Starting my real estate journey with an apartment complex

[Oscar Perez]

Hi, my name is Oscar and I am working to start my real estate investment journey. I am a recently graduated physician and I am looking to create wealth through real estate. I have considered many options, however, in order for me to make sense the use of my time I want to get into commercial real estate.  I am also the type of "go big or go home" person. I'd like to know your experiences with the first apartment complex you guys have bought and what recommendations you have for me. Thank you so much!

[DuWayne Gregory]

Good luck. I’m also looking in the Cleveland area. 

[Trevor Richardson]

I think the first step for new investors is identifying the metric that’s most important to you for evaluating investment properties. Depending on budget and goals not all investors are alike.

If you are looking for a project because you have extra time, look for value add deals and hone in on construction costs and trades and pro forma rents. If you are looking for turn-key deals with little work instruct your agent to search out the best deal that has had a good renovation and new set of tenants. 

Some investors want value purchases which means they may look at only $/sf and put that above all metrics. Some look at a straight forward cap rates for comparison between deals. IMO the best metric is monthly income after all expenses and financing. It's just the simplest number to show a monthly returns (CoC) calculation. It answers "ok after all expenses and my mortgage what am I taking in per month".

Some investors want to reduce their overall income so higher cash flow properties aren’t a priority. That may sound crazy to some but we run into that all the time. That’s because that’s their financial goal and fits into their personal situation. 

I’d recommend to first think about what you want out of a multifamily investment. What are your goals? That’s a great place to start.

[Bjorn Ahlblad]

@DuWayne Gregory welcome to BP! I had always had SFR and duplexes and I bought a 12 unit 6 years ago. I have been able to increase rents and tenant class. The building is in great shape and has made me a bundle. My wife and I are retired and real estate keeps us from ever having to work at Walmart. If you have decided on RE and land lording, I highly recommend an apartment investment.

[Kim Meredith Hampton]

@Oscar Perez Most importantly, get a great team-commercial lender, commercial agent who specializes in multi family, property management, deciding on your why (buy and hold) etc…and lastly learning a little bit about underwriting and understanding the numbers.

[Justin Moy]

Congrats on that huge life accomplishment! If you're looking to preserve your time more than anything, I'd look into investing into funds or syndications. 

They're 100% passive positions in deals, think of it like a silent partner who puts up cash in exchange for equity. So you have 0 time commitment to find deals, underwrite deals, qualify for loans (which have different qualifications when it comes to commercial properties), fund the entire deal, and manage the deal after. 

There are groups who will do all of that for you in exchange for investing passively in the deal with them so both you and the operators can scale quicker. 

Send me a DM if you want to learn more about it or see some samples! @Oscar Perez

[Matt Moreland]

@Oscar Perez, if you are wanting to get into investing in commercial real estate as a principal in the deals, I would suggest investing alongside some experienced sponsors for the first few deals in order to build up enough multifamily credentials in order to have options to approach commercial lenders yourself as the sponsor on a deal that you put together.

If you are not wanting to put in lots of time or be a principal, and would prefer more passive investing, you should find some great investors who specialize in multifamily and begin signing up and soft committing to future raises. Being a reliable capital investor is super valuable to syndicators, and you can often have first shot on new deals in the pipeline and how much you want to put in. Additionally, consider what position you would want to take (would you take a preferred return, or would you pass up a safe bet and take a riskier stake in exchange for the possibility of much higher payouts?)

Best of luck, Oscar, and congrats on the new career!

[Drew Sygit]

People are overpaying for questionable properties.

[Patrick O'Shea]

I bought a 6-unit in Pittsburgh 4 years ago. It was a value add with only 3 of the 6 units occupied. It took about a year but 5 of the 6 units have been renovated, rents increased, and it's been refinanced. I'm gotten most of my money back out of it with the refi and I have improved the initial terms. I'd like to buy another, but I expect cap rates to expand and prices to fall this year. As they say, you make money with RE when you buy it.

I have been thru a couple of property managers. I have quit my day job and now we live solely on my wife's income. I wasn't the best at managing the manager. Managing it isn't that hard and I feel I do better than the last property manager. I definitely care more about my tenants. I've turned 1/2 the units into MTR as they become available and that's done amazing.

If I was just starting out I would recommend 3 things:

1) Reading "Multifamily Millionaire Vol. I/II" to understand the space and how it changes with scale.
2) Read "Managing Rental Properties" so you know what the property manager should be doing to keep whoever is managing your properties accountable. Both books are by Brandon Turner of BP.
3) Doing multifamily with 5+ units can be intimidating since it's different from residential, but it's not rocket science. It's well worth it and you have less competition. The lenders and lending terms are the biggest change. Odds are you'll need to guarantee the loan with a regional bank or credit union. I've used a few but had the best experience with MBFS. Once your loans are over 1M you can get into agency debt (fannie/freddie) or CMBS with non-recourse loans that have longer terms.

Note, you might be eligible for significant tax advantages via RE professional status if your wife manages the property (with help from you). 

Good Luck!

[Ryan Rock]

Quote from @Oscar Perez:

Hi, my name is Oscar and I am working to start my real estate investment journey. I am a recently graduated physician and I am looking to create wealth through real estate. I have considered many options, however, in order for me to make sense the use of my time I want to get into commercial real estate.  I am also the type of "go big or go home" person. I'd like to know your experiences with the first apartment complex you guys have bought and what recommendations you have for me. Thank you so much!

 hey Oscar.congrats on your MD! I'm buying a sf in Cleveland by myself rn but am also interested in working with someone else on a mf. Pm if you'd like to talk, especially if you are in Cleveland 

[Andrew Duna]

Hi Oscar- Congratulations on graduating to become a Doctor! I think it makes a lot of sense to go big (and hopefully never go home) as long as you have a team in place that you can trust. At the end of the day real estate is quite simple and obviously benefits from economies of scale! 

Really the main thing that you want to focus on in the beginning is being able to run your numbers realistically as there are plenty of sellers who are asking for way more than it makes sense to purchase the property for. I have some experience with this as I am part of a team that has purchased 250 units of multifamily in the past 3 years. In general the underwriting is quite simple and I'd be happy to share my thoughts and resources for that. 

The main play I would always recommend is going for a property that could use some cosmetic renovation in order to bump the rents- that is of course how you gain the best roi and build some serious wealth. 

I am an investor focused agent here and my team will very frequently have larger off market multifamily deals available. With that being said -- another piece I would add is that owners seem to prefer selling off market because they don't want their tenants knowing about the sale... among other typical reasons. So it's definitely important to get plugged into that side of things through networking. Wishing you all the best in your journey!

[Sam McCormack]

@Oscar Perez

Hi Oscar, there is a few apartment complexes in Cincinnati, OH you may be interested in, let me know if you are interested!

[Bob Stevens]

Quote from @Oscar Perez:

Hi, my name is Oscar and I am working to start my real estate investment journey. I am a recently graduated physician and I am looking to create wealth through real estate. I have considered many options, however, in order for me to make sense the use of my time I want to get into commercial real estate.  I am also the type of "go big or go home" person. I'd like to know your experiences with the first apartment complex you guys have bought and what recommendations you have for me. Thank you so much!

 Well I love your hutzpah !! However, if you are thinking about starting in Cleveland with no experience or a team, STOP!! Do not even think about it. It will not end well. You 100% must have a team in place where there is a mutual beneficial long-term relationship. I have done 100s and 100s out there with a team.
(NO I do not mean a realtor I never used any) If I did not, I would have lost my shirt years ago. Oh you also need to be cash as you are competing against, cash, as is close in a week or so, vs all the hassle of a loan.

All the best 

[Jason Merchey]

Congrats on graduating. This country needs doctors, so hopefully you will not exit that space! 

My two cents would be: secure your income and assets through your paychecks, pay down debt, don't overspend. That will allow you to invest from a position of strength. You must have the potential to earn $125k to $225k per year, and if you can spend only 90% of that (and pay your taxes and your debt) you will be on the road to financial strength. I tend to be of the opinion that RE takes so much a) time, b) capital/cash, and c) know-how/experience/luck that it's not to be taken lightly. 

Your ability to make good money in medicine is quite within your control and your ability to invest without a lot of capital or know how or time is quite limited. The country needs good doctors more than it needs more real estate investors, so please consider serving instead of going for the gold. 

Just an opinion!

[Geoff Stuhr]

First true apartment complex that I bought was a 34-unit (mixed use property actually, 32 apartments and two retail storefronts) in an emerging market. The rents were all under market by about $150-$200/month. The property had a TON of deferred maintenance and we (this was a JV between me and two partners, not a syndication) basically took all cashflow from year 1 to renovate each unit and take care of all of the deferred maintenance. The property has been a beast ever since, probably added around $600k-$1M in value.

My second apartment complex was another story though...... However we got out of that one still making some money, but the thought that we could just rinse and repeat our first deal on the second one was naive as the area is just different, and much more challenging. The moral of the story is that location really matters! 

Best of luck - happy to connect if I can help. Cleveland is very similar to Milwaukee too, solid linear market!

[Nicholas L.]

@Oscar Perez

you're in a great position to house hack small multi.  if you bought 2 or 3 and did it sequentially, you could accumulate 4-12 units in just a few years while also having a place to live AND continuing to learn / explore larger.

[Lee Yoder]

@Oscar Perez, I echo what some others have said; I would suggest starting by investing with other operators who work in REI full-time and who have experience buying and operating apartments. You will gain knowledge and experience while investing with them. If you pick a great sponsor, you'll greatly decrease your risk of losing money and taking a step backwards in your REI journey. Jumping into an apartment syndication is still "going big." After investing in a few syndication, and learning from the sponsors, you'll be in a much better position to go even bigger; buy and operate your own apartment.

[Nicholas L.]

@Lee Yoder

@Justin Moy

@Matt Moreland

I am open to other perspectives, but I really don't think a beginning investor has any business investing in syndications.  This just locks their money up...

And note that when I say beginning investor, I don't mean someone who doesn't own rentals; if you don't want to own rentals directly, then don't.  But OP is just getting started in his career and investing journey, and finding a reputable syndication I expect will be challenging....

[Scott Mac]

Quote from @Oscar Perez:

Hi, my name is Oscar and I am working to start my real estate investment journey. I am a recently graduated physician and I am looking to create wealth through real estate. I have considered many options, however, in order for me to make sense the use of my time I want to get into commercial real estate.  I am also the type of "go big or go home" person. I'd like to know your experiences with the first apartment complex you guys have bought and what recommendations you have for me. Thank you so much!

You will need to have 20% to 25% of the purchase price in cash for a down payment.

You will need liquid cash for earnest money and due diligence on the property.

You will need cash money to do any bank required fix-ups needed to close.

You will need the amount of Cash Reserves personally that the lender requires you to keep liquid for the term of the loan.

 You will need as large of a New Worth as the lender says you need for the loan (and will have to maintain the Net Worth position for the length of the loan.

You will need Attorney fees (in cash) ready to cut a check.

If a complex costs $12 Million, (@25% down) that's $3 Million liquid cash for the down payment alone.

Basically you need a lender (who will dictate what you must be and must have and must maintain) to be able to buy.

Plus bring enough cash money to the table for the down, earnest money, fix-up money (WORKING CAPITAL) and etc...

If you are in such a cash rich position right after Medical School (or know people who are that will work with you on this), great, if not--"go big" most likely will have to wait until you can put all of your needed pieces together.

I imagine Student loans must be eating away at your monthly income, regarding saving up for investing.

The amount of spendable hard cash you have dictates how much you can buy.

Good Luck!

[Christina J Allen]

@Scott Mac This response is the most realistic and thorough one Ive come to read with. Much like @Oscar Perez Im also looking into Multifamily investing and I am a physician assistant. I am fortunate enough to have found a job that will pay my school debt or else my funds would have been tied up. I am currently working on a plan to build up to the funds that are needed to get my first multifamily and I plan on starting unlicensed group homes to make that money as soon as possible. Maybe this would be a great starting point for someone else who doesn't have the income to "go big or go home".

@Oscar Perez Best of luck to you! Id love to hear more about your multifamily journey. 

[Christina J Allen]

@Oscar Perez 

P.S. I am from Canton, Ohio originally and I plan no buying my first multi in Dayton, Ohio! Maybe we should keep in touch. Be well ! 

[Lee Yoder]

@Nicholas L., you makes some good points, but here are my counter arguments:

1) Active investments will "lock up" OP's money just like a passive investment. The key is which one will provide OP with good upside potential and low downside risk. 

2) Yes, it will take time and it will be challenging for OP to find a good syndication team. However, I would argue that finding a good market, a good property, a good lender, a good attorney, a good property management team, and everything else that goes into buying a property on your own, will take much more time and will be much more challenging. 

[Nathan Fisher]

Along with all the great advice above, make sure to get local insight from a local realtor and investors. Each city will have it's own rules, eccentricities, and building depts. They can make a world of difference.
A rental inspection from Newburgh Heights is way harder than Mentor.

[J Scott]

Quote from @Scott Mac:
You will need to have 20% to 25% of the purchase price in cash for a down payment.

You will need liquid cash for earnest money and due diligence on the property.

You will need cash money to do any bank required fix-ups needed to close.

You will need the amount of Cash Reserves personally that the lender requires you to keep liquid for the term of the loan.

 You will need as large of a New Worth as the lender says you need for the loan (and will have to maintain the Net Worth position for the length of the loan.

You will need Attorney fees (in cash) ready to cut a check.

If a complex costs $12 Million, (@25% down) that's $3 Million liquid cash for the down payment alone.

Basically you need a lender (who will dictate what you must be and must have and must maintain) to be able to buy.

Plus bring enough cash money to the table for the down, earnest money, fix-up money (WORKING CAPITAL) and etc...

If you are in such a cash rich position right after Medical School (or know people who are that will work with you on this), great, if not--"go big" most likely will have to wait until you can put all of your needed pieces together.

I imagine Student loans must be eating away at your monthly income, regarding saving up for investing.

The amount of spendable hard cash you have dictates how much you can buy.

Good Luck!

 Actually, if he does a syndication, which is what he seems to be talking about, he doesn't need any of these things on his own.

The typical syndication will use other people's money for all of these things. For example, it's very common for syndication to bring in someone known as a Key Principle -- this is someone who has the net worth, liquidity and experience to sign on the loan. They receive equity in returned for this.

Likewise, it's not uncommon to dole out equity for the risk capital -- earnest money, due diligence cost, etc.

And of course, the main purpose of a syndication structure is to bring together passive investors to provide the equity needed for the down payment, capex, closing costs, and other capital needed to complete the project.

Long story short, while it's always nice to have access to your own capital, it's not necessary when doing large commercial projects.

[Justin Moy]

Quote from @Nicholas L.:

@Lee Yoder

@Justin Moy

@Matt Moreland

I am open to other perspectives, but I really don't think a beginning investor has any business investing in syndications.  This just locks their money up...

And note that when I say beginning investor, I don't mean someone who doesn't own rentals; if you don't want to own rentals directly, then don't.  But OP is just getting started in his career and investing journey, and finding a reputable syndication I expect will be challenging....

I love the perspective, but have some alternative points. I don't see how syndications 'lock up' an investors cash more than any other real estate investment. Real estate in any form is not considered a liquid investment. It actually might hold your cash for a shorter amount of time depending on the type of loan and deal you do. 

If someone is just getting started in their journey, in my opinion it's even more valuable to partner with an experienced team. It could also be more challenging finding the deals and managing them on your own being new, and most syndication teams or funds don't have an experience requirement. Some may have a accredited requirement but I haven't seen it be too common to require experience to partner as an LP in a syndication! 

It's all dependent on goals, if someone tells me they want to preserve their time more than anything, I steer them to a passive opportunity, I think a lot of people think real estate is passive income and then they purchase some properties that takes way more of their time and money than they initially expected.

But all great points that anybody investing should consider and pick their strategy based on what suits their needs best!

[Nicholas L.]

@Justin Moy

mostly agree, and great points.  i would just point out that, if, say, a new investor has 50K, it's just not wise to drop that 50K into the first syndication they stumble across, and hope for the best.  that's all i'm trying to avoid, otherwise i agree with everything you said.