From single family to multi family

[Tiffany Smith]

Hello BP friends I am looking for advice. We have 3 single family investment properties. While we have been successful in cashing in the equity (brrrr), the monthly cash flow isn’t where we want it to be. I am considering multi family- apartment complexes but the idea is somewhat intimidating.

Any opinions on whether multi family is better or worse? What is the financing process like, do you need a business plan if going through a bank? Any advice would be greatly appreciated!

[Chris Levarek]

@Tiffany Smith As suggested, education is great. Here are some recommendations for some great books on commercial real estate of course:  Crushing it Commercial Real Estate, Brian Murray ; Confessions of a Real Estate Entrepreneur by James Randel. Best Ever Apartment Syndication Book by Joe Fairless covers quite a bit on the Commercial Real Estate acquisition process even if targeted more towards people interested in syndication. Due Diligence Handbook for Commercial Real Estate by Brian Hennessy is also a recommendation.

However getting on in there and experiencing will always be the best. Start with a Duplex if needed, however really these seem to be just like a Single Family Home. Slightly less risk as now you have two tenants, yet very much same cashflow, renovations, bank requirements etc.

Until you get over 4 units, you will be getting residential appraisals(comps approach....), residential financing, etc. There are still benefits to having a quad over a single family however, the argument to economies of scale with 1 roof, more tenants to cover vacancies, etc comes into play the more units of course.

Also, for multifamily or commercial loans, helps to have a business plan yes. Also helps having other properties with equity as proof of net worth or collateral. Chances are you will be a signing as a personal guarantor on any commercial loan in early stages but as long as the deal makes sense and its a local bank(national banks sometimes tedious) willing to see the business plan or value-add strategy(usually best), the loan will be easy to come by. Having some cash reserves to show will also make it a smooth process. I find commercial financing is easier then residential. Working with people who understand investing always makes it easier. Hope that helps!