Apartments for sale by owner
Which Lead To $350,000 In Free Equity
The first commercial property I ever bought was an apartment building for sale by owner. I wasn't specifically looking for FSBO (for sale by owner) properties at the time, but as I skimmed the "commercial properties for sale" section of my local newspaper the deal jumped out at me.
Here is the picture of the ad, with the sensitive info blacked out.
Later that month I saw another ad for the same property in a commercial real estate newspaper. It shows a picture of the building to give you an idea of what it looked like.
Looking at these ads, they probably mean nothing to you. There is no way for you to even detect that this property is a potential deal. It doesn't even say 'Apartment Building For Sale By Owner".
So how did I notice the potential?
Well, it just so happens that I had been looking at another apartment building investment in the very city where this mixed-used commercial property was located. (I have blacked out the city in the ad, but again, it would not mean anything to you). I knew the market, and I knew the value of investment properties there.
The first thing I noted from the ad was the per suite asking price, about $26,000. Again, because I new the market, I also knew that this was a potentially good deal. When I called on the ad I found out right away that it was an apartment building for sale by owner. I had the owner send me a pro forma income statement for the property and things took off from there.
I ended up purchasing that commercial building for $1,250,000. Three weeks after I had an accepted offer I had the building appraised. The appraisal came back at $1,600,000. In other words, when the deal closed, I would end up with $350,000 in 'free' equity. In addition, I knew that there was plenty of ways that I could increase the value of the building once I took over. In fact, within 12 months I had increased the value (based on a new appraisal) to $2,020,000.
Sidebar: Are you interested in learning more about how to invest in
apartment buildings and achieve returns like this? If you are, then I recommend picking up a good course that will teach you how to purchase your first apartment building properly. Here is a course written by a colleague of mine that is inexpensive and should serve you well.
As you can see, this commercial building presented two immediate profit centers. The first was the ability to buy the property below market value. The second was to recognize the potential to increase the value of the property. Force the appreciation if you will.
Here are two important points for you to take away from this example.
1. 99% of the time, an apartment building for sale by owner will not be marketed as well as a commercial real estate broker could market it. The less people who know about the deal, the less competition, and the lower the price.
2. In this example the owners were horrific managers. It wasn't that they were inexperienced commercial real estate investors, just that their management philosophy let this property go downhill to the point that they just wanted to sell it fast. They were too cheap to keep the building up from a maintenance standpoint, too cheap to hire competent mangers and in the end too cheap to pay a commercial realtor to market the property properly. All of which equaled opportunity for me.
At the time I purchased this building, access to good educational information about investing in commercial properties was scarce at best. You, on the other hand are lucky. Nowadays there are inexpensive courses available on the internet that can give you a huge head start in this business. And they are relatively "cheap". Here is one that deals with all the aspects of commercial real estate investing, and covers a number of different property types. Have a look when you have a moment. (There is a video on the site that plays automatically so you may want to turn on your speakers at low volume.)
If you are interested in learning more about investing in an apartment building for sale by owner and/or other real estate investing tips, then please sign up for my free multi unit real estate investing newsletter. It's the best way to keep in touch and learn things about this business that you won't find anywhere else.
Category: Apartments for sale