First Multifamily Purchase

[John Penola]

I am looking to buy a multifamily investment property. I am narrowing my search to a 2-4 unit building in the Indianapolis area.

I am starting the process with 2 activities:

1) Reaching out to brokers in the area

2) Analyzing deals (from BP and Loopnet) to learn the market

My goal is to purchase a property by the end of 2019.

Any advice would be appreciated - thanks!

[Taylor L.]

Do you have the money part squared away? Make sure you have that figured out so that when you do find a deal you can snatch it up without issue. Smooth transactions make you look good to brokers because it makes them look good, and it'll make your offers more competitive.

[Jim S.]

Originally posted by @John Penola:

I am looking to buy a multifamily investment property. I am narrowing my search to a 2-4 unit building in the Indianapolis area.

I am starting the process with 2 activities:

1) Reaching out to brokers in the area

2) Analyzing deals (from BP and Loopnet) to learn the market

My goal is to purchase a property by the end of 2019.

Any advice would be appreciated - thanks!

 Hi John,

Great goal! After buying a few 2-4 units myself in two different markets (both remote) I would recommend giving my system a shot:

1) Ask around on BP/search topics for great property management firms in Indianapolis. Call the top 2-3 and set up 15 minutes with them to discuss which sub-markets are worth investing in, how many units each company manages, what software they use, how many employees they have, and what services they offer. If they offer an in-house brokerage, try using one of their agents who you know will only be looking for investments properties, if they do not have an in-house brokerage ask them for a referral to an agent. Ideally the PM company is well respected and handles acquisition, renovations, & property management all-in house.

2) Talk with the agent about the same idea of which sub-market/neighborhoods you should look at investing in. Overall I don't see a great reason to use more than one agent when you are first starting so pick the agent that you seem to have the best relationship and get setup with an MLS search. You can always drop your agent if they are not meeting your needs (assuming they haven't had you sign a buyers agency doc).

3) Review deals for the 1-2% rule, for the first property I’d recommend nothing deeper than a cosmetic rehab so “as-is” properties should get a deeper explanation from your agent. Your goal will be to learn over the next year what items need maintenance, and see what kind of crazy scenarios can happen when you have 4 tenants. Download a sample pro forma from online or send me a PM and I can give you the one I built to analyze 2-4 units and small commercial multi-family deals. Always ask your agent if they can get current rents/expenses but if not you’ll eventually get a feel for what the market rates look like for water, sewer, garbage, and any other utilities you need to pay for.

Less than two years ago I was in the market for my first MF property and with some luck if these two deals close I’ll be at 25 units by the end of September. Good luck!

[John Penola]

Taylor - thanks for the advice. Yes, I have cash available. If I do not do owner occupied I'm probably looking at 20% down....is that correct?

Jim S - great advice, thanks for the reply. I'll follow your advice. Do you have a good property management firm in one of your markets that you would be willing to share? I'm obviously looking to focus in the Indy area but I figure if I have a good one as a frame of reference it will help me identify what a "good" one looks like.

Couple quick questions:

1) What made you get into multi family vs other real estate avenues?

2) Do you visit your properties ever?

3) I've heard that $100-$200 per unit is the bottom line cash flow number to shoot for....is this a good baseline?

Really appreciate your help.

[Matt Everling]

@Jim S. Awesome post. Any chance you would say what two markets you have been investing in? Are all your purchases in the same two locales?

[Jim S.]

Originally posted by @John Penola:

Taylor - thanks for the advice. Yes, I have cash available. If I do not do owner occupied I'm probably looking at 20% down....is that correct?

Jim S - great advice, thanks for the reply. I'll follow your advice. Do you have a good property management firm in one of your markets that you would be willing to share? I'm obviously looking to focus in the Indy area but I figure if I have a good one as a frame of reference it will help me identify what a "good" one looks like.

Couple quick questions:

1) What made you get into multi family vs other real estate avenues?

2) Do you visit your properties ever?

3) I've heard that $100-$200 per unit is the bottom line cash flow number to shoot for....is this a good baseline?

Really appreciate your help.

Sent you a few PM firms. No, you will put 25% down on a non-owner occupied 2-4 unit building most likely.

1) The numbers work better in multi-family. I also have a ski condo that I AirBNB & a 5bd in Denver but those barely cashflow, they are equity plays. 

2)  No, I haven't physically visited any of my multi-families. I don't see a need to but I probably will the next time I'm in town. Having a good team + good communication is much more important than physically checking up on your properties, especially if you want to scale.

3) Yep $100-200 cashflow per unit to start is great. 

My first multifamily property was negative cashflow for the first year and a half since I hired the cheapest property manager I could find off Thumbtack. Apparently that's not a good strategy. My current property manager started eviction proceedings on day one when he took over. Now I make $15k/yr in cashflow off a $110k purchase price property. 

[Jim S.]

Originally posted by @Matt Everling:

@Jim S. Awesome post. Any chance you would say what two markets you have been investing in? Are all your purchases in the same two locales?

The multi-families I own are in Albany, NY & St. Louis, MO. I am also looking to buy multi-family properties in Milwaukee, Little Rock, and Omaha eventually. In general the midwest or south are good cashflow markets.

My other random properties are in Colorado, it's getting pretty rough to find a cashflowing market there now.

[Matt Everling]

@Jim S. Thanks for great info Jim!

[Kris Mead]

Originally posted by @Jim S.:

Originally posted by @Matt Everling:

@Jim S. Awesome post. Any chance you would say what two markets you have been investing in? Are all your purchases in the same two locales?

The multi-families I own are in Albany, NY & St. Louis, MO. I am also looking to buy multi-family properties in Milwaukee, Little Rock, and Omaha eventually. In general the midwest or south are good cashflow markets.

My other random properties are in Colorado, it's getting pretty rough to find a cashflowing market there now.

Not trying to get off topic, but how are your Albany properties performing?  Have you had to deal with any problem tenants?

[John Penola]

@Jim S.

Thanks for all the answers

Good to know this as I do a lot of research.

Thanks again

[Jim S.]

@Kris Mead

Neighborhoods matter more than markets in terms of tenant issues and I’m in a C- area that is luckily turning a bit for Albany. Yes, I had to evict some folks that didn’t pay rent for 4 months (and fire the property manager that kept stalling the eviction process bc he didn’t want to deal with it). They wrecked the unit before they left.

Overall good learning experience and I profited from the whole thing anyway. Since they made such a mess I ended up renovating the unit and converting it from a 1bd to a 2bd and for $10k in renovations I now get an extra $3600/year in cashflow. That's a great ROI.

[Brock Mogensen]

Those are great first steps to find a deal!  Continue to reach out to brokers, meet with them in person, and follow up at least monthly.  A good relationship with brokers is key in the multifamily game!

[Account Closed]

@Jim S.

Where in albany are your properties? I sent you a request to connect, would love for us to connect. I'm investor and agent in upstate ny (capital district) and actually interested about how you're investing all over without seeing a single property and still netting.

Looking forward to chatting with you.

[Brenda Mercado Baez]

Hi, I'm an investor in the Albany market - I also live here but looking to relocate to Florida soon. It's a great market (comparing to what I've been seeing in this forum) and it's a huge college town. Investors typically buy and hold here, from what I've seen. I would definitely love to connect especially since one of our properties is currently on the market.