Looking for advice on multi family investments

Commercial Real Estate Investing
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Looking for advice on multi family investments

David F.
Ontario · Member since 2008 · 30 posts · 0 votes

Hello,

I was reading through David Lindahl's Multi Family Millions and was curious about a particular point he made as it relates to my situation.

The fact is, is that I have ZERO experience in multi families, and have zippo to put down as far as a down payment. In his book he mentions getting angel investors and others to invest in the property you present (with the accompanying business plan). My question is threefold:

1) The book outlines overcoming the fact of not having any money by approaching friends family and angel investors. Why would any investor, even family and friends give you money to invest with no experience to speak of? I have an MBA and have been working in commercial real estate (analyzing deals) for the last three years, but that is all booksmarts. I have zero real life experience, so I couldn't imagine any situation where someone would give me their hard earned money..why wouldn't they do it themselves?

2) The same applies to the bank side of things.. Never mind the complication of the fact that here in Canada ALL commercial loans are full recourse loans (that is a whole other can of worms to deal with), but with a bank looking at resumes and experience, I couldn't imagine my application getting through given the fact that I have never actually owned a building. Lindahl's book says that before you make the application you should have a business plan in tow with a reputable property management company ready with a marketing plan in place. I agree about being this ready, but again, has this worked for anyone?

3)The book mentions a finder's fee that I could potentially build into the deal for bringing a property to investors. Again, can this be done, have people done it, what is a typical fee (the book mentions 3-5%) and is this collected on closing?

I would truly appreciate all your help in this matter, especially people who have done these kinds of things as I think multi families pose a great oppportunity for investment, but again, how do I overcome the hurdles mentioned above. I spoke at length with someone in my office, who used to work for a bank about finding a building that has the potential to be repositioned, and brining in investors to finance it, and if I could not structure a way to own it, then I would find a way to bring it to them and add a consulting fee (3-5% of the purchase price) and make money that way. I was given all of the rebuttals mentioned in points 1 and 2, and as far as a consulting fee he told me that any investor would wait to give you that fee until they execute their exit strategy, and why should they pay me upfront. I would like to preface this with the fact that while he is a banker he has never owned real estate ever, so I don't put much credence into his advice, but I would like to hear any experienced investor's thoughts on this matter.

Thank you for your help.

Take care,

David.

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Scott M.
Real Estate Broker · Rochester Hills, MI · Member since 2009 · 2k+ posts · 2k+ votes
17y

1, If you believe no one will give you the money then they probably won't. Change your mind – change your world – or was that save the cheerleader save the world? Why they wouldn’t do it themselves is very easy – they don’t know how. And even though you don’t feel like you know anything – you have been in that world for 3 years – so you know something – I am sure you don’t feel like it and you may not in terms of actually doing a deal – but your not a X (insert career here – school teacher, janitor, pilot, senator) who doesn’t have anything to do with RE for a living. Most people with money who invest with others like us is because they don’t have the time to do it themselves. If you can bring a good deal – and prove it – to someone with money – why wouldn’t they want to be a part of it? You just helped them make some cash.

2. Your taling about commercial property here not single family homes. A lender (traditional) for a single family home doesn’t care about the house – they care about you – the opposite is true for commercial. They don’t care about you (as much) they care about the property. Same thing – you show them the property is a cash flow king and they will invest – as long as you have the right doc’s / plans in place

3. Yes it can be done I have been offered as much as 50% of the brokers commission or to turn that %age into a piece of the deal. Is that normal? I don’t think so I think a % of 5% or lower is more traditional. My point was to point out that yes those are real and it can happen.

Sounds like your heading down the right road here – and I see your in CA – not sure how things work in CA if they are different VS the US.

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  • Scott M.
    Real Estate Broker · Rochester Hills, MI · Member since 2009 · 2k+ posts · 2k+ votes
    17y

    1, If you believe no one will give you the money then they probably won't. Change your mind – change your world – or was that save the cheerleader save the world? Why they wouldn’t do it themselves is very easy – they don’t know how. And even though you don’t feel like you know anything – you have been in that world for 3 years – so you know something – I am sure you don’t feel like it and you may not in terms of actually doing a deal – but your not a X (insert career here – school teacher, janitor, pilot, senator) who doesn’t have anything to do with RE for a living. Most people with money who invest with others like us is because they don’t have the time to do it themselves. If you can bring a good deal – and prove it – to someone with money – why wouldn’t they want to be a part of it? You just helped them make some cash.

    2. Your taling about commercial property here not single family homes. A lender (traditional) for a single family home doesn’t care about the house – they care about you – the opposite is true for commercial. They don’t care about you (as much) they care about the property. Same thing – you show them the property is a cash flow king and they will invest – as long as you have the right doc’s / plans in place

    3. Yes it can be done I have been offered as much as 50% of the brokers commission or to turn that %age into a piece of the deal. Is that normal? I don’t think so I think a % of 5% or lower is more traditional. My point was to point out that yes those are real and it can happen.

    Sounds like your heading down the right road here – and I see your in CA – not sure how things work in CA if they are different VS the US.

    5Reply
  • Curtis William Lee, Sr.
    Real Estate Coach · Lakeland, FL · Member since 2009 · 8 posts · 1 vote
    17y

    David, as one who works in this area daily I would like to share with you what I advise others who want to invest in income producing properties.

    1. Join a local investment group

    2. Start out small -- 6-12 units

    3. Find two or three like minded persons who want to invest in muti-family properties and do not have all the financial resources needed for a down payment. (Make sure they have good credit or it can cause you not to get funding)

    4. Determine each members strengths and develop a business plan. (Lenders want to how you are going pay them back and all small loans are usually based on the person and not the property)

    5.Find a mentor who can guide you through all steps in the process of becoming an investor in mult-family properties

    Curtis William Lee, Sr.
    Mentor

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  • Craig Grella
    Commercial Real Estate Broker · Nashville, TN · Member since 2008 · 151 posts · 46 votes
    17y

    In my experience most novice investors get the analysis paralysis and don't move quickly enough when there's a good deal in front of them. However, i do think there are some things you can do to put yourself in the right place when it is time to make those offers. Those things can take time, but they'll make you a better investor:

    - Get your credit score in order
    - make sure financials are clean
    - raise cash for down payments, operating costs, etc
    - put a good team together, attorney, broker, agent,etc.

    Friends and family are a great source for down payment money and it's the place i've found 90% of my money for my investments. As soon as you find success with one and return them their money with interest, they will be more than happy to give it right back to you.

    I've written this in other posts on the site, but i think your time is better spent raising money for downpayments than going around looking for amazing deals. Reason is the following: Having a good deal in hand doesn't mean you'll be able to raise the required money to buy or use as a downpayment, but having downpayment money ready to go and having good financials will always allow you to move quickly when you do find those good deals.

    Good luck.

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  • Rich Weese
    Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
    17y

    Curtis,
    Just a word of caution. Not all investment clubs are created equal. I've been to some that just try and feed off each other. They'll use the buzzwords like Wholesale or others and really don't have a lot of experience or knowledge to be advising you. I've also been to a couple excellent clubs. The best was a real estate brokers' investment club in Dallas area. Spectacular info and members. I only attended once as a guest of the Pres., but will go again when in the area. Just realize that many attendees have ulterior motives and many mentors aren't really mentors. Good luck.

    0Reply
  • Michael Rossi
    Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
    17y

    I agree 100%. In fact, I know of REIAs that are nothing more than an elaborate scam (in my opinion). They are filled with experts - experts at fleecing newbies for every penny possible.

    My suggestion in looking for a REIA is to look for one that has the following characteristics:

    1. It has only one level of membership. A sure sign that they are in the business of fleecing newbies is when they have multiple levels of membership. When you must pay more to get access to everything the group has to offer, that's a certain sign that they're not interested in sharing information - they're interested in making money.

    2. It has a relatively low membership fee. If you have to pay $50 or $100 per month to belong to a REIA, they're in the business of making money - not sharing information.

    3. The REIA is non-profit. Don't get me wrong, I'm all for making money. However, if the REIA's main purpose is to make a profit, then they clearly aren't going to freely share info. My purpose in belonging to my local REIA is to share (giving and receiving) information with the other members. If I wanted to buy information, I'd listen to one of those silly gurus on late night TV!

    4. Look for a smaller group. Smaller groups are more personal and the entire reason to join a REIA is to build relationships (make friends) with the successful investors in your area.

    I would go so far as to say that anyone at the REIA (or elsewhere) that calls himself a mentor isn't a mentor at all. They're in the business of making money from newbies. You need to make friends with people that are in the REAL ESTATE BUSINESS, not people that are in the mentoring business!

    Good Luck,

    Mike

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  • Rich Weese
    Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
    17y

    Once again, I have to agree with Mike. I really have begun to question ANYONE who calls themselves a mentor. Especially those that ask for money to mentor. You have many folks on this board that will help you and answer questions free of charge. Many on this board are better than the so-called mentors that charge.
    Side story. I have a dear friend that was the first broker I ever hired 30 years ago. He has been doing mentoring by phone for the Whitney group over the past few years. When he gets a tough client and has questions, he calls me!! He is paid piddle ($35 per session and usually 10 I think) by Whitney who keeps the bulk of the money and I answer the question for free. What a set-up!! Rich

    0Reply
  • Joshua D.Pro Member
    BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votes
    17y

    Sorry to interject, but I have a quick head's up. Several posts in this discussion have been removed. If you're wondering where yours went, I apologize, but there was an argument as part of this thread that we felt should be removed, and it has been. Thanks for the understanding.

    Podcast Guest on Show #100
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  • Michael Rossi
    Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
    17y

    David,

    I would not borrow money, or otherwise do business with family or friends. That's just begging to lose your family or friends!

    If you have no money to put down and no experience, banks probably won't loan you the money. The solution is to work you butt off so that you do have some money. Banks (and every other intelligent lender) do care about you (the borrower). They care about your income, your credit score, and your experience.

    So, I would suggest starting small - with a few SFHs or duplexes AFTER you make (save) some money for a downpayment and a reserve fund. Gain some experience and only then think about some larger commercial buildings.

    Good Luck,

    Mike

    0Reply
  • Brian G.
    Investor · Bloomfield, NJ · Member since 2008 · 95 posts · 14 votes
    17y

    Does Lindahl address the difficulty of trying to get investors/financing while having no track record?

    What size building does he recommend to start with?

    Brian

    0Reply
  • David F.
    OP
    Ontario · Member since 2008 · 30 posts · 0 votes
    17y
    Originally posted by MikeOH:
    David,

    I would not borrow money, or otherwise do business with family or friends. That's just begging to lose your family or friends!

    If you have no money to put down and no experience, banks probably won't loan you the money. The solution is to work you butt off so that you do have some money. Banks (and every other intelligent lender) do care about you (the borrower). They care about your income, your credit score, and your experience.

    So, I would suggest starting small - with a few SFHs or duplexes AFTER you make (save) some money for a downpayment and a reserve fund. Gain some experience and only then think about some larger commercial buildings.

    Good Luck,

    Mike


    1) With regards to the investment club I have to agree with most of your points. Most of the RE clubs here in Toronto are that multi level $499 type membership, and it simply wreaks of being a business within itself as opposed to being a place where people passionate about real estate can meet in an organized manner. I'm still on the look for a RE club in TO that doesn't cost an arm and a leg.

    2) I do realize that asking money from family and friends can only lead to disaster because many grey and fuzzy lines get obliterated. My point is that I don't know of any options. My other point to consider as opposed to buying these buildings is to act as a birddog, bring deals to people and make money upfront that way and gain experience and in time get to a point where I have enough money to put into a project where a bank AND potential partners would take me seriously.

    0Reply
  • David F.
    OP
    Ontario · Member since 2008 · 30 posts · 0 votes
    17y
    Originally posted by TheMasterKey:
    Does Lindahl address the difficulty of trying to get investors/financing while having no track record?

    What size building does he recommend to start with?

    Brian

    I have to go back to the book at the library, but from memory, Lindahl frames it such that all you need is a strong business plan, good repositioning opportunity, and especially an extremely competent, experienced and appropriate property management company and this should ameliorate most concerns from potential investors and the banks.

    With regards to the project size, I don't remember him stating any minimums but he would constantly framet things like "and that is the profit you show on just 20 units, imagine the p/l for 200 units", things like that. As well, he talks about the people who went to his seminars, with ZERO experience, and closing on 180 unit properties.

    At the end of the day, I want to get involved in this business, but I want to do it right going in with the appropriate expectations and I'm not convinced I'm getting that from Lindah's book.

    Take care,

    David.

    0Reply
  • Michael Rossi
    Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
    17y

    The "gurus" are in the business of selling and upselling products to newbies. As such, you're not going to hear anything that isn't positive from the gurus. Sure, they'll tell you about a student that started with no experience and bought a 500 unit apartment complex. However, do you think that they'll tell you that this student couldn't make it work and lost the complex 3 years later in a huge bankruptcy that literally destroyed his life? Likewise, do you think that they'll tell you about the 95% of their students that spent $10,000 on the Ultimate Platinum Inner Circle level of guru training, yet never did a deal?

    Wake Up! You aren't going to find the SECRET from a "guru"! (my comments are about gurus in general and not specifically about the guru in question)

    Good Luck,

    Mike

    0Reply
  • Norm Chrostowski
    Real Estate Investor · Lakeview, NY · Member since 2009 · 309 posts · 49 votes
    17y

    Mike please stop holding back...and REALLY tell us how you feel!

    0Reply
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