The Right Direction

[Michael P.]

I would love some advice. I am in the DFW area.

I have been a full time investor for the past 4 years doing residential flips. Buy, repair, sell strategy. I have been somewhat successful during this time period and have never lost money on a deal. When I say somewhat successful I mean I have lived a nice lifestyle for the past 4 years but I am no where near rich.

I have now sold every single one of my deals and am ready to take a step in a different direction. I have solid 700+ credit and at least 100k in liquid cash to invest.

I am now wanting to purchase an apartment complex. I have never considered owning rental properties before because I hate the idea of being a landlord. Now I know many of you are going to say ok well stop right there owning an apartment is being a landlord. I look at it different though because I am going to have managers, leasing agents, and maintenance in place so I don't have to deal with that headache.

Right now I have one person I plan on partnering with as well. He brings a ton of land lording knowledge to the table and could come up with 100k as well. He too has 700+ credit scores.

I work with a small bank and I have been given the go ahead on a loan if I find a property. My lender will loan 70% LTC(Loan to Cost). Both me and my potential partner have borrowed money from this bank many times so we have a very solid relationship. One thing I don't know is how high she will lend. The most I have ever had out with her was around 600k. So I am guessing it is that at a minimum but add a partner and they would prob go 1.2mil. But since I am all cash now maybe she would go upwards of 2mil.

Here is my problem. Between the two of us we can come up with about 200k or if we really really needed to maybe 300k. I don't want to buy something that is only 1 Million dollars. I am looking at deals that are 3-10 Million dollars. Almost all of these deals have assumable loans. The problem is we are going to have to come up with the difference of the assumable loan and what the sellers want. They are wanting from 16% to 40% above and beyond the assumable mortgage. My lender would never consider a second. My lender has approved however if they are the first mortgage that they are ok with owning financing. So say we came up with a 10% down payment the owner would need to carry a 20% and then the lender would give the other 70%.

Ideally I want to buy an apartment complex with 150+ doors. I just feel like buying something bigger is the way to go so you have enough revenue to hire full time staff. I don't mind managing the staff at all and will most likely do this instead of paying a management company 2.5-5%. I will just collect that instead and do their job. Keep in mind I am self employed and have no intention of doing the 9-5 route so I have time.

My goal is to hold on to these for at least 366 days so I can capitalize on long term capital gains rates. I am not opposed to holding on to them for way longer than that either if need be. Unless they are cash flowing like crazy I don't plan on holding on to them for more than 5 years. I would love to do a deal once every 1-2 years and keep turning over my cash and possibly getting up to 2 deals at a time.

Alright. So am I being naive here in thinking that I can buy a 10 Million dollar complex? I saw one the other day that needed a 1.7mil down payment but then you could assume their 7.8mil loan. It seemed like a great deal.

I don't even know an exact question to ask you guys right now. I would love if someone could offer me any and all advice given my situation. I think this is the correct step in my real estate career. Even if you think I am an idiot and making the wrong move I would love to hear it. I would love some criticizem.

Two other notes:
1. I do have my real estate license and hope to collect a commission when purchasing the apartment as most are listed with brokers. Commission will be put into the business not my pocket.
2. All of my previous deals have been major rehabs. So I have quite a bit of experience in that field. Basically very little scares me these days in regards to repairs.