Interested in purchasing apartment complex and don't know where to start
Investor · San Francisco Bay Area · Member since 2023 · 10 posts · 9 votes
My husband and I started real estate investing during the pandemic and are interested in expanding our real estate portfolio further by purchasing an apartment complex. How do you do this? Are apartment complexes considered commercial investments? We have a few investments in the Detroit, MI area so if anyone has an agent or contact there would love to connect and learn more.
Lastly, if we don't yet have the capital to purchase on our own I recently learned about syndicators. How do I find out more about syndicators and get in contact with them?
Hi Adelaide! My wife and I live and invest in SW Michigan so we are across the state from you. We have a few single family rentals and we closed on an 8-unit apartment building about 6 months ago. I completely agree with Amir that anything 5 units and above moves you from residential to commercial and has a lot of differences. Here are a few thoughts:
1. I highly recommend the Bigger Pockets Multifamily bootcamp. I just completed the winter session but they are doing another one that starts in June. There were a lot of things that I learned that I wish I would've known before we did our first multifamily deal.
2. How you determine the value of the building is very different from residential real estate which uses comparable sales. You need to know the net operating income (NOI) and divide that by the cap rate. Because of that, it is critical to get accurate financial statements from the seller. You also have to make sure the NOI covers your mortgage payments by a set amount that the bank determines (e.g. NOI is at least 125% of mortgage which would be a DSCR of 1.25)
3. Lending is through a commercial lender. This is a lot more relationship based so it is good to start reaching out to commercial lenders before you have a deal. We found a great deal and almost lost it because we struggled to lock down a commercial lender in time. Small local banks and credit unions are commonly used for commercial lending.
4. Due diligence is a lot more intensive and consists of a document review period, an environmental study, etc.
There are many more differences, but this should get you started. I also recommend Brandon Turner and Brian Murray's 2 part book series "The Multifamily Millionaire" as this goes through a lot of that. Good luck and I hope it works out for you! Multifamily is a great way to scale more quickly and efficiently and despite our learning curve and many mistakes, our first multifamily property has still been a huge success!
@Adelaide Ning congratulations on starting in real estate investing! Does your residential portfolio include multifamily (duplex, triplex, fourplexes)? If you do, then you probably have some fundamental experience that can be applied to "small commercial apartments" (6 - 16 units). My experience was that the threshold (going from residential to commercial) has some barriers to entry. So to answer your question, first thing for you to prepare yourself in getting in commercial side is education. Understand the differences, most importantly, in underwriting the deals and how the lenders finance those deals. I would suggest, start with a smaller apartment between 6 - 12 units. I would stay away from syndication at this time..
Hi Adelaide! My wife and I live and invest in SW Michigan so we are across the state from you. We have a few single family rentals and we closed on an 8-unit apartment building about 6 months ago. I completely agree with Amir that anything 5 units and above moves you from residential to commercial and has a lot of differences. Here are a few thoughts:
1. I highly recommend the Bigger Pockets Multifamily bootcamp. I just completed the winter session but they are doing another one that starts in June. There were a lot of things that I learned that I wish I would've known before we did our first multifamily deal.
2. How you determine the value of the building is very different from residential real estate which uses comparable sales. You need to know the net operating income (NOI) and divide that by the cap rate. Because of that, it is critical to get accurate financial statements from the seller. You also have to make sure the NOI covers your mortgage payments by a set amount that the bank determines (e.g. NOI is at least 125% of mortgage which would be a DSCR of 1.25)
3. Lending is through a commercial lender. This is a lot more relationship based so it is good to start reaching out to commercial lenders before you have a deal. We found a great deal and almost lost it because we struggled to lock down a commercial lender in time. Small local banks and credit unions are commonly used for commercial lending.
4. Due diligence is a lot more intensive and consists of a document review period, an environmental study, etc.
There are many more differences, but this should get you started. I also recommend Brandon Turner and Brian Murray's 2 part book series "The Multifamily Millionaire" as this goes through a lot of that. Good luck and I hope it works out for you! Multifamily is a great way to scale more quickly and efficiently and despite our learning curve and many mistakes, our first multifamily property has still been a huge success!
5+ units is considered commercial. Syndication can be a great way to scale. But are you saying you want to syndicate the deal as a GP or invest as an LP? There is a big difference between.
Congrats on the success so far! Apartment investing was a great pivot for my brothers and I when we first started back in 2021.
First off, yes - apartment complexes of 5 or more units are considered commercial real estate.
My brothers and I didn't have the money to buy apartment complexes on our own, which is why we immediately learned how to syndicate. Or rather, we teamed up with people who knew how to syndicate!
I won't give you any advice, but I can share what we did and what worked for us.
Our first step was to educate ourselves about apartment syndication. We bought a course to learn the basics of underwriting multifamily deals, raising capital, sourcing deals, and asset management.
But the most important step was what we did next - find a mentorship group.
The mentorship group we joined not only provided more education on apartment investing and syndication, but we also got access to a network of fellow investors we could team up with on deals, and our mentor actually partnered with students on deals. This way, we could take action and hunt down deals (and eventually become lead operators ourselves) because we were able to leverage the credibility and track record of our mentor and the group.
So to sum it all up - you can learn about syndication on Youtube, podcasts, and books (I recommend the Best Ever Apartment Syndication Book by Joe Fairless - it has SO MUCH valuable info on syndications).
But education will only take you so far. We found that investors and brokers only took us seriously once we associated and teamed up with credible partners - who we got access to thanks to the mentorship program we joined. But in full transparency, they don't accept everyone and it really isn't a good fit for every syndicator.
It's called Think Multifamily - here's more info if you want that.
https://thinkmultifamily.com/a...
Start with education, then invest in your team and network! Hope this helps!
@Adelaide Ning, "buying an apartment complex" means different things to different people. An apartment complex may mean 4 units or it may mean 400.
I am going to be slightly glib here, and how you buy it is make offers and show up to closing on the one you get under contract. As others noted, from a lending perspective, anything over 5 units is "commercial" as it no longer qualifies for the typical fannie/freddie loans you are used to.
From a broader perspective, commercial is a bit more subjective, and to me, it is generally when you are in asset sizes that professional investors are looking at. While this is not a true definition, I generally put it at 20+ units. You are in assets that are "too big" for the average physician or "side job" investor to really consider. As a buyer at this level, you are not relying on an agent; you are self represented. But again, this is my opinion.
As for syndicators, google. Type in multifamily syndication, apartment syndication, real estate syndication, any number of terms, and you will find a lot. As for what you will get: most syndicators are raising for their own deals. There may be some you find that will raise for other people's deals, but they are fewer and further between. So if you are wanting to buy a deal yourself, that you source and plan on running, you will be the syndicator, and need to find investors. If you are looking to invest capital in someone else's deal, then the google search will take you down a rabbit hole of a small fraction of the groups out there that will accept your investment.