Yusef Alexander is a Los Angeles-based real estate investor who has been in that field since the 1990s. Although he started off with Los Angeles rentals, he later focused on apartment communities located in Georgia and elsewhere in the South. As he did so, he transitioned from spending his time on commercial real estate and single-family homes to focusing on those aforementioned multifamily apartment communities. As a result, he is a solid person to listen to in order to learn how to scale your business in a similar manner.
One property that he got involved with in early 2019 is a 172-unit multifamily building in an upper-middle-class part of Atlanta, which ended up having a purchase price of $8 million. He then planned to engage in light-rehab and high-end rehabs, costing $3 million in total and ultimately selling it for nearly three times that.
Consider Various Costs
Of course, also be sure to consider all of the costs that will go into rehabbing these units. These include the costs of hiring workers and paying for what needs to be installed as well as any costs connected with consulting with a design firm to determine just how these rehabbed units should look when all is said and done. And take into account that the design costs could be significant if you will be making major renovations to the apartment community property as a whole, such as installing a pool, building a gym, and so on.
An additional aspect to consider is that some of the units that are being rehabbed are going to need to be de-leased — i.e., empty — during those times and won’t be bringing income in.
Another recommendation to consider if you are looking to scale your business from commercial real estate or a different type of real estate to apartment communities is to fully research similar properties in the area. For example, if you discover that a similar real estate venture is offering spaces to rent for a similar price that you are, go through the process of applying for a place there, see what they are offering for that price point and consider why.
Also take into account that if you are going to join in on a purchase with one or more others, you should ensure that the split is as fair as possible. In Alexander’s case, three owners were reduced to two. As a result, he and the other person agreed to have a third party (a broker) determine the price (the worth) of this particular asset (the apartment community). They also had a desktop appraisal from a financial group that is trained to do appraisals on properties such as these do the same and compared the figures.
If the two numbers are not in close agreement, you will want to either go with whichever one is trusted more, go with the average of the two, or, if simply getting the deal done is of utmost importance, go with the higher one. In Alexander’s case, they decided to go with the higher appraisal, which was from the broker.
To scale your business, it is also worth considering combining being an active investor with being a passive one. For example, Alexander is an active investor in that 172-unit place while he is a passive investor in a 355-unit apartment community, also in Georgia, that he became a minority partner of a few years prior. In total, he’s active with two communities — both in Georgia — and passive in five others.
However, note that these investing focuses require different skill sets. For example, knowing as many details as possible about the other partners in a passive investing opportunity is of utmost importance, as you will not have as much control over the situation after the money has been invested.
Remain Diligent and Disciplined
For those new to investing in apartment communities, one of the first pieces of advice that Alexander would give is to surround themselves with people who are already knowledgeable in this field and soak up that knowledge.
And, as they progress through the years, continue to remain diligent and disciplined. Also make sure to keep long-term focuses in mind, including ways to exit these opportunities later. When you get into a project, determine how you expect the entire process to go from beginning to end, throughout any renovations and other aspects of owning it, until it has been sold.
Also, make sure that you take into strong consideration just how important location really is as it relates to real estate.
One of the mistakes that Alexander made early in his real estate career was buying a residential property next to a gas station. Of course, making that type of purchase does not necessarily make something a bad deal, but in this case, it did. Unexpected issues related to the gas station, such as the smell that emanated from there, various people constantly loitering, the significant and annoying lights that it had up and on at night, all contributed to lower the property’s value.
Conversely, you may also be able to secure a place with an enviable location that hasn’t made that aspect of its listing obvious to other investors, getting a nice deal on it as a result.
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.