Getting started in Medium to Large Multi-Family

Multi-Family and Apartment Investing
6yFollow

Getting started in Medium to Large Multi-Family

Reed Meyer
Investor · Chicago, IL · Member since 2020 · 66 posts · 55 votes

How can I get started in medium multi-family without a track record? I am thinking the 16-20 unit range. Obviously need about ~75% loan from the bank and would need significant money from a partner for the down payment and rehab. 

I am looking at opportunities in areas with large rent disparity where we could go in and rehab that are already selling at around 6Cap. We could rehab these and increase rents by $100-$150 units each and force appreciation so the math works great. However, how can I convince the bank and a partner to get on board when I have no experience? Will a good, confident sales pitch and well organized, convincing OM be enough to get the money if it truly is that good of a deal?

Or is it truly a necessity to start small and get a 4 or 6 unit under my belt to prove myself before moving up to bigger deals? I really just want to jump into a big one first because I know that they'll take similar work upfront anyways and the higher unit counts are far more lucrative due to benefiting from economies of scale.

Thanks a lot. I'd love to get any and as much advice as possible!

2Reply
55 views

Most Popular Reply

Ivan BarrattBusiness Member
Investor · Indianapolis, IN · Member since 2015 · 764 posts · 953 votes
6y

@Reed Meyer 

2001: started my career in real estate working for a mentor (a real estate developer / investor) and house hacking my first duplex.

2008: got my @$$ handed to me in the GFC. *Best gift of my real estate career.

2010: Started Barratt Asset Management (BAM) first as a property management co (managing rentals for other investors) while practicing some brokerage on the side until I had enough management contracts to stop brokering deals. At the same started doing small deals (duplex, triplex, 6 units, etc where I could execute a heavy rehab / value add play).

2012: Bought my first bigger deal at 35 units with one $$ money partner already in my network.

2014: Syndicated a 60 unit deal and never looked back. (**most of my first investors were management clients who saw and liked what I was doing).

2020: Me and my partner own 3,000 apartments via syndication (along with nearly 200 high net worth individuals and families that invest as LP's). BAM is asset and property manager and we don't take on any more 3rd party management deals. We only manage what we own and control.

Advice: while there may be some unicorns out there that go big early and succeed; there are far more successful people that started small and built unstoppable momentum one turn of the wheel at a time. Start tomorrow with a small deal, fail small, learn, rinse and repeat. Focus on doing that every day and 10 years from now you'll be called an overnight sensation. ;)

7Reply
See this reply in the discussion

20 Replies

Jump to latestLatest
  • Joseph CacciapagliaBusiness Member
    Lender · San Antonio, TX · Member since 2020 · 1k+ posts · 1k+ votes
    6y

    If you have a partner with significant net worth and liquidity, and you are using a 3rd party manager, you should be able to purchase properties of that size. I had a client whose first deal was a 28 unit value add property. He and his partner both had significant net worth, liquidity, and outside income, but neither had any experience whatsoever. They relied heavily on their property manager's experience to sell the deal to their lenders. There is a good chance you won't get 75% LTV. I would make sure your deals pencil out at 65%. You may do better, but that was where a lot of his quotes came in. They may also require you to maintain a Cap Ex reserve.

    [email protected]979-218-2286
    Joseph Cacciapaglia powered by Morty
    WebsiteView Page
    1Reply
  • Craig Sloan
    Member since 2018 · 200 posts · 123 votes
    6y

    @Reed Meyer time may be on your side.  I think it's likely this pandemic will create some buying opportunities in properties of that size.  Some of those are owned by mom & pop investors that may not have the reserves to weather the storm.  Get your ducks in a row, find a partner or find a way to come up with a down payment and you may have some opportunities in the next 12-18 months.  I certainly don't have a crystal ball.  Just my opinion of what may be possible.  Good luck.  

    2Reply
  • Alex Olson
    Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes
    6y

    @Reed Meyer where would your 20-25% come from? And what location? This will determine if it is possible. I would recommend a fourplex to start and the you could do 20+ pretty easily.

    1Reply
  • Reed Meyer
    OP
    Investor · Chicago, IL · Member since 2020 · 66 posts · 55 votes
    6y

    @Alex Olson the 20-25% would come from a partner. No one lined up right now but I’d have to just figure that out. I figure if the deal is good enough I could find someone who’s willing to put down the money and get a preferred return. That’s assuming people will trust a first time investor even if it is a great deal.

    0Reply
  • Stephen J DavisBusiness Member
    Rental Property Investor · Houston, TX · Member since 2017 · 529 posts · 467 votes
    6y

    Build your credibility by taking the National Apartment Association courses on property management. They are great and come with certificaiton. To raise capital, join a local real estate investor group. Also, apartments are way different than running single-family. Make sure you learn the business before investing someone else's money.

    4Reply
  • Gregory SchwartzBusiness Member
    Rental Property Investor · College Station, TX · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    @Reed Meyer I'm in a similar position. I started with a 4 plex house hack in January and then started networking locally and nationally. Now I'm looking for deals in the 4-12 unit range that I can handle with 1-2 partners. As I grow my experience and credibility I will look to scale to 24, 50 or 100 unit apartments. Reasonably this is a 3-5 year timeline. 

    [email protected]443-812-0357
    Schwartz Realty Group5116 Reviews
    WebsiteView Page
    0Reply
  • Greg Dickerson
    Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
    6y
    Originally posted by @Reed Meyer:

    How can I get started in medium multi-family without a track record? I am thinking the 16-20 unit range. Obviously need about ~75% loan from the bank and would need significant money from a partner for the down payment and rehab. 

    I am looking at opportunities in areas with large rent disparity where we could go in and rehab that are already selling at around 6Cap. We could rehab these and increase rents by $100-$150 units each and force appreciation so the math works great. However, how can I convince the bank and a partner to get on board when I have no experience? Will a good, confident sales pitch and well organized, convincing OM be enough to get the money if it truly is that good of a deal?

    Or is it truly a necessity to start small and get a 4 or 6 unit under my belt to prove myself before moving up to bigger deals? I really just want to jump into a big one first because I know that they'll take similar work upfront anyways and the higher unit counts are far more lucrative due to benefiting from economies of scale.

    Thanks a lot. I'd love to get any and as much advice as possible!

     There's nothing wrong with starting small and building up to larger properties on your own first but you can scale way faster going big.  Either way the key is to educate yourself on the business and the market. You are going to need to bring some serious expertise to the table to land investors and or partners. Once you can demonstrate your expertise the other items like net worth and capital can be made up by partners. You do need to package yourself, your business and ultimately the deal once you find one.

    Another unique opportunity is owner financing. Sometimes you can find smaller properties under 100 units that are owned by mom and pop operators who will take a chance on you and finance the deal. You would still need to raise the capital but would not need banks or a KP.

    1Reply
  • Brian Briscoe
    Real Estate Coach · Salt Lake City, UT · Member since 2017 · 272 posts · 414 votes
    6y

    @reed -- It is not necessary to start smaller. 18-20 is still very accessible for someone without experience. We recently purchased a 32-unit in Columbia, SC, on a regular old bank loan - no requirements for experience or net worth like an agency loan (Fannie or Freddie) would have. They even funded the renovations. Purchase price was ~$800k; bank is giving us just short of $1M, and we had to bring $350k at close (plus $50k in reserves).

    Downside is that it is a recourse loan (i.e., we're personally liable for paying). Some people have a hard-fast rule on never doing recourse loans. I look at it as one of many risk factors in investing. It's always a risk v. reward situation and in this case the reward was worth the greater risk exposure.

    Now, there's obviously the down payment (plus reserves plus renovation costs)... If you have a potential partner that can bring all the money to close, great. If not, maybe look into the syndication model -- that's what we do. We find the property and find the investors and put them all together. Win-win.

    1Reply
  • Mary M.
    Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
    6y

    I am in the middle of buying 20 units, and it is a very different world than SFH .... the first thing I would do is get educated about the industry. Also talk to a commercial mortgage broker as literally criteria and loan terms changes daily! this means the amount of reserves, down payment and loan amount are changing.

    There are lots of ways to learn but the main thing is to dig in and gain the knowledge needed to step into the (semi) big league :) 

    0Reply
  • Mary M.
    Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
    6y

    Also, re timeline.... the big guys tend to hold assets for ~5 years. You need at least this long to stabilize the asset, increase rents (aka increase the value of the asset) pay all the associated transaction costs, and still have $$$ left over to go to the next bigger size.  Be sure to calculate the timelines etc. 

    0Reply
  • Ronan DonnellyPro Member
    Investor · New York City, NY · Member since 2012 · 332 posts · 385 votes
    6y

    @Reed Meyer - good luck, value-add is a tried and tested strategy. If you find a good deal you should t have too much trouble finding money partners. Just keep on networking and broadcasting your progress on BP.

    [email protected]
    0Reply
  • Eric Johnson
    Lender · Chicago, IL · Member since 2016 · 653 posts · 313 votes
    6y

    I recommend being able to raise at least 30% equity. I finance these assets all the time, and I always have to explain to my newer (and experienced investors actually) that leverage in the small balance multifamily game is capped at 75% for a vast majority of the players, in a healthy market. 

    Financiers are now cutting leverage by 5-10% to mitigate market cycle and uncertainty based risk. Shoot me a PM because if this is a first deal, there is a lot you do not know as it relates to financing and how the deal will actually work. You have an idea in your head, but the framework for execution is not there.

    Also, I always recommend 4 unit FHA house hack as a very first deal, no matter the background of the investor.

    1Reply
  • Christopher B.
    Investor · Southeast, MI · Member since 2016 · 425 posts · 184 votes
    6y

    Yes, certainly educate yourself, but you are on the right track starting here already.

    I started with 4-units, and then 8, and so on. I wish I had of skipped the 4-unit for at least 5-units, only because of how appraisals are done with 1-4 units. I would not trade the experience and process that came along with it though. If you want to discuss, I never get tired of talking about this stuff.

    @Matt Faircloth has a book that is good, regarding Raising Capital, and syndication.

    2Reply
  • Adam Blachnio
    Rental Property Investor · North East US · Member since 2019 · 114 posts · 31 votes
    6y

    @Reed Meyer

    In your estimations what cap rate and where are you going to hit?

    0Reply
  • Reed Meyer
    OP
    Investor · Chicago, IL · Member since 2020 · 66 posts · 55 votes
    6y

    @Adam Blachnio It is selling as a 6.9% cap and if I was able to increase the rents by just $100 through rehab and assuming 10% vacancy (both are conservative assumptions in my opinion) it would be an 8.9% cap.

    0Reply
  • Adam Blachnio
    Rental Property Investor · North East US · Member since 2019 · 114 posts · 31 votes
    6y

    @Reed Meyer

    And you will keep it for you?

    What's your entey criteria:

    1. Any specific location?

    2. Any actual cap?

    3. Budget?

    0Reply
  • Reed Meyer
    OP
    Investor · Chicago, IL · Member since 2020 · 66 posts · 55 votes
    6y

    @Adam Blachnio ya so the numbers I gave you are for a specific deal I’m looking at. I’d most likely flip it after stabilizing because there would be $230k in forced appreciation where I’d give the vast majority of that to my partner since they would be putting in all the capital. Not entirely sure what my exit plan would be to be honest. Would need to decide what terms I’d give my partner first.

    I don’t necessarily have a budget because I would have to raise the entire down payment from a partner and then give them a preferred return. So I really don’t have a budget other than what I can get from a partner

    0Reply
  • Jonathan R McLaughlin
    Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    6y

    If you are financing, then a 6.9% in a sellers proforma is an okaaay but dangerous spread. And you are giving a preferred return? Especially on those types of buildings since they are often caught between mom and pop and professional and maintenance tends to get skimped. The proformas are rarely accurate and usually optimistic. Are you budgeting for property management, possible increase in taxes, rehab/refresh on turnover? Increased insurance costs for new valuation with your improvements? A surprise? 

    You mention 230K in forced appreciation but not sure of exit?  I have no idea of the actual deal or market obviously, and I hope this doesn't sound like lecturing but if you were approaching me for the ENTIRE downpayment (another story) I would want you to be starting at 8 or 9 pre value add. And I'd want you to be very sure about your exit. And where does the money come from for the renovations?

    0Reply
  • Brett Peters
    Specialist · Lancaster, PA · Member since 2018 · 152 posts · 66 votes
    6y

    @Reed Meyer, The bank will begin by analyzing firstly the property and secondly your financials and experience. If your financials are sound you can find a lender willing even if you do not have a partner. However, the underwriting of the loan will definitely cast according to their perceived risk. Perhaps a higher LTV, interest rate, or a different term. It isn't uncommon for the lender to also stipulate that the property be professionally managed. In regards to a proposed partner, a strong om definitely goes a long way. However, if they know you and trust you personally it's better.

    0Reply
  • Ivan BarrattBusiness Member
    Investor · Indianapolis, IN · Member since 2015 · 764 posts · 953 votes
    6y

    @Reed Meyer 

    2001: started my career in real estate working for a mentor (a real estate developer / investor) and house hacking my first duplex.

    2008: got my @$$ handed to me in the GFC. *Best gift of my real estate career.

    2010: Started Barratt Asset Management (BAM) first as a property management co (managing rentals for other investors) while practicing some brokerage on the side until I had enough management contracts to stop brokering deals. At the same started doing small deals (duplex, triplex, 6 units, etc where I could execute a heavy rehab / value add play).

    2012: Bought my first bigger deal at 35 units with one $$ money partner already in my network.

    2014: Syndicated a 60 unit deal and never looked back. (**most of my first investors were management clients who saw and liked what I was doing).

    2020: Me and my partner own 3,000 apartments via syndication (along with nearly 200 high net worth individuals and families that invest as LP's). BAM is asset and property manager and we don't take on any more 3rd party management deals. We only manage what we own and control.

    Advice: while there may be some unicorns out there that go big early and succeed; there are far more successful people that started small and built unstoppable momentum one turn of the wheel at a time. Start tomorrow with a small deal, fail small, learn, rinse and repeat. Focus on doing that every day and 10 years from now you'll be called an overnight sensation. ;)

    7Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free