Apartment Wars - Battle of the Bulge

Just when you think you're winning the battle, the enemy will counter attack. That's right, when they think your weak and vulnerable they will try to pierce your center and make a run straight for your supply lines!

It's crazy and if you're not diligent you can fall for their game. I love history and many times I associate historical events on the battlefield with everyday delimas in the business world.

Take the Battle of the Bulge in WWII for instance. Sometimes I feel like that American comander who, when surrounded by a suprise German offensive, replied to a surrender demand with just one word....NUTS!

Beautiful! That's what that is, B E A U T I F U L! What is it about that situation that I think is so perfect? Well, I'll tell you. The commander didn't lose his head. He stayed calm and unflinching, he felt in his gut that no was the right answer and he stuck with it.

Well we all know the story, he was rewarded. It was still a gut wrenching struggle but in the end his decision was vendicated as General Patton came charging through to stop the German assault!

NUTS! That is what I continue to say to those agents that come to me with the crazy, rediculous, overpriced deals. NUTS!

Oh trust me, there have been a few end runs and some faints left and right. Show me some numbers here, act like they understand my needs over there, but in the end they keep on coming. Back again with overpriced deals.

I don't need to change my tactics, you know why? Because I'm right. I am always vendicated, especially when I call their 'preferred' lender and the lender says; 'No, you're correct, we won't lend on that project at the price.' ah-ha! NUTS! LOL

So now I have a spy, someone on the inside who can feed me information and tell me what the enemies strategy is. Now I've infiltrated their camp and their next attack will not be suprise.

No, we've beaten back the suprise attack and we're even able to insert a spy into the enemies ranks. Next move, a slow and steady advance. Gathering the necessary information to create a successful final assault.

What might that information gathering task include? Stay tuned for the next session of Apartment Wars - Secret Agents

Apartment Wars

I've been to battle lately and I'm frustrated as hell. It seems like every deal I look at is dead before I even get started. The problem is those darn cap rates!

Newbie agents spew their drivel about how a cap rate of 6% is standard for a C-class apartment building in the Atlanta market. The stabilized rents will net a 'nice' return on the investment is what they try to tell me.

Here's my problem with that. First, I don't know of a single lender in the world that would consider lending on an unstable complex with a 'C' rating and 6% cap rate on future rent. The DSCR (debt service coverage ratio) is barely a break even when you consider current rent! Give me a break.

When you are out there looking at deals and making offers remember that the profit is made at the purchase not at the sale. If you buy into this non-sense and buy a property that is being capped at it's 'stabilized' rent you will end up on the loosing side of the deal!

Just say NO! There is a war going on right now and it's being fought between those that know-better and those that know-nothing. Don't side with the later group, you'll end up losing your pants!

All my offers are based on a 9-10% cap of the CURRENT rents! The profit is created when I begin to update the property and raise rents to market levels. Then maybe I can sell the place in a year or two with market rents as a stabilized property and charge the new buyer an 8% cap.

I lift the property from C to B and the buyer get's a 'coupon' (a clean property that just needs good management and they just collect a check at the end of every month). In the end I create a buyer for future properties that I purchase, rent up and stabilize.

That's how you win the apartment war! Don't get caught behind enemy lines by falling for the know-nothing's propaganda. If you want to know something about how to win and get financing for your apartment deals, give me a call.

Michael Gross is President of Dividend America Mortgage. He has been a builder, an appraiser, a Realtor and is an active real estate investor. He uses all of his knowledge and experience to help real estate investors create successful deals. For financing questions or negotiation assistance contact him at 770-350-7373 or mgross@dividendamerica.com.