Investing in commercial real estate is past REI experience req?

Question

Working towards House hacking a 4 plex and self manage the building to gain experience Later on i will be forming a property management company to manage my buildings once i get to a larger scale that would require it. I have a pretty ambitious goal in terms of how many units I want by the time I reach 40 years old. After doing some thinking and listening to a good amount of BP podcasts buying 4 units at a time will not make it happen in the time frame I want it to. With all of that said here is some of the things I am not sure about since I know commerical investing is different:

Looking to get into commercial multi-family 5+ units. Is it a requirement to have a certain amount of years of past REI experience  to be able to qualify for a commercial loan?

I understand having a good track record is important so maybe the better question would be: How can i set myself up to be able to qualify for a commercial loan?

If it's going to take me a couple of years to build that track record what would be the best way to go about it?

Thanks for reading and looking forward to learning how to set myself up in the right direction.

Nick Doria · Answer

@Jeff Kehl

Thank you for the compliment

I would use the VA loan but my past two years income won't qualify me for a loan amount that would make buying a building possible or even worth it here in chicago.

While i have never personally managed a property i did work at a company handling property management like tasks for a 186 unit development project while he was building it and got a great crash course while i was there.

The main reason that I would like to do commercial is because having a rather large goal of 1000 rental units by the time that I am 40 years old which would be in 12 years from now. I have noticed that buying a couple of 4 unit buildings is a good start but to be able to reach my goal i will have to be able to scale things up at a faster rate after the first couple of years. Plus not to crazy about having like 400 buildings spread out all over the place sounds like a nightmare. Since i will be forming my own property management company once things grow to the point where it would make sense to hire a property management company.

Currently working on setting my first set of systems for when i get my first building so that i can reduce the mistakes ill make once i have a building. I know i will still make some mistakes and i look forward to whatever they are but why set yourself up to make them if you know you can prevent a great amount of them by just being prepared.

Nick Doria · Answer

@Darryl Dahlen

That's what i was starting to get a feeling of in terms of the larger the more you have to be able to prove that you can handle it. In terms of size wise I don't think  going over anything past 10 unit buildings for at least the first few years to get that good track record as well to make sure that i have enough reserve money to handle any repairs that come up because i know they have the tendency to do so even when you reduce the chances.

I Am sure the first 1-3 years will be some of the most work, time consuming, and learning from things i could have done better. Because of this i will more then likely take the time to set up my business correctly and then after the 3 year mark really put the pedal to floor and expand.

Darryl Dahlen · Answer

Some banks are more lenient that others about the amount of experience they want you to have. One way to offset a lack of experience is to mandate that you use a professional property management company, which is in reality a good idea anyway until you have a measure of experience under your belt.

The larger the property the more the lender will want to see that you have some prior multifamily experience, even with a professional management company in play.

Jeff Kehl · Answer

The thing that's great about commercial lenders at small banks is that they are shrewd business people just like you. If you have a great deal but no experience you would likely still find someone to lend on it. But if you have no experience, bring them a larger deal and don't seem to know what you're doing you'll likely be turned down by everyone.

But why do you want commercial financing in the first place? 4 units let's you get great fixed low rate financing for 30 years. Unless you've used up all of that that's available to you don't even start looking at commercial financing.

Investing in commercial real estate is past REI experience req?

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