What if you decide to buy an apartment building that's already profitable, running fine, structurally and cosmetically up to date, and has good management? If you buy that type of apartment, or any other type of real estate for that matter, and it is already in good working order and a class "A" or "B" asset nothing really wrong with it, could I just take that and continue renting it out with the current management company, collect rents, and make good cash flow from the deal? Or does most profit come from fixing up real estate, improving profitability, etc.?
I buy new builds. In the commercial multifamily world price is all about cash flow (and location). For example, where I live the cap rates range from 4-6%. This means if you bought with cash you would get 4-6% return each year
It really depends on what your goals are, how much time you have, how much cash, etc etc. New Builds are more like bonds in that you are buying an income stream. This type of investment works best IMO for those with the ability to come in with a large amount of cash and if you leverage you are basically earning the split between CAP rate and interest rate and your cash flow will be slimmer until you can increase rents over time
So really it just depends. Just keep doing what you are doing - fact find and keep learning and you will find what will work best for your situation.
I buy new builds. In the commercial multifamily world price is all about cash flow (and location). For example, where I live the cap rates range from 4-6%. This means if you bought with cash you would get 4-6% return each year
It really depends on what your goals are, how much time you have, how much cash, etc etc. New Builds are more like bonds in that you are buying an income stream. This type of investment works best IMO for those with the ability to come in with a large amount of cash and if you leverage you are basically earning the split between CAP rate and interest rate and your cash flow will be slimmer until you can increase rents over time
So really it just depends. Just keep doing what you are doing - fact find and keep learning and you will find what will work best for your situation.
@Ben Feder There is nothing wrong with buying a property that needs no work. If it is in good shape and making money, go for it.
I buy new builds. In the commercial multifamily world price is all about cash flow (and location). For example, where I live the cap rates range from 4-6%. This means if you bought with cash you would get 4-6% return each year
It really depends on what your goals are, how much time you have, how much cash, etc etc. New Builds are more like bonds in that you are buying an income stream. This type of investment works best IMO for those with the ability to come in with a large amount of cash and if you leverage you are basically earning the split between CAP rate and interest rate and your cash flow will be slimmer until you can increase rents over time
So really it just depends. Just keep doing what you are doing - fact find and keep learning and you will find what will work best for your situation.
Thank you! From what you're saying, does that mean you could buy a commercial multifamily property with a loan and rent out, bringing in cash flow every month and make good money that way?
Also, what would you be leveraging in order to be "earning the split between CAP rate and interest rate"?
Thanks again for the advice, just a little curious to what it means exactly financially.
@Ben Feder
Hey Ben, the property I’m currently house hacking needed no work (which was significant factor in buying it).
I have $2,300/month coming in for rent on a $1,761 mortgage while I’m living in the home. That’s a pretty good arrangement in my book. The point is, it depends on the situation and your goals.
@Ben Feder
Hey Ben, the property I’m currently house hacking needed no work (which was significant factor in buying it).
I have $2,300/month coming in for rent on a $1,761 mortgage while I’m living in the home. That’s a pretty good arrangement in my book. The point is, it depends on the situation and your goals.
Thanks! How much are you still making after expenses (insurance, interest, taxes, maintenance, cap ex, etc.)? Also are you having the tenants pay utilities or do you cover that for your tenants?
@Ben Feder do some research on CAP rates. Maybe pick up this book to help you understand the financial aspects https://www.amazon.com/Estate-...
If you buy with cash then all the net income is yours. If you leverage then you get what is left over after paying the mortgage. This means you are earning the split between the cap rate and the interest rate.
I dont have time to type it all out but will send you some links later today
@Mary Mitchell
What a fantastic explanation, I was in between terms here and you illustrated it for me very clearly.
Thanks for your reply.
@Ben Feder
The mortgage includes interest, taxes, & insurance. I’ve not had any vacancy, in fact, I’ve had negative vacancy. The last two tenants that left paid for a month, left before the end of the month, and I filled the room before the month was over so I actually had double rent for the last week or two.
I’m talking about a house-hack, not a traditional rental, so the most substantial value is in the thousands I’m saving in rent if I wasn’t in the house. To rent a comparable home in the neighborhood I’m in is around the $2000 mark.
Everything was newly updated in the house so I’ve had no cap ex (and shouldn’t for years to come) and I’ve spent less than $100 in maintenance in the last year.
I pay the utilities which were about $120 in the summer and $220 in the winter bringing the average to $170.
@Ben Feder do some research on CAP rates. Maybe pick up this book to help you understand the financial aspects https://www.amazon.com/Estate-...
If you buy with cash then all the net income is yours. If you leverage then you get what is left over after paying the mortgage. This means you are earning the split between the cap rate and the interest rate.
I dont have time to type it all out but will send you some links later today
That makes sense. For me personally, I would definitely do the mortgage and leverage my deal because 1) I don't have the funds to do this myself; actually, I am basically broke, and 2) I would be making more from my money since I would not actually be investing any of my own money. Thanks for the links too.
@Ben Feder
The mortgage includes interest, taxes, & insurance. I’ve not had any vacancy, in fact, I’ve had negative vacancy. The last two tenants that left paid for a month, left before the end of the month, and I filled the room before the month was over so I actually had double rent for the last week or two.
I’m talking about a house-hack, not a traditional rental, so the most substantial value is in the thousands I’m saving in rent if I wasn’t in the house. To rent a comparable home in the neighborhood I’m in is around the $2000 mark.
Everything was newly updated in the house so I’ve had no cap ex (and shouldn’t for years to come) and I’ve spent less than $100 in maintenance in the last year.
I pay the utilities which were about $120 in the summer and $220 in the winter bringing the average to $170.
I would house-hack too if I found the right deal, but I am focusing on large MF commercial deals BRRRR. Apartment buildings 100+ units. Originally my plan was to start off small MF residential and BRRRR/house-hack in 2-4 unit property so I understand. If I find something I'll definitely consider doing it, also if I am able to secure the funding, which I couldn't do on my own since I lack capital. Any ideas on how to fund one?
@Ben Feder
Hmmm, what makes you want to start with a large complex ? Do you have a background in managing them or something along those lines?
And yes, I left my W2 job early this year so unfortunately the bank will not consider the income I’m generating from my business when I apply for a loan. To solve the problem I found a relative with a solid debt-income ratio to co-sign for me. This will allow me to purchase another house-hack even though I will not qualify alone.
@Ben Feder
Hmmm, what makes you want to start with a large complex ? Do you have a background in managing them or something along those lines?
And yes, I left my W2 job early this year so unfortunately the bank will not consider the income I’m generating from my business when I apply for a loan. To solve the problem I found a relative with a solid debt-income ratio to co-sign for me. This will allow me to purchase another house-hack even though I will not qualify alone.
Congratulations on leaving your day job! I think your real estate income will help you in the future in getting a loan if you apply for one again, because it will show good proof that you can pay things back.
As for the apartment complex, I have no prior apartment management experience but I have the tenacity to accomplish large goals and also, truthfully, it will make more money faster. Scaling big takes the same effort/time as running a small building, so why not go big and make bigger money? I could get a good property management company to take care of the management and daily tasks. Also, I was inspired to start big by someone else @Rob Beardsley who has already succeeded in this area of real estate.@Rob Beardsley
Here is the thing - if you are seeking loans for investment properties - duplexes and 3-4 unit multi fam (dont know about sfh) the loan will be approved based, in part, on the income generated by the property.
When you go 5+ units it is ALL about the financials of the investment and a bit on the person seeking the loan. One thing that does factor in, heavily once you get to larger numbers of units , is the experience of the borrower. Have you had investments before, if so what size? Etc etc.
My suggestion is to buy a 3 or 4 family and use the owner occ loans as you will need a small downpayment. Leverage this experience to go larger once you have a better feel. Honestly the commercial world is a very different place than the sfh, under 5 units scene.
Here is the thing - if you are seeking loans for investment properties - duplexes and 3-4 unit multi fam (dont know about sfh) the loan will be approved based, in part, on the income generated by the property.
When you go 5+ units it is ALL about the financials of the investment and a bit on the person seeking the loan. One thing that does factor in, heavily once you get to larger numbers of units , is the experience of the borrower. Have you had investments before, if so what size? Etc etc.
My suggestion is to buy a 3 or 4 family and use the owner occ loans as you will need a small downpayment. Leverage this experience to go larger once you have a better feel. Honestly the commercial world is a very different place than the sfh, under 5 units scene.
Thank you for your input and I'm definitely taking that into consideration. However, if I am able to find funding elsewhere or partner with somebody who does have the experience, I feel maybe I can jump that hurdle. I agree you need more proof that you can get the deal done when it's a big deal, but I also feel the numbers and the proof that it is a good deal can factor in larger, especially if you are dealing with hard money lenders (based on what I've learned, they take less consideration of you as a person and more on the deal itself).
If you have the cash, plan on holding for a while, and the property meets your cash flow goals there is absolutely nothing wrong with this investing strategy. Getting to the point where you can buy solid cash flowing assets in good areas that attract good quality tenants is the goal of most investors I know.
Do you realize you’re asking if it’s profitable to buy something profitable?
You have no money, no knowledge.
There’s an endless pool of people just like you. No money, no knowledge, but young, hungry and ambitious.
Do you listen to the podcasts? David Greene talks about people looking for mentors and how they do it wrong.
Why not go big and make more money? Hmmmmmmmm
In my opinion the best answer to your question is most of the high profit opportunities or “wedge deals” are going to be ones you can improve (make a little nicer to increase value and rent) or ones that desperately need improvement that someone is willing to sell really cheap because they don’t want to deal with it.
That doesn't mean that there aren't any good turn key deals to be found under market value or with decent cash flow / numbers, but they are going to be very few and far between. Especially compared to improvable properties, which are already a challenge to find ones that have good numbers in the end. It think it's really going to come down to the numbers cash flow, cash on cash return, ROI... etc.
I’m new to this as well. I’ve just been reading as much as possible, saving as much money as possible, listening to YouTube. Im finally in a position to be able to make a deal, so i’m talking to anyone I know to try to find someone to either learn from, partner with, or at least a someone with a proven history who’s already done it and is willing to help give me some direction by answering some questions and giving me their opinions on the first few deals.
In the meantime I’m now getting involved in this forum, continuing to to educate myself wherever I can, and looking at deals trying to figure it out by doing basic numbers to try to get more familiar with it all and hopefully find a great deal that’ll be a good start to my buy and hold portfolio
@Ben Feder I absolutely believe that it's possible to obtain a property of that quality as that is kind of the end goal for a lot of people and the model that you're talking about is a turnkey property so whether it's an apartment complex and multi-family or single family homes once the person is done being proactive and bringing up the rent up to market value or renovating and remodeling the single-family home to where it is livable rentable the only hurdle you'd have to jump over is the price of what you would want to pay for it and depending on the person who selling it you could still potentially good a good deal if it fits your personal numbers and your financial situation. Would love to you and hope you find what you're looking for
@Ben Feder it is still profitable and you still have the ability to value add, raise rents, cut costs (which in turn increases profitability). It’s just a different strategy and a longer game than flipping or renovating, and most would add less risky.
If you have the cash, plan on holding for a while, and the property meets your cash flow goals there is absolutely nothing wrong with this investing strategy. Getting to the point where you can buy solid cash flowing assets in good areas that attract good quality tenants is the goal of most investors I know.
What if you don't have the cash? Would using OPM, either a partner or a loan, to buy a property like this be profitable/possible?
Do you realize you’re asking if it’s profitable to buy something profitable?
You have no money, no knowledge.
There’s an endless pool of people just like you. No money, no knowledge, but young, hungry and ambitious.
Do you listen to the podcasts? David Greene talks about people looking for mentors and how they do it wrong.
Why not go big and make more money? Hmmmmmmmm
You make it sound like I had a stupid question. I am honestly curious though because some things are deeper thn their surface. For example, if you buy something that is supposedly cash flowing well but you can't get a good discount on it, would it be worth it to still buy. So yes, I'm curious if it would be profitable to buy an apartment complex that needs no further improvement/rehab.
@Ben Feder yeah, I sell houses to investors with very little renovations needed all the time. Everything has a price that makes sense. Now, if you’re paying market price in today’s market, even fixeruppers can be a little dangerous. All about getting that good deal and finding the motivated sellers!
@Ben Feder yeah, I sell houses to investors with very little renovations needed all the time. Everything has a price that makes sense. Now, if you’re paying market price in today’s market, even fixeruppers can be a little dangerous. All about getting that good deal and finding the motivated sellers!
Would you say that we're at the top of the market cycle right now in a seller's market? Also is this market condition on a national level or in pretty much all markets across the USA?
@Ben Feder I’m not an expert on the market man, I’ve never been through a downturn. From listening to my older investors and realtors i work with, it seems that this is close to the top. However, markets are generally region-specific and national. So, if you’re investing in a good area with high job growth and growing economy, a downturn may not affect you as much as others.
@Ben Feder
Nothing wrong with buying fully cash flowing property. The only thing you would be missing out on is the value add oppurtunity from the rehab. But even Thats is ok if your always gonna operate it as an income.