Apartment Complex Investment- Advice Needed

[Tilottama Bandopadhay]

Hello all, 

First time posting here. We are not first time home buyers but have three single family homes ( rental) properties in California but want to buy our first apartment complex out of state for generating cash flow for the long term. We were thinking of buying in Columbus, OH, Indianapolis, IN and Salt Lake city. Atleast researched these cities till now. My questions are : (1) We are saving down payment of 25% for this - how much should we save for it? Can someone explain how the financing for apartment complexes work, is it similar to SFR mortgages? (2) Are there any property management companies that can help us buy, finance and manage the apartment complexes and where can I find them?

Completely new to this space any advice or recommendation is appreciated.

[AJ Wong]

Hello. Three areas we've been seeing a lot of investor mortgage demand in. Typically over 5+ units 25% down is optimal but 20% is possible..I don't think I'd recommend a property management company for your search, likely a multi family focused investor RE broker and strong nationwide lender. Interview a few PM's, potentially the RE broker has suggestion? Check in with @Joseph Chiofalo for financing up to 29 units..

[Joseph Chiofalo]

Hi Tilottama, 

How many units are in the apartment complexes that you are interested in?  

Lenders typically require down payment amounts of 20-25%.  The better the credit the higher the loan to value would strengthen the deal. 

The loans are underwritten based on current / projected rental income for the property and the applicants credit history. 

I've been seeing more investors self-manage their properties. 

[Samuel Diouf]

You will want to save at least 25% down and 6 months for reserves. 

I can connect you to some great lenders in Columbus who have helped our clients buy larger MFHs.

[Tilottama Bandopadhay]

Quote from @Samuel Diouf:

You will want to save at least 25% down and 6 months for reserves. 

I can connect you to some great lenders in Columbus who have helped our clients buy larger MFHs.

We are still researching. What kind of purchase price should we budget if we want to pay 25% down and have 6 months in reserve. SFRs are simple but apartments I have no idea how many units to target.

[AJ Wong]

Example in Oregon is a 5Plex asking $550K+/- or $100k/door. $125-135k down. Or 13 Plex asking $975k. Six months reserves should be more than sufficient to qualify and conservative to account for any (eventual) unforeseen circumstances. 

We try to find prospects that also have separate utilities such as electrical and less commonly separate water/gas.

[Tilottama Bandopadhay]

Quote from @AJ Wong:

Example in Oregon is a 5Plex asking $550K+/- or $100k/door. $125-135k down. Or 13 Plex asking $975k. Six months reserves should be more than sufficient to qualify and conservative to account for any (eventual) unforeseen circumstances. 

We try to find prospects that also have separate utilities such as electrical and less commonly separate water/gas.

 AJ that was very helpful. For a 13 plex with a 20% down of 200k and 6 months reserve of 42k. Assuming a $250k total. What kind of returns can be expected in Oregon? Is there a preference for lenders that the buyer has a W2 income ? Is the underwriting process similar to the single family mortgage process?

[AJ Wong]

Quote from @Tilottama Bandopadhay:

Quote from @AJ Wong:

Example in Oregon is a 5Plex asking $550K+/- or $100k/door. $125-135k down. Or 13 Plex asking $975k. Six months reserves should be more than sufficient to qualify and conservative to account for any (eventual) unforeseen circumstances. 

We try to find prospects that also have separate utilities such as electrical and less commonly separate water/gas.

 AJ that was very helpful. For a 13 plex with a 20% down of 200k and 6 months reserve of 42k. Assuming a $250k total. What kind of returns can be expected in Oregon? Is there a preference for lenders that the buyer has a W2 income ? Is the underwriting process similar to the single family mortgage process?

You're welcome. Technically 5+ units is commercial so many residential lenders won't offer financing in house.. It can be technical but underwriting is generally based on strength of borrower credit, assets/reserves, income of the property and aforementioned LTV. High W-2 wage earners are generally more lender friendly as it's the 'most' consistent and/or easily documented. It sounds like you won't have any trouble qualifying..

In Oregon there are some tenant laws that can restrict active CAP rates, but those with current market rents (or that can attain them near term) can approach double digit return rates. For example the 13 plex should generate $11-12k in gross market rents but has 50%+ occupancy due to a recent remodel. The 5 plex is slightly overvalued at $8-900/door in gross rents market is $1-1100. Financing and loan terms can be a critical component to supporting cash flow or incentive on multi unit or commercial properties.. A 5 plex vs 13 plex can have considerable financing considerations.. a strategic mortgage partner will be critical to answering some upfront questions to provide a property search framework.

[Abdullah Al-mamoon]

Did you end up buying something out of state ?

[Michael Smythe]

@Tilottama Bandopadhay

1) Not understanding your question of, "We are saving down payment of 25% for this - how much should we save for it?"
---The obvious answer is 25% of the purchase price, which only you will know. What are we not understanding about your question?

DSR loans only use your FICO score and then the income history and projected market rents.

2) You will most likely work with a commercial RE broker AND a PMC to buy an apartment building.

Most DSR lenders will require professional management to qualify for their loans.

[Jake Andronico]

@Tilottama Bandopadhay

Not sure what part of CA you're in but if you're considering OOS considering Las Vegas or Reno (depending on where you're located) could potentially make sense for you due to it's proximity. 

I'm part of a brokerage that specializes in SFR's and multifamily in Reno.

Completely different process and loan product. 25% down is likely light, but it's market dependent. 

They're going to take a DSCR approach and we've found commercial lenders to be exceedingly more conservative on their estimates. Rates are higher, but it doesn't mean you still can't get great deals done.

Happy to connect and share ideas. 

[Brian Hughes]

Quote from @Tilottama Bandopadhay:

Hello all, 

First time posting here. We are not first time home buyers but have three single family homes ( rental) properties in California but want to buy our first apartment complex out of state for generating cash flow for the long term. We were thinking of buying in Columbus, OH, Indianapolis, IN and Salt Lake city. Atleast researched these cities till now. My questions are : (1) We are saving down payment of 25% for this - how much should we save for it? Can someone explain how the financing for apartment complexes work, is it similar to SFR mortgages? (2) Are there any property management companies that can help us buy, finance and manage the apartment complexes and where can I find them?

Completely new to this space any advice or recommendation is appreciated.

 I sent you a connection invite to learn more about your journey. 

[Robert Ellis]

Quote from @Tilottama Bandopadhay:

Hello all, 

First time posting here. We are not first time home buyers but have three single family homes ( rental) properties in California but want to buy our first apartment complex out of state for generating cash flow for the long term. We were thinking of buying in Columbus, OH, Indianapolis, IN and Salt Lake city. Atleast researched these cities till now. My questions are : (1) We are saving down payment of 25% for this - how much should we save for it? Can someone explain how the financing for apartment complexes work, is it similar to SFR mortgages? (2) Are there any property management companies that can help us buy, finance and manage the apartment complexes and where can I find them?

Completely new to this space any advice or recommendation is appreciated.

 lots of ways to answer this but from experience there is existing, cash flowing inventory of single family, multifamily, commercial. there is new construction of single family, small multi family, and large development ground up multifamily. we play in the second area. all urban core higher density infill lots best locations. I would say to look at all strategies. it's more about who your team is, their sophistication, etc. we do everything on data and underwrite every deal and help answer a million questions which makes it easy. your team is everything. happy to chat about columbus I'll shoot you a PM

[Jimmy Lieu]

Quote from @Tilottama Bandopadhay:

Hello all, 

First time posting here. We are not first time home buyers but have three single family homes ( rental) properties in California but want to buy our first apartment complex out of state for generating cash flow for the long term. We were thinking of buying in Columbus, OH, Indianapolis, IN and Salt Lake city. Atleast researched these cities till now. My questions are : (1) We are saving down payment of 25% for this - how much should we save for it? Can someone explain how the financing for apartment complexes work, is it similar to SFR mortgages? (2) Are there any property management companies that can help us buy, finance and manage the apartment complexes and where can I find them?

Completely new to this space any advice or recommendation is appreciated.

Depends on whether you're in residential (1-4 units) or commercial (5+ units) - typically you want to be at 20-25% down payment. I personally love Columbus Ohio and as someone who works with a lot of out of state investors - there's so many catalysts for why you should invest here. Specifically, there's job growth (Intel, Honda, Amazon, Nationwide, etc) and the population is growing (unlike Cleveland or Cincy). I really see Columbus Ohio as an extremely safe bet for the next 10-20 years. Plus, there's still so many positive cash flowing and 1% deals here in Columbus Ohio. As a local investor and agent here in Columbus, let me know if you have any questions or want to connect!

[Abdullah Al-mamoon]

Quote from @Jimmy Lieu:

Quote from @Tilottama Bandopadhay:

Hello all, 

First time posting here. We are not first time home buyers but have three single family homes ( rental) properties in California but want to buy our first apartment complex out of state for generating cash flow for the long term. We were thinking of buying in Columbus, OH, Indianapolis, IN and Salt Lake city. Atleast researched these cities till now. My questions are : (1) We are saving down payment of 25% for this - how much should we save for it? Can someone explain how the financing for apartment complexes work, is it similar to SFR mortgages? (2) Are there any property management companies that can help us buy, finance and manage the apartment complexes and where can I find them?

Completely new to this space any advice or recommendation is appreciated.

Depends on whether you're in residential (1-4 units) or commercial (5+ units) - typically you want to be at 20-25% down payment. I personally love Columbus Ohio and as someone who works with a lot of out of state investors - there's so many catalysts for why you should invest here. Specifically, there's job growth (Intel, Honda, Amazon, Nationwide, etc) and the population is growing (unlike Cleveland or Cincy). I really see Columbus Ohio as an extremely safe bet for the next 10-20 years. Plus, there's still so many positive cash flowing and 1% deals here in Columbus Ohio. As a local investor and agent here in Columbus, let me know if you have any questions or want to connect!

I am coming to check out ohio.  The cash flow of the properties are tempting.  What do you think about the condition of the homes?    The weather conditions through out the year with these old homes and buildings.  Are these needing more maintenance than other areas where there isn't so much rain and now.  Are they built differently to account for the weather changes?

[Anderson S.]

Hi Tilottama, you're on the right path. The area's you've identified are begin to heat up. Let's find time this week to connect, we can walk you through our process and provide and understanding of funding.

[Abdullah Al-mamoon]

i have been talking to different funding group but they seem to have similar offers.  How does one funding group differ? Is it that rates.  I have had funding groups do regular mortgages along with offering private money for renovation type loans

[Jeffrey Abraham]

I hope my info can help you and thank for you your post. I can point you to a hedge fund that would require only 25 to 30% down, by your investment property enough experience they close your loan within 14-21 days.