The following are the 9 laws of renovating apartments according to vastly experienced multifamily investor, Nathan Tabor.
Law #1 – Be Knowledgeable
Be knowledgeable about everyone and anyone that will be involved with the apartment complex that you are investing in. You should get to know the ins and outs of every aspect of the deal.
You will never know everything about the deal. It’s ok to say that you don’t know.
If you don’t say, ‘I don’t know’ and try to answer the question anyway; it will undermine the trust that others have in you.
Don’t let your arrogance force you to keep going down a path where you don’t really know where you are headed.
Ask someone who knows. Don’t be afraid to ask questions.
If many investors are saying no to you on a particular deal you may need to modify your approach.
Don’t hesitate to seek advice from an expert who can let you know what you are doing wrong and be upfront about what you want their time for.
Law #2 – The Due Diligence Process and The Renovation Budget are Critical
This is during that 30-90 day period where you get your free peek under the hood and you get to ask all the questions after you’ve written the contract but before your money ‘goes hard’.
Mistakes will happen, that’s life.
But there are ways to avoid many of the most costly mistakes.
The renovation budget is where you have to take the time to really dig in and do your homework.
You are putting in time and research but at this point, you are not actually making money so it’s hard to have the discipline to put the time in, but if you do so at the outset, it will pay off later.
If you don’t take the time at this point then you WILL lose money.
For example, a friend was excited about his purchase of an 8 unit property but had overlooked the fact that he would be the one to pay for the power and water and not the tenants.
It was a $1,000 a month mistake.
For example, a certified rent roll is not a verification of the rent paid it just tells you what was supposed to have been paid.
Bank statements are how you actually verify the income. If you can’t verify the income through bank statements then don’t proceed.
Everything that I look into in terms of costs, I always add 30% to it just to make sure that I am covered.
Law #3 – Be 21st Century
Technology is your friend.
We use technology in our personal life but for some reason in business we decide that the technology is too expensive.
Really, spending a couple of hundred dollars a month on technology that can greatly help our business or to manage and run the apartment complex is nothing especially when you consider that in apartment investing you might be dealing with millions of dollars.
In the future when you need to produce the documents for selling, you will be able to do this efficiently and professionally.
There are lots of amazing programs out there for all aspects of apartment investing.
You also need to be aware of what other people are saying about you online. For example you may find that you have a Google review and it’s only one. The person may have said something like they never called me back and have given you just one star.
You might like to respond to that. You also need to be proactive in asking for positive reviews.
It could make a difference even with tenant occupancy rates in an apartment complex that you own.
Law #4 – Be structured and scalable
Have systems in place that are reliable and structured and that can be duplicated.
Have a business plan, a marketing plan, a maintenance plan, basically a plan for everything.
This can be something that you will then duplicate when you scale up to your next apartment property.
This is a lesson that I learned the hard way as I grew I had to put the infrastructure in place afterwards; it caused me a lot of anxiety.
Put in writing any and all issues that come up and any and all agreements.
A person can hear something and then interpret it the way they want to. Putting things in writing takes care of that problem.
Who is doing what, when they are doing it and how it’s being done.
Keep records of everything and maintain organization. When future buyers see the professionalism of your paperwork etc. they will have confidence in the deal.
As you grow and expand you will have all the systems in place. There are the same systems for a 10 unit complex as for a 100 unit complex.
Law #5 – Be Involved
Really know your business. It’s not a hobby; the truth is it’s a 24 hour a day job.
When it comes to class B, class C properties it is a hands on business that you have to give your full attention to.
Are you making sure that you are checking those weekly or monthly reports even if you are not there on a day to day basis? You can just hire someone who you think has your best interests at heart but nobody is going to care as much as you.
Check on the quality of the work and make sure that people are doing things the way that you are paying them to do them.
You have to put measures into place to counteract some of the problems that could occur.
I do not pay contractors upfront anymore. I may pay a percentage upfront but not the full amount until I see that at least a third of the work has been done.
Don’t give all the trust to others. You will have to trust others, especially as you grow, but check on these people.
Money does funny things to people; you have to put some checks and measures in place.
For example contractors have been known to return certain materials that they thought would not be missed and collect the money.
Law #6 – Be Capitalized
Having little or no cash on the balance sheet is a recipe for disaster.
Having no cash after you have done a deal is a dangerous situation to be in.
There will always be something unexpected that goes wrong.
Things will come up that you didn’t plan for, sewer pipe issues, electrical issues, things that you didn’t catch during due diligence or things that happen afterward.
You don’t want to have to go back to your creditors or investors to ask for money that you didn’t plan for, it hurts your credibility.
Besides, what happens if they say no? Most likely they will say no.
Your numbers should not be so tight; if they are, then you would be better to not do the deal.
Law #7 – Be Unshakeable
People will cause issues but don’t let it rock you or change you.
Rarely ever does a property cost you money, it’s the people who live at the property that will cost you money.
There will be things that they do to your property that you would not even be able to imagine.
Often it is better to pay for these issues out of your own pocket rather than have it adversely affect your insurance deductible.
Law #8 – Be Prosperous
Make money but do it the right way.
Follow the law of order. Do things the way that they are supposed to be done.
Do things right the first time so that you don’t have to go back and correct them.
The reward is worth the effort.
Make sure you know the laws from A-Z.
Law #9 – Be Honest
There is no amount of money that is worth violating your integrity over.
Make as much money as you can but when you get there are you going to like the person that you have become?
If you feel like something is not right and proper in a deal if you close your eyes to it because there is a lot of money at stake it will come back to bite you later.
Don’t focus on the money, focus on the project, if you can do it and you can do it right. Then the money will come.
Those are Nathan Tabor’s 9 laws of apartment flipping.