​Transition from Duplex to 5-20 Units

[Ayodeji Kuponiyi]

I recently finished reading Ken McElroy’s The ABC’s of Real Estate Investing and have decided that my next investment purchase will be a commercial property specifically a 5-20 unit multifamily. Initially I considered purchasing a turnkey triplex or fourplex, however I see small apartment building as a way of reaching my goal of making over $5000.00 per month in cash flow. I understand the idea of analyzing a small apartment building however I find myself stuck on the specific numbers when analyzing and crunching the numbers. I can easily get the rent that each unit is paying however knowing the numbers for expenses is something I wouldn’t know unless I get the information from the owner. I could try to estimate and guess but I would rather have the actual numbers.

Currently, I’m prepping myself on analyzing deals around my area. I would love to get the numbers but I feel unless I have the money to purchase the property I should wait before asking an owner how much he/she pays for expenses and how much income is received from rent.

What are your thoughts fellow BPers? Should I ask anyways? Should I wait until I have the money? These small apartments are not listed on the MLS. My apologies in advance if a similar post with my question has been posted before and some of you have already posted an answer/solution to this.

[Holden Latimer]

@Ayodeji Kuponiyi

I work for a private equity firm that purchases larger apartment communities and have underwritten over a hundred deals. I have not underwritten anything with less than 200 units, but I assume brokers for smaller deals market properties in a similar fashion. It is standard practice to provide T-12 financials for a property that you are selling. You should feel very comfortable requesting financials from the broker or seller directly.

I would also set up a meeting with a property management company that deals with that size of asset in your area. They should give you a pretty good idea of what your expenses will look like in your market. You may be able to operate the property with lower expenses, but their historic expenses are usually your best place to start. Best of luck finding your first commercial deal!