Realistic First Multi-Family Apartment Purchase

[Taylor Burns]

Hello BP! 

I am working on building my specific criteria for what type of multi-family deals I want to focus on. I am looking for feedback on what number of units is realistic for a first time multi-family purchase. I am in outside sales and have connections to individuals with money. I am not too focused on the money right now, but what it takes in handling a deal and how big becomes too big for a first time buyer or is going big a better way to mitigate risk/ more room for error?

However, I am not trying to go learn on a 150 unit deal right out of the gate. I am thinking 20-30 units as a starting point. From experience, is this an acceptable number to start at or does it seem too high or too low? Looking for any wisdom from other investors to help me lock down my criteria. 

Thank you BP! 

[Michael Ealy]

Originally posted by @John Corey:

Another way to understand the issue is what can you survive when you get it wrong? Mistakes happen. More so when you are doing something where you lack experience. So, recoverable mistakes is the key. If you can deal with a 100 unit blow out, fine. If you lack the ability to recover if you bought a duplex, dial it back.

One issue is the funding. If you start with something larger than you can afford to fund, you will quickly run into issues with legally raising funding. Everything can be mastered once you know what it is you are required to do. If you stumble too much you will not build momentum. 

Remember, you do not need to retire off the first deal. No one at the top of their game only did 1 deal. Focus on the long term but do not be a rush to get there is one giant leap.

 I agree with John.

Instead of doing it alone, why not partner up with an experienced syndicator? The benefits are:

1. You get into a bigger deal sooner rather than later. As @James Dickens said, the bigger the deal, the greater the scale. A 100-unit apartment community can afford a full time property manager and a full time maintenance personnel. That means your cost of management will be lower than 10%. 

2. You minimize your risk and you minimize the risk to your investors. You leverage on the experienced syndicator's experience and expertise. One wrong decision can cost you tens of thousands of dollars with multi family but why make a mistake on your investors' dime when you can avoid it by partnering up?

3. You expand your network. The experienced syndicator has the network of property managers, contractors, leasing agents, brokers, accountant, lawyer, etc that you don't have to build from scratch. You need a team to successfully own and operate an apartment building.

4. You leverage on the experienced syndicator's net worth and liquidity so you can buy the biggest apartment community as possible. For example, an apartment complex that is worth $6M and you need to borrow $5M ...you need a net worth of $5M. You also need some cash reserves - say $500K in the bank. Plus you need to have the experience in managing assets smaller but not significantly smaller. For instance, if all you've owned and managed is a single family home, I doubt it if you can qualify for a loan on a 100-unit apartment complex.

5. You don't have to raise all the cash yourself - as the experienced syndicator has his/her own cash and the cash of his/her investors.

SO my advice: don't do it alone. Partner up and get the highest number of doors your partner can qualify for. And by doing this, you minimize your risks and maximize the potential gain for you and your investors.