Advice On Investing In Apartment Complexes

21 Replies

Hello everyone.

I'm looking to get started investing in apartment complexes as my area of focus.  Looking for advice from people with experience in this area of real estate investing.  

Thanks in advance!

Paul Sidelinger

I'm starting with apartments too. Let's connect.

That's a great area to focus on Paul! Do you have any specific questions!

How many of the books on apartment investing on Amazon have you read by now? That's really how a lot of us got our start. 

Be wary of seminars, coaching, mentoring, co-investing groups/businesses until you've done all the self-education you can. People spend $30,000 and up on seminars, and there is absolutely no reason for that. If it's $99, go but expect to be pitched to.

Learn the lingo, then find a mentor. 

Commercial Property Advisors on youtube and on the web in general has a lot of what I believe to be good info. I currently invest in SFH but have been watching their channel for the past few months to learn about MF as I transition from SFH to MF to scale.

I appreciate the input from everyone!

I have read some books on apartment complex investing.  I heard all about the guru seminar racket as well.

I would really like to find someone with experience on this forum in the Massachusetts area to partner with and study under for my first deal.

As far as questions go, I do have a couple:

1)  Would it be a good idea to hire a commercial real estate broker to locate properties for sale?

2)  If I do find a good property and the due diligence phase does not turn up any major problems, how difficult would it be to acquire capital for someone involved in their first deal?

@Account Closed Congrats on deciding to get started with apartments. You should flip your approach and get the money lined up before chasing a deal. Depending on the size of the apartment, banks have different lending criteria. Talk to a few banks and private lenders so you know what you'll need. 

You shouldn't engage a broker until you have your funding together. Also, you don't really need to hire a broker, but you do need to find sources for deals, with a broker being an option. Good luck!

Originally posted by @John Casmon :

@Paul Sidelinger Congrats on deciding to get started with apartments. You should flip your approach and get the money lined up before chasing a deal. Depending on the size of the apartment, banks have different lending criteria. Talk to a few banks and private lenders so you know what you'll need. 

You shouldn't engage a broker until you have your funding together. Also, you don't really need to hire a broker, but you do need to find sources for deals, with a broker being an option. Good luck!

Very simple but great advice.  Makes sense to ensure funding will not be an issue before finding a potential property.

Originally posted by @Rick Santasiere :

@Paul Sidelinger what areas in MA are you looking to start in?  

I live in Franklin so a good start would be a 25 to 50 mile radius.  I noticed a lot of new apartment complexes being built in Plainville and nearby cities.  Demand seems to be strong.

Are you working with an agent yet?  How many units are you looking into?  Have you been approved with a commercial lender yet?

Commercial is a tough place to start--unless you are loaded. We have been doing 2 families for 19 years and are now only thinking about the step up. Commercial loans have higher rates, and you will need a credit score near 800 with the 25% or more down payment. Any partnership that 'marries' the score person with the money person must be solid (life long friends or relatives) not just matched business associates. You don't know what you don't know. Tread lightly, Murphy's law is a thing for a reason.

Originally posted by @Rick Santasiere :

Are you working with an agent yet?  How many units are you looking into?  Have you been approved with a commercial lender yet?

I plan on speaking with a good commercial lender soon.  I want to at least get familiar with the funding side before I start looking for deals.

@Account Closed I think that working with a broker from the early stages is ideal.  The reason being, a lot of times these deals never hit the open market and its a "who you know" situation.  I would recommend reaching out to a few and interviewing them to see how they might be able to help.  Definitely get your financing in line first as that would be the first thing that any agent (and seller) would ask first.

Originally posted by @Justin Repp :

@Paul Sidelinger I think that working with a broker from the early stages is ideal.  The reason being, a lot of times these deals never hit the open market and its a "who you know" situation.  I would recommend reaching out to a few and interviewing them to see how they might be able to help.  Definitely get your financing in line first as that would be the first thing that any agent (and seller) would ask first.

I agree.  Working with a broker starting out seems to make the most sense.  As time goes on, potential deals can be tapped from other sources.

@Account Closed , what size apartment complexes are you interested in (20 units, 50, 100, 500, ...)?

The larger the complex, the more attention you need to pay to finding the right market. When you spend $20MM - $30MM+, distance is not that important as the economic outlook of the market, your ability to secure funding and having a partner to add value to and operate the complex.

My recommendation would be to initially partner with someone who is experienced and can show you the ropes (there is a lot to learn and mistakes will cost you a lot - like 6 to 7 figures).

You will also not be taken seriously on a mid to large size deal until you have some experience under your belt or are partnering with someone. 

Besides the mortgage (which is typically 70-75% LTV), there will be many expenses which will run into tens of thousands, before you can even close. Then the real fun starts. Oh and don't forget the 6 months or so reserve and property improvement Capex the lender will want you to place in escrow.

In short, get as much experience under your belt as possible.

If you are an accredited investor or considered a sophisticated investor, you can get in on some syndications with well known folks on BP. I am no expert, but this is what I have learnt from being a passive investor in 500+ units thus far and it gives you a good view into the due diligence process, the PPM, the deal structure, financing, etc. I am sure there is a lot more that goes on as the active partner in the syndicate, which I hope to learn by being part of a syndication lead team in the future.

Hi @Account Closed . I am in Massachusetts and would be happy to grab coffee and answer any questions you have. I have invested several years, $10,000s into education and read countless books. Happy to help you shorten the curve. Send me a PM and we'll get something on the books.  

Originally posted by @Percy N. :

@Paul Sidelinger, what size apartment complexes are you interested in (20 units, 50, 100, 500, ...)?

The larger the complex, the more attention you need to pay to finding the right market. When you spend $20MM - $30MM+, distance is not that important as the economic outlook of the market, your ability to secure funding and having a partner to add value to and operate the complex.

My recommendation would be to initially partner with someone who is experienced and can show you the ropes (there is a lot to learn and mistakes will cost you a lot - like 6 to 7 figures).

You will also not be taken seriously on a mid to large size deal until you have some experience under your belt or are partnering with someone. 

Besides the mortgage (which is typically 70-75% LTV), there will be many expenses which will run into tens of thousands, before you can even close. Then the real fun starts. Oh and don't forget the 6 months or so reserve and property improvement Capex the lender will want you to place in escrow.

In short, get as much experience under your belt as possible.

If you are an accredited investor or considered a sophisticated investor, you can get in on some syndications with well known folks on BP. I am no expert, but this is what I have learnt from being a passive investor in 500+ units thus far and it gives you a good view into the due diligence process, the PPM, the deal structure, financing, etc. I am sure there is a lot more that goes on as the active partner in the syndicate, which I hope to learn by being part of a syndication lead team in the future.

Thank you for your detailed response.  Not quite sure what size complex I want to focus on.  The main thing is to get started with something and, like you mentioned, partner with someone that has experience.

Originally posted by @Michael Sjogren :

Hi @Paul Sidelinger. I am in Massachusetts and would be happy to grab coffee and answer any questions you have. I have invested several years, $10,000s into education and read countless books. Happy to help you shorten the curve. Send me a PM and we'll get something on the books.  

 Just sent you a private message.  If you did not receive it, please let me know.

Originally posted by @Bonnie McCullough :

"Commercial is a tough place to start--unless you are loaded. Commercial loans have higher rates, and you will need a credit score near 800 with the 25% or more down payment. Any partnership that 'marries' the score person with the money person must be solid (life long friends or relatives) not just matched business associates."

I think there is some bad info here. Might be true with local banks, but 80% apartment loans for up to 30 years at 4% or less are common from my talks with national lenders like Washington Federal. The Freddie Mac Small Balance Loan Program is another option. http://www.crefcoa.com/apartment-rates-main.html The credit score of the borrower is less important than the cash flow of the property and the experience of the borrower. I've never heard that your co-investors or guarantors must be lifelong friends or relatives...people syndicate deals with business associates all the time. That said, you do need someone who will co-invest with you unless you are borrowing a small amount. 

I would put together a 10-15-page "pitch deck" that shows your business plan and sample properties, add a well-known property manager to your team (and include them in your pitch deck), talk to mortgage lenders and get a pre-qual letter (and add it to your pitch deck), find an investor who will co-sign on the loan (and include his/her info in your pitch deck), and THEN talk to commercial brokers. Multifamily is hot right now. We are somewhat experienced and have a hard time getting brokers to even return our calls, let alone help newbies find their first properties. Your pitch deck will be a comforting document that will impress brokers and lenders and help them get confident in you. Good luck! 

Originally posted by @Marc C. :
Originally posted by @Bonnie McCullough:

"Commercial is a tough place to start--unless you are loaded. Commercial loans have higher rates, and you will need a credit score near 800 with the 25% or more down payment. Any partnership that 'marries' the score person with the money person must be solid (life long friends or relatives) not just matched business associates."

I think there is some bad info here. Might be true with local banks, but 80% apartment loans for up to 30 years at 4% or less are common from my talks with national lenders like Washington Federal. The Freddie Mac Small Balance Loan Program is another option. http://www.crefcoa.com/apartment-rates-main.html The credit score of the borrower is less important than the cash flow of the property and the experience of the borrower. I've never heard that your co-investors or guarantors must be lifelong friends or relatives...people syndicate deals with business associates all the time. That said, you do need someone who will co-invest with you unless you are borrowing a small amount. 

I would put together a 10-15-page "pitch deck" that shows your business plan and sample properties, add a well-known property manager to your team (and include them in your pitch deck), talk to mortgage lenders and get a pre-qual letter (and add it to your pitch deck), find an investor who will co-sign on the loan (and include his/her info in your pitch deck), and THEN talk to commercial brokers. Multifamily is hot right now. We are somewhat experienced and have a hard time getting brokers to even return our calls, let alone help newbies find their first properties. Your pitch deck will be a comforting document that will impress brokers and lenders and help them get confident in you. Good luck! 

Marc.  Thank you for your response.  I agree with your assessment.  Some people are more comfortable investing in smaller deals, which is perfectly fine.  For people that want to build real wealth, immersing yourself in high value investments from the beginning is the only way to learn.  Might take longer but it certainly is worth it.

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