NEED HELP ON 120 UNIT MULTI-FAMILY?
Jacksonville, FL · Member since 2015 · 280 posts · 53 votes
Hello everyone,
I have not focused any attention on multi-family know-how here on BP since I didn't see myself having the resources to tackle such a project as a new investor. Then someone I know mentioned there is this apartment building I know of been up for sale. I honestly don't know how else to approach this except introduce it here and see where the rabbit hole goes.
Contact me so we can go over some details to see if this even makes sense. I think it's pricey but it's Miami. Miami is fairly pricey. Vacancy is quite good is what I am been told. It is a 120 unit multi-family.
The basic thing you first need to do is to see if the numbers even justify a conversation. You need to create a proforma budget, then see what your annualized cashflow looks like. Part of that is figuring out what kind of loan you can get on the property - which will heavily drive your cash on cash return. Miami is a fairly good area for lenders to lend to, but you also need to have some creds in the industry or you won't get a loan. Having a solid local property management guy will help with the lender. that being said, you need to decide what return is appropriate. If a first timer, you need a pretty decent return to allow for the inevitable mistakes and errors. Personally, I would never pursue a property I can't comfortably expect to make 10% going in - which rules out a ton of gateway markets like LA, Miami...etc... However, I at least can sleep at night knowing if i have some vacancies i can still cover the debt service. This could be a 5-page post, but let me sum up by just saying - do the numbers. Make a budget, see what the pro-forma return is after you have factored everything you can think of in...expenses, repair reserves, average area vacancy...etc... Then if its good enough, you can think about moving forward. I toss 75% of the deals i see (about 10 a week) after that phase because some idiot is trying to sell me something with a 2% cash on cash return and is trying to persuade me that i should buy that for the "potential future value" of the property. Best of luck...120 is a bit large to be starting with. Get good local people and advisers down there!
@Brent Coombs, this is an off-market, private sale!
You can't just take operating expenses out to manipulate a cap rate! Well, crooks do that.
I agree, those expenses will not go away eventually at all. That extra calculation suggests that they will disappear. Or maybe they wrote that for the benefit of a buyer who would self-manage the property!
Are Y O U prepared to manage such a facility? Have you managed even one rental?
You are not helping! A question for you... Are Y O U having a bad day or a bad month or something?
Please excuse me. I disdain ignorance.
Me too J Beard, as much experience as you have, you should know I don't need to have managed anything to have this opportunity. I suggest you drop your arrogance and just help here when you can... or just say nothing!
I would have made positive suggestions aka using a PM, but you turned me off so curtly - - ALL I can say is good luck.
Thank you J Beard, I look forward to our next interaction been all positive. Be nice to me and I will always be respectful and kind. But more importantly, I am doing my part to help this forum remain positive and clean (even as a newbie, sort of). I am not mad at you, I made my point and it's done!
I asked a reasonable question to steer my response . . .
Frankly JB, Scarlett doesn't give a damn.
@Jeff B.Yuck. You're not being very nice at all. Persnickety and uncalled for.
Thank you so much for the needed help LaTonya. I feel this individual has not been admonished ever, or in a long, long time. He is actually quite rude , maybe downright obnoxious in many of his post that I have seen and those I've heard of. I want to continue a conversation with him however for the benefit of the forum!
I've tried to share my experiences, to ask questions to ensure we're discussing the same ideas and to provide truthful answers. If questions are threatening, that's not my fault - - that's called the Devils Advocate approach to problem solving. (ok, I'll save you all the time and effort to address that one:- I'm just the Devil :sigh:)
I think everyone's had a jab at the issue and hope we can all just move forward.
The basic thing you first need to do is to see if the numbers even justify a conversation!
Thank you so much Mark. Your first line sums up my initial goal. Question #1 I am asking of those who know, is: Is this even something I should be looking at! $9.5 million is a big number. I know the cash on cash return will not be anywhere near what people can make here in Jacksonville on a SFR.
By the way, there is some OWNER FINANCING that is been offered!
I'd be careful with this deal. First - would need to see more of the expenses - the spreadsheet cut off. Second, 60 or so % of the revenue comes from "housing authority revenue", so this would be a section 8 (i.e. gov't assisted/low income) property. That is another much higher level of difficulty for a property to manage. While you can make good money on a section 8 property, you have to be a pro to manage it. Those people could run rampant on you if not firmly and proactively managed. If that's the case and the property starts eroding, you get a downward spiral and then your property becomes worth much less and you have to sell it at a higher cap rate than what you bought it for. The actual income vs the purchase price isn't horrible - depends on the rest of the expenses which i can't see - but it's not a slam dunk with a huge cash flow. What this seems to indicate that this is a big undertaking for someone who really knows the drill. Definitely not for someone just getting their foot in the water.
First you crawl....then you walk then you can run.
@Jeff B.Yuck. You're not being very nice at all. Persnickety and uncalled for.
Thank you so much for the needed help LaTonya. I feel this individual has not been admonished ever, or in a long, long time. He is actually quite rude , maybe downright obnoxious in many of his post that I have seen and those I've heard of. I want to continue a conversation with him however for the benefit of the forum!
I've tried to share my experiences, to ask questions to ensure we're discussing the same ideas and to provide truthful answers. If questions are threatening, that's not my fault - - that's called the Devils Advocate approach to problem solving. (ok, I'll save you all the time and effort to address that one:- I'm just the Devil :sigh:)
I think everyone's had a jab at the issue and hope we can all just move forward.
I do not consider the questions to be threatening at all J Beard. I think they are somehow condescending. The things you highlight, the little extra words you add into a question.
Social interaction is what humans are suppose to be really good at. No other animal spends 18 years or more with their caretakers/caregivers.
I want to make sure you understand I am not trying to school you or embarrass you in any way but... Just read the approach of everyone else on this thread, then re-read yours. However, If you want to resolve this impasse I'm interested in doing that too. Since I became a member here I was instantly blown away by the giving, caring and sharing nature of this forum. I am motivated to keeping it that way and making it better in any way I can.
In fact, there are 3 members who have mentored me over the past several weeks. I have not met any of them in person, but these 3 persons give to me freely of their heart. They give their time, their knowledge and their expertise... free of charge!
If you have the cash in hand, and the numbers work, go for it.
I will tell you that I had 12 years experience in owning rentals, in fact owned 60 units, had done a lot of flips, built and sold many new homes. But, when I went to the local banks to get financing on a $4,160,000 apartment deal, they all said nope. I even had 25% seller financing. They were ok with the 25% seller financing, but still wanted 20% from me. Just a large amount of money. Could not get the deal. I did get a smaller deal done on 32 unit a few months later.
I would hope you could get financing, but if you don't have a bunch of cash in your bank account, my guess is that if would be quite difficult. Now, If you could get in between the seller and a buyer with a lot of cash, and get a small cut for yourself, then that would be great.
If you have the cash in hand, and the numbers work, go for it.
I will tell you that I had 12 years experience in owning rentals, in fact owned 60 units, had done a lot of flips, built and sold many new homes. But, when I went to the local banks to get financing on a $4,160,000 apartment deal, they all said nope. I even had 25% seller financing. They were ok with the 25% seller financing, but still wanted 20% from me. Just a large amount of money. Could not get the deal. I did get a smaller deal done on 32 unit a few months later.
I would hope you could get financing, but if you don't have a bunch of cash in your bank account, my guess is that if would be quite difficult. Now, If you could get in between the seller and a buyer with a lot of cash, and get a small cut for yourself, then that would be great.
Wonderful information Arian. Is there a certain amount or percentage of owner financing that might help a bank say 'yes'?
First you crawl....then you walk then you can run.
Do you think I could at least partner with someone that is already running? Anyway, what is your idea of the crawl, the walk and then the run in REI?
I'd be careful with this deal. First - would need to see more of the expenses - the spreadsheet cut off. Second, 60 or so % of the revenue comes from "housing authority revenue", so this would be a section 8 (i.e. gov't assisted/low income) property. That is another much higher level of difficulty for a property to manage. While you can make good money on a section 8 property, you have to be a pro to manage it. Those people could run rampant on you if not firmly and proactively managed. If that's the case and the property starts eroding, you get a downward spiral and then your property becomes worth much less and you have to sell it at a higher cap rate than what you bought it for. The actual income vs the purchase price isn't horrible - depends on the rest of the expenses which i can't see - but it's not a slam dunk with a huge cash flow. What this seems to indicate that this is a big undertaking for someone who really knows the drill. Definitely not for someone just getting their foot in the water.
Awesome post Mark. For me, in my position right now, what are the specific moves or choices you think I should take?
Here is a better image of the numbers!
The deal I got done was for 32 units, $960,000
70% bank financing(20 yr am)
20 % seller financing(10 yr Am)
10% my money.
Lee Scarlett honestly 120 doors is a huge under taking. I would say if the price is right def get control of the deal and maybe even look to assign. I have a spreadsheet that could be of value for you it evaluates a multi unit building and basically tells you if the deal makes sense and what scenario works best (i.e. Condo conversion, fix n flip, re-tenant, etc.)
Shoot me an email
Hey Jon! Oh yes, I would need that. Thank you so much for offering. I will send you that email, look for it.
Partner up with someone that is running...on this deal? Figure looking at things from their end/perspective...do I take a 9.5M chance with this person or do I take my money elsewhere? Im not saying it is not impossible, I do give you credit for putting yourself out there and educating yourself.
Crawl...start with a smaller multifamily, learn to analyze the property...if you can do 5 unit complex a 120 unit complex is fairly the same. Stay within a reasonable affordability, leverage money in small amounts...build trust and relationships.
Once you do this now you are walking...managed, closed couple deals, taken your lumps...etc. Seek, private funding...friends, family, accredited investors.
You should be running at a good pace now...120 unit complex for 9.5M...syndication time! Now you built some credibility, experience, wealth...just keep running from there!
Lastly, in each step crawling, walking or running you will trip up! It is up to you how you get up each time.
David
Oh yes as for this deal...assign. Agree with Jon Raccah.
The deal I got done was for 32 units, $960,000
70% bank financing(20 yr am)
20 % seller financing(10 yr Am)
10% my money.
Very helpful.... Thanks a million!
I'd be careful with this deal. First - would need to see more of the expenses - the spreadsheet cut off. Second, 60 or so % of the revenue comes from "housing authority revenue", so this would be a section 8 (i.e. gov't assisted/low income) property. That is another much higher level of difficulty for a property to manage. While you can make good money on a section 8 property, you have to be a pro to manage it. Those people could run rampant on you if not firmly and proactively managed. If that's the case and the property starts eroding, you get a downward spiral and then your property becomes worth much less and you have to sell it at a higher cap rate than what you bought it for. The actual income vs the purchase price isn't horrible - depends on the rest of the expenses which i can't see - but it's not a slam dunk with a huge cash flow. What this seems to indicate that this is a big undertaking for someone who really knows the drill. Definitely not for someone just getting their foot in the water.
Mark, here is a better look at the numbers!
Partner up with someone that is running...on this deal? Figure looking at things from their end/perspective...do I take a 9.5M chance with this person or do I take my money elsewhere? Im not saying it is not impossible, I do give you credit for putting yourself out there and educating yourself.
Crawl...start with a smaller multifamily, learn to analyze the property...if you can do 5 unit complex a 120 unit complex is fairly the same. Stay within a reasonable affordability, leverage money in small amounts...build trust and relationships.
Once you do this now you are walking...managed, closed couple deals, taken your lumps...etc. Seek, private funding...friends, family, accredited investors.
You should be running at a good pace now...120 unit complex for 9.5M...syndication time! Now you built some credibility, experience, wealth...just keep running from there!
Lastly, in each step crawling, walking or running you will trip up! It is up to you how you get up each time.
David
Great details David, wonderful help also. Much appreciated!
Agree with the rest of the group here. Go buy a 4-plex. Then do a 12-plex. Then 24-36 units. Each will teach you a little more and expose you to new levels of issues you can conquer and move through. For a 9.5 million property with no background it's unlikely you will even qualify for a loan. For Freddie/Fannie borrowing - which is the best for this class of asset, you will need to have personal net worth equal to your loan and liquidity (cash or stocks in the bank) equal to minimum 6 months of debt service. So assume best case you do this property with 25% down, that means you'll have to come up with about $2.3 million cash for the down payment, have a net worth equal to $6.2 million - which is the amount you'd need to borrow, and need to have about $240,000 cash in the bank afterwards to meet the liquidity requirement. I'm in the middle of investing $15 million of money right now that I've raised for a fund/syndication and I would even think twice about taking this property down - especially given the Section 8 aspect of it. The owner financing part of it won't help unless they do all of it, because the banks are still going to require a strong overall LTV of like 75%. So walk first with some basic stuff, then you can work your way up in a couple of years!
Agree with the rest of the group here. Go buy a 4-plex. Then do a 12-plex. Then 24-36 units. Each will teach you a little more and expose you to new levels of issues you can conquer and move through. For a 9.5 million property with no background it's unlikely you will even qualify for a loan. For Freddie/Fannie borrowing - which is the best for this class of asset, you will need to have personal net worth equal to your loan and liquidity (cash or stocks in the bank) equal to minimum 6 months of debt service. So assume best case you do this property with 25% down, that means you'll have to come up with about $2.3 million cash for the down payment, have a net worth equal to $6.2 million - which is the amount you'd need to borrow, and need to have about $240,000 cash in the bank afterwards to meet the liquidity requirement. I'm in the middle of investing $15 million of money right now that I've raised for a fund/syndication and I would even think twice about taking this property down - especially given the Section 8 aspect of it. The owner financing part of it won't help unless they do all of it, because the banks are still going to require a strong overall LTV of like 75%. So walk first with some basic stuff, then you can work your way up in a couple of years!
Okay Mark, thanks. Seriously good information nonetheless!
@Lee Scarlett First, Ignore the negative folk(s)
#2. You can definitely pull this deal together with the right team, as long as the numbers make sense and not cents. LOL
#3. At least you know at the very least you can wholesale it out to a commercial buyer
#4. I say Jump in and learn from it. think about it whats the worse that can happen.
scared money makes no money - I'm Sprinkling My Prosperity Pixie Dust Over You
@Sabrina Kane, thank you for the Pixie Dust... This is my first time having some and for some reason I am absolutely it's gonna do it's magic.
#2. The worse that can happen is I learn from it. Phew, the 1 (negative) would make it look like that's not the case.
#3. Wholesaling it would be sweet (no sugar added, needed)
#4. So far several people who know a lot more than I do seems to think it's doable. All I need to do is wait on them... & learn from them.
#5. Last but not least, where is the downside? Uh, I checked... There's none!!!