Discouraged... mentor said anything <500k not worth it..

Multi-Family and Apartment Investing
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Discouraged... mentor said anything <500k not worth it..

Pat Antonio
Houston, TX · Member since 2016 · 4 posts · 0 votes

Hey guys,

A mentor of mine said in one of his videos that investing in commercial apartments (5 units or greater) is usually not worth it if the purchase price is less than 500k. I mean, I'm sure there's a point to what he's saying but I want to know if it's possible to have a successful apartment complex business (5-50 units) for the $250-500k range? He probably means it will take more work, but is the extra work worth it? I'm still relatively young, so I may have the spirit to be able to put up with it for now.

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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
10y

There are a multitude of problems with believing this blanket statement

In order for the statement to be true the following assumptions would have to be true

1. All investors value time the same way

2. All investors are in approximately the same financial situation

3. All investors have the same opportunity cost

4. All investors have the same access to financing larger amounts of debt

5. All investors have the same risk tolerance

6. All investors have the same time/risk/return level

7. All investments under $500,000 cost yield a return/time/opportunity cost ratio lower than the return/time/opportunity cost ratio requirement of all investors.

In other words, the author of this statement must assume that all investors are like him in regards to net worth, capital available, goals, risk tolerance, time availability.

A 500,000 investment probably would not be worth the time and effort to Warren Buffet, however it may well be worth it to me!

Private Mortgage Financing Partners, LLC
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  • Marcel Theisen
    Specialist · Planet Earth · Member since 2014 · 56 posts · 33 votes
    10y

    I don't know prices in the Houston market but I wouldn't get discouraged by his comment. The 500K seems like an arbitrary cut-off. What 'is not worth it' to him/her might be a great way to get into investing to someone just starting out and looking for their first deal. Rather than limit yourself to thinking you need to do a 500K deal, I would look for deals based on the financing you can get and find a property where the numbers work for you even if it is a smaller deal.  Unfortunately, this kind of advice often prevents many people from going forward with investing...stay positive and keep at it. 

    3Reply
  • Pat Antonio
    OP
    Houston, TX · Member since 2016 · 4 posts · 0 votes
    10y

    Oh wow, are you from Andalucia, Spain? That's where my family is from originally. 

    Thanks for the advice..

    0Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    10y

    @Pat Antonio, he's probably using the same thinking that a certain @Ben L. uses here on BP do discourage everyone from buying $30k "pigs" in the mid-west.

    ie. the implication is: by definition, they must be in "war zones", therefore will always need too much upkeep, always have problem tenants, and will never appreciate.

    ie. generalization gone mad!

    [So that you know, plenty of investors DO buy those "pigs", and DO profit handsomely over time]!

    But of course, if every investor could AFFORD to ignore under-$500k buildings, then sure....

    1Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    10y

    Mentor? Videos? Find another mentor! :)

    2Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    10y

    There are a multitude of problems with believing this blanket statement

    In order for the statement to be true the following assumptions would have to be true

    1. All investors value time the same way

    2. All investors are in approximately the same financial situation

    3. All investors have the same opportunity cost

    4. All investors have the same access to financing larger amounts of debt

    5. All investors have the same risk tolerance

    6. All investors have the same time/risk/return level

    7. All investments under $500,000 cost yield a return/time/opportunity cost ratio lower than the return/time/opportunity cost ratio requirement of all investors.

    In other words, the author of this statement must assume that all investors are like him in regards to net worth, capital available, goals, risk tolerance, time availability.

    A 500,000 investment probably would not be worth the time and effort to Warren Buffet, however it may well be worth it to me!

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
    4Reply
  • Cassie Sherie
    Seattle, WA · Member since 2016 · 81 posts · 43 votes
    10y

    @Pat Antonio  are you really going to let one "mentor" who you probably never even met have that much control and influence over you and your future?? Yes, it's good to hear different perspectives from others and take away something from everyone... but you should tailor your investing to what suits you...and what is right for your situation...don't let one persons strategy be the "be all end all" that's giving them way to much power and control. Be brave and confident enough to blaze your own path...

    0Reply
  • Hubert Washington
    Investor · Jacksonville, FL · Member since 2016 · 97 posts · 90 votes
    10y

    @Pat Antonio

    I can't say that I know exactly what your "mentor" is saying. However, what I think he means and what I have heard repeatedly from experienced apartment investors is:

    1) The effort necessary to close on a small apartment vs a large apartment is pretty much the same
    2) It's more challenging to afford quality, onsite property management for smaller apartments (<50 units)

    Those that I have been receiving guidance from are encouraging me to start in the 60-80 unit or larger range. I'm guessing this may be what your mentor is getting at?

    THINK BIG...THINK BIGGER...THINK MASSIVELY!

    1Reply
  • Marcel Theisen
    Specialist · Planet Earth · Member since 2014 · 56 posts · 33 votes
    10y

    @Pat Antonio  -I'm from the states (MN) but have lived in Sevilla for several years. Interesting that your family is from here.  Good luck with your investing!

    0Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y

    Take the number and see what they tell YOU.

    • 500k/ (5 units) is 100k/unit
    • 250k/ (5 units) is 50k/unit  
    • and adding more units drives this into absurdity 250k/50 is 10k

    Just like you can't get a Porche 911T for 10k, you will not be please with anything in the 10k/unit range IMO.  That's warzone, civil unrest areas and life can be not only difficult but dangerous.

    Hint: look on MLS for SFRs in the neighborhood of interest. Divide the FMV by the number of bedrooms. Use this number as a cost/unit to evaluate a MFU in that same area.  That will give an approximate FMV for the MFU - - not a great buy, not a discounted value either - - just a touch stone for evaluations.

    0Reply
  • Chris JacksonPro Member
    Investor · Southold, NY · Member since 2016 · 173 posts · 154 votes
    10y

    I got my start 7 years ago on a 5 unit I bought for 40k and put in another 40k.  My second deal was for 150k an 8 unit.

    Yes they were alot of work in the beginning.  But I learned the multifamily ropes managing property managers with total granularity.  

    In 5 years they doubled in value all the while throwing off extremely healthy cashflow.  There were some tough years of mistakes by me but I learned and profited!

    If you are in a position to put down a 100k plus closing costs, plus planned capx, plus reserves which in reality will probably get ya to 150k liquid down needed in a hurry sure, find a 20 unit for 25k per door.  

    One cant use blanket statements in real estate though.  We just picked up a 12 unit for 320k.  30% under market value, 30% under market rent.  The projected returns are very enticing.  Yes 'smaller' buildings require more hands on management of your PMs and finding professional PMs in the smaller unit space is challenging but thats where opportunity lies, in problems.  Solve problems other don't want to solve, buy correctly and win.

    From a blanket statement perspective I hope the competition ignore the under 500k space ;) 

    0Reply
  • Lane Kawaoka
    Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
    10y
    Pat Antonio Who are you using as you guru? Some one said it already but the 50-60 units to justify one full time staff member is key.
    0Reply
  • Anthony CharaPro Member
    Investor · Centennial, CO · Member since 2012 · 326 posts · 232 votes
    10y

    I agree with @Don Konipol, you can't believe all of the blanket statements. Everyone has their own experiences and beliefs. 

    We purchased a 94 unit property in KS for around $3K per door!!!!  NOT in a warzone. It was just an awesome deal in a nice neighborhood that was 100% vacant. We put another $750K into the property in rehab costs, so 'all-in' we have around $11K per door. It just appraised at $2.45MM.

    2Reply
  • Vitaly Lunev
    Rental Property Investor · Dallas · Member since 2016 · 33 posts · 13 votes
    10y

    What he probably meant is that those deals would fall into the financial purgatory, over 5 units puts it beyond the typical single family loan (where 4 units is a cut off) but is still too small for most multifamily lenders (think agency backed financing or major banks/insurance companies). This leaves only small local banks who are typically not very competive in terms of the interest rate and reliance on the borrower history, putting you in a chicken or the egg bind of trying to build a history without a loan. That said nothing is impossible with enough dedication. The final item to consider is your exit strategy, unless you plan on holding the asset forever, your buyer will face the same dilemma, limiting the pool of buyers and creating a price discount, beyond the average market cap rate.

    0Reply
  • Vitaly Lunev
    Rental Property Investor · Dallas · Member since 2016 · 33 posts · 13 votes
    10y

    The response above notwithstanding if you can find the financing source and plan to hold the assets forever, just enjoy the cash flowing in. To be truly successful you have to find a niche where the competition/barrier to entry is high. Best of luck!

    0Reply
  • Fred Heller
    Real Estate Agent/Property Management · Houston, TX · Member since 2014 · 1k+ posts · 827 votes
    10y

    @Pat Antonio  You're not going to find anything in that price range for 5+ units in Houston.

    You might want to concentrate on 1-4 family properties where you can find deals that make sense.

    Message me if I can be of assistance.

    0Reply
  • Michael Lee
    Investor · Coppell, TX · Member since 2008 · 2k+ posts · 646 votes
    10y

    Hello and welcome to BP!   In many ways you are right, it needs to look good on paper. In some ways he is right, because inventory is low and prices are kind of high.  It might matter if you are paying all in cash or require financing. Some all cash buyers are getting more deals because they usually can close quicker.  It all depends on how motivated the seller is and how much they like you.  Be a problem solver and build those relationships.  If you require financing those things are critical.  Find an experienced and trustworthy Team to help you.  People that will be your Team members are Attornies, Agents, Inspectors, General Contors, CPA's, etc. are the most important to you.  Just make sure they will respond to you when you call.  Always do the numbers and try to look at the properties if you can't get a contract clause that will allow you to back out at no cost.

    I am 59 years old and I found BP about 7 months ago and I am still trying to decide what to do.  I went to college and got a business degree that emphasized real estate.  Regardless of what I had I felt more comfortable in the construction business.  I have been in the construction industry since I was 17.  My father has been in real estate for about 40 years and he has taught me a little bit.  If you think I can help you please contact me through BP at any time.  Good luck!

    0Reply
  • Robert Edwards
    Nerja, Malaga · Member since 2014 · 36 posts · 13 votes
    10y

    Looking for property in Spain. Please check out my portal for sales & rentals. All the best - Robert Edwards - LPG SPAIN.

    0Reply
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