How to get started in MF Apartment Complex Investing

Question

Hello Everyone,

I have some experience now in residential buy and hold investing. After thinking about my goal (10 cash flowing properties in 5 years) I thought why not try MF. I was wondering what is the best way to transition into MF apartment complexes? I like to stay in the midwest e.g. Ohio, Indiana, Iowa, Kansas, Minnesota, Missouri, ect. I know finding a deal is hard work but some insight would be great.

Can some experienced investors give me some advice? Please ask any questions about my question.

Thanks

Kevin Dean · Answer

Hey @Amir B., one thing to remember is that investing in large multifamily properties is a team sport. Its tough for one person to network with vendors, source deals, underwrite deals, raise money, close transactions, manage construction, manage the asset, communicate with investors as well as all other functions I have not mentioned in this abbreviated list.

One way to get into a large multifamily deal is to add value and provide services in one of the functions mentioned above to an experienced operator who is already doing what you want to do in a market you are interested in.

First thing I would do is figure out what you can specifically bring to one of these experienced operators.

Second, I would start networking with these individuals and specifically look for ways where your strengths can help them grow their business.

Third, I would continue to build my skills in areas of weakness and add more value than you take.

The equity and returns you're looking for will follow!

Mike Krieg · Answer

@Amir B. Investing passively would just be a matter of reaching out to syndicators/operators in those markets where you want to be. I'd suggest getting ahold of the 2019 Marcus and Millichap Report to examine those markets. Next, weed out the landlord unfriendly markets. This will give you a good group to work with. Then you'll just need a process of doing your diligence on the operators. You can call them with a list of questions. Since a relationship is an SEC requirement anyway for passive investing, getting on the phone is not something they'll be opposed to. As an LP you're a member of the team and vital to helping to close a deal. A good syndicator will treat you that way. Best of luck and let us know how it goes!

John Fortes · Answer

What most people don't come to grips with when you want to scale up quickly in multifamily is the value of relationships and partners. Other like minded individuals seeking to do what you want to do and joining forces will help you get to your end goals and theirs faster. The real value is in the partnerships and scaling if you are looking to go big.

Learn how to underwrite a commercial multifamily. Its different than residential.

Chris Tracy · Answer

It depends.  What would you like to do?  Be active or passive?  Would you like to oversee a property management company or have some other syndicator do all the work, and you function as a passive investor?

Chase Louderback · Answer

Hi @Amir B.

Most importantly you need to get educated on the business.  Understand how the valuation of multifamily works, how to underwrite deals (even if you plan on being passive), how to analyze markets, etc.  Then you can decide if you want to be active and buy multifamily or passive in another sponsors deals.

Once you are at that point you have many different directions you can go and it will ultimately depend on your goals.

Oleg Shalumov · Answer

@Amir B. by adding 5-12 unit property you could slowly grow your unit counts in the area you currently are . If you already have PM who is managing your residential unit - make sure he can handle more units. Down-payment usually is the show stopper for many people: great if you have it, or try to team up with someone who can provide financial part of the deal.

I would recommend you read up on investing in commercial properties as investing in residential & commercial is different (for example residential properties priced at comparable sales in the area and commercial by the income they produce and CAP rates in the area).

Best of luck

Tim Johnson · Answer

@Amir B. You mentioned you were a buy and hold investor.  Have you considered doing a 1031 exchange of an existing single family property you own and parlay that into a multifamily?  Home values have risen substantially the last 5 years.  Depending on how long you have held your property you might have a good amount of equity.

For example, if you had $200k equity in a home you could use that as your 20 percent down to purchase a $1M multifamily.  And there are no negative tax consequences for selling.

If that sounds interesting you should read up on the rules of 1031 exchanges.  There are some important time windows and other limitations.

Good luck!

Mike Taravella · Answer

Hello @Amir B.

I agree with @Chase Louderback  that the first step in the process is to educate yourself on the process of multifamily investments. I would highly recommend buying Joe Fairless and Theo Hicks's book The Best Ever Apartment Syndication Book. It goes through the entire process from beginning to end.

Then I would follow @Chris Tracy 's point to figure out what role do you want to have, active or passive. If you want to be active I would then decide on which aspect you want to help an existing operator with. You can help fundraise, find deals, or execute on the business plan.

If you have any questions feel free to reach out and connect at anytime.

Theo Hicks · Answer

Since you are interested in passively investing, I would go through the MF forums on BP and DM the syndicators who are the most active/most talked about. Then, qualify them by asking questions about their track record.

How to get started in MF Apartment Complex Investing

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