Finding Multifamily investments?

Question

Hopefully this doesn't sound too crass but I want to put my money somewhere useful and make it grow (as I'm sure most of you want to).

After listening to dozens of podcasts and having experience with my SFH rentals portfolio I'm now leaning towards Multifamily for next investment to scale.

In particular, apartment complexes and MHPs however I'm finding financing to be more "challenging" with these products because I'm so used to "ease" of the residential financing process.

To those of you who are more seasoned with Multifamily real estate:

-How do you find deals?

-Which markets do you prefer and why?

-Did you start with apartment complexes (which class)?

-What was your first big deal like? How much money did you put into your first multi-family deal?

I honestly don't care where my first multi-family deal is, I just need to see if the returns and numbers work.

If anyone has some good deals (in any part of the country) I'd love to connect to chat more.

Charles Seaman · Answer

@Richard Tavetian  My answers to your questions are below.

Most of my deals are found through broker relationships. If you're looking for multifamily properties that are less than 50 units in size, then you can find them through a mix of the same methods that you currently use to find your single-family homes and broker relationships. If you're looking for multifamily properties that are 50 units or larger, then you'll find those almost exclusively from broker relationships.

I focus on NC, SC, and Atlanta, GA.  I also have some additional team members that look at Orlando, FL, Tampa, FL, Nashville, TN, Birmingham, AL, Huntsville, AL, Dallas, TX, and Salt Lake City, UT.  The Southeast and Texas seem to be the two pockets that many investors have focused on in recent years.  With any market that you look for deals in, you want to see consistent year-over-year growth in job creation and household formations.  As an added deals, I also look for deals in states with favorable tenant/landlord laws (so NY and CA are definitely out for me).

I did start with apartment complexes.  It also helped that I worked for a commercial real estate investor in NYC for 14 years, so I was fortunate to learn a lot while there.  It's possible to start with apartment complexes even without prior commercial experience, but you'll definitely want to educate yourself as much as possible and partner with people that have experience.  My primary focus is on Class B and C assets.  Thus far, I've only been successful with acquiring C assets.

My first big deal was 92 units (you can probably find the details somewhere on my BiggerPockets profile).  I closed on it in September 2019.  It was a syndication deal.  I didn't personally invest any money into the deal.  The purchase price was $4,876,000 and the equity raise was $2,225,000.  My partners and I came up with the capital for the EMD and lender deposit, but then got it back at closing.

You can definitely find deals where the numbers work, but it'll take a lot of looking (similar to single-family).  The major difference from single-family is that there's a much smaller supply of multifamily properties and the competition is much more sophisticated and much more fierce than it typically is with single-family.

Alina Trigub · Answer

@Richard Tavetian

You've got an incredible feedback from @Charles Seaman.

I'd say, you should start with education - learn as much as possible about MFH investing through books, podcasts, networking (virtual for now), so that when the times comes, you're ready to take action you know what you're doing.

Here're some additional articles to check out:https://www.biggerpockets.com/blog/10-things-investors-should-know-before-jumping-into-multifamily-housing

https://www.biggerpockets.com/member-blogs/10850/87253-should-i-scale-my-investment-from-single-family-homes-to-multifamilyhttps://www.biggerpockets.com/member-blogs/10850/81214-what-goes-up-must-come-down-or-market-cycles-fluctuation

Charles Seaman · Answer

@Adrian Fajardo It's hard to say for sure because you can never truly put yourself in somebody else's shoes, even in spite of how hard you try to.  My best recommendation would be to honestly assess your skill level and comfort level with larger apartment complexes and then make an educated decision from there.

If investing in larger apartment complexes will cost you sleep, then start smaller and work your way until you feel comfortable doing so.  If you're planning to syndicate, also keep in mind that you'll be using other people's money, so you want to make sure that you feel comfortable because you want to be in a good position to protect their money and to hopefully return it to them with more on top of it.

Charles Seaman · Answer

@Pope Lake You're welcome.  My strategy is typically value add, but it changes as the market cycle changes.  I'm not a big fan of upgrading the asset class of a property because it often requires more risk.  If I buy a C property, I've often found it better to work on making it the best C property in the area than upgrading it to a B property because there's less risk involved and oftentimes there are better returns as well.

However, if I was going to do a major re-positioning, then I'd say that the best time to do them is as early in a buyer's market as it makes sense to because that's when costs to acquire properties and do the required work would be cheapest.  So I'm keeping my eyes open as we shift from a seller's market to a buyer's market.

With regard to getting the cash back at closing, my partners and I fronted the money for the EMD and the lender deposit.  This amount totaled approximately $160K.  Instead of leaving the money in the deal, we included that money in our equity raise and repaid ourselves from those funds at closing.  At this point, we need to keep our money liquid so that we're ready to lock up new deals.  At some point in the future when resources are more plentiful, we will definitely leave money in some of our deals.

Charles Seaman · Answer

@Alina Trigub Thanks for the kind words.

@Adrian Fajardo My role in the company currently is acquisitions and asset management.  With the deal that was referenced above, my role was underwriting it, being the primary contact with our key principal and lender, reviewing the contract and all other legal documents, and assisting with the preparation of the investor marketing materials and the equity raise.  So basically I did whatever was needed to get the deal closed.  After we closed the deal, my partners and I then decided to assign specific roles that we could operate more efficiently.  My recommendation would be to figure out what your greatest strength is and to then find a partner that complements you by being able to handle the areas that you're not as strong with.

Tyler Cauble · Answer

@Richard Tavetian - I own a commercial real estate brokerage based in Nashville, so we do this type of prospecting on a daily basis.

For a new multifamily investor, these are the two best ways to find multifamily deals (in my opinion):

• 1. Pull a list of all multifamily in your area and send them a handwritten note. We do this type of prospecting every single day. I make sure to send out a minimum of twenty letters to my farm area. You don't necessarily have to hand-write the note inside your letter, but you should definitely sign the letter and address it by hand. By taking this step, your targets are more likely to read it and pay attention to the letter. 
• 
• 2. Networking with multifamily brokers. If you're looking for projects that are 50+ units, this is almost the only way to go. Sure, there will be some exceptions and you may send a letter to a larger property owner who would be willing to sell, but most of the larger multifamily deals are sourced by commercial real estate brokers that have pre-existing relationships with the owners. Residential Realtors are also a good resource for smaller multifamily deals, as they will come across those projects occasionally, too.

Hope that helps!

Charles Seaman · Answer

@Adrian Fajardo You're welcome.  If you need any help along the way, please feel free to reach out.

Adrian Fajardo · Answer

@Charles Seaman thank you for the response. Yes, I've been studying up on the the whole syndication process. Honestly, my greatest strength is working well with others and I'm analytical. But thank you, I will reflect on what you advised and reevaluate on where I fit.

Just curious, if you hadn't had your experience with your commercial company before you got started, would you buy several small MFH (duplex-4plex) before jumping to apartment complexes?

Adrian Fajardo · Answer

@Charles Seaman thank you for being very transparent on your story. It helps most of us trying to learn. If you don't mind me asking, what was your role on the general partnership when you did your first deal? As a person who just starting out on syndication, I want to know what role I can best play in the partnership.

Any advice would be much appreciated.

Pope Lake · Answer

@Charles Seaman interesting what you bring up about changing the asset class of a property. As I've been looking at various listings, I've come across a great many that make it seem like upgrading the class would be too forced.

Very prudent point on how it's better to acquire during a buyer's market. Point taken on your cash back senario as well.

@Richard Tavetian I'm transitioning to multifamily from SFR as well so I'm glad you posted. If you haven't already I'd get the Best Ever Apartment Syndication Book by Joe Fairless. Would be great to connect and share experiences.

Finding Multifamily investments?

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