Small Apartments - Finding the Sweet Spot

[Dan O'Neill]

Hey Folks, 

I'm new to RE investing and currently in the process of developing my business plan.  I've decided that multifamily is the market for me and currently working through the criteria I want to use to identify the right investments for me.  Looking to buy and hold for cash flow.

@Michael Worley recently commented on BP podcast with Jeff Greenberg.  In the discussion that ensued he laid out property condition spectrum with three distinct points of reference: Fully Performing; Value Add and Rehibilitation Condition.  While fully performing seems to be perferred by lenders my take is that there isn't enough "up-side" for my taste.  From looking at a Rehibilitiion Condition property in my area the cost of the upfits (~20k per door) seem to make this investment a poor one.  This leaves the Value Add classification as the place to be.  My thought, however, is that the "sweet spot" on the spectrum is really at the lower end of Value Add (approaching rehibilitation but not there).

I'm thinking the sweet spots for my first investment should be:

1) 20 Units in Value Add 

2) 5-10 Units in Rehab

Both of these conditions would be coupled with some quick financial measure to identify properties that warrent further research, perhaps by applying the 2% rule to the sum of purchase cost + upfit cost

Questions for those of you with experience in this space

1) What is your Sweet Spot and why?

2) What other criteria contribute to the "Sweet Spot"?  Perhaps age of the property?

3) What criteria would you recommend for a first time investor in MF?  (With a full time job I'm going to be heavily reliant on a team of professionals to assist - Prop Mgr, Contractor etc)

Thanks!