Just for the sake of argument, let’s assume you’ve decided that commercial real estate is for you. You’ve decided that investing in commercial real estate, and particularly multifamily property is the way to go to secure your retirement (and I would agree!). You’ve decided as well that you are capable enough and educated enough to act as an active investor on your apartment investment, and for now, you’ll forego the passive investing route. Surely, you think, if you can invest passively, why not invest actively for greater returns? Apartment buildings are, after all, just many little houses put together and that really isn’t that much different from your own house, right? You’re excited and you can’t wait to get started!
It’s Easter Sunday tomorrow, and in the spirit of the holiday, let’s work on growing your nest egg, not laying a doozy that will crush your dreams of retirement. Following this one simple guideline will stop you from making perhaps a multi-thousand dollar mistake. When people get excited to begin a new project, a great many people do what seems logical in this day and age — they go to the internet. This does seem to make sense. After all, when you want to begin shopping for a new house, the internet is a great place to start — you can investigate new cities, new neighborhoods, neighborhood schools, local businesses, new houses for sale, resale houses up on the block, comparable prices and more.
When people first launch their search for multifamily apartment buildings (particularly 5 or more units), one website normally attracts most of the attention: Loopnet. Now, there is absolutely nothing wrong with Loopnet. Here is the distinction you must keep in mind as you peruse those seemingly fantastic investments for sale on Loopnet — unlike residential real estate, there is no central listing service like the MLS for commercial real estate. Let me say that one again: Loopnet is not an MLS system for commercial real estate. Not only does this apply to Loopnet, this is also applicable to any other website that lists apartment complexes and commercial real estate for sale.
Well, okay you say. No big deal. So you only get a portion of the listings — big whoop. Here’s why this is important. Loopnet and all of the other commercial real estate listing websites get these listings generally speaking, at the end of their sales life cycle. What does that mean? What it typically means that commercial real estate brokers have shopped this listing to everyone on their buyers list, shopped the listing to other brokers in their firm and their buyers lists, shopped the listing to others in their network and found no takers. This means that many, many pairs of eyes have reviewed the property, reviewed the offering memorandum (a multi-page marketing brochure on the property), reviewed the actual financial performance and have determined the property doesn’t meet their investment criteria.
Of course you can argue that their investment criteria may be different from your criteria. You have found a great deal and are perfectly willing to put your hard-earned dollars to work on this project, but consider this: the number of reviewers on your find may be in the hundreds! Hundreds. You may want to consider carefully why each of those reviewers said ‘no’ to your great investment.
Don’t let your hunt for a nest egg investment turn your retirement into scrambled eggs (sorry, I couldn’t resist). Consider carefully those ‘can’t miss’ multifamily investments you find online.
Happy Easter!
CREtirement 