Rental Property Investor · Fort Lauderdale, FL · Member since 2018 · 14 posts · 4 votes
Hi everyone,
I wanted to get some ideas on whether to save up and do a large multi-family complex first (24 or so) or whether to start small. I want to be cautious, but also hear that its hard to generate cash flow with a small amount of units and that the bigger investors with 24 units and up will be hard to compete with in the local area. Can I just do alot of homework and still pull it off with a 24 unit or is this a bad idea cause I don't have the experience behind me.
Thanks in advance for your input
Regards Blaine
@Blaine Watson, I think you should start smaller--a 4-plex maybe. You're going to make some mistakes and a smaller property will be easier to handle as you learn the ropes.
Additionally, you will have a very hard (read, near impossible) time getting commercial financing for a 24-unit property if you have no experience. That's the determining factor (beyond the deal fundamentals) for lenders. Why would they lend a couple of million bucks to someone with no experience?
I wouldn't let financing stop you from trying to acquire a larger multi-family property for your first deal. My first multi-family purchase was an 80 unit and prior to that, I only had three condos. I financed the property via a commercial loan from one of the larger banks. My experience wasn't questioned and I was 24 at the time. As long as you have the capital to put 20% down and the property has a solid DSCR, financing shouldn't be an issue.
@Blaine Watson, I think you should start smaller--a 4-plex maybe. You're going to make some mistakes and a smaller property will be easier to handle as you learn the ropes.
Additionally, you will have a very hard (read, near impossible) time getting commercial financing for a 24-unit property if you have no experience. That's the determining factor (beyond the deal fundamentals) for lenders. Why would they lend a couple of million bucks to someone with no experience?
Jaysen Thanks for your input, yes I see the sense in that. I also just want to make sure I don't tie up funds in something that throws of very little cash flow but, I suppose that is the price of education.
I just don't want to tie up cash and time for little return if there another option to get traction quicker.
Alina, I don't have a lot of time but would be happy to get a management company involved!
If you do not have the time start small. Starting with a 24 unit, with or without a management company will take a great deal of your time. Real estate investing is not for arm chair investors. Long hours, hard work plenty of stress.
This also applies to starting small. You had better plan to make time.
We started (and ended as we are retired and don't want to spend more time working!) with 6 units. I wish we had gone larger -- here are my reasons:
1) Common area maintenance will essentially remain the same between 6 and 24 units. especially if you can avoid a building with interior corridors. Your landscape footprint will not quadruple between 6 and 24 units.
2) You will be remodeling each unit on a one or two at a time basis anyway -- it will take longer because you have so many more units. No experience? You WILL be experienced after you complete your first unit remodel. You will get more efficient with each remodel, you will be able to correctly know what equipment and supplies will be required for each remodel. You will be able to take advantage of economies of scale and bid desk discounts.
3) Easier for you to live on site. Live in one bedroom and use the apartment living room to store supplies and equipment. You will be able to quickly evaluate which tenants you want to keep versus not renew, since most tenant issues arise after business hours.
4) Youth and energy is on your side. If you totally crash and burn, you will have many years to recover financially. Youth is the time to take risks. (not so much for us old farts!)
This IS a huge project, but the payoff is so much greater. If you are single, sacrifice your social life for a year or two for financial independence. If you are married, make sure your spouse is 100% on board with this project, since you will have many evenings of painting, laying floors and remodeling ahead of you.
I wanted to get some ideas on whether to save up and do a large multi-family complex first (24 or so) or whether to start small. I want to be cautious, but also hear that its hard to generate cash flow with a small amount of units and that the bigger investors with 24 units and up will be hard to compete with in the local area. Can I just do alot of homework and still pull it off with a 24 unit or is this a bad idea cause I don't have the experience behind me.
Thanks in advance for your input
Regards Blaine
Blaine
Think about going large, but with an experienced partner. You may find it difficult to get financing with no experience.
@Blaine Watson, I think you should start smaller--a 4-plex maybe. You're going to make some mistakes and a smaller property will be easier to handle as you learn the ropes.
Additionally, you will have a very hard (read, near impossible) time getting commercial financing for a 24-unit property if you have no experience. That's the determining factor (beyond the deal fundamentals) for lenders. Why would they lend a couple of million bucks to someone with no experience?
I wouldn't let financing stop you from trying to acquire a larger multi-family property for your first deal. My first multi-family purchase was an 80 unit and prior to that, I only had three condos. I financed the property via a commercial loan from one of the larger banks. My experience wasn't questioned and I was 24 at the time. As long as you have the capital to put 20% down and the property has a solid DSCR, financing shouldn't be an issue.
Most investors will tell you bigger is better in multifamily.
Be sure to underwrite the deal in detail, and get help from an experienced local investor or third party advisory firm to affirm your decision.
When investing in larger multifamily buildings, real estate changes from a hobby to a business. Every decision you make (or don't make) will hit the financials and impact whether or not you made a good decision. Protect your downside!
If you can get a loan/have enough for a down payment, go as big as possible. My first rental property was a 20 unit. Step 1 should be define your strategy & make a credibility book which shows what you invest in, your chosen market, strategy, and why you personally are a bankable (list your assets, income, savings etc). Then take that to banks until you get one who will give you a pre approval letter. 2nd is to take that letter & give a copy to every broker you talk to so they take you serious and know you're financially able to do the deal.
The larger the property, the easier it is to manage. That sounds counter intuitive, but the reason it's true is because with more units, you can afford to save more money in maintenance reserves, you can afford property management or a full time repairman, they are much easier to finance (I've had bankers tell me that multimillion dollar properties are easier to finance than single family homes) and so on.
Go big! Good luck!
@Kyle R.
Hi,
I have reached the limit with SFH, and starting to look for apartments. Would you please PM the bank you finance with and would you recommend them?
Thanks,
Hard to assess without more info (price, anticipated expenses, etc). Not wanting to discourage you from moving on this, but have you thought through what might happen if we are at a point where we are seeing silly MF numbers. Also, why are sellers selling- if it's a good property, why would they want to unload?
Not to bring in a perennial topic on BP, but I do think that neither MF or SFR approaches are superior to one another - they both have significant advantages and disadvantages.
can you tell me a little bit about that? the story behind it, did you partner up, value add or bought for in-place yield? what market? do you still own it?
This is a great post! @Blaine Watson I'm Central Florida and in a similar situation. My end goal is owning multiple multi-family (20+ units complexes) and having monthly cashflow. The last 2 years I have been living cheap and saving as much as possible. With our high prices and lack of inventory, I'm not sure if I should start with smaller 4-6 units, which are more attainable or continue storing money away for a large downpayment on larger size (12-20 unit) multi-family.
Just get started. Look for properties that make sense numbers wise and buy them. A duplex is much easier to manage yourself than a 24 unit, so if that's what you're looking for, then go with that. I would say as far as hiring 3rd party management, you will get the same type of service on a duplex as a 24 unit. It's not until you're at 100+ units that you see a lot of management benefits and more professional companies.
Gotta hand it to You guys starting off with apartment complexes . Knowing what I know that would be a tough cross to bear as a newbie but apparently it can be done .in the end every man must decide what he is capable of
@Blaine Watson I am pretty focused on my area in Brevard County, with talking about inventory. Our rental prices have driven prices up, so most sellers will sell for the right price, at which the numbers don't work. With that we might have 3-4 larger 16+ unit complexes available.
I love the idea of starting out with a 24 unit property. There are plenty of resources out there to learn as you go. I personally would have started with a bigger property if I had the funds at the time.
@Kyle R. Very inspiring, Kyle! At 24, I’m now looking to get into the commercial realm, just as you have. I see you’re in Charlotte as well.. I’d love to connect if you’re available!
@Blaine Watson, I think you should start smaller--a 4-plex maybe. You're going to make some mistakes and a smaller property will be easier to handle as you learn the ropes.
Additionally, you will have a very hard (read, near impossible) time getting commercial financing for a 24-unit property if you have no experience. That's the determining factor (beyond the deal fundamentals) for lenders. Why would they lend a couple of million bucks to someone with no experience?
I wouldn't let financing stop you from trying to acquire a larger multi-family property for your first deal. My first multi-family purchase was an 80 unit and prior to that, I only had three condos. I financed the property via a commercial loan from one of the larger banks. My experience wasn't questioned and I was 24 at the time. As long as you have the capital to put 20% down and the property has a solid DSCR, financing shouldn't be an issue.
Do you mind sharing the info on banks you worked with to pull this off? Thanks!
@Blaine Watson thanks for this post, this is some good information I am seeing here. I am starting out as well looking for apartments. I am here in San Diego though, so it is very competitive. I may have an uphill battle on my hands, but I am up for it.