Deaton Investment Real Estate & The Wake County Apartment Association

Thursday, March 13, 2008

Don't blink

Just like a kid on the free throw strip with the game on the line in the ACC tourney final (assume he’s wearing anything but an NC State jersey), when you find a motivated seller, you need to be able to nail your shot. Consider the following…

In a recent transaction, a seller had reached a level of motivation to sell a property at a very marketable number. They weren’t giving the property away by any stretch, mind you, but they decided, basically, they wanted to sell it. In reaction to this, another agent brought into the picture buyers whom we thought, in the end, were simply going to complicate the transaction. They asked for pointless contingencies, altered terms after a verbal agreement, were unwilling to put anything in writing and basically, demonstrated they were flakes. Their number however, was in an acceptable range for the seller. The offer was being considered.

In ongoing efforts to sell the property, we decided to follow-up with some Investor Network members. We thought that one of our own buyers—an experienced, savvy investor—could move on this property and ultimately provide the seller with a solid, dependable buyer who wouldn’t shake things up prior to closing.

We found one.

Buyer #1’s offer finally became a clean one. No contingencies and a good close date. To no one’s surprise however, they actually decreased their number to just outside the seller’s range. It was communicated to our buyer, #2, that if he could do a clean deal—100% completely free of contingencies—at a slightly better number, the property was his. Two catches: We needed the offer in writing in less than 24 hours and he hasn’t seen the property. (However, his local property manager, who handles these units already, gave him a vote of confidence in their condition and performance.) He agreed to do that if the seller met in the middle on price. The seller agreed. Verbally, we had a deal.

We wrote a contract according to terms and e-mailed it to the buyer. I communicated with the agent of buyer #1 that the seller was considering another offer and would respond to all parties by 12:00 p.m. the next business day.

Now given the less than dependable nature demonstrated by the first few rounds of negotiations with buyer #1, even if they countered with a number slightly higher than buyer #2s, the seller would be better off sticking with #2 because of his track record. The ability to close confidently is a critical component of being a sound investor.

The next morning, buyer #1 presented an as-is contract in writing that raised their offer to the seller’s desired sell point. Buyer #2 also returned an offer in writing at the number agreed upon the day before.

However, deep into the contract, under paragraph 20, Other Provisions and Conditions, he had hand-written a soft but clearly stated contingency for an inspection period. The offer, on terms, wasn’t what we agreed upon.

Buyer#2 blinked.

I communicated to the seller that despite the contingency, I still have a great deal more confidence in buyer #2. Nevertheless, the seller had his number on a contract that could be fully executed in minutes as opposed to one that may never get signed given the inspection period.

After some last minute negotiations with Buyer #2, the seller accepted buyer #1’s offer.

Do I blame buyer #2 for wanting an inspection? Absolutely not. He was offering on a property without seeing it. Still, the property is structurally sound and managed by a firm with which he already employs that is well-known for only managing very good properties. An inspection, as is done with all investment properties we sell, can be done outside of contract.

In the end, I feel bad that a buyer I like and have confidence in lost out on what will be a very solid property.

When a good property comes along and it’s combined with a motivated seller, you need to be ready to step to the line like a senior on his home court. And not blink.

Thursday, March 6, 2008

Is multi-family investing right for you?

We get the question a lot, “Is multifamily real estate for me?” Even more we hear, “I want to start investing in real estate what should I do?” There are no right answers to these questions, simply more questions that only you can answer. The truth is no one can tell another person what fits them best or provide a perfect plan for success. The most successful owners of multi-family properties made up their minds they were going to start investing and just did it. You have to look yourself in the mirror and answer a few questions for yourself.

1. Am I financially ready to start investing? This is a question with several levels. First, do I have enough money saved for a down payment? Do I know what down payment requirements are? Do I have enough reserves saved if I make a mistake or something goes wrong? If you can’t survive a “worst case scenario” plan without starving, you are not ready.

2. Am I ready to work? TV shows, books and seminars have glamorized what is truly hard work. You will not get-rich-quick buying multifamily properties and it will not be easy. You need to be prepared to manage the property, make repairs, deal with tenants and more. Property owner is just another title for “problem solver.” Maybe you are going to hire a manager. Well guess what, that costs more money and that doesn’t mean they are going to be perfect. Even a management company needs direction and oversight.

3. Am I determined I will succeed? Investing in real estate will require a leap of faith in your own abilities. Those who are determined to succeed, confident in the decisions they make and willing to find their own way will have a much higher rate of success than others. Don’t be scared to make a mistake. If you don’t make a mistake you are not trying. Real estate is very forgiving if you are a long-term investor. Time can heal almost anything as long as you keep pushing forward.

If you answer all these questions honestly you will know if real estate investing is a good fit for you and your lifestyle. Assuming you decide to move forward it just comes down to perseverance. Start researching your market to understand rents, prices, financing options, growth patterns, employment trends, etc. Drive by properties and neighborhoods to figure out what you like and don’t like. Then have the guts to develop a plan and execute.

Wednesday, March 5, 2008

Garner? Really?

Yes, Garner.

Wait, what's the question? Is this Jeopardy?

The question is: what Triangle market do you see as perhaps the most under-valued? We know Inside the Beltline, North Raleigh and Cary are strong rental markets. The value there is very evident. Garner though, doesn't get thought about too much. But it should.

Garner has grown up like a lot of the smaller Beltline border towns. It has established, affordable single-family neighborhoods surrounding an older but very functional downtown and of course, waves of big box retail and regional centers growing into the space in between. Thus, older apartment properties now have Wal-Marts, Wachovias, office buildings and Starbucks closer than ever before. As infill projects continue to permeate around the older homes and apartments, their values will continue to climb.

As Cary and Wake Forest erect fences to the West and North of Raleigh, Garner seems to be laying pavement and waving welcome banners. Rents are still very affordable for a large swath of the renter market in properties that offer many of the amenities of those found in North Raleigh: national retail chains, places to work, restaurants and schools.

So yeah, Garner is not a bad place in which to own rental property. Appreciation clearly won't be what you might find in Cary or within I-440. But the chance for cash-flow is that much better.