Apartment Complex Investing

[Dave Kennedy]

I am a few chapters into a book on apartment investing. Its called Multi Family Millions. About reposintioning buildings and making big profit.

Anyhow...I've got a couple of questions already. That may be answered later in the book but want to post here to get some opinions.

Can anyone really go out and purchase one of these multi unit buildings regardless of income?

He says that multi family investment property loans are based on the operations of the building (rent/expenses) and not your income. Is this true? I just got pre-approved for a loan (single family home) just to see what I'd qualify for these days and they would give me up to 230k.....obviously not enough to buy much of a multi family in my neck of the woods. My understanding from Lindahl is that I could go buy a $2 M multi family if the numbers yeild that it could pay off the mortage and expenese...etc Is that true?

Second question, if I really can go buy this $2 M property the banks are going to want a down payment (I'll assume 20% or so). Meanding I'd need 400k down. Clearly being 25 and only a few years out of college I don't have that kind of money. How can I pull that off? Do I get an investor(s) to front that money for a share of monthly cash flow and a % of appreciation when I sell it? If that is possible what is a typical break down for those investors? Would they receive 20, 40....60% of the monlthy income and sales appreciation?

Hopefully I stated this clearly...I just have a thousand thoughts flying through my head after reading some of this book.

It's been enlightening to say the least. I thought I wanted to do flips but it really sounds like accumulating apartment buildings is a true wealth building machine.

Any insight would be appreciated.

BTW....David Lindahl has some excellent books. I read his emerging markets book a few months ago and it was one of the best I have read. Very informative.

[Jon Holdman]

The mini storage deal worked in a similar fashion. It was about $2.9 million and 30 investors each put up $30K.. The guy running it gets a management fee which is considerably less than 50% of the expected cash flow, though.

From what you've said, that deal seems reasonable. Payments on an 80% loan, 20 year amortization, 8% would be about $36K/month. Add on the $12K in cash flow, and you're at $48K/month NOI. Compared to the $5.4 million purchase price, that's a cap rate of 10.7%, which is high, but not impossible. Rents need to be about $96K/month to make this work.

The cash flow isn't a great return for investors. $6000/month on a $1.4 million investment is only 5.14%. The appreciation improves it greatly, though. That's an extra 8.57% annual return, for 13.7% total.

Price for apartments is driven by NOI. So, you need to be able to do something, increase rents or lower expenses, in order to get that increase in value.

The lending environment is in flux these days. Whether or not you could get that loan, I don't know. A key factor for lenders is the DSCR - debt service coverage ratio. That's the NOI / debt payment. I calculate this at $48K/$36K or 1.33. That's high enough to get a lender interested, I would think.

Now, if you've never been a landlord or a RE investor, could you find a deal like this, find the investors, find the lender, and make it work? I don't know. I for one would LOVE to do a deal like this.