First Apartment Building Deal. Whats you're story?

Question

Looking for my for my first apartment building investment.  16 units or more and up to 10M.  I currently own a few rental homes that i will do a 1031 on for my down payment.  Also have a few people to partner with.  I would like to hear you're experience with you're first aprtment deal.  What and who should i avoid. Who should i know to find off market deal?  Who did you use for financing and how was your expereince with them. What was the criteria they looked for before they would lend to you. What will you do differnetly on your next purchase.  Im at the point where im done studying and want to start pulling the trigger.  I need a good network to do business with in other states.  I look forward to reading the story of your first deal and hope that it can help me avoid some mistakes.

James E. · Answer

@Terrence Williams purchased a 6 unit in Manchester NH. Found a highly recommended, vertically integrated company to help as an agent, property manager, and overseer of the rehab. They really helped me understand the market better and the rehab levels I should be targeting with each unit on the turnovers.

I didn't use any partners - wanted to my first deal on my own before anyone else's money was in play, but to each their own.

Used a local bank as a lender - at the end of the day I put a little more down than I was hoping for, but the rest of the loan was on pretty good terms. I was 30% down with a 20 year am, so I'm sure you can do better, but being my first deal lenders weren't exactly chomping at the bits to get my mortgage.

Next purchase I want to go bigger and go in it with partners.

John Warren · Answer

@Terrence Williams I purchased my 20 unit in South Bend, Indiana at the tail end of 2016. We found it through networking with a broker on loopnet, and financed it using US Bank. We used a 25 year amortization schedule with 5 year terms and received attractive interest rates.

The only big mistake we made was trying to self manage this property using a local guy to help with the day to day stuff. We did this for three months, and it taught me the real value of a PM for a C class property! In retrospect, I would start with the property management company from day one. My partner and I both own A and B class properties, and did not realize how much harder it is to manage the chaos of C/C- tenants. Also, we live two hours from the property, so it is not possible to "drop in".

After purchasing the 20 unit, we immediately purchased a 9 unit in Berwyn, IL. This property was found on the local MLS, and as a realtor I was able to represent our partnership on this deal.  I live five minutes from this one, and we are easily able to self manage as it is a B class area.

John Warren · Answer

@Terrence Williams choosing a property manager is pretty similar to any hiring process. I would recommend you call as man companies as possible and then narrow it down to two or three that you want to interview. Ask them as many questions as you can to get a feel for how they work. Also, know that no property manager is perfect, but as long as they are getting it done 90% as well as you can it will be worth it.

The company we are using is charging us 5% of the monthly gross rents plus a 1/2 month lease up fee when placing new tenants. Believe it or not, this percentage is actually a little high if you can purchase more doors! From my understanding, if you own 100 doors or more you can normally negotiate a 4% of the gross rents setup.

James E. · Answer

@Terrence Williams thanks! I went with them based on a recommendation from my broker. Yes definitely will be able to get better terms... subsequent deal I've shopped around more for and had the time to apply to all of the local credit unioins etc.. so think I found someone now that will do 80% ltv on a 25 year am which is about as good as it's going to get.

Chris Tracy · Answer

@Terrence Williams - I know it seems counterintuitive to not use debt... but basically 2 reasons:

1) We bought a distressed deal and the bridge financing would have been too expensive

2) Less risk and now we don't have to worry about the debt service

Chris Tracy · Answer

What and who should i avoid-  I would say simply avoid overpaying for deals and resist the temptation of buying mediocre deals.

Who should i know to find off market deal?- Brokers.  There's no magic bullet here... just build relationships.

Who did you use for financing and how was your expereince with them.- The deal was a 36 unit/144 bed student housing deal, no financing, all cash- great experience

What was the criteria they looked for before they would lend to you.- We bought right and there was a significant value add opportunity.

What will you do differnetly on your next purchase.- Go bigger!

Terrence Williams · Answer

@James E. keep me posted on your next deal that you put together with them.  I'm looking for great lenders to do biz with.

Terrence Williams · Answer

@Chris Tracy Thank you for sharing your experience and advice.  Congrats on your 36 unit as well.  Why did you choose to purchase all cash verses using your cash on hand as leverage to buy more or buy bigger?

Networking with brokers definitely seems like the direction will go in since I need to buy outside of my area.  Reaching out to a few is definitely a part of my homework for this week.

Terrence Williams · Answer

@James E. Congrats on your first deal man.  I hope that more comes your way soon.  Thank you for sharing your experience as well.  What made you decide to use a local lender?  Have you done business with them before?  Now that you have one under your belt it will probably be a little easier to get lending from other place with better terms?

Terrence Williams · Answer

@John Warren  Thank you for sharing your experience and congrats on purchasing your two units.   How did you select the property management company you chose and what do they charge you to manage if you don't mind me asking.  Learning what you have learned so far would you purchase another C class property?   I'm so ready to pull the trigger on something.  Just don't feel comfortable running number yet to know that I'm buying a great deal.  I need to find some agents to network with on loopnet as well.  The Seattle market is a little high so I'm ready to venture out.

First Apartment Building Deal. Whats you're story?

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