Best way to get into Multifamily investing?

Question

Hey there team, I am thankful to have come across this website and be able to work with some of you in getting started.

I am new to the game but have some specific questions pertaining to Multi-family investing.

Right now I have a HELOC for about 20k, it will be renegotiable to 35k in June since I haven't owned my house long enough for them to give me an ARV HELOC. I also have 10k in my retirement that I'm going to drain.   Should I shop around to find a bank that will? Is this pretty standard in the banking world?

As of right now, my strategy is to buy a few (3-5) single-family houses, all that have great cash flow, bundle them into a portfolio and REFI the whole portfolio, then use that to get into the multifamily game. My assumptions for this:

1) Multifamily investing is more expensive, thus requiring 25% down of a higher price that frankly I can't afford right now.

2) Banks will only give a 75% LTV on an investment property that is 5+ doors.

3) Management fees will ruin my bottom line (if I can't negotiate a lower percentage for multiple units).

4) multifamily properties need more work at the price I can afford.

5) I should walk the properties before I buy, but that means going literally anywhere else since I live in Cali.

6) I don't want a JV or partner. (change my mind)

So, can I get a higher %LTV on multifamily investment properties than 75%?

Is it poor tactics to negotiate a management rate?

Is my strategy logical or is there another way to break into the multifamily market without getting single-family homes first?

I'd love to have someone who has a bunch of units to mentor me and be willing to show me the ropes bespoke to my situation.

Thanks everyone!

Matthew Baltzell · Answer

@Christopher Lane You said "I also have 10k in my retirement that I'm going to drain." You should speak with your advisors about the tax implications.

If you were to switch to a self-directed ira (SDIRA) you could invest in real estate. The only catch with this is you can't invest directly into real estate you would be directly involved in.

As far as mentorship goes, BP is a great place to start. I'm also relatively new to CRE and was able to find mentorship on BP. So, if I can do it, so can you.

Have a great New Year!:)

Joel Florek · Answer

@Christopher Lane Not going to dive into all the assumptions but the one, in particular, I want to hit is the financing. Know that you can get higher LTVs if you shop around. My 16 unit and 8 unit were purchased with 1.5% and 6% down respectively. Both were 80% LTV with the bank, seller held a 2nd position note for 16.5% and 10% and we had some prorations with the way closing was structured to close the gap a bit more. Both properties have been fantastic for me and are strong cash flowing assets. Not all banks will work with you on deals with subordinated debt but 2 out of 10 likely will if the numbers and debt coverage ratios are sufficient to support the asset and debt load.

Alina Trigub · Answer

@Christopher Lane

Welcome to BP! Every strategy has flaws, so don't get discouraged!

1) I would avoid starting with SFH if you already know (and I completely agree) that MFH is the way to go!

2) Consider looking outside of your immediate market - Cali is too expensive!

3) If an option at all, consider house-hacking as it will allow for a much smaller down-payment

4) If #3 above is not an option, then I'd suggest JV with a partner. Not sure what your reasons are to rule it out, but it always helps if you're short on cash and can find someone with whom your interests align.

Best!

Diana Muresan · Answer

@Christopher Lane I would aim for the MF not the SFR. Divide and conquer, get a MF as owner occupied in your area with 3.5% down FHA or possible Freddie 5% down if your income is below you county median. You can also do a reno loan on the FHA and refi or sell after the rehab.

You will need your 401K to show reserves after closing

Anthony Cecena · Answer

@Christopher Lane

I rather have 50% of a deal than 0% of and deal or whatever the percentage is. Be open to JV and partnerships.

Best

Peter Pratti · Answer

Why no partner? Partners are great.  Your 100,000 rides on another 500,000 to buy a 2 million dollar deal instead of a 400,000 dollar deal.

Much better asset the more units you have.

Isaac R. · Answer

Oh, forgot about that--thanks!

Isaac R. · Answer

@Alina Trigub Why does house-hacking reduce your down payment required? Does this change for moving from multi-family to 5+ units?

Ray Harrell · Answer

I would also review the landlord/tenant regulations in areas you want to purchase. Had I known about Chicago, I definitely would have gone for the suburbs. That could also make/break your chances of success if it takes you 6-8 months to evict. Choose 3 or 4 locations and review their ordinances. I would recommend smaller towns with low crime and newer infrastructure.

Property management will be hit or miss, but by you not being there to manage them, they can do whatever they want. They get paid whether you get paid or not, and they generally don't care about things that you would care about. Their goal is maximizing THEIR profit, even at your expense.

Best way to get into Multifamily investing?

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