How can I buy multifamily rentals or commercial real estate for investment?

Buying multifamily and commercial income producing properties can be rewarding investments. At the beginning, you should avoid owning property outside of your immediate area. That way you can know every property in the neighborhood that fits your investment profile and jump on opportunities as soon as they become available. By being in close proximity, you can also maximize your maintenance and management control to increase asset values.

Successful real estate acquisition professionals inventory every property in the marketplace that meets their profile. To help, you can subscribe to lists compiled from the county courthouse records. Alternatively, drive the neighborhoods and search the records yourself. Some of the best acquisition candidates are not advertised and may not be listed with real estate agents. By contacting owners, you might persuade them to consider an offer. Three things have to happen for you to negotiate successfully.

1. Establish credibility. Get the word out that you have the desire and financial ability to offer a purchase contract and close the deal. Sellers rarely agree to sell on the first visit so be prepared to make several calls. Form relationships with owners of properties that fit your profile.

2. Negotiate. Gather enough information about the property and the seller to make an offer. Get the rent roll, historical operating statements, physical details, copy of maintenance contracts, real estate tax bill, copy of the hazard insurance, condition of depreciating components (HVAC, roof, etc.). Don't tell the seller what you're willing to pay. Whomever mentions price first, loses. Instead, explain why you feel the net operating income (NOI) is lower than the seller's estimate. Allow negotiations to be over interpretation of the Gross Possible Income (GPI), operating expenses, reserve for replacement and the NOI. Then, ask the seller what he would think the property is worth with the NOI being lower than he thought.

3. Close the deal. All the major business points (i.e. purchase price, seller financing, etc.) should be agreed upon before making a written offer. Then it is up to the lawyers. The contract has to withstand a process known as "due diligence" before the seller gets paid and an actual transfer of title takes place. Your accountants, property inspector (engineer), lawyer and you, pour over the books and the physical structures to make sure that everything the seller told you is accurate. If it's not, the deal may be renegotiated.