Why do others cringe at multi-family?

Question

Good day and Happy Friday,

My name is Rico and I am reluctant to say I am a newbie because I have done my homework and will continue to learn as education is a life long process. I know the path I want to take and I do have a plan. But I guess I am a newbie because I have still yet to get a deal under my belt.

Last night I went to another REI group meeting and as always a ton of great information, people, and opportunities. The good news is, the BP family has lots to offer and I have learned so much hear with all the great resources. Since I joined I been reading, reading, reading, and reading. You could learn anything about anything regarding RE.

However my question is, Why do others seem to be scared about MF?

My thinking is that they feel like its a headache or may not really understand it. They make it seem as if its the green goblin and will take everything away. Yes, there may be many risk but thats where I feel BP is so helpful because you can learn the trick and tips to keep risk and headaches at a minimum. I am very curious to hear what others have to say.

Enjoy the holiday weekend!

Best Regards,

Rico

Eleena de Lisser · Answer

@Rico Saldana Your recent experience with a real estate investing group mirrors my own. When I was first getting interested in multifamily a few years ago, I attended a one-day workshop on raising private money. During lunch, I struck up a conversation with a few people sitting at the same table. I remember their roles clearly: a wholesaler, a landlady who owned two houses, a real estate agent, and a guy who did fix and flips. I told them I wanted to buy a 24-unit apartment building that I had my eye on. Their reaction was across the board negative: "Why do you want to do that?" "Do you currently own a property that large?" "You need to work your way up to that level. Buy a duplex first. Then a triplex. Then a quad. Then maybe in a few years you'll be ready to own a 24-unit."

I listened to what they all had to say, but didn't respond any further.  I hate it when people put limits on my growth. Then, during dessert, a different guy joined our table. "So, what's your story?" he asked.  I told him I wanted to buy a 24-unit apartment building. "Why so small?" he asked me.

I said the same exact thing to two different sets of people and gotten polar opposite responses. The first group could only see and believe in what they had already experienced firsthand. The same was true for the second guy. Turns out he was a multifamily investor.

The point is that a lot of people fear (or put down) what they don't understand. Lack of knowledge, lack of experience, and not knowing other successful multifamily investors are a few of the reasons why some people cringe at multifamily. My advice to you? Upgrade your network. Don't hang around with real estate investors who don't believe something can't be done just because they've never done it.

"All advice is autobiographical." - Austin Kleon

Joel Owens · Answer

It's one thing to talk about an asset. It's quite another to have experience from owning it.

Multifamily can be a more intensive asset. It's hard to be hands off unless you have large scale of about 80 to 100 doors or more.

The smaller type properties generally take more involvement to run.

I like commercial better over multifamily but that's because it's my personal preference. It's a great time for MF sellers but many markets are overheated at values I wouldn't touch for purchasing.

Just make sure your dreams do not get hammered by being over zealous and loading up on big debt at the top of the cycle with a personal guarantee you can't get out of.

Focus on high quality areas with good rent growth and a better tenant demographic. It helps if the asset is newer as well. With that comes a higher purchase price.

Paul Timmins · Answer

@Rico Saldana

Welcome grew jup in a duplex, first investment props were 2-3 families nice having the income.

Managing can be a concern for some go to IREM.org search for ARM certified property managers. Call 5 ask them what they see expenses running per category per unit. What do they see them selling for per unit, what is the market occupancy rate. What are the market rents? Ask them if they know anything coming up for sale. Great way to pick up some good info and possibly a deal.

You can also search NARPM.org for the RMP (Residential Management Professional) and MPM (Master Property Manager) certified.

How to buy a Duplex

http://www.biggerpockets.com/renewsblog/2014/07/19/how-to-buy-a-duplex/?inf_contact_key=894b54aef5f5d83c197ee537616f40be1f62d1c88ac88f2300a328f8cc4204d3

Paul

Chris Soignier · Answer

Most of my investing friends love MF.   My suspicion is that you're not hanging around the right REI group.    Network w/ local MF investors, and you'll get a much different perspective.

Thomas S. · Answer

There are two reasons for their opinions.

First the fear comes from the fact that they do not understand that rental properties are not in reality the passive income that they would like it to be. Making money takes work.

The second reason they are afraid of multi units is because they have zero understanding of the basic principals of investing in income producing rental properties. To simplify they are uneducated.

Jimmy Klein · Answer

Not sure what you mean by people cringe. I know many professionals in commercial real estate and it seems MF is the golden child of all the asset classes. I am invested in retail and hotels as well. Regarding hotels, these are not even remotely passive investments, but in return you get a significantly higher yield. For retail, its higher risk, but if a tenant vacants, you might have some down time filling it up.

With MF, if a tenant vacants, there is a pretty good chance of filling it up quicker depending on the market. So I disagree about people cringing. Contrary to what others believe, MF is actually pretty passive compared to the other asset types as long as you have a decent manager or management company in place with a good maintenance staff.

John Casmon · Answer

Most people have a basic understanding of houses. You can live in them. You can rent them. You can rehab them. You can sell them. They've been told the American Dream is to own your own house, so this feels familiar (dare I say safe) for many RE investors. However, basic math shows us that the money is in being able to scale and the easiest way to scale is through large commercial properties. Yet, the processes are pretty much all different than single-family investing (lending, valuation, exit strategies, etc). My guess is this feels complicated to many investors so they just stick with SFRs.As others stated, you just have to find multifamily investors and spend time with those people. Everyone has their own strategy and many swear by their approach. Realize there is no wrong answer, you just have to find what helps you achieve your goals and go for it.

Rico S. · Answer

@Chris Soignier

You know its a great group of people and last nights guest were discussing MF and adding value. This was more so when networking telling them I wanted to get started in MF. I guess they seem to think Im clueless and assume I dont know what it takes. Of course there is a lot to consider but I feel I have a great understanding.

I just noticed some of their reactions but No one will rain on my parade. I know what I want to do and I am not going to settle for anything else. MF makes sense to me and fits what I want, its just funny how people are quick to almost say no because of their horror stories. I am just thankful for BP.

@Andrew Kazakoff for some price can be a concern but if theres a good deal in play. Money will find you.

Thank you for the feedback.

Andrew Kazakoff · Answer

It's more expensive...

Why do others cringe at multi-family?

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