Atlanta apartment investing
I am closing on a four unit property in the next couple weeks but really would like to purchase an apartment complex in the Atlanta Georgia area. After have gone through the bank process to get a conventional loan to purchase the four unit property, I am incredibly curious as to how it's possible to get financing for a much larger purchase, such as an apartment complex. Also, financing aside, any insight on partnerships, best practices, stories or anything else related to help me realize this next goal.
@Stephan Nemeth Congrats on the quadplex! I'd love to hear more about it.
You can get much larger multifamily properties through commercial loans vs. residential. Commercial loans are based upon the income of the property. Whereas, residential loans are based upon recent sales and your credit/income. This is a huge over simplification, but I hope it answers the question.
There are a few commercial investors and brokers on the site. You'll find/meet them soon.
Rick
-
Developer
- GaREIA
Hello Stephan,
I am also in Atlanta have been using conventional financing, After speaking with a mortgage broker commercial financing isn't necessarily hard to get if you meet certain requirements. 1. Have substantial down payment 25-30%, 2. Business Entity with W2s, and 3 have a viable plan on long term acquisition (paying off the balloon or other methods of financing like private investors when the commercial loan term is up).
Regarding partnerships my mentor has given me some advice. Make sure that all partners have the same strategy for the deal. You don't want to find out after you close the deal that your partner wants to hold a property long term for his/her heirs and your plan is to sell in 2 to 3 years to buy in to larger scale property. This make it very important that partners have clear plan for partnership dissolution if the time comes.
Congrats! Shoot @Azeez K. a message. He and his team are fast becoming the Atlanta Apartment MOGULS we all dream of!
Also my fellow Canton resident @Joel Owens could probably share some valuable war stories with you.
Everyone's right - you must just move up to the next tier to get commercial financing, though. Ironically, it's easiest to get financing for things over $2 or $3 million - because then it becomes much more about the building and less about you. For that awkward tier between like $200,000 and $1,000,000, you most likely will need to go with a local or regional bank who will carry the loan themselves. You likely would look at 25% down, and 20-25 year amortization due in 10 years. Rates for this tier i have found in 2015 to be between 4.5% and 4.9%. You will also have to guarantee the loan personally - the non-recourse financing isn't available until you are borrowing north of $1 million. they will also look at your real estate management resume - so the more smaller properties you manage, the more favorably they will look at you even if you've never done something as large as what you are trying to finance. Let's see - also - if you have an experienced property manager managing the asset to be acquired, they will be more comfortable and that will offset your lack of experience in that size of asset somewhat from the bank's perspective. Overall - it can be done, but you just need to be really persistent and don't expect the first bank to just roll over and approve you. But if you stay persistent and keep working it, you will find someone, as banks these days are much more prone to want to lend on multi-family than 3 or 4 years ago. Final tip - make sure all your personal records that they will want to see are easily accessible. Make sure all your tax returns, P&L's for the properties you own, K1's... etc are all in PDFs that you can shoot off to a bank nice and quickly - makes them more comfortable with your professionalism. Good luck!
My current issue is the larger down payments that commercial lenders require.
Possible option would be to have the seller carry a note for 5 – 10% of the purchase.
( With regard to down payment or deferred maintenance expenses )
Maybe send a private message to @Sean Richway
the only issue with the seller carrying - which is a good strategy if you can do it, is the primary lender often will look at the 'total leverage' on the property - they sometimes don't want you borrowing half your down payment so are in effect doing 10% or less down. the reason they lend only X% of value is because they want a safe investment that has a good debt coverage ratio (DCR) and if you load up with other debt, that hurts the DCR and could bring it under their lower limit. So, yes - it's great if you can do it, but make sure that your main lender is ok with it. Don't wait until escrow is about to close then get a bad surprise when the lender won't move forward. So ask first.
Thanks everyone for the responses/guidance. The property I bought is a single family home that was converted into a four unit rental in the Virginia Highlands right next to the Beltline. Great area but had to accept a less than ideal return, which does seem normal for the area right now though. As for the apartment complex goal, the commercial financing seems like the route that I need to go but similar to Jenkins, the 25-30% down on a 3 plus million dollar property isn't currently realistic for me. Other than seller financing, are there any other creative finance ideas/strategies or is this just a situation where I need to keep investing small until I save up/create the necessary down payment?
If you had a great deal, you could write it up, then go show it to everyone who you think might be interested. If you get 5 or 10 people each in for $50 to $100k, then you start having some flexibility to get bigger properties. it's amazing the kind of money you can raise these days if the deal is good. We just started a fund back in February - based on the results of some smaller multi-family deals (8-24 unit properties) I've ran for a few years. We initially wanted to raise $2 million to go after bigger properties, but ended up increasing our plan to $4 million and ended up cutting it off even though we probably had another $1-1.5 million from people who took longer to get around to getting back to us. Granted that we'd been doing the multi-family thing for a few years, but my point is that if you show a legitimate deal to people, it looks a hell of a lot better than the crappy 4-5% they can get on preferred stock dividends, or the .5% they can get on a CD or something. You'd be surprised what you can come up with.
@Todd Whiddon - Thanks for the shout out it is much appreciated coming from greatness such as yourself :-)
@Stephan Nemeth congratulations on your quad its the step in the right direction. Like you I have had a Quad in O4W by the beltline near and Krog city market. The valuations of properties ITP have been crazy.
In regards to your questions:
Financing for Quads/Small MU:
1. Traditional Financing - Under your name by putting X% down based on one's credit etc.
2. Small Business loans - You can buy under small business commercial loans for properties in 250-750K range. Typically, these are offered to entities and would be considered a commercial loan and as others have mentioned you have to pay 20-25% depending on property conditions. Typically, banks would want a personal guarantee and a debt service coverage ratio of 1.25 min (varies w different banks)
3. Larger commercial properties - Depends on the revenue generated from the MF plus other factors. As @Mark Mosch rightly said in the thread its easier to get a loan on $2M property than smaller loans. You can get a non-recourse loan via HUD FHA 223 Apartment loans.
You can use Syndication for larger properties, Partnership/JV, Loan Assumption, Seller carry, Land contract etc to buy the apartment buildings.
In regards to Partnership - I agree with @Sterling Shuttlesworth advice
Couple things -
1. Begin with the end in mind - every partnership will dissolve at some point or the other
2. Make sure the team shares the same vision and strategy and you are well aligned
3. Legally make sure you have the right operating agreements vetted by a professional and includes dissolution of entity, what-if scenarios, roles /responsibilities are documented and discussed
4. Make sure every partner either creates value or adds value or else there should be no room for the individual on the team
Hope this helps!
Wish you much success
Azeez, thanks for the detailed response and the well wishes. Im glad you mentioned the incredibly high valuations ITP. Have you continued investing ITP despite the high valuations or have you found better places to invest in the Atlanta area? Also, are you concerned about a market correction or steep decline in property values coming or in your opinion is the current rise sustainable?
@Stephan Nemeth
Consider sending messages to other members which is my favorite part of the website. A lot of individuals can answer specific questions.
I would love to invest in ITP however, the prices that I am seeing right now for apartments are simply scary. I wonder how people make money at such high valuations. It seems like most people are parking their $'s. I analyze properties in ITP regularly and only found very very few properties that would cash flow day 1. So right now I am on the sidelines scanning for the right opportunities that makes money on day 0. Since prices were so high we ended up buying a 32 Unit in Cobb County and hopefully closing on another MF sub-division in Albany GA..so to answer your question I am looking at sub-markets and investing where #'s make sense. When the interest rates rise the property prices will end up coming down so don't think high valuations are sustainable. Home Prices are up 45% from bottom of March 2012. In addition, rental bubble may be looming with over 13,000 Multi-Family Rental Units Under Construction Or Proposed in Metro Atlanta.
Hope that helps! On a side note we have a meetup this Sunday.
NOTE: There will be pitching of products, services or properties at this event!
Time of Event: 06/28/2015 at 09:00AM
Location: JW Marriott Buckhead 300 Lenox Road Northeast Atlanta, GA 30326
Fee to Attend: Free
Please come join us for this great networking opportunity. Thanks to Andrew for scheduling this event. We look forward to seeing you at the event.
Currently in Atlanta home prices are only 10% lower right now than they were just before the market crashed. It's way too high here to cashflow in decent neighborhoods ITP. Definitely agree with everything @Azeez K. said.
Some foreign investors have a different strategy. They see their country as having economic and civil unrest and they will do almost anything to get it out of the country where they live and into the U.S.
You can't generally compete with those foreign dollars when their requirement is quality and no cash flow and hope rents get stronger.
Cycles exist for a reason. I am looking over various commercial properties now. Just like anything else there is only a few I get excited about. People think about having to get velocity to be successful. If you bought 1 quality property a years in 20 years you could have an amazing portfolio.
Great info here guys! Thanks for taking your time to contribute. As I plan to make the transition into large apartments in GA I love reading such strong insight from those that are already in this market.
you can lease property with permission to sublease it and have a purchase option... This is a classic no money down technique for apartments... It takes quite a bit of hussling... PM me and I can explain
- BP Fast Lending
- 404-782-1545
- http://bpfastlending.com
- [email protected]
For the foreseeable future, I would stay away from Class-A apartments in Atlanta and instead focus on the Bs and Cs. That future of that sector looks a lot better going forward. The overbuilding in Atlanta right now (especially Midtown and Buckhead) is insane.
I agree w/ your caution on ITP apts, but don't think it is confined to ITP. I own property in Sandy Springs and Roswell, and they are building there almost as fast as in town. My question is when do we get the correction w/ little risk of rising interest rates. Think about how long the 'experts' have been predicting higher interest rates.