First real estate invesment in Kansas City

[Aamir Shah]

I am new to these forums and to real estate investing. I will soon get a hold of 250k of cash from selling my home. I would like to invest some of this into real estate.

I am thinking of investing in a single apartment complex in Kansas City for my first investment. I have a full time job as an engineer making good pay, with busy hours. I am willing to put in early effort to building a team, choosing a location and handling the purchase, but I am hoping once the property is being managed and collecting rent it would be more hands off.

Is this a good approach for a first investment? I could also use the 250k to buy many SFR or smaller properties (duplexes etc) but the time investment for buying multiple smaller properties doesn't sound as appealing as spending a lot of time choosing one single apartment complex.

Thanks in advance!

[James Kojo]

Aamir:

A couple of thoughts on your posts.

firstly, never put your "last nickel" into a deal. If you have 250K, then don't try and buy 1M in real estate. You'll need reserves, and depending on what you buy, rehab costs. If you have other liquid assets, or a high income to cover reserves, that's a different story, but in general, you don't want to have to default on your asset because you had a bad month in vacancies. :)

with regards to SFR vs MFR: I've done a bunch of SFR, and only a little MFR. My MFR experience is too early to draw any major conclusions from, but I will say this: breaking into commercial MFR (5+ units) is WAY harder than people make it sound.

Firstly is finding deals: brokers control all of the good inventory, and they don't share it with outsiders. You'll need to break your way into the inner circle, or you'll have to be content to pick through the left-overs on loopnet.  Being OOS, you probably can't drive for dollars. Not sure if a mail campaign would be cost effective or not, but it's still a lot of work.

2-4 plexes are easier: many of those go to the MLS, so you can still pick some up there.

Secondly, financing: for deals under $1.5M, you won't qualify for freddie (i.e. government-backed) loans. You'll need to find a lender yourself that lends on your type of deal to OOS investors. It will most likely end up being local banks, so either find and pay a broker to shop around for you, or try to source them directly by calling all of them up and getting someone on the phone.

If you go with 2-4 plexes or SFR, then you just go to zillow and search the mortgages, and choose the one you like best.

Thirdly: experience - you don't necessarily need experience to be a good operator just like you don't need experience to fix a car: it definitely helps, but if you have time, money and energy you can figure it out as you go. However, lenders will require you to have experience. They vet both the deal AND the sponsor (you.) 

Finally team: you need to put together a good team. This is actually not that hard, but it is time consuming.

I don't write all of this to discourage you, but to give you a realistic view if what you'll likely experience. I sincerely hope you have an easier time of it than I did, but I have heard of people who worked on it for a year before they landed a deal.

In commercial MFR, acquisitions requires a big hill to climb initially with the hope of a payoff after you get over the hump. If you're looking for something truly passive, there's no such thing as a "turnkey apartment provider," or at least I haven't seen one. If your 250K deal is the last deal you ever want to do, then paying all of that upfront cost may not make sense.

With SFR, you just kinda pay as you go. :)

Hope that helps!

James