Buying First Small Apartment Complex

[Joe Fernandez]

I have 14 doors over 9 properties, One Quad, One Duplex and the rest SFH. All BRRRR. I self manage and I'm and I'm real estate agent. It's going great. I have that process down.

But now I'm ready to buy a 15-20 unit apartment complex. There are a couple listed ones I've seen that interest me. But I'm not sure how to get started, do I go to a bank first? do I contact the listing agent first?...I usually buy by SFH cash, I can't do that here.

Do I just deal directly with listing agent and make him an offer?  Any tips on Earnest Money, Due Diligence, What to look for in due diligence, would be great.

I also have 3 silent partners that want to go in with me, but I make all the decisions. I'm not sure how to set that up, do I need to contact the bank first? Do I set up the LLC first? Do we fund the LLC first?. There are no issues qualifying or getting the money, I'm just not sure how to get started in commercial. Thanks for any advice anyone can provide.

[Jason Turgeon]

I am exiting a 22 unit apartment building in Texas. I made more money on my 2-family in Boston and I make almost as much on a 2-family I have in the same town in Texas run by the same property manager as the 22 unit. This size building turns out to be hard to manage and generally unprofitable. Too small for full time on-site salaried managers, but sucks up a huge amount of time if you DIY. So you hire a PM, but they're expensive. Plus these size complexes tend to be older and have fewer amenities and be in less desirable neighborhoods, so you automatically get a lower class of tenant. And there are fewer buyers when you want to unload. I found it to be a lot of headaches for not enough money, so I am going back where I am more comfortable. Buyer beware. 

But if you want to scale, I'd say this size building is likely a necessary stepping stone/learning experience for you to get up to the 100+ unit complexes where management gets easier because you can dedicate someone to it full time and tenants are better because you are dealing in nicer properties in better locations. Just choose wisely, because you want something you can get out of when it's time to move up. And be prepared to not make as much as you're used to making.

For money, do you NEED the silent partners, or can you come up with 25% down plus some costs on your own? If you don't need partners, it will be easier. Just go to your local small town bank or credit union and tell them what you want to do. Read up on how commercial loans differ from standard residential loans first. Don't bother with big banks, they won't give you the same service. Be prepared to bring a business deposit account with you.

If you do need the partners, follow the advice others have given you about syndications and so on, then be sure your lenders know that you will be bringing in partners. Adds a lot of complexity, so be sure it's worth it.