Essential Vendors for Multifamily Investing: Who Should You Hire?

Vendor's can make or break a deal. The number one in this category would be your property management company. They will help you with so many tasks including referrals to other vendors that you need.

Here's a list of vendors that you will need for purchasing and operating a large multifamily apartment deal.

1. List of real estate brokers. One of the most important vendors because you get deal flow

2. Property management company. They do and handle the day to day operations

3. Inspection company

4. Contractors

5. Real estate attorney

6. SEC attorney

7. Mortgage broker

8. Insurance broker

11. Cost segregation company

12. Tax consultant

13. Self directed IRA company

Real estate brokers

1. Help you source deals in your target market that match your criteria

2. Utilize multiple brokers and get multiple streams of deals

3. Connect with as many brokers as possible to increase deal flow

4. Cost is paid by seller almost every time.

5. Normally don’t have a buyer agent. You mainly just have the listing broker who handles the transaction

Property management company

1. Find multiple property management companies

2. Manage deal after acquisitions

3. Sometimes there are agreements where if you fire them, you have to pay them for the entire year. Watch out for those contracts

4. They help with due diligence, inspections, financial auditing, finding contractors, figuring out insurance payments

5. Most of the time they bring in outside vendors

6. If they have many properties, they’ve already vetted most of the companies out there

7. Help you review income and expense assumptions. Make sure they’re on board with the expectations too. They’ll know what they can and cannot do with a good insight. Be conservative with your underwriting. Find out what they agree with and don’t agree with.

8. Management and financials after closing. Rent roll, T12, lender required docs

9. Paid from a percentage of the gross income 3-5% of gross income commonly. Bigger properties will have lower expense percentage.

SEC attorney

1. Help you set up documents needed to raise funds legally

2. PPM private placement memorandum

3. Org charts. Organizational charts

4. Blue sky filings - reports that you send out to each state that states that you’ve raised X amount from this person in this state. Every time you raise money in a particular state, that has to be filed.

5. Often $12-15K. It’s paid by the general partner team and reimbursed at closing by the fund. If the deal doesn’t close, the expense is a loss of the GP team

6. If you don’t have the liquidity, you can partner with other people who do have the liquidity and pay them a higher portion of the GP structure.

7. Everything is possible in this business as long as you structure things correctly. What do you have, what are you good at? Find other people who can fill in the gaps for you

Real estate attorney

1. Handle all the real estate transactional documents. Sometimes SEC attorney has someone in house that’s a real estate attorney so you can hire both.

2. Easier to work with people they recommend. SEC attorney recommends

3. Help you with purchase agreements

4. Loan agreements. Helps you from signing on a bad loan, not knowing that you can change the facts

5. Review property legal documents

6. Coordinating with escrow company

7. Cost is usually around $7500 to $10,000. Sometimes it’s an hourly fee. Sometimes it’s a fixed fee.

Mortgage broker

1. Will help you review and source loans based on your business plan on a property

2. Upfront loan quotes. You have your underwriting and business plan, then you send it to the mortgage broker to see what the loan terms might look like

3. ***Never write an offer before you get a loan quote

4. Review potential options. Go through the negatives and positives with each options

5. Coordinated the loan process after property is under contract

6. Cost is usually .5% to 1% of the loan amount. Can vary.

7. Ask the real estate listing broker you are working on the deal with who they want you to work with for the mortgage broker if you were to write an offer.

8. A lot of times they have an in house team. If you brought in a 3rd party mortgage broker, it can be less certainty for the seller and broker because it’s not in their control. They get the listing side, the buy side and also the mortgage side. Unless you have a strong reason not to use that mortgage broker, just go with the one the listing broker recommends

Cost segregation company

1. Helps you do a cost segregation study to understand depreciation amount on the property

2. Multifamily is depreciated over 27.5 years. Segregate the different items and assign individual depreciation and can squeeze a lot of the time. Get depreciation in year one with bonus depreciation

3. Do a cost segregation study on every property you buy and then do an accelerated depreciation so that way you can accelerate how quickly you take advantage of the depreciation.

4. Send the property to them after you put a property under contract. “Hey, I’ve got this property under contract. Could you give me a quote?” Them: hey, if you buy this deal with a cost segregation study you’ll be able to get X% year 1, Y% year 2, etc

5. Cost segregation study itself is done after closing. The quote is done when the property is under contract without seeing it

6. Engineer is the title for the person

7. Normally $5-6K and paid by the partnership fund

Tax consultant

1. Some states like Texas and Florida have a lot of moving parts

2. Potential property tax changes after purchase, as well as litigation of taxes

3. Up front tax estimates. Have to have a tax consultant in Texas. Only send them deals if you are actually interested in buying the deal you’re sending them which you’re likely to submit an offer. Send them these deals before you write an offer

4. Litigation after closing. Normal process to get taxes down.

Self directed IRA company

5. Avoids the person paying the penalty for selling early

6. Small fee paid by each investor themself who is initiating it