Why doesn't everyone invest in apart complexes?

16 Replies

Its much easier for me to come up with $100k down payment on a single family than it is for me to come up with $500k for an apartment complex.

@Account Closed

One major (very major) reason being that most simply don't have such a large chunk of cash when starting out to go right ahead and purchase 35+ units as if they were just buying a cup of coffee...

Originally posted by @Russell Brazil :

Its much easier for me to come up with $100k down payment on a single family than it is for me to come up with $500k for an apartment complex.

 What if you found an apartment out of state and the downpayment was only 100-200k for a 30-40 unit. Its around a mil or less. Thoughts?

@Account Closed

Then that property would likely be lower in class than what I am successful at investing in. I buy A/B+ properties in high income areas. When Ive ventured to lower class or lower income, Ive lost money. Im not equipped personality wise to deal with things like non paying tenants.

This question is the equivalent of asking why everyone doesn't drive Chevy pickup trucks? There's many types of real estate investing and people find a niche they that works for them.

Long answer short, not everyone can or wants to invest in multi-family.

Originally posted by @Account Closed :

Why doesnt everyone invest in apartment complexes if they are so profitable? 

There are many reasons, but a few of the most common “misbeliefs“ I encounter on this topic are:

1) Don’t know how to or not sure how syndications work (they think they cannot qualify when they can)

2) People believe they can’t afford to do so

3) Not sure how to do so without incurring unnecessary risk

4) People believe they have to “manage” it themselves

5) People believe they need higher liquidity or net worth to do so 

In my experience (I’m currently invested 4 apartment complexes 534 doors as an LP), my wife is invested in 1 complex 282 doors as an LP, I'm a GP in 124 doors, and working on another 200+ unit deal as a GP in San Antonio Tx... my thoughts on these common misbeliefs are below:

1) Anyone that is at least a “sophisticated investor” as defined by SEC can invest into a syndication, so long as you have a pre-existing relationship with the deal sponsor. Don't know anyone? Start networking for one or PM me I am one and can also introduce you to other partners. 

2) Minimum investments are normally $50k, but I have seen lower like $15k-$35k for certain deals.

3) To mitigate risk, invest/partner with someone with a track record. Vet the deal, and the market. Find a deal sponsor you like and trust, as well as has proven success. 

4) For passive investors/limited partners besides vetting the market, the deal, and the sponsor you just have to cash checks... the property manager, asset manager, construction manager, and deal sponsor ship team does all the work.

5) You don’t need any more liquidity or net worth than you do with Single Family, you just need enough to invest in the deal.

If anyone is interested or needs help, PM me and I can provide some guidance.

I think there are three primary reasons; they're not even aware it's a possibility (you'd be surprised how many people think apartments are restricted to institutional money), they're directing their resources elsewhere (i.e. a business, other investments they already know and do well with, a high income job, etc.) or they lack the necessary resources.

To take deals down alone, people lack the know how, time, money, connections, drive, confidence or some combination.

To invest alongside experts in a syndication, people lack the money. You have to meet certain net worth or income requirements to be qualified to invest in a syndication.

Originally posted by @Account Closed :
Originally posted by @Russell Brazil:

Its much easier for me to come up with $100k down payment on a single family than it is for me to come up with $500k for an apartment complex.

 What if you found an apartment out of state and the downpayment was only 100-200k for a 30-40 unit. Its around a mil or less. Thoughts?

Price and downpayment alone tell you nothing about whether it is a good or bad deal.

 

Account Closed I listened to a great Adam Adams podcast recently with refreshingly down to earth guest Oliver Fernandez who has acquired 700 units in under a year of being a multifamily investor, he answered your question by saying...

'Really smart people tend to spend all their time trying to figure something out, and people like me just do it!' 

However, he does have construction experience which he brought to the table and he also surrounded himself with a team of smart and experienced people.

Maybe he's smarter than he thinks he is :)

Having invested passively in a few MF deals, I thought I would toss in my $0.02 worth. 

1. Exposure: Most folks have an advisor that is associated with Wall St.  He is not going to mention MF, likely does not know much about it.  Clearly those folks are not on BP. 

2. Awareness: I feel that most folks know or have heard of someone who has done a rental house, heck, there are several shows that glamorize it. I knew nothing about SF or MF until my wife dragged me to a Mentor's recruitment meeting.

3. Perception: Many feel it is very hard or very expensive to do MF.  It really isn't hard, but you need to be knowledgeable (or possibly kiss you funds good-bye). I paid a mentor, but you can read books & BiggerPockets and listen to podcasts. @Russell Brazil The minimum investment has usually been $50K, some $75K and a few $100K.  Occasionally $25K or $40K. 

4. Control: A lot of folks want to be in charge.  A passive does not control the deal. This makes the deals VERY non-liquid for the passive.  They can be more in charge if they do a SF or are the MF sponsor (the MF sponsor has a different task set than a SF operator).  

5. Access: You have to find a sponsor(s) you want to work with.  Folks in TX can just go to a local meet-up, whereas folks in CA may have to travel to a conference; there is more MF activity in Landlord friendly states.

6. Access #2: Syndications are securities and are governed by the SEC, so there are two major deal types: Reg D 506(b) or (c): "B" allows non-accredited but must have relationship,  "C" allows accredited only, but you may advertise.  [Please allow the overview here, I know the nuances.]  So you have to be RICH or be "well acquainted with" the sponsor.  To avoid the heat, the phrase is a "preexisting, substantive relationship".  

7. Belief:  I tell folks what I have done, how it works, and the risks and rewards. (To my old friends, I do not want anyone to be able so say I kept it a secret from you!)  Some folks just are not willing to step out there.

8. Variety:  There are many paths in life, we do not all have to follow any one path!  Some avoid RE, those that do RE, can follow any of a dozen or so paths.

Some comments about some posts above.  

  • * We rarely go below 60 units, this is where the cost of getting professional management is reasonable.
  • * We usually buy B or C class.  A class is already in great shape, so there is no room for value add. 
  • * MF can get non-recourse loans.

Regards and thanks for allowing me to add my comment.

Charles LeMaire

Disclaimer: I have gotten into 49 deals, 14 have sold. Have invested with almost 60 different sponsors and 16 were on their first deal.  I am currently in about 5000 doors - but as a passive, small percentages of each door!  And as mentioned, I do have a mentor, Brad Sumrok, and he has made me wealthy!

Multi-family is a team sport. There is no way to do it alone (unless it's like a 5-plex and you want only one of them with no intention of growing). Some people don't want to work with others, and you can do other forms of REI (e.g. single family) on your own if you are so inclined.