BiggerPockets

I've been doing real estate part-time over the last few years and I've got a few properties in Colorado Springs, CO that are doing well: 4plex, SFR, and a condo. I'm wanting to make the jump to commercial multifamily and just wondering if this is a great time, a horrible time, or somewhere in between.

I've got two primary problems right now: lack of good local opportunities and lack of liquid cash.

I live in San Francisco, so investing in the immediate area is out of the question. I can go a couple hours out and find better deals, but from what I've seen, nothing like what can be found in other parts of the country. Compensating for this somewhat is the fact that I'm a self-employed web developer, so I can do my work from anywhere. I'm more than willing to spend a month or two on the ground anywhere in the country finding and purchasing the right property, as well as flying out frequently to check up on it. Would love to hear people's thoughts on this, as well as what markets you'd recommend I look at.

The bigger problem is a lack of liquid cash. I've got decent equity in my three properties (around 20-25%), but with the current lending market, I don't see a way of accessing that other than selling, which I'd rather not do right now. Other than the real estate, I've got probably 20-25k that I could put into a deal. I feel like my options are therefore:

1. Try and find a lender and seller who I could put together a 70/20/10 deal with and buy something in the $200k range. Downsides seem to be that 200k doesn't buy a lot of apartment building in most parts of the country, and my sense is that more units would be more beneficial due to economies of scale, especially when out-of-state management is considered. This option also doesn't leave me with much cash in reserve. Is this even realistic?

2. Try and find something that's at a low enough price that I could pick it up with a hard money loan, rehab it, and then either sell or acquire permanent financing. Downsides here are the higher risk, higher costs of financing, and the limited supply of commercial multifamily properties that can be purchased and rehabbed for under 65% - 70% of ARV. Is this plan at all realistic?

3. Find an equity partner or two who will put up $50 - 100k for a property. Downsides include the usual downsides of partnerships :-) Also a bit unsure about approaching family and friends for this kind of deal in this economic climate. How to structure a deal like this? Split profits or preferred rate of return?

4. Wait until I have more cash. Ugh.

I would absolutely love to hear what anyone has to say about this kind of transition and how I can best plan and prepare. Thanks!

Good question :-)

I guess my main concern would be that the lending environment right now is making it really difficult to do deals unless you have a lot of available capital. I would also be concerned if the more experienced commercial folks on here felt that the market was unstable right now and it might be better to wait 6-12 months.

Care to elaborate on what position one must be in to get financing? I think real estate is a great investment most of the time provided you can find the right deals and find a way to make them happen...more details would be helpful :-)

Real Estate runs in cycles and we are in the best buying cycle we have seen since the late 1980's.

There is never really a "bad" or "good" time for buying or selling your real estate holdings. No matter what is going on in the market, if you are a real estate investor you are really buying a cash flow stream. If you structure your offers with that basic fact in hand you will do fine.

Even now, I have people telling me my offers are way too low. Okay, not a problem, let me know when my offer matches your expectations. I'm not going to overpay just because the seller overpaid when they bought. I'm not going to overpay just because the seller wishes they could get more out of the property.

I am an investor and as such I pay a fair price for the verifiable cash flow a property generates. I do that whether I am buying a single family home or an apartment building. The difference is with a SFH they are not interested in how I determined my offer all they are interested in what they get out of the deal.

So, to answer your question ... Now is a GREAT time to buy commercial if you buy it right. It is an awful time if you don't.

Financing and ready access to funds are what is separating the deal makers from the posers right now and that is not going to change any time in the foreseeable future.

As far as the bank goes, I have found that they appreciate an investor who protects their interest by limiting their risk exposure on the deal. They will love you for it but it will mean that you have to do a bit more work to find partners. If it is a deal that you have never down before ie, size and scope, or asset type would suggest you look for the equity partners who have the experience and track record that you lack but lack the deal that you have.

Try and talk with the prez or vp of a local community bank or portfolio bank. I have found them to be very helpful in introducing me to others that have similar goals as me. They also like to play golf, which is an advantage for me because it takes me 2 days to play 18 holes. LOL.

Make sure the guy you talk to sits on the board and helps to make the final decision on funding your deal. Call him/her your bully pulpit. This person is usually the VP or bank prez.

Good luck

hi all
I think you need to separate cash,equity and capital they are all very different and they can and are used for differnt reasons and there are alot of equity guys on the side lines just an idea to look at

If you know how to do creative financing than it's a perfect time to invest in commercial.

Since this thread was brought back to life, I would say that more buying opportunities exist now and will over the next year than when this thread first started. In 2009 alone, billions in commercial RE notes come due and with many having no options to refi, they will be taken back by the banks.

So, NOW and for the next two or more years will be an excellent OPPORTUNITY to buy if you, as others stated, BUY RIGHT!

100% financing in this environemnt is not a wise decision in many cases (not all) as you will be over-leveraged and risk losing the investment. This time calls for some cash down and although I am a huge proponent of creative financing and buying techniques, commercial right now and in that way could be a disaster for you.

You got the point Mike, but I would also add that in the commercial world, even if you bought at a great discount and used 100% leverage, you could end up in trouble as this asset class is getting hammered right now.
My point was ALSO to caution investors from using 100% leverage in this market. Not always, but in some cases.
Of course getting a good enough deal can make it all worth while.

How do you do a deal for 13 cents on a dollar? Where did you find a deal like that?