Mulit Family unit advice needed!

6 Replies

Good morning!

My husband and I are thinking about investing in a 16 unit apartment building (split into 2 buildings).  The only other multi family we have now is a duplex.  This unit is 30 minutes from our home.  We will need to find private financing for the unit.  What are the major questions we should ask and things we should be looking for when doing our first larger multi family unit?  Any advice is helpful! Thank you.  

Hi @Kayla Stalley , there's a lot to think about. Not dissimilar from a smaller property. I'd want to know:

  1. All of the current owners financials for at least 2 years.
  2. Financial occupancy (not physical occupancy) and how that compares to the rest of the market.
  3. Foreseeable CapEx
  4. Required repairs/updates
  5. Value-add opportunities (e.g. sub-metering utilities, adding coin laundry, renting out garage space, upgrades like a fenced-in yard)

That's jus the tip of the iceberg. Good luck! Let us know how it goes.

Right now you will want to look at the seller provided P&L and the rent roll as well as verify the tax rate so you know what you'll pay when you buy. You will also want to make sure all expenses are showing up on the P&L that should be there. General rule says expenses should be 50-60% of the gross income. The other thing you will want to know is the deferred maintenance. Also of great value is know the sub-market to understand if you can improve the property and in turn raise rents and improve the tenant base. Same goes with expenses. 

Once the deal is under contract, look for leases, rent roll, bank statements for the past 6 month+, copies of utility bills, K-1's, any contracts on the property and any warranties. You will also want to walk through every single unit and hire an inspector to walk 3-5 units and the common areas. I would also bring with a contractor and property manager if you are using one. The inspection is just like a house, just larger.

When investing in an unfamiliar asset or territory, I recommend using an institutional lender who has experience. They would make sure you do a lot of the due diligence and gather the right documents because they need it for their underwriting. They make sure the valuations are correct, that vacancy rates are good, etc. They're essentially a partner that's vested in the deal, and a second pair of eyes.

@Kayla Stalley @Todd Dexheimer   - Todd gave some good advice.  I will make a few assumptions, and please correct me if I am wrong - it appears you are relatively new as you stated you have one other property a duplex.  It does not appear, that real estate nor property management is your main occupation.   That being said, consider whom you are trying to convince you can facilitate the transaction - seller, seller broker, investors, banker, etc.  Your team will be vital in obtaining financing as well as the performance of the property.  All the items Todd suggested are critical to analysis the financial position of the building how much to pay for it.  I would suggest once you acquire it, having someone run it is equally important.  I would focus on finding a solid property management company to help you assess as well as run it.  Then market them as part of your team when you raise money from investors as well as lenders.

@Kayla Stalley At this point, what I’d first ask for is the rent per unit. Managing a $500 per month property is different than managing an $800 per month property. Then the next step is looking at gross projected rents vs. collected rents (already noted in “financial occupancy”).

For me I always start at the top-line because, for me, that really drives the performance. Yes, expenses can hurt but not as much as going from 95% projected occupancy to 70% “real” occupancy. Being at full occupancy can cushion a lot of expense overages.

And, odds are if you have low(er) rents, long vacancies, evictions, etc. you probably have a tenant base that’s going to be a little rougher on units.

Thank you all so much for the advice.  It appears the unit has gone under contract but we will continue searching and analyzing deals!  I appreciate your help!

Join the Largest Real Estate Investing Community

Basic membership is free, forever.