No value-add MFR left, how about turn-key as a new strategy?

[Mark Neiger]

I've been absorbing as much info as humanly possible for the past year about multi-family. I've been looking and analyzing properties for 6 months. I don't have any experience in MFR; just SFR. The MFR market is crazy out there right now and the more people I speak with who know what they're talking about the more it seems that now is just not the right time for a guy like me to be looking for value-add buildings. I'm thinking my new strategy should be to look for a good starter property that a previous investor has already turned around and buy it as a turn-key MFR. I wouldn't realize any forced appreciation myself but could park some of my own money into it and effeciently run it for a few years until I have gained some experience and the market cools down (or bursts). I would need something that was secure and could at least give me a nice ROI where I could essentially protect my capital and have a nice cash flow to continue to build more. At the same time I could begin to find investors who would now see my track record and lenders would be more open to work with me as well. Everything I have been studying has been the value-add model and using investors to secure capital. I've never seen anyone on here talk of turn-key and not using outside investors. All my analyzers and courses have been this model so I'm not sure how I would go about looking for properties with this new strategy. Now I wouldn't have a 5-10 year exit strategy to refi or sell to pay back said investors. What might this new exit look like? I have about $150,000 tied up in mutual funds that I'd like to put to better use and I'm about to unload a single-family which should put around $75,000 in my pocket. I work a full time job and overtime with my family so I don't have nearly enough time to devote to the value-add/investor model that I've been trying to work with. I see lots of adds for turn-key SFR all the time but prefer to focus on MFR for economies of scale and time compression. I'm assuming I'd look at GRM for du/tri/quads and still look at CAP for anything bigger but now these numbers would be in a much different range for a place that needs no work and has solid tenants and management. Does anyone know what these numbers might look like, where I might start to look and if it's even a viable option?

[Brian Burke]

Value-add Multifamily is out there. If it weren't, I wouldn't be closing on one this week.  I think you nailed it, however, in your own post. What you need is experience. Raising money from other people to buy an apartment complex is far less likely when you don't have experience and a proven track record. Unless, of course, you happen to have a lot of wealthy friends & family that believe in you so much that their willing to risk their hard-earned money while you practice a new craft.

Perhaps you should look for smaller value-add properties that fit within your own financial resources. Utilize these to build a track record and go bigger each time. There will come a time when other people will see your success and want to be a part of it. Maybe it's just a couple of people and they can only take you to an incrementally larger property. Fine, it builds your track record even further and if you do a good job you will grow organically and capture the interest of larger slugs of outside capital over time. 

Can you buy stabilized deals?  Sure, but owning a turnkey property doesn't build a track record of successful value-add execution.  But, it does at least give you experience owning apartments, which is at least a start and better than no experience at all.  Experience opens a lot of doors...investors, sellers, brokers, lenders...they all want to work with people who are proven.  And most of all, experience brings you to a place where you can properly underwrite an acquisition and seperate what really is a good deal from what the uninitiated think is a good deal...or improperly throw out as a bad deal.