Michael I went through the same situation last year and came across a quality 12 unit new on the market. For me, it is ideal, all the tenants under on roof, it is a great building-8 2 beds and 4 1 beds. My wife and I had SFR âs and duplexes, and this was our first multi. We self manage and as long as you do basic maintenance and screen tenants well it is not a big deal. Buy the best you can and focus on a building that will attract the class of tenant you want to deal with. All the best and keep us posted!
@Michael Breedlove you sound like you have done your research and have made wise decisions on what you currently have. Jumping up in size is the next logical step in your growth pattern. The more units, the better protection you have on break even occupancy. However, while I am not familiar with that market in particular, I would imagine that competition on the larger properties would be just as stiff as in the duplex and quad market. I will be excited to here about your next project. Keep on taking massive action.
@Michael Breedlove most markets are competitive right now. you need to be more proactive and try and get some off market deals.
Did you try driving for dollars, knocking on doors or direct mail marketing?
If you want to learn, and its sounds like it would be a good idea, consider reading some books like Jake and Gino's Wheelbarrow Profit and Crushing it by Brian Murray.
These would give you some head start understanding more about the different between residential and Commercial mfr.
Growing from 2-4units to larger building is natural progress, i don't thing is "
biting off more than I can chew?" unless you cant afford it. even if you cant qualify for a loan yourself, there are possibilities like partnering etc
@Brandon Abbott thanks for the encouragement!
@Hadar Orkibi thanks for your recommendation! I will definitely check out those books. Getting more creative with finding deals is probably going to be a next step in the future for sure. Appreciate the input!
Good work already @Michael Breedlove and its only natural to start thinking about scaling. I would start the search for the 5-10 units you are looking for but also keep looking for 4-plex units. If you are going to jump up into commercial multi have a standard of what you are willing to do if that deal comes across from your old criteria.
So for instance you are looking for 5-10 and you used to look at all duplex, tri's, and quads... make quads the only thing you look at and what the right quad deal would have to look like for you to go in. If you happen to find a 5-10 before that then great.
I always like to set a standard for the level I'm leaving while jumping up a level. Hope this was helpful and God bless!
@John Fortes great advice! I’m certainly not closed off to finding the right deal...period. But the concept of setting a standard of what your willing to do is a GREAT piece of wisdom. Thanks for your input!
@Caleb Heimsoth thanks for the information man. Definitely sounds familiar from some podcast episodes. I’ll definitely be looking more into all of that. Appreciate you taking the time to comment.
@Michael Breedlove you’re definitely not too ambitious! My advice from listening to the podcast and reading and analyzing like you is that you can do that all day, but the money is what will make it happen. Go talk to a commercial lender and start forming that rapport and build a relationship. They will most likely be able to help you find the money you need on what you already have or present all the options to you.
@Adam Widder great advice too man. Sometimes I know we can hold ourselves back by simply not making decisions and moving forward. Meeting with a commercial lender is a great place to start to just find out what the options are. Thanks for the input.
Hey @Michael Breedlove . I am both an investor and a realtor here in the New Orleans area. Congrats on the fourplex!
You are right about the competition in our area... it is fierce! This is true for all properties whether they are single family or multifamily, and even the larger multifamily properties and apartment buildings have extreme competition. For example, there was a 10 or 12 unit property that came on the market not long ago, and before my business partner and I even had a chance to go view it the thing went under contract within hours of it hitting the MLS.
In order to find the good deals these days you really have to look off the MLS. Once they hit the MLS the price is too high and there is far too much competition.
One other thing to consider about multifamily properties that have 5 or more units is the financing. These units fall into commercial territory when it comes to lending and will typically require a commercial loan with 30% down.
Good luck with your endeavors! If I can be of help, feel free to reach out!!
@Michael Breedlove great advice here already. I'd second the 'meet with a commercial lender' and 'driving for dollars, knocking on doors and direct marketing comments'.
A couple additional thoughts.
First, even though I appreciate the ambition , there is also nothing wrong with going slow. The market has been growing for quite awhile now and there's nothing wrong with biding your time, learning your market awhile until the next downturn happens. That's the time to get aggressive and grow quickly.
Also, keep in mind that your very best financing will occur on your first 10 1-4 unit properties because the interest rate and terms will be most favorable. Commercial financing has higher interest rates and shorter terms with balloons.
If I were to start over today, the first 10 properties I would buy would be 10 4-plexes with conventional loans.
You asked about owner financing. It is really not as common as it is sometimes portrayed. But, it is a great way to grow and is actually a win-win for certain sellers. You can find, target and market to those individuals by identifying a group using listsource.com or something similar.
You're looking for high equity sellers that have owned the property a long time and preferably live out of state.
@Jeff Kehl Solid advice. In your experience, how different are the terms between conventional financing for 4-plexes vs. commercial financing for larger buildings? Huge difference in interest rates? Any examples you've come across recently would be really helpful.
It's all about educating yourself, investing in yourself and surrounding yourself with a great team. Real estate is a team sport, and there is no way any investor can do it all on their own, unless they want to burn out.
Don't consider moving up, you are already at that point. The advice for commercial investing is that it is one of the best and most lucrative spaces if done correctly. The reason cap rates are compressed is due to the huge flows of money to the space and the amazing tax benefits.
If you are willing to live in another multi, then your strategy is ideal
Best of luck
@Britt Mauriss commercial financing is usually 100-200 basis points higher. So if you can get a 4.5% conventional mortgage it will be 5.5-6.0% as a commercial loan. But the larger issue is amortization period. Conventional residential loans are 30 years whereas most commercial loans will be 20 or even 15 years.
Play with the PMT function and other formulas in excel for awhile and you will see why this makes such a difference. As an extreme example to prove my point, lets say you borrow $1 million on a property producing $10,000 in monthly gross rent with the following terms:
conventional residential- 4.5% for 30 years: monthly payment = $5067
commercial 6.5% for 15 years: monthly payment = $8,711
Keep in mind, this property, even in a modestly expensive state has taxes of 10% and insurance at 5%. So your minimum expenses, even with no repairs, capex or vacancy is $1500/month.
So best case you are -$211/month cash flow if you don't experience any maintenance, capex or vacancy expenses with the commercial loan.
To be fair, you are building WAY more equity with the shorter commercial loan. But that makes no difference if you lose the property because you can't make the payments in the short-term.
This is an extreme example just to prove the point. These days there are other options such as 30-year amortizing portfolio loans.
My overall point is just you need to hunt for the best financing rate and terms possible and take full advantage of it.
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