With 300K or 800K downpayment, where does one start?

Question

I am from New Jersey but looking for multi-family complexes in NJ, Atlanta, Scranton, Dallas or Florida... where do I start? How much can I borrow? What if I had another 500K more in Downpayment? Is it better to own an apartment complex or a 55+ adult community?

Any & all ideas welcome. I am newbie here.

Abram Ylitalo · Answer

One may suggest that you find a state where you can buy a few doors outright and get them to cashflow. After they're cashflowing leveraging them may be considerably easier as a lot of portfolio lenders are starting/have been doing blanket loans across multiple properties with a cost approach (vs appraised value) and will considering your personal income less. If you're purchasing distressed, rehabbing for rents, and holding without expecting appreciation, checking out places like Atlanta and TX could be a great way to increase your buying power. If you check out J Scott's podcast ( 10 ) and Will Barnard's podcast ( 32 ) They have been in Atlanta and TX, respectively, and started doing exactly what you're talking about. J Scott flipped more than he help but if you're looking into that area for buy and hold getting educated on flipping there would entirely behoove you/be worth it. Will has since left for a different market but made his money, originally, in TX. I'm sure if you get to their profiles and look through their archive of posts, though, you'll find more than enough to support what you're looking to do. Since I'm still somewhat new here to BP take it all with a grain of salt and please, anyone who thinks I've said something incorrect, I have no shame or ego (when it comes to being wrong) so feel free to correct me.

Darren Sager · Answer

@Ash Reddy there are many questions you need to ask yourself since you're new. How far away do you want your investment? Close by, or you never want to see it?Generally speaking on a large multifamily you'll be putting down 25% currently with most lenders. The loan is amortized generally based upon a period of 25 years and your payment remains flat for 5, 7 or up to ten years depending upon how long you'd like. You can't get a 30 year mortgage like you can on a single family or small multifamily. How much you can borrow depends upon a number of questions but first and foremost in this area the lender is going to look at the deal itself as much as who's behind it. If you have good credit and can come up with the 25% down chances are you can find a lender who'll write the loan. So, if you have $500,000 on hand you can purchase up to $2,000,000 in real estate. That won't get you a big place here in NJ however it could get you more doors in other state. That doesn't mean they'll perform any better when it comes to rent, you'll just have more doors. As for what you should purchase its really person preference.

Jonathan Twombly · Answer

@Ash Reddy To add one thing to the post by @Darren Sager , your ability to borrow for commercial loans for assets like apartment buildings will be limited by your net worth. While it's true that you can get 75% financing these days for strong apartment assets, implying a $1.5mm loan given a $500K down payment, the banks will not lend you $1.5mm unless you have a net worth equal to at least $1.5mm, with at least 10% of that liquid. Even though the loans you can get for this kind of property are non-recourse, there are what are known as the "bad boy" carve outs from non-recourse, which generally relate to fraud and intentional misconduct. The banks want to know that, if you turn out to violate the carve outs, they can still collect the balance of the loan from you directly. Thus, you need to meet the net worth requirements. Or, you need to partner with someone who has the required net worth and is willing to sign on the carve outs and accept potential personal liability on the debt. This is going to require you to part with some equity in the deal.

Paul Timmins · Answer

@Ash Reddy Welcome. Fill in the foundation below. Remember this is a marathon not a sprint.Check out the Start Here page http://www.biggerpockets.com/starthere Check out BiggerPockets Ultimate Beginner's Guide - A fantastic free book that walks through many of the key topics of real estate investing.Check out the free BiggerPockets Podcast - A weekly podcast with interviews and a ton of great advice. And you get the benefit of having over 80 past ones to catch up on.Locate and attend 3 different local REIA club meetings great place to meet people gather resources and info. Here you will meet wholesalers who provide deals and rehabbers.Two Great reads, I bought both J. Scott The Book on Flipping Houses,The Book on Estimating ReHab Costshttp://www.biggerpockets.com/flippingbookConsider checking out HUD homes for small multi's owner occupied gets first crack. You might consider Niche or Specialized Housing like student housing. Rents can be 2-4 times more. Remember you don't have to own a property to control it. Download BP’s newest book here some good due diligence in Chapter 10. Real Estate Rewind Starting overhttp://www.biggerpockets.com/files/user/brandonatbp/file/real-estate-rewind-a-biggerpockets-community-bookGood Luck Paul

Vania Castillo · Answer

Hi Ash,These are my two cents and I'm a newbie too, but according to the research I have done these are my findings:SFH tent to attract tenants for a little longer, specially if they have children in school, since once they are stablished in a particular school distric they want to stay there. Multies tent to have a better cash flow, but tenants are more transient, however when your tenant vacates your SFH your cash flow is "0". In a multi your cashflow drops, but you still have other doors going on, hopefully.Buying multies can be more beneficial if you are going to use conventional financing, because there is a cap in how many loans one can get. I believe the maximun is 10. If you finance 10 SFH, then you only have 10 doors and to continue you have to become creative. With multies, 10 loans is 20,or 30 or even 40 doors or a combination depending of wheather you get duplexes, triplexes or quaduplexes or a combination of those.I have been looking at the market in TX (Dallas and surrounding areas in particular) and thse are my findings. Taxes are lower than in Norther NJ. The majority of properties I know of are SFH. They cash flow O.K, and appreciate well, for now. The market there seems "hot" for 2014. A market I found interesting and actually has a lot of potential is Philly. Taxes are ridiculously there are low there and prices are no as high as all other cities in the Northeast.I hope it helps!Vania

Account Closed · Answer

@Ash Reddy One approach would be to get into a few deals over a few markets, and get your feet wet. If you have no MF experience, then partnering up could be a great idea.Andrew

Jonathan Twombly · Answer

@Ash Reddy I would second what @Abram Ylitalo said. You might want to do a purchase for cash and get cash flow right away, and then refinance out later. Doing a cash out refinance is sometimes easier because the property has a track record under your ownership. You usually cannot get as much leverage, but it's still good. Sometimes around 70% LTV. Then you can take the proceeds and do another cash deal for a cash flowing asset and repeat the process.

Casey Cuppy · Answer

That sounds like a great start. You could get a nice portfolio setup if you leverage everything correctly. One of my past investors had 300k to spend and we got him set up with a package (a few different multi families) that he was bringing in over 70k a year cash-flow, and that is after expenses. I am personally not a big fan of the 55+ properties and I would recommend you go with regular multifamily units.

Ash Reddy · Answer

Thanks! So net worth would indeed be a limiting factor to leverage... good to know.

Ash Reddy · Answer

Hi DarrenThanks for the reply... I would ideally want something near to NJ but prices are daunting... and NJ economy is not doing particularly well any more say compared to Plano Tx etc.... As a newbie I find that the high real estate taxes in NJ leave very little by way of returns in the SFH market, or so I think. But you seem to say that properties in other states may not perform any better when it comes to rent!? So you are implying cap rates or returns are comparable? Also I seem to lean towards apartment complexes because they seem to offer more doors, but is it that they are more knowledgeable about the market since they all talk cap rates... are there any steals still out there... my realtor says otherwiseSorry if I seem very naive, I am! ThanksAsh