, Ajax Funding, and Pender Capital. See some more examples here.

SBA 7(a) Loans

What is an SBA 7(a) Loan?

There are two types of SBA loans that are generally of interest to commercial real estate investors: SBA 7(a) loans and SBA 504 loans. These loan types are those that are backed by the Small Business Administration (SBA).

Both are beneficial new and existing businesses looking to purchase or refinance owner-occupied commercial real estate (more on that later).

SBA 7(a) loans are the most common type of SBA loan. They’re used to help business purchase or refinance owner-occupied commercial properties up to $5 million.

SBA 7(a) loans are often used for working capital, but can also be used to purchase commercial real estate.

SBA 7(a) Loan Terms

Generally, in order to qualify for an SBA 7(a) loan, the owner must put down at least 10% of the purchase price.

He or she must have a credit score of at least 680 and have been in business for at least three years. Loans are often amortized over a 10-25 year period at interest rates ranging from 5% to 8.75%.

The property must be at least 51% owner-occupied, which means a real estate investor can use this for his own business as well as a property in which he has other tenants as well, as long as his space accounts for more than half of the total square footage.

SBA 7(a) Loan Lenders

Many American big banks are also providers of both SBA 7(a) and SBA 504 loans. Wells Fargo, TD Bank, US Bank, JPMorgan Chase, and so on again serve as examples here.

SBA 504 Loans

What is an SBA 504 Loan?

SBA 504 Loans are similar to the SBA loans described above, except the SBA does not have a maximum loan amount.

These loans can be used for up to 90% of the purchase price of commercial real estate, regardless of the size of the deal.

SBA 504 Loan Terms

Loan terms are typically 20 years when used to purchase commercial real estate (10 years for equipment purchases), and have interest rates between 3.5% and 5%. As was the case above, the owner must occupy at least 51% of the property to qualify for an SBA 504 loan.

SBA 504 Loan Lenders

SBA lenders are the same whether a borrower is apart of the 7(a) program or the 504 program. See SBA lenders above.

Commercial Mezzanine Loans

What is a Mezzanine Loan?

Mezzanine financing is often used to fill the “middle” of a capital stack. It can be structured in a number of ways, with both debt and equity.

For instance, it can take the form of junior debt – such as a second mortgage on the property. It can also be structured as preferred equity, convertible debt or participating debt.

Let’s look at each of those in more detail:

Junior debt is typically used as a second source of capital, repaid only after a senior loan is repaid in full. Junior debt can be used for both acquisitions and development projects.

Preferred equity is an equity investment in the property-owning entity with a fixed, preferential return that is paid ahead of distributions to the “common” equity interests in the deal. Preferred equity is often used in joint-venture situations, where investors get a more secured position relative to the equity but a higher yield for being subordinate to the senior loan on the property.

Convertible debt, as its name implies, is a form of debt that can be converted into common equity at specific terms.

Participating debt is a form of capital whereby the investor(s) will receive interest payments and will share in part of the revenue generated by a commercial property above a specified level – including both rental income and sales proceeds. Participating debt is often used to finance commercial properties (usually, office and retail) that have well-known, financially stable tenants with long-term leases.

In all cases, mezzanine financing is subordinate to senior debt, such as a traditional mortgage on the property.

Typically, mezzanine financing is not secured by the property but rather the equity the owner holds in the property.

In terms of the capital stack, mezzanine debt tends to be a riskier position than the senior mortgage debt secured by the property, and therefore, the cost of mezzanine capital tends to be higher than a traditional commercial real estate loan.

Commercial Mezzanine Loan Lenders

You can turn to the Commercial Mortgage Alert’s lengthy list of lenders that actively provide mezzanine financing on commercial properties.

Examples include Apollo Global, Barings Real Estate, and Goldman Sachs.

As you can see, there are a number of commercial real estate loan products available to real estate investors.

It’s important to find a lender that is adept with various programs to ensure you find the most appropriate (and lowest cost!) of capital.

Overview of Commercial Real Estate Loan Types, Terms, and Lenders

With more buyers competing for fewer homes, finding ways for agents to stay relevant is more important than ever. And the best way to do that is to bring in inventory that the client didn’t even know existed. Method is as follows.https://googleads.g.doubleclick.net/pagead/ads?client=ca-pub-0379882813451621&output=html&h=280&slotname=6921188883&adk=1237398969&adf=3661326517&pi=t.ma~as.6921188883&w=804&fwrn=4&fwrnh=100&lmt=1623566000&rafmt=1&psa=0&format=804×280&url=https%3A%2F%2Fwww.jioforme.com%2Fbecome-an-off-market-pro-10-tips-for-finding-hidden-inventory%2F508006%2F&flash=0&fwr=0&fwrattr=true&rpe=1&resp_fmts=3&wgl=1&dt=1623565999721&bpp=3&bdt=774&idt=463&shv=r20210607&cbv=%2Fr20190131&ptt=9&saldr=aa&abxe=1&cookie=ID%3Dd5be4d45705b6ef1-22c265a21cba00fa%3AT%3D1623566000%3ART%3D1623566000%3AS%3DALNI_MZQIeOQ3R8GC5gXLrgpvIcZKw-whQ&prev_fmts=0x0%2C834x280%2C804x280&nras=1&correlator=553423891000&frm=20&pv=1&ga_vid=1380277305.1623566000&ga_sid=1623566000&ga_hid=1693291225&ga_fc=0&u_tz=-300&u_his=2&u_java=0&u_h=1112&u_w=834&u_ah=1112&u_aw=834&u_cd=32&u_nplug=0&u_nmime=0&adx=15&ady=1653&biw=834&bih=1009&scr_x=0&scr_y=0&eid=42530672%2C31060972&oid=3&pvsid=633221091408979&pem=425&ref=https%3A%2F%2Fwww.google.com&eae=0&fc=1920&brdim=0%2C0%2C0%2C0%2C834%2C0%2C834%2C1112%2C834%2C1009&vis=1&rsz=%7C%7CoeEbr%7C&abl=CS&pfx=0&fu=128&bc=31&ifi=4&uci=a!4&btvi=2&fsb=1&xpc=PMAFpJmGRS&p=https%3A//www.jioforme.com&dtd=497

According to 2019 data, there are about 140 million homes in the United States. Census BureauAnd in the regular market, more than 6 million homes are listed and sold annually (by 2020). Most homes for sale In 14 years, the total will reach 6.5 million).

In today’s market, the number of homes for sale is Significantly reduced..For example in February Less than 550,000 homes on the market.. It was half of what was on the market in winter.

Meanwhile, demand from buyers has skyrocketed. Given that more than 99% of U.S. homes aren’t on the market, it was never a fish-rich sea, but the current state of U.S. home inventories is that the wreckage of overpriced buyers dries up. It’s like the bottom of the sea. Desperately around.

For all accepted offers, Number of other highly qualified buyers I don’t have the opportunity to spend their money to find their next home. We’re all starting to be very aware of these stats as it’s become part of the mainstream media story, but it’s certainly a crisis and something that needs to be resolved.https://googleads.g.doubleclick.net/pagead/ads?client=ca-pub-0379882813451621&output=html&h=280&slotname=6921188883&adk=1237398969&adf=3930612886&pi=t.ma~as.6921188883&w=804&fwrn=4&fwrnh=100&lmt=1623566000&rafmt=1&psa=0&format=804×280&url=https%3A%2F%2Fwww.jioforme.com%2Fbecome-an-off-market-pro-10-tips-for-finding-hidden-inventory%2F508006%2F&flash=0&fwr=0&fwrattr=true&rpe=1&resp_fmts=3&wgl=1&dt=1623565999721&bpp=3&bdt=773&idt=466&shv=r20210607&cbv=%2Fr20190131&ptt=9&saldr=aa&abxe=1&cookie=ID%3Dd5be4d45705b6ef1-22c265a21cba00fa%3AT%3D1623566000%3ART%3D1623566000%3AS%3DALNI_MZQIeOQ3R8GC5gXLrgpvIcZKw-whQ&prev_fmts=0x0%2C834x280%2C804x280%2C804x280&nras=1&correlator=553423891000&frm=20&pv=1&ga_vid=1380277305.1623566000&ga_sid=1623566000&ga_hid=1693291225&ga_fc=0&u_tz=-300&u_his=2&u_java=0&u_h=1112&u_w=834&u_ah=1112&u_aw=834&u_cd=32&u_nplug=0&u_nmime=0&adx=15&ady=2325&biw=834&bih=1009&scr_x=0&scr_y=0&eid=42530672%2C31060972&oid=3&pvsid=633221091408979&pem=425&ref=https%3A%2F%2Fwww.google.com&eae=0&fc=1920&brdim=0%2C0%2C0%2C0%2C834%2C0%2C834%2C1112%2C834%2C1009&vis=1&rsz=%7C%7CoeEbr%7C&abl=CS&pfx=0&fu=128&bc=31&ifi=5&uci=a!5&btvi=3&fsb=1&xpc=kzfBQmFRCk&p=https%3A//www.jioforme.com&dtd=504https://googleads.g.doubleclick.net/pagead/ads?client=ca-pub-0379882813451621&output=html&h=280&slotname=6921188883&adk=1237398969&adf=3550788753&pi=t.ma~as.6921188883&w=804&fwrn=4&fwrnh=100&lmt=1623566000&rafmt=1&psa=0&format=804×280&url=https%3A%2F%2Fwww.jioforme.com%2Fbecome-an-off-market-pro-10-tips-for-finding-hidden-inventory%2F508006%2F&flash=0&fwr=0&fwrattr=true&rpe=1&resp_fmts=3&wgl=1&dt=1623565999724&bpp=3&bdt=776&idt=515&shv=r20210607&cbv=%2Fr20190131&ptt=9&saldr=aa&abxe=1&cookie=ID%3Dd5be4d45705b6ef1-22c265a21cba00fa%3AT%3D1623566000%3ART%3D1623566000%3AS%3DALNI_MZQIeOQ3R8GC5gXLrgpvIcZKw-whQ&prev_fmts=0x0%2C834x280%2C804x280%2C804x280%2C804x280&nras=1&correlator=553423891000&frm=20&pv=1&ga_vid=1380277305.1623566000&ga_sid=1623566000&ga_hid=1693291225&ga_fc=0&u_tz=-300&u_his=2&u_java=0&u_h=1112&u_w=834&u_ah=1112&u_aw=834&u_cd=32&u_nplug=0&u_nmime=0&adx=15&ady=2611&biw=834&bih=1009&scr_x=0&scr_y=0&eid=42530672%2C31060972&oid=3&pvsid=633221091408979&pem=425&ref=https%3A%2F%2Fwww.google.com&eae=0&fc=1920&brdim=0%2C0%2C0%2C0%2C834%2C0%2C834%2C1112%2C834%2C1009&vis=1&rsz=%7C%7CoeEbr%7C&abl=CS&pfx=0&fu=128&bc=31&ifi=6&uci=a!6&btvi=4&fsb=1&xpc=M9KHP7zYaF&p=https%3A//www.jioforme.com&dtd=523

The challenge is Increase inventory When the seller seems hesitant to list the homes for sale. Why do sellers hesitate to sell? Are they waiting to see how hot this hot market is? Do they play a stock valuation game where they see home quotes go up every month and figure out when to trigger? Or maybe it’s another obvious concept: “Where do you go if you sell?”https://googleads.g.doubleclick.net/pagead/ads?client=ca-pub-0379882813451621&output=html&h=280&slotname=6921188883&adk=1237398969&adf=600928601&pi=t.ma~as.6921188883&w=804&fwrn=4&fwrnh=100&lmt=1623566000&rafmt=1&psa=0&format=804×280&url=https%3A%2F%2Fwww.jioforme.com%2Fbecome-an-off-market-pro-10-tips-for-finding-hidden-inventory%2F508006%2F&flash=0&fwr=0&fwrattr=true&rpe=1&resp_fmts=3&wgl=1&dt=1623565999727&bpp=4&bdt=779&idt=526&shv=r20210607&cbv=%2Fr20190131&ptt=9&saldr=aa&abxe=1&cookie=ID%3Dd5be4d45705b6ef1-22c265a21cba00fa%3AT%3D1623566000%3ART%3D1623566000%3AS%3DALNI_MZQIeOQ3R8GC5gXLrgpvIcZKw-whQ&prev_fmts=0x0%2C834x280%2C804x280%2C804x280%2C804x280%2C804x280&nras=1&correlator=553423891000&frm=20&pv=1&ga_vid=1380277305.1623566000&ga_sid=1623566000&ga_hid=1693291225&ga_fc=0&u_tz=-300&u_his=2&u_java=0&u_h=1112&u_w=834&u_ah=1112&u_aw=834&u_cd=32&u_nplug=0&u_nmime=0&adx=15&ady=3026&biw=834&bih=1009&scr_x=0&scr_y=0&eid=42530672%2C31060972&oid=3&pvsid=633221091408979&pem=425&ref=https%3A%2F%2Fwww.google.com&eae=0&fc=1920&brdim=0%2C0%2C0%2C0%2C834%2C0%2C834%2C1112%2C834%2C1009&vis=1&rsz=%7C%7CoeEbr%7C&abl=CS&pfx=0&fu=128&bc=31&ifi=7&uci=a!7&btvi=5&fsb=1&xpc=hUyX4qdbc8&p=https%3A//www.jioforme.com&dtd=532

All of these options are probably true to some extent, but it also seems that a high percentage of homeowners built a figurative moat around their lives last year. They are looking for a way to stay protected, yet willing to abandon the drawbridge to sell their home for the right reason and the right price.https://googleads.g.doubleclick.net/pagead/ads?client=ca-pub-0379882813451621&output=html&h=280&slotname=6921188883&adk=1237398969&adf=3863072062&pi=t.ma~as.6921188883&w=804&fwrn=4&fwrnh=100&lmt=1623566000&rafmt=1&psa=0&format=804×280&url=https%3A%2F%2Fwww.jioforme.com%2Fbecome-an-off-market-pro-10-tips-for-finding-hidden-inventory%2F508006%2F&flash=0&fwr=0&fwrattr=true&rpe=1&resp_fmts=3&wgl=1&dt=1623565999731&bpp=3&bdt=784&idt=534&shv=r20210607&cbv=%2Fr20190131&ptt=9&saldr=aa&abxe=1&cookie=ID%3Dd5be4d45705b6ef1-22c265a21cba00fa%3AT%3D1623566000%3ART%3D1623566000%3AS%3DALNI_MZQIeOQ3R8GC5gXLrgpvIcZKw-whQ&prev_fmts=0x0%2C834x280%2C804x280%2C804x280%2C804x280%2C804x280%2C804x280&nras=1&correlator=553423891000&frm=20&pv=1&ga_vid=1380277305.1623566000&ga_sid=1623566000&ga_hid=1693291225&ga_fc=0&u_tz=-300&u_his=2&u_java=0&u_h=1112&u_w=834&u_ah=1112&u_aw=834&u_cd=32&u_nplug=0&u_nmime=0&adx=15&ady=3415&biw=834&bih=1009&scr_x=0&scr_y=0&eid=42530672%2C31060972&oid=3&pvsid=633221091408979&pem=425&ref=https%3A%2F%2Fwww.google.com&eae=0&fc=1920&brdim=0%2C0%2C0%2C0%2C834%2C0%2C834%2C1112%2C834%2C1009&vis=1&rsz=%7C%7CoeEbr%7C&abl=CS&pfx=0&fu=128&bc=31&ifi=8&uci=a!8&btvi=6&fsb=1&xpc=1aBYDqNfbQ&p=https%3A//www.jioforme.com&dtd=542

For the past 12 months, homeowners have come up with ideas for living and working at home and have become more aware of where they live than ever before. This has led some homeowners to sneak up on some old needs and some new wants not being met by their current homes, and ideas on how to farewell to find new homes. I noticed.This homeowner may also have been studying for the last 12 months Real estate as entertainment while they are lying in bed And they became their own experts.

The question has always been how to get the homeowner’s attention and measure their interest in selling. Consider your level of interest, especially if the actual buyer is usually willing to pay a premium to the home to bet. Get them on the market and get what they really want.

Although there are tedious demands for upgrades by homeowners, the requirement to list homes and the physical and emotional effort it puts on all parties remains reluctant to homeowners. Homeowners want the right deals to fall out of the sky. It’s something you can sell personally and perhaps for more money without having to spend time preparing your home.

From the agent’s perspective, it’s more important than ever to be relevant to the buyer’s client’s eyes. And the most powerful way to do this is to bring in inventory that you didn’t know existed when you skimmed the market.

This element of emotion, and in fact better education, is rewarded to agents who have made their clients stand out from other buyers and educated with the loyalty of their buyers.

Agents are well aware that they don’t go anywhere as soon as they get involved in a transaction, but what’s more clear is what the agent’s role will be in the new market.

Smart Agents are now the “Indiana Jones” of the industry, digging into the past Invisible inventory opportunities Just below the surface of what most of the market chooses.

Here are 10 ways to become an off-market professional and find the perfect home to sell and make your clients love you.

1. Stay connected to the market

I’m always talking about real estate. Listen to the tips of anyone planning a move or upgrade and create a mental note. Even better, create a CRM note.

2. Prepare the buyer for a strike

Timing is more important than ever.Make sure the buyer is pre-qualified

3. Do not knock on the door

I don’t want to touch people yet, so it tastes bad.

4. Do not write a love letter

Don’t write unless you may be fascinating or your client may want you Love letter.. This puts homeowners in a very difficult position with fair housing law. Do not include the client’s photo.

5. Become a detective

Find out as much information as possible about a particular home, including previous sales data and information about current homeowners. Use tax records and previous lists.

6. Engage everyone with ideas for unforeseen circumstances

Make it mutually beneficial for everyone.Let homeowners focus on what they can get they Let them know that you really want and the buyer is patiently happy.

7. Better yet, make it mutually beneficial

If the homeowner does not have an agent to use, the rate of double closing is high. Under the right conditions, many homeowners will be happy to use the same agent to facilitate their transactions. Be aware of dual agency limits.

8. Look to the past

Expired list FSBO is a seller hidden behind the scenes.

9. Educate homeowners

Let them know why it is advantageous to sell from the market — it is private and you can make more money for them.

10. Leverage technology

Apps like DropOffer and services like Vulcan7 provide agents with great tools to take advantage of expired lists and huge slices of homes that will sell in off-market areas.

There are still many sellers, but what is changing is the way they want to sell. They want to sell under their terms. If the buyer performs some or all of the above points and gives the client side short-sighted patience, you can find a home that meets your client’s needs in this new and wild market.

https://www.jioforme.com/become-an-off-market-pro-10-tips-for-finding-hidden-inventory/508006/