Multi Unit Strategy: The Strategy of Preeminence in Multi Unit Real Estate Deals

When locating private monies for your multi unit deals, there are the four key elements of being successful: Predisposed investors, control, low risk and high return. However, there is another element to making your hunt for finding investors successful. This fifth component is called the strategy of pre-eminence.

Think of the strategy of pre-eminence as you would The Golden Rule: “Do unto others as you would have them do unto you.” It is really that simple. You take a pre-eminent position and treat every client as you would like to be treated. This means that you have a vested interest in what type of deal they are looking for.

This strategy begins with being sure to refer to your investors as “clients” as opposed to “customers”. Client denotes someone you are going to look after in the long run while customer denotes a one-time transaction. Client is a long-term relationship.

Your private money sources are your clients for your multi unit deals. You are creating investment products for them. They expect to receive benefit from that. Because you want to have a long-term relationship with them, you treat them as a client.

Think of it this way: you are a customer at the chain jewelry store. You are just a nameless face among thousands there. No one there has a vested interest in finding out what your needs are and what they can do for you. However, if you go to your local jeweler, they will treat you as a client. They will get to know you on a personal basis and work for your repeat business.

This means that you look after them; you think like they would. You try to put yourself in your client’s shoes and look out for his or her best interest. Honesty is always the best policy. If you fudge on giving the details of a multifamily property to your potential investor, not only do you risk losing them but you risk destroying your reputation that you have built thus far.

Remember, referrals are the backbone of your multi unit business. You cannot build up your list of credible and trustworthy references if you develop a reputation for not being an honest person to deal with.

Your ability to establish a relationship of trust, reliability and integrity is the foundation for a relationship that will be mutually beneficial in the long run. The strategy of pre-eminence opens the door for you to garner stellar word-of-mouth referrals from your clients.

Multi Family Potential: 3 Guidelines for Quickly Evaluating a Deal

You want to invest in multi family properties, but with all the apartment buildings in your city, you could spend all your time looking at them, analyzing them, and comparing them without ever getting anywhere. You need a simple, effective way to analyze multi family buildings to save you time and help you make judicious decisions. The following three guidelines are all you need to rule out unprofitable deals and narrow in on the best.

1. Cap Rate. Cap Rate is an abbreviation for capitalization rate. It’s the return on investment on a percentage basis if you paid all cash. The formula for Cap Rate is NOI (Net Operating Income, which is simply your revenue minus your expenses) divided by the purchase price. Here’s an example: You have a multi family property with a NOI of $50,000 per year. You paid $500,000 for the property, so the property has a Cap Rate of 10%. It’s wise to look for properties that have a Cap Rate of at least 10%.

2. Price Per Door. The price per door is simple to calculate. Just divide the price of the property by the number of units. As a general rule, if the price per door is less than $25,000, it will probably have an acceptable Cap Rate and cash flow. The price per door also tells you the class of property you’re dealing with and whether or not it’s a deal for you. However, it isn’t wise to look only at the price per door without analyzing the other two guidelines. You may miss out on some key information that could help you make a good decision about that multi family property.

3. Unit Mix. The unit mix is the percentage of units that are one bedroom, two bedroom, and three bedroom. A property that has more two bedrooms than one bedrooms will have higher rent or higher revenue per door. Between a property that is 80% one bedrooms and another that is 80% two bedrooms, the multi family property with more two-bedroom units will have higher revenues and most likely a higher Cap Rate. Some people say they like to have more two-bedroom units than three-bedroom units because the three-bedrooms attract children. One bedroom units bring single people or couples. Two bedrooms are typically for roommates and small families.

Once you have collected the above information, you’ll be able to cut to the heart of the deal and weed out multi family properties that don’t meet your needs.