How to buy small multi-family properties?

Question

Hey guys! I am having a hard time finding small multi-family deals and was looking for some suggestions.

Arn Cenedella · Answer

@Lance Neighbors

The market for multifamily properties is competitive across the board -  all sizes and price ranges. Every investor struggles to find good deals. No easy answer. It’s hard work, just keep beating the bushes, networking, reach out to local broker and investor community, let everyone know you are looking for multifamily.

I’ve been looking for a year and finally have my first one under contract.

Arn Cenedella · Answer

@Joe S.

@Kevin Manz

Sometimes the best deals one can make are the ones they walk away from.

This was structured as an assumption deal on 30 units in Upstate South Carolina. There was a large defeasance penalty on existing loan which prevented obtaining new debt on the asset. Hence, the assumption structure.

After completing due diligence, it was apparent the expenses were very high and tenant payment history was less than ideal. The financial data initially presented did not accurately reflect actual expenses. Property taxes would double upon sale. The assumption structure required a large down payment which really hurt cash on cash returns.

The property fundamentally is a solid asset and if new debt could have been placed on the property lowering cash requirements and annual debt service, the property was a solid Go.

It was difficult to walk away but I believe it was the right decision given the issues listed above as well as ongoing issues with Covid and general uncertainty in the economy.

I have three other LOIs out at the present moment - so right back at it.

While highly motivated to do my first larger multifamily deal, it is more important to do it right. If one makes a bad purchase, one could spend years digging out of the hole to get back to break even or a small return. Just not worth it.

Kevin Manz · Answer

@Arn Cenedella

Congratulations on securing your 1st multi.  Im still looking, and looking hard, like u said its not easy. Let's see the numbers, if you dont mind. Thx

Joe S. · Answer

Congratulations! Did the deal finalize? How many units was it?

Quinn Konitshek · Answer

@Lance Neighbors

In addition to what everyone said above, I would add two things:

1) Get creative: Everyone looks at Loopnet and Zillow, while at the same time everyone is not a millionaire real estate investor. Creativity, problem solving, and ingenuity will lead to great wealth and success in real estate.

2) Relationships: Real Estate is still a very old-fashioned industry in some way. A lot of great deals are never seen on the MLS/Loopnet, etc. and are driven by the relationships with brokers. You need to build these relationships, and I would include other real estate professionals such as lenders, accountants, lawyers, etc., who could potentially share with you an opportunity they know of. Make a note to grab lunch with a broker frequently and I'm sure your inbox will start to fill up.

Dallon Schultz · Answer

@Lance Neighbors like you said just keep grinding. I've heard this before, I don't always agree with it, but I've also personally experienced it. "When the timing is right everything falls into place." The deals that have worked out for us seemed to almost fall into our laps BUT we were doing everything we could to find the right deal. I truly believe in timing but YOU also need to be doing your part to prepare for the opportunities as they present themselves

Lance Neighbors · Answer

@Arn Cenedella congratulations! As Robert Kiyosaki says “ Your network is your net worth!” Thanks for your help.

Lance Neighbors · Answer

@Mack Benson Thanks! I just have to keep grinding at it.

Mack Benson · Answer

It depends on how small you are looking for. In my market the smaller multies, 5-12 units, are usually listed on the MLS, you can have a local agent set you up with a search to send you listings as they come up much like the SFR world. Most listings over 10 units are typically marketed by a single brokerage who may or may not advertise it on their website. They will usually send the OM to their preferred buyers or even those who have signed up on their website for updates. You could also check out loopnet and reach out to brokers in your market who are actively listing deals.

How to buy small multi-family properties?

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