Bad time to make the jump to commercial?

[Ryan W.]

I've been doing real estate part-time over the last few years and I've got a few properties in Colorado Springs, CO that are doing well: 4plex, SFR, and a condo. I'm wanting to make the jump to commercial multifamily and just wondering if this is a great time, a horrible time, or somewhere in between.

I've got two primary problems right now: lack of good local opportunities and lack of liquid cash.

I live in San Francisco, so investing in the immediate area is out of the question. I can go a couple hours out and find better deals, but from what I've seen, nothing like what can be found in other parts of the country. Compensating for this somewhat is the fact that I'm a self-employed web developer, so I can do my work from anywhere. I'm more than willing to spend a month or two on the ground anywhere in the country finding and purchasing the right property, as well as flying out frequently to check up on it. Would love to hear people's thoughts on this, as well as what markets you'd recommend I look at.

The bigger problem is a lack of liquid cash. I've got decent equity in my three properties (around 20-25%), but with the current lending market, I don't see a way of accessing that other than selling, which I'd rather not do right now. Other than the real estate, I've got probably 20-25k that I could put into a deal. I feel like my options are therefore:

1. Try and find a lender and seller who I could put together a 70/20/10 deal with and buy something in the $200k range. Downsides seem to be that 200k doesn't buy a lot of apartment building in most parts of the country, and my sense is that more units would be more beneficial due to economies of scale, especially when out-of-state management is considered. This option also doesn't leave me with much cash in reserve. Is this even realistic?

2. Try and find something that's at a low enough price that I could pick it up with a hard money loan, rehab it, and then either sell or acquire permanent financing. Downsides here are the higher risk, higher costs of financing, and the limited supply of commercial multifamily properties that can be purchased and rehabbed for under 65% - 70% of ARV. Is this plan at all realistic?

3. Find an equity partner or two who will put up $50 - 100k for a property. Downsides include the usual downsides of partnerships :-) Also a bit unsure about approaching family and friends for this kind of deal in this economic climate. How to structure a deal like this? Split profits or preferred rate of return?

4. Wait until I have more cash. Ugh.

I would absolutely love to hear what anyone has to say about this kind of transition and how I can best plan and prepare. Thanks!