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Updated over 4 years ago, 03/23/2020
are my goals not big enough
I have 3 SFH investment properties. It's almost my 1 year anniversary. I want transition to apartments ASAP.
I was writing my goals down. I caught myself writing, "I want to buy a 30 unit building in 3 years". My thinking was I need 3 years so I can get more experience to do more SFH to build a more reputable track record to raise private money.
Am I thinkIng too small ? is 3 years too slow?
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You SFH experience hardly translates to MF. If you want buy an apartment then you need to buy one. If 30 units too big right now, start with 10.
Why do you think you need to buy 30 houses in 3 years to build a reputation? Why not 60?
@Jason Malabute I would suggest starting with a duplex or triplex or fourplex. It is much similar to a sfh. Then, once you get a handle on that for 6 months or so, you can go for larger complexes. You will need to (or maybe already have) a management company to manage more and more units (or manage it yourself with employees/contractors). Your goals are great, just make sure you have specific steps in between.
As others said start with a small MF. Start with a 4plex. Then go to a 8 unit building. Then a 16 unit building. Then a 30 unit building. Don't hesitate to start, another option is partner with an investor who has experience then do one yourself.
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@Jason Malabute You have to decide what is right for you..............I had been buying onesies and twosies and 3 years ago felt the urge for a bigger property and bought a 12 unit. A few months earlier there was a 35 unit building for sale but I felt like I was not ready to go from duplexes to a 35 unit and bought the 12 unit instead. The 12 has been an easy transition, having all your tenants under one roof is great; we still have the duplexes and went from using a PM to self managing. I would encourage you to join your State LL Association-or similar-attend meetings and listen to people's stories and experiences. You may want to step up earlier three years is a long time. All the best!
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@Jason Malabute, as mentioned, your goals should be something you are comfortable with. The typical route has been outlined: SFR>4-8>10-20>50-100>100+, but I happen to work for someone that went from 4 SFR to 100+ unit project to 200+ projects and 23 in the portfolio now.
You learn at each level, so it really depends on how wide you are comfortable opening that firehose. Are you looking to build a management company? Then start building your portfolio in smaller bites and hiring and growing employees with each step.
Are you wanting to be more of an asset manager like most syndicators? Then you won't really know what that is like until you have an asset that supports its own management staff that you select.
Obviously jumping in with both feet and trying to take down a large project at this point has its own risks and mistakes in general are more costly, but it can be done with the right network of people.
One other example, I have friends that combined have only ever worked in retail. One of the two owns his own house. They were able to source, close and are learning through a 43 unit MF that cost 7.3mm to buy and has a capex budget of $500k. They have never owned a single rental between the two of them prior to this deal.
I believe it is a matter of capital. If you have capital or the ability to raise enough capital to buy your 30 unit complex then I believe you can do it. This is a personal opinion based on life experience. The systems and best practices on how to run manage and run a 30 unit complex is easy to get and readily available. Following the play book on something like this can be worked through.
I believe the hardest part is raising the capital and then having the guts to put is on the line and bet on yourself.
If you have this in you then I feel that you can make this happen.
Like @Evan Polaski said in his post, he has friends that have raised capital are learning through the process.
Good luck!
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Originally posted by @Jason Malabute:
I have 3 SFH investment properties. It's almost my 1 year anniversary. I want transition to apartments ASAP.
I was writing my goals down. I caught myself writing, "I want to buy a 30 unit building in 3 years". My thinking was I need 3 years so I can get more experience to do more SFH to build a more reputable track record to raise private money.
Am I thinkIng too small ? is 3 years too slow?
You can go as big as you want as long as you have the knowledge. The experience gap can be filled in a number of ways but you definitely need to be educated on the space and convey you know what you're doing. Raising capital is not hard it's a skill like anything else and can be learned.
Originally posted by @Alex Olson:
@Jason Malabute I would suggest starting with a duplex or triplex or fourplex. It is much similar to a sfh. Then, once you get a handle on that for 6 months or so, you can go for larger complexes. You will need to (or maybe already have) a management company to manage more and more units (or manage it yourself with employees/contractors). Your goals are great, just make sure you have specific steps in between.
the problem is in my market people who buy duplex are low quality tenants and the demand for triplex and quads are low... tips?
@Jason Malabute The demand to live in them are low or the demand to buy them is low? I think you will find just as good of tenants to rent in duplexes as a SFH, or at least close. I am not sure what area you are looking at investing in but its all about the location location location when buying any property. It is ok to "overpay" based on your standards if the location litterly can't be beat. I only invest near hospitals, school, entertainment districts or new modes of transportation. And by near, I mean 2-4 blocks max. But...that is what my area is good for.
Originally posted by @Bjorn Ahlblad:
@Jason Malabute You have to decide what is right for you..............I had been buying onesies and twosies and 3 years ago felt the urge for a bigger property and bought a 12 unit. A few months earlier there was a 35 unit building for sale but I felt like I was not ready to go from duplexes to a 35 unit and bought the 12 unit instead. The 12 has been an easy transition, having all your tenants under one roof is great; we still have the duplexes and went from using a PM to self managing. I would encourage you to join your State LL Association-or similar-attend meetings and listen to people's stories and experiences. You may want to step up earlier three years is a long time. All the best!
Thank you. Very inspiring. Can we hop on a phone call? I'd love to hear more about your journey
Originally posted by @Alex Olson:
@Jason Malabute The demand to live in them are low or the demand to buy them is low? I think you will find just as good of tenants to rent in duplexes as a SFH, or at least close. I am not sure what area you are looking at investing in but its all about the location location location when buying any property. It is ok to "overpay" based on your standards if the location litterly can't be beat. I only invest near hospitals, school, entertainment districts or new modes of transportation. And by near, I mean 2-4 blocks max. But...that is what my area is good for.
Nice! Do you invest in multis?
Yes I have both SFH and MULTI. Multis do much better for me. But I bough the sfh (really, both) because of the location.
Originally posted by @Damaso Bautista:
I believe it is a matter of capital. If you have capital or the ability to raise enough capital to buy your 30 unit complex then I believe you can do it. This is a personal opinion based on life experience. The systems and best practices on how to run manage and run a 30 unit complex is easy to get and readily available. Following the play book on something like this can be worked through.
I believe the hardest part is raising the capital and then having the guts to put is on the line and bet on yourself.
If you have this in you then I feel that you can make this happen.
Like @Evan Polaski said in his post, he has friends that have raised capital are learning through the process.
Good luck!
how much is enough capital though
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Originally posted by @Jason Malabute:
Originally posted by @Nick B.:
You SFH experience hardly translates to MF. If you want buy an apartment then you need to buy one. If 30 units too big right now, start with 10.
so you're saying just buy multi now but how will I get loan if I don't have track record yet?
You don't need a track record to get a loan. What you need are networth, liquidity, and 3-rd party management. If you have all three, getting a loan won't be a problem.
Originally posted by @Alex Olson:
Yes I have both SFH and MULTI. Multis do much better for me. But I bough the sfh (really, both) because of the location.
can we schedule a phone call sometime? id love to hear how you got into multis?
Originally posted by @Nick B.:
Originally posted by @Jason Malabute:
Originally posted by @Nick B.:
You SFH experience hardly translates to MF. If you want buy an apartment then you need to buy one. If 30 units too big right now, start with 10.
so you're saying just buy multi now but how will I get loan if I don't have track record yet?
You don't need a track record to get a loan. What you need are networth, liquidity, and 3-rd party management. If you have all three, getting a loan won't be a problem.
very interesting! I didn't know this. I might be able to do it. I just need to build competence and confidence.
do you own multis?
Originally posted by @Evan Polaski:
@Jason Malabute, as mentioned, your goals should be something you are comfortable with. The typical route has been outlined: SFR>4-8>10-20>50-100>100+, but I happen to work for someone that went from 4 SFR to 100+ unit project to 200+ projects and 23 in the portfolio now.
You learn at each level, so it really depends on how wide you are comfortable opening that firehose. Are you looking to build a management company? Then start building your portfolio in smaller bites and hiring and growing employees with each step.
Are you wanting to be more of an asset manager like most syndicators? Then you won't really know what that is like until you have an asset that supports its own management staff that you select.
Obviously jumping in with both feet and trying to take down a large project at this point has its own risks and mistakes in general are more costly, but it can be done with the right network of people.
One other example, I have friends that combined have only ever worked in retail. One of the two owns his own house. They were able to source, close and are learning through a 43 unit MF that cost 7.3mm to buy and has a capex budget of $500k. They have never owned a single rental between the two of them prior to this deal.
Id love to hear more about how they scaled so rapidly. Are you free to talk?
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#5 Multi-Family and Apartment Investing Contributor
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Originally posted by @Jason Malabute:
Originally posted by @Nick B.:
Originally posted by @Jason Malabute:
Originally posted by @Nick B.:
You SFH experience hardly translates to MF. If you want buy an apartment then you need to buy one. If 30 units too big right now, start with 10.
so you're saying just buy multi now but how will I get loan if I don't have track record yet?
You don't need a track record to get a loan. What you need are networth, liquidity, and 3-rd party management. If you have all three, getting a loan won't be a problem.
very interesting! I didn't know this. I might be able to do it. I just need to build competence and confidence.
do you own multis?
I invest in them passively but also look for a small apartment complex to buy on my own or with a few partners. BTW, lenders count passive investing as "experience" for loan qualification purposes.
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@Jason Malabute to answer your how much capital do you need question: that is entirely dependent on the property. Typically for commercial loans you will be in the 70-75% LTV range. Are you offering a preferred return that might need to be funded before NOI catches up? If so, you need to raise that shortfall too. What about capex? How much and how is that funded, loan or equity?
Add up these needs and you will get to your capital requirements for the deal.
But then you add in your liquidity needs for the loan. This can't be raised, but needs to be with the guarantor. This liquidity ranges from 10% of loan amount to 9 or 12 months of PI payments.
Finally, for the loan, you need a 1:1 net worth to loan amount. So to get a $1mm loan, you will need a $1mm net worth or more. I have heard mixed messages about whether your personal residence can be included in that calculation. Some loan brokers say no, and some say yes.
It is because of these requirements that most people grow slowly. If you go the faster route, most people need a loan guarantor which may be hard to find. And then, as mentioned, you have to be confident that you can do what you say to investors and have a risk level to learn on their dime. This piece is why many new operators have higher prefs and lower carried interest on their deals. It is the only way they can offer their investors better returns than the established players for taking a bigger risk.
@Jason Malabute Others brought up great points. But why apartments? So saturated. Why not mobile home parks? Especially with this pandemic escalating, the demand for affordable housing would go up even higher. I bought 3 parks last year and it added up to 54 lots.
@Jason Ma i love the goal, just get specific. Is your goal to buy the 30 unit on your own? Syndicate a deal to purchase a 30 unit? Partner with someone to purchase it?
Each of these has very different tactics. If it's to buy on your own, then using the SFH route to build capital for a down payment is a possible tactic. If your goal is to syndicate a deal, your reputation and networking are the most important and maybe the experience of buying a number of units will help get you there. If your goal is to partner with someone on it but not syndicate, then you need to figure out how you'll fit into the deal and add value and network your *** off to get there!
There are plenty of options, you just have to get specific in your goal. You have a goal with a timeframe, just narrow down the goal a bit to inform your tactics
@Jason Ma
To be frank... yes. I didn't even bother with SFRs, I went straight to apartments. Granted there was some luck involved, but you have to pounce fast when it shows up. With in the first month of starting REI and looking for a property, my wife and I had a 4 unit under contract. Before we closed on that place, we had a 16 unit under contract and had them both closed within 3 months from first contract to closing the second deal.
Our original goal was one SFR a year for first 5 years. We have thought owning 5 houses was a great goal and it would probably take us at least 5 years to get there. Well, we 4x that in the first 3 months because we adjusted our goals and jumped in head first. I should note that we bought the 16 unit without using any of our money. Mostly because we had no money. We used all of our savings to buy the 4 unit. The point is you will never achieve anything more than your highest ambition, so aim higher than you think is possible. You'd be surprised at what you can do.
Originally posted by @Patrick Menefee:
@Jason Ma i love the goal, just get specific. Is your goal to buy the 30 unit on your own? Syndicate a deal to purchase a 30 unit? Partner with someone to purchase it?
Each of these has very different tactics. If it's to buy on your own, then using the SFH route to build capital for a down payment is a possible tactic. If your goal is to syndicate a deal, your reputation and networking are the most important and maybe the experience of buying a number of units will help get you there. If your goal is to partner with someone on it but not syndicate, then you need to figure out how you'll fit into the deal and add value and network your *** off to get there!
There are plenty of options, you just have to get specific in your goal. You have a goal with a timeframe, just narrow down the goal a bit to inform your tactics
The question if you will fund your deal yourself or syndicate... Isn't that a question of which part of the country you are buying in because a 30unit in Indiana will be at a different price point than a 30 unit in LA?
Btw how do you feel about the Raleigh market out there in NC? I heard your guys' job market is number 1