Apartment complex = first purchase ?

[Daniel Villanueva]

Hello all, 

I’ve started my journey on real estate. As daunting as it is, I am excited to learn all the “in’s and out’s” there is to know to be successful. 

I see plenty of successful acquisition stories of the famous 0$-down method however I have yet to read about one done on an apartment complex. I understand it is an entirely different ballgame altogether, but what holds people back? Is it that banks will not loan to a new buyer or is it that it is entirely more complicated? 

Thank you all for your time, any and all advise is greatly appreciated. 

[Charles Seaman]

@Daniel Villanueva There are many people that purchase apartment complexes as their first deals and there's nothing that should stop you from doing so if that's your goal.  However, keep in mind that apartment complexes are much bigger deals than single-family homes or smaller multifamily complexes are and accordingly, they require more money, more risk, and different skills (I won't say more skills because there are many investors that invest in smaller deals that are very skillful).

The first thing that you need is expertise.  This is true for real estate of all sizes and shapes, but it's even more important when you're dealing with larger deals like apartment complexes.  My first deal was an apartment complex, but it also helped that I had 14 years of experience working for a commercial real estate investor in NYC.  This provided me with all of the expertise that I needed to feel confident in my ability to find a good deal and to make sure that it performs.  On top of that, I also took courses with a national guru and most of the course material reinforced what I already knew, but it was good to reinforce what I already knew.  There's many different ways for you to develop expertise, so figure out what works best for you and jump on it.

The second thing that you need is investors, unless you're planning to use your own capital to acquire these deals. If you don't have investors, then you'll want to work on building an investor list. This is a time consuming process if you're planning to use syndication as your primary strategy for investing in these deals. If you're planning to JV with somebody, then the requirements aren't as strict. But with syndication, you're taking money from other people and having them invest passively in a deal (essentially, you're selling them a security), so the SEC has strict rules and regulations that you must adhere to when raising capital. These rules include having a preexisting relationship with any non-accredited investors that invest in your deals. Even if you only have accredited investors invest in your deals, it's very unlikely that anybody will invest in your deals until they know you and feel confident in your ability to operate deals and safely return their money to them.

The third thing that you need is the ability to get approved for a loan.  Most lenders in the commercial space have high requirements for liquidity and net worth and they also prefer borrowers that have previous experience operating the asset class that they're buying (so somebody with previous multifamily experience that's owned properties in the same area as the one that you're currently buying will have an easier time getting approved for a loan than a newbie that meets only the financial requirements).  And these requirements have only been amplified by COVID-19.

So, you can definitely start with an apartment complex as your first deal.  Just make sure that you're prepared to put the time and effort in to do so.  I often tell people that syndication is a great long-term strategy, but that it's definitely NOT the real estate strategy for you if you're looking to make money quick.  It's important to really think about what you're hoping to get out of real estate and to then see if syndication is the strategy that best fits with what you want.