100+ units as first real investment property

5 Replies

Question is, is a 100+ unit apartment complex to much for a first investment property? Technically not my first deal as a landlord (had 5 SFH rentals in the last 10 years). I am also closing on a 4 plex this month. I'm Considering a much larger complex that would need cleaning up and much more attention than the current owners are giving it. The size of this project would require me to quit my current job and manage this thing full time to turn it around. 100+ units, $3 million, probably $1M in maint and repairs needed. Also, what would be the best way to structure a partner on something like this? Talked to a few banks and they will consider 70-80 LTV so I would need 500k-1M to make it work, and they want a partner with large apartment complex experience. And tips?

@Adam Morgan  

It depends on who's dime you're going to train yourself...because there will be a learning curve, and the curve may or may not require large capital calls.  If it's on your dime, you have strong income and solid liquidity for both down payment and large reserves then I would say buying a 100 unit building is in theory better than buying smaller complexes.  However that's barring that you have a strong team, correctly buy, reposition, and stabilize the asset.  I even think that you can account for paying a little more than market if you are able to learn the business and weather the storm.  However buy the wrong building, at the wrong price, and you could lose a lot of money.  Can you lose a lot of money and still survive?  Larger complexes have a lot of advantages including operating efficiencies, availability of debt, and resale markets.  

Now if you don't have the available cash or high income it might not be the right investment to jump into.  You would be risking other peoples capital without having solid experience.  Add in a very HOT multi-family market and you might find yourself with an asset that nobody else wanted (for the right reasons).  

I have a small portfolio of about 120 units all located more or less within a 1 mile radius.  The larger complexes perform better than the smaller properties (& I've seen that over several years).  I'm been searching for another 50-100+ unit complex to add to the portfolio for the last 6-9 months without any success.  And every time I get to the offer stage I'm shocked at what people are paying for these assets.  

I'm definitely a proponent of having large goals and going after your dreams.  So I don't want to discourage growth or success.  It can definitely be done, ask @Joe Fairless  .  He purchased a large complex out of the gate and is probably much happier he did as opposed to compiling a bunch of 5-20 unit properties.  However I'm sure it has come with its challenges.  Good luck!  

@Adam Morgan  A 100 unit property is a tough nut to start out with.  It could make you rich or bury you for years to come.  I would find someone to partner with. Someone else should look at you numbers and look over the deal.  Every mistake you make will have a lot more zeros after it than a sfh.  If it really is a good deal you should have no trouble finding someone to partner with you.  A part of a great deal is a lot better than all of nothing.

Thanks for the tips guys. I understand that a 10 unit would be no small feat to start with, but it seems like a really good way to "go all in". I've managed very large groups of people while serving in the Navy, had a few rental SFH, have a good bit of construction and building science background, and currently work as an HVAC tech and service manager. Seems like all of it put together would make a good apartment owner/operator. Biggest downfall is I dont have the capital and that is a huge deal to creative finance. 3.2m asking price, looks like a 1-1.5m renovation. Makes it about an 8 cap. I think to make it a DEAL would have to get the cap rate price down to about 10. Renovate and stabilize to a 12. Plan a 3-5 year turn around and sell at an 8.

Anyone have any input on a way to finance something like this? Maybe a bank at 70%, seller at 20%, partner at 10%? Sounds like most banks I talked to want my partner to have 50+unit experience. 

Thanks

@Adam Morgan  

Since you're looking at a 15k/unit rehab, financing will be more difficult.  To get the deal done you will need a partner like @Jeff Greenberg  mentioned.  If you are newer you will likely be giving up 70% of the equity in the deal (which is fine). That number can largely change however it will depend on the partner, deal, etc.  Your partner will need a solid relationship with a local/regional bank to get through construction, cash, & experience.  Even with a construction loan you are probably looking at bringing 25% down for the acquisition and construction loan.  

Is this deal listed?  If it is, it will be harder to find a partner.  Why hasn't it sold?  Multi-family 100+ is extremely hot right now.  Cap rates have compressed across the country.  There is a ton of money chasing the asset class with deals far and few between.  True 10 cap deals even on turn arounds don't exist at this point in the market.  Is this a bad area, class D? 

If the complex is actually a deal then finding a partner will be somewhat easier.  However you will need to get it in front of the right people.  Do you have the ability to bring any capital to the deal?  If you can structure the deal, bring some cash to the table, and find the right partner you might be able to make it work.  There's a lot to learn when going through a deal like this though.  I would be connecting with the local property managers that manage larger complexes.  Good luck! 

@Chris Winterhalter  "Cap rates have compressed across the country".  I hear this often.  By how much have caps generally compressed - 2%, 3%?  I've only been following MF for ~1 year now, so do not have the depth of some who recall when cap rates were different than their current state.

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