Multifamily 6+ door Strategy (Commercial Financing)

[Diego Briceno]

Hi All, we are evaluating several multifamily properties (+6 doors), we are using mostly our capital to do this and financing via commercial loan (vs. single family or Under 5 doors). Those who have have done multifamily (+6 doors) can you share your strategy for repeat? our thinking is:

1) Find a property with lower than market rents

2) Bring the property up to a standard that would allow us to bring rents to market (Delicate balance of CAPEX investment to ROI in rents increase is critical here...)

3) Raise Rents and have the property re-appraised with a new commercial loan 

4) Refi / Pull cash out

Is there any other strategy that is worthwhile or if you have done the above what challenges did you face?

Cheers...

[Erik W.]

Hi @Diego Briceno and welcome to BP!

What you've outlined above is a well-known strategy that is commonly referred to as "BRRRR" (Buy, Rehab, Rent, Refinance, Repeat). If you do a search on this topic you'll find tons of threads. You've got the basic idea down: your ability to grow is predicated on you increasing the value enough to pull out all your money that is "in" the project and go do it again, over and over, until you hit your max # of doors.

I've not done a 6+ unit, but I've done 4-plex units using the same strategy with commercial loans.  It's the same process either way, regardless.

Watch your time lines.  Extensive rehabs end up costing a lot and your holding time (vacancy) includes utility charges a lot of first timers forget they will be paying.  I had a rehab all nice and laid out to be done in 45 days, then it decided to rain for almost 3 months straight, and the roof that I was supposed to be replacing first just started leaking even worse, so we had to tarp it up, replace parts of the ceiling that were not on the original scope of work....and 120 days later we were finally done.  +100% to my holding costs as well as ceiling repairs of $1,000+.  Always budget assuming it will take twice as long and cost 20% more than what you think.

Other than that, my advice is to search the many excellent articles and posts on BP that already are exactly what you're preparing to do.  Good luck!