Mom and Pop Small Apartment Owners

I get asked all the time what the difference between buying 1-4 unit properties and buying apartment buildings.  There are quite a few differences but I thought I would help outline a few of them when it came up again  recently.

When you are dealing with the one to four unit property you are usually  dealing with a landlord that may own 1 to 3  properties or a homeowner. Dynamics of the situation are very different with a  Mom and Pop owner.

When you are buying small apartment buildings you are usually buying them from what are what I would call a mom-and-pop owner.

They own one or two apartment buildings and have owned it for a decade or two. This is the major Investment that they have for themselves as a part of their retirement plan. They most likely do all the property management and maintenance on the building. They also have a certain pride of ownership.

Usually this means a couple things to keep an eye on from the analysis phase. When you are looking at their profit and loss over the last 12 months you need to keep in mind that there will be a few things that would be missing. Most likely there will not be a property management expense, snow and grass cutting, and sometimes repair and maintenance budget will be a lot lower because the mom-and-pop are handling a lot of the repairs themselves. Rents might not have kept up with the market. This can affect your numbers on a particular deal.

Perhaps men have gotten tired of managing the property or if he has recently become too much work for them to do. Their kids if they have any hard really not interested in managing or owning apartment buildings like their parents. So they feel the only option that they have is to sell it.

With these type of owners I have been very successful at getting a vendor take-back financing because they are interested in delaying the capital gains for up to three years that they may be paying on the outside as well as continuing to get income from the asset through interest on the vendor take-back mortgage.  They also know that they can easily come back in and manage the asset again if necessary – temporarily. So they have added comfort. Seller financing is a great option when working with them.

There can also be a lot of emotions throughout the purchase process depending on how connected the mom-and-pop are to the asset. I have witness situations where at the very last minute the seller doesn’t want to hand over the keys because they are so connected to the building.

If you want to do more of types of these types of apartment building purchases, you need to have a better understanding of who your sellers are and why they are selling. Whether you are dealing directly with the sellers or through a real estate agent or broker.