Buying a 16 + unit - Questions!

[Brendan M.]

Hi everyone,

I own one rental property and I am thinking down the road of what I'd like to do. I'm going to buy one more property in the Chicago area using an FHA loan and then I want to move on to bigger things. I really love the idea of owning medium to larger size multifamily value add properties. I like that the value is derived from the NOI and cap rates in the area - that gives the owner a lot of ability to dictate the price by lowering expenses and maximizing revenue. I was hoping to get some advice on what others have done in the past and what sorts of things you look for in properties. I'd love to hear stories on your experience.

PLAN: 

I'm hoping to purchase a 16 unit+ in the next two years. I'd love for it to be a value add property where I can refinance all my money out in the near term (1-2 years) once everything stabilizes. I'd raise money through friends and family. I'd love to hang out to the property long term but open to 1031 up to something larger down the road. 

Considerations:

• Is the population growth in the city positive? 
• Current cap rates?
• Room for improvement? 
• Will I get rehab budget from friends/family? Can a bank give me this money?

I'd be looking to invest in the MW. I'm considering Milwaukee, Quad cities, Columbus but open to others. I'd like to focus more on the process than any specifics at this point but I did want to give an idea of the types of cities. 

For people who have done this before, what are some things I should be thinking about? How did you go about finding deals? Was it through networking or just loopnet (I feel like people hate this lol) and just throwing out offers and seeing what sticks. Since I am in it for the long haul, I'm not going to rush into something but I feel like there are deals to be had with the right approach. 

Appreciate the help

[Michael Lee]

Hello and welcome to this site Brendan!  You sound like you know very much but I will mention a few other things to consider when looking. One is that can the exterior of the buildings and landscaping done to make a good impression to people driving by?  

Another thing not mentioned is the importance of nearby amenities and schools? The closer to the highway is also essential.  Another consideration is the retail in that area.  Does it stand up to your requirements?  In other words does it match the rental rates you are planning to increase?

The parking might come into play.  Is it protected?  Is it on-site?  Is it easily accessible at high traffic times and lower traffic abundance?  Is there any Public Transportation , and if there are buses their where is the nearest stop to the subject site.  Do the school buses stop nearby?  What does it have as far as on-site amenities?   Are they well maintained and well lit.  Does the owner pay for utilities or is everything separated or can it be and for how much? 

How do the neighboring apartments look?  What is their rent on comparable units?  Your considerations look good but there is more to look at when you are buying.    Is the job rate increasing well?  Is there a way to have more income there for better storage or some other amenity that is profitable that you can provide? 

From what I have seen on-line there are plenty of other sources of loans, both long term and short term.  does the subject area have high or low end retail improvements?  You want positive cash flow on day one after closing.  Does it need any capital improvements that will require additional expenses?  What is its current occupancy percentage and can you increase it?  Good luck to you!