Well, the answer is indeed yes, your can flip an apartment building. People no smarter than you are doing it all across the country every month, maybe every day. The way you do it is not so different to the way you flip a house, but with a few tweaks. In fact, it’s probably a little easier than flipping a house.
You may be familiar with this series of events. 1) find a profitable deal, 2) get the deal under contract, 3) find a buyer with cash, 3) assign the contract to your buyer for an assignment fee, 4) deposit the check in your bank account.
The variations are in 1) and 3).
First of all, when you are trying to find a property at a wholesale price that the end investor will still be interested in, you have have to know what goes into creating value in apartment buildings.
There’s more to it than just looking for shabby properties with deferred maintenance. You are looking for otherwise quality properties whose owners have let go for whatever reason and are in a bind because of it. One must have factor is location. Bad location is tough to overcome.
The deal has to have upside in it; there have to be things currently wrong with the property that will represent increases in value once they are turned around. So if the property is 20-30% vacant, the rents on the occupied units haven’t been raised in 5 years, and there are repairs that haven’t been done, that creates potential upside. A buyer you resell to could come in, turn all these factors around, and cause a big bump in the property’s value.
Big apartment complexes typically don’t attract newbie investors. The people you resell to are going to be pro investors who know what a good deal looks like. If your deal doesn’t have these upside factors and it doesn’t have location working for, they’ll see that immediately and bid you goodbye.
Also when you have these three elements present in the property, it is highly likely the owner is going to be hurting financially and motivated to sell cheap just to get out of the property. Deferred maintenance scares away good tenants, rents then need to be lowered to fill the units, lower rents attract lower quality tenants, lower quality tenants are harder on the property and don’t pay, and the spiral continues downward.
It is these very elements you put to work in your negotiations to get the cheap price on the contract you need. Without a big upside no end-investor will be interested, so you must know these elements.
The other thing that is different with flipping apartments is the kind of buyer you will be selling to. Rehabbing houses has become so popular that you often find yourself reselling to relative newbies, which comes with it’s own problems. When flipping apartments, just about all of the time you are dealing with flat out pros.
These are people with multi-million dollar lines of credit, bank accounts with a few million in cash sitting there, or both, who have absolutely no problem with you making a $50,000 profit assigning your contract to them. They know full well they will be pulling a couple million out of the property in two years or thereabouts, so fifty thousand dollars is a small price to pay.
The truth is, by saving the end investor the time and hassle of having to go and find the property you have created a great deal of value for them. He/she will gladly pay your fee, ensuring you receive the money because they want you to go out and do for them all over again.
This is the world of flipping apartment buildings. It may be a little different to what you are used to.