Multi-Family and Apartment Investing

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Amby Bhagtani
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Worst Mistakes while investing in multi-family

Amby Bhagtani
Posted Nov 24 2022, 11:13

To all the intelligent investors here, what are some of the worst mistakes you made and what would be your recommendations for a new multi-family investor to avoid those mistakes. 

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Percy N.
  • Developer
  • Philadelphia, PA
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Percy N.
  • Developer
  • Philadelphia, PA
Replied Nov 25 2022, 08:08

@Amby Bhagtani some of it could be dependent on the size asset and whether you are planning to buy it by yourself or with partners, so some additional context would help.

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Taylor L.
  • Multifamily and Self Storage Investor
  • Richmond, VA
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Taylor L.
  • Multifamily and Self Storage Investor
  • Richmond, VA
Replied Nov 27 2022, 16:08

Never give your property manager too much rope. They need to be managed diligently. It's a bit easier to get their attention when they're managing several hundred units for you (rather than a handful). Also bear in mind that there are unsavory folks out there who can take advantage of uninvolved property owners.

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Chris Seveney
  • Investor
  • Northern Virginia
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Chris Seveney
  • Investor
  • Northern Virginia
Replied Nov 27 2022, 16:17

@Amby Bhagtani

One I see frequently is sponsors only having one exit strategy. Speaking with a lot of investors right now whose $ is tied up and the fund syndication was to be liquidated and they cannot exit because the sponsors sole exit was based on refinance. They also took out short term debt that is requiring now a capital call.

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Rick Bassett
  • Property Manager
  • Greater New Haven, CT
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Rick Bassett
  • Property Manager
  • Greater New Haven, CT
Replied Nov 27 2022, 16:45

We manage many small multi's - the most significant issues that we have are with trash policies, noise between floors, pets, and parking.

Trash is tricky as there is often a tenant, a neighbor, or a visitor that fills the waste receptacle up causing stress on the rest of the tenants...and sometimes us if they drop a tire, paint cans, furniture ...etc. 

Noise issues always come up; much has been written here about it. As much as we hate carpet, we try to put it in the upper units to dampen the sound but not the first-floor units.

Pets - we try not take them in multi's, but we can't easily avoid the army of ESA's, when possible we try to keep them located on the first floor. Pets & carpets aren't a good mix.

Parking - is always a contentious issue if you allow assigned or numbered parking spaces, as there will always be violators and angry people. We spell out how many cars tenants can have on the property and do not allow assigned or reserved parking. 

With all of the above, we aren't going to mediate disagreements between angry tenants. We tell them they need to work it out on their own or invite them to move out if they can't. Our mistake was getting involved with these squabbles in the past...no more.

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Amby Bhagtani
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Amby Bhagtani
Replied Nov 27 2022, 16:47
Quote from @Chris Seveney:

@Amby Bhagtani

One I see frequently is sponsors only having one exit strategy. Speaking with a lot of investors right now whose $ is tied up and the fund syndication was to be liquidated and they cannot exit because the sponsors sole exit was based on refinance. They also took out short term debt that is requiring now a capital call.


 Sorry what's a sponsor?

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Amby Bhagtani
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Amby Bhagtani
Replied Nov 27 2022, 16:48
Quote from @Rick Bassett Bassett:

We manage many small multi's - the most significant issues that we have are with trash policies, noise between floors, pets, and parking.

Trash is tricky as there is often a tenant, a neighbor, or a visitor that fills the waste receptacle up causing stress on the rest of the tenants...and sometimes us if they drop a tire, paint cans, furniture ...etc. 

Noise issues always come up; much has been written here about it. As much as we hate carpet, we try to put it in the upper units to dampen the sound but not the first-floor units.

Pets - we try not take them in multi's, but we can't easily avoid the army of ESA's, when possible we try to keep them located on the first floor. Pets & carpets aren't a good mix.

Parking - is always a contentious issue if you allow assigned or numbered parking spaces, as there will always be violators and angry people. We spell out how many cars tenants can have on the property and do not allow assigned or reserved parking. 

With all of the above, we aren't going to mediate disagreements between angry tenants. We tell them they need to work it out on their own or invite them to move out if they can't. Our mistake was getting involved with these squabbles in the past...no more.

 Thanks so much, this is excellent advice. 

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Alicia Marks
  • Fort Worth, TX
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Alicia Marks
  • Fort Worth, TX
Replied Nov 28 2022, 11:24
Quote from @Amby Bhagtani:
Quote from @Chris Seveney:

@Amby Bhagtani

One I see frequently is sponsors only having one exit strategy. Speaking with a lot of investors right now whose $ is tied up and the fund syndication was to be liquidated and they cannot exit because the sponsors sole exit was based on refinance. They also took out short term debt that is requiring now a capital call.


 Sorry what's a sponsor?


 A sponsor is someone who is heading a syndication. They find the deal and market it to other investors to hopefully invest in. This is common in large scale multifamily due to the financial constraints an individual would have in purchasing.

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Vincent Chen
  • Real Estate Investor
  • Philadephia, PA
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Vincent Chen
  • Real Estate Investor
  • Philadephia, PA
Replied Dec 26 2022, 16:39

@Taylor L. Totally agree with that, but what is the best practice to manage the property managers? What is best involvement should the investors get into the multifamily investment?

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Taylor L.
  • Multifamily and Self Storage Investor
  • Richmond, VA
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Taylor L.
  • Multifamily and Self Storage Investor
  • Richmond, VA
Replied Dec 26 2022, 17:57
Quote from @Vincent Chen:

@Taylor L. Totally agree with that, but what is the best practice to manage the property managers? What is best involvement should the investors get into the multifamily investment?


 It depends. For heavier lift deals we've done weekly conference calls with our PM to track and manage turns, renovations, move ins/outs, collections, etc. But in that case we're talking about several hundred units, which have more turns, renovations, etc to deal with.

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Vincent Chen
  • Real Estate Investor
  • Philadephia, PA
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Vincent Chen
  • Real Estate Investor
  • Philadephia, PA
Replied Dec 26 2022, 18:11

@Taylor L. Agree with that, but in the day-to-day operation, how much should we involve? When to increase the rent, how to execute the process and how to make sure the expense reasonable, maintenance or Capex?

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Joseph Cornwell
  • Real Estate Agent
  • Cincinnati, OH
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Joseph Cornwell
  • Real Estate Agent
  • Cincinnati, OH
Replied Dec 27 2022, 10:23

@Amby Bhagtani 

Hire a good GC or project manager, especially if you are an out of state investor. Do not pay contractors too much up front, just enough for material or to begin work until you build a relationship. Always check work before paying the final draw, or have someone else inspect on your behalf. Its worth the extra costs for peace of mind. I lost about $3500 on my first deal by not doing this correctly, and that was a ton of money for me at the time.