Multiple Family has a high bar of entrance.

49 Replies

So I’m no novice. I have been investing in Single family homes for years. As being self employed most of my life I had to get creative some times and hustle. I’m currently getting a decent income from my SF portfolio that pays the bills and feeds my family. I have looked into getting into MF, before but felt that the financing requirements far exceeded my situations. (When I say MF I’m not talking about 2-4,units. When some people talk multiple family they mean 2-4.)

Not trying to be negative, but a lot of the folks that preach MF have NOT done it themselves and nobody calls them out on it. One guy was talking big game, but he only did one duplex.

I’m trying to find a workable model to scale up, but haven’t seen the light yet. 

I’m ears for a workable model from someone that has walked the walk. Plz advise;)

Originally posted by @Joe S. :

So I’m no novice. I have been investing in Single family homes for years. As being self employed most of my life I had to get creative some times and hustle. I’m currently getting a decent income from my SF portfolio that pays the bills and feeds my family. I have looked into getting into MF, before but felt that the financing requirements far exceeded my situations. (When I say MF I’m not talking about 2-4,units. When some people talk multiple family they mean 2-4.)

Not trying to be negative, but a lot of the folks that preach MF have NOT done it themselves and nobody calls them out on it. One guy was talking big game, but he only did one duplex.

I’m trying to find a workable model to scale up, but haven’t seen the light yet. 

I’m ears for a workable model from someone that has walked the walk. Plz advise;)

 Why do you need to move into MF? The reason I ask is your profile says you have a decent number of single family homes, so you have experience and a working business model. Why not just expand on what you are already doing?

I agree with your comments on small multifamily. If you have a 2-4 door property you really don't have scale and but you still have the hassles of tenants sharing walls. Been there done that.

Originally posted by @Joe S. :

@Joe Splitrock my wife asked me the same question many times. :)

Until you can answer that question, nothing else matters. The most successful businesses find a niche and become an expert. You can scale houses. There are people who own hundreds or even thousands of houses. There are many paths to success in real estate.

That all being said, I should disclose I have been window shopping larger multifamily. Maybe I just played Monopoly too much as a kid.

I'm just getting started myself and trying to figure out if going SFR or larger MF (20-100 units) is the better option. I have one SFR rental, so I'm not deeply invested, but agree, the financing on larger properties seems a lot more complex. I suppose because there's a lot more investment money on the line is one definite reason, but I'd love to hear from someone on how they made larger MF work for them.

@Joe S.

At first blush, I'd agree with @Joe Splitrock , why mess up a good thing? You have almost 20yrs of experience in a space and want to move to another space that, at the moment, is pretty crowded. Why not color up your existing portfolio in more high class assets that are easier to  manage? 

Also, what size of MF are we talking here? 5-20 units, 20-50, 50-100, 100+? There is a big difference between 15 units and 150 units.  

If you've had your SFR portfolio for awhile, financing shouldn't be that big of a deal, since you can clearly show your income growth and stability to a banker.

This may be cliche advice, but I'd start by having a conversation with the banker you have now to see what that bank's appetite is for larger units. If they like it, great, if not find another bank; talk through some scenarios of what they like/dislike and things they don't want to see, e.g. selling more than y% of the portfolio within x months of the purchase. 

Once you know what the banks won't/will do, you should have a much better picture on if getting into MF is feasible. 

Originally posted by @Bill F. :

@Joe S.

At first blush, I'd agree with @Joe Splitrock , why mess up a good thing? You have almost 20yrs of experience in a space and want to move to another space that, at the moment, is pretty crowded. Why not color up your existing portfolio in more high class assets that are easier to  manage? 

Also, what size of MF are we talking here? 5-20 units,20-50, 50-100, 100+? There is a big difference between 15 units and 150 units.  

If you've had your SFR portfolio for awhile, financing shouldn't be that big of a deal, since you can clearly show your growth and stability to a banker.

This may be cliche advice, but I'd start by having a conversation with the banker you have now to see what that bank's appetite is for larger units. If they like it, great, if not find another bank; talk through some scenarios of what they like/dislike and things they don't want to see, e.g. selling more than y% of the portfolio within x months of the purchase. 

Once you know what the banks won't/will do, you should have a much better picture on if getting into MF is feasible. 

Awesome advice and thanks!

What Model did you use personally to scale up! ;) 

@Joe S. No worries, we are all here to help each other! 

I have had a different route and went from SFRs to MHPs since those are a better fit more my knowledge, skills, and abilities. 

The model I used isn't that creative, but rather pretty boring. 

Saved money, invested in quality assets, learned and networked in the space, slowly transitioned away from SFRs as my older assets realized their returns and I underwrote a ton of deals to find the ones that worked. 

What lead you to like the SFR space?

@Joe Splitrock like the new profile pic! Its a great blend of the classic rock one you had for all those years and your old new one!

Originally posted by @Bill F. :

@Joe S. No worries, we are all here to help each other! 

I have had a different route and went from SFRs to MHPs since those are a better fit more my knowledge, skills, and abilities. 

The model I used isn't that creative, but rather pretty boring. 

Saved money, invested in quality assets, learned and networked in the space, slowly transitioned away from SFRs as my older assets realized their returns and I underwrote a ton of deals to find the ones that worked. 

What lead you to like the SFR space?

The low entrance bar was what got me into the SF space. I basically just kept adding one house after another. You mentioned about go talk to my banker. I bought most of my houses through non traditional means. I just recently got to a place that my LLC could get its own loans, but I'm not sure if Covid 19 changed that.

I would love to talk with you off line about your investment model.

@Joe S. I have duplexes (4) and a 12 unit. My wife is the PM. In our area the duplexes are harder to cash flow if you were buying today. The 12 unit is a two story building with 8 2 bed and 4 1 bed apartments. We are doing well with them all but the 12 unit is much more efficient and more profitable than the 2's. 

I'm not looking to buy-I don't think; but if I were buying, I'd probably buy a 10-12-20 unit. They are all good as long as they make money!

Buildings with 10-20 units have been very rare in my area and I was looking. The day it was listed on the MLS I drove out and hung around the building getting a feel for tenants and so on. I spoke to a nice lady as she was closing her garage door and got favorable feed back on her experience and she was someone I would want as a tenant. I hoped they would all be like that and they pretty much were.

I did a lot more digging, my agent was able to come up with recent and accurate financials, she called to check utilities, taxes, verified there were no liens. So I decided to make an offer contingent upon inspection of the building and all financials. I wanted the seller to not even look at other offers, so I offered all cash, quick close and only dependent on the outcome of the inspections. Shortly thereafter we toured all the units and systems with an inspector, we took pics, videos and notes etc.

The seller handed me 5 years of complete financial records, leases, etc. He actually offered 30 years of financials! A few days later we met again went over some items in the inspection report. He took some that we agreed on, fixed them and we had everything re-inspected. 

We agreed on a closing date about a week out. He had all the deposits and advance rents accounted for and I got a check at closing and he got mine and we were done. It all went very smoothly, we went out and celebrated afterwards, and I can still call the seller up if I need any historical information on the building-or whatever. A genuinely good guy.

The seller actually helped build the building with his father and uncle-he was a teenager at the time.

The tenants are all on MTM leases, the building was making money at the time of purchase, but it is making a lot more today. We have turned about half the building in 2 1/2 years; we did some improvements on those units-flooring, paint and appliances-raised rents heavily on those and modestly on the remaining long term tenants. 

The building is 60 years old, very well maintained, 2 story brick construction with UG garages for 7 tenants, the rest park on the street. 

Originally posted by @Bjorn Ahlblad :

Buildings with 10-20 units have been very rare in my area and I was looking. The day it was listed on the MLS I drove out and hung around the building getting a feel for tenants and so on. I spoke to a nice lady as she was closing her garage door and got favorable feed back on her experience and she was someone I would want as a tenant. I hoped they would all be like that and they pretty much were.

I did a lot more digging, my agent was able to come up with recent and accurate financials, she called to check utilities, taxes, verified there were no liens. So I decided to make an offer contingent upon inspection of the building and all financials. I wanted the seller to not even look at other offers, so I offered all cash, quick close and only dependent on the outcome of the inspections. Shortly thereafter we toured all the units and systems with an inspector, we took pics, videos and notes etc. 

The seller handed me 5 years of complete financial records, leases, etc. He actually offered 30 years of financials! A few days later we met again went over some items in the inspection report. He took some that we agreed on, fixed them and we had everything re-inspected. 

We agreed on a closing date about a week out. He had all the deposits and advance rents accounted for and I got a check at closing and he got mine and we were done. It all went very smoothly, we went out and celebrated afterwards, and I can still call the seller up if I need any historical information on the building-or whatever. A genuinely good guy.

The seller actually helped build the building with his father and uncle-he was a teenager at the time.

The tenants are all on MTM leases, the building was making money at the time of purchase, but it is making a lot more today. We have turned about half the building in 2 1/2 years; we did some improvements on those units-flooring, paint and appliances-raised rents heavily on those and modestly on the remaining long term tenants. 

The building is 60 years old, very well maintained, 2 story brick construction with UG garages for 7 tenants, the rest park on the street. 

That’s a great story!!!! 
How did you finance the purchase? Please give details on that.

P.S   It’s alright to brag a bit when it blesses others:)

 

@Joe S.  OK I forgot the numbers. I paid 645k cash for the building; total rents at the time were 74k, or thereabouts. Today the rents are about 106k and we have spent about 25k doing some rehabs. Maintenance and vacancies have been modest and everyone is fully paid up. I had cash from the sale of properties in California.

Originally posted by @Bjorn Ahlblad :

@Joe S. OK I forgot the numbers. I paid 645k cash for the building; total rents at the time were 74k, or thereabouts. Today the rents are about 106k and we have spent about 25k doing some rehabs. Maintenance and vacancies have been modest and everyone is fully paid up. I had cash from the sale of properties in California.

Thanks for sharing.

 

@Joe S.

Seller financing if your friend in multi family acquisition. You can combine bank/seller financing to lower your barriers to entry. I set out to target tired landlords who are interested in selling but also want to keep an income stream. These people are usually retired or close to it and want to get out of managing their property’s. I look in border towns of major cities as there is less attention from other investors and prices are usually lower. I specifically target 10-30 unit properties because I find that they are usually too intimidating for smaller investors and are not as attractive to large multi family investors. It’s an interesting niche with good opportunity. The hard part is finding these deals. Again they are much more common in border towns ~50-100 miles outside of a major city. Usually these owners are well connected in their city and can be tracked down fairly easily. Ex: call on all the for rent signs, news paper ads, parcel lookup, talk to people on the street...etc. I started 2 years ago with this strategy in mind and purchased a 21 unit last year that fits my description exactly. it works. My barriers to entry were fairly low with 90% seller financing and getting a loan for the down payment from family (you could use a bridge loan for DP if need be).

Originally posted by @Logan Krutsch :

@Joe S.

Seller financing if your friend in multi family acquisition. You can combine bank/seller financing to lower your barriers to entry. I set out to target tired landlords who are interested in selling but also want to keep an income stream. These people are usually retired or close to it and want to get out of managing their property’s. I look in border towns of major cities as there is less attention from other investors and prices are usually lower. I specifically target 10-30 unit properties because I find that they are usually too intimidating for smaller investors and are not as attractive to large multi family investors. It’s an interesting niche with good opportunity. The hard part is finding these deals. Again they are much more common in border towns ~50-100 miles outside of a major city. Usually these owners are well connected in their city and can be tracked down fairly easily. Ex: call on all the for rent signs, news paper ads, parcel lookup, talk to people on the street...etc. I started 2 years ago with this strategy in mind and purchased a 21 unit last year that fits my description exactly. it works. My barriers to entry were fairly low with 90% seller financing and getting a loan for the down payment from family (you could use a bridge loan for DP if need be).

Great story and thanks for sharing!!!

Do you mind sharing more details like the price, down payment, terms, condition of the property, and your negotiations?  

@Joe S.

We started 4 years ago. My favorite thing to buy is groups of duplexes.

We have 2 side-by-side 4 units (8 doors)

A group of 6 duplexes and one SFR all together in a small neighborhood (13 doors)

A 7 unit and a 2 unit across the street from each other (9 doors)

A triplex

8 duplexes all near each other in a small neighborhood (16 doors)

We are currently n the process of closing on a 10 unit - 2 buildings one with 4- three story townhouses and one with 6 three story town houses and a shared entrance and parking area.

@Joe S. Yes, multifamily does have a high barrier to entry. Yet it still seems over-saturated with tons of competition. 

It's all about connections and who you know in the space. Nurturing relationships goes further than anything else. Good deals are acquired off-market as pocket listings from brokers. For the 10-50 units space, you can still market to "mom and pop" owners, but once you go bigger to the 100,200,300+ units, those all trade via brokers. You have a higher chance of finding a true, heavy value add with the smaller mom and pop deals.

Every market, there are about 5 brokers that control 80% of the deals. Find out who those brokers are and network with them. But don't approach them too early when you're not ready. Be sure you can raise the funds if you are syndicating and actually close. Don't expect pocket deals to start. There's a long line in front of you who have a better relationship with that broker (unless you're targeting under 50 units as not as many people target those).

For the smaller ones (10-30) you can talk to local credit unions or banks, but once you get above $1M loan amount that's not financed through banks. Those will be agency debt (Freddie or Fannie) or CMBS. Loan brokers service those loans.

Another thing I see is those coming from single family are out of touch with today's multifamily market. They come in expecting 10 CAP on a C-class property. In San Antonio and Houston, a stabilized C-class with mild-moderate value add is trading at a "as is" 6.5 CAP. Even lower in Austin and Dallas.

I think your best bet is target off-market 10-50 unit, mom and pop ones, especially now with many tenants not paying during COVID.  

I closed a 32-unit right as COVID hit and still took it from 90% occupancy to 100% occupancy in 1 month (Apr 1 - May 1).
Found it off-market direct to "mom and pop" seller. 25% down payment. Ferddie Mac SBL loan 75% LTC, 10 year term, 3.89% interest rate with 30 year amortization and 2 years interest only payments. Step down pre-pay penalty. 1% origination fee

Originally posted by @Jill F. :

@Joe S.

We started 4 years ago. My favorite thing to buy is groups of duplexes.

We have 2 side-by-side 4 units (8 doors)

A group of 6 duplexes and one SFR all together in a small neighborhood (13 doors)

A 7 unit and a 2 unit across the street from each other (9 doors)

A triplex

8 duplexes all near each other in a small neighborhood (16 doors)

We are currently n the process of closing on a 10 unit - 2 buildings one with 4- three story townhouses and one with 6 three story town houses and a shared entrance and parking area.

Great share!! If you did all that in 4 years your really moving at top speed.:)

Would you mind describing the way you are financing these purchases?


 

Originally posted by @Adriel Hsu :

@Joe S. Yes, multifamily does have a high barrier to entry. Yet it still seems over-saturated with tons of competition. 

It's all about connections and who you know in the space. Nurturing relationships goes further than anything else. Good deals are acquired off-market as pocket listings from brokers. For the 10-50 units space, you can still market to "mom and pop" owners, but once you go bigger to the 100,200,300+ units, those all trade via brokers. You have a higher chance of finding a true, heavy value add with the smaller mom and pop deals.

Every market, there are about 5 brokers that control 80% of the deals. Find out who those brokers are and network with them. But don't approach them too early when you're not ready. Be sure you can raise the funds if you are syndicating and actually close. Don't expect pocket deals to start. There's a long line in front of you who have a better relationship with that broker (unless you're targeting under 50 units as not as many people target those).

For the smaller ones (10-30) you can talk to local credit unions or banks, but once you get above $1M loan amount that's not financed through banks. Those will be agency debt (Freddie or Fannie) or CMBS. Loan brokers service those loans.

Another thing I see is those coming from single family are out of touch with today's multifamily market. They come in expecting 10 CAP on a C-class property. In San Antonio and Houston, a stabilized C-class with mild-moderate value add is trading at a "as is" 6.5 CAP. Even lower in Austin and Dallas.

I think your best bet is target off-market 10-50 unit, mom and pop ones, especially now with many tenants not paying during COVID.  

I closed a 32-unit right as COVID hit and still took it from 90% occupancy to 100% occupancy in 1 month (Apr 1 - May 1).
Found it off-market direct to "mom and pop" seller. 25% down payment. Ferddie Mac SBL loan 75% LTC, 10 year term, 3.89% interest rate with 30 year amortization and 2 years interest only payments. Step down pre-pay penalty. 1% origination fee

Great read!! Thanks for sharing!!

How are you finding your deals? 

Originally posted by @Joe S. :

So I’m no novice. I have been investing in Single family homes for years. As being self employed most of my life I had to get creative some times and hustle. I’m currently getting a decent income from my SF portfolio that pays the bills and feeds my family. I have looked into getting into MF, before but felt that the financing requirements far exceeded my situations. (When I say MF I’m not talking about 2-4,units. When some people talk multiple family they mean 2-4.)

Not trying to be negative, but a lot of the folks that preach MF have NOT done it themselves and nobody calls them out on it. One guy was talking big game, but he only did one duplex.

I’m trying to find a workable model to scale up, but haven’t seen the light yet. 

I’m ears for a workable model from someone that has walked the walk. Plz advise;)


I just completed the 1031 exchange from a 4 unit property I owned into an 8 unit property. Next year my intention is to do another 1031 exchange of another 4 unit property I own and use the proceeds to buy another 8+ unit property. Down the line I want to 1031 exchange the 8 unit property into an even larger property. This is part of the strategy I am using right now. The other part involves using cash out refinances and a HELOC to purchase additional rental properties.

I personally don't do syndication or partnerships but I still wanted to expand into multi-family.

@Joe S. I love that you’ve found success through SFHs. That in and of itself is a huge achievement and shouldn’t be discounted just because there are so many out there touting the benefits of multifamily and economies of scale.

I started out with house hacking duplexes, then moved on to investing in small out-of-state multifamily 4-8 units.

Then, because my friends and family wanted to invest alongside me, I started to explore syndications and have been able to co-sponsor dozens of large-scale multifamily deals across the country.

I think scaling up to multifamily comes back to your goals and what you’re trying to achieve. It seems that you’re seeing quite a bit of success with SFHs. Is there a certain pain point that you’re looking to solve through investing in multifamily?

Originally posted by @Anthony Gayden :
Originally posted by @Joe S.:

So I’m no novice. I have been investing in Single family homes for years. As being self employed most of my life I had to get creative some times and hustle. I’m currently getting a decent income from my SF portfolio that pays the bills and feeds my family. I have looked into getting into MF, before but felt that the financing requirements far exceeded my situations. (When I say MF I’m not talking about 2-4,units. When some people talk multiple family they mean 2-4.)

Not trying to be negative, but a lot of the folks that preach MF have NOT done it themselves and nobody calls them out on it. One guy was talking big game, but he only did one duplex.

I’m trying to find a workable model to scale up, but haven’t seen the light yet. 

I’m ears for a workable model from someone that has walked the walk. Plz advise;)

I just completed the 1031 exchange from a 4 unit property I owned into an 8 unit property. Next year my intention is to do another 1031 exchange of another 4 unit property I own and use the proceeds to buy another 8+ unit property. Down the line I want to 1031 exchange the 8 unit property into an even larger property. This is part of the strategy I am using right now. The other part involves using cash out refinances and a HELOC to purchase additional rental properties.

I personally don't do syndication or partnerships but I still wanted to expand into multi-family.

Great investment model!

Thanks for sharing!

Originally posted by @Annie Dickerson :

@Joe S. I love that you’ve found success through SFHs. That in and of itself is a huge achievement and shouldn’t be discounted just because there are so many out there touting the benefits of multifamily and economies of scale.

I started out with house hacking duplexes, then moved on to investing in small out-of-state multifamily 4-8 units.

Then, because my friends and family wanted to invest alongside me, I started to explore syndications and have been able to co-sponsor dozens of large-scale multifamily deals across the country.

I think scaling up to multifamily comes back to your goals and what you’re trying to achieve. It seems that you’re seeing quite a bit of success with SFHs. Is there a certain pain point that you’re looking to solve through investing in multifamily?

 Thanks for the input:)

The pain point could be I want a portfolio big enough  that I could hire someone else to manage it or maybe it is I keep reading about those preaching Multi Family.

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