What's Your Main Obstacle in Buying an Apartment Building?

[Michael Ealy]

My question is: what stops YOU from acquiring an apartment building?

Is it...

• lack of capital?
• lack of know how?
• mindset?
• fear of doing a big deal and then failing?
• can't find good deals?
• bad credit?
• something else?

Whatever stops you from thinking BIG and acquiring apartment buildings, share it here. I will give you ideas on how you can overcome the number 1 obstacle preventing you from acquiring apartment buildings.

I have acquired over 1,000 apartment units (and I did it with no money and bad credit) and I shared how I did it, here on BP:

Part 1 - https://www.biggerpockets.com/forums/55/topics/690349-from-bankruptcy-to-1-000-units-part-1-thru-the-dark-tunnel

Part 2 - https://www.biggerpockets.com/forums/55/topics/692382-from-bankruptcy-to-1-000-units-part-2-rising-from-the-ruins

Part 3 - https://www.biggerpockets.com/forums/48/topics/695243-from-bankruptcy-to-1-000-units-part-3-how-to-build-an-empire

Who wants to go first?

[Cody Abrahamson]

Mindset. Taking on a big property looks like eating an elephant. Its like one of those things where you know you can do it but there is still something in the way.

[Michael Ealy]

Originally posted by @Cody Abrahamson:

Mindset. Taking on a big property looks like eating an elephant. Its like one of those things where you know you can do it but there is still something in the way.

Cody,

As they say...to eat an elephant, you do it one bite at a time.

If you know you can do it, or I suppose you've tried to do it, what got in the way the last time?

Or is it that doing this seems daunting or OVERWHELMING as there are so many factors to consider?

I just want to understand more so I know how I can help you.

[Effram Barrett]

I have actually  been more inclined to multi family vs SF. Of course money, or lack there of, is an issue but I think analyzing multi family deals is something I could make zero in on. 

Also finding good quality complexes off market. I would be comfortable with 6-28 units to start out.

[Michael Ealy]

Originally posted by @Effram Barrett:

I have actually  been more inclined to multi family vs SF. Of course money, or lack there of, is an issue but I think analyzing multi family deals is something I could make zero in on. 

Also finding good quality complexes off market. I would be comfortable with 6-28 units to start out.

Effram,

Smart man - Multi family is the way to go. I still buy houses but with MF you get more cashflow and the cashflow is more secure since you have more tenants paying the rent. You get a vacancy on a single family rental and you have 100% vacancy and negative cashflow. And 2 months of vacancy with an SF typically wipes out the entire year's cashflow.

What help do you need in analyzing the numbers on an MF?

[Effram Barrett]

Originally posted by @Michael Ealy:

Originally posted by @Effram Barrett:

I have actually  been more inclined to multi family vs SF. Of course money, or lack there of, is an issue but I think analyzing multi family deals is something I could make zero in on. 

Also finding good quality complexes off market. I would be comfortable with 6-28 units to start out.

Effram,

Smart man - Multi family is the way to go. I still buy houses but with MF you get more cashflow and the cashflow is more secure since you have more tenants paying the rent. You get a vacancy on a single family rental and you have 100% vacancy and negative cashflow. And 2 months of vacancy with an SF typically wipes out the entire year's cashflow.

What help do you need in analyzing the numbers on an MF?

My biggest weakness is calculating the distribution of funds if I had an equity partner invest in the deal. I have trouble calculating that into my monthly costs/payments. 

I agree strongly with your statement in bold. 

[Effram Barrett]

@Michael Ealy makes sense actually. I’m assuming the best method for finding the off market apt complex deals is networking and letting people know?

[Michael Ealy]

Originally posted by @Effram Barrett:

@Michael Ealy makes sense actually. I’m assuming the best method for finding the off market apt complex deals is networking and letting people know?

There are many ways to find off-market apartment deals. Here are just a few:

1. Networking with commercial real estate agents who specialize in apartment buildings is one of them

2. Sending direct mail to owners of apartment buildings - specially those retiring or have owned their buildings for quite some time (10 years plus); or buildings with serious code violations

3. You can also network with smaller banks and credit unions and get them to notify you if they have non performing loans on apartment complexes

[Sandeep Singh]

@Michael Ealy I am interested in investing with apartment buildings but lack the capital. I have 1 two family that i rent out. With that I was able to learn how to add value and do a cashout refinance. I have been managing a few properties for my parents so the renting side and maintenance etc I am comfortable with. Its finding the capitol and educating myself on analyzing the numbers. 

[Charles Mitchell]

@Michael Ealy You're a rockstar!

My immediate goal is purchasing distressed SFH (3/1's) in the MidWest, fixing them up, renting them out and selling them as day 1 cashflowing assets. I've built my team on property/project managers and contractors as much as I can over the phone. Next step is flying out to my target market mid July to interview the potiential people I have spoken with. Funding ready to rock and very excited about the process thus far. The goal is to build a business doing this, now how does this play into apartment buildings?

Well, firstly, captial is currently tied with the above venture. Secondly, I dont want to spread myself too thin, especially in the begining. However, the end game is to scale into a full time venure and then dump profits into smaller value add complexes (20-40 units). I've been networking (mainly reaching out on loop net) with commercial RE agents, but its proven difficult to get far in the conversation without POF, which I rightfully do not have at the moment.

[Fabiola F.]

I have the operational structure together, equity partners, financing, and have targeted B-/C class value add deals in 4 key markets. I don't have anything holding me back nor obstacles, but it's a marathon finding the right deals with the right footprint (20+ units) and competitive cost per door, and that's probably where many people tap out. 

I've negotiated on some but some of the pricing are still overly optimistic for distressed/value add, and I'm looking for strong cash flow and double digit cap. So I don't allow myself to get overzealous by the thirst to just do a multifamily. Goal is 100 doors by Dec 2019, and I'll get there. Right now I'm driving for dollars and calling owners direct to see who's open to offers, which is the tedious part. But if it were easy, everyone would be doing it, right?

[Lara Kimbrell]

@Michael Ealy thanks for sharing your story. Overcoming adversity is a common thread in high achievers, I’ve noticed. Well done!

[Felix Rivera]

@Michael Ealy , Credit. Lack of $$

[Dennis M.]

@Michael Ealy

- id say for me it’s Lack of capital at this time

I have the skills

I have the deals

I know how to find the deals

I know the area

I own high ROI rentals that were bought cheap

[Demar Pinnock]

@Michael Ealy I would definitely say at this moment credit

[Alina Trigub]

@Michael Ealy Great story - thanks for sharing!

[Michael Ealy]

Originally posted by @Sandeep Singh:

@Michael Ealy I am interested in investing with apartment buildings but lack the capital. I have 1 two family that i rent out. With that I was able to learn how to add value and do a cashout refinance. I have been managing a few properties for my parents so the renting side and maintenance etc I am comfortable with. Its finding the capitol and educating myself on analyzing the numbers. 

 Sandeep,

Raising the capital is not as difficult as you might think. You have some experience managing properties and you can leverage on that. Have you networked in your local REIA (real estate investors association)? Have you attended any local BP meetup in your city? Networking in the number 1 way for a small investor to meet private lenders/ private investors.

[Michael Ealy]

Originally posted by @Charles Mitchell:

@Michael Ealy You're a rockstar!

My immediate goal is purchasing distressed SFH (3/1's) in the MidWest, fixing them up, renting them out and selling them as day 1 cashflowing assets. I've built my team on property/project managers and contractors as much as I can over the phone. Next step is flying out to my target market mid July to interview the potiential people I have spoken with. Funding ready to rock and very excited about the process thus far. The goal is to build a business doing this, now how does this play into apartment buildings?

Well, firstly, captial is currently tied with the above venture. Secondly, I dont want to spread myself too thin, especially in the begining. However, the end game is to scale into a full time venure and then dump profits into smaller value add complexes (20-40 units). I've been networking (mainly reaching out on loop net) with commercial RE agents, but its proven difficult to get far in the conversation without POF, which I rightfully do not have at the moment.

Charles, it seems you've laid out a plan and following through with it - so kudos to you!

One suggestion: instead of focusing solely on 3/1 SFHs, why not allocate some of your resources in buying a small multi - 2 to 4 family? The prices of those will be similar to a 3/2 SFH in the midwest. With a 2-4 family, you have more cashflow and that cashflow is more secure given you have more tenants paying you and the financial impact of a vacancy is greatly reduced.

The quality of tenants you will get in a 2-4 family will be quite similar to your tenant base on a 20-unit building: so by acquiring a 2-4 family, you get the property management practice that you need when you have the resources to buy a 20-unit building.

[Michael Ealy]

Originally posted by @Fabiola F.:

I have the operational structure together, equity partners, financing, and have targeted B-/C class value add deals in 4 key markets. I don't have anything holding me back nor obstacles, but it's a marathon finding the right deals with the right footprint (20+ units) and competitive cost per door, and that's probably where many people tap out. 

I've negotiated on some but some of the pricing are still overly optimistic for distressed/value add, and I'm looking for strong cash flow and double digit cap. So I don't allow myself to get overzealous by the thirst to just do a multifamily. Goal is 100 doors by Dec 2019, and I'll get there. Right now I'm driving for dollars and calling owners direct to see who's open to offers, which is the tedious part. But if it were easy, everyone would be doing it, right?

 Fabiola,

Well said. Here's a reality check though: you have to let go of the notion that you can buy an apartment building with a double digit cap rate. What's more important is the cash on cash return in the short term and the over-all return on investment.

Otherwise, either of these two things will happen:

1. You won't buy any building (because double digit cap rates are a unicorn right now); or

2. You will buy a building with a double digit cap rate but it will be in an F area

What's the solution?

• Look at the over-all picture. Look at projects that will give you a high ROI (not necessarily double digit cap rate). My projects are 30% ROI even though I buy them at 8% cap.
• Learn to look for the GOOD in deals. This is my specialty. For example, I acquired a 96-unit building that is 60% occupied and the rent is only $550/month. Other investors told me I cannot increase the rent beyond that. However, based on an income analysis we did, we found that the average income in the area is $44,000/yr - so people can afford a higher rent than $550/month but the units look like crap. So we renovated the units, made them the best units in the neighborhood and increased the rents to $695/month. The result: we increased the income SUBSTANTIALLY (the occupancy actually increased to 95%) and we sold that building for a net profit of $1.2 MILLION.
  If you were competing with me on that property, you would not even consider it because its cap rate at that time was not double digit. I will share more details on that maybe in a book (but maybe not because I don't want to create more competition - LOL).

Hope this helps!

[Michael Ealy]

Originally posted by @Lara Kimbrell:

@Michael Ealy thanks for sharing your story. Overcoming adversity is a common thread in high achievers, I’ve noticed. Well done!

 You're very welcome Lara. Adversity are not stumbling blocks to success - they are stepping stones :)

[Michael Ealy]

Originally posted by @Felix Rivera:

@Michael Ealy , Credit. Lack of $$

One solution is find someone with good credit and with money but too busy to be an active partner.

If you read my story, you will find that I lost ALL my properties including my own home - to foreclosure. Each foreclosure reduces your credit score by about 100-200. I had several of them so my credit score in the past was probably lower than your credit score today. BUT, I was able to jump back in investing in apartments.

If I can do it, you can do it too.

You just have to hustle and find the right people who has the credit and the capital you don't have. 

[Michael Ealy]

Originally posted by @Dennis M.:

@Michael Ealy

- id say for me it’s Lack of capital at this time

I have the skills

I have the deals

I know how to find the deals

I know the area

I own high ROI rentals that were bought cheap

 That's awesome Dennis! Congrats on your success.

You are at a good position. You have a track record of experience, of successful deals, of knowledge...

If you go re-read my story, you will realize that lack of capital did not stop me from acquiring an apartment building. It was actually the track record that I had to rebuild first...and once I did that, I was able to confidently approach people and met private lenders as a result.

You have to go out there and network with people. How often do you attend your local REIA? your city BP meetups? If the answer is not often, then you need to change that.

There's a lot of private capital looking for deals to invest in. They are looking for experts - people who know what they're doing. Private money is out there and some of it has YOUR name on it. As the good Book says: "Ask and you shall receive."

[Michael Ealy]

Originally posted by @Demar Pinnock:

@Michael Ealy I would definitely say at this moment credit

 Demar,

I will copy my response in this post about the same problem:

"If you read my story, you will find that I lost ALL my properties including my own home - to foreclosure. Each foreclosure reduces your credit score by about 100-200. I had several of them so my credit score in the past was probably lower than your credit score today. BUT, I was able to jump back in investing in apartments.

If I can do it, you can do it too.

You just have to hustle and find the right people who has the credit..." that you lack 

[Alana Donson]

I am a realtor and my soul purpose of acquiring a real estate license was to become an investor in multifamily/apartment buildings. However life happened and my credit burned up and now I have a five month old. In life you either need the credit or the money. Of course I know about creative financing but that means you have to know people in high places and since I'm new to real estate I don't. So yes, I'm stuck.

[Dennis M.]

Thank you for the words of wisdom Michael . I will follow it moving forward 

[Ken T.]

@Michael Ealy

My current hold up's are:

• Lack of MF knowledge.
• Making the numbers work.
• Finding capital partners.

All of these I’m addressing so that when the numbers fit I'll be ready to go.