All Forum Posts by: Tyler Kastelberg

@Matthew Ringer

Upon first glance, your operating expense ratio looks low. 

You might consider running this by a few property managers in the area. Do you have a favorite picked out?

Put your operating strategy into an underwriting model. If you're planning to hold in perpetuity, use year 10 as your "hypothetical" sale date. This will help you measure how viable this deal is given various financing and downside scenarios.

@Isaac Johnson @Abel Curiel

Like most of "louder with crowder" -- this is a very controversial topic. 

I'm on team Grant Cardone ... investing in single family or small multifamily should be short-term, value-add flips that create wealth for investment in larger multifamily properties.

Two big problems with small multifamily:

1) Lack of good property management options

2) The inability to efficiently scale

@Deven Singh

@Michael Ealy gave a home-run answer to your question. I'll simply add that the most under-appreciate aspect of a deal that can (and will) make your investment go sideways is PROPERTY MANAGEMENT.

Choose your property manager wisely, and have contingency plans in-case performance weakens.

Some of the best investors on BP choose markets based on their property management relationships.

@Chuck Klinger

Adding to what @Brandon Roof wrote above ...

You'll want to model each property separately and create a "roll up" in excel. 

What's a roll up?

A page that adds all the revenues and expenses of all the properties together in one page, allowing you calculate portfolio-level returns.

When buying a portfolio, calculate the value using the "sum of the parts" method.

Keep in mind that your business plan can include sales of some assets while you keep others. If you build out flexible model, you'll be able to toggle various properties "in and out" of the roll-up to test various scenarios.

@Zander Kempf

You asked a great question and ultimately one that only you can answer.

Practically, education can give you 70% of the functional knowledge you need to make an investment, but the other 30% will be learned by you taking personal risks and getting involved in the market.

@Ellie Perlman (comment above) is starting an education program for real estate investing that you might consider exploring.

Neal Bawa runs MultifamilyU -- excellent resource for building a multifamily network.

@Kyle Mitchell has a podcast that discusses multifamily projects ... consider checking out his company, Limitless Estates

@Autumn Deyarmin

Thanks for your post and welcome to BP!

The best recommendation that I can give you is to find a local mentor in your market who is willing and happy to hand-hold you through your first commercial deal.

Commercial leases are typically more complicated than residential, and the "after renovation" value of the property can be subject to a lot of factors.

Walk before you run -- find a few people who have knowledge in your local commercial market and buy them a coffee.

@Jeremy Marek ... 2 minute google search. Lots more online ...

Pre-recession article containing info about national small multi foreclosure rates in excess of large
https://www.brookings.edu/articles/why-do-small-multifamily-properties-bedevil-us/

Post-recession report from the Chicago Fed detailing greater foreclosure rates in small multifamily in Cook County
Chicago Fed Report

@Justin Hannah

Properties with less than 20 units have the highest default rate in the industry. This is true for a variety of reasons, but one of the biggest culprits is lack of experience with the buyer.

You're thinking about the right things, a team is crucial. The top 3 resources that I'd want before buying a 20 unit ...

1) A property manager who I trust and with whom I've worked with in the past

2) An evaluation of the market from an experienced analyst using local knowledge (perhaps from the property manager)

3) A source of money, whether it be you, a bank, an investor, or all three.

Attorneys, accountants, brokers -- all are important, but they come later in the process.

@Adam Bush

I'm happy to provide a few thoughts as to why it makes intuitive sense.

1) Small multifamily buildings are treated as personal investments, while large complexes are operated as businesses with operating budgets, staff, and capital expense set-asides.

2) The economies of scale are better on large multifamily buildings (20 roofs in a 200 unit complex is less cost per roof than than 1 roof on a 10 unit)

3) The law of averages works better with a greater number of units. In a 5 unit, you might get unlucky and have 2 vacancies for 6 months. A 40% vacancy on a 500 unit isn't a product of "bad luck."

4) Better managers can be found on larger properties. 

@Brian Burke @Kyle Mitchell 

Chime in ... Why do you think small multifamily's default rate is greater than large multifamily?

@Jerry Rice

I love listing properties with realtors for one reason:

Realtors deal with the headache.