For 50+ MF, how common is it to show a loss after depreciation?

[Account Closed]

Hi,

My wife and I run an online retail business with extremely high "earned income". We want to start investing in real estate to offset that income by one of us becoming a "real estate professional". We don't spend more than 750 hours on the retail business, so we meet the requirements. We're thinking of starting with a 50 unit apartment building and moving up from there. Our question is, how common is it to show a loss after depreciation, and how much real estate would we need to purchase to offset, say, 800k of earned income? Thank you so much for your input. We are new here and excited to get to know everyone.

[Joseph Bramante]

Ryan White at 150 units and assuming 40k/unit, the lender would require a net worth of $6m and liquidity of 600k, that's after the Downpayment. For your first deal, you are looking at 70% leverage (30%down). You might find some lenders go to 75, but I would underwrite at 70. For me, I did my first deal at 65%, full recourse on 26 units.

If you buy by the end of the year, they prorate the depreciation. It would only be a few months and you would probably show a positive agi.

It takes us 6-9 months to find and close on a property. It's a long journey.

I recommend you find a syndicator in your market for your first deal. Let them show you the ropes. Maybe you are the only investor in the deal and can negotiate better compensation terms. The difference in return that you make as a passive vs a sponsor is maybe 3-5% on cashflow and only 2-4% on IRR. HOWEVER, the security and risk mitigation you receive is priceless. There are just as many sharks in multifamily as there are in single family except they bite harder in multifamily. You risk losing a lot more money if you don't know what you are doing in multifamily vs single family.