I'm trying to buy an apartment complex without having millions
FL · Member since 2020 · 45 posts · 28 votes
Bigger Pockets.. Its been a long time. Since my last time on here I've successfully purchased my first investment property. A triplex, currently trending to have a full ROI in around 4.5 years. Seeing the potential and already having a goal of one day owning an apartment complex or neighborhood, I'm not wanting to see what it takes to successfully pull it off. I'm not overly liquid to be purchasing a 3M property and putting down 25% plus closing cost/etc. How do you guys do it? Is there some kind of financing specifically for large properties? To give some context, I'm a 780+ beacon with a 6 figure income and I've always tried to have immaculate credit for the goal of 1 day utilizing it to purchase commercial real estate. Any tips in the financing area would be appreciated because I know this post is somewhat vague, but I'll answer whatever to anyone wiling to share. Thanks
A credit score means nothing. Experience means everything. It's very hard to go from a tri-plex to a 10+ unit apartment complex without understanding 90% of everything in between. It's rare for investors to take that jump alone. I agree with everyone else. I'd continue buying and building your army (doors) with the plan to combine forces (investor partner) and step up to bigger deals.
Hi @Zach Jones. Great question. Coming from a Commercial Mortgage Broker perspective, I often see investors in similar positions bring in sponsors to help solidify the deal. The sponsor would bring credibility and experience to the project, based on the specific apartment complex acquisition. They might also provide additional capital as needed to cover DP, closing costs, and CAPEX if it's a value add. As for credit score requirements, your score is taken into consideration. The focus is often however on the subject property and how it's currently performing (debt service coverage ratio and cashflow wise) or has the potential to perform in the future.
Darnell Lockett
@Darnell Lockett, I am curious what is considered enough investing experience to move up to multifamily? My husband and I have 9 single family properties with a 10th under contract. We are looking to move into multifamily somewhere in the range of 12-20 units. Do we have to partner with someone? Also, what type of documentation are investors required to provide to the lender regarding the actual property, to help "sell" the deal to the lender? I figure if we know how to sell the deal to the lender, we will know how to underwrite for ourselves. Thanks!
While it definitely seems like you have the experience to move into multifamily, going from single family to a 12 unit or above could trigger the need for sponsorship. Your track record for how you're managing your current properties will definitely come into play. The subject property financial report is HUGE, as is your REO schedule. Demonstrated demonstrated cashflow or potential goes a long way imo, especially if its a value add. I'm always happy to answer any questions.
@jaron I could probably come up with $150k, a far cry from 750k(3M) or even $375k(1.5M). Everyone is very pro partner but I fear the getting screwed royally by some guy that knew enough about Commercial RE to con me into losing everything. I know that my be illogical , but the trust factor dealing in these sums of money is a real thing dealing with strangers.
@jscott I can't tag you for some reason. Realistically, how do you meet these people? ex: A bigger pockets post? Hi, I'm a late 20s RE minded investor. I make X at my dayjob and I'd like to retire. I've got X saved. Would you and your friends like to fund my ventures for 45%?
lol. I guess its the networking aspect of RE that I've come to read is very important..
@Jared Bandel Appreciate that!
@Darnell Lockett I'm Finance at a car dealershop so I'd love to get insight into the banks POV. So a deal could be judged based on its potential to make money and not its current reality with a negative CF, for instance? The sponsor comment goes back to my original issue of where the hell are ya'al finding these people??
@Andrew Syrios You're absolutely right. The problem is, another tri cost me 120+. Liquid, gone. I don't have the financial ability to keep repeating this process without this taking years and years.
yes it can be based on projected income, especially if it's a value add or new development.
@Neil Cronkrite @Andrew Syrios Oh ya, partnerships/syndication would only make sense with a much larger project. I do need to look into private lending and even SBA loans. I've not taken any time to talk to any lenders yet to determine what I could realistically get accomplished through regular financing. Thanks for the suggestion!
SBA loans don't work on properties unless it's a place of doing business (or for a business). You can't use them on rentals from my understanding. (Although I believe you can rent out 49% of the space of a building you get with an SBA loan but you would have to look into that to be sure.
@Zach Jones
I think you are missing the point of experience. When you jump into significantly larger unit count from where you are, you do not have a proven track record of successful operation. With you triplex, and your capital, you have a good chance to jump into a 5 to 8 plex... maybe 10, depending on the price. It would be difficult to jump to a 10 to 20 plex.
It not all about the down payment. It's not about your good credit score. It leans heavily on your experience. NOT time in, bit more like successful operations of similar cumulative unit count to what you are trying to purchase.
The lender wants to know if you can handle it. With limited experience, you are a high risk. Therefore, you would need a sponsor/partner that has the resume to close the larger deal you ate hoping for.
Regardless of how confident you are, or how intelligent you feel, it is the lender that you need to convince. After that, the underwriting has to be solid because there are more moving parts. This means more unpredictable factors.
Built up slowly and let the system guide you. Try for another 3 to 6 plex. Then exchange your triplex for quick capital and move up to a 8 to 12 plex. Then exchange your second purchase and go for a 10 to 15 plex. Repeat the process. The more you rush, the more perils you will face... unless you are willing to share in the equity and lighten the risk.
@Zach Jones
After all that has been discussed, there are a few more important components of reaching into larger deals. Namely, NET WORTH. You generally can only afford up to your net worth.
For example, if you had $2M on hand and you had a 60 unit apartment selling for $6M. Even it everything underwrites well at 1.5 DCR and it produces a 7CAP... you will likely not be able to get the deal with your $2M (30%) down payment. That is because of NET WORTH.
This is why others have posted and suggested to take your time to grow OR partner up and share in the growth.
There may be others that have a different opinion or experience, but that seems to be what I have learned so far and most reliable path to take.
@Zach Jones
After all that has been discussed, there are a few more important components of reaching into larger deals. Namely, NET WORTH. You generally can only afford up to your net worth.
Good point. Also, some lenders require you to have enough cash liquidity saved up to make payments for 6 months and in some cases up to a year.
Admittedly I kinda cheated on my liquidity for one of my MF, I took money out of my 401k and put into my savings account. Once the deal was done, I rolled over the savings into a new IRA. The money must be in a new IRA before 3 months pass from the withdrawal date.
@J Scott
Could he be in just as good a position as simply buying a 4,5,6 unit and having 100% ownership? Compared to a syndication where there are multiple owners who split equity ?
@J Scott
Could he be in just as good a position as simply buying a 4,5,6 unit and having 100% ownership? Compared to a syndication where there are multiple owners who split equity ?
Not always. A little bit like oranges and tangerines. Larger properties tend to have more favorable interest rates, better economies of scale in maintenance issues, lower economic vacancy, better property management terms, and more. Plus, folks specifically invest in syndications to have all of the benefits of being a limited partner.
@Zach Jones
After all that has been discussed, there are a few more important components of reaching into larger deals. Namely, NET WORTH. You generally can only afford up to your net worth.
Good point. Also, some lenders require you to have enough cash liquidity saved up to make payments for 6 months and in some cases up to a year.
Admittedly I kinda cheated on my liquidity for one of my MF, I took money out of my 401k and put into my savings account. Once the deal was done, I rolled over the savings into a new IRA. The money must be in a new IRA before 3 months pass from the withdrawal date.
That's just smart financial tactics.
... I've successfully purchased my first investment property. A triplex, currently trending to have a full ROI in around 4.5 years....
... having a goal of one day owning an apartment complex or neighborhood...
Have around (over) $1M just sitting there in cash that you can write a check for.
Then continue to save and begin looking for your purchase.
in 4.5 years your ROI on the triplex, so there is that cash flow (and some will say the equity in the triplex, but do you want to gamble that on a new purchase).
If you partner you will ave to cut the partner in on a percent of the deal equity and cash flow.
just my 2 cents.
I found a partner to start buying properties, and we were using seller financing to help with the down payments. We found a partner with a strong balance sheet on our third deal, which allowed us to buy larger properties. As we added value, we were able to refinance the deals and use the proceeds to buy more properties.
The key for me was to find the right partner and the right strategy. We also syndicated three deals to help us with capital
Gino
@Andrew Syrios I guess its a good thing I haven't looked into those SBA loans and I'll stick to my standard/unique financing options for SF and MF properties
@Sam Yin As you and many others have said, maybe I do need to stick to the stacking method and go up bit by bit, with a 4-10 unit as my next.. Just to gain the experience that is necessary for something larger. You just see so many stories of people blowing up and finding these 15/20 unit properties and the allure of them is simply their CF ability to do what it would've taken 3/4 MF properties to amass. As previously stated, its just hard to give up so much capital for these little wins. And trust me, I don't feel intelligent in the slightest. Confident forsure, but not intelligent, ESPECIALLY when I talk to people on here. Appreciate the advice!
@Adah N. This also crossed my mind, but I was hoping the amount to be large enough to create some dramatic change. My first MF is a massive win by most standards. I'm expecting full ROI in well under 5 years and if/when my inherited tenant decides to move on , I'm expecting atleast an extra 350 in monthly CF. But even with all that, it cost me so much liquid to make that happen that my mind has been stuck on "double that cash down/find a bigger project" anything to raise that CF dramatically
@Scott Mac Did you red the title of this post?! HA. That my issue friend. I'm a 29yo self made RE investor. I worked my *** off for the cash I've got and it would take me quite a time to amass $1M liquid. I'd currently call it unrealistic for myself unfortunately.
@Gino Barbaro Love to see it! I'v e got a good friend that I've talked to about partnering before just to bring together funds to potentially find a bigger deal (he has his own RE investments currently, not involving myself so he is in the space). Can I ask how you found your partners?? I've asked several people and have yet to get an actual answer from someone. Also refinancing for capital I have seen is pretty popular and I wouldn't be opposed to make things happen if the timing/rates were right.
@Andrew Syrios I guess its a good thing I haven't looked into those SBA loans and I'll stick to my standard/unique financing options for SF and MF properties
@Sam Yin As you and many others have said, maybe I do need to stick to the stacking method and go up bit by bit, with a 4-10 unit as my next.. Just to gain the experience that is necessary for something larger. You just see so many stories of people blowing up and finding these 15/20 unit properties and the allure of them is simply their CF ability to do what it would've taken 3/4 MF properties to amass. As previously stated, its just hard to give up so much capital for these little wins. And trust me, I don't feel intelligent in the slightest. Confident forsure, but not intelligent, ESPECIALLY when I talk to people on here. Appreciate the advice!
@Adah N. This also crossed my mind, but I was hoping the amount to be large enough to create some dramatic change. My first MF is a massive win by most standards. I'm expecting full ROI in well under 5 years and if/when my inherited tenant decides to move on , I'm expecting atleast an extra 350 in monthly CF. But even with all that, it cost me so much liquid to make that happen that my mind has been stuck on "double that cash down/find a bigger project" anything to raise that CF dramatically
@Scott Mac Did you red the title of this post?! HA. That my issue friend. I'm a 29yo self made RE investor. I worked my *** off for the cash I've got and it would take me quite a time to amass $1M liquid. I'd currently call it unrealistic for myself unfortunately.
@Gino Barbaro Love to see it! I'v e got a good friend that I've talked to about partnering before just to bring together funds to potentially find a bigger deal (he has his own RE investments currently, not involving myself so he is in the space). Can I ask how you found your partners?? I've asked several people and have yet to get an actual answer from someone. Also refinancing for capital I have seen is pretty popular and I wouldn't be opposed to make things happen if the timing/rates were right.
I wouldn't say SBA loans aren't worth looking into, but from everything I've seen, they take a very long time to go through
I call it Values Based decision making. Align you and your partner's values. Go to events, speak to other investors. I met Jake from the business I owned, and we decided to partner.
There is no formula. You just need to start looking, and things will start appearing
Good luck
Gino
I feel you. It will seem frustrating at times we your are starting in this journey. But it will come to you as long as you follow the paths that have laid out by those that have come before.
I spent a few years to acquire 3 SFRs before I jumped to a 2plex. Then 2 years later I got 2 triplexes at the same time. Then a year later, exchange 1 SFR for a 8plex. A few months later, exchanged another SFR for a 10 plex. A few months later, exchanged a SFR for another 10 plex, all in a 6 month span. Several months later, exchanged to a 19, then a 16, then 6, now looking for more.
The actual start up capital was roughly $130K, that was spread between the initial 3 SFRs. One of them I lived in for 2 years and them made it a rental. The 2plex and both triplexes we purchased using equity from the initial 3 SFRs. I have not really used any significant amount my own money since.
I wanted to illustrate to you an option. It's not perfect, but it worked for me with the little I knew at the time. I kept watch podcasts and I saw those success stories of younger entrepreneurs. Many had mentors. Many partnered up. But all of the did one thing, they kept picking at it until they broke through. You will too. Just trust the process and keep doing it.
There will be outliers of success, but the proven strategies have been reposted time and time again.
I spent a few years to acquire 3 SFRs before I jumped to a 2plex. Then 2 years later I got 2 triplexes at the same time. Then a year later, exchange 1 SFR for a 8plex. A few months later, exchanged another SFR for a 10 plex. A few months later, exchanged a SFR for another 10 plex, all in a 6 month span. Several months later, exchanged to a 19, then a 16, then 6, now looking for more.
Bigger Pockets.. Its been a long time. Since my last time on here I've successfully purchased my first investment property. A triplex, currently trending to have a full ROI in around 4.5 years. Seeing the potential and already having a goal of one day owning an apartment complex or neighborhood, I'm not wanting to see what it takes to successfully pull it off. I'm not overly liquid to be purchasing a 3M property and putting down 25% plus closing cost/etc. How do you guys do it? Is there some kind of financing specifically for large properties? To give some context, I'm a 780+ beacon with a 6 figure income and I've always tried to have immaculate credit for the goal of 1 day utilizing it to purchase commercial real estate. Any tips in the financing area would be appreciated because I know this post is somewhat vague, but I'll answer whatever to anyone wiling to share. Thanks
Hello, I’m new to real estate, and I have a very similar goal as Zach, I want to get into larger apartments to live off of cashflow, do you mind explaining what a “ syndication “ is ?
Yes save for your DP or partner with someone, really not sure what else to say,
It's not like I've got nothing, I'm talking a high 700s credit score (with decent history), great income and 150/200k down.. obviously a DP is needed, I'm just wondering if people are really coming to the table with half a million or how to get into the club so to speak with what I have.
if you are first time MF investor with ony 150k down, buy something much lesser risk for 600k price range.
Credit score means nothing LOL it's ability to sustain the risk of investment is what matters here and lender do care for that also.
In reality, if you want to invest in commercial fo 3mil price range then your networth should be 3-4 mil.
Bigger Pockets.. Its been a long time. Since my last time on here I've successfully purchased my first investment property. A triplex, currently trending to have a full ROI in around 4.5 years. Seeing the potential and already having a goal of one day owning an apartment complex or neighborhood, I'm not wanting to see what it takes to successfully pull it off. I'm not overly liquid to be purchasing a 3M property and putting down 25% plus closing cost/etc. How do you guys do it? Is there some kind of financing specifically for large properties? To give some context, I'm a 780+ beacon with a 6 figure income and I've always tried to have immaculate credit for the goal of 1 day utilizing it to purchase commercial real estate. Any tips in the financing area would be appreciated because I know this post is somewhat vague, but I'll answer whatever to anyone wiling to share. Thanks
Hello, I’m new to real estate, and I have a very similar goal as Zach, I want to get into larger apartments to live off of cashflow, do you mind explaining what a “ syndication “ is ?
Of course! A syndication lets lots of investors pull their cash together to purchase a single larger asset. There is an operating team which does all the work and passive investors, called limited partners, who only put up cash and do not put in any work on the asset. I'll DM you as well
Bigger Pockets.. Its been a long time. Since my last time on here I've successfully purchased my first investment property. A triplex, currently trending to have a full ROI in around 4.5 years. Seeing the potential and already having a goal of one day owning an apartment complex or neighborhood, I'm not wanting to see what it takes to successfully pull it off. I'm not overly liquid to be purchasing a 3M property and putting down 25% plus closing cost/etc. How do you guys do it? Is there some kind of financing specifically for large properties? To give some context, I'm a 780+ beacon with a 6 figure income and I've always tried to have immaculate credit for the goal of 1 day utilizing it to purchase commercial real estate. Any tips in the financing area would be appreciated because I know this post is somewhat vague, but I'll answer whatever to anyone wiling to share. Thanks
Hello, I’m new to real estate, and I have a very similar goal as Zach, I want to get into larger apartments to live off of cashflow, do you mind explaining what a “ syndication “ is ?
Of course! A syndication lets lots of investors pull their cash together to purchase a single larger asset. There is an operating team which does all the work and passive investors, called limited partners, who only put up cash and do not put in any work on the asset. I'll DM you as well
How do the passive investors usually benefit? Is it cash flow ?
OPM Financing
Other People's Money
Hi Zach, I would go to a local commercial bank and get a DSCR loan.
I spent a few years to acquire 3 SFRs before I jumped to a 2plex. Then 2 years later I got 2 triplexes at the same time. Then a year later, exchange 1 SFR for a 8plex. A few months later, exchanged another SFR for a 10 plex. A few months later, exchanged a SFR for another 10 plex, all in a 6 month span. Several months later, exchanged to a 19, then a 16, then 6, now looking for more.
I made some inefficient choices at the start... and I'm still learning/improving as I go. I bought a house to live in as a kid without any intentions for REI. I only began to think about REI in 2009. In fact, I did not even understand REI or realize the actual potential until 2020. Prior to that was was throwing darts and hoping something stuck.
Here is my journey thus far to answer your question on refi/hard money:
My first official rental was a house (2007) I lived in for 3 years (since 2004). I tried to sell but the market had turned in 2007. I rented it out and just purchased another house to live in. That house was from selling a previous house (2004)... which was from a 1033 that I was too niave to fight (2003) that was originally purchased in 2000.
Here is where it starts... end of 2009, saved 50k from side hustles/living frugal, purchased a $265k SFR for rental. 2011, saved 50K from hustling and pruchases a $200k SFR for rental. 3 babies later and lots of bad financial choices, 2015 barely saved 30K and purchased a $330k major fixer SFR to live in because we lost oir house to foreclosure. Credit is destroyed and wife is pissed.
Spent 2 years crawling back up from the pits. Cost about 40K to make that place livable and a lot of sweat equity in those 2 years, while kids were babies. It was a squatter house that was destroyed.
2017, sold the first official rental and used the money to buy a major fixer SFR to live in. Wife wanted a craftsman/Victorian era home and this was my way of rebuilding our relationship after the foreclosure and all that work. It was not easy because our credit was bad, had the foreclosure, and she had a BK filing on her record. That BK was the only way we bought time during the foreclosure for me to find that other property to relocate to. We left that was house that we fixed up and made it another rental.
At this point, 2017, we have 1 primary and 3 rentals. Total cumulative investment is roughly 130K.
2018, refinanced the primary, pulled $120K and purchased a 2plex as rentals. Now I have 4 rentals... total 5 units. All 5 properties were 15 loans and I figured I'll be golden be golden in 7 to 10 years when I snowball to pay them off.
Dec 2019 into Jan 2020, stumbled onto information about REI on the internet when I was looking up a word I did not understand. That led to YouTube and BP podcast. I listen and watch a ton of YouTube... about 5 hrs/day M-F and 10 hrs on Sat and 10 hrs on Sun. Wife was annoyed and kids were neglected... until April 2020... Decided to refi all 5 properties to 30 loans and pulled out combined total of $150k equity. Used that to purchase two 3plexes, each costing $357k.
Covid was at its peak. The world was shut down. I thought I was THE MAN! Got on craigslist and bought a small RV. Took the family traveling around the USA for about 2 months.
I listened to a few more podcasts here and there. I had some time to reflect. I realized I was not THE MAN. I merely scratched the surface of REI. dug back into YouTube and listened relentlessly.
2021, sold 3 SFR rentals, 1031 them into commercials, 8 unit (June), 10 unit (Sept), and 10 unit (Nov). 2022, sold the 2plex and 3plexes and 1031 them into 19 units, etc... at the same time, I sold the 10 unit from Nov and 1031 into 16 units.
Thay summer, rewarded family for putting up with my shenanigans by getting larger RV and traveling the US for 2 more months. Got all 49 states done, missing Hawaii.
Fast forward to 2023. Purchased a 6 unit with money saved. Currently selling 8 unit from June and 1031 into larger. Also looking to possibly do bridge to take down a 64 unit that can potentially cash flow 500K, etc...
Zach, I went into those details to show you that it doesnt have to be perfect. It doesnt have to be clean. I could have made way better choices and be 10X more wealthy. But as long as to keep at it, become intentional, and focus on expanding your knowledge in REI, it can be done.
I achieved FIRE by 2022, for both me and my wife, but she wants to work because she likes it and she really wants her pension. The jump from residential to commercial catapults the cash flow. I now make it a point to do at least 3 transactions per year... because the Cash flow from commercial residential is that much better. I do not work anymore, besides hunting deals and managing my managers. I am officially a house husband by choice and I LOVE EVERY MINUTE OF IT! My kids are kept on check and they love it... whether they like it or not! My kids and their kids are free for generations to come, if they want to. If not, I guess I can just cash out later and blow it all away. It doesnt matter one way or the other. I just want to enjoy everyday for what it brings. I do a lot of volunteer work in the community and I am always willing to pass on what I know. There is no secret. There is no magic. And there is no competition. I know I will not be a billionaire, and I really have no desire to be. Time freedom is is greatest payment. If more more equals less freedom, it's not worth it at this point.
You can either get a money partner, or search for subject-to properties, or owner financing options