Hands-On Education: Lessons Learned On A First Multi-Family Deal

By Saher Ghatta 

One of the most powerful aspects of real estate investing is the ability investors have to intentionally learn by doing. Unlike other forms of education, real estate investing is a hands-on education and when these lessons are shared with investors like you and I, we gain the profitable knowledge without the hard knocks of experience!

Here are 12 specific lessons I learned from investing in my very first multi-family deal.

1. Don ‘t close the deal over the holidays. Everything takes longer if you try to close a deal over the holidays. Everyone is too busy thinking about gifts and turkey and family and NOT about your deal. For example, if you ‘re going to close the deal in December, close it by December 12^th at the very latest. Otherwise, leave it until the new year.

2. Know your fire code. Make sure YOU know the fire code before you acquire the property and clearly identify who will be making the changes (you or the seller) to ensure fire code compliance in the property. And, make sure your property management team knows the fire code as well – especially your onsite property manager. If there are any discrepancies between your property and the fire code, fix them immediately.

3. Get title insurance before closing. You can only get title insurance before closing, not after. So make sure that you get it before. On a $2.3 million transaction, you ‘ll probably pay $2,100 for title insurance but once you get it, this insurance stays for the lifetime of the asset.

4. Communicate early and often! As you go through the acquisition process, be very specific and clear in your communication. Be aware that things tend to get more expensive as you get closer to the closing. This is a good rule of thumb at the best of times but it becomes even more important if there are issues with the deal. Make sure that you clearly and openly communicate all issues immediately rather than avoid them.

5. Make sure you are well represented. Working with a REALTOR ® has advantages and disadvantages that you need to be aware of: a REALTOR ® will fight for you and negotiate on your behalf, which is an advantage to help you maintain a strong position and get a better price. However, it can also be a disadvantage because when your agent is communicating with the seller ‘s agent, information that you need to know or need to communicate can be lost.

6. Work directly with lenders if possible. On larger deals, and on deals where the financing is very simple, avoid working with a mortgage broker. If you work directly with the lender, you ‘ll save money – potentially as much as $12,000 on a loan of $1.7 million.

7. Review documents closely. During the acquisition process, make sure you go through each document thoroughly and fully understand what the document is saying (and not saying). Remember that the numbers tell a story, so make sure you are happy with that story. Ask for clarification when you don ‘t know something.

8. Find out about any special deals from the previous owner. Sometimes owners will make special deals with tenants. When acquiring your deal, make sure you get a letter from the seller stating that there are no promised free rent or backdoor deals with tenants.

9. Develop a strategy to normalize the property. There can be a lot of work in the first six months of ownership of a multi-family property as you bring it up to your standards. Make sure you create a plan to strategically upgrade your property, and set aside time and money to invest in this normalization process.

10. The main goal is to increase your bottom line. You can do this by managing your operating costs and by increasing rent. Every time you perform a renovation in your property, link it to a rent increase. When communicating your rent increase to your tenants, explain that you are enhancing the building to make it a better place to live. You can even attach a gift card to the letter to increase goodwill.

11. Maintain a great relationship with your onsite property manager. Remember, your onsite property manager is the one running the show and the one who knows all the secrets of the building. Maintain a good relationship with them by taking good care of them. For example, give them gift cards from time to time and a nice gift basket at Christmas.

12. Set aside funds for the critical first three months of ownership. Although multi-family properties provide great cash flow, the first three months of ownership can be costly: you ‘ll be paying for insurance for the full year, you ‘ll need some money for repairs and upgrades, your property management company might need a “hedge fund ” against emergencies, and you ‘ll want some operating capital set aside to help cover the costs of tenant turnover.

Note: Investors should be aware that these lessons may be different in other markets so be sure to check your local regulations. As well, these lessons are the experience of one investor and may not always reflect every investor ‘s experience.

Saher Ghattas is the founder/CEO of Flawless Inbound. Over the past 20 years, he has operated in various roles, working with senior executives at the intersection of business/marketing strategy and information technology. Flawless Inbound is one of the leaders when it comes to the inbound marketing and sales platform operation/integration. His company has helped organizations worldwide change how they market and sell, while their innovative approach to company culture has helped redefine transparency and autonomy in the modern workplace. On a personal note, Ghattas ‘ two kids are his life coaches and business advisors as well. In his free time Saher loves to practice mediation, martial arts, and squash. His passion is in real estate investment especially Apartment Buildings. Ghattas can be reached at: http://flawlessinbound.ca, Saher@flawlessinbound.ca, or by Phone:780-862-5681.

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