Multi Family investing

[Gentry B.]

I'm ready to make the leap to larger multifamily units.  What do I need to watch out for, look for, and what are some traps that I should avoid?

[Jonathan Twombly]

@Gentry B., I'd add to what my good buddy @John Cohen says.  Pick the market you want to invest in, paying close attention to population growth and job growth down to the zip code level.  Once you have found a market you like, then find a very strong property management company, and be sure to do your due diligence on them, because as I can tell you from hard experience, a bad property manager can crater a good deal.  And "bad" can simply mean "the wrong fit."  So make sure you get the right fit.

The property manager can then be an excellent resource for you in helping to learn the submarket.  A good one will know all the product in the area - or at least know what to do to learn about it.  They will know what are the good areas, the bad areas, and the transitional ones.  They can help you with underwriting, especially on the expense side of things, which is often the hardest to gauge for new investors.

The other thing to remember about larger multifamily is that the size of the deal you can do will be limited by your net worth or the combined net worth of you and your partners.  With MFRE, if you have $100,000 in cash lying around, it does not mean that you can do a $400,000 deal, unless your net worth excluding the cash you put into the deal is $300,000, with 10% of that liquid.  These are the requirements the banks will impose on you to give you a commercial loan.  You will also need to figure that you will have to come up with about 30% down once you add in the closing costs, which are higher with commercial loans.