I’ve loved learning about real estate for the last couple of years, and I am blessed enough to be able to put a large sum of money into my first “real deal”. So far, my strategy is to target multifamily properties (cash flowing) with 25+ units. I want to stay within the 6-8% cap rates, and target value-add properties (Chicagoland area). I'm thinking that properties be at a discount in a couple months once the market catches up to everything that has been happening. What would you do if you were in my position?
On another note, I'm in the preliminary stages of reaching out to brokers/lenders to build relationships etc. I'm getting sent deals through the pipeline, and find myself struggling to properly analyzing the deals. Part of me is looking into a deal analyzer, but I want a firm grasp on what's happening behind the scenes before I blindly input numbers. I guess my question would be how do I estimate current metrics? For example, how can I estimate rehab costs, CapEx costs, closing costs, etc? I'm looking for any resources that actually walk through the entire analysis - not just a quick video looking at NOI and Cash-flow but how they obtained certain numbers/metrics.
Again, I'm very blessed to be in this position and would love everyone's input!
Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
6y
Don’t announce having $750k cash on a public forum and ignore all of the colleague requests and messages you get with “deals and opportunities” as these will be from people looking to spend your money on what benefits them rather than invest it in what benefits you. Put your money somewhere safe for now (I.E. high yield savings account) while you learn and get comfortable analyzing deals.
Rental Property Investor · New York City, NY · Member since 2017 · 93 posts · 101 votes
6y
For educational purposes, check out Joe Fairless book on Syndication and Brian Burke book "Hands off Investor" - talks about metrics. Fee free to reach out with questions. What I would do now? Wait, watch and build relationships with the brokers/lenders. Cheers,
Start small. You are right, you need to understand the numbers not just plug things into a program and go with what it says. Bigger Pockets has some videos that explain how to calculate numbers and you can also read through some posts where people ask others to check their analyses.
Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
6y
Don’t announce having $750k cash on a public forum and ignore all of the colleague requests and messages you get with “deals and opportunities” as these will be from people looking to spend your money on what benefits them rather than invest it in what benefits you. Put your money somewhere safe for now (I.E. high yield savings account) while you learn and get comfortable analyzing deals.
I’ve loved learning about real estate for the last couple of years, and I am blessed enough to be able to put a large sum of money into my first “real deal”. So far, my strategy is to target multifamily properties (cash flowing) with 25+ units. I want to stay within the 6-8% cap rates, and target value-add properties (Chicagoland area). I'm thinking that properties be at a discount in a couple months once the market catches up to everything that has been happening. What would you do if you were in my position?
On another note, I'm in the preliminary stages of reaching out to brokers/lenders to build relationships etc. I'm getting sent deals through the pipeline, and find myself struggling to properly analyzing the deals. Part of me is looking into a deal analyzer, but I want a firm grasp on what's happening behind the scenes before I blindly input numbers. I guess my question would be how do I estimate current metrics? For example, how can I estimate rehab costs, CapEx costs, closing costs, etc? I'm looking for any resources that actually walk through the entire analysis - not just a quick video looking at NOI and Cash-flow but how they obtained certain numbers/metrics.
Again, I'm very blessed to be in this position and would love everyone's input!
Best,
Adam
There is a lot to learn about the business and the market before you jump in. CAP rates really so not mean much when looking for a value add or distressed opportunity. That's a more useful metric for stabilized core / core+ product.
The multifamily makes is still pretty robust and is likely to remain so for some time. We will probably not see much change or distress for some time if at all. It will be case by case and dependent on operators looking to refinance.
Specialist · Earth 2.0 · Member since 2019 · 598 posts · 271 votes
6y
I would listen to what others have said. I would also check out Michael Blanc's SDA course. I would also look at maybe in the meantime putting your money into a safe dividend yield stock where you could possibly earn 2% for a little bit higher and then jump in only after you really have done your homework and learn in depth about investing.
If you currently dont have real estate in your name, look into NACA (Neighboorhood Assistance Corporation of America). They are a nonprofit and are not for investors. But, if you are willing to live in the property for the life of the loan, it is worth your time to look into it. Imagine getting a $200,000 fourplex for $4000 closing costs, no PMI, no down payment required. I would, though, take advantage of their interest rate buydown. Their buydown is better than what you can get anywhere else. For every 1% of the purchase price you can reduce the 30 year rate by .25 and reduce the 15 year rate by .50. So for the 200K fourplex, $8500 will get your interest rate down to .0625% (minimum allowed and yes decimal is in right spot) or $14,000 will turn your 30 year rate to 1.375%. And these buydown rates would be for the life of the loan, not just for the first few years. Then take your remaining funds and buy additional multi-unit properties. NACA did have 450K purchase limit a few years ago for single family homes and much higher for up to 4 unit. Dont know about these limits now, but worth the look. Although their mission is to help low to moderate income, they are not income based. I am not low to moderate income and I was still able to purchase my SF through them.
Real Estate Agent · Boca Raton, FL · Member since 2015 · 74 posts · 57 votes
6y
@Graciela Garcia I haven't had any personal (or client) experience with NACA, but it was my understanding it is a great program for lower income individuals that may not be able to otherwise qualify for a home purchase. It's interesting that they don't have an asset or income test for applicants.
I would also caution that paying points at the outset of a loan to buy down the rate sounds good, but most people - particularly those on this site - do not hold a 30 year loan (or even a 20 year loan) for the whole term. If you front 14k in points on a 200k loan to get a 1.375 rate and then decide to pay it off after 10 years (because you want to cash out some equity with a new loan or sell to buy a larger property, etc.) the effective rate would be 14.56%. Rates are still very low without buying them down and nobody knows what the future holds, so I usually don't recommend it. That said, if you are confident in your own strategy going forward and do the math with scenario planning it might be a good option.
- spend some time educating yourself on the MFH investing,
- attend events (virtual for now),
- network with other like-minded investors,
- don't mention how much you have. In fact, I'd take down this post as BP IS social media!
- don't put all eggs in one basket. In other words, don't invest all you have at once.
- if you were able to generate a large sum doing something else, consider continuing on that path and potentially investing your funds in real estate passively via syndication or private loans.
Real Estate Appraiser · Mount Pleasant, SC · Member since 2017 · 56 posts · 51 votes
6y
@Adam Tahir
I would do what others have said.
Don’t tell how much you have. Everyone will want a piece.
Start small and scale up. Every time you go through the process you will learn. From the Agents, Bankers, Appraisers, and just seeing the numbers. Ask questions and keep your eyes and ears open.
This will also expose you to potential partners and resources, that can mentor and train you.
Find people you trust. Lots of people with the knowledge you want would love to partner with you because they can leverage your money into more. Many will just be out for themselves, but many will also be glad to teach you what they know, so you also get an education along with a cash return on your investment.
Be wise on choosing those partnerships and you will be blessed with good investments and good knowledge, choose poorly and you will just get an education.....
When it comes to deciding what to invest in, I would say you should start by looking at your life and your skillset. Real estate is a large industry with an endless number of subindustries. If you just want to be a passive investor, you could park your money in syndication deals. If you want to be an active investor, you'll have to look at what you are good at and find a strategy that fits your skillset. I don't really know what that is for you but that's where I would start. The amount of money you can invest in your chosen field is ultimately a secondary question.
In terms of analyzing deals, I would say it's a combination of knowledge and experience. There is certainly value to reading or watching educational materials on things like estimating costs for rehab, capex, closing, etc. But there is also a limit to how much theoretical knowledge can take you. Until you do it over and over again, there's a limit to what you know.
One way to solve the problem is by focusing on a single market and really understanding it. While there is value to understanding the big picture items, a lot of your value as an investor comes from having a deep knowledge about a particular market. Renovation costs, for example, may vary drastically depending on your market. Likewise, the finish level on your renovations will also depend on the market. What's appropriate for a Class B apartment in Chicago may look drastically different compared to what a Class B apartment in a smaller market.
Another solution to the problem of lacking practical experience is to surround yourself with a good team. If there is one argument for "going big" on your deals, I would say that it's easier to find team members that are really good at their jobs. For many reasons, the "best" team members want to work with folks who can give them consistent work at a fair price. That's often hard to do if you only tackle smaller projects.
But again, I think the first question you need to answer is what kind of investor you want to be. I would just note that it's important to be realistic about how much time you can commit as an active investor. Investors are sometimes a bit too optimistic about how much time they can commit to a particular project. I'm certainly guilty of this. I would just make sure that your life as a real estate investor synergizes with your day-to-day duties.
Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.
I’ve loved learning about real estate for the last couple of years, and I am blessed enough to be able to put a large sum of money into my first “real deal”. So far, my strategy is to target multifamily properties (cash flowing) with 25+ units. I want to stay within the 6-8% cap rates, and target value-add properties (Chicagoland area). I'm thinking that properties be at a discount in a couple months once the market catches up to everything that has been happening. What would you do if you were in my position?
On another note, I'm in the preliminary stages of reaching out to brokers/lenders to build relationships etc. I'm getting sent deals through the pipeline, and find myself struggling to properly analyzing the deals. Part of me is looking into a deal analyzer, but I want a firm grasp on what's happening behind the scenes before I blindly input numbers. I guess my question would be how do I estimate current metrics? For example, how can I estimate rehab costs, CapEx costs, closing costs, etc? I'm looking for any resources that actually walk through the entire analysis - not just a quick video looking at NOI and Cash-flow but how they obtained certain numbers/metrics.
Drop us a PM and we'll reply with some tools we utilize to help estimate rehab/CapEx costs before getting contractors involved & can also be utilized through the entire analysis. Regardng closing costs- We utilize With respect to rehab costs much depends on the type of finishes you intend to put in your rentals. Regarding closing costs we use First American Closing Cost Calculator. We don't necessarily use First American for closings but we use their calculator.
Multifamily investor · Boston, MA · Member since 2017 · 281 posts · 521 votes
6y
@Adam Tahir - I'd suggest reaching out to a good property mgmt company that knows the area well. They'll be able to share info on capEx costs and rehab costs. As for closing costs, it's usually 1.5% of purchase price for large properties (100+ units), so I'm not sure what would be a rule of thumb for a smaller deal. Being part of a mentoring program will help guiding you through all your questions.
Syndication Expert and Investor · Indianapolis, IN · Member since 2016 · 591 posts · 808 votes
6y
If I were you I would find 2-3 operators/sponsors/syndicators to partner with. I would invest $75k in 10 deals or $150k in 5 deals. Pick best in class sponsors/operators and a strategy that aligns with your goals. I would spend as much time if not more underwriting potential operators than the deals themselves.
Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
6y
As Brian said I'd remove this post and NOT say what you have. 750K is a lot to burn. Put it into savings, learn for awhile, and slowly invest when you have the knowledge. Don't get too anxious being 24 you have a lot of time to learn and find the perfect niche for you. You can even start of house hacking a 2-4 unit for a year or two to learn the basics.
Investor · San Antonio, TX · Member since 2019 · 576 posts · 307 votes
6y
You are in a very fortunate position and the world truly is your oyster. Get laser focused and figure out what you want to do. In real estate it's best to be the master of one trade and not the jack of all.
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
6y
All the syndicators and agents are drooling over your $750K... Stating your age and amount of money to invest had nothing to do with your question. It comes off as bragging and it is only going to hurt you. It will attract people trying to take advantage of someone with considerable money who is young and inexperienced.
Real Estate Agent · Los Angeles, CA · Member since 2015 · 149 posts · 75 votes
6y
@Adam Tahir definitely build relationships with brokers and agents in your target market. Consider paying for data platforms like CoStar or Property Radar if you would like to keep tabs on who the most active buyers are... you could reach out to those companies to become an investor.
@Hunter Vigneault. Although NACA is a nonprofit whose mission is to help low to moderate income, they still help anyone. As far as assets, you can own land when you apply for their assistance, but not residential property. That's why it would be perfect for newbies. You can buy tons of real estate after. You are right that normally paying for points for rental property would not make sense, but by getting a rate almost at zero % for 15 year or less than 1.5% for 30 year, the buydown would pay for itself in about 3 years (by the renters). Since NACA does not require a down payment, taking the money that would have been used for the down payment and using it for the rate buydown instead, it makes it easier for newbies to buy a larger/better 4 plex. Sister has 0.0625% and paid less that $100 in interest for 2019 on the 195K SF she purchased in 2013 (I think). By saving $600 per month not paying high interest makes NACA unique. For someone just getting started with their first purchase they intend to live in, it cant be beat.
Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
6y
You need to build relationships with brokers, property managers, lenders, attorneys, CPA's, etc. If you feel ready to buy now, then you need to do that right away. This process takes a long time to build real solid relationships, but make sure you're educated, as you only get 1 chance at a 1st impression. If you're trying to be taken serious by a broker and don't know exactly what you're looking for and how to talk the talk, you will get the left overs only.
Get educated, if you're not already. I would highly suggest finding or hiring a mentor or finding an experienced partner.
Think about your long term goals. $750 sounds like a lot of money, but that doesn't go very far in MF. You need a 25-30% down payment, then 3% or so in due diligence and closing cost, then 12-18 month of monthly principal and interest payments to go into a reserve account. You also mentioned a value add, so likely more money for a rehab budget. If your plan is to expend and grow this to a business, then you may want to consider bringing in passive investors and only using a small amount of your $750k on each deal. This allows you to stay nimble and be in a better position for financing.