New to Apartments... Where to Start?

8 Replies

So I'm looking to sell one of my investment properties that has about $200k in equity in it and roll that into an apartment building. I've never invested in apartments (I've been doing SFH and duplexes for years) so I don't know where to begin. Here are a few questions I'd love some input on.

1. Should I look at partnering with someone first or go ahead and buy my first apartment?

2. I typically like to buy/hold to maximize cashflow over time, while at the same time adding value/equity to the property so i increase overall value. Is it possible to hold an apartment complex like a SFH for 20+ years for cashflow?

3. Are there any good syndicators I could partner with to gain experience?

4. How would I go about financing the purchase? Is it similar in the sense that I put up 25% and get a loan for the remaining 75%. I've heard about 5/1 ARM and other types of loans, would these be the best loans for a long-term buy/hold strategy.

5. Is a buy/hold long-term strategy the best for apartment buildings?

Thanks for y'alls help.

Joel

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@Joel C. I would not shy away from an apartment building of 10-20 units. 

Unless you like partnering and have them now it is a lot simpler on your own. 

There is no reason to not buy and hold for however long it works out and meets your goals. 

Syndication is very different from LL'ing and buying small apartment buildings to rent. 

There are lots of money brokers here on BP why not talk to a couple.

LL'ing a duplex is very much the same as a 10-20 unit in my experience. The main difference is the economies of scale are so much more in your favor, and you should carry greater reserves.

All the best!

@Joel C. Here are my opinions:

1) Absolutely 
2) It's possible, but you'll want to look into Internal Rate of Return to maximize your equity. It's likely that as you add value, your return on equity can diminish the longer you hold it. It's a personal preference, but it's absolutely possible to hold 20+ years. 

3) Yes. Plenty of reputable folks on here (myself included).

4) Depends on the size of the building. The bigger you go, the better debt you can get (in general). My partners and I are closing a deal on Friday with 12 year debt, 30 year am, 4 years I/O, right around 4%.

5) Again, depends on your goals and those of whom you partner with. 

Feel free to reach out to set up a call or if I can answer more questions. 

@Joel C.

I think you should decide what your long term RE goals and how to best achieve them. In terms of your questions,

1) Prior to partnering, decide on the property size and see if you can take it on yourself

2) It is possible, but uncommon to do so via syndications. Mostly done individually or via JVs

3) To partner with a syndicator, you'd need to bring something of value to them to the table. Think about what you have and whether they need it. To reiterate my point from #2 above - their strategies may not align with yours, so weigh on that first!

4) Terms vary, so reach out to commercial lenders to get a better terms sense.

5) Absolutely. 

Keep in mind, education is really the key here. Start by reading David Lindahl and Steve Berges books on multifamily. 

1. Depends on your skillset. You'll need to know how to find deals, analyze deals, and asset manage deals. If you're comfortable doing all of that yourself, no need to a partner. If you aren't, then you'll want to find a partner with complementary skillsets

2. Yes. You can add value, refinance after stabilization, and hold for as long as you want!

3. Depends on what you mean by "partner"? If you want to partner as an LP, then there are plenty of syndicators to chose from. If you want to partner as a GP, it will be a little harder. Most likely, you'll need to find an aspiring syndicator to partner up with, unless you have a ton of value you can add to an existing syndicator

4. Most commercial loans are a few years to 12 years in length, so you'll have to refinance at some point

5. Depends on what you mean by "best"? If you are looking to expand quickly, you'll want to raising money, buy, add value, and sell so that you can return investor capital. If you are just looking for cash flow then buy, add value, and refinance is likely better, but you'll have trouble raising capital using this strategy.