Starting out in Apartment Investing

5 Replies

I'm currently a SFH rehabber and wholesaler. I would like to scale up into the apartment game. My ultimate goal is to have huge apartment complexes. My question is how do you determine what a good deal is ? I know monthly rents are king but I guess I'm looking for an example of a good deal and a bad deal in numbers so I can compare.

Understanding that a good (or bad) deal is not only about the the numbers and returns, for simplicity let’s look at it only from the returns point of view for now.

So here it goes, a good deal is one that hit’s the returns you are targeting. And a bad deal is the one that doesn’t.

I am seriously not trying to be a smarta$$. But I think we can all agree that what is a good deal for you might not be a good deal for me. Return targets are not the same for everyone, people have different goals and strategies, and ultimately we all might have a different reason WHY we are investing.

So the answer really boils down to IT DEPENDS. 

That being said, FOR ME a good deal starts with one where we can apply the necesary strategies to ensure the preservation of our investors capital. (Healthy cash flow from day one, qualifies for long term debt, we have enough capital to fund a healthy cap-ex and reserves account). 

Only after making sure of that, a good deal for us will have to have the ability to hit our target Cash-on-Cash returns (In today’s market minimum 7-8% year one, and 8-10% yearly avg over the holding period). 

The third component that makes a good deal FOR ME is the potential for appreciation, both forced and organic. We like to be able to go in and add real value to our deals to the extent that we can achieve an equity multiple of 1.75 to 2 for our investors.

Lots of other details that we look for before investing in a detail but generally speaking that is what a goos deal looks like for me and my company. I know 100’s of other investors that have a diferent picture of what a good deal looks like and no one is right or wrong. 

I hope this helps. Get your education game going and your own definition of a good deal will start to take shape.

Good choice @Omari Heflin -  I totally agree with everything above.  In addition to educating yourself jump in and start evaluating as many deals as possible.  It's like developing your muscles.  You have to do it over and over again and then you will start to realize what is important to you in terms of return, cash flow, appreciation, etc.  Good luck.

@Omari Heflin Great question. It really comes down to what YOU are comfortable with and what YOU think is a good deal.

Are you looking for cash flow, equity upside or a combination of both?

Are you comfortable with an 8% Preferred return and a 20% IRR? or would you be willing to take on more risk for more potential reward?

I can provide you some past examples of what my firm was able to achieve on 300+ units in the C-Class space.

Feel free to reach out anytime. I am more than happy to help.