How to finance a small apartment building purchase?

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My major plan is to start buying up small apartment buildings (5-8 units) to rent out. I am trying to gather as much advice on financing one of these as possible. What is the best route to take to finance this sort of rental property? I'm ideally only looking in the $150k-$200k price range for my first one.

[Levi T.]

Same way you would do a SFH more or less. Get a commercial loan with local banks with some cash down. If you don't have the cash, find someone or someones to invest with you for a percentage of the cashflow and equity (LP). Each investor needs to own less than 10% of the LP to avoid the the banks rule on who guarantees your loan, otherwise they will have to sign that loan with you. I personally like using a loan from investors vs going to LP route, I'll explain more in a minute

Apartments are more about earnings than the value of the builds. NOI and Cap is all everyone looks at, even appraisals, so you must get something that's a "value add" if you plan to exit in 5-10 years and make money. The place has to make more money when you exit than when you entered.

So lets say you found this property in a great part of town, needs a little work, maybe some paint, new carpet, appliances and new cabinets. The rents are way under market due to the quality of the building. That's your value add. You buy it for 50-80 cent on the dollar, and turn around, upgrade it, and charge more rent. Now your making more money and the property is worth more.

If you did it right, lets say for this story, you had a cap rate of 12% before debt services, and your cash on cash was 16%. You find some investor that will lend you money for 8% interest only. See where I'm going.. It's a no brainer now, your making money out the door at 16% cash on cash, paying 8% to investors as a loan, and within 90 days or 12 months, you have the complex turned around and doing great, making more money, hopefully a lot more money. You then just go back to the bank and refinance, paying off the investors, and keeping the cashflow, and the entire equity to yourself. Investors won for little risk, and earned 8% return by giving you a loan, and you win as you successfully BRRR'ed it up, and now own the entire pie with no cash in the game. Just keep scaling it. Best