I recently closed on another apartment building in Dallas, TX, and will be closing on a second building that is directly across the street in early April.
After completing a deal, I reflect to find a lesson I learned that I can apply to future deals, as well as share with other investors.
Here’s a link to an article where I provide the 15 lessons I learned from my first seven syndicated deals: https://joefairless.com/lessons-100000000-multifamily-syndications/
For these two most recent deals, I had one major takeaway. But first, I want to provide some backstory.
There was an on-market deal that was highly publicized and marketed by a broker. My partner and I loved the deal. However, due to competition, the price kept creeping higher and higher so we weren’t sure if the deal would make financial sense.
Directly across the street from this on-market deal was another apartment complex. The on-market deal is over 300-units and the majority of units are 1-bedroom. Whereas the property across the street was over 200-units and is primarily 2 and 3-bedroom units. Therefore, the two buildings naturally complemented each other.
Fortunately, we have a very good relationship with a broker in Dallas who also happened to know the owner of the apartment across the street. The broker reached out to the owner and since it was an off-market deal, we were able to negotiate and get the property under contract at a significant discount.
At the same time, we were in negotiations for the on-market deal. Since we were purchasing the property across the street at a significant discount, we were comfortable bidding higher on the on-market property because we would have the cost savings that comes from economies of scale.
One of savings that results from economies of scale, for example, is the lead maintenance person. Instead of having one person onsite and paying them let’s say $50,000/property, you can split that cost. There are also economies of scale for marketing and advertising, leasing staff salaries and commissions, and property management.
Also, since one building is primarily comprised of 1-bedroom units and the other is comprised of 2 and 3-bedroom units, we have a natural referral source. If someone is looking for a 1-bedroom unit, we’ve got it covered. If someone is looking for a 2 or 3-bedroom unit, rather than saying “no can do,” we can send them across the street!
Now, the lesson I learned is in regards to how to find deals in a hot, competitive market: create opportunities. Don’t just look at what the brokers are giving you. Instead, get creative. Look at what else is around the on-market property and maybe you can package two deals into one transaction.
I can almost guarantee nobody on the face of this earth was doing that for this deal. Everyone was looking at the on-market deal, but nobody looked across the street (or elsewhere in the surrounding area) and thought to themselves, “Hmm, I wonder if I could buy that property too?” Because if they had, they might have seen the same thing we saw – a natural opportunity to combine the two deals.
I can also tell you that this is the first time we’ve purchased two apartment buildings simultaneously. We had to self-reflect and say to ourselves, “Okay. If we get this one deal, then we can definitely pull it off from an equity standpoint, but what if we get two deals? We know we can do one, but can we really deliver on two?”
We had to have faith based on our track record of delivering on our previous deals. Lo and behold, we had one investor who’s invested with us in the past few deals put up all the equity that we needed for both deals (minus the money that we put in).
Overall, it was a learning experience across the board, from how to find deals in a hot market (you create opportunities) and also when to strategically stretch yourself based on the situation at hand.
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