I quit my CPA Job to buy Large Apartment Buildings

368 Replies

Thanks for taking the time to make a post like this @Brian Adams

So far I have primarily been interested in SFR and rehabbing for retail, I am just getting started in the rehabbing. Buying multi's has been an interest and I think it is the direction I want to go long term after building up more experience and capital. Especially after listening to the Grant Cardone podcast it opened my eyes a lot to the potential of large scale multi investing.

If you don't mind I have a few questions that have been bugging me about investing in multi’s

  • 1. In general what cash flow do you look for per unit after all expenses? $100 a door, $200 a door ect.
  • 2. Is the goal to hold long term or buy, fix, increase income and sell after so many years?
  • 3. Do you specifically look for run down mismanaged properties so you can add value or just look for decent properties for a good deal in the right markets?
  • 4. Do you rely on cash flow for returns or the payoff when selling?
  • 5. When investing in large multi’s out of state I would assume that you have to do this full time for boots on the ground work, I guess it’s safe to assume that if you have the means to do it you are doing it full time also. Does that sound about right?
  • 6. What do you consider the sweet spot for number of units and being able to manage it easiest or does it not matter if you use third party PM’s? I have been under the impression that the more units the easier to manage with onsite management.
  • 7. When you have several large complexes under your belt does the PM employees or company deal with most of the management freeing up your time to find other deals? Wondering how owning part of 1000’s of units affects your time when it comes to day to day management.
  • 8. I am all ears if you have suggestions on other materials to learn large multi investing.

Thank you for your advice.

Hi Brian, thanks for sharing your insights!  I'm especially interested in the logistics of out-of-state investing. I appreciate your tips on identifying markets, but then what?  How do you assemble and manage your team remotely?  How much time do you spend on the ground in the target market pre-purchase, during purchase and during renovations?  How are you able to move quickly on a target property assuming you need to travel by plane to check it out in person?  I see alot of "advice" out there, but it seems to all be from "turnkey" vendors, whose advice is "hire me!" and I don't know if it's reliable. Thanks again, I really appreciate your views on this!

Ann  

Very inspiration.  It didn't take me long to realize it makes more sense to have multiple tenants in one location rather than several tenants shattered all over the place.  I am working towards my goal of owning a small apartment complex.

I would love to walk by a large apartment building and say "that's mine", but finding investors, finding deals, seeing it all through sounds like a full-time job.  My husband and I are looking to retire, with maybe 5 hours a week spent on rentals.  Do you think the large apartment buildings can provide a real retirement or just a different kind of job?

We're the types that value time over money, so the big bucks is not our goal.

This  - building a complex - is something that has begun to interest me.  I have been looking for properties here in the SF Bay Area, and pickings are slim, to say the least.  The market here is uber-hot, and there is very little inventory.  Stuff that I wouldn't touch with a ten foot pole is being snapped up. 

I looked at one property, seemed like the numbers would work.   Went down to the City to do my due diligence.  Whups, half of the apartments are illegal!  I passed, and I hear it's in contract with somebody else.   Another one was looking good - thirty some odd units in a good neighborhood.  Seller finally coughed up the reports he had - say WHAT?  Half the complex is sliding down the hill at a couple inches a year?  PASS!

  And so it goes.  Almost nothing out here.  At one point, I jokingly said "If I want one, I'll have to build it myself!"

  So how does one go about doing that?  Can one 1031 out of existing properties into building a new one?  Sounds hard, because at the beginning of the project, all you've bought is a lot, and not enough $$ to 1031 into?

   If you build it yourself, you have all sorts of choice.  A lot of little apartments, or fewer big ones?  Studios and 1-brs have heavy turnover, but in big apartments....they tend to pack'em in.

@Michael J. , good questions, but there were more than a few. :))

I recorded this video for you and I hope I covered everything

[REMOVED]

Jerome, there's actually numerous opportunities to use 1031 exchanges to accomplish what you're describing.   Taking several smaller properties and combining them into one larger property is not a problem.  The IRS is not worried about the number of properties as long as net purchase is at least as much as the total of the net sales.   The issue with consolidation exchanges like this is that everything hinge on the dates and timelines of the first property sold.  From that day you have 45 days to identify and 180 days to close on all purchases that you want from that first sale.  If you're trying to sell a number of properties then all of those would have to be sold in time to accommodate the time frames of the first sale.  That can be a little tricky.

The other issue you bring up is the valuation of just a lot when what you want to 1031 into is a completed building.  That too can be problematic.  But a "reverse exchange" is probably the tool that would solve both of these problems and get you where you need to go.

In a reverse exchange your qualified intermediary would take title to the lot as the "exchange accommodating title holder" (eat).  You provide the financing and project management and construct the building for the eat.  At the end of the process you sell all of the properties you want to exchange and use them to purchase the lot and building from the eat.  By doing so you have negated the impact of the timing issues of sale and the valuation issues of just having a lot available to purchase.  

The reverse exchange is a very common and powerful tool for building new construction to exchange into, significantly rehabbing property to exchange into and gaining control over new property that is already for sale before your old properties have closed.  It's quite a bit more complex than a regular exchange but when you're dealing with deals on this level it's almost a requirement in order to make the 1031's work effectively.

@Brian Adams

What determines the percentage that your investors receive and your percentage in the LLC? Are you also putting capital into the deal as well or just your time and effort on finding, structuring, and closing the deals.

Hi Brian,

Thanks for sharing your experience. In work!

I'm just beginning to put together my model for moving up from duplexes to apartment buildings. I have good access to private money -- at least I have a full list of friends and acquaintances that have be assuring me they want to invest as my partner, after seeing what I've done with duplexes, but we'll see who ponies up when the deal is out there.  

I'd like to know more about how you structure ownership in your deals.  I'm thinking I can bring a reduced cash amount on my end, but get a full share of the deal by being the one to find, vet, and transact the deal. Have you set up any deals that way?

Ed

Originally posted by @Ashley Pimsner :

Yes I would familiarize myself with the free calculator here on BP to show investors or lenders. 

I personally use a different format and would be happy to share that with you if you want to message me.

 Hey Ashley... i would love to see the format your using....

Tony

Hello All,

Great post and responses. I have always found that you invest the same amount of time into a large transaction as you do a small one. I flipped many single family homes and notes. Now, we are investing our time in much larger transactions. Step by step, you can get there.  

Originally posted by @Brian Adams :

@Logan Allec , when I was at Arthur Andersen and some other firms, some of my clients were crushing it with large apartments. I know the 15th is rapidly approaching, who knows, you might have your "Aha Moment" late at the office one night over the weekend. :)

Can you get into large apartments by skipping SFH's and 2-4 unit deals - Yes you can.

The disclaimer though is you will most likely need to partner with someone who has a track record on getting these types of deals across the finish line.

You may want to participate in a deal where you have someone else run the show. Example is maybe you have connections to find deals or have access to some capital or able to provide other services.

JV's happen all the time so you never know.

 Brain .... I have been looking only for a month now. But if i happened to come across good numbers on a deal, would you care if i contacted you ?

Originally posted by @Brian Adams :

@Michael J., good questions, but there were more than a few. :))

I recorded this video for you and I hope I covered everything.

Thank you Sir for the great answers that helps clear some things up for me in reference to investing in multi's. It's kind of like putting together a puzzle but you have to hunt for the pieces :)

Your website is great also and has a lot of good info.

Questions are like Lays, once you start you can't stop. Ok only two more I promise, lol

  • Does local management usually consist of a third party management company on site or do you ever use full fledged employees working for you.
  • When looking at 100+ properties what kind of terms are standard? Like LTV and years of the loan?

Thanks!

This post has been removed.

I thought I would follow-up regarding the comments above on structuring a 1031 Exchange to accomplish the intended transaction.  The sale of your existing property and subsequent 1031 Exchange into land with a corresponding build-out of a multi-family property is referred to as an Improvement 1031 Exchange or a Build-To-Suit or Construction 1031 Exchange.  The Improvement 1031 Exchange can be structured with the sale of the relinquished property closing first and the purchase of the replacement property and the corresponding build-out of the replacement property later or with the purchase of the replacement property closing first, then the improvements made, and then the sale of the relinquished property. 

However, the difficult when structuring a ground up build-out such as a multi-family property is that you will not likely complete the entire project during the required 180 calendar day exchange period.  So, careful consideration must be made with the timing of the payments and the corresponding construction project timeline in order to best take advantage of the Improvement 1031 Exchange.

@Kyle Daniels ,

The percentages of each deal will vary based on the opportunity, available returns, your experience, and the capital stack of your investors to name a few.

I target deals where my minimum is 25% and the max I have taken on a deal is 50%.

Trust me it is a lot of work to put these large deals together. If you have an investor that is beating you up on your ownership stake, I politely say to the investor that I don't think this type of deal structure is a fit for us and move on to someone else.

I have put capital into the deal and am happy to do so if my investors want to see my own skin in the deal.

@Tony Gatto , sure if you find deals that meets my investment criteria please contact me as soon as you can.

I target specific assets in specific markets, so click below to see my investment criteria so you know what I am looking for.

Click here for Adams Investor Group Investment Criteria

That's a great testimony. I am looking to bark on the same journey only with hardly any financial backing to get started. My experience with real estate comes from being an Account executive with countrywide home loans...after the market crash in 2008 my credit and savings/investments went done the drain, now I am living check to check. I have no investors, no lawyers and etc. I only have a few friends telling me I should get my RE license and start from there.

I am researching and ready to take my first step on this journey. I currently rent an apartment and have a short-term goal of getting a multi-fam unit and living rent free. How do I partner up with investors and begin this journey (from your point on view) in my status?

Interesting read while I'm sitting in Dallas airport waiting for a flight. I don't want anyone reading this post to think it is easy to all this. It reminds me of the late night gurus explaining how easy it is to flip for a profit...

I closed on a sale of a650 unit self storage facility in Bonita Springs Florida. The trouble started before that. Two different buyers UNDER contract fell through. I had already started hunting for upside properties where I could use my 3 million plus in a 1031. I found 2 great properties in Dallas area and had LOI's on both. I tried to dink around with those while I waited for buyer # 3 to close. He did close on March 2. I had done all the prep work and funds went to Starker Services as the accommodator. (arguably the best in the country)

I had been working an analysis of MANY properties and trying to delay as much as possible until I had the funds available. my 45 day period had begun. I have literally worked to exhaustion researching, offering, negotiaiting, arranging inspectors, roofers, foundation people etc.

Oh, remember, you also need to find a lender for a 5-10 million dollar property and feel confident he will do the loan, all prior to your identification date... It is a giant balancing act. 

I sit at the airport and JUST one hour ago, received acceptance of my offer on 3rd property. I have 51 in grand prairie, 164 in mesquite, and 128 in Irving. These 3 should use up approximately 3.1 million and leave 25-50K taxable. The work to this point was incredible and now the financing, inspections and due diligence period starts. Just thinking about this makes me tired again...

In case you didn't do the calculation, my identification expiration date is tomorrow. I could add more info if any are interested, after I take a nap.

Rich

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here