How Can I Set Myself Up To Own A Complex?

Question

Hey all, I am 21 years old and highly motivated to use real estate as a means to establish financial freedom - primarily through rentals. My goal is to make $15k per month through real estate. So these are my "goal numbers" that I'd like to shoot for to make that a reality in the next 5-10 years:

$1.5M complex
25+ units
$300k cash for 20% down
+$50k in closing/misc.
$8k p/m mortgage
Rent at avg. $1k each

Revenue = $25k
Mortgage = $8k
Management = $2k
CASH FLOW $15k PER MONTH

With that being said, 1) do these numbers seem realistic? And 2) what is my best route to come up with $300k for a DP? Would I be able to get lower than 20% down or is there any creative ways to do a deal like this without having a large DP?

Thanks in advance for any guidance on this!

Wayne Brooks · Answer

Your numbers are way off, your expenses will run 40% plus of projected income....management, vacancies, maintenance and repairs, large capex expenses (roofs, appliances, hvac, etc), turn over costs, property taxes, insurance, etc.

As for getting the money to invest, that’s where a good job/career come into play...and saving all you can.

Michael Ealy · Answer

Devyn,

No, the numbers are not realistic.

Apartment cap rates in good areas (that can command $1K/mo rent) are usually in the 4-5%.

Let me break down the numbers for you.

$1K/mo rent x 25 units = $25K/mo x 12 = $300K/yr gross rents

Usually, there's 94% occupancy and 40% expense ratio for "A" properties in "A" areas. This means, your NOI is $300K x 0.94 x (1-40%) = $169,200 and at a 5% cap (which is high in a lot of areas), you're looking at a likely purchase price of $3,384,000 (which is way more than double your $1.5M price).

If I were you, since you're asking this, it shows that you need to do more research and study to know what a realistic deal looks like. Have you read any books about apartment investing?

Have you spoken to commercial real estate brokers in your area? Have you attended your local REIA meeting or your local landlords and apartment owners association meeting? By talking to people in your area/city who are into apartment investing, you will learn what the realistic numbers in your local market.

Also, I suggest that since you don't have $300K in your bank account that you start with a smaller deal first. Maybe a 4-plex and use your own capital first. You don't have the right to use other people's money because since you're new, there's a high chance that you will lose money. You might as well lose your money first instead of losing and learning on someone else's dime.

The other alternative is to partner with someone very experienced but you have to bring something to the table (like finding a deal for him/her and raise capital from your own network).

Makes sense?

Greg Dickerson · Answer

You do not have to wait 5 or 10 years to make this happen. You can do this this year but you need to educate yourself first. As others have mentioned your numbers are way off and there is a lot to learn and be like you need to know to make money in the space. There’s a lot of great info out there on investing in multi family immerse yourself learn everything you can to make it happen this year!

Erik W. · Answer

Here's a 5-step starter plan / quiz for all newbie MF investors.

1) Learn how to calculate NOI.  Run the numbers on your property.  Post the process and the results.

2) Learn how to calculate a Cap Rate.  Run the numbers on your property.  Post the process and the results.

3) Find out what DSCR means and how it applies to what you're wanting to do.  Post your understanding.  2-3 sentences should be enough.

4) Make an inventory list of your skills, talents, training, knowledge, experience, and insights into the residential real estate industry that you believe will generate the most value and win the trust of people whom you will ask to allow you to manage hundreds of thousands of dollars.  Post them here.  I'm going to stipulate one rule: you cannot use the word "motivated" or any synonyms.

5) List your available personal financial resources and contacts who could provide the balance for any deals.  You don't have to post names and phone info, but let's get an idea of what access you have to funds.

Bonus points on this test if find out what T-12 means and how it applies to this conversation thread.

Scott Mac · Answer

@Devyn Grillo

Hi Devyn,

If you want $300,000 CASH, shoot for at least $500,000 CASH in hand.

That way you're not betting the farm on a "Wing and a Prayer" (if you're not familiar with that saying, it's from an older movie (The Flying Tigers) --that you may enjoy--google it).

To pick up $500,000 CASH you will need to "Be in the Right Place at the Right Time" and understand that "Preparation + Opportunity = Profit" (and be Lucky because $500,000 doesn't just fall off of a tree).

With that being said, if you have not done so already spend a few WEEKS reading "Awaken the Giant Within" and actually doing the written exercises. You can use it to make a personal road map for the next 12 months of WORK you will need to do. Work is where the Rubber hits the road (dreams and desires are just thin air).

Can you get $500,000 CASH? Many will say sure--I'm going to say maybe-maybe not. Because it's up to you, and what you are capable of getting yourself to do, and how tenacious you can be in the face of interim failures to get it. (What I am saying is if it were easy--everyone would have a pocket full of cash--and they don't, so it takes "Stick with it in the face of adversity" as well as a Realistically workable plan for yourself and some luck.

Here is a 17 minute video you may enjoy (Would you rather be an Eagle or an Oyster): https://www.youtube.com/watch?v=anuzHeV2dno

Good Luck!

Account Closed · Answer

Most people do not start in large complexes regardless of what the forms make believe. When most are talking multi units they are talking 2-4 units, buy it sounds big saying multi. Start NOW where you can and go from there.

Spencer Gray · Answer

You're on the right track. Your hypothetical, while incomplete, could still be a deal and there is no reason that you can't do it in 2020!

To achieve $180k/yr aka $15k/m you would have to be receiving an 18% cash on cash return on a $1,000,000 investment. A more reasonable example would be 9% cash on cash from a $2,000,000 investment.

As others have said you have left operating expenses out entirely. A management fee doesn't actually cover any expenses for operating the property, all of those expenses are paid by the property itself. Even if then property has onsite staff you have to pay payroll, supplies, etc in addition to a PM fee.

You are also assuming the asset will achieve 100% economic occupancy (loss to lease, bad debt, vacancy) all of the time, which is never the case even will full physical occupancy.

That all being said your example would still cash flow - although I am curious what market you are looking in that you can purchase a $60k/u property with $1k/m rents. In most cases you would need to reposition a property via major renovation which would need to be included in the budget.

Good luck in 2020!

Erik Hatch · Answer

Personally I would syndicate with partners and look at a minor 100 units to take advantage of economies of scale.

Frank Procopio · Answer

You are going to need to start with some smaller rentals. You need to make sure this is something you even enjoy first. Commercial lenders want to see experience also, I have seen them tightening up on that alot lately and denying people with limited experience for loans

Chase Kimbrell · Answer

It’s great that you’re motivated to do a plan like this. But I hope you know that you’ll have to start small and build up. Maybe look for Brandon Turner’s Book on Real Estate Investing or whatever it’s called, lol. The one with a blue cover. Anyway, he details a few plans for getting into it. I think for you, the best plan would be to house-hack until you have enough equity and savings that you can roll it into a down payment for your dream building.

How Can I Set Myself Up To Own A Complex?

Most Popular Reply