What Is Your ONE Question About Apartment Investing?

Thanks for your help Michael! I'm interested in #9. I know I need mentors to be a successful investor and was wondering where the best place would be to start looking for this kind of relationship.

Thanks again,

Duane

Joseph Walsh

Brookfield, WI · Member since 2016 · 191 posts · 108 votes

Hi, and thanks for sharing your time and knowledge. I didn't see this one in there, so here goes:

For those used to residential investing, how does apartment investing differ from the financing side? How are loans structured/qualified for, etc. (what documentation do you need, etc.), what if you have partners, insurance/liability, etc, how does seller financing differ, or is is just a bigger version of a land contract, etc.

have my eye on a 3 building complex that I want to build toward over the next few years (I think it'll be ripe to approach the owner about selling), so trying to get a head start on what it is I am potentially getting in to. I know it's a loaded question, but I am betting you can boil it down for us.

Thanks,

Jay

Joel Florian

Member since 2019 · 111 posts · 130 votes

@Michael Ealy

#2

And part of #7

Specifically I'm wondering if it is worth buying apartments on Oahu where the cap rates seem ridiculously low.

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

Originally posted by @Joseph Walsh:

Hi, and thanks for sharing your time and knowledge. I didn't see this one in there, so here goes:

For those used to residential investing, how does apartment investing differ from the financing side? How are loans structured/qualified for, etc. (what documentation do you need, etc.), what if you have partners, insurance/liability, etc, how does seller financing differ, or is is just a bigger version of a land contract, etc.

have my eye on a 3 building complex that I want to build toward over the next few years (I think it'll be ripe to approach the owner about selling), so trying to get a head start on what it is I am potentially getting in to. I know it's a loaded question, but I am betting you can boil it down for us.

Thanks,

Jay

Jay,

That's a good question. I've been doing this a while I didn't even think financing with MF is different than for SF...but it is different. I will probably interview a MF lender when I produce the video as he can answer it better than I can.

Michael Lewis Lee

Wholesaler · Dallas, TX · Member since 2017 · 306 posts · 133 votes

Hello Michael! The only request I have is what’s the easiest way to raise money? Best wishes!

Brett B.

Rental Property Investor · n/a · Member since 2019 · 143 posts · 117 votes

@Michael Ealy , my question would be:

How many units would you look for on your first apartment deal? Is a 10 unit easier than a 30+?

Aaron Kovac

Investor · Austin TX (austin, tx) · Member since 2019 · 34 posts · 14 votes

@Michael Ealy

#1 without the bad credit!

I just bought my first home. Primary, single family home in a suburb of Austin.

My knowledge is basic on multi family investing, but I am a mortgage loan originator with 2 years experience now. I’m not worried about the underwriting involved, but my main concern is funds due to my recent purchase.

I’ve heard and read of various ways people can be creative with financing or partnering up, but I think it’s just information overload and my brain being stuck on Fannie/Freddie deals I normally do at work.

I would like to see #1 answered, but with AND without bad credit!

Where can I find your videos when you post them?

John Billingsly

Member since 2019 · 1 post · 0 votes

@Michael Ealy I own land that needs to be developed and I want to build a multi family apartment. What steps should I take?

Dylan H.

Rental Property Investor · Savannah, GA · Member since 2018 · 174 posts · 129 votes

@Michael Ealy

I unfortunately don’t think there is a recession coming anytime soon that will drastically affect real estate costs or rents. Especially no where near what we experienced in 2007-9. It would be great (obviously a very selfish outlook) if it did since I’m young and could take advantage of it, but I think people are missing key economic factors that show that our market has adapted significantly since the last crash. Times have changed and people learn, but I hope I’m wrong.

Duc Ong

Real Estate Agent · Honolulu, HI · Member since 2015 · 450 posts · 196 votes

@Joel Florian I think it depends on your ability to increase NOI. NOI divided by a smaller cap rate leads to a bigger value. However, you would need to weigh this against the opportunity cost of investing in a higher cap rate market. I think the bigger players in this space are looking for capital preservation over growth, and can afford the lower cap rates in exchange for safety.

Tom O.

Chicago · Member since 2018 · 216 posts · 165 votes

I know how to analyze deals but what should I expect for cap X and maintenance? I'm losing money each year on my multi-unit buildings which are new to me. The cashflow is there to be profitable as soon as the unexpected repairs are over: tuckpointing, roof, water heaters, ****** kitchens. I can't complain, however, as the appreciation is off the chart right now.

Joel Heck

Rental Property Investor · Denver, CO · Member since 2016 · 13 posts · 6 votes

A: Question #5

B: As a few other people have mentioned, how did you build up your team to acquire and then manage your properties?

I'm looking forward to the videos and the book! Thanks

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

Originally posted by @Mike Rutallie:

@Michael Ealy

First off, Thank you Michael for sharing your wisdom.

Here are my top questions.

3. The recession is coming. Should I buy now or wait?

I'm very curious of what other plays worked out well during the last 2008 recession. So what were the things in 2007 that did and didn't work to get people through the recession? Also, obviously every recession manifests itself in a little different way, but what are general things that we can expect if things go south?

9. Should I get a mentor? (or What can you say about apartment investing program of [guru]?)

Which programs have the best success rate, and how long do these programs typically take? What should one realistically expect out of a mentorship? Will they typically be more of a partnership on a deal, or just connecting the student to the mentors network? Is $25K-$50K reasonable (obviously depends on the mentor)?

10. Wife does not like me to invest in real estate. What do I do?

This is highly subjective to each relationship, but are there specific ways that people have sold the idea to their spouse who is in doubt? My wife's biggest worry is the time it will inevitably take away from our family. I tell her that the goal is to get MORE time with the family, but from her perspective, I can see her concern. There will definitely be a time where I will have to "pay the price".

Another question I have is:

In general, how much time should one expect (both per week as well as the overall length of time) to get into their first deal?

I'm trying to determine how much time until I can bring in enough to quit my full-time job so that I can focus solely on apartment investing.

Hi Mike,

Nice name ;)

3) On what strategies worked during the last recession: I can speak for myself - I was buying apartment buildings all through the peak and even during the recession. And during the recession, I actually bought even more buildings and houses and notes and actually made MORE money not less.

The bottomline is I bought my buildings right - during the peak - and I have apartments in the lower income (C/D) and that was not really affected by the recession - at least in my market.

But, I will answer and provide more details soon!

9) Should I get a mentor - the quick answer is: it depends on you. I don't recommend it for everyone though. The gurus would like you to believe that everyone should get a mentor and pay $25K or more. I will elaborate more and explain WHO a mentoring program is ideal for and HOW to choose the right mentor.

and

10) About the wife's concern: time away from the family. The honest answer is: YES, this will take TIME. There's no such thing as something for nothing. You have to devote 10-15 hours a week minimum to be successful in this.

The only other way is to save as much money that you can and then be a passive investor in an apartment syndication. By doing so, the only time you spend is doing the due diligence upfront but on an on-going basis, there's no time committment at all.

Good questions and thanks for chiming in!

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

Originally posted by @Michael Lewis Lee:

Hello Michael! The only request I have is what’s the easiest way to raise money? Best wishes!

Michael,

Nice name ;)

The short answer to your question is: raising capital takes time and it's not easy - at first. My suggestion is you use your OWN money to do deals before you risk other people's money. Why? So that, because you're new, you will likely make mistakes and worst case scenario: you might lose money. It's better to lose YOUR money and learn ON YOUR DIME not one someone else's. Then once you figure it out and you're making money, raising money is actually EASY because investors are attracted to track record.

I will discuss some specific principles in a blog and video post about how to raise capital.

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

Originally posted by @Duane J Green:

Thanks for your help Michael! I'm interested in #9. I know I need mentors to be a successful investor and was wondering where the best place would be to start looking for this kind of relationship.

Thanks again,

Duane

Duane,

The first step is to assess whether you really need a mentor.

Not everyone needs it.

Also, not everyone can afford one.

A successful apartment investor will ask for more than $10K to become your mentor. I've been asked by people here on BP and elsewhere for mentoring and even offered money but I turned them down because it's just NOT worth my time.

Having said that, WHERE can you find mentors? One quick answer is by networking at your local REIA (real estate investors association). Look for ACTIVE and experienced real estate investors whom you get to like and trust and offer to work for free to get mentoring from them.

Having said that, I will answer this in more details in an upcoming blog and video posts.

Thanks for chiming in!

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

Originally posted by @Joel Florian:

@Michael Ealy

#2

And part of #7

Specifically I'm wondering if it is worth buying apartments on Oahu where the cap rates seem ridiculously low.

Joel,

Great question on Oahu - or basically buying properties in areas with low cap rates. The short answer to your question is: YES, you can make money with apartment buildings in areas or locations with low cap rates. But, there's always a "but" - you got to acquire properties that you can add tremendous value to by figuring out it's highest and best use.

For example, I bought a 91-unit apartment complex in one of the nicest places in Cincinnati (A++ location). For the first time I paid a very low cap rate for it. However, if I do a condo conversion and develop the extra land that comes with the property, I can easily DOUBLE the money of my investors. For the mean time, we benefit from the cashflow as it cashflows on day 1.

Dan GormanPro Member

Investor · San Clemente, CA · Member since 2019 · 11 posts · 5 votes

@Michael Ealy

#2 and #8 apply to me. I have a goal of acquiring 100+ units in the next 2 years.

Great post. Thanks for teeing up great questions.

I look forward to reading your thoughts.

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

Originally posted by @Brett B.:

@Michael Ealy , my question would be:

How many units would you look for on your first apartment deal? Is a 10 unit easier than a 30+?

Brett,

It depends on you and the deal and your ability to attract and manage a good team.

I started with a duplex and worked my way up. I've seen a guy start with 36 units and then jump to 100+. He told me that his 100+ unit apartment complex is actually easier to manage than the smaller one. Why? Because the 100+ unit apartment complex can afford a full time, on site PM and a full time maintenance personnel. So he does not do anything other than manage those 2 people. A 10 unit building - depends on how well you bought it (and the tenant base it attracts), you might not be able to afford a PM and you might need to self manage it and therefore it will take up a lot of your time.

There is no one right answer. The answer is "It DEPENDS".

Mary M.

Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes

My one question is : how much do folks make on these big deals? Are you earning enough cash flow to live off the cash flow? (Ok that is two!)

I am scaling up, but even by more than doubling my holdings (and having about 57% LTV) I wont bring in more income for several years. Soooooo how do you do it?

Heshel Mangel

Member since 2018 · 208 posts · 90 votes

My 2 questions to you @Michael Ealy would be:

How did you build a team of trusted contractors and developers to be able to get to the point where you are vertically integrated?

Why is most of the education and content related to apartment investing. Would you suggest other commercial asset classes?

Looking forward to Wednesday!

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

Originally posted by @Tom O.:

I know how to analyze deals but what should I expect for cap X and maintenance? I'm losing money each year on my multi-unit buildings which are new to me. The cashflow is there to be profitable as soon as the unexpected repairs are over: tuckpointing, roof, water heaters, ****** kitchens. I can't complain, however, as the appreciation is off the chart right now.

Tom,

I hear you and I understand where you're coming from. Capex and maintenance costs are the biggest unknowns in an apartment deal and it's easy to underestimate them as you've experienced. There is always something that breaks or need to be replaced.

Having said that, you can do a better job forecasting what the capex costs will be based on the Property Inspection report. It outlines the age of the different parts/mechanicals/ etc of the building and when they will likely need to be replaced. Based on that, you can reserve an amount as your capex. For example, if the roof is 10 years old, it likely will have another 10 years of life. If it costs $10,000 to replace a roof, then you need to allocate $1,000/year in your capex budget.

Next, what about maintenance? Well first, there are aspects of maintenance that you have more control of. For instance, if in your market you can get away with laminate flooring instead of carpet, then go with laminate flooring. Carpet needs to be replaced every so often when the tenant leaves. Also, if you renovate the property right, you tend to attract good tenants who will not damage your property and they tend to stay longer - hence, lowering your turnover and maintenance costs.

Lastly, don't buy older buildings. Or if you do buy older buildings, renovate them extensively to ensure they will last longer and give you less on-going maintenance.

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

Originally posted by @Dan Gorman:

@Michael Ealy

#2 and #8 apply to me. I have a goal of acquiring 100+ units in the next 2 years.

Great post. Thanks for teeing up great questions.

I look forward to reading your thoughts.

Dan, 100 units in 2 years is doable. How many units do you own now?

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

Originally posted by @Mary M.:

My one question is : how much do folks make on these big deals? Are you earning enough cash flow to live off the cash flow? (Ok that is two!)

I am scaling up, but even by more than doubling my holdings (and having about 57% LTV) I wont bring in more income for several years. Soooooo how do you do it?

Hi Mary,

I like your questions. It shows me you have a curious mind and an analytical bent. I graduated electrical engineering and I am the same with curiousity and analysis.

To answer your first 2 questions: how much money do I make in these big deals, and do I live off on the cashflow?

Answers:

1. Depends on the deal but on our website, we show just 3 case studies where we made $1 MILLION and up. We did not include the bigger deals we're working on right now like some of our hotel deals where we will make several MILLIONS of dollars (working to close one right now where the profit is 7 figures).

2. Depends on the deal. There is one deal that I have currently that does not cashflow at all. It's a development deal and it should cashflow 1st quarter or at the latest 2nd quarter of next year. As far as the other deals I am working currently, yes they all cashflow. How much? Let's just say their cashflow for me and my partner is SIX figures a MONTH so yes, we live a comfortable life on these big deals.

2 Reply

Austin Mudd

Real Estate Agent · Los Angeles, CA · Member since 2015 · 149 posts · 75 votes

As a CA based person who wants to be prepared to take down small multi/commercial deals and syndicate the equity, should I create a single member LLC now (i.e. is Delaware the most advantageous) now and then deal with creating the necessary legal structure after the deal has been tied up? Also, I don't meet the loan covenants for the deal sizes I'm looking at, but In my network I can bring in someone to meet the guarantees... but I would like to have a deal first tied up before I run through the weeds on that.

I guess my question is about the chicken and egg question. Do you get the deal first and then figure the structure out, or do you find the partner(s), figure the structure out, and then find the deal?

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

Originally posted by @Heshel Mangel:

My 2 questions to you @Michael Ealy would be:

How did you build a team of trusted contractors and developers to be able to get to the point where you are vertically integrated?

Why is most of the education and content related to apartment investing. Would you suggest other commercial asset classes?

Looking forward to Wednesday!

Heshel,

It took time and lot of work and trial and error to find our contractors and employees of our construction company. But once you find them, compensate them well and treat them right and they will be loyal to you. One of my guys Jeff sometimes stay 9-10 PM at night just to finish one of our projects. He makes a good income - better than what some college graduates make :)

I also give them 401k with company match.

And as far as why apartment investing gets too much attention in terms of education...I wonder that myself. There are other asset classes definitely but people tend to believe in something they understand. It's easy to understand renting an apartment. But it's not easy to understand retail, office or warehouse space. People think those are also riskier but not necessarily, specially in this market.

I love hotels. I make so much more money with a lot less work than apartment buildings. No wonder there are more hotel billionaires than apartment billionaires. But that's a topic for another conversation.

See you Wednesday next week for the seminar. Looking forward to partnering with you!