7 years to 7 figures - Year 5. What to do?

Question

I've been investing in a few SFHs for years. I decided, about a year ago, that I wanted to take my investing to the next level and get an apartment building. I've been trying, off and on, to figure out how to do that ever since. (Had some time eaten by little things like planning and having a wedding, buying a house with my fiance / husband, moving, changing jobs, etc.) So I'm back to it and itching to get going. My research finally led me to discover BiggerPockets and its wealth of knowledge. I read the 7 Years to 7 Figure Wealth eBook, and it looks like I'm basically ready for year 5, my first apartment building. Even without selling anything, I have:

~ $100k cash~ $140k HELOC

I've heard about moving IRAs into self-directed accounts, and then partnering with them through an LLC. If I were to do that, I would have access to another ~$250k.

My questions are these:

1. In Denver (where I am), I could only get maybe a 4plex for $1million, not nearly the 24-plex that 7 Years to 7 Figure Wealth describes. Do any of you have recommendations as to areas I should consider, and if so, why?

2. I've heard that if I go the route of using my IRAs as funding, I would not be able to consider a commercial loan, as banks typically won't loan to LLCs. Is this true? What would be the advantages and disadvantages of using self-directed IRAs? I'm fine with going a bit smaller for now and trading up in a few years, if there are advantages to that, but I'm also fine with jumping in with both feet now.

3. How do I go about finding my dream deal, once I identify what my dream deal actually is? What sites should I be frequenting, what network connections should I be making?

Thanks,

Lynae

Scott Trench · Answer

@Kyle Doney An agent I know brought it to me. Not sure what else to say there. I guess just keep networking and get to know as many people as possible!

Kyle Doney · Answer

@Scott Trench Do you mind sharing how you found the 4 plex?  Sounds like a great deal. I would have jumped on that too. I picked up a duplex for 185k last week, which I felt was pretty good, but you got me beat on unit price still!

Scott Trench · Answer

1) I'm buying a quadplex for $355K within the Denver city limits that needs around $10K in repairs and is currently fully rented. I close next week. This is the Southwest part of town (Barnum). Gross rents are $3,125 per month ($800 per unit, with one $725 unit). So I do not think that a 4plex for $1M is a reasonable assumption.

I like the northeast part of town (Cole/Clayton, Elyria/Swansea), the eastern part of town out on East Colfax and approaching Aurora and the Anshutz campus, and the southwest part of town in Villa Park going South through Barnum. I am seeing reasonable properties in all of these areas, and believe they will benefit from the improving market over the next few years.

2) Banks won't lend conventional loans in LLCs. Small banks will do that. It's all about the terms you negotiate. Self-directed IRAs come with more paperwork, but there are some experts on the BP forums that can help with this.

3) Reverse the order of these questions, and change your reality. What is it you are trying to achieve, and what is reasonably likely to exist. You can't move toward a goal without defining it first.

Scott S. · Answer

Hi @Lynae Chambers. It sounds like we're in about the same boat!

I can't answer your first question, and am interested in the answers, as well. As for #2, banks do loan to LLCs all the time for commercial loans. If you meant to say lending to IRAs, then Matt's advice holds.

At this point, I'm educating myself and doing what @Matt M. suggested - getting financing all ready to roll by checking out SD IRAs (as well as considering pulling the money out early, paying the penalties, but having complete control over it -- a podcast I listened to said that was still better than putting RE into an SD IRA).

My favorite podcasts on apartment investing are: @Michael Blank's (here), Jake and Gino's (here), Rod Khleif's (here) and the Old Capital Podcast (here). Many of these people have books out that are good sources of information, as well. I just finished Dave Lindahl's "Multi-Family Millions" and appreciated the depth, clarity and examples in it.

As for #3, I think everyone starts out at loopnet.com, but you can also check out these: www.1031commercialproperties.com, https://www.cbredealflow.com, http://www.colliers.com, https://multifamily.cushwake.com.

The network connections are the standard: brokers (local and those in other markets), mortgage brokers, RE attorneys, etc.

Are you attending meet-ups near you? Find others doing what you want to and pick their brains.

Kevin S. Campbell · Answer

Hi Lynae,

I would suggest that you try going to your local banks and asking them to share their foreclosure list with you, also they know about pre-foreclosures.  That is the cheapest way I know to find these.  Carlton Sheets tells people this in his course.  You generally want to stay close to your rentals, but I think there are great values in small towns like mine.  Just use Zillow, Craiglist, and Trulia to search for apartments for sale.  You can get much better deals than what I am seeing here in farm towns with low rents and low land values.

Have a great journey to your goal.

Kevin Grinstead · Answer

Hi Lynae, There is a property in Denver that is a 9 unit property for Just under 1 million as a list price. I am sure depending on the neighborhood you can get an apartment complex or even an office building for under 1 million that could propel you forward on the road to 7 figures.

Lynae Chambers · Answer

I would guess I would have to at least narrow down what state to buy in before starting on the funding, though, wouldn't I?

Matt M. · Answer

You might reach out to 1stBank about funding. They will work with your self directed IRA; it's just a bit more expensive to do business with them.

Where are you looking to invest? Apartments are at a premium right now here in town. I've come across a couple of quads in decent areas, but they are at a 5-6 CAP.

Start with finding the funding. Then once you know how much you can borrow, you can go out hunting.

7 years to 7 figures - Year 5. What to do?

Most Popular Reply