How to invest in apts without a high income?

51 Replies

I make 150K a year right now but I work 2,000 miles away from home and from my wife. I'm miserable. So in 6 months, I'm taking a job back home making 100K a year.

Can I realistically buy an apt building (as many doors as I can) on that income? Or should I be looking into some alternative?

Reading through some forum posts, I'm finding that syndications require 'accredited' investors, which I am not. 

FYI - end goals are to have 10k relatively passive income a month - in perpetuity. I may 1031 exchange later, certainly will buy more, I don't know. It may take 10 or 15 years to make that. (i'm hoping only that long)

@Jacob Abuata - income is only a piece of the puzzle, debt is another.  Talk with a lender and have him do a pre-approval, that will tell you how much house you can afford.  

You don't have to be accredited investor to buy into a 506(b) syndication. However you have to be a sophisticated investor and have preexisting relationships with the deal sponsor. 

@Brie Schmidt , do I have to specifically find a commercial lender? 

@Nick B. , I'll look into that. Thank you. I have literally owned no property but have spent the last 2 years reading books, blogs, articles, and begun researching apt buildings - i feel they would have better ROI's.

@Jacob Abuata So we don’t know how much you’ve saved. We don’t know where you’re moving back to. We don’t know what RE prices are there. We don’t know if you want to house-hack. So could you buy a 6-plex in a dicey part of East Birmingham on a salary of $100K? Maybe? I guess. But it won’t be “passive” :)

So try reframing your question: “I make ___ per year with ___ saved as a down payment. I’m moving back to ___ where 5-10 unit apartments sell for ___. Do you think a regional bank will do a 75/25 loan?”

It always depends on the bank but it still gives a starting point for people to give a more intelligent response.

Rookie mistake, sorry about that. 

I make 150K/yr now. (in 6 months will reduce my income to 100K/yr)

I have 100K saved right now and in 6 months I'll have saved 150K

Moving from Pittsburgh back to home in Orange County California - not possible to buy a reasonably priced multi. Seriously it's at least 1 million for a quad.

I haven't delved into loans yet. But if you're asking about my credit (ability to obtain a loan), I have zero debt and 815 fico.

Have you considered house hacking?  You will need less funds than buying an apartment building that you don't live in and you will get much better terms on your financing. Living in a tri/quad will save you $, allow you to cash flow and will allow you to learn mf/landlording a bit before jumping into an apartment building.

@Nick B. 's suggestion is also good, although I have found that the larger, established syndicators with a track record don't go down the 506(b) route because it has limitations. If you know and trust somebody this is still an option, just make sure you really do your research.

Also, a crowdfunding site like https://www.realtymogul.com/  has more options for you to consider. They are on my list to thoroughly research and vet, I have not yet, so I can't share specific experiences are feedback.

Good Luck!

@Scott Skinger , I don't like the crowdfunding route mostly because I have ZERO control. I tested the waters last year with a small amount of cash and it's doing well. I think I'm getting just over 7% on the investment. But again, it's out of my hands and I'd prefer to be in a building that I can affect the return. 

If you're interested, I'm invested in Fundrise.

I have greatly considered house hacking, and the BRRRR method but in southern California it's really hard to find a good buy for reasonable money. I know I can FHA the property, but the good deals would force me and my wife to move to the straight up undesirable areas. Like... we're talking higher crime rates.

@Jacob Abuata -  Can I realistically buy an apt building (as many doors as I can) on that income? Or should I be looking into some alternative? That's the beauty of buying larger apartment buildings is your personal income and credit score is irrelevant.  This game is not like residential.  You would ultimately partner with people- that is the workaround.  Also, you don't have to move your family around the country to do this business.  I live in CT.  My partners live in CA.  We own properties in GA and AZ.  It's amazing.

@Chris Tracy , please let me know how I can seek out partners like yours and how I can appropriately vet them. I'm super scared of losing all my money so I can't just give someone my cash. I need to feel comfortable (although I understand any investment comes with risk) but I know I can mitigate as much risk as I can.

I know there's no chart or table I can look up, but with a 100K investment, would ANYONE be able to ballpark a return? I understand deals GREATLY differ, but was curious if someone had a figure.

@Jacob Abuata - You don't necessarily need to use your money, if you're on the management side.  I don't have a dime in the deals I mentioned.  I'll inbox you a video I made that will help explain things more and give more direction if you want to go that route... but you want to be a passive investor?  Of course you could always play both sides of the fence and be a syndicator as well as have a little of your own cash in a deal.

@Jacob Abuata , I was under the impression you were talking about buying commercial apartment buildings but based on many of the replies, it sounds like you wanted to do a residential apartment building? 

I invest in CA....or I should say, I used to invest in CA. I rarely even bother looking in CA anymore because, like you said, a 4-plex lists at over $1M and then monthly cash flow is laughable...if not negative! However, you can find deals off market and you being back in your area, it will help to network with other RE people.

Having said that, as far as your financing, yes, you can make 100K and buy multi-family...residential or commercial. You can put even 3.5% down for a 4-plex, if you find a deal that will cash flow. That's...$35,000 on $1M, plus closing costs, minus concession. So, call it $40,000 to get in the game. Due diligence is another animal all together but the answer to your original question is "YES, you can!"Your credit score, monthly income, DTI ratio and all the fun stuff you are used applies when getting the loan.

If you're doing commercial apartment buildings, and you do the straight up, vanilla commercial loan route with no partners or seller carry, expect to put about 25% down and have enough cash reserves to cover mortgage and interest payments for 6-12 months (each lender has their own requirements) but your DTI, personal income and credit score have absolutely nothing to do with the deal. The loan is given based on performance of the building. So again, rough math based on a vanilla commercial loan with your $150K savings, 25% down and a HELOC or cash out on your permanent residence to cover cash reserves and maybe bump up on your purchase price, you can buy a commercial property at $600K give or take.

Again, the examples I gave are vanilla residential and commercial estimated figures. Like other already said, there are lots of options to modify your situation for better results. Listen to the podcast with Brian Murray to give you an idea of commercial property possibilities and there are lots of good books out there on commercial and residential multi-family investing. 

Also, like @Chris Tracy subtly points out, you may live in CA but you might be better off investing in another market, outside of CA. 

short answer is yes - 

You can leverage your retirement or use savings. Save up $100k and use it to buy a 6-10 unit apartment. 

Hire a property manager (10% of revenue) and a book keeper ($30/mo) (some PM’s will include this). 

If you don’t have the savings or aren’t willing to leverage other assets then you’ll have to find someone with money. 

At the end of the day you can’t get something for nothing. The start up capital has to come from somewhere. 

If you want to invest in commercial they will look more at your net worth than your income. I closed on a 2.6M office building last year but I had 0 income in 2016. But you will need net worth maybe 50% of the value of the property for lenders do green light a loan.

If you want 10K/mo in cashflow (I'm assuming pre-tax) that's 120K/year. If you are targeting 10% CoC return like I do you will need to put 1.2M down on a 4.8M property (assuming 25% down which is best case scenario, realistically plan for 30-35% down) so banks will want to see a net worth of at least 2M. If you don't have that you will need to partner but I'm assuming you are aiming for 10K/mo on your own.

@Jacob Abuata , I forgot to mention, you can look into a master lease agreement. Kind of like a lease option but for commercial property. You take over daily operations, can rent out units, get tax breaks, collect rent and you pay the owner a monthly lease. Normally, a master lease option has a clause where you can buy the property from the owner at some point in the future.

Private non traded real
Estate investment trusts. Physical assets held in the trust, pays monthly dividend, usually they pay around 6% with potential to go higher. Also if thinking of 1031, they offer 1031s for those also, though they are called 1031/DSTs.

@Jerry Shen , yeah when you put it that way, it seems so impossible. Such a distant future if at all..

But I think I'll need to continue reading on this topic and there have been great suggestions here, so I'm grateful for the advice. Thank you, everyone.

Originally posted by @Jacob Abuata:

Rookie mistake, sorry about that.

I make 150K/yr now. (in 6 months will reduce my income to 100K/yr)

I have 100K saved right now and in 6 months I'll have saved 150K

Moving from Pittsburgh back to home in Orange County California - not possible to buy a reasonably priced multi. Seriously it's at least 1 million for a quad.

I haven't delved into loans yet. But if you're asking about my credit (ability to obtain a loan), I have zero debt and 815 fico.

Are you set on investing in OC (sorry if you answered that somewhere else in this post)? If you're in Pittsburgh now, you know the property prices here are wayyyyy more reasonable than OC and you have some familiarity with the city I'd imagine. Pittsburgh is a great investment market, $150k would go a long way here. I work with several OOS investors who have smaller budgets than you. I'd spend the next 6 months you are still here looking for investment property here and building up your team so that when you move back home, your rental income will be mostly "passive."

@Jacob Abuata . A few observations.

1. Why move back to CA without starting to investigate the Pitt market and even build a team out there. You might need to either invest there yourself or be a reference for partners that wants to invest there and are not familiar with the area. 

2. In Real Estate, many things happen over time. But, things accelerate quite fast, once you get into the game. Things you believe might be impossible today, once you get the ball rolling, certain things go faster: Networking and meeting like minded people, Networking with Brokers, Bankers, Finding creative ways to finance deals, ... etc.  

3. One thing I found about Californians, they always complain about their state. However, they leverage their RE assets in CA to outbid everyone in other markets. I can't tell you how many deals I have lost in NC because someone in CA offered a lot more money than me. 

4. I think it is great to have big goals. However, I always recommend people who have never done any of this to start slow and get familiar with the processes, vocabulary, build teams, make mistakes at smaller scales before jumping onto bigger projects, where a rookie mistake could wipe out lots of your assets. 

Good luck !!!

@Jacob Abuata if you are comfortable going out of state then you can easily get a lot of apartments in other states. I’ve seen 8 plexes for under 450k as an example. If you’re staying in CA to invest you’re going to have a lot harder time.

I would advise against house hacking a 4 plex that you buy for 1M. If the market goes south you’re going to have a large mortgage payment to sustain.

Originally posted by @Brie Schmidt :

@Jacob Abuata - income is only a piece of the puzzle, debt is another.  Talk with a lender and have him do a pre-approval, that will tell you how much house you can afford.  

Basically as Brie said income is only part of the approval process talk to a lender they will be able to give you exact numbers for what you can buy now vs what you will be able to buy at the reduced salary, etc. A good lender is a very helpful resource. Maybe ask on BiggerPockets for some recommendations in your city. 

100k should be fine for investing unless you are in very expensive markets. You can also count 75% of rents towards your income when buying a building. For a first investment I always recommend to look for a stabilized fully rented building, line up a good property manager and jump in. You will need to typically put 25% down on the non-owner occupant. 4 units is a great way to start as you get more cashflow then 2-3 units and can still avoid ARM loans, etc.

If you have the right stabilized building, stick to affluent areas and good property management team don't be afraid to invest outside your direct area. Just put a West Town (Chicago) 4 unit under contract for an investor out of California. 

@Jacob Abuata a few others have already touch on out of state investing, a much better option to park your money. Find a good management company that you trust. Another option to have your money work for you is more passive investing in a syndication. A NNN commercial property can also get you some solid returns with the right leverage, and very passive.

@Jacob Abuata standards for commercial lending are out of reach for most people that’s why most people start with residential where they look at income and not net worth. 

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