Putting together my first commercial deal

[Ryan Picco]

Hey BP community!

On my never ending quest for more wealth I have been led here, to apartment real estate investing. So much wealth in the world created by real estate through the power of leverage and scale, I had to take notice.

I'm trying to put together a plan for myself to make this happen and could use some input from all you experienced gurus.

I live in Beaverton, OR, a suburb outside Portland. I intend on making this investment in the Portland metro area, I expect it will not be the easiest to find lofty cap rates here and finding deals will be competitive but its my home and I think it will be vital for me being new to this to be able to be very hands on at the property when needed to ensure its success. I have about 100k of my own i can put towards it and I have a strong income so if it takes some time to get a deal together that number will only increase, i would expect i could have 150k-200k by the time I've actually got everything together to make a deal happen.

So I am aiming for a 16+ unit complex minimum, from what I've read, i should be trying to go as big as I possibly can to take advantage of scale, no brainer. I am not the most handy person, but i recognize the value in buying a property that could use some fix ups. So I think I want to be focusing on Class B properties, the returns of Class A don't quite do it for me but I don't want to get in over my head, I expect any reno that needs to be done i would be heavily reliant on a GC. I've seen on loopnet B class properties in the 6-7% cap rate range. Since I'm going to be trying to go as big as I can, I expect I will be trying to get funding from friends+family for a down payment, I am thinking I should structure this as an equity split of some form, I intend on bringing them in as limited partners so I have full control.

So here's my plan...

1) Start talking to banks to begin relationships and figure out what they can offer, how much down payment they will want and what kind of interest rates i can expect. In addition anything else they will require to make a loan.

2)Put together a sample package for investors, something detailed and clear, to show friends/family which I intend to try and get to invest in me, i figure they are my best bet because I have no track record in real estate, though financially I am pretty strong so I'm hoping my general financial success will give them faith enough to get involved. Once this is done I'll have an idea of my downpayment and thus what size of property I can afford.

3) Start reaching out to commercial agents from loopnet listings, give them some feedback related to what I'm looking for and their listing, hopefully getting into a position where they will send me deals before they list them. I've read that starting a relationship and providing them frequent responses will ensure they send me what they have as it comes available.

4)Once I provide an agent an informal offer that seems like its getting some real traction and the deal is starting to come together, I'll put something together for the deal specifics and get my partners and bank on board. Start getting a real estate attorney involved and finding a professional property management co.

5)Hopefully deal goes through, yay! Start any rehab projects identified asap, focus on ensuring the property is working well in the initial months and eventually scale back involvement.

6)Raise rents and ideally sell with a nice profit in 5-8 years.

So that's a very basic outline of what I have bouncing around in my head.

See any huge red flags? I'm trying to ensure I am on the right track from the on-set.

What kind of returns should I be expecting? Right now I'm aiming for cash flow positive and total ROI of ~15-20%, is this realistic for the cap rates/market I'm in, I believe the vacancy rate in most markets in the metro are is around 5%.

Since I think the vacancy rates are around 5% should i model those? I often see 10% used, should i just use that instead when coming up with my offer to be safe?

How much equity should I expect if I am doing all the work with the deal/property? I expect my investors to be silent.

I plan to focus my search near mass transit and new developments. For now I had intended to focus on the Milwaukie area where there was a light rail line added ~3 years ago, though I expect I'd be looking in a few areas after i research more. Any advice on how I should be identifying good areas for investment beyond this?

I came across Michael Blanks syndicated deal analyzer, it seemed like a perfect fit for what I am looking to put together, seems to be well received, does this seem like a good purchase to me? the cost isn't significant to me and it seems like it could be a big help.

What is a good approach to finding a quality property management co and real estate attorney? This is pretty general question and I'm sure ill be researching it heavily but thought I'd throw it in while I'm here.

Any general advice? Smart moves I can make to avoid common novice mistakes?

Thanks in advance for any advice you can provide.

Ryan