Apartment Building Purchashing (more than 5 units)

4 Replies

I'm looking to buy my first multi-family over two units. My goal is to net $8,000/month. Can anyone share their experience with things to be aware of when considering these types of deals? Also, any creative ways to purchase are appreciated.

You want to buy one building that will net over $8000 a month or are just looking to get started?

Start talking to multi family operators in your area, go to REIA groups, listen to podcasts.

I always think the best way to get started is through house hacking.

@Alonzo Avents

This question is really too broad to answer as there are so many types of deals especially since you're asking about anything 5-1000 units. I would start by reading The Complete Guide to Buying and Selling Apartment Buildings by Steve Berges. That covers a lot like basic management, value add, financing etc.  There are so many others though. Michael Blank has great resources as does Joe Fairless and Brandon's book on getting creative is a must read.  

I can tell you one thing, in order to get the returns you are looking for, buying right and market selection will be key. 

Good luck!

@Alonzo Avents , have you run the numbers to see what it would take to cash flow $8,000/month with no money down?

Assumptions

Lender: 75% LTV, at 5%, 25 year amortization.

Seller: 25% LTV, at 6%, 20 year amortization.

Purchase cap rate: 8% (this won't be easy to find, especially with the size of property we're talking about below)

Expenses: 60% of gross rents

Rents: $800/unit

Analysis

To cash flow $96,000 per year ($8,000 x 12), you'll need NOI of $1,300,000. To get that, you'll need $3.25M of gross rents. It will take 339 units to generate those rents. The purchase price on this property will be $16.25M.

Now obviously there are many changes you can make to bring down the # of units and purchase price down to achieve $8,000/mo. If you could somehow buy at a 10 cap, you'd only need 97 units with a purchase price of $3.5M. This would likely require a repositioning of the property, with a big chunk of that $3.5M going to capex. 

My suggestion is to start looking at what it will take in your market to get $8,000/mo, working backwards like I did. 

Thanks a lot for the feedback! I apologize for the broad question, I didn't want any screening of your thoughts. It's my first one and I want to avoid as many hard learned lessons as possible. Those numbers really put things in perspective for me.... I'll start with the suggested reading and practicing those numbers on potential deals. What methods have you used to find the deals you have? I've been looking at the obvious postings on LoopNet, CityFeet and other websites already.

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