I am bored with SFH. I could sell my houses and have a good chunk of seed money to buy a very small MF or partner up and buy into a larger complex. I'm just wondering if MF investing is a network that you can just enter into once you have enough money or is it like SF investing where you have to work and pound the pavement trying to find a good deal that will work for a rental.
Let me explain why it seems to me that MF is a network. From what I understand an investor or group of investors finds a complex and due to bad management or various other reasons buys the complex as a value play. Then management is replaced, deferred maintenance is repaired, rents are raised and the investors later sell to another investor as a yield play or hold and refi out their cash.
Other option is just to buy a complex that is operating well as a yield play. Either way at some point the complex is sold and the investors move up to a bigger property. So it seems like a cycle depending on if you want yield plays or value plays you just have to have the money to enter the game...and some knowledge of course. I'm sort of confused as to why an investor would buy a yield play though when a value play can be so much more lucrative. I guess over time with inflation and rent increases the value is increased from the yield play purchase too.
I'm not sure if I am conveying my actual question very well. I can't seem to concentrate tonight.
I think you have a point when it comes to the networking aspect of MF investing. Not many people can buy a sizable apartment complex with their own funds. Hence they need passive investors. Likewise people with some money but not enough time or expertise need experienced sponsors to invest with. So, yes it is a network. Especially considering the fact that most of these deals are sold via PPM and cannot be advertised to the general public.
Why would somebody buy a yield play? I can think of several reasons.
- they want immediate income to live off
- a first time sponsor has a better chance to create a track record with a long term stable property
- non recourse financing is usually available for stable properties, hence risk is lower for the sponsor(s)
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