Creating A Multifamily Niche

[Eric Lindsey]

Hello, BiggerPockets! It's been a while since I've been on the forums. I have a question. I'm looking to carve out a niche within syndicating apartment complexes. I was curious to see what your take is regarding buying smaller multifamily properties under the $3 million range and combining multiple properties within a city to package them as a portfolio for sale as my exit strategy. I'm interested in acquiring smaller properties that may not be attractive to syndicators. Are there any pros and cons to this approach?

[Zachary Ware]

I think this is a great move. Looking at these smaller properties primarily between 5-50 units will help in terms of competition. You will not typically be competing with institutional investors who can typically take smaller margins because of their scale. Another advantage is in the sellers. Many of these properties will be owned by mom-and-pop operators who are tired landlords or looking for their own exit. I think the amount of deals you will find distressed opportunities that are being sold for below market will be significantly larger than large complexes. You will also find financing for these assets to be easier with local credit unions, private lending, and DSCR all interested in lending on this size of complexes. You will still need someone with a high network and a strong track record, but borrower credit will be less stringent than a property with 200 units.

I think the largest cons will be in the management of a smaller number of units over a larger distance. The cost to manage per unit will be drastically higher than if you could spread it over many units.