Today we’re going to tell you about a new and effective way to buy apartment buildings. Historically apartment buildings have been a great investment but buying an apartment building can be a challenge because there are so few buildings for sale. There are typically two ways to purchase an apartment building. Number one is the traditional broker method. A broker lists the building, creates a package and exposes it to the marketplace as best as he can. The second method is the off-market method. A broker knows an owner, the owner won’t list the building, but he will look at offers. The broker quietly shows the building to a few prospective buyers but the broker cannot expose the building in the marketplace because he has no protection and fears another broker will bring offers. At ROCK advisors we use the buyer-broker method for qualified buyers. Here the buyer gives ROCK a mandate to find a specific type of building and pays ROCK to do so. Here’s how the process works: With more than 25,000 apartment buildings in Ontario alone, randomly finding a building that’ll work for a specific investor is very difficult, it’s almost impossible. So the first thing we do is help the buyer develop specific criteria about what he’s looking for…things like: location, type of building, and number of units. As an example, ROCK has a buyer who has already zeroed in on the town of Oakville because he likes the economics, the demographics and other features of that city. He wants to purchase an apartment building between 20 and 40 units. Great, the criteria is now set. At ROCK advisors we have a unique up-to-date database that’s searchable of all the apartment buildings in Ontario and most of Canada. So now we do a search – we go into our database and search for all the apartment buildings between 20 and 40 units in Oakville. We type in the province, type in the city and we do a search. The search yields 25 buildings that meet those criteria. Here’s the problem: none of them are for sale. So then what we do is we plot the 25 buildings on a map for client to see the location of the buildings. Then lets say our client has an interest in 21 of those buildings based on the location. Next a ROCK surveyor goes out and visits and photographs each of the 21 buildings and he scores each building based on nine characteristics. The 9 characteristics are: Superintendent Curb appeal Common area Apartment appeal Location Security Parking and Amenities The resulting rankings are relative so in other words a building with the best curb appeal receives a score of 21 and the building with the lowest curb appeal receives a score of one. Then we do that for all nine characteristics. Once all of the scores for each building in the ranking process are added up the building with the highest score is generally the best building. We’ve been using this methodology for many years. Here’s where it gets interesting. When we show you the building ranking and the pricing graphically. the graph on the left hand side is the building ranking from best building to worst building. The graph on the right hand side is the price ranking for the same building for one-bedroom apartments. Now in a perfect world the graphs should be the same, shouldn’t they? The best building should have the highest rent and the worst building should have the lowest rent. But as you can see price doesn’t always follow quality. The ultimate goal of the savvy investor should be to target the buildings whose rent seems lower then their quality. In our example 6 of 21 buildings meet that criteria. So all things being equal, investors should target purchasing one of these 6 buildings. When the current tenant moves out the rents can be raised to the market rent and an excellent investment will have been made. Now once we’ve identified the buildings, ROCK approaches the building owner on behalf of our clients and we tell them the following: We have a written mandate from a qualified buyer who wants to purchase your building and the purchaser will pay us our commission. Building owners are sometimes pleasantly surprised after all there’s no risk, no listing, and no obligation for them to sell the building. They sometimes give the broker their financial statements under the terms of confidentiality agreement, and in this case building owner is in a very good position it’s a win-win situation. So here’s a real life example of how we were able to successfully conclude a transaction. We had a client who wanted to buy a newer quality building in Markham, Ontario between 50 and 100 units. He had a very strict criteria – the building had to be on a main street or just off the main street. We searched our database and only one building met this criteria. Then we used that same database to track down the owner of the building and we contacted him. We told the building owner that a qualified client wanted to purchase their building. The building owner replied and said the building isn’t for sale. We said we understood but everyone has their price. What’s yours? The purchaser offered a fair price and structured it so that the broker’s commission was included in the purchase price. In the end, it was a classic off-market deal. The owner was somewhat receptive to the idea of selling, but wasn’t prepared to market his building. The broker had a qualified buyer who was looking for a specific building in a specific area. A fair offer was presented and accepted by both parties, and both parties were happy If you’re an apartment buyer with a defined criteria of the building you want to buy, and a mandate to buy we would like to help you.
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