Multi Family Strategy

[Khizer Husain]

I have about 500,000 USD cash to invest. I am looking to start investing in the following type of multi family apartments:

I am looking to buy deals at 1-1.3 million (With Finance with an average of 20-25% down)

Cap rates between 8-10%

I would either aim get deals at distress and refinance immediately with existing cashflow to get my money out and move onto the next property

or I would buy deals where there is rehab required and I can increase rents and then refinance immediately and move onto the next property.

What is your opinion on this? My goal is to build a sustainable rental income and hold onto properties for many years.

In addition, what do banks look for while refinancing? I have been told some banks do CapRate Refinance and some do value of property. How is cap rate evaluated for a multi family property appraisal so I know how much Refi I can get and what the sweet buying spot is for me to get my money out?

[Greg Dickerson]

Originally posted by @Khizer Husain:

I have about 500,000 USD cash to invest. I am looking to start investing in the following type of multi family apartments:

I am looking to buy deals at 1-1.3 million (With Finance with an average of 20-25% down)

Cap rates between 8-10%

I would either aim get deals at distress and refinance immediately with existing cashflow to get my money out and move onto the next property

or I would buy deals where there is rehab required and I can increase rents and then refinance immediately and move onto the next property.

What is your opinion on this? My goal is to build a sustainable rental income and hold onto properties for many years.

In addition, what do banks look for while refinancing? I have been told some banks do CapRate Refinance and some do value of property. How is cap rate evaluated for a multi family property appraisal so I know how much Refi I can get and what the sweet buying spot is for me to get my money out?

A couple things to consider:

1. You will need 25-30% down right now plus escrows of 12-18 months payments and reserves equal to the at least 12 months payments. Net worth needs to equal the loan balance.

2. Refi will be based on appraised value which will be based on income with condition and location taken not account. The lender will order the appraisal so you are subject to their opinion of value.

3. True 8-10 CAP on actuals is going to be tough. You will likely be going in much lower but upon execution of a solid business plan you can achieve these returns within a year or two for this size of asset depending on the in place lease terms.

4. There is a lot of competition so you will need to target a couple of markets and look at a lot of deals. 

5. Ground up in your price range can be a very good strategy with much higher return potential but you need to know what your doing and find the right land.