How Did You Locate Your Last Multifamily? How Many Units Was It?

Multi-Family and Apartment Investing
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How Did You Locate Your Last Multifamily? How Many Units Was It?

Brandon SturgillBusiness Member
Real Estate Broker · Columbus, OH · Member since 2013 · 3k+ posts · 1k+ votes

I have a two-year goal to buy a commercial property with 30 or more units...I am int the early stages of planning now and could use some wisdom from those of you that have done this before.

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Brian Adams
Syndicator of Large Apartment Buildings · Glen Mills, PA · Member since 2009 · 1k+ posts · 1k+ votes
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@Brandon Sturgill, my last deal was 200+ units and located by sending letters to owners of apartment buildings.

I was very specific in my marketing on the type of asset I wanted to buy.

Here are some tips and things to consider as you move towards buying your 30 unit deal:

  • Get very clear on the type of property you want to buy
  • Where is it located
  • What is your exit strategy
  • How are you going to finance
  • Do you need to raise private money
  • How much private money
  • Who will be your loan sponsor
  • How are you going to manage - self manage or third party
  • Build your team - real estate broker, real estate attorney, SEC attorney, title, insurance, contractor, management company

Finally, I say this all the time to my students, is that you will do the same amount of work to purchase a 30 unit deal as you will do on a 100 unit deal. The difference is when you buy larger properties is that you are spreading the operating costs across more doors and this helps to reduce your overall investment risk.

Good luck!!

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  • Brian Adams
    Syndicator of Large Apartment Buildings · Glen Mills, PA · Member since 2009 · 1k+ posts · 1k+ votes
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    @Brandon Sturgill, my last deal was 200+ units and located by sending letters to owners of apartment buildings.

    I was very specific in my marketing on the type of asset I wanted to buy.

    Here are some tips and things to consider as you move towards buying your 30 unit deal:

    • Get very clear on the type of property you want to buy
    • Where is it located
    • What is your exit strategy
    • How are you going to finance
    • Do you need to raise private money
    • How much private money
    • Who will be your loan sponsor
    • How are you going to manage - self manage or third party
    • Build your team - real estate broker, real estate attorney, SEC attorney, title, insurance, contractor, management company

    Finally, I say this all the time to my students, is that you will do the same amount of work to purchase a 30 unit deal as you will do on a 100 unit deal. The difference is when you buy larger properties is that you are spreading the operating costs across more doors and this helps to reduce your overall investment risk.

    Good luck!!

    14Reply
  • Mark Mosch
    Rental Property Investor · Los Angeles, CA · Member since 2014 · 120 posts · 88 votes
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    I'm currently in escrow on one 56 unit and one 103 unit property.  Both were found by finding a great/highly referenced property management firm in the targeted geographical area.  I actually got the referral through Bigger Pockets.  I then went and visited them and did an initial survey of the area with them.  They then kept me in the loop whenever something came on the market that was attractive and aligned with my investment criteria.  So one deal came up to them that never was on the market - and we jumped on that.  The second one popped up of all places on Loopnet, but since my property manager was right in that area, he saw it immediately and realized this was an out of area seller who didn't know the local market too well and we jumped on that too.  My point - good relationship with local strategic partners like a property management firm can really help your acquisitions.

    4Reply
  • Avery Gilmer
    Investor · Phoenix, AZ · Member since 2013 · 193 posts · 37 votes
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    @Brian Adams Would you recommend an agent to send out letters to apartment owners as well?

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  • Brandon SturgillBusiness Member
    OP
    Real Estate Broker · Columbus, OH · Member since 2013 · 3k+ posts · 1k+ votes
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    @Brian Adams much appreciated

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  • Brandon SturgillBusiness Member
    OP
    Real Estate Broker · Columbus, OH · Member since 2013 · 3k+ posts · 1k+ votes
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    Thanks @Mark Mosch I have heard multiple times that Loopnet is pretty much a wash when it comes to locating deals, but a good resource to link up with a broker that is familiar with the local market...best of luck on the acquisitions.

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  • Brandon SturgillBusiness Member
    OP
    Real Estate Broker · Columbus, OH · Member since 2013 · 3k+ posts · 1k+ votes
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    @Avery Gilmer are you looking to purchase or secure listings?

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  • Brian Adams
    Syndicator of Large Apartment Buildings · Glen Mills, PA · Member since 2009 · 1k+ posts · 1k+ votes
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    @Avery Gilmer, I sent my own letters and worked directly with the seller and didn't have to pay a real estate brokers commission. 

    I am happy to pay a real estate agent a fee if they find me great deals. But if they send your letters for you do you think they will want to take a fee?

    1Reply
  • Brian Adams
    Syndicator of Large Apartment Buildings · Glen Mills, PA · Member since 2009 · 1k+ posts · 1k+ votes
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    @Mark Mosch, awesome job my friend on your deals!!

    You are right on mentioning about relationships as they drive any successful business from finding deals to raising private capital, etc.

    0Reply
  • Sarah Miller
    Investor · Canton, OH · Member since 2015 · 116 posts · 20 votes
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    So buying a large apartment building (bigger than 8 units is large to me!) is just unfathomable to me right now.  I can't see me being able to do something like this financially for at least 5 or more years just for the simple fact I do not have the funds to put down 20% on something over 100s of thousands of dollars or millions.... is there a trick? or just patience..

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  • Avery Gilmer
    Investor · Phoenix, AZ · Member since 2013 · 193 posts · 37 votes
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    @Brandon Sturgill I'm looking to get listings. I'm just looking for different types of marketing strategies that work well for targeting apartment owners. 

    @Brian Adams Yeah, I'm pretty sure most agents would want a fee for that. Before I got my RE license I did my own yellow letters, now that I'm an agent I'm debating if sending out "we buy apartments" yellow letters is the best route to take. What do you think?

    1Reply
  • Brian Adams
    Syndicator of Large Apartment Buildings · Glen Mills, PA · Member since 2009 · 1k+ posts · 1k+ votes
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    Avery, I am a big believer in direct mail. It does cost more money to do though. 

    And most people do 1 mailing - get a zero response rate or no calls and quit and give up and state direct mail doesn't work.

    I reference the closing process below in my private money guide - that most people quit after the first strike out or in this case mailing. But just like locating deals and private capital, you need to take multiple swings at the plate. 

    When planning out a direct mail campaign, instead of spending all your money on 1 mailing, consider reducing the sample size, let's say for this example from 2000 letters to 1000 and mail the same list 3 or 4 times.

    So back to direct mail for apartment owners, finding the actual owner of large multi's can sometimes be challenging as most people, like myself included, buy the asset in an LLC for several reasons including legal protection. Many times the mailing address on record is the management company, registered agent, etc. and not the actual owner.

    I do spend more time upfront researching the list and trying to get the letter to the actual owner, but it saves me money not mailing to people who are going to discard my letter right away.

    1Reply
  • Larry StrayhornPro Member
    Investor · Cleburne Tx · Member since 2015 · 20 posts · 0 votes
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    Brian,

    When I worked for a public company were able to buy lists that we were able to use for mailings. I usually took the additional step of cold calling and then setting an informal time to meet.
    Do you use any specific company for mailing lists?

    0Reply
  • Derrick Craig
    Memphis, TN · Member since 2013 · 969 posts · 524 votes
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    @Brandon Sturgill

    I located my last 8 Unit apartment complex from Loop net. com

    0Reply
  • Brandon Schlichter
    Real Estate Agent · Circleville, OH · Member since 2008 · 633 posts · 488 votes
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    totally awesome convo. I've seen a few, but not many quality deals on the MLS or loopnet, many many more talking directly to the owner or property manager from what I've seen.

    0Reply
  • Ramon Jenkins
    Real Estate Agent · Milwaukee County, WI · Member since 2009 · 3k+ posts · 525 votes
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    @Mark Mosch how are you funding your upcoming purchases?

    Traditional bank, creative, land contract, lease option,

    master lease options, portfolio lenders, and etc 

    0Reply
  • Henri Meli
    Investor · Morrisville, NC · Member since 2012 · 1k+ posts · 673 votes
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    Great topic. I'm looking to purchase my first multi family as well. And I have been asking myself the same question(s).

    0Reply
  • Jeff Mikos
    Investor · Chicago, IL · Member since 2014 · 16 posts · 4 votes
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    How much upfront financing work was completed for your first multi million dollar deal? Do banks even care to discuss based solely on your desired property stats? How important is it to have an all-star management/investment team? For larger purchases, $1M+, what would you expect to be the minimum down payment needed? 

    The financing portion of purchasing a large apartment complex is, for me, the piece I am struggling with the most. I am currently traveling long term out of the country and would to get a feel of how much work I can do abroad vs needing to be live and in-person.

    Thanks in advance to all the experienced RE investors out there who will take the time to read and reply, it is very much appreciated. Jeff

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
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    1 million plus is SMALL in multifamily and commercial. Loans of that size are usually funded by local banks and they want "local boots on the ground".

    20 doors at 50k a door is 1 million sales price. That level of doors you cannot afford a full time repair person and buildings at 50k  a door tend to be C type properties needing constant upkeep.

    Typical down is 25% but you can do 20% but interest rate rises which affect the returns versus the cap you are buying at. You can also try to have the seller carry back a 10 to 15% second for less down.

    Not to be a downer but with you out of the country doing remotely it will be almost impossible in these markets to do what you are looking at. Too many local single investors and groups with cash to play and have financing in place. Multifamily is really frothy right now.

    I am working with 5 different clients from California that are selling out their multifamily properties of 4 units etc. There are exchanging out and will make 1 million plus from the sale. People are paying crazy prices in Cali at a 2 to 3 cap rate. I am helping them find commercial properties in other states at 8 caps that are quality.

    Hope it helps.   

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  • Dennis Tierney
    Investor · Omaha, NE · Member since 2011 · 475 posts · 211 votes
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    @Brandon Sturgill The last deal I did at the end of May was 19 units found by a local broker and funded by a local bank. We paid $83,000 per unit but it was fully rehabbed in 2010 with granite counter tops etc.. and rents are above average. The seller agreed to fund the small amount of deferred maintenance needed at closing.

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  • Jeff Mikos
    Investor · Chicago, IL · Member since 2014 · 16 posts · 4 votes
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    @Joel Owensundefined - Thank you for the feedback.  Makes complete sense. When you mentioned there are plenty of investors with financing lined up is that a product of the investor(s) having an already established relationship with banks/financiers who are giving them a green light based on prior deals?  Ie..do investors, with say 25% down, really line up financing for the remaining 75% of the purchase price prior to locating the property? Or is it more likely that financing is "lined up" when the property is identified. 

    Thanks again for taking time to respond. Appreciate any feedback.

    Jeff

    0Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
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    The property is qualified and also the borrower.

    Until you get information the property can't be qualified. Usually you have the lender you work with and they approve you pre-liminarily as a borrower. Also the property you send the OM in or flyer and the lenders look at it in pre-screen to see if they have interest to do the deal.

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  • Brian Adams
    Syndicator of Large Apartment Buildings · Glen Mills, PA · Member since 2009 · 1k+ posts · 1k+ votes
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    @Mark Mosch, brought up a great point earlier in this thread about locating deals via using relationships.

    Building strong relationships with your network is so important, I have 2 off market deals I am reviewing now brought to me from my relationships. I cover more in this thread, but Mark is right on!! 

    http://www.biggerpockets.com/forums/432/topics/188...

    1Reply
  • Jeff Greenberg
    Real Estate Consultant · Camarillo, CA · Member since 2010 · 2k+ posts · 1k+ votes
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    @Sarah Miller that is where OPM comes in. All of my MF deals were acquired with none of my funds.  Now that is not to say that I do not have to have money to front to the deal to get it closed.  You or a sponsor also will need to have a specific net worth and liquidity.  Even the front money you use doesn't have to be your own.  What you need is credibility for others to trust you with their money.  This is harder to come by, but can be overcome by working with someone doing the deals and being associated with them

    1Reply
  • Krystan Keyes
    Professional · Calabasas, CA · Member since 2015 · 5 posts · 0 votes
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    Hi,

    My husband and I are new to BP but we are very serious about investing in small to mid-size apartment communities pretty soon here. I have been working as a property manager for 500-700 unit properties for the past 3 years in preparation for managing our own properties, but we have a few questions that we have not been able to find clear answers on. Would any Los Angeles based MF investors be able to lend any insight on:

    1. What is considered a good CAP rate in our area? I have read that this can be different depending on your region/market.

    2.  I have been informed by numerous MF investors in our area that it is possible to use hard money loans to finance distressed properties. Have you found this to be true, and work the same as single family homes? Is there anything different in the process that we should be aware of? And is the Hard Money financing typically capped at $3m too?

    Thanks in advance for any and all thoughts shared.

    0Reply
  • Ben StoodleyBusiness Member
    Lender · San Diego, CA · Member since 2014 · 266 posts · 161 votes
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    Hi @Krystan Keyes

    Welcome to BP! You have obviously stumbled upon the best online community for RE Investors. You'll find everything you need here. So that's a great first step!

    1. In my experience, there is a large range depending on the area, most I've personally been involved with on the financing end have been around a 7-8 cap.

    2. Yes, most of us lenders will lend on these type of properties. Every lender is different and will likely have different max LTV loan amounts they'll lend on a commercial property. If I had to give it a number, I would say about 65% LTV is pretty common. Once again, every lender has different processes but it should generally be about the same. I'd assume some companies will require more financial documents for approval, showing you have a steady income and can make payments on a large loan like this. Max loan amounts are different per lender and sometimes per deal.

    Hope this helps! Feel free to contact me with more questions.

    Good Luck,

    Ben 

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