I don’t understand how they do it
Lakewood, OH · Member since 2017 · 23 posts · 3 votes
I don’t understand how they do it
Most Popular Reply
John CasmonPro Member
Cincinnati, OH · Member since 2013 · 1k+ posts · 1k+ votesAs @David Thompson mentioned, it is likely that the investor did a syndication or at least a partnership to qualify for that first building. In it's most simplest terms, it's a group of people pooling their resources to buy a building.
I recall a few years back I was perplexed after meeting someone younger than me who bought a large apartment complex and I knew they didn't have a lot of money. If you're interested in learning more, there are some great resources including the podcasts from @Todd Dexheimer and David's articles. I've written an article on our first large deal to dispel some of the mystery. Also @Joe Fairless just released a book on apartment syndication which is worth a read.
With all of that said, the best advice I could give you is to reach out to that investor, buy them coffee and ask them exactly what they did.
20 Replies
- Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes8y
Many investors add value to the property, refinance at the higher property value, and roll the additional proceeds into the next deal. Or, he raised capital.
- Lakewood, OH · Member since 2017 · 23 posts · 3 votes8y@Mike Dymski can you get more then one loan? If you still owe on another?
- Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes8y
Yes, commercial investors can have numerous loans...totaling in the hundreds of millions. Some general guidelines:
- No foreclosures
- No bankruptcies
- Net worth > loan amount
- Liquidity > 9-12 months of P&I
- DSC > 1.25 (debt service coverage)
- Experience in the asset class
These vary by lender, borrower, and property.
- Lakewood, OH · Member since 2017 · 23 posts · 3 votes8y@Mike Dymski appreciate all the info. What do banks usually require as a down payment? 20% or less? And somebody told me that your net worth has to be able to cover the loan is that true ?
- Real Estate Agent · Oakland, CA · Member since 2016 · 37 posts · 33 votes8y
Down payment varies. Depends on the cash flow of the property. Generally you will not be able to put down any less than 20%. Generally your net worth has to be greater to or equal to the loan amount. Very common for people to group together to meet all the requirements.
If you PM me I can send you a list of resources (books, podcasts, white papers ect) that have been useful to me in learning about the apartment business.
Cheers
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Mike Dymski:
Yes, commercial investors can have numerous loans...totaling in the hundreds of millions. Some general guidelines:
- No foreclosures
- No bankruptcies
- Net worth > loan amount
- Liquidity > 9-12 months of P&I
- DSC > 1.25 (debt service coverage)
- Experience in the asset class
These vary by lender, borrower, and property.
Number 3 I could see being a tough one for those starting their journey.. I know I get shut down a lot on BP for being equity heavy and debt light.. but its that net worth in my business that allows me to play in the new construction game.. without it.. would not get very far.
- Lakewood, OH · Member since 2017 · 23 posts · 3 votes8y@Jay Hinrichs I’m 25 work in the steel mill near me make pretty good money and have been saving a couple years I just feel like I’ll be old by the time I could actually afford a big building. I don’t know where to go to find someone trustworthy to go in on it with me
- Lakewood, OH · Member since 2017 · 23 posts · 3 votes8y@Jay Hinrichs I just really dont want to spend my whole life working in a factory
- Contractor · Lexington, SC · Member since 2015 · 62 posts · 50 votes8y
Originally posted by @Jason Barnes:
@Jay Hinrichs I’m 25 work in the steel mill near me make pretty good money and have been saving a couple years I just feel like I’ll be old by the time I could actually afford a big building. I don’t know where to go to find someone trustworthy to go in on it with meHey Jason, wanted to reach out and touch on this since I found myself in a similar situation. I work in a tire manufacturer plant and was saving up, working tons of overtime, all to invest.
But after projecting forward it was going to take a very long time for me to get enough money saved up to invest in anything outside of lower end stuff (I don't want lower end properties and headaches that comes with it)
So I changed my thinking into how can I make more faster. I make decent money at my job, a little above household average, but I needed to make more. So I chose to get my real estate license and focus on becoming a top producer. Our teacher for the real estate exam class claims that veteran agents usually make around 3 times the amount I'm currently making per hour.
I'm not a veteran agent obviously but the point is, if I continue down that path then I will end up in a place where my time is worth 3 times as much as it stands now. Which allows me to save up a lot faster.
So my advice for you is to think of a way to make more money for your time. Maybe you can move up and get a promotion where you currently work?
Or maybe there is a similar job close to where you live that pays more?
Hope this helps and good luck.
- Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes8y
Originally posted by @Jay Hinrichs:
Originally posted by @Mike Dymski:
Yes, commercial investors can have numerous loans...totaling in the hundreds of millions. Some general guidelines:
- No foreclosures
- No bankruptcies
- Net worth > loan amount
- Liquidity > 9-12 months of P&I
- DSC > 1.25 (debt service coverage)
- Experience in the asset class
These vary by lender, borrower, and property.
Number 3 I could see being a tough one for those starting their journey.. I know I get shut down a lot on BP for being equity heavy and debt light.. but its that net worth in my business that allows me to play in the new construction game.. without it.. would not get very far.
Agreed. Many commercial investors partner and combine their net worth to qualify for commercial loans. This is common inside of investment clubs and commercial mentorship programs...and outside of them as well. These mentorship programs are as much about access to resources (capital, loan qualification, vendors) as they are about education. There are also 'loan guarantors' (or 'key principals' KPs) who get compensated for signing on the (non-recourse) loan and bringing their net worth to qualify for the financing (i.e. they get a share of the general partnership). I have been one of the intended loan guarantors for a number of sponsors but those deals have not closed. It takes the right kind of relationship and sponsor for this to make sense.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Mike Dymski:
Originally posted by @Jay Hinrichs:
Originally posted by @Mike Dymski:
Yes, commercial investors can have numerous loans...totaling in the hundreds of millions. Some general guidelines:
- No foreclosures
- No bankruptcies
- Net worth > loan amount
- Liquidity > 9-12 months of P&I
- DSC > 1.25 (debt service coverage)
- Experience in the asset class
These vary by lender, borrower, and property.
Number 3 I could see being a tough one for those starting their journey.. I know I get shut down a lot on BP for being equity heavy and debt light.. but its that net worth in my business that allows me to play in the new construction game.. without it.. would not get very far.
Agreed. Many commercial investors partner and combine their net worth to qualify for commercial loans. This is common inside of investment clubs and commercial mentorship programs...and outside of them as well. These mentorship programs are as much about access to resources (capital, loan qualification, vendors) as they are about education. There are also 'loan guarantors' (or 'key principals' KPs) who get compensated for signing on the (non-recourse) loan and bringing their net worth to qualify for the financing (i.e. they get a share of the general partnership). I have been one of the intended loan guarantors for a number of sponsors but those deals have not closed. It takes the right kind of relationship and sponsor for this to make sense.
As you can might imagine in my line of work non recourse is not available at least at the level I am at.. So if I put a group together they are just members and they don't PG anything its up to me to have the financials to carry the project. Although in our line of work we are very equity heavy compared to income properties which can be leveraged 75% these days ??? ours is more in the 50 to 60%.. some builders can get 70 to 80 but that's one smaller balance deals were they just do 2 to 4 houses a year so the bank is not taking a huge leap.
Originally posted by @Jason Barnes:
@Jay Hinrichs I’m 25 work in the steel mill near me make pretty good money and have been saving a couple years I just feel like I’ll be old by the time I could actually afford a big building. I don’t know where to go to find someone trustworthy to go in on it with meI don't believe in Dave Ramsey from a long term perspective, but when saving up for your first deal I would point to his ideologies. Cut out anything non essential, and start hustling. Work a side job or two if you have to. Do whatever you can to save up for that first deal.
- Real Estate Investor · Washington, DC · Member since 2014 · 236 posts · 328 votes8y
Originally posted by @Jason Barnes:
@Jay Hinrichs I’m 25 work in the steel mill near me make pretty good money and have been saving a couple years I just feel like I’ll be old by the time I could actually afford a big building. I don’t know where to go to find someone trustworthy to go in on it with meYou don't have to reinvent the wheel. A lot of people started by flipping houses or the BRRR strategy. Then they get into buy and hold for single families, and then small multifamily and finally large multifamily.
The longer your track record, the more confident that lenders will be to lend you money. Making money in real estate isn't as easy as people tell you, so they feel more confident lending to someone if they've seen them pull off the magic trick before.
- Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes8y
@Jason Barnes I was a teacher when I was 25 and now am a full time investor. Check out Bigger Pockets podcast episode 248 to hear my story. The point is that you can start with very little money. Leverage other people's money, your time, your drive, partnerships, etc. Figure out what you want and what you are good at. Then fill in the weaknesses with other peoples strengths (which could be money or skills).
- 8yAnthony GaydenPro MemberRental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes
Originally posted by @Jay Hinrichs:
Originally posted by @Mike Dymski:
Yes, commercial investors can have numerous loans...totaling in the hundreds of millions. Some general guidelines:
- No foreclosures
- No bankruptcies
- Net worth > loan amount
- Liquidity > 9-12 months of P&I
- DSC > 1.25 (debt service coverage)
- Experience in the asset class
These vary by lender, borrower, and property.
Number 3 I could see being a tough one for those starting their journey.. I know I get shut down a lot on BP for being equity heavy and debt light.. but its that net worth in my business that allows me to play in the new construction game.. without it.. would not get very far.
This is yet another reason why I still invest in 1-4 unit properties. I am slowly building up my net worth though I have been approved for a commercial loan of $500,000 based on my net worth, but that won't get you much in the multi-family world.
- Vandalia, MI · Member since 2018 · 569 posts · 264 votes8y
Just for giggles, maybe he started by wholesaling and made enough to buy his first place that way.
So he wholesaled maybe 10 properties netted himself maybe 50 K, used that 50 to buy his first multiple , then he added some value held it for a year , then sold it for a gain on his money of lets say 85 K, and during this time wholesaled 10 more properties giving himself 135 k. Then he bought something larger and added some value during one year sold it for a profit of 200 K, plus he wholesaled again and made 50 K. now he invest the 250 k and bought a million dollar property adds value, plus wholesaling deals for 50 k in this year and then he decides to sell again. He makes 325 on sale and adds his 50 k now he can go into a 2 million dollar property. This might be what happened in 5 years and now they have a 2 million dollar property. If they do this correctly they can do it with multiple properties and keep increasing their wealth.
- Investor · Austin, TX · Member since 2013 · 933 posts · 1k+ votes8y
Hi Jason,
Syndication (pooling investor money) and partnering with folks that have the balance sheet (rent their portfolio) to give them a piece of the sponsorship / general partnership is a way he may have gone. You can find great operators, property managers, essentially build the team. As you get more experience and your equity in the properties rise if they are doing value add deals then eventually and surprisingly quickly they could be leveraging into other deals, bankers gain more confidence in them, etc.
Syndication is the fastest way to do it if you are not wealthy to start and leveraging folks that have capital to be on your side w/the banker and give them a piece of the action is something we see often w/new syndicates.
Couple blogs that may help. Essential tips on raising capital and 25 FAQs on syndication.
- 8yJohn CasmonPro MemberCincinnati, OH · Member since 2013 · 1k+ posts · 1k+ votes
As @David Thompson mentioned, it is likely that the investor did a syndication or at least a partnership to qualify for that first building. In it's most simplest terms, it's a group of people pooling their resources to buy a building.
I recall a few years back I was perplexed after meeting someone younger than me who bought a large apartment complex and I knew they didn't have a lot of money. If you're interested in learning more, there are some great resources including the podcasts from @Todd Dexheimer and David's articles. I've written an article on our first large deal to dispel some of the mystery. Also @Joe Fairless just released a book on apartment syndication which is worth a read.With all of that said, the best advice I could give you is to reach out to that investor, buy them coffee and ask them exactly what they did.
- Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes8y
@Jason Barnes A lot of great points here. @Mike Dymski summed it up for you really well. I think you're struggling because you haven't set up your goals yet. Think of what you want your final destination to be?! And then work backwards. Say for instance, you want to buy 100 doors apartment complex in X years. Start with a duplex today and plan for baby steps in between. Want to accelerate the process, partner up with someone to buy a large property. Better yet, hire a coach or find someone experienced to offer value back to and work for them (maybe for free!) to learn from them!
Need more points or steps to clarify, feel free to PM.
- Investor · Charlotte, NC · Member since 2017 · 791 posts · 479 votes8y
@Jason Barnes my initial guess would he either raised capital for each of the deals OR refinanced the first one and rolled it into the next asset! Good news is your able to do the same thing and create your own success! lots of luck
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