All Forum Posts by: Account Closed

If you are buying a multifamily property anywhere in NYC (outer boroughs just as much as Manhattan) using an FHA loan, you are really going to struggle to be cash-flow positive in that kind of time frame with the sheer amount of leverage that you are taking on at the start, because your monthly payments are pretty substantial after you put very little money down. I'm shopping for a first property myself and I've found in modelling out a bunch of deals around the city that for a buy and hold with high leverage it will take around five years to get out of the red on a lot of fixer uppers. Same time frame applies with buy and flip, renovating one unit at a time and then stabilizing the asset at a higher NOI, then proving that it will hold for another year. (I've found that buy and flip in 5 years seems to be best scenario with FHA loans, and that their levered returns are fantastic even on deals that would otherwise be mediocre if levered at a 70% LTV).

To put it simply, you aren't cash flow positive until your monthly rent receipts exceed monthly debt service and all of your expenses, and that can take some time to raise rents.  

@David Lilley 

Seems like FHA loan or bringing in a partner would be the only way to stretch the capital that I do have far enough to get my target area out of the crappy neighborhoods. Even the worst neighborhoods in Brooklyn (my target area) have average pricing of about 200K per unit, and even that number is skewed because of larger trades with 20+ units being so greatly discounted to reflect impact of rent control and stabilization. Otherwise, the cash I do have certainly wont get me anything in a desirable area.

Does anyone here have any experience navigating the debt market early in their careers as investors? (Specifically, FHA financing for MF properties). If there are any mortgage people following this thread, is a bank likely to take a chance on someone like myself (23 years old, 750+ credit, stable income, relevant experience in other areas of commercial real estate) or is it going to really depend more upon the property that I bring them with financials and a solid value add plan to back it up?

@David Lilley

Thank you for commenting on the financing aspect of it. As far as I understand the process of obtaining FHA financing, there are two options. Option 1 being purchase with owner occupation of one unit as a primary residence, and option 2 being an FHA multifamily loan which requires a slew of other requirements to be met and would likely be impossible for a first time buyer such as myself.

What downsides exist, if any, to option 1, besides having to occupy a unit in what realistically would be a pretty crappy part of town. Would you ever consider a HML if you were in my position?

David-

Thanks for your input. Considering this is my first asset, I definitely want to stick with something in my area. Plus, in the high likelihood that I need to bring in a capital partner or some other creative form of financing, these established markets practically speak for themselves. I am looking at this first investment as a means of getting my feet wet and proving that I can add value to similar assets. However, I am very confident, given my line of work, that I can model the financial feasibility of any opportunities with a pretty high degree of accuracy. I think that your strategy of buying into a strong market without regard for timing can certainly work for someone with longer investment horizons, but my own are limited to acquisition during a downturn, a rapid value-add, and a couple of years demonstrating rent growth to exit at a lower cap and an appreciated property value. While the added value coming from renovations is essential to bring rents to market levels, the bulk of the return would likely be a result of plain appreciation in property value. I am curious if anything about this strategy still seems strange after giving a bit of background. Would love to hear your opinion. 

Daniel-

I am predominantly limiting my scope to markets where I have more intimate knowledge of opportunities and contacts that could help me boost my bottom line. By staying in New York, I could handle closing without the need for an agent, and I could personally attend to a lot of the basic renovations that the property will inevitably need either alone or by overseeing labor on a freelance/contract basis. Essentially, the choice to stay in that market in which I am located is solely intended to reduce acquisition and renovation costs. 

Looking for anyone who's brain I can pick about their relevant experience investing in small multifamily in NYC  or other high-cost entry markets around the US-

I work in commercial and am interested in making an investment in one of the outer boroughs of NYC. I can model a deal no problem and tell when the numbers make sense, but I need some suggestions as to how people navigate financing in low cap rate environments where even crappy MF properties are going to run at least 350-400K per unit. I have around 100K cash and dont plan to invest until the next market correction, and will probably have about $150 by the time that rolls around. Still, a down payment on a modest 3-4 unit is going to be around 400K if I were to put down 30-40%. FHA regs are pretty confusing to me and I think that even if I were to occupy, the loan wouldn't be for nearly enough considering their maximums.

Does anyone have suggestions as to how to navigate debt in a situation like this?