I'm trying to buy an apartment complex without having millions
FL · Member since 2020 · 45 posts · 28 votes
I'm trying to buy an apartment complex without having millions
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Jaron WallingPro Member
Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votesA credit score means nothing. Experience means everything. It's very hard to go from a tri-plex to a 10+ unit apartment complex without understanding 90% of everything in between. It's rare for investors to take that jump alone. I agree with everyone else. I'd continue buying and building your army (doors) with the plan to combine forces (investor partner) and step up to bigger deals.
62 Replies
- Investor · Kansas City, MO · Member since 2020 · 400 posts · 278 votes3y
Quote from @Clarence Harvey:
Quote from @Justin Moy:
Quote from @Clarence Harvey:
Quote from @Justin Moy:
If you don't have or want to put up the cash you'll need to partner in some way. Also not to mention if you are stepping into commercial (5+ units) your triplex may not qualify as enough experience to own the property yourself, so you'll likely need a partner anyways to help you qualify for your loan.
If you have some cash and want to gain some experience with the bigger stuff many people will start as a passive investor in deals (syndications or funds) to get a baseline of experience before going on the active side of the deals so that's also a potential option
Hello, I’m new to real estate, and I have a very similar goal as Zach, I want to get into larger apartments to live off of cashflow, do you mind explaining what a “ syndication “ is ?
Of course! A syndication lets lots of investors pull their cash together to purchase a single larger asset. There is an operating team which does all the work and passive investors, called limited partners, who only put up cash and do not put in any work on the asset. I'll DM you as well
How do the passive investors usually benefit? Is it cash flow ?
Cash flow, appreciation, debt paydown, and equity at refinance / sale
- Real Estate Syndicator · Milwaukee, WI · Member since 2018 · 1k+ posts · 907 votes3y
Syndication is likely the space you are looking to get into. Leveraging OPM is the tool to use to get into multi million dollar deals when you don't personally have the capital.
- Member since 2019 · 18 posts · 24 votes3y
@Zach Jones If you are going to go larger, you will want to buy through a Syndication or a JV.
*****A syndication is a vehicle where investors are able to pool resources to purchase investments together. *****
Much like the management of the asset, the funding of the asset is also better done in groups. The management team is called the General Partners and the investors who provide capital are called Limited Partners.
Think of this as a you are investing into a company. The company is basically split into shares and the amount that at investor invests in the “company” is the amount that they will own and that’s the percentage of profit they will make.
Syndications allow you to purchase properties you would typically no be able to on your own and allow you to scale.
On the GP team you will want - underwriting, asset manager, property management, etc. Start building your team and looking for deals. When you have an awesome deal, you will be able to easily build a team around it.If its confusing, a good way to learn is to become an LP in someone elses deal to get some insight on how large deals are put together.
- 3ySam McCormackBusiness MemberReal Estate Agent · Cincinnati, OH/NKY · Member since 2021 · 1k+ posts · 833 votes
Hi Zach, there are multiple apartments available right now in Cincinnati that you need to see. Nothing is as expensive like you are saying, but apartments half of what you are saying. Let me know and I can send them your way
Sam McCormack Realtor - Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes3y
Everyone is talking about syndication. Let's not forget that investors want to get paid too.
The better way to buy a property like this is to upgrade - if you ever played monopoly: four green houses to one red hotel. Preferably with a 1031 exchange.
It is much easier to come up with a million in real estate equity than with a million in cash. Keep buying smaller deals, aim for value add and appreciation.
- Rental Property Investor · centervill in · Member since 2019 · 86 posts · 49 votes3y
@Darnell Lockett
Very well said,
We recently completed a 67 door porches.
With almost none of our own money,
Our commercial lender took into consideration my credit score but these loans are normally none of equals and they just want to see that you are somewhat 😉responsible with your credit.
Beginning with multi is a great shortcut to wealth however you are driving a plane and mistakes in many cases don't lend well.
Research within yourself what can you bring to the table for an experienced investor.
Put yourself at his service do an acquisition together with him learn everything sitting on his shoulders hopefully in the next acquisition your peace in the pie will be greater,
And before you know it you will have your own Multi,
To some extent I think it's a God blessing that when you begin you don't have the ability to raise the cash to buy a large deal it is almost definite you will devastate yourself with that.
- FL · Member since 2020 · 45 posts · 28 votes3y
@Sam Yin Sam... That is the wildest response I've ever had on any post from this site. First off, sorry for taking 2 damn months off BP.. Life has been distracting lately and I've really needed to focus myself back on the RE and the goal of Financial Independece thru RE (FIRE?). THANKYOU for being so open and willing to share your experience. That story is phenomenal.. from pissing the wife off, bad choices, neglecting kids for a better future.. all of it. Huge goals of mine as I have 2 young children and work in the auto industry where long hours are the norm. The goal of going to commercial is a big 1 , especially with testimony like yours explaining the gains of CF when making the jump. I would absolutely give up some equity in my triplex to move into a 6/8 unit and that seems much more attainable then dong something like going straight into a 30 unit or something of similar size. As I stated before, it would def be hard to give up the rate but when trading for CF, if the deal makes sense. who cares. Can I ask where the deals came from and if they're local to you? Living in central Florida, the cost of everything are pretty high and finding larger MF (5+) can be pretty tough.. I've seen people mention investing out of state ion better markets but the thought of that is a little stressful. Not knowing the area, markets, and not being able to go there if need be.
I wanna say thank you again for taking the time because stories like that remind me that its possible. It may take some time, stress, dedication, but the goal of true freedom are possible and I appreciate the motivation.
- FL · Member since 2020 · 45 posts · 28 votes3y
@Sam McCormack I'm not very familiar with the out of state investing but I'm sure OH is significantly cheaper then FL.. send them my way!
@Marcus Auerbach Love the monopoly comparison and I think you're right... and ya, everyone is explaining to my syndication.. I know about them and are familiar, the biggest ? with those is always where to find other syndicators But regardless, I like the upgrade idea because I can do it with sole control or maybe 1 partner at some point in the future but I wouldn't have to be a backseat driver to my investment. Knowing the current market, cooling down, but the current rates as well.. would you sell a CF triplex at a 3.8% pulling about 2600 monthly in order to upgrade to a larger project? Or prefer a HELOC or similar option in order to keep the good loan and only pay higher interest on the cash borrowed?
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes3y
@Zach Jones HELOC is for your Home only (Home Equity Line Of Credit), you'd have to refi. It would have to be a sweet project to make me refi out of 3.8%
- 3yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Marcus Auerbach:
Everyone is talking about syndication. Let's not forget that investors want to get paid too.
The better way to buy a property like this is to upgrade - if you ever played monopoly: four green houses to one red hotel. Preferably with a 1031 exchange.
It is much easier to come up with a million in real estate equity than with a million in cash. Keep buying smaller deals, aim for value add and appreciation.
where I have seen this play out is like this. And it works best in markets that actually appreciate significantly over time.
Buy 4 plex for 300k hold it 5 years sell for 500k 1031 now you have your gain plus your original DP so say you have 300k and rental experience.. buy 900k prop. hold that another 5 years until U sell for 1.4 million and 1031 now you have 800k in cash and you buy a 3 million prop and in 5 to 15 years you now own a 3 mil prop with no partners. Syndication is the easy answer here but thats a business and I would say 95% of investors are not going to do this because of the cost and complexity of regulations and not enough recognition in the market place to even remotely raise enough capital.. Then you have to run the deal and now deal with a bunch of investors.. A deep history or experience in RE before you head into syndication is not necessarily a must but sure is going to be important to your success.. Just look at J. Scott already well know national figure and his partner well known so it realistic for them to jump to syndication.. Brandon Turner same thing HUGE following so its easy for them to jump into syndication Just sayin.. Also if you dont run your syndication correctly you will end up in litigation thats a given.. If your buying your own deals and they dont work so well .. its on you your not going to sue yourself. - 3ySam YinPro MemberLos Angeles, CA · Member since 2021 · 584 posts · 738 votesAll my purchases have been local. I did look into out of state because the cash flow looked really enticing. But after a second look, it did not fit my goals. I think I would be dead in the water and slowing moving forward had I gone out of state. The cash would be great for the initial investment, but the growth would have been stale.
Quote from @Zach Jones:
@Sam Yin Sam... That is the wildest response I've ever had on any post from this site. First off, sorry for taking 2 damn months off BP.. Life has been distracting lately and I've really needed to focus myself back on the RE and the goal of Financial Independece thru RE (FIRE?). THANKYOU for being so open and willing to share your experience. That story is phenomenal.. from pissing the wife off, bad choices, neglecting kids for a better future.. all of it. Huge goals of mine as I have 2 young children and work in the auto industry where long hours are the norm. The goal of going to commercial is a big 1 , especially with testimony like yours explaining the gains of CF when making the jump. I would absolutely give up some equity in my triplex to move into a 6/8 unit and that seems much more attainable then dong something like going straight into a 30 unit or something of similar size. As I stated before, it would def be hard to give up the rate but when trading for CF, if the deal makes sense. who cares. Can I ask where the deals came from and if they're local to you? Living in central Florida, the cost of everything are pretty high and finding larger MF (5+) can be pretty tough.. I've seen people mention investing out of state ion better markets but the thought of that is a little stressful. Not knowing the area, markets, and not being able to go there if need be.
I wanna say thank you again for taking the time because stories like that remind me that its possible. It may take some time, stress, dedication, but the goal of true freedom are possible and I appreciate the motivation.
I remember a podcast/YouTube video that talked about keeping it within 30 mins of where you live if you are going to self manage. I took it to 60 mins because there was just more opportunities in 60 miles of Los Angeles.
the point is, I wanted to be able to create value quickly and felt I needed to do it on my own to save money in the beginning. I worked full time. Had 3 kids. Had a few side hustles. Ran out to the properties and hustled anytime I have a minute to breathe. It was my way of ensuring forced appreciation.
I don't do it anymore. I hire out about 99.99% now. But that's because of the initial growth that came from doing it my self.
to your point about local markets, it's the one you would know best. Its the one you would understand most. Thus, it's the one that would make the most sense if you want to have the most control. And based on you past posts, I think you want to keep control over your investments.
I do not think I would have been able to grow as quickly if I went out of state. For example, to get stable, I probably could have grown to about 100 to 150 units. May be cash flow about 200K to 300K. But equity would have been minimal. I would depend on a team OOS to manage and slowly improve. That is because it is highly unlikely you will find a PM company that would focus on cleaning up class C properties for the sole purpose of forcing appreciation for 1031, ESPECIALLY when you are talking about small apartments. Confronting people is not normal for most people. This is a people business.
here are a few examples: staking out tenants and monitoring activities through the night. Towing out cars at 5am, at 10pm, at 2am. Tossing out undesirable tenants, tearing down encampments on a Sunday morning and middle of the night. Dealing with felons and parolees. Etc.
but for me, that's what I took to grow that fast. It is possible to do the same with a PM, but probably years versus weeks and a few months.
that has translated to me now looking for class B buildings and creating my own management team that I trained for my goals. - Rental Property Investor · Gulfport, MS · Member since 2015 · 34 posts · 17 votes3y
I would humbly suggest that you network with a couple of COMMERCIAL bankers in your area. If you purchased your tri-plex with traditional mortgage funds, you would have gone through the banks mortgage lending department. The commercial lenders speak a completely different language.
I started with a small commercial deal. Its was maybe 210K. The banker didn't care too much about the quality of the deal, or my business plan, or my investing experience, etc., because like you , I had a very healthy income that could handle my complete mismanagement of the property. It was a good thing too. I did completely mismanage that property.
I'm a full time investor now and property manager. I would like to say that I have a stable of commercial bankers that will absolutely do my bidding, but that's not been my experience.
I do consistently work with several different bankers who, after a track record of diligently working deals to profitability on my part, are willing to lend me increasingly large amounts of money. My market may not be the same as yours, but these guys all have a portfolio of cash that they are responsible for lending out and getting a rate of return on. Commercial bankers in my (tertiary) market can often lend 500k, 750k, or even a million without going to a higher committee. Once you have one deal or multiple ongoing deals that cross over whatever threshold that is, you will have to be evaluated by a larger committee of bankers with your contact repping you and your deal.
If you have a good income a great credit, you can get yourself some commercial money. It wont be millions. The bankers here in my area are concerned with three variables. How much money you have, how sweet your deal is, and your track record making deals work. Any one of those can override the other two, but obviously a little juice in all three buckets is ideal. Since you don't currently have a relationship with anyone, you're going to have to lean heavily on the income and credit bits.
Find a budget you can handle with your salary and credit and make a move. Once you make the bank some money on that first deal, I promise they will be in touch asking what you have on your plate for the next deal.
Once you're borrowing a couple million dollars, no salary or credit is going to cover that debt if you let the deal blow up. They will be taking risk on your ability to execute. Good luck on your hunt for your new commercial lender!
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