Troy, NY · Member since 2019 · 75 posts · 25 votes
Hello BP!
I have been collecting duplexes for the last few years and I am looking to keep my duplexes, but make the jump into small apartment buildings around 8-12 units or so. I live in upstate NY, and there are very few 5+ units in my market. I was wondering if anyone could maybe share their story about transitioning from residential to commercial multifamily? Thanks!
Rental Property Investor · Hendersonville, NC · Member since 2016 · 446 posts · 412 votes
4y
I've done the same thing here in Western NC - Asheville area. Biggest difference is the lending, otherwise it's very similar. This size is still smaller than what large syndicators are going after so we still deal with the same type of owners, typically local landlords who self-manage. Find a good local bank who likes multifamily. Know you'll probably have 5-10y fixed with 20-25y amortizations and won't be doing 30y fixed loans most likely. The lending will be primarily driven by your DSCR, experience and your current assets. In my opinion they are way easier than conventional underwriting if you have a solid track record which it sounds like you do. You will need to look at things from a cap rate perspective for the valuations which in my experience makes it easier to BRRRR than with 2-4 units if you do value add.
Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
4y
@Anthony Zotto I bought a 12 unit a few years ago and could not be happier with the move. It is in a tertiary town of 17k, and this property was listed. We did a thorough examination of the building and associated financials, ran the numbers and made a cash offer which pretty much squelched the deal for others.
We raised the rents gently on existing tenants and 20% or so at turnover. We have been doing a light rehab on turnover units-flooring, paint and fixtures.
Having all your tenants under one roof is a game changer. We still have our duplexes and they are doing well too but you can't compare them to the profit we make in the 12 unit. My wife is the PM. All the best.
Rental Property Investor · Hendersonville, NC · Member since 2016 · 446 posts · 412 votes
4y
I've done the same thing here in Western NC - Asheville area. Biggest difference is the lending, otherwise it's very similar. This size is still smaller than what large syndicators are going after so we still deal with the same type of owners, typically local landlords who self-manage. Find a good local bank who likes multifamily. Know you'll probably have 5-10y fixed with 20-25y amortizations and won't be doing 30y fixed loans most likely. The lending will be primarily driven by your DSCR, experience and your current assets. In my opinion they are way easier than conventional underwriting if you have a solid track record which it sounds like you do. You will need to look at things from a cap rate perspective for the valuations which in my experience makes it easier to BRRRR than with 2-4 units if you do value add.
Investor · Washington, DC · Member since 2020 · 10 posts · 11 votes
4y
@Anthony Zotto While I can't speak from experience (PS congrats! You've clearly put in a lot of hard work and had a lot of success with your investing), my advice would be to utilize your experience and resume of success to look for a partner for a bigger property. Commercial benefits a lot from scale, and if you have experience with the acquisition, effective mgmt of less units, marketing, etc, when the property is big enough to support a PM company, you can really start to achieve some economies of scale in cash flow, and saved time.
With only a few properties above 5+ units available, the competition and acquisition phase will be a lot more difficult than if you can increase your search parameters to say 50 units with a partner. The amount of time you invest may be more overall, but you can now charge say, an acquisition fee, an asset management fee, and again you get better economies of scale with more units.
Good luck! I hope all goes well with your transition.
I've done the same thing here in Western NC - Asheville area. Biggest difference is the lending, otherwise it's very similar. This size is still smaller than what large syndicators are going after so we still deal with the same type of owners, typically local landlords who self-manage. Find a good local bank who likes multifamily. Know you'll probably have 5-10y fixed with 20-25y amortizations and won't be doing 30y fixed loans most likely. The lending will be primarily driven by your DSCR, experience and your current assets. In my opinion they are way easier than conventional underwriting if you have a solid track record which it sounds like you do. You will need to look at things from a cap rate perspective for the valuations which in my experience makes it easier to BRRRR than with 2-4 units if you do value add.
Thanks Ryan! I appreciate your response! Thanks for the information.
@Anthony Zotto While I can't speak from experience (PS congrats! You've clearly put in a lot of hard work and had a lot of success with your investing), my advice would be to utilize your experience and resume of success to look for a partner for a bigger property. Commercial benefits a lot from scale, and if you have experience with the acquisition, effective mgmt of less units, marketing, etc, when the property is big enough to support a PM company, you can really start to achieve some economies of scale in cash flow, and saved time.
With only a few properties above 5+ units available, the competition and acquisition phase will be a lot more difficult than if you can increase your search parameters to say 50 units with a partner. The amount of time you invest may be more overall, but you can now charge say, an acquisition fee, an asset management fee, and again you get better economies of scale with more units.
Good luck! I hope all goes well with your transition.
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
4y
Profit per property is a lot more important than profit per door. Commercial loans are much easier than residential. Managing one property with 8-12 units is much easier than managing 8-12 units in four to six properties in different locations. Go for it...you won't be disappointed.