Making a Fund to Buy Apartments

[Nicholas LaGatta]

I'm a moderately experienced moonlight investor with solid and relevant non-RE professional credentials, just got my real estate licence, joined my PM's brokerage, and I just had 3 deals pay out.  I'm working on leveling up in real estate with goal of going full time in the next 1-2 years. 

I've started discussing with a few investors about setting up an equity partnership to buy small apartments, most likely in rural GA or surrounding states.  I've been deep in the weeds with research to put together the nuts and bolts of this.  Before I go too deep, BP is always a great place for a sense-check.  

Below is a list of target property criteria (broad for now, but I'll dial this in) as well as a list of open questions that I'd love your feedback on.

Target Properties: 

-$1-4M purchase price
-6+ unit multifamily apartments in GA and surrounding states
-Value add opportunity through capital improvements, increasing occupancy, and/or raising rents
-Property class B or C, no war-zone areas
-Near stable employment, education, transportation, entertainment/amenities, and future development

Open Questions:

1.Is it realistic for me to be able to set up and operate this type of fund part time?

2.If it’s not realistic, I’m considering taking my capital and investors and bringing them into someone else’s deal as LPs to learn the ropes and gain some experience and credibility. I’m only home 3 days per week, so assume REIAs are not realistic for me. What are some other ways to get connected to people already doing these types of deals?

3.If this is realistic, what is the correct order of operations to get this set up? Do I start with an attorney, CPA, consultant, other? Are there companies that specialize in setting up and managing these funds, soup to nuts? How do I find the right professionals with the right experience?

4.My investors will mostly be non-accredited but with basic financial sophistication. What’s the best way to communicate the deal in straightforward terms? I haven’t found too many offering memorandums that clearly do this, so I’ve started building my own from scratch.

5.What else might I be missing here? Any other advice or words of wisdom would be welcome.

[Jeffrey Holst]

@Nicholas L. I would advise being very careful at this point in the market cycle about jumping into apartments without getting some experience first.

Further it's imperative if you're thinking about taking in other people's money that you get good legal advice it's much more important than even a CPA. The security and exchange commission has a very strict rules for people that are issuing offerings such as the type that you're talking about. I don't think it's something that just any attorney can handle either You need someone who specializes in SEC compliance or at least is familiar with the basics of it. By way of example, I'm an attorney licensed in two states and had no idea what the rules were or even that there were rules until I started digging further into an attending conferences on multifamily investing.

I can say that North Georgia and Chattanooga are attractive markets from a multi-family perspective. There's less competition cap rates are higher but continue to decline which means that values are increasing over time.

If you want more information about my thoughts on market cycle be sure to check out our real estate show on YouTube. I think the idea of partnering with someone who's already doing this and knows the pitfalls might be the best place for you to start. If not you should at least make sure you're getting good advice and maybe finding a mentor that's already doing these types of deals.