Newbie Multifamily Guidance/Advice

11 Replies

Hello BP Nation! I currently have 2 single family homes in Michigan but I am looking to make the move into multifamily space. Over the past week I have been analyzing deals on LoopNet, purchased Michael Blank’s syndicator tool, completed the webinar on how to use the tool, and I am practicing tonight with the tool. Once I have a mastery of the tool, I plan on calling brokers just to get more comfortable discussing numbers with them. Does anyone have any tips, critique on the path I am going, or anything? Thanks everyone!

My tip: Don't be an easy mark for the brokers.  Be very wary of a broker selling you his own deal, and be even more wary if the broker is going to sell you a property and then manage it for you.  Yeah, I know there are great deals that happen despite my tip, but I've lost money because I was new to it and didn't really know what I was doing, and don't want to see you do the same.  One way to purchase properties would be to work with someone who has done it before rather than jump out on your own.

@Mike Taravella - What's your plan for if a broker sends you a deal and the numbers work?  Do you have the capacity to take it down?  Do you have investors lined-up??

Also, if you need help with the talking to brokers part... let me know.  I can help you overcome the objections that will be thrown at you and as Mr. Blank says, "Not sound like a newbie...".

Mike, my tip would be to buy an aged LLC with business credit or season one yourself. Then move any and all personal debt to the entity. Get your LLC to 80 and yourself to 720+ then go shopping for financing. Maybe even try and show as much income on the rentals to be able to afford a bigger target by showing more income and less debt. Look for a commercial property that you can force appreciation by rehab/raising rents. But if you're talking 4 units or less you can DIY on the residential lending side for less and CAP rates won't matter, John

Keep researching and reading everything you can. Tips on underwriting are good but I would also expand to knowledge about different areas as well (financing, property management, etc). Once you feel as though you can 'take it down' pull trig! You will make a lot of mistakes along the way but you gain knowledge that you simply couldn't have figured out researching on the internet. Every property is obviously different but once you get your first deal under you belt you will be a seasoned vet and really begin to roll in that cash flow 

@Mike Taravella

Hi Mike

You are on the right path. The key in multifamily is broker relationships. Learn how to speak the lingo and begin to create broker relationships in your market. Underwriting is one skill you need to master.  You also need to learn how to manage right & finance right. Both skills are different in the multifamily space. 

Also, become clear as to why you want to transition.  There are so many advantages in multifamily, but if you don't have a big enough reason why, it makes no difference how many advantages there are.

Good luck

Gino

Hello @Sam LLoyd , I thought your tip on being weary of brokers that offer to manage the property was interesting.  I've never purchased a property like that but I figure they have skin in the game and it was therefore beneficial to use that type of broker.  What negative experiences do you have with that you may be able to share?  Thanks!

@Mike Taravella

Mike,

As Gino said, relationships in the multifamily sphere are a key aspect to success. The 80/20 law applies very clearly here, as there are often a small number of players who own most of the properties in any given market or sub-market.

My best advice would be to surround yourself with others who have invested in multifamily or at least have experience working with commercial brokers, and absorb as much knowledge as you can. Find ways to provide value to big investors or brokers, and you'll have a foot in the door when the next good deal comes across their desk. Having the opportunity to work with or go in together on a deal with someone who's done it before will catapult you forward in terms of your ability to penetrate the market again in the future.

Good luck, and keep us updated on your journey!

@Justin Elliott   Sure.  Picture a manager that owns a 4plex that's not doing well.  He can keep managing it and make a few dollars/loose a few dollars, or he can sell it to some out of state investor who he may or may not disclose everything to.  Manager pockets a ton of cash, gets the liability of a potential money pit off his plate, and then has no reason to manage well... he already made his money.  Who is he going to provide better service for?  His own properties, followed by his friend's properties... Followed by local investors he knows.... And then maybe 6months later he'll ask for money to fix up a unit and make it rent ready even though it was supposed to have been listed for half a year.  

There are many managers that do better than this, but there are conflicts of interests when you have the same people selling, brokering, managing, etc...  Also, if you don't have a rental in the area, you need to find a local investor to get real numbers regarding rental performance.  Never use the numbers the sellers give you if there is any way to find your own more accurate numbers.

@Sam LLoyd I never even thought of that as being a risk, so thank you for that advice!

@Chris Tracy I currently don't have brokers sending me deals yet, I am still trying to get a better idea of my analysis with Loopnet. I have been reaching out through the forums to understand rules of thumb and see if I am missing anything in my analysis. I did see Mr. Blank's video but would definitely love to connect and get a better understanding. 

@John Acheson I am currently looking for larger apartment deals but don't have the money to necessarily tackle the deal by myself. I was looking to partner so that I can build more of an understanding, but still provide value by finding the deals and doing lead generation. I figure owning a small part of a big deal is better than owning a big piece of a smaller deal. Plus I would learn more from partners. Does the logic make sense?

@Colin Stuart great ideas to diversify my knowledge in the other aspects because I have been solely focused on the underwriting. I figure I would post on BP Nation so pros like all of you guys can help. Greatly appreciated!

@Todd Dexheimer thanks for the articles! I will read them right and keep learning! 

@Gino Barbaro I will be on the hunt for brokers in the area and try to find the big fish. I also have been looking at out of state deals as well, would you recommend just hunting through forums and online reputations for that areas. I am looking to partner the first multifamily deal. The reason I am going into multifamily is because they are more recession proof investments, the ability to add value by making improvements to the whole complex excites me, plus as a CPA I love the financial analysis.

@Matt Moreland excellent advice. The value I am trying to provide is leads with underwriting so that potential partners can pull the trigger and have a growing partnership. Definitely would love to connect and see if there is more I could be doing to help provide value.

Thank you all for the advice, support, and tips. Look forward to connecting and helping each one of you in anyway I can.

@Mike Taravella it’s hard to get started alone and approach a broker who is going to give you a deal. You need to partner and use their track record. The bank will also require this if going for a Fannie Freddie loan.

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