What is the best entry point into a 100+ unit apartment complex for an apartment inv. newbie???

17 Replies

I first started real estate investing to invest in apartment complexes.  My plan was always to get a few and live off the passive income forever.  I currently wholesale for my everyday living in the meantime.  This is where the multi millionaires play, and I'm ready to play.  

So to any apartment complex owners or anyone with subject matter expertise, please tell me where is a good entry point for an apartment newbie such as myself??  

Thanks!!

Originally posted by Account Closed:

@Charles Smith 

We try to get a CAP of 8%+, cash on cash 12%+, and debt coverage ratio 1.6%+

Paul

 Thanks Paul.  I was speaking more in terms of acquisition.  What is the best way for a newbie, who doesn't have a million dollar bankroll to get into one of these deals.  I know it can be done. 

@Charles Smith  

You need money it just doesn't have to be yours. You need to know what you are doing when you are dealing with OPM. Have you done any training or have experience in apartment investing?

Paul

Originally posted by @Charles Smith :

Thanks Paul.  I was speaking more in terms of acquisition.  What is the best way for a newbie, who doesn't have a million dollar bankroll to get into one of these deals.  I know it can be done. 

As Paul implied, the best way is to start by getting educated.  If you have no knowledge, no experience and no access to money, there is absolutely no path to success.  So, start building those -- take some training, find a mentor, get a job with a commercial firm, start finding investors, etc.

You're probably going to have a hard time raising OPM until you have a track record of successfully leading acquisitions.     For a 1st time lead, I want them to have a significant amount of their own equity in the deal.    Lenders will often look for prior experience as a key principal, esp. if you don't already have a significant net worth relative to the loan.

Finally, brokers place a lot of weight in their perception of how likely the buyer will be to close the deal.    It's a very competitive market, you're often up against institutional funds that can fund an all-cash deal.

My path is to learn as much about the business as I can as a passive, become a KP at some point, and when I get enough CF to justify quitting my day job, then I'll look at becoming a lead.    It def. won't happen overnight, but it's a big responsibility and I want to devote 100% into doing it right.    Good leads can make incredible money, bad leads can be done in one.

Start w small Multifamily and 1031 up. Find a distressed building for another investor and then partner. Call @Ben Leybovich and invest in his 90 unit.

100+ is indeed where the big boys play. Hardly a place to start. Looking at cap rates, comps, etc is not exactly how it's done. It's a different game with 100 different ways to lose.

All I can say is - underwrite to IRR!

OK - it's not all that I can say, but it's all I will say.  The advice to educate yourself covers the rest of it :)

Good luck, Charles!

@Charles Smith  It takes time, education and money.  Or some mix of the three.

I've been working in this arena for the past 10 years.  6 years on the development side and the last 4 focusing 100% of my time on large multifamily acquisitions.  

If I had family money or a really, really rich uncle I could have gotten started on my own sooner, but I'm now just at a place where I have enough of a track record, equity relationships, lender relationships and broker relationships to start going out on my own, putting together large multifamily deals as the sponsor. 

It's a little unfortunate that it all came together towards the top of the cycle, but that's something for me to deal with and figure out how to make work.

This is all a long way of saying, listen to all the other posters here who say get education and start small.

Originally posted by @J Scott:
Originally posted by @Charles Smith:

Thanks Paul.  I was speaking more in terms of acquisition.  What is the best way for a newbie, who doesn't have a million dollar bankroll to get into one of these deals.  I know it can be done. 

As Paul implied, the best way is to start by getting educated.  If you have no knowledge, no experience and no access to money, there is absolutely no path to success.  So, start building those -- take some training, find a mentor, get a job with a commercial firm, start finding investors, etc.

 I've gotten some education, I even know how to evaluate deals.  A mentor is what I need, but hard to find.  

@Charles Smith  what value can you bring to a mentor?  Starting thinking about how you can help one of these guys. How can you make their life easier?

Using myself as an example, if you found a good deal in Cincy that I didn't already know about and sent it to me, I'd be happy to let you follow the process and gain education.  Or, you mention you can do analysis.  Maybe there is a multifamily investor in Cincy who you could run numbers for?  

That sounds like a good plan of action.  Thanks.  That sounds like a feasible route for me to take. That's exactly what I want, is to follow the process from initial lead to closing. then I can rinse, wash, repeat. 

Originally posted by Account Closed:

@Charles Smith It takes time, education and money.  Or some mix of the three.

I've been working in this arena for the past 10 years.  6 years on the development side and the last 4 focusing 100% of my time on large multifamily acquisitions.  

If I had family money or a really, really rich uncle I could have gotten started on my own sooner, but I'm now just at a place where I have enough of a track record, equity relationships, lender relationships and broker relationships to start going out on my own, putting together large multifamily deals as the sponsor. 

It's a little unfortunate that it all came together towards the top of the cycle, but that's something for me to deal with and figure out how to make work.

This is all a long way of saying, listen to all the other posters here who say get education and start small.

 wouldn't lending be a little more favorable on these large deals,  based on the income and the fact the lender can see their money? 

Originally posted by @Charles Smith :

 wouldn't lending be a little more favorable on these large deals,  based on the income and the fact the lender can see their money? 

Yup, but lenders want to put their money in the hands of guys who have a proven track record of success, not guys who are buying their first deal.  100+ units are much more complicated than just being able to do the basic analysis -- the real world issues that you'll face (management, local politics, local economic changes, cash flow forecasting, etc) aren't things you can read about...you have to experience it to understand it.

Also, it's very uncommon for lenders to put up more than 80% of the money -- they know that if the deal is good, you should be able to find the other 20%+ pretty easily, which will reduce their exposure.

Originally posted by @J Scott:
Originally posted by @Charles Smith:

 wouldn't lending be a little more favorable on these large deals,  based on the income and the fact the lender can see their money? 

Yup, but lenders want to put their money in the hands of guys who have a proven track record of success, not guys who are buying their first deal.  100+ units are much more complicated than just being able to do the basic analysis -- the real world issues that you'll face (management, local politics, local economic changes, cash flow forecasting, etc) aren't things you can read about...you have to experience it to understand it.

Also, it's very uncommon for lenders to put up more than 80% of the money -- they know that if the deal is good, you should be able to find the other 20%+ pretty easily, which will reduce their exposure.

 Thanks,  that makes sense. 

Originally posted by @Charles Smith:

 wouldn't lending be a little more favorable on these large deals,  based on the income and the fact the lender can see their money? 

Yes, the lending is easier.  It's easier for me to get a $5 million loan than a $50K loan--really (I'm going through that now!).  But @Account Closed   isn't talking about lending, he's talking about equity. 

Let's say you are trying to buy a $5 million property...you need at least $1.25 million down and more for closing costs and immediate improvements.  Where does that come from?  Friends & family and outside investors.  The route to success in buying large deals isn't finding deals, it's finding investors.  Well, you could short circuit that if you have millions of your own, but if you don't you need outside capital.

Investors want to see a track record--that you've done deals--successfully.  They want to see how you arrived at your projections and whether those projections make sense.  But the bottom line is that investors are investing in YOU more than they are investing in the deal, so the "you" part has to be compelling enough for the investor to part with their hard-earned money.  Education is great, but it is experience that really matters.  Investors care a lot more about what you've done than what you know.  The above advice to start with smaller properties and work your way up, and to get employed by or partner with players in the big league, is sound advice indeed.

Originally posted by @Chris Soignier :

You're probably going to have a hard time raising OPM until you have a track record of successfully leading acquisitions.     For a 1st time lead, I want them to have a significant amount of their own equity in the deal.    Lenders will often look for prior experience as a key principal, esp. if you don't already have a significant net worth relative to the loan.

Finally, brokers place a lot of weight in their perception of how likely the buyer will be to close the deal.    It's a very competitive market, you're often up against institutional funds that can fund an all-cash deal.

My path is to learn as much about the business as I can as a passive, become a KP at some point, and when I get enough CF to justify quitting my day job, then I'll look at becoming a lead.    It def. won't happen overnight, but it's a big responsibility and I want to devote 100% into doing it right.    Good leads can make incredible money, bad leads can be done in one.

 Thanks,  that's some excellent info.. what's a KB/CF? 

KP = key principal.    For recourse loans, the lead may not have enough liquid net worth to satisfy the lenders' guaranty requirements, so they'll bring in other high net worth investors to also personally guaranty the loan.   For non-recourse loans, the key principal is on the hook primarily for fraud.    Oftentimes the KP is also the default managing member in case the lead becomes incapacitated, passes away, or is voted out.

CF = cash flow, specifically the cash flow I receive from distributions.    I expect to receive enough of it within 5 years or less to replace the income from my job.

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