The following is adapted from Creative Cash by Bill Ham (author), Gino Barbaro (contributor), Jake Stenziano (contributor).
Anyone who has experience in multi-family real estate will tell you that most of the work in this business consists of finding good deals. If you add creative and seller financing (CSF) to the mix, a non-traditional type of financing, it becomes even more complex.
That’s because you likely won’t find public-facing listings for the best deals. So, where do you find these deals? In my fifteen years of experience, I’ve found a number of sources that are reliable for good deals. It’s not easy, but using the right tools will help you find good multi-family real estate deals and maximize the efficacy of that work.
So, if you’ve been struggling with where to look, take heart! I’m going to share those tools and several strategies here to help you find deals and increase your deal flow.
Direct to Owner
Contacting owners directly works well with smaller assets and becomes less effective as you move toward larger assets (100+ units). Direct mail campaigns work great for single-family homes and have a decline in response rate (closer to 0 percent) as you move to larger assets.
I have sent thousands of letters and postcards in my career. Here are some tips for two types of direct contact techniques: mail campaigns and contacting owners directly.
Automate these if you can. Get a list of names and addresses and outsource the mailing.
Choose a specific market. Don’t waste time and money randomly blanketing an area with mailings. Set mail campaigns to run in the background of your business. This should not take up more than 5-10 percent of your time or resources.
Contacting Owners Directly
Get a list of contact information for owners of buildings in your area. Call or contact them and simply state you are interested in buying their property. Building rapport with a potential seller is important, but once you have an owner on the phone, get to the point:
How much are you willing to pay? That’s all the seller will care about.
Before you call, look at comparable sales in the market and use an average capitalization rate (cap rate) for similar assets. Know what your numbers are before you reach out to sellers.
Be willing and able to give a reasonable price on the first call. You don’t want to call someone and throw out a low-ball offer. You aren’t making a full offer here; you’re simply letting the seller know what you’re willing to pay for an asset like theirs.
Good old-fashioned networking can be a great source for creative deals. I highly suggest you get involved in your local real estate clubs and meeting groups if you aren’t already. If there aren’t any good groups in your area, start one.
Most of these groups hold a “haves and wants” meeting where people can discuss deals they have for sale and what they are looking for. This arena is a great place to find potential sellers who may have deals they’re willing to finance for you.
When networking for creative or seller financed (CSF) deals, you must be more strategic than simply waiting for someone to stand in front of the group and offer you CSF. You need to listen for problems that could be opportunities for you. Listen for people complaining about a property they have. Listen for clues that indicate they are “burned out” with an investment property.
They may not be done with the real estate business in general, but they may have a headache property they’d like some help with. This could be an opportunity for you to get started. I suggest listening to people in your everyday life the same way. Listen for people complaining about rental properties they own. Burned-out landlords tend to be vocal about it!
An important note to remember: don’t start a conversation with an agent or seller by asking for CSF. Again, it’s okay if you don’t have money, but that’s not how to get a new prospective agent or seller to take you seriously. You need to let them know their distressed asset is a problem and that you can provide a solution.
From the Other Side of Sourcing
I have personally financed other people on distressed assets I didn’t want to deal with anymore.
I owned a 4-unit building in a high-crime neighborhood, which I had purchased when I was new to the real estate business. It finally cash flowed, but it required a lot of management attention.
As my portfolio grew beyond hundreds of units including large apartment complexes, it was no longer good use of my time to deal with this asset. I could have my managers deal with it, but that would have kept them from managing more profitable and productive properties. My larger complexes made much more than the small 4-unit building.
The way I solved my own real estate problem was by offering a master lease to a local church. This church used these units for a battered women’s shelter. The church was paying my mortgage, covering the monthly expenses, and managing the property. I was no longer creating cash flow from the property, but I still received the tax benefits of owning it and didn’t have to waste time and money dealing with it.
That church could have been an investor like you. If I had found another investor looking for a break, I would have financed that property to them in the same manner.
To reiterate, there are plenty of sellers who have problems or properties they don’t want to deal with. If you find these kinds of deals, you get to collect the cash flow. But it’s up to you to find sellers who are willing to help you help them.
Build a Reputation as a Problem Solver
Building a reputation as a problem solver in your market can bring you more CSF deals than anything else, but this will take some time. You need to close some deals and solve a few problems first. It’s not good enough to tell people about what you can do; you have to show them. Once you’ve done about three to five deals, make sure you get the credit you deserve.
This is when you go back to your networking. Start making more appearances at your real estate clubs. Offer to get up in front of the class and discuss the deals you’ve done and how you did them. You’ll instantly be elevated to “expert” status. People will talk about you and how you did those deals. Word will eventually get around to sellers and agents, and they will start calling.
At one point, I had an agent bring me a large commercial apartment complex and suggested I make an offer of a master lease with an option to purchase. He knew my reputation for solving problems with creative financing. As a result, I took control of a $5 million asset with only $25,000, all because I had solved problems for other sellers in my market.
Think you can’t afford to invest in multifamily real estate?
Now, you can! Discover the best-kept secrets of the 2 creative, effective financing strategies other investors don’t want you to know about: Seller Financing & Master Lease Options. Your trainers Bill Ham & Jake & Gino have utilized these two strategies to acquire over $20,000,000 in real estate!
In fact, Bill used these strategies to buy his first 400 units without ever stepping into a bank or qualifying for a loan. Learn more in the MasterClass:
Now You Know Where to Look
Finding deals is the hardest part of the real estate business. If finding deals were easy, you wouldn’t be reading this. My hope is that sharing some of my favorite deal sources—along with the mindset it takes to increase your deal flow—will give you a newfound sense of direction and momentum. Because once you get rolling, other people will start to take notice.
For me, it all starts with mindset. You might find good deals here and there, but things really take off once you develop the kind of reputation I talked about. To do that, you need to take on a problem solver mindset. It’s an essential long-term strategy for finding good deals.
For more advice on increasing your deal flow, you can find Creative Cash on Amazon.