If you currently invest in single-family homes, at some point, you may want to dive into multifamily investing for a variety of reasons.
Perhaps you are tired of wrestling with individual roofs, water heaters, and HVACs. Maybe you see the opportunity to close more doors with one transaction and diversify your portfolio. Or maybe you are tired of being 100% occupied (or worse, 100% vacant).
Regardless, learning to scale your deal transaction with multifamily can be a natural next step in the investor’s journey.
And when you do decide to make the leap to scale any business, just know all of your business systems will need to be refreshed.
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Why it’s important to have a great deal funnel
Deal flow is the lifeblood of any business and real estate is no exception. You will need a new team and deal funnel to scale to the next level.
This is generally an obstacle that keeps many investors from moving into the multifamily space. So let’s discuss deal funnel tactics to make this transition as smooth as possible.
Determine your investing goals
Before you can set up any deal funnel you have to understand your investing goals. So let’s first uncover your investing goals. Are you investing for…
- Cash flow
- Or a balanced blend of both?
Understand how your life and business goals align
Next, examine your life goals and what kind of time you have to put towards your investing. This will help you suss out what type of investment you are looking for. Are you looking for…
- Value-add properties? Think mostly cosmetic rehabs, increases in operational efficiencies, and adding additional streams of income.
- Distressed properties? These properties will have large obstacles to solve, like foundations, water lines, sewer lines, or perhaps low occupancy issues.
- Turnkey properties? These properties will have little to no value-add components, but produce a nice stream of cash flow from day one.
Understanding what kind of property you are willing to deal with will inform your high-level investment criteria. This is called business alignment.
What year of build or class of property are you looking for?
- Value-add properties will have more builder-grade amenities and fall in Class B.
- Distressed properties will most likely be older and fall in the Class C.
- Turnkey properties will most likely be recently built or upgraded and fall in Class A.
Think about what markets you want to invest in, too. And what’s your budget? Once you know the class and market, this will help you figure out the price range you will be in. If you don’t like that price range, you will need to consider a different market.
Look for deals that meet your criteria
Next, it’s time to test out your hypothesis to see if you can find deals for sale that meet your criteria in your market. Here’s a process that I learned from Joe Fairless’s apartment syndication course.
- Find 50 properties that meet your investment criteria that sold in the last six months or are currently for sale.
- Find 50 properties that meet your investment criteria that are currently for rent.
Keep great notes, as these properties might become the first properties you make offers on later, or you might find a great Realtor.
Set up your deal funnel
Once you have tested your hypothesis and have found that your potential deals exist in the market, you are ready to set up your deal funnel.
The mechanics of setting up a deal funnel are much like the mechanics of setting up a single-family rental funnel, but we are going to use different sources.
Set up email searches
Set up your direct email searches (look at portfolio searches as well). Some useful resources include:
Reach out to Realtors
Go back to your 50-property sale search. Reach out to the Realtors who have recently closed deals like the ones you want and ask to be on their deal list. But don’t stop there. Develop a relationship with them over time so you can begin to be included in their off-market searches.
Know how to analyze
This requires you to be hyper-responsive and knowledgeable about the market and how to analyze a deal, so educate yourself! Don’t be that guy who wants the broker to train them to analyze a deal. Also, brokers will want you to be decisive and give pointed feedback so they can modify your search. Learn to flex this muscle.
Set up an off-market deal flow so you can hopefully not always compete. This includes building relationships. There are a few strategies you can try.
- Network with other multifamily investors.
- Attend multifamily investing meetups.
- Reach out to multifamily wholesalers.
- Develop relationships with local developers.
- Develop relationships with local lenders and hard money lenders (who knows, someone may be heading to a short sale).
Reach out to sellers directly
Lastly, get scrappy! Don’t wait for the deal to come to you.
- Scrape data from online sources and reach out directly.
- Go back to your 50-property rental search and contact the owners to see if they want to sell (the more vacancies the owner has, the better for you).
- Reach out to the property management companies for these buildings. Perhaps the one seller isn’t ready to sell but the property manager knows of another group that is.
- Create a direct mail list by leveraging various sources. Be sure to commit to sending at least one piece of mail for at least seven months.
- Driving for dollars with Deal Machine.
- Search property records and look for owners that have owned for 4+ years (they may be coming up on a balloon note and are ready to sell).
- Search probate recourse and look for buildings that have recently gone through probate.
- Search local auctions (be aware of deep distress).
The key to a successful relationship and direct mail marketing campaign is consistent and persistent action for months (not days and weeks).
How to get this all done
Quite often, the pushback I get from people I coach is, “That’s great, but how do I get this all done while working a job and taking care of my kids?”
The keys are to be super clear on your goals, strategy, criteria, and market, and then automate as much as possible on the search side.
For the automation piece, it can be as simple as setting up a Google Sheet where you can list all of the property details and insert simple data like location, offer price, number of units, class, gross income, occupancy, and expenses. Have the sheet run some simple calculations for you like price per unit, net cash flow, net cash on cash, NOI, and your value (don’t forget to include where you saw the deal and the Realtor info).
Then write up a standard operating procedure (much like this article), create a little Loom video, and delegate this pre-screening process to a VA or family member (this is a great job for kids who want to learn the business!).
Voila! You have officially outsourced your high-level deal sourcing and put more time and energy into the analysis phase and developing relationships.
It’s highly competitive out there and time is a precious non-renewable resource. So set aside a few hours this week to set up your initial deal funnel and get cracking.