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Updated over 5 years ago, 07/11/2019
What's Your Main Obstacle in Buying an Apartment Building?
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:
Who wants to go first?
@Ivan Lopez I'm not a loan expert, but that sounds killer awesome to me. I just got a loan for 5.375. Best I could get. And only to have to pay 15%. I would rock and roll. How many units is it?
@Michael Ealy
I have zero credit I have never used a credit card I like to pay everything straight up.
I only have $4,000
and I lack the know how the specifics
I already thought I would have build up the fund to buy and hold. How does one obtain funds to buy apartments with a low credit score to buy and hold them?
@Michael Ealy
@Dennis M. Did you need 2 years of experience at one job in order to be eligible for loans?
Thanks @Michael Ealy My game plan is pretty similar to the example you shared. And for clarity on the double digit cap rate, I'm not don't purchase at double digit. However, since I'm purchasing value add in B-/C areas, the strategy is to increase cash on cash, cap & drive ROI by forcing appreciation through the renovations and increasing rents to what the market can support.
On another note, are you syndicating your deals?
@Kevin Manz, I'm not a loan expert, but that sounds killer awesome to me. I just got a loan for 5.375. Best I could get. And only to have to pay 15%. I would rock and roll. How many units is it?
Kevin, doesn't the ARM scares you? It does to me! Then again, it has been tough to find a good deal thus far, so I might not even have a choice if I want to close and become the owner of these units... BTW, is 14 doors.
Originally posted by @Kevin Clayton:
@Michael Ealy
I’m my own obstacle. Making sure I set aside time too....Create clear goals. Talking with other people who are doing what I want to do. Analyzing the data and being real with the numbers. I own a quadra plex and I’m preparing to leverage it to get another single family residence or multi unit. Step by Step
I’m going to listen to the podcast to find out how you made deals happen with with no money and bad credit. I’m curious about how you found the money, opportunity, analyzed them, got the right team, worked with budget and turned it into profit that moved you into your next deal.....all the while taking advantage of tax benefits and minimizing taxes.
Hi Kevin,
Thanks for being honest. Most of the time, we are our MAIN obstacle to success.
If you read through my story, you will find out how I was able to re-start my real estate investing career without money & with bad credit. I lost everything and literally became homeless and was forced to live back in my parents' house. That was how bad it was. So if I can do it, anyone can. Here is my story:
Originally posted by @Anthony Petrarca:
I'm currently shopping as we speak. I will be doing a 1031 on a commercial property that is very close to contract now. I also currently own a 2 family.
I have the capital and I have the reserves I will need to make it happen, just not easy finding something I like. This will be my first "big property", so I would like it in my tri state area, RI, MA,CT. Would love to venture further out, but I'm a little timid at this point. Would prefer 1 large bldg, but I'm open.
So, I have some experience, but not on a large scale. Looking to put $800 - 900K down
Debt wise I would like to be no more than 70 LTV or even 50 LTV. Thoughts?
Anthony,
Sounds like you have a good plan. I like apartment buildings and hotels and 75% debt is sustainable on both. For commercial properties, I agree on keeping the debt 50% (or 70% as long as you have a healthy reserve level to factor in the longer vacancies).
I own some commercial properties too but me and my partner went into those deals bringing in our construction expertise and in exchange we get equity in the deal. I like to keep my risks low specially in property types that are not my main expertise.
Originally posted by @Chris Gray:
Government
Without talking politics (or referring to certain political parties), can you please elaborate why the government prevents you from investing in apartment buildings?
Originally posted by @Ivan Lopez:
@Michael Ealy for me is financing or mortgage lenders. For example I'm in the process of acquiring a property that requires over $700,K in lending and needles to say it's been very hard to find bankers willing to work with me. Right now the best offer I've received is for a 60 months ARM with 25 years amortization at 5.05% w/15% down payment (+100,K) and I've an excellent credit! So my question is, should I continue to shop around for loans? A good friend of mine recently got a fixed rate (4.50%) $240,K for 30 years and he believes I can find a better deal. Your thoughts BP folks...
Ivan, I agree with @Kevin Manz - 5.05% with 15% down (albeit with 5 yr fixed/ 25 yr amo) is actually pretty good. At the end of the day though, it's your decision so continue shopping around.
Originally posted by @Cirilo Villar:
@Michael Ealy
I have zero credit I have never used a credit card I like to pay everything straight up.
I only have $4,000
and I lack the know how the specifics
Cirilo, time to read up on how to invest in apartment buildings and save up. You also need to build your credit over time because eventually you will need it.
Originally posted by @Fabiola F.:
Thanks @Michael Ealy My game plan is pretty similar to the example you shared. And for clarity on the double digit cap rate, I'm not don't purchase at double digit. However, since I'm purchasing value add in B-/C areas, the strategy is to increase cash on cash, cap & drive ROI by forcing appreciation through the renovations and increasing rents to what the market can support.
On another note, are you syndicating your deals?
I syndicate some of my deals but not all.
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#5 Medium-Term Rentals Contributor
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Market rents don't support the prices. It's odd because SFH are awesome are around me, but I haven't found a MFH yet with numbers that work.
Originally posted by @Ivan Lopez:
@Kevin Manz, I'm not a loan expert, but that sounds killer awesome to me. I just got a loan for 5.375. Best I could get. And only to have to pay 15%. I would rock and roll. How many units is it?
Kevin, doesn't the ARM scares you? It does to me! Then again, it has been tough to find a good deal thus far, so I might not even have a choice if I want to close and become the owner of these units... BTW, is 14 doors.
Ivan,
If your strategy is buy-and-hold, then yes - go with as LOW of an interest as you can for as LONG as you can. Interest rates will likely go up.
With my apartment buildings, my strategy is buy-fix-improve the value-then sell...and do it again and again, making a million + profit (and while waiting to sell...getting paid great cashflow).
This is my first building I made a million dollars profit on and how I did it:
Originally posted by @Jason W Bearden:
I already thought I would have build up the fund to buy and hold. How does one obtain funds to buy apartments with a low credit score to buy and hold them?
@Michael Ealy
Read through my story to find out but here's the short answer: PRIVATE MONEY
Originally posted by @Nicole Heasley Beitenman:
Market rents don't support the prices. It's odd because SFH are awesome are around me, but I haven't found a MFH yet with numbers that work.
Nicole, thanks for chiming in. Investing in apartments is not just based on the numbers. I've bought deals my accountant would cringe about but I was able to profit from them. Here's an example of my first building I made over $1 MILLION profit on: (most of my competitors and my accountant thought I was nuts and the numbers at that time just didn't make sense)
Originally posted by :
, I'm not a loan expert, but that sounds killer awesome to me. I just got a loan for 5.375. Best I could get. And only to have to pay 15%. I would rock and roll. How many units is it?
Michael Ealy, Developer...
Thanks for sharing all your stories Michael. We (newbies) are blessed to have guys like you here on BP! I've read your articles including your initials struggles with "4 flats" LOL; they're indeed inspiring. I'm still undecided if I want to hold this property or sell it in the near future. I know rents are lower than what I can get, which I'm planning to raise them as leases start to come to an end. One thing though, I also want to do some minor updates i.e. paint interiors, carpeting, and appliances to name a few. Previous owner kept the maintenance in good standing, so no major projects for me. Which is great cause I still hold my 9-5 job! Again thanks for sharing your expertise with us!
Regards, Ivan
@Michael Ealy for me I think it's a mind thing. I also know that my credit is currently not the greatest and im working to fix it. On top of which I have 0 money saved and the job im working doesn't pay much. 1000 units sounds and looks like too much for a beginner.
@Michael Ealy great post!
I literally just answered a similar question on another thread and my answer is Capital. There is no such thing as a No Money Down deal. You need capital to close deals regardless of what anyone says. It's how you get that capital for deals is where strategy comes to play whether you use leverage from banks, raise from friends and family, acquire seller's financing, etc. You need capital to scale bigger and grow your portfolio.
@Michael Ealy
Finding a good deal and competing with the stupid money that is pouring in.
Originally posted by @Damonta Samuel:
@Michael Ealy for me I think it's a mind thing. I also know that my credit is currently not the greatest and im working to fix it. On top of which I have 0 money saved and the job im working doesn't pay much. 1000 units sounds and looks like too much for a beginner.
Damonta,
I am not saying you acquire 1,000 apartment units. That's what I've achieved but it took time and lots of effort.
If your job does not pay much, then focus on increasing your income first.
Originally posted by @Sherwin Gonzales:
@Michael Ealy great post!
I literally just answered a similar question on another thread and my answer is Capital. There is no such thing as a No Money Down deal. You need capital to close deals regardless of what anyone says. It's how you get that capital for deals is where strategy comes to play whether you use leverage from banks, raise from friends and family, acquire seller's financing, etc. You need capital to scale bigger and grow your portfolio.
Sherwin,
Thanks. I disagree on the statement that there's no such thing as a "no money down" deal. There is. I've been given buildings in the past and even now.
Here's an example that happened 8 months ago. Owner is tired and he asked me to take over ownership of a 40+ unit apartment building for $1.5M. My downpayment on the deal = $0.
My team took over. We thought we needed to put in capital to renovate the units to increase the rents. Good thing we didn't.
Instead we used the income from the building to turnover the units one at a time but we improved the units significantly. As a result, section 8 increased the rents significantly and we got an offer from a buyer willing to buy the building for $2.2M.
Maybe we'll net $2.0M by the time we close (in 2 months) and pay everyone.
$500,000 profit in 10 months on a $0 down deal.
And I can give you more examples (maybe I will do that on a separate post).
$0 down deal exists but 99% of investors don't realize that you can use things other than cash as "downpayment". You just have to be a little bit creative and use a lot of HUSTLE.
Originally posted by @Ivan Lopez:
Originally posted by :
, I'm not a loan expert, but that sounds killer awesome to me. I just got a loan for 5.375. Best I could get. And only to have to pay 15%. I would rock and roll. How many units is it?
Michael Ealy, Developer...
Thanks for sharing all your stories Michael. We (newbies) are blessed to have guys like you here on BP! I've read your articles including your initials struggles with "4 flats" LOL; they're indeed inspiring. I'm still undecided if I want to hold this property or sell it in the near future. I know rents are lower than what I can get, which I'm planning to raise them as leases start to come to an end. One thing though, I also want to do some minor updates i.e. paint interiors, carpeting, and appliances to name a few. Previous owner kept the maintenance in good standing, so no major projects for me. Which is great cause I still hold my 9-5 job! Again thanks for sharing your expertise with us!
Regards, Ivan
You're very welcome Ivan.
Originally posted by @Yitz Frankforter:
@Michael Ealy
Finding a good deal and competing with the stupid money that is pouring in.
Yitz,
This made me smile - "stupid money". Instead of competing with them, I sell my buildings to them (LOL). I realized one thing: when it was a buyer's market, I was buying as many as I can. Now that's a seller's market, I am still buying but with the intent to sell them as fast as I can as soon as I add value to them.
How are you "trying" to find deals?
What's your deal criteria?
If you're looking for 10% cap, they don't exist anymore (well, they still do but in D and F areas).
@Michael Ealy
Michael, thanks for sharing your experiences here, it is very much appreciated!
I’m at a point where I own several 4unit buildings that cash flow well, but my market has taken a major jump in the last 1-2 years, & buildings I bought for $200k last year are now selling for $300k, though the rents have only moved up 3-4% over that time, and to me the buildings just aren’t worth what people are paying now (given where the rents are).
We’ve been looking for smaller commercial multi family, but haven’t had success finding ones that are priced anywhere near what I think they are worth (at least a 7 cap based on the existing rents).
I expect we might be able to find better opportunities off-market, & there is where our experience falls flat. What are some suggestions for finding off-market opportunities?