Methods for Sourcing First-Time Multi-Family Property - Advice?

[Kevin Scanlan Jr.]

I'm in the process of trying to acquire my first multi-family property in Chicago. I wanted to receive a few opinions or suggestions on how I should be sourcing potential properties. I feel that I'm competing amongst many others for the same properties and there's a ton of competition currently in the market. Most of the multi-families on the MLS don't seem to work for the financial side and are not close to the 1% rule. Within three months of searching, only one property has worked out for my criteria to put an offer in, but ended up going above asking price. I know real estate is a numbers game, but I want to make sure I'm not missing out on any good methods for finding good deals (a good deal for me would be a mulit-family that breaks even with me living in one of the units or bedrooms). I'm currently using a couple MLS searches setup for me, Zillow and Redfin searches with daily updates, looking on craigslist, and Loopnet.

Are there any other resources I should be using? Are there any unconventional methods for a first time home buyer or other ideas that I should look into, such as driving for dollars, reaching out to multi-family properties for rent on craigslist, direct mail marketing, or reaching out to be placed on any wholesaler email list I can find? What has your experience been? What would you recommend?

Basically should I look into every possible way to find a property or should I remain patient and wait till something pops up on the MLS and jump over it?

I'm mostly looking for a 3-4 unit multi-family property for $500k or less in Old Iriving Park, Kimble, Alabany Park, Ravenswood, Avondale or Hermosa. I'm interested in buying a property that needs cosmetics updates and that I can add value to. The property would be owner occupied and I'm looking to do a conventional loan with a 5% down payment. I'd also consider the south and southwest side of the city, such as Pislen, Heart of Chicago, Little Village, Bridgeport, or Illinois Medical district if it was a good deal.

[Diana Muresan]

@Kevin Scanlan Jr.agree, I am looking at MF myself for the last year in Little Italy and TriTaylor and I couldn’t find anything that makes sense. Yet almost half of my clients buy MF and they seem to have it working .... you could do a renovation loan on a MF and flip or rent after reno, less competition on the fixer ups as not beyond has the funds to repair and very few are aware they can do a 203k fha renovation on 2-4 units with with only 3.5% downpayment 

[Bjorn Ahlblad]

@Kevin Scanlan Jr. It is very much the same for MF in many/most markets; people are paying huge prices for properties that do not CF at all. You need to find a distressed property in a decent area owned by a distraught landlord and then renvate the place and rent to a new tenant class. Much easier said than done!

[Diana Muresan]

@Bjorn Ahlblad agree. And yes, I do quite a few deals in Seattle area mainly in the Moldavian community and MF don’t have the same cap rates as Chicago does, the ALH ( Assisted Living Homes) are thriving there, but that’s a niche market

[Chase Louderback]

Yes, if you are looking for 4 or less units then you should definitely be using the other deal sourcing resources that you mentioned.  You seem to have very specific criteria regarding size and location so it shouldn't be hard for you to pull a list of all 3-4 unit properties.  

Consider pulling a list of all of those properties since it probably isn't too many and then look for: out of state owners, tax delinquent, and/or high equity out of that list.  Mail all of them and consider cold calling the ones that are absentee, tax delinquent or high equity as well.

Finally, you can also go to the real estate meetups that are nearby those areas you are looking to buy.  Let the people know what you are looking for and try to hook up with wholesalers that operate in that area.

[Steve Vaughan]

Your asset type (tri, quad) is in high demand.  You are competing with househackers as well as off site investors.  These are also the easiest to finance with the best terms.  Lots of dollars chasing these.

I like these as well, so I've identified a hyper focused neighborhood that has the class and location I like.  I've established relationships with these owners, usually with a friendly letter.  They are all older  and have been self-managing forever.  When they are ready to sell, I expect to be at the top of their list.  ID some specific ones you like and get to know the owners.

Maybe branch up into the commercial apt space if you are ready mentally and financially.  Lots of competition at the top (100+ units) and the bottom (2-4), but Goldie locks today may be in the 12, 18, 24, 42, etc unit space. Something to consider. Good luck.

[Justin Kane]

theres really no difference, and 4 units and under really isnt considered MF, per se, however just keep researching, list source and narrow down exactly what you are looking for then start marketing yourself

[Kevin Scanlan Jr.]

@Diana Muresan @Bjorn Ahlblad - Thank you both for the help! I originally wanted to go with a 203k fha and roll in the renovations, but I figured there would be too much red tape and with my busy season coming coming up for work, that'd it'd be too much to handle this year. 

I don't mind doing cosmetic upgrades and would prefer if there was quite a bit of cosmetic upgrades to be down, so I can add value and then increase the rents. I think the key for me is finding the properties owned by a distraught landlord and acting on the situation. 

[Kevin Scanlan Jr.]

@Chase Louderback Thank you for the advice! I've been reaching out and meeting up with investors in the same situation as me, but I think that's a great point to start going to the real estate meetups as well. How often do you go to local meetups? 

[Kevin Scanlan Jr.]

@Steve Vaughan Awesome advice! Is this strategy something you applied for purchasing your first property too? Would you say this strategy takes on average a few years after building these relationships to turn into acquiring a property? 

[Chase Louderback]

Yeah no problem! I hope it helps you with your goals.  I personally go to 2 different meetups that are within an hour and a half drive from where I live and then I also host a meetup in the nearest city that didn't have one.  These are all just once a month meetups

[Alex Manwell]

@Kevin Scanlan Jr. threading the needle of finding a solid multi-family in a Chicago B-neighborhood that cash-flows AND is commutable to downtown on CTA/Metra (I'm guessing that's important...) is tough in 2019. Meetups are where it will probably happen. 

A neighborhood you didn't mention but may work for you... South Evanston. I own a 3-flat there, and I see 3-4 units with decent cash flow for <500k come up every couple months. They go relatively quick, but are not impossible. It's an active rental market and the area has improved rapidly, especially along Howard St. The purple line (express train downtown), red line, Northwestern, proximity to the lakefront, and solid schools are assets that will ensure healthy rental growth long term. 

[Bjorik Mutize]

I think also you hit it on the head with being patient and wait. While you wait you continue to learn your markets and continue to scout deals daily. Let your network know what you are looking for so you can get outside leads. Stay close to your broker working with you and ensure they are aware of your specific criteria.

I mean you can definitely do all of the other marketing methods you mentioned for sure, no harm, but I think you are doing everything correctly especially for your first deal. If numbers and properties fail to add up for an extensive amount of time maybe find another backyard to play in.

But most importantly remember your first property does not have to be perfect.

[Josh Oaten]

@Kevin Scanlan Jr.

You need to start building a relationship with commercial brokers for this. Most of what you will see on the MLS has already been passed on by investors that see these deals before they go to market. So yes you are correct, they don't make sense.

Find some good brokers in your area and build a relationship, and by that I don’t mean take them out to coffee and that crap. You give them business they will provide you access to better deals.

[Ricky Ann]

@Kevin Scanlan Jr.

How's the search been going?

When you say you want to break even with you living in one of the units, what expenses are you including? I'm trying to set expectations/criteria as I look for a multifamily in the same areas you suggested but it seems tough to find properties that would cover PITI with 5% down.

[Josh Oaten]

@Kevin Scanlan Jr.

I would suggest finding out who the top brokers are in this space where you area looking and get in contact with them. Make sure you have your specific investment criteria for them and follow up every week and a half to 2 weeks. 

You could also do this with a wholesaler considering you are in the small multifamily.

Hope this helps!