Multi-Family and Apartment Investing

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Adrian Fajardo
  • Rental Property Investor
  • Killeen, TX
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Next best move for Massive Wealth

Adrian Fajardo
  • Rental Property Investor
  • Killeen, TX
Posted Dec 6 2019, 21:56

Greetings! First off, thank you for taking the time to read my post. I don't create a discussion often so I'm excited about this.

I've researched a couple of threads here but couldn't really get a pinpoint answer. I'm wondering what's my next move after purchasing a property.

Scenario:

- purchased a 4plex with a VA loan

- I have 80k for capital

- I prefer buy and hold but willing to flip for more capital

Question:

1. Do use the capital to build more capital?

2. Partner up to get into larger multifamily?

3. Buy more 4plex and use conventional loans?

*My goal is to buy enough rentals to replace and current paycheck and finance my lifestyle in the shortest possible time. Just in case, you're wondering why I invest in the first place.

There's so much experience and wisdom in this platform and if only 1 can provide a solid advice, it would also help anyone else who is wondering, I would be grateful and I would pay it forward.

Thank you in advance and have a great day!

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John Casmon
  • Cincinnati, OH
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John Casmon
  • Cincinnati, OH
Replied Dec 7 2019, 03:00

@Adrian Fajardo

The options will come down to your preference, but if your goal is to create massive wealth, you need to find a way to scale and remove limitations. Doing a larger deal is the best way to do that to build confidence and continue on the trajectory. The easiest thing would be to rinse and repeat the 4-plex approach assuming you are comfortable executing and managing that size property.

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Replied Dec 7 2019, 08:22

@Adrian Fajardo

The problem is in the questions. If your goal financial freedom. What is the the amount of monthy cashflow that will buy your freedom. It is $2000, $5000, $10,000. Define your cash flow goal.

Next the path to get there.....

Please note capital does not create capital. Investing capital can create cash flow, and build net worth. You can leverage net worth for more capital. Capital is the least important piece of investing in real estate. Learn how to identify a good investment, a good market, create and exicute a good business plan, and you wont need capital.

How much cash flow is your 4 plex producing, what amount of equity is it building, what percentage of your cashflow goal does this property generate. How many similar properties would you have to buy to meet your goal.

Are there enough 4 places in your market you could acquire to meet your goal?

Most importantly how much of your time does it take to manage these properties. Is there enough cash flow to hire a professional property manager.

Do you know anyone in multifamily you could partner with? What would you bring to this partnership? What would they bring? Are you bringing things to the table the other partner needs. If you can form a productive partnership. Make a plan to meet your goals. How many units will you need? How much cashflow will each unit need to produce?

What market will you invest in and why?

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Michael Ealy
  • Developer
  • Cincinnati, OH
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Michael Ealy
  • Developer
  • Cincinnati, OH
Replied Dec 7 2019, 09:41
Originally posted by @Adrian Fajardo:

Greetings! First off, thank you for taking the time to read my post. I don't create a discussion often so I'm excited about this.

I've researched a couple of threads here but couldn't really get a pinpoint answer. I'm wondering what's my next move after purchasing a property.

Scenario:

- purchased a 4plex with a VA loan

- I have 80k for capital

- I prefer buy and hold but willing to flip for more capital

Question:

1. Do use the capital to build more capital?

2. Partner up to get into larger multifamily?

3. Buy more 4plex and use conventional loans?

*My goal is to buy enough rentals to replace and current paycheck and finance my lifestyle in the shortest possible time. Just in case, you're wondering why I invest in the first place.

There's so much experience and wisdom in this platform and if only 1 can provide a solid advice, it would also help anyone else who is wondering, I would be grateful and I would pay it forward.

Thank you in advance and have a great day!

 Adrian,

Knowing what I know now (and I have been investing since 1999 and have acquired over $100M worth of properties - I own 1,000 apartment units and buy hotels also) - this is what I would do:

1. Don't start at the "bottom" but instead think BIG. Most people here on BP will suggest you start at the bottom: buy a house or a 2-4 units and do it yourself by saving enough cash. Although there's nothing wrong with those things, if you have BIGGER goals, then you have to do things differently and it starts with how you think.

THINKING BIG means you set a Big Hairy Audacious Goal. $10,000 a month is not a B.H.A.G.

$1B worth of institutional grade assets and helping 100 people along the way is my B.H.A.G.

I am not saying that you have to set the same goal as I have BUT by thinking BIG, you are forced to do things differently and your mind will go on "hyperdrive". It will think of creative ways to reach your B.H.A.G. And your mind is a powerful thing: when it thinks BIG, you will attract the right people so that you will accomplish your goals.

And this thing with B.H.A.G. is not "new age" mumbo-jumbo. It works. When I set my BHAG, I attracted the following recently:

  - several private investors who can invest $12M to upwards of $20M (and more)
  - a property owner who is retiring and he is selling me 3,000 apartment units in A areas of Cincinnati
  - a professional property management company that can manage apartments nationwide: now I can confidently acquire properties all over the country

2. Network like crazy and look for strategic partners. You're a newbie? Seek out a mentor you can work for free in exchange for learning from him or her. You need capital? Seek out people who have capital and wants a safe, reasonable return on their money. You don't have the know-how? Read books, attend webinars, seminars - start with the free ones and when you have the budget, attend the paid ones.

3. Single family homes and small multi's are good but they lack scale. Instead start with a 20-unit apartment building that needs a small value-add in the right location (has to be growing - say from a "D" to a "C" or a "C" to a "B"). How do you raise the capital? See #2. 

Value-add is very critical and for your first deal, a small value-add should suffice. Don't buy a building in an "F" area that is 100% vacant. That's just dumb and too risky. Instead, buy a 20-unit building that is mismanaged with 20% vacancy and rents that are $50-$100/month below market. Maybe it needs $3,000/unit in renovation so you can increase the rents.

Here's the power of the value-add. Let's say that property is in an area that is growing ("C" that is transitioning to a "B"). You know that when it becomes a "B" area, its cap rate will likely be 7% (or even lower). With a $100/month increase in rent...you increase the value of the building by a whopping $342,857. You refi out 50% of that (to be conservative) and now you have $171,428 additional tax-free cash you can use on your next deal.

How many houses do you need to rehab to net after tax - $171,428? You can do it with just ONE multifamily deal.

And if you think multifamily is good, hotels is even better.

I know this is a long-winded answer to your question but you ask how you can get MASSIVE wealth. 

The short answer is don't do what majority of people here on BP does and listen ONLY to the ones who have done what you want to do.

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Danny Randazzo
  • Apartment Syndicator
  • Charleston, SC
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Danny Randazzo
  • Apartment Syndicator
  • Charleston, SC
Replied Dec 7 2019, 09:54

@Adrian Fajardo I would get experience and scale up to larger value add multi family properties so you can consistent monthly cash flow (to cover your paycheck) and have forced appreciation to generate more capital (this is your wealth creation)

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Adrian Fajardo
  • Rental Property Investor
  • Killeen, TX
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Adrian Fajardo
  • Rental Property Investor
  • Killeen, TX
Replied Dec 7 2019, 10:05

@John Casmon thank you so much for your ideas.

Yes, I don't mind repeating the process and I will have a PM look over the property (I should've added that early on). I'm trying to consider other options before I tie up the capital.

I feel there are better ways to make use of the money than using it for a 25% down-payment.

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Adrian Fajardo
  • Rental Property Investor
  • Killeen, TX
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Adrian Fajardo
  • Rental Property Investor
  • Killeen, TX
Replied Dec 7 2019, 12:01

@Ryan Webster wow! I appreciate your very detailed response. The question you pose does give me an idea to where I want to go.

I have most of the answers to your questions, I just didn't want to overwhelm the discussion.

I'll list down the remaining question you mentioned to give it a good thought.

To backwards plan to the end goal, I didn't want to tie up the available funds I have when I could've used it to a more profitable option. That's basically what I was contemplating about. The opportunity lost by buying another 4plex.

Again, thank you so much Ryan!

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Adrian Fajardo
  • Rental Property Investor
  • Killeen, TX
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Adrian Fajardo
  • Rental Property Investor
  • Killeen, TX
Replied Dec 7 2019, 13:43
Originally posted by @Michael Ealy:
Originally posted by @Adrian Fajardo:

Greetings! First off, thank you for taking the time to read my post. I don't create a discussion often so I'm excited about this.

I've researched a couple of threads here but couldn't really get a pinpoint answer. I'm wondering what's my next move after purchasing a property.

Scenario:

- purchased a 4plex with a VA loan

- I have 80k for capital

- I prefer buy and hold but willing to flip for more capital

Question:

1. Do use the capital to build more capital?

2. Partner up to get into larger multifamily?

3. Buy more 4plex and use conventional loans?

*My goal is to buy enough rentals to replace and current paycheck and finance my lifestyle in the shortest possible time. Just in case, you're wondering why I invest in the first place.

There's so much experience and wisdom in this platform and if only 1 can provide a solid advice, it would also help anyone else who is wondering, I would be grateful and I would pay it forward.

Thank you in advance and have a great day!

 Adrian,

Knowing what I know now (and I have been investing since 1999 and have acquired over $100M worth of properties - I own 1,000 apartment units and buy hotels also) - this is what I would do:

1. Don't start at the "bottom" but instead think BIG. Most people here on BP will suggest you start at the bottom: buy a house or a 2-4 units and do it yourself by saving enough cash. Although there's nothing wrong with those things, if you have BIGGER goals, then you have to do things differently and it starts with how you think.

THINKING BIG means you set a Big Hairy Audacious Goal. $10,000 a month is not a B.H.A.G.

$1B worth of institutional grade assets and helping 100 people along the way is my B.H.A.G.

I am not saying that you have to set the same goal as I have BUT by thinking BIG, you are forced to do things differently and your mind will go on "hyperdrive". It will think of creative ways to reach your B.H.A.G. And your mind is a powerful thing: when it thinks BIG, you will attract the right people so that you will accomplish your goals.

And this thing with B.H.A.G. is not "new age" mumbo-jumbo. It works. When I set my BHAG, I attracted the following recently:

  - several private investors who can invest $12M to upwards of $20M (and more)
  - a property owner who is retiring and he is selling me 3,000 apartment units in A areas of Cincinnati
  - a professional property management company that can manage apartments nationwide: now I can confidently acquire properties all over the country

2. Network like crazy and look for strategic partners. You're a newbie? Seek out a mentor you can work for free in exchange for learning from him or her. You need capital? Seek out people who have capital and wants a safe, reasonable return on their money. You don't have the know-how? Read books, attend webinars, seminars - start with the free ones and when you have the budget, attend the paid ones.

3. Single family homes and small multi's are good but they lack scale. Instead start with a 20-unit apartment building that needs a small value-add in the right location (has to be growing - say from a "D" to a "C" or a "C" to a "B"). How do you raise the capital? See #2. 

Value-add is very critical and for your first deal, a small value-add should suffice. Don't buy a building in an "F" area that is 100% vacant. That's just dumb and too risky. Instead, buy a 20-unit building that is mismanaged with 20% vacancy and rents that are $50-$100/month below market. Maybe it needs $3,000/unit in renovation so you can increase the rents.

Here's the power of the value-add. Let's say that property is in an area that is growing ("C" that is transitioning to a "B"). You know that when it becomes a "B" area, its cap rate will likely be 7% (or even lower). With a $100/month increase in rent...you increase the value of the building by a whopping $342,857. You refi out 50% of that (to be conservative) and now you have $171,428 additional tax-free cash you can use on your next deal.

How many houses do you need to rehab to net after tax - $171,428? You can do it with just ONE multifamily deal.

And if you think multifamily is good, hotels is even better.

I know this is a long-winded answer to your question but you ask how you can get MASSIVE wealth. 

The short answer is don't do what majority of people here on BP does and listen ONLY to the ones who have done what you want to do.

 You know, your post is probably as specific as a compass pointing me to where I need to go!. I did ask, and I got an even better answer than I hoped for. I'll keep looking back to this post because it is not only inspiring yet descriptive enough to promote action.

I only hope more people get to read this discussion and your post!

And yes, I do have a B.H.A.G. (cool term by the way. I like it better than the 10X Rule by Grant Cardone) but I was setting my own limitations by adding more stepping stones before getting to the 20-unit multis. I'll be taking your advice and surrounding myself with the right people. 

I appreciate all your help Michael! I really do.

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Adrian Fajardo
  • Rental Property Investor
  • Killeen, TX
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Adrian Fajardo
  • Rental Property Investor
  • Killeen, TX
Replied Dec 7 2019, 13:52
Originally posted by @Danny Randazzo:

@Adrian Fajardo I would get experience and scale up to larger value add multi family properties so you can consistent monthly cash flow (to cover your paycheck) and have forced appreciation to generate more capital (this is your wealth creation)

Thank you for your insight. That is exactly what I am aiming to be doing. Danny, what do you think would be the best value a person can bring to the table in a syndication?

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Danny Randazzo
  • Apartment Syndicator
  • Charleston, SC
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Danny Randazzo
  • Apartment Syndicator
  • Charleston, SC
Replied Dec 9 2019, 03:57

@Adrian Fajardo it depends what you need but overall having business experience and or historical syndication success would be important

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Adrian Fajardo
  • Rental Property Investor
  • Killeen, TX
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Adrian Fajardo
  • Rental Property Investor
  • Killeen, TX
Replied Dec 9 2019, 09:45

@Danny Randazzo understood. Thank you again for your help!

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Tj Hines
  • Specialist
  • Tampa, FL
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Tj Hines
  • Specialist
  • Tampa, FL
Replied Dec 9 2019, 13:53

@Adrian Fajardo

1. Do use the capital to build more capital? (This is a viable route to go, but may take a little longer to reach your goals)

2. Partner up to get into larger multifamily? (I feel partnering with others on larger projects with the right operators of course can help you accelerate your financial goals)

3. Buy more 4plex and use conventional loans? (This isn't a bad idea. The ultimate question here is, how quickly can you scale up)

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Adrian Fajardo
  • Rental Property Investor
  • Killeen, TX
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Adrian Fajardo
  • Rental Property Investor
  • Killeen, TX
Replied Dec 9 2019, 14:18

@Tj Hines I like how you answered in bullet form. lol. Anyway, thank you for your response. I think I'm leaning towards option 2. It's gonna be interesting but I'll update on this discussion on the decision and action I made.

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Michael Ealy
  • Developer
  • Cincinnati, OH
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Michael Ealy
  • Developer
  • Cincinnati, OH
Replied Dec 9 2019, 14:38
Originally posted by @Tj Hines:

@Adrian Fajardo

1. Do use the capital to build more capital? (This is a viable route to go, but may take a little longer to reach your goals)

2. Partner up to get into larger multifamily? (I feel partnering with others on larger projects with the right operators of course can help you accelerate your financial goals)

3. Buy more 4plex and use conventional loans? (This isn't a bad idea. The ultimate question here is, how quickly can you scale up)

 I agree with you TJ.

Among the three - #2 is the best based on experience. That's how I transitioned to hotel investing.

I love hotels.

My latest hotel acquisition - I invested $1.7M and in just 3 months, I already got $160,000 in tax-free cashflow. And I didn't do anything - totally passive income.

My investors want more hotels.

Had I not partnered up and tried to do this on my own - I would not be able to do it - or it would take TOO long. Well, I actually tried doing it on my own - but spent over $100,000 in costly mistakes that I wished I never had to make.

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Roni E.
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  • Austin, TX
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Roni E.
  • Specialist
  • Austin, TX
Replied Dec 10 2019, 16:08

I would start to digest a lot of information about syndication, multifamily assets, and commercial assets like retail or office space if that is what you like. I would also see how not only you can invest your capital, but try to put some sweat equity or some other way you can add value to get part ownership in a deal.