Who has made the leap from a duplex to a 20 unit or more complex.

Question

Interested to know from those investors that made the leap from a hand full of duplex's to a larger apartment complex.  What did you learn about the bigger deal.  How did you manage it?   What systems did you put in place.  What was the biggest challenge?  Let me know.

Mike Dymski · Answer

PM for the past five years was 7%.  They just exited my submarket and new PM is 8%.  I find the cost of vacancy and maintenance to be a lot more important than the management fee.  The first two are hard to assess until you are in bed together...and that can change over time as staff assigned to your property changes.

Add value and have organic appreciation and sleep well at night, even with management inefficiencies.

This stuff is right in your wheelhouse.

Mike Dymski · Answer

I went from a 4-plex, an SFR, and some flips to a 30-unit community and transitioned to 3rd party management at that point.  I did not have the time (or interest) in accumulating properties...and wanted something more efficient.  For my goals, profit per property is a lot more important than profit per unit.

The biggest challenge is finding good management.  Those middle sized properties are too small for professional on site management...and not a great fit for SFR management companies with slow turns and high maintenance costs.

Arn Cenedella · Answer

@John McKee

Good suggestions in other comments.

One of the big differences you need to educate yourself on is financing for 1 to 4 units is very different than financing 5+ units. 1 to 4 unit loans on primarily based on buyer borrower income. 5+ unit loans are solely based on property income and buyer net worth. So if you want to borrow $5M the property must pay for the debt service on $5M AND you must have a net worth of $5M plus often liquify after purchase equal to 10% of the loan amount. So if you don’t meet that criteria you will need to bring on a partner who does. Often called a key principal.

So before you chase bigger deals be sure you understand how to finance the acquisition when you find the right deal.

Good luck,

Arn

Dan Crosby · Answer

I went from a few hundred units made up of single-family homes, duplexes, ADUs, 4-plexes, etc. to a 56-unit mid-rise building outside of my local area.

1) Local third-party management is key.

2) When things breakdown, it's much bigger of a deal, so routine preventative maintenance is key.

3) Draw a hard line in the sand with tentacles. Communities talk, and word will spread if you're an owner that can be taken advantage of.

4) On the flip side of this, culture is important in companies, and fixing issues in a timely manner will also go a long way for building a positive environment and helping retain employees.

Bob S. · Answer

Nothing really different, PM co handles everything, using Buildium

Justin Moy · Answer

Awesome insight from both @Mike Dymski and @Arn Cenedella ! Follow those the most.

Scale and financing change and the dollar amounts change which could provide a higher risk/reward ratio. If things start to go wrong with a 1-4 unit complex its much more likely you can float the expenses for a bit of time without income from the property, once that unit count grows that dollar amount becomes more intense (but so do the payouts).

John McKee · Answer

Thanks for the input everyone, I'll have to figure in the property management cost as there is no way I can manage 20+ units.

Mike Dymski · Answer

That's a great portfolio!  The capital for my apartment community came from a couple of flips, investment and rental income, and hard work and savings from my W-2.  My purchase price was a lot lower than rebuild/replacement cost as is the case with your new development.

Bruce Wilhite · Answer

Mike,

This is where I am now. I own and manage 8 SFRs, 2 duplexes, and an 8 plex and have learned the 8 plex is much more efficient. I have a few acres of land that I believe would comfortably hold 30 units or so, but I am hung up on financing. I’ve had a market study done and gone through the initial diligence with our city planner, but I have not figured out how to come up with the capital required to get started. I have BRRR’d or used a commercial line of credit to acquire our current properties but a multi-million dollar development is more than I can support. How did you get funding for the 30-unit property? Thanks!

John McKee · Answer

Great feedback Mike.  How much do you pay for the property manager on a 30 unit?

Who has made the leap from a duplex to a 20 unit or more complex.

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