How much do I need to invest in an apartment building? To start

Question

How much do I need to start to invest in a apartment building?

Arn Cenedella · Answer

@Marx Jean

@Rick Martin asks a good question and the answer as it often is that “it depends”.

With $25,000 to $50,000; you could invest as a Limited Partner (LP) in a large scale apartment building.

If you want to go it alone, figure you will need 30% to 40% of the purchase price in cash. Probably 25% to 30% minimum down payment, another 5% for closing costs and then 10% for reserves. These numbers are just by way of example to give you an order of magnitude estimate.

Over my investing career about the only time I see investors get hurt is if they over leverage and under capitalize. Don’t go into the deal on a shoestring. Have cash sitting in the bank for when Murphy shows up as it almost always does. Let’s call your cash reserves your Sominex account so you can sleep at night knowing cash is there to help you survive any rough patches. Almost always something will come up, it’s not a question of if but rather when.

To be clear, I love real estate investing and it is a great way to achieve financial security and then freedom. One just needs to go about it in an informed realistic prudent way.

Good luck to you!

Rick Martin · Answer

What size are we talking @Marx Jean? 5 units? 200 units? Buying your own, JVing, or investing in a syndication? More info please.

Evan Polaski · Answer

@Marx Jean, as Arn mentioned, and I recommend you talk with him as he is very knowledgeable, you need to be well capitalized.  One unfortunate truth about real estate is that what seems like a lot of money to most people does not go very far.

When starting out, you will need to take some risks.  If you are familiar with construction and rehabs, flips can be a great way to start building up your cash position to move into rentals and multi-family.  But they definitely have their risks, particularly for me with unforeseen issues that are expensive to fix.  But there is also market risk with the potential that the market softens mid construction and you cannot sell the house for what you are in it.

From rental perspective, $20k in theory is 20% down on a $100k property, but as mentioned, you really only have about 5-10k to put down and the rest will go to closing costs and keeping some in reserve.  I would be patient and look at lots and lots of deals.  Tour properties to get a sense of what types of neighborhoods and properties a $40-50k property will get you.  Talk with as many investors as you can to learn what you can.  And last bit of advice, I would be working and saving to get as much cash into your bank account as possible.

Calvin Ozanick · Answer

If you want to invest in a deal of your own, you are going to want to bring 20-25% as a down payment. I would also recommend 10% as initial reserves in case something goes wrong. There is a 16 unit property for sale in my area here which we estimate around those numbers to begin investing in deals of that size.

Pat L. · Answer

I would sit down with the local building inspector & determine what is on the horizon for code compliance & fire safety for multi's/apartment buildings. It can be a big surprise & some on here have documented their experiences where it had a significant financial impact on their make it or break it NOI.

I have seen a few for sale recently with non-conforming apartments & sketchy/soon to expire  occupancy permits. Also determine if the occupancy permit transfers to the new owner with or without an in-depth inspection. I've seen new incoming building inspectors revisit multi units just sold for nothing more than an exercise in justifying their existence. One we had dug out permits going back 20 years that had been archived & were missed by the previous inspector during the due diligence before our close.

The same guy insisted on doing an in-depth inspection, found a couple of issues & wrote us up for the electrical wire stapling in a 50 yr old building. We then heard he installed old fluorescent lighting ballasts (from a garage sale) in his own basement & it caused a fire. He was 24 months of grief until he retired.

Arn Cenedella · Answer

@Jaquetta Turner

Thank you, it’s not rocket science! 😀

Richard Forbes · Answer

@Calvin Ozanick where are you located and how much do they want ? I am a investor as well and @Arn Cenedella pm please

Marx Jean · Answer

@Evan Polaski thank you so much

Marx Jean · Answer

@Arn Cenedella I just connected with you. I’m new to biggerpockets. I’m learning how to work biggerpocket

Arn Cenedella · Answer

@Marx Jean

Please connect with me and we can discuss further.

Arn

How much do I need to invest in an apartment building? To start

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