going from single family to multifamily

3 Replies

I have dealt exclusively with single family up to this point but recently got interested in multifamily.  I first thought I would by 4 duplexes side by side but when the numbers did not work out, I moved onto an 8 unit apartment building....(2 quad-plexes) but ultimately got outbid.  

What do I need to know about multifamily in terms of buying them right? Almost everything I see is priced too high. In looking at financing, with a 20% down payment, if they can beat 1.2 DCR, it isn't by much and most only hit about .75.

Do I just need to be patient and wait for sellers to get realistic or am i looking at these deals wrong.  I understood multifamily to be more efficient and yield better numbers.  With what I am seeing in my Tulsa market, I am better off sticking with distressed single family units that I rehab, let season and cash out refi after rented.  

What's the deal with breaking into the multifamily market?

Thanks

You may have just hit some unfortunate timing in your local market. Are these things selling at these inflated prices? If you find one that has been on the market a while you might try making an offer based on your own analysis; disregard the asking price. Sometimes owners will just list at a pie-in-the-sky price hoping someone bites... They may be serious about selling, they may not

Hey @Chris Simmons  

Every market has its natural cycles. In santa cruz county where we have a couple plexes, the inventory is at an all time low, with only a few buildings showing on the commercial MLS with cap rates of 3% or less. It is basically absurd. I keep hoping to find a deal, but a number of local investors I trust have told me to simply find others communities to invest in for the time being.

There is always the chance that you can find a unique deal, and like @Jean Bolger   said, frequently listing price does not mean sale price.

I have noticed that in general there seem to be equity markets and cashflow markets. Santa Cruz and Seattle rarely show cap rates above 5%, but if you time the cycles right, they sure appreciate nicely. I remember visiting Rochester NY in 2008 and the realtor telling me that the properties I was looking at has not appreciated in 20 years, but the cap rates were obscene. I'm not familiar with Tulsa, but perhaps that might play a role?

@Chris Simmons  ,

I'm with @Shane Pearlman  , the market/location is huge for long-term prospects.

Do you want to buy something distressed or poorly managed, (probably with a high downpayment, and maybe some seller financing)?
Or something hands-off that cash-flows from day one?
What is the long-term turnover like in the building?
What is the vacancy rate like in the area, and in the building?

All these will play a huge factor, set on the foundation of the location.
I wouldn't count on waiting for the market to come more "in line" with your pricing. MF is a hot sector right now. Cap rates are below 5% in most of the Bay, unless you go to the periphery areas. But cap rates don't tell the whole long-term return story, so be wary of  the siren songs of the C/D-class Midwest MF, IMHO!

And as @Jean Bolger  said, start making some offers! You may want to start with expired listings.. Because the market has gone up, making an offer near their prior asking price (but favorable to today's market) is one way to try to get in at a discount. It's also a numbers game. You generally have to put in a lot of offers to get that one sweet deal!

"The best time to plant a tree was 20 years ago. The next best time is today." ;)

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