Seeking a Large Multi-Family Apartment Deal, Yet Don't Have Much

26 Replies

All,

I am interested in going into a large deal (16+ units) opposed to a small MFA deal. How can a young, eager minded individual like myself get into these market deals when my capital is less than 100k?

Is this even possible? If it is possible, how does this work?

Thanks,

First, 16 units is a small deal in MF. Large starts from 100 units 😁

Second, you can invest in any size deal as a passive investor. A typical buy-in is $50K and sometimes you can get in with  $25K or less depending on the deal size and deal sponsor's will to accommodate you.

The deal sponsor is a critical part though. You need to find a few of them, establish relationships, and watch what they buy and how they operate these properties. Then decide who you would invest with.

Hey @Nick B. thanks for the input, this is exactly what I am trying to understand. Per a smaller 25k deal, how would I even come across or get in contact with a deal sponsor to become a passive investor? Also, is this even feasible for a first-time investor? Additionally, is this a smart decision rather than a few smaller MF deals? Appreciate the time,
Originally posted by @Kyle Lauriano :
Hey @Nick B. thanks for the input, this is exactly what I am trying to understand. Per a smaller 25k deal, how would I even come across or get in contact with a deal sponsor to become a passive investor?

Also, is this even feasible for a first-time investor? Additionally, is this a smart decision rather than a few smaller MF deals?

Appreciate the time,

 Are you an accredited investor? $200k a year or over $1m net worth excluding primary residence? Thats your qualification for private placement deals

Hey @Ronald Rohde , unfortunately, I currently do not have either requirement, thus I assume larger deals I will not be eligible for until my capital sits at a higher value. Thanks for your feedback, I hope to be in these talks in the foreseeable future.
Originally posted by @Kyle Lauriano :
Hey @Ronald Rohde, unfortunately, I currently do not have either requirement, thus I assume larger deals I will not be eligible for until my capital sits at a higher value.

Thanks for your feedback, I hope to be in these talks in the foreseeable future.

You don't have to be accredited if a) you have pre-existing relationships with a sponsor and b) that sponsor does 506(b) offering that accepts sophisticated investors. 

While "accredited investor" has a pretty straight-forward definition ($1M networth or $200K income), "sophisticated investor" is defined more vaguely as someone who understands the potential investment and can make an informer decision about participation in such investment. 

It really comes down to being educated about the potentials and risks of RE in general and a given niche (apartments in your case) in particular. You also need to be able to evaluate a market, a sub-market, and a property in that sub-market. 

As for where to find sponsors, you may find them here on BP or at your local REI meetup groups.

Originally posted by @Nick B. :
Originally posted by @Kyle Lauriano:
Hey @Ronald Rohde, unfortunately, I currently do not have either requirement, thus I assume larger deals I will not be eligible for until my capital sits at a higher value.

Thanks for your feedback, I hope to be in these talks in the foreseeable future.

You don't have to be accredited if a) you have pre-existing relationships with a sponsor and b) that sponsor does 506(b) offering that accepts sophisticated investors. 

While "accredited investor" has a pretty straight-forward definition ($1M networth or $200K income), "sophisticated investor" is defined more vaguely as someone who understands the potential investment and can make an informer decision about participation in such investment. 

It really comes down to being educated about the potentials and risks of RE in general and a given niche (apartments in your case) in particular. You also need to be able to evaluate a market, a sub-market, and a property in that sub-market. 

As for where to find sponsors, you may find them here on BP or at your local REI meetup groups.

 It doesn't sound like he has any pre-existing relationships

Originally posted by @Ronald Rohde :
Originally posted by @Nick B.:
Originally posted by @Kyle Lauriano:
Hey @Ronald Rohde, unfortunately, I currently do not have either requirement, thus I assume larger deals I will not be eligible for until my capital sits at a higher value.

Thanks for your feedback, I hope to be in these talks in the foreseeable future.

You don't have to be accredited if a) you have pre-existing relationships with a sponsor and b) that sponsor does 506(b) offering that accepts sophisticated investors. 

While "accredited investor" has a pretty straight-forward definition ($1M networth or $200K income), "sophisticated investor" is defined more vaguely as someone who understands the potential investment and can make an informer decision about participation in such investment. 

It really comes down to being educated about the potentials and risks of RE in general and a given niche (apartments in your case) in particular. You also need to be able to evaluate a market, a sub-market, and a property in that sub-market. 

As for where to find sponsors, you may find them here on BP or at your local REI meetup groups.

 It doesn't sound like he has any pre-existing relationships

 That's why I'm telling him to establish these relationships first :-)

@Kyle Lauriano some good advice above but just to add a couple things. Passive investing in a syndication is a good option but actively buying your own property/partnering is also a possibility. How active do you want to be in it? Are you interested in learning more about REI or are you just looking to make a better return than the stock market?

I do both and enjoy both but they are definitely different animals. 

There are still some places where you can buy a decent 16 unit property for $500k ish so you could get in for $100k but you would then have to also fund the rehab. Also the financing can be hard if you don't have good relationships with local banks. 

So to me, a better thing to do would be to find an investor already doing smaller apartment deals, offer to partner with them on a deal either you or they find. You put in some cash with the agreement that they would teach you the business and you would actively work on it. Preferably, go for $1 million+ purchase price because you can get better agency financing.

There would a lot of work to do finding the deal, performing due diligence, lining up insurance and various inspectors and contractors. And you would have to find a property manager which can be tough on smaller properties.

As a passive investor in syndications on the other hand, you just need to focus on meeting some of the syndicators. That is actually fairly easy these days. Just do a lot of reading here on the forums and listening to podcasts and you will quickly turn up a dozen names to research further.

You can also look at crowd-funding sites like Realty Mogul, Realcrowd,  Fundrise,  Arborcrowd. Most of them require you to be accredited I think but you can also just browse to get an idea of the deals they offer and the syndicators that offer them.

Finally, if you're interested in syndication I would recommend the real estate guys 'secrets of syndication' event and also Michael Blank's course. They are aimed at teaching you to syndicate but they're also good ways to meet others that are syndicating.  

I would also say network with some lenders, or loan brokers to understand what needs to come to the table for your ideal situation to get the pre-approval and funding.  There are many different types of folks here you can reach out to establish relationships with.  There are also Facebook groups and local REIAs that you can go to. I have also found LinkedIn as another way to find groups to find other like minded folks to connect with.  Many of the professionals here are also investors and are open minded about deals that fit what they do.  

It just takes a friend request and followed up with getting on the phone and then you are on a roll with finding other like minded folks who want to do what you want to do. Plus you may find that one or multiple strategies may fit your investing profile when talking with folks.

I look forward to networking with you! 

Hi @Jeff Kehl , Thanks for the information here, this was indeed insightful. I originally intended to be quite active during this process, since I would like to transition into this field full-term. Regarding your statement on ROI, I would say, I would be looking for a higher yield than the stock market, but I also intend on creating passive income with proper cash flow.

Introducing myself to smaller MF units seems like the best bet forward for MF investing, yet my only question is, is this return greater than owning multiple duplexes, tris, or quads, in comparison? (E.g., owning one 24 unit MF vs. four quads and four duplexes)? Sure, the cost to reno and repair may be more, but over time what would be better to provide more significant cash flow, -- stating that all these provide similar cap rates, repairs, etc. -- I assume the 24 unit. 

Let me know your thoughts. 

Thanks,

@Kyle Lauriano here is how: https://www.biggerpockets.com/blogs/10145/70092-ge...

1. Buy smaller buildings with your own cash and track record. 

2. Buy buildings with partners that together have the money and track record.

3. Syndicate – this in my mind should be done by sponsors that have experience with small multi-family at a minimum. 

4. Raise money for a Syndication – This is a great beginner’s way for someone that has a network and wants to get involved in the deal. This allows you to invest in the deal and build your investor network as well as likely take part in the General Partnership. 

5. Invest your own money in a syndication. Be sure you find ways to be involved.

6. Be a bird dog and find the deals for other apartment buyers.

7. Volunteer or get paid to work with an investor. Be sure you can add true value by asking people you know to help them. 

8. Start small. This is what I did. When I started I was buying 1-4 unit buildings for rentals and I was completing flips. Really buying any real estate that will make you money will be good experience, but buying real estate that is closest to you final goal is the best. The other thing with this strategy that I would suggest is to use private money and partnerships in order to build relationships. I know you will give up some of the deal, but you will be rewarded with potential money partners when you make the transition.

9. Become a property manager, real estate agent (commercial), appraiser, inspector, mortgage broker, etc. Becoming a professional that works with the industry is a great learning experience and a good way to build income and networks in order to do it yourself.

You do NOT have to be an accredited investor or a sophisticated investor to partner with a sponsor on a syndication - assuming you can convince him/her to let you assist. Beg, borrow and steal to get in the door. Leverage every relationship you have and build as many relationships as you can. You will only be offering sweat equity at this point and you may get little, if any, financial return assisting a sponsor on the first deal(s) but it is often how you enter the commercial real estate game. Investing passively on a syndication is another great way to get exposure to the documentation that goes into a deal - on the underwriting side, debt/equity, legal disclosures, closing documents, etc.

@Todd Dexheimer , thank you for presenting your guide into the possibilities of commercial MFA investing. Reviewing your blog, the point regarding going small and partnering most likely sounds like the ideal option at this time. Going through deals and learning from great mentors at the same time, seems like the best strategy for me, since I rather take the quintessential "plunge" in MF investing. Hope we can connect in the future, appreciate the advice. Thanks,

@Nick B. actually 100 units is small. Large starts at 300 units... I am joking, there is no universal standard of deal size, it is all a matter of perspective. Most people reading this will never even buy more than one unit.

@Kyle Lauriano I am not sure what market you are shopping in, but in my market MF like this goes for $60K to $90K per unit. So for a 16 unit it could range between $960,000 and $1,440,000. The range could even be wider depending on unit location, design, age and condition. The point is even at $960,000 that you would need around $200,000 to have 20% down, which is standard for commercial loans. 

The simple strategy is find a partner who also has $100K or more. Some people negotiate deals where a partner provides more capital and in exchange, they manage or provide some other value. Hard money might be an option to supplement, but the deal needs to cash flow enough to cover the debt service. 

I am wondering if you have $100K why not look at doing your first deal closer to $500K. That may be a 4 plex or 8 plex, but you could use that as a starting point, then do a future 1031 exchange into a larger property.

Some people think that you need to go big to make money, but there are many factors in how profitable you become. There are people running 200 unit complexes that are not making money, same as there are people who own 30 duplex that are killing it. There are people who own 100 or 500 single family homes and that is also a form of scale that can be very profitable.

Hi @Joe Splitrock , I appreciate your insight, very informative. I agree with your viewpoints, completely. Taking the route of partnerships for larger (or smaller) MF deals seems like an ideal strategy, at this time my market average on some smaller 8 unit deals is around $65k per units. I would definitely be interested in connecting with you for the future. Thanks for your time on this post, means a lot.

@Kyle Lauriano Ideally you want to buy as big a property as you can because the economies of scale are much better, the financing is much better and you can pay for on-site personnel to do the management. However, in my experience there is a lot more competition for larger properties these days which translates to higher prices and lower returns.

That may not be true in your area so I would encourage you to just review as many properties as possible and run the numbers on all of them. If you find a good deal either small or large there are options for you get it financed and move forward.

@Kyle Lauriano , I empathize with you because I was in a similar situation. It seems like you want to scale bigger but don't know how because of lack of capital and lack of experience. I purchased a 2 unit property and my goal was to buy a few 2-4 unit properties every year, then maybe after 4-5 years, 1031 into a 16 unit property.

I then noticed a friend on BP, whom I didn't even know was into investing, who had similar goals as me. We started thinking and told ourselves why wait 5 years, why don't we partner up and get a 16 unit deal together and that's what we did!

By joining forces, we closed on a 16 unit deal and at the same time, get to learn off of each other's experiences and share the risks and rewards. And....I had way less capital to work with than you! And....by forming this relationship, we're already looking for our next deal!

So it is possible! You just have to think outside of the box and ask yourself "How" you can get a 16 unit deal with the capital that you have!

Good luck!