How to scale up to multifamily?

8 Replies

Hello Bigger Pockets community!

     After reviewing many articles, books, podcasts and the like, investing in multifamily real estate seems to have sparked my interest. However, I am still unclear as to how exactly it works, or how I personally should get started. My plan was to flip properties until I save up > 50K and then invest in as many units that I safely can. For anyone who has purchased multifamily, how did you get started? What was you plan of attack? What do you wish you would have done different? Once you purchase the first multifamily, how do you then purchase another (flip single family until I save enough for another down payment, or?)? 

All replies are appreciated! 

By multifamily are you referring to 2-4 units or to 50-, 100-, 200-unit apartment buildings?

A small multifamily (2-4) can be financed like a single family; 20-30% if not owner occupied. As little as 3.5% down if owner occupied (getting a great deal is imperative with this since you have to pay monthly fees I.e. PMI). If you go this route hopefully you break even or have some cash flow that can be recycled to buy more property. Then after 2 years of landlord experience; you can use the rental income to qualify for a bit more expensive property.

"By multifamily are you referring to 2-4 units or to 50-, 100-, 200-unit apartment buildings?"

-I was leaning towards 50+ unit apartment buildings, but I'm no expert. What would you recommend? 

Originally posted by @Logan Allec :

By multifamily are you referring to 2-4 units or to 50-, 100-, 200-unit apartment buildings?

-I was leaning towards 50+ unit apartment buildings, but I'm no expert. What would you recommend? 

@Logan Jorns 4-60 units or under a million dollar loan is no mans land of financing. And it seems like where there is the most completion from mom and pops. Plus if you get above that million dollar mark and the property is stabilized you can qualify for Fannie or Freddie non recourse loans.

@Logan Jorns   There's lots of ways to skin a cat!

A book that gets mentioned quite a bit on the MF thread is Steve Berges' "The Complete Guide to Buying and Selling Apartment Buildings"

In the book he lays out a model for scaling in multifamily that could help you (disclaimer: there are lots of ways to do it, this is just one example)

If memory serves it went something like this. 

Apartment #1 - 

  • Purchase $100,000
  • Down Payment $20,000
  • Increase Value 20%
  • Sell for $120,000

Apartment #2

  • Purchase for $200,000
  • Down Payment $40,000
  • Increase Value 20%
  • Sell for $240,000

Apartment #3

  • Purchase for $400,000
  • Down Payment $80,000
  • Increase Value 20%
  • Sell for $480,000

A lot of work and smart decisions need to happen for this to work but theoretically you could scale to a very large property or portfolio of properties.

As @Ryan Cox stated, there are many ways to skin a cat.  You can also partner with someone else, use creative financing, and use OPM.  

What would I have done different? I would have started earlier and skipped messing around with the smaller stuff. The obstacle was that I didn't quite know "how" to do it. Get a mentor or start investing with a syndicator to learn the process. 

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