Rental Property Investor · Bolingbrook, IL · Member since 2020 · 17 posts · 7 votes
I hear find yourself the niche that you want to be in. Well apartments are where I want to be I like the fact you have one mortgage and tax payment on multiple doors. Except I have no experience in investing.
Should I start off with a small fourplex or should I just save a little bit more and then go for a larger apartment?
If there is anyone is the suburbs of Chicago that I could just shadow behind and help greatly appreciate it.
Lender · Chicago, IL · Member since 2016 · 653 posts · 313 votes
6y
Hey Josh, I am in the south Loop. I'm a broker and also specialize in investor/commercial financing. I can tell you, if you do not have any other rentals, I would start with a triplex/fourplex. Simply because you should self manage your first couple of units. The experience and knowledge acquired during this time is of utmost value when you pivot into other assets or scale up your current portfolio.
You must know how to put into place checks and balances for the vendors you hire, otherwise there are plenty of companies that will simply take advantage of the situation. Get the landlording experience and focus on how to be a great landlord and run the property efficiently and ethically. I definitely vote for 3 - 4 unit starting out. There is more turn over on these properties , so when you go to sell, it won't be on the market forever (like office/retail/ other commercial assets effected by external economic forces). After the 3-4 unit, scaling up the multifamily route would be the way to go.
Apartment Syndicator · Charleston, SC · Member since 2017 · 519 posts · 631 votes
6y
@Joshua Vanderzanden Your best bet is to start with whichever option you feel most comfortable with. In either scenario, it's more important to start because inaction won't benefit you. Starting small doesn't mean that you have to stay small. If you feel more comfortable starting with a 4-plex, then do that and scale up from there. If you feel that you can start bigger, then do that. My first deal was a 92-unit multifamily property, but I felt very comfortable with it because I worked for a commercial investor in NYC for 14 years and was fortunate to learn a lot while working for him.
Your most important focus right now needs to be on educating yourself (the forums and articles here on BiggerPockets are a great resource to do that with) and to find people that you can work with and learn from. I see that you already posted about shadowing somebody local, so that'll greatly benefit you if you find somebody to work with.
Rental Property Investor · Bolingbrook, IL · Member since 2020 · 17 posts · 7 votes
6y
@Charles Seaman that's what I have been doing. Just educating myself right now reading and listening to a lot of podcasts. My hope is to network with others and learn from experience at the same time doing my own things. But my goals are to scale up and own apartment complexes down the road.
Investor · Denver, CO · Member since 2013 · 69 posts · 54 votes
6y
It depends both on your goals and how much time you want to put into ongoing property management. I choose to invest in larger buildings simply because I know it is economically more efficient to hire a manager for 75+ units vs a fourplex. With a building of scale, a property manager you hire can work on-site, having daily interaction with tenants and vendors. With a fourplex, any manager you hire will most surely not be on-site and will only visit the property every 2-4 weeks, if that. Also the property management firms that focus on larger buildings are much higher quality. This frees up A LOT of my time.
Lender · Chicago, IL · Member since 2016 · 653 posts · 313 votes
6y
Hey Josh, I am in the south Loop. I'm a broker and also specialize in investor/commercial financing. I can tell you, if you do not have any other rentals, I would start with a triplex/fourplex. Simply because you should self manage your first couple of units. The experience and knowledge acquired during this time is of utmost value when you pivot into other assets or scale up your current portfolio.
You must know how to put into place checks and balances for the vendors you hire, otherwise there are plenty of companies that will simply take advantage of the situation. Get the landlording experience and focus on how to be a great landlord and run the property efficiently and ethically. I definitely vote for 3 - 4 unit starting out. There is more turn over on these properties , so when you go to sell, it won't be on the market forever (like office/retail/ other commercial assets effected by external economic forces). After the 3-4 unit, scaling up the multifamily route would be the way to go.
Real Estate Consultant · Chicago, IL · Member since 2014 · 720 posts · 439 votes
6y
@Joshua Vanderzanden, I agree with @Eric Johnson, you start with 3-4 unit owner-occupied, house hacking, bought with 3.5% down to leverage your money and keep growing your savings for the commercial lender. Then you learn to manage, chose tenants, handle tenant requests and contractors through rehab, and the skills you'll build up you'll get to use all your life in commercial and residential.
What's great about you is that you are already thinking big, which means you can accumulate a great portfolio over time.
Rental Property Investor · Bolingbrook, IL · Member since 2020 · 17 posts · 7 votes
6y
@Kristina Sparrow I would be the property manager until I am able to scale. And my goal is to own buildings where there is enough to have a manager there on site like you said.
Rental Property Investor · Bolingbrook, IL · Member since 2020 · 17 posts · 7 votes
6y
@Eric JohnsonThat makes sense, since I have been reading and looking into finance for a building the banks want know that you have experience managing tenants and the property.
My goal is to keep scaling and moving up in unit size. Everyone talks about finding your niche market you want to be. Apartments is where I want to be but I have to start somewhere.
Lender · Chicago, IL · Member since 2016 · 653 posts · 313 votes
6y
Of course, a 3-4 unit is considered the intro to scaling to larger multifamily assets. Just learn the lessons and you'll get there. I see many people trying to climb the rungs of the ladder too quick and they fall back below to where they were before.
Rental Property Investor · USA · Member since 2018 · 325 posts · 222 votes
6y
@Joshua Vanderzanden im in the burbs if you want to connect. For me, the more units I can get the better to take advante of economies of scale. I can also pay the expenses of a property manager. Last thing I want to do is become bogged down by managing a property. I don't want another Job.
Real Estate Agent · Forest Park, IL · Member since 2014 · 255 posts · 141 votes
6y
@Joshua Vanderzanden - I agree with Eric and Lumi. When you get big, it will be to your advantage to understand the foundation of your business/investment to a higher degree. The savings on property management while you can handle it will juice your returns to save faster for your next deal. I have over 20 rental units in Chicagoland - feel free to reach out if you'd like to talk my experiences self-managing.
You have gotten some great advice thus far. I had very similar aspirations to you when I got started in real estate.
What I did, and what has worked for me, was by a fourplex first. I've self managed that property and actually have decided to keep it due to the cash flow. I have bounced around a long time with the idea of getting a bigger property, but I have seen that those are generally in less desirable areas.
I think my plan is slowly shifting to buying multiple small multi-family properties instead of a bigger 10 or 12 unit property. Down the line, I think I see myself getting a big 50 unit building in a B class town. By that time I should have plenty of experience in the realm of managing tenants.
I don't have any experience in Chicago, but I do run a property management company in Connecticut, so feel free to ask any tenant related questions and I will do my best to help you out!
Investor · Chicago, IL · Member since 2015 · 154 posts · 91 votes
6y
@Joshua Vanderzanden I would agree - if your living situation allows it, take down a 3-4 unit owner occupied building with little to no money down. I've been in real estate for about 11 years now and I just did it for the first time last year. Over the years I've bought and sold plenty of flips and rentals but I'm kicking myself for all those years I never pulled the trigger on utilizing the owner occupied financing. Feel free to hit me up if you have any questions about the process.
Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
6y
A 2-4 unit will be the easiest way to start. There is a decent amount of inventory and you can buy using a loan in your personal name.
As for saving to go bigger: I think unless you buy a 40+ unit Multifamily (and really 75+), you are better served buying a 1-4 family for the most part.
The issue with a small MF:
-You miss out on the efficiencies of a large MF
-Financing is personally guaranteed and terms are the worst if the loan is under $1mm (typically 20-25 year am, for 5 years at interest rates 100-200 bps above agency)
-Have the pain with dealing with a lot of tenants
-Usually less professional property management companies
I would say the biggest advantage would be that it does provide experience, which helps with obtaining loans and attracting investors. Owning some 2-4 units doesn't scream experience.
A 2-4 unit will be the easiest way to start. There is a decent amount of inventory and you can buy using a loan in your personal name.
As for saving to go bigger: I think unless you buy a 40+ unit Multifamily (and really 75+), you are better served buying a 1-4 family for the most part.
The issue with a small MF:
-You miss out on the efficiencies of a large MF
-Financing is personally guaranteed and terms are the worst if the loan is under $1mm (typically 20-25 year am, for 5 years at interest rates 100-200 bps above agency)
-Have the pain with dealing with a lot of tenants
-Usually less professional property management companies
I would say the biggest advantage would be that it does provide experience, which helps with obtaining loans and attracting investors. Owning some 2-4 units doesn't scream experience.
What experience should I be trying to get if that doesn't work owning 2-4 unit buildings? What is the right way to go with it? I know just sitting here doing nothing is not good either.
Are you saying go with the 4 unit then move up right away and stay with the smaller units?
I am new to real estate investing and the BP community. I'd love to hear about your process acquiring rental properties and flipping. Did you use a realtor to find off market deals? What do you recommend for recent college grads?
A 2-4 unit will be the easiest way to start. There is a decent amount of inventory and you can buy using a loan in your personal name.
As for saving to go bigger: I think unless you buy a 40+ unit Multifamily (and really 75+), you are better served buying a 1-4 family for the most part.
The issue with a small MF:
-You miss out on the efficiencies of a large MF
-Financing is personally guaranteed and terms are the worst if the loan is under $1mm (typically 20-25 year am, for 5 years at interest rates 100-200 bps above agency)
-Have the pain with dealing with a lot of tenants
-Usually less professional property management companies
I would say the biggest advantage would be that it does provide experience, which helps with obtaining loans and attracting investors. Owning some 2-4 units doesn't scream experience.
From a cashflow perspective are you better off purchasing 40+ unit or having 10 4 plex's?
Im very interested in the larger deals but I keep seeing people talk about midwest cities where they are cash flowing over $1,000 per four flex with less money into the deal then if they were purchasing a larger property? Am I missing something here?
Investor · Chicago, IL · Member since 2015 · 154 posts · 91 votes
6y
@Alleia James Welcome to BP and REI! I have a whole playbook for this lol but in short, I would recommend: 1.) Get a good W2 job in RE/REI (get financeable, provides stability, get paid to learn) 2.) Live well below your means & save everything else (you should be saving 50%) 3.) Buy an owner occupied 3-4 flat (live for free & learn REI/property management skills) 4.) Continue to learn & grow your network (books, BP, seminars, etc - most importantly learn from connecting and helping real people) 5.) Look for your second deal (start small, mark sure it's the right deal, find your niche [buy & hold vs flip]) 6.) Get a mentor In an effort not to hijack this thread, feel free to DM me if you want me to expand on this or provide specifics.
@Christopher Olsen That's kind of an open ended question. It depends on the deal/property itself. You can have a 1,000 unit building that doesn't cashflow VS a SFR that cashflows $500 per month. Typically as the unit count goes up, there are efficiencies that'll help bring down the expense side (therefore increasing cashflow) - but there's so much more to the equation. Most of our clients are from the East and West coast because the cap rates by you are so low. In Chicago (can't speak for the whole midwest) you can still find deals with $250/unit/month of cashflow.
A 2-4 unit will be the easiest way to start. There is a decent amount of inventory and you can buy using a loan in your personal name.
As for saving to go bigger: I think unless you buy a 40+ unit Multifamily (and really 75+), you are better served buying a 1-4 family for the most part.
The issue with a small MF:
-You miss out on the efficiencies of a large MF
-Financing is personally guaranteed and terms are the worst if the loan is under $1mm (typically 20-25 year am, for 5 years at interest rates 100-200 bps above agency)
-Have the pain with dealing with a lot of tenants
-Usually less professional property management companies
I would say the biggest advantage would be that it does provide experience, which helps with obtaining loans and attracting investors. Owning some 2-4 units doesn't scream experience.
From a cashflow perspective are you better off purchasing 40+ unit or having 10 4 plex's?
Im very interested in the larger deals but I keep seeing people talk about midwest cities where they are cash flowing over $1,000 per four flex with less money into the deal then if they were purchasing a larger property? Am I missing something here?
You likely will likely have a better ROI on the 4 plexes because of the type of financing. The biggest issue with 10 of them, is they are likely all over town
A 2-4 unit will be the easiest way to start. There is a decent amount of inventory and you can buy using a loan in your personal name.
As for saving to go bigger: I think unless you buy a 40+ unit Multifamily (and really 75+), you are better served buying a 1-4 family for the most part.
The issue with a small MF:
-You miss out on the efficiencies of a large MF
-Financing is personally guaranteed and terms are the worst if the loan is under $1mm (typically 20-25 year am, for 5 years at interest rates 100-200 bps above agency)
-Have the pain with dealing with a lot of tenants
-Usually less professional property management companies
I would say the biggest advantage would be that it does provide experience, which helps with obtaining loans and attracting investors. Owning some 2-4 units doesn't scream experience.
What experience should I be trying to get if that doesn't work owning 2-4 unit buildings? What is the right way to go with it? I know just sitting here doing nothing is not good either.
Are you saying go with the 4 unit then move up right away and stay with the smaller units?
I would be buying the 2-4 units, saving cash, building relationships, gaining experience. Then I would sell those buildings and move that money into larger apartments.
The other strategy is to find partners and go with larger assets. Most of my coaching clients go this route or a combination of smaller units at first, then moving into larger units and partnerships.