Need help with financing for buying apartment complexes?

Question

Hi everyone, brand new to this.  I've got a great income, great credit score, but no home ownership experience and no knowledge regarding financing options for buying apartment complexes.  Here's the situation:

I'm a security contractor in the Middle East.  Really low cost of living since I'm in company housing with a company car (a freaking Ford Taurus when people are shooting at us at gas stations) plus a rather nice paycheck.  Even with both of these things I'm frustrated with how long it will take to save up a 20% down payment on a $600k apartment complex in Florida.  I've talked to a mortgage guy and all he would tell me is that "someone else" handled that kind of financing but he wasn't terribly helpful after that.  So I need some help understanding what specific options are available to me for purchasing apartment buildings.  I guess I'll just ask a bunch of questions here and see if anyone bites:

1.  Anyone know any ways to get apartment properties for less than 20% down?

2.  Can anyone tell me what types of loans I should be researching?

3.  Anyone know a good real estate agent in Florida who deals mainly with apartment buildings?

4.  Are there any "first time buyer" perks that I can cash in on when going after apartment complexes?

5.  How can I keep the monthly payments on my financing lower, so as to make the property more profitable?

Alex SImon · Answer

Hey how's the weather up there, on your high horse?  Thank you for taking time out of your day to ridicule someone new to the game.  I'm sure we'll all sleep better at night knowing that you're out there fighting the good fight against inquisitive novices.

Like I mentioned above, it's pretty hard to look any of this stuff up because the internet is so unstable and nothing loads right.  If I had real internet access I would have watched a couple hundred more hours of tutorial videos and webinars by now since there's nothing else to do, but I don't so I can't and I haven't yet.  Hence the act of putting up a bunch of quick questions and submitting the post 10 times before the horrible network will actually let me post.

This post in particular has already taken over an hour to try and upload, failing about a bajillion times.  So you can imagine how inefficient the search function is for me right now.

Nathan Emmert · Answer

Once you pass 4 units, you move into commercial lending... a completely different set of mortgage guys/brokers in that world.

Yes, you can get in with less than 20% down.  I believe a typical commercial loan will be at 65% LTV... but in the commercial world the lender may allow a seller carry back of some or all of the remaining 35% with a 2nd position loan/mortgage/lien.

Things to know about commercial loans... they'll have shorter amortization (generally 20 years versus 30 on residential)... higher interest rates (generally a full point higher)... will be variable versus fixed... and will likely have a balloon payment.

I don't know of any Florida realtors but you want to look for a commercial realtor.  Do enough searches for commercial real estate and I'm sure you'll find a few who specialize in it down there, it's a very different market from residential.

I don't know of any first time buyers programs... you aren't investing with owner occupied as your competition, you're in a purely investment world in complexes.

Good luck keeping your payments low.  You could accomplish that two ways... one would be to make a huge down payment... less financed, lower payment.  The second would be to buy a severely depressed property.  If you buy off a valuation from a $200,000 GOI and somehow turn it to $400,000 GOI, your mortgage is going to be smaller relative to the new income.

Personally, sounds like you're trying to run before you walk.  I'd stay residential until you know what you are doing.  You can buy a handful of 2 - 4 unit properties for the same $600k, can buy them in series so you don't need the full $120k down payment before purchasing the same one.  You get far better financing terms with residential mortgages... and there's no real down side as a $600k complex won't be large enough to give you any real economy of scale.  The 5 unit to 60 unit complexes are sort of no mans land... crappy terms but not large enough to get the economies of scale investors want.

Andy Mirza · Answer

@Alex SImon Some more things for you to think about:

It's good that you have family and acquaintances that can help you out back home. Unless they are as dedicated and motivated as you are towards investing, their help will be limited and you can't rely on them to get too involved. It becomes a burden for loved ones when things turn out to be too much work or an inconvenience even though they don't want to let you down.

If you want to go the buy and hold route, I highly suggest having a business partner/co-owner  that has the same mindset towards investing as you do AND is local to the area you want to invest in. A partner has a vested interest in the success of the investment. Even if you get a great team (property manager, realtors, accountants, etc), no one will care as much about your property as much as you (or your partners) do and having someone at home who you know will step in take care of emergencies is a big relief.

Since you'll be making some dough with your day job you'll be able to save up quite a bit and will have that to offer to an experienced, successful investor if you partner up.

Alex SImon · Answer

@Raymond  Thanks for actually breaking down a few of the basic terms for me.  After I read your post I had a surprisingly stable hour or two of internet access and was able to follow the links you provided and actually do some more searches that (gasp) actually came back with results.  I've saved a few PDF files for later reading including the beginner's guides from Bigger Pockets and I think I can finally get some real learning done over the next night or two.  From what I've seen so far, I can take the 50k I already have and get it to start working for me with a couple of tenant occupied 2/3/4 unit properties in the shorter term, then pull out equity with a refi later when I'm more prepared to move on a larger property.

@Andreas Mirza You're right about the @ function not working well with lousy internet connections.  Got it to work 50% I guess.  As for my deployments, I'm over here nonstop until I decide to quit.  We do year long contracts and you're pretty much guaranteed renewal.  It's very stable, high paying employment but dang does it suck.  I have a few pairs of boots on the ground in my desired market, all in the form of family and acquaintances who can scout properties in which I'm interested, and I've got a small team of pros coming together as well, but of course the communications barriers are a pain.  I can come back in person for only a few weeks out of the year (gotta stay tax exempt), so basically one big trip home each year or so.

I've got some good reading material for tonight, and hopefully I can find a few hours of stable connection tomorrow as well.  I have like 5 hours of youtube videos bookmarked already.

Andy Mirza · Answer

@Alex SImon I understand your frustration. Being overseas without a good internet connection makes conducting business very difficult and I've had to adapt to the limitations of my environment. It seems like the best thing for you to do is spend time learning and networking.

What are your deployments going to be like for the short and medium term? If you want to invest, you really need to have boots on the ground in the area you want to invest in. You'll have to assemble a team and that's much easier to do in person. Once you know an area and your product well and you have some people you trust, you are in a better position to invest from abroad.

I have business partners back home for my rentals that watch over things while I'm gone and this works out well. I've established those relationships and those businesses are doing just fine. Doing fix and flips solo and going on trips in between hasn't worked out too well for me. I've shifted focus to networking (primarily on BP), a lead generating website, and learning about notes. The lead generating website will earn income when a business partner back home converts leads into buys. I can choose to use it for myself when I'm home full time someday. I like Notes because once I establish the right partnerships and connections, it seems that all that I'll need is a laptop and a decent internet connection to do business.

Bottom line: spend your time learning and networking, go to real estate clubs and network when you're at home to find good business partners, physically check out the areas you want to invest in.

Hope this helps....

(The @ function doesn't work very well if you have a slow connection)

Andrey Y. · Answer

Nathan, where did you get the 5 to 60 unit, was that an arbitrary designation, or are you speaking from personal experience? I have heard this proposition before, but the number of units were always variable. Also, plenty of seasoned and successful commercial investors did just that, bought a 6-12 unit, sold then bought a 18-30 unit, sold and bought a 50-80 unit, etc. all of which fall into your 'no man's land' etc.

Raymond B. · Answer

@Alex SImon,

Let me try to explain some things for you.

Seller carry back: click here for a definition

LTV: Loan to value definition

65/35 split: 65% first mortgage, 35% 2nd mortgage equals 100% of the purchase price.

Also:

To Make the @ work do the following:

Hold down the shift key and type the following: @?

Look below this Window, and you will see a list of list of names of people who have posted in 	this thread.

Click on the name of the person that you want notified via an email that you responded to them.

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Raymond

Nathan Emmert · Answer

Sorry Alex... can't give you an entire education for free... you're going to have to put in the time to go through these forums and learn.  If you don't understand LTV you shouldn't even be thinking about investing yet.  You know how I said you were trying to run before you walked... seems like you're trying to run before you are even able to stand.

Alex SImon · Answer

@Nathan:  I have no idea what seller carry-back means or what this 65/35 split means in terms of whatever LTV is.  I'm new to this, I don't know all the acronyms and the abbreviations and stuff yet.  Worse still I can't look anything up because they just moved my unit to this ungodly prison compound in the middle of nowhere where you can't access anything useful on the internet.

Ugh, this sucks.  I mean, dang, that sucks worse than that guy in that one movie where he sucks a lot.  You know the one.

I've now gotten this a lot.  The whole "start small, start with duplexes or something" thing.  I had not quite realized how bad apartment complex terms were at the level where I can buy.  I don't know, maybe I should start small.  I wanted to dive into complexes because the money seemed good and while the initial investment was higher than a duplex, you seemed to get more profit for your money.  Now I don't know.  I haven't run into a single person who thought it was a good idea to start with apartments, so that's gotta say something.

Alright, so, maybe duplexes or some other tiny little thing.  Whatever it is I probably don't qualify for any of the programs that are meant to help you get a hold of them, and everything will probably be ten times harder than it needs to be.  Challenge accepted.

Need help with financing for buying apartment complexes?

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