Buying My First Multi-Family Units

6 Replies

Hello, 

I'm a complete newbie at this so forgive me....but I just want to clarify something as I'm making a slight switch in my strategies and I'm heavily considering looking in buying multi-family units......I was on the most recent webinar that Brandon Turner conducted regarding newbies buying duplexes, triplexes, and fourplexes.......(12/13/2017)

I want to clarify something he said...and that was you can...once the numbers make sense....if you don't have any money...you can possibly use short term lending (private money, hard money, etc) to put up the money for the deal if the numbers make sense....then after purchasing the deal....after a short hold period which I think he said is about 6 months or so....re-finance the property and then use that money to pay of the original lender and now re-financed, it's under a legitimate mortgage and from that point forward you can do it again.....rinse and repeat.

Is that correct?

It seems too easy to be that simple.

Is there something else you need to do...obviously due diligence is required....but for example, would you get the property appraised first before doing the deal so you know once you get it refinanced you will be able to the the amount you purchased it for?

Is there something else I am missing?

Or is it that simple and I'm over analyzing?

Any confirmation or additional advice would be truly helpful....I already have two of my realtors put me on NEW auto-emailers so I'm getting emails already as of today (and the webinar was two days ago) so I'm looking at properties right now....

If there is a small detail I am missing please advise but at this point I think I'm ready to run full force to get my first multi-family properties before the end of January.

Thanks so much in advance.  

Andre,

Ok... the premise here us that the deal is REALLY, REALLY, REALLY GOOD.  Now those deals come around rather infrequently. When you CREATE one, then the money will flow there. 

It requires a modicum of study, a dash of guts and a heaping helping of support.  That having been said, if you find the deal, the money will follow.

If this is your first deal, then definitely get some support in terms of the business side of things. Stuff like running numbers on rents and expenses,  cost to fix stuff, and most importantly the overall condition of the property. 

You will have some false starts, head scratching, and maybe some sleepless nights.  In the end, if you have a good plan (you do have a written plan, right? ), and a good process with some support you should be ok.

Good luck! 

Jim 

@Andre S Walters  

I want to start by letting you know up front that I have not viewed the recent BP webinar that you are referencing. However, with that said I am familiar with the strategy that you're inquiring about. Although, there are several different avenues you can take to obtain a property (i.e. SFR, duplex, triplex, quadplex.... etc.) using other people's money (OPM).

Some things you may want to keep in mind is what are you giving the lender in return (e.g. higher interest rate on short term loan, a percentage of the property after you pay them back, or their money and a percentage return in a specific time frame.... etc.). This all plays into the property you buy via value adds to make the property worth more (sweat equity) or how your able to obtain the property (found a great deal, the property is being sold below market value). Finding the deal is what's important at this time.

The bank (long term lender) is only going to give you a percentage of what the property is worth, or what they call loan to value (LTV). I found this to be typically around 70%-80% of the property's current value. This means you buy a house for 100k and it's only worth the 100k, the bank or long term lender will only give you 70k-80k to re-finance. If you find a property that you buy for 50k put 20k into fixes and you bring the property up to market value of 100k, then you get all your money back and maybe a little more (deal dependent); thus allowing you to pay off the previous lender. Keep in mind the other expenses as well: closing cost, removal of bad tenants, points on loan, and the many others that are specific to that property or lender.

Learn the market, find a deal, find an investor, buy the deal, work the deal (put in renters at market rents), re-finance with long term lender, pay back investor, and then repeat. I hope this helps and answers at least some of what you were seeking to find. PM me if you have other questions, or search BP as there are many with significantly more knowledge than I have. Good luck to you...

The part that you might be mistaken about is that it may not take any of YOUR money, but it takes a good amount of SOMEONE'S money to make a it work. A hard money lender isn't going to loan you 100% of the money you need. In most cases you will need 10's of thousands of dollars in cash to make a deal work. If you don't have that cash on hand, you will need to partner with someone who does, or find someone willing to lend/give it to you.
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Thanks so much for your input..it was very helpful

Originally posted by @James C.:

Andre,

Ok... the premise here us that the deal is REALLY, REALLY, REALLY GOOD.  Now those deals come around rather infrequently. When you CREATE one, then the money will flow there. 

It requires a modicum of study, a dash of guts and a heaping helping of support.  That having been said, if you find the deal, the money will follow.

If this is your first deal, then definitely get some support in terms of the business side of things. Stuff like running numbers on rents and expenses,  cost to fix stuff, and most importantly the overall condition of the property. 

You will have some false starts, head scratching, and maybe some sleepless nights.  In the end, if you have a good plan (you do have a written plan, right? ), and a good process with some support you should be ok.

Good luck! 

Jim 

Cool. I'm also gonna PM you....I truly appreciate your willingness to help

Originally posted by @Matt Crusinberry :

@Andre S Walters 

I want to start by letting you know up front that I have not viewed the recent BP webinar that you are referencing. However, with that said I am familiar with the strategy that you're inquiring about. Although, there are several different avenues you can take to obtain a property (i.e. SFR, duplex, triplex, quadplex.... etc.) using other people's money (OPM).

Some things you may want to keep in mind is what are you giving the lender in return (e.g. higher interest rate on short term loan, a percentage of the property after you pay them back, or their money and a percentage return in a specific time frame.... etc.). This all plays into the property you buy via value adds to make the property worth more (sweat equity) or how your able to obtain the property (found a great deal, the property is being sold below market value). Finding the deal is what's important at this time.

The bank (long term lender) is only going to give you a percentage of what the property is worth, or what they call loan to value (LTV). I found this to be typically around 70%-80% of the property's current value. This means you buy a house for 100k and it's only worth the 100k, the bank or long term lender will only give you 70k-80k to re-finance. If you find a property that you buy for 50k put 20k into fixes and you bring the property up to market value of 100k, then you get all your money back and maybe a little more (deal dependent); thus allowing you to pay off the previous lender. Keep in mind the other expenses as well: closing cost, removal of bad tenants, points on loan, and the many others that are specific to that property or lender.

Learn the market, find a deal, find an investor, buy the deal, work the deal (put in renters at market rents), re-finance with long term lender, pay back investor, and then repeat. I hope this helps and answers at least some of what you were seeking to find. PM me if you have other questions, or search BP as there are many with significantly more knowledge than I have. Good luck to you...

Got it. Thanks for your input.

Originally posted by @Jason DiClemente :
The part that you might be mistaken about is that it may not take any of YOUR money, but it takes a good amount of SOMEONE'S money to make a it work. A hard money lender isn't going to loan you 100% of the money you need. In most cases you will need 10's of thousands of dollars in cash to make a deal work. If you don't have that cash on hand, you will need to partner with someone who does, or find someone willing to lend/give it to you.

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