New Multi Family Investors

Multi-Family and Apartment Investing
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New Multi Family Investors

Steven Kassler
New to Real Estate 路 San Diego 路 Member since 2019 路 34 posts 路 22 votes

Hey BP Community,

My partner and I are just starting out and have a goal to purchase our first Multi-Family property in the next 90 days. We have our down payment secured and will be investing from out of state. The next step in our process is to identify which markets we'd like to explore and have narrowed it down to the following three: Austin, TX, Baltimore, MD and St. Louis, MO. We're going to use either the Buy and Hold strategy or BRRRR method. Our question to the BP community is if anyone uses similar strategies in any of these markets would recommend one over the other.

Thank you!

Steven

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Louis Jeffries
Lender 路 Chicago, IL 路 Member since 2010 路 149 posts 路 127 votes
5y

@Steven Kassler

Good Luck Steven!!! Now is a great time to invest in real estate. I am biased as I believe in the BRRRR strategy. I agree with Arn, the Austin market is very competitive and may not be the place for the best return on your investment. Many times we are drawn to the hot markets, but that does not make the best place to invest. If you are looking to grow your portfolio and you do not have unlimited funds, consider the BRRRR but make sure you are buying the property right. The purchase price plus the rehab amount should be not greater than 70% of the after rehab value. Another way to look at that is to access the after rehab value (let's say the ARV is $200,000 for a simplified example) take 70% of the ARV (70% of $200,000 is $140,000). Then determine the rehab costs making sure you have a 5% to 10% contingency built in that for surprises (let's say that is $40,000 in this example). Then subtract the rehab costs from the 70% of ARV number and you have the maximum you should spend to purchase the property ($140,000 - $40,000 = $100,000). In this scenario the maximum purchase price would be $100,000. This is a guide and by following this once you refinance you will get all or most of your investment back to be able to purchase a property. In the BRRRR method the 70% rule is the first consideration in determining the purchase price and whether this is a good investment. The second and equally important calculation you need to make is what is your NOI or how much money will you make a month.

As a lender we look at numbers a little differently, but you want to make sure that your NOI will cover a debt service ratio of 125%. This means your rental income minus your expenses will cover 125% of the mortgage payment. You must also ensure that this meets your minimum return on investment.

These 2 formulas are key to refinancing your property. From a lenders perspective we will lend (cash out) up to 75% of the property value as long as the rent minus expenses covers 125% of the mortgage payment.

In the BRRRR Strategy, you will successfully grow your portfolio if you add these key financial metrics to choosing the right property.

Finally, the numbers are important but they are not the only factors. They say the key to real estate investment is , Location, Location, Location. You choose the Location by numbers and many other factors. Numbers say no this is not a good deal but never say buy a property for the numbers alone.

Good Luck!!!

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  • Ross Gortney
    Investor 路 Atlanta, GA 路 Member since 2015 路 25 posts 路 17 votes
    5y

    @Steven Kassler

    Yes, I have rental property that I manage myself that's only a 45min drive away that I find frustrating to get good work done on time...contractors that say they'll be there and won't show, or arrive hours or days late, then no feedback about the work done, all the while I'm trying to coordinate to be there in person.  Tough to do if you have a full time job, not to mention the stress and uncertainty.  It would be so much easier if the place was in my neighborhood so I could easily stop by any time.  Especially for small things that can be fixed in 5 min that otherwise you need to pay someone $100 just to show up and investigate.  That's my frustration with a property that is already rented and operational...I can't imagine trying to do the same thing on a rehab project when the place is out of sight without a flight.  My 2 cents...

    0Reply
  • Steven Kassler
    OP
    New to Real Estate 路 San Diego 路 Member since 2019 路 34 posts 路 22 votes
    5y

    @Matt Moreland

    Great information and direction on alternative markets in TX. To be honest, I have never even hear of Lubbock so I appreciate the guidance on what you're currently seeing in market currently. Do you specialize in MF investment properties in Lubbock for your clients? Also, are you a MF investor yourself? 

    Yes, I completely agree. Due diligence around the team we ultimately put in place is something we plan to take very seriously and do our homework on. We want to ensure we are working with the best and that the situation is a win-win for everyone involved. 

    Thank you for the taking the time to respond, it's greatly appreciated. 

    1Reply
  • Mike D'ArrigoPro Member
    Turn key provider 路 San Jose, CA 路 Member since 2010 路 4k+ posts 路 3k+ votes
    5y

    @Steven Kassler BRRRR is the same as a buy and hold. I'm curious about what your criteria is. Austin is a much different market than Baltimore or St. Louis, so I'm wondering if you have clearly identified your criteria. I wouldn't normally think that Austin would be among the other two options being that it is so different. Make sure you have a clear criteria.

    1Reply
  • Matt Moreland
    Realtor 路 Lubbock, TX 路 Member since 2016 路 165 posts 路 155 votes
    5y
    Originally posted by @Steven Kassler:

    @Matt Moreland

    Great information and direction on alternative markets in TX. To be honest, I have never even hear of Lubbock so I appreciate the guidance on what you're currently seeing in market currently. Do you specialize in MF investment properties in Lubbock for your clients? Also, are you a MF investor yourself? 

    Yes, I completely agree. Due diligence around the team we ultimately put in place is something we plan to take very seriously and do our homework on. We want to ensure we are working with the best and that the situation is a win-win for everyone involved. 

    Thank you for the taking the time to respond, it's greatly appreciated. 

    Absolutely, Steven. It's a lot of the smaller markets that aren't on the radars that have some of the best deals. 

    Yes sir, I specialize in investment real estate sales with a focus on multifamily but I do all sorts of investment real estate transactions. Personally invested in the market here with 4 separate multifamily properties in Lubbock so I don't preach what I don't practice firsthand! Out of the properties across the state, our Lubbock properties have by far been our most consistent performers in terms of rentability, appreciation, and cash flow. 

    Any time, if y'all end up doing something in Texas feel free to give me a holler and I would be more than happy to introduce you to the best in the biz in whichever market you land on! 

    0Reply
  • Mason Moreland
    Specialist 路 Midland, TX 路 Member since 2018 路 198 posts 路 148 votes
    5y

    That's true. Abilene, El Paso (not really small, but often overlooked), Tyler, San Angelo, Amarillo, Kileen/Temple, Nacogdoches, Lufkin, Huntsville, Beaumont/Port Arthur, and the list goes on and on.

    0Reply
  • Lydia Bundy
    Real Estate Agent 路 Abilene, TX 路 Member since 2019 路 26 posts 路 42 votes
    5y

    I totally agree with what has been said above! One thing I would add, though, is that patience is key, although that definitely applies to most other markets, as well. Once you determine the exact numbers and strategies that work for your goals and you find a reliable team of people who can help you on the ground, it may be a bit of a waiting game before you can get the right property. Even if you do find the right property, you may not get the first few you put offers in on. I'm based in Abilene, which is a pretty small market that Mason mentioned above, but it's getting hotter by the day. One of the reasons I moved here was for the higher ROIs and great appreciation potential, but now there are a lot of people looking to expand their MF portfolio into the same markets for the same reasons. Many multifamily properties that aren't horribly overpriced -- and even many that are horribly priced -- just fly off the market within days, and sometimes hours. If you're not primed and ready to jump with your set criteria, team, and financing options, most deals will disappear from right beneath your nose. (Speaking from experience here. 馃槱) Going off of what Matt mentioned, having a good on the ground team is essential, but in my opinion, it's also essential to have them in place before trying to put in an offer.

    4Reply
  • Mason Moreland
    Specialist 路 Midland, TX 路 Member since 2018 路 198 posts 路 148 votes
    5y
    Originally posted by @Lydia Bundy:

    I totally agree with what has been said above! One thing I would add, though, is that patience is key, although that definitely applies to most other markets, as well. Once you determine the exact numbers and strategies that work for your goals and you find a reliable team of people who can help you on the ground, it may be a bit of a waiting game before you can get the right property. Even if you do find the right property, you may not get the first few you put offers in on. I'm based in Abilene, which is a pretty small market that Mason mentioned above, but it's getting hotter by the day. One of the reasons I moved here was for the higher ROIs and great appreciation potential, but now there are a lot of people looking to expand their MF portfolio into the same markets for the same reasons. Many multifamily properties that aren't horribly overpriced -- and even many that are horribly priced -- just fly off the market within days, and sometimes hours. If you're not primed and ready to jump with your set criteria, team, and financing options, most deals will disappear from right beneath your nose. (Speaking from experience here. 馃槱) Going off of what Matt mentioned, having a good on the ground team is essential, but in my opinion, it's also essential to have them in place before trying to put in an offer.

     All of this!!!

    0Reply
  • Jeffrey Donis
    Investor 路 Durham, NC 路 Member since 2020 路 1k+ posts 路 691 votes
    5y

    @Steven Kassler

    Of course! Wish you the best- looking forward to staying connected!

    0Reply
  • Todd Dexheimer
    Rental Property Investor 路 St. Paul, MN 路 Member since 2016 路 3k+ posts 路 3k+ votes
    5y

    Check out this article on picking a top performing market: https://www.biggerpockets.com/...

    Here are my top markets in 2021: https://www.biggerpockets.com/...

    2Reply
  • Wale LawalBusiness Member
    Real Estate Broker 路 Houston | Dallas | Austin, TX 路 Member since 2018 路 5k+ posts 路 2k+ votes
    5y
    Originally posted by @Todd Dexheimer:

    Check out this article on picking a top performing market: https://www.biggerpockets.com/...

    Here are my top markets in 2021: https://www.biggerpockets.com/...

     Great article. Thank you for sharing

    [email protected]832-776-9582Podcast Guest on Show #469
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  • Steven Kassler
    OP
    New to Real Estate 路 San Diego 路 Member since 2019 路 34 posts 路 22 votes
    5y

    @Ross Gortney

    I hear what you're saying and can see the frustration, lack of visibility and potential added costs that can come from out of state BRRRR'ng properties. I appreciate the candid feedback and we will definitely take this into strong consideration when and if we decide to BRRRR a property as an out of state investor.

    0Reply
  • Steven Kassler
    OP
    New to Real Estate 路 San Diego 路 Member since 2019 路 34 posts 路 22 votes
    5y

    @Mike D'Arrigo

    Hmm interesting, pardon my ignorance. I was under the impression that the buy and hold strategy was essentially finding deals that have the potential for cash flow and/or appreciation through renting the property out without doing any rehab or renovations vs. BRRRR which would involve renovations to increase the value or equity of the property. Looks like I need to do a little more homework.

    As I stated in one of my previous replies, we haven't nailed down a market yet and are leaning on the bigger pockets community for some guidance. Given that the markets I mentioned in my original post are vastly different just goes to show how green we are. Thankfully, I've received a ton of great information in this thread alone that is forcing us to re-think our markets and approach each one more strategically.

    Thanks for the advice, I think having clearer criteria is vital. I appreciate it!

    0Reply
  • Steven Kassler
    OP
    New to Real Estate 路 San Diego 路 Member since 2019 路 34 posts 路 22 votes
    5y

    @Matt Moreland

    Good to know! I think taking a look at Lubbock as a potential market is a good next step for my partner and I. If we decide to start seriously looking in the area I will absolutely reach out. 

    Thanks again! 

    1Reply
  • Steven Kassler
    OP
    New to Real Estate 路 San Diego 路 Member since 2019 路 34 posts 路 22 votes
    5y

    @Jeffrey Donis

    Likewise! Looking forward to staying connected as well.

    1Reply
  • Steven Kassler
    OP
    New to Real Estate 路 San Diego 路 Member since 2019 路 34 posts 路 22 votes
    5y

    @Todd Dexheimer

    Thank you! Great articles - exactly what we needed to help narrow down our search.

    0Reply
  • Steven Kassler
    OP
    New to Real Estate 路 San Diego 路 Member since 2019 路 34 posts 路 22 votes
    5y

    @Adam Belasco

    Thank you, yes we're very excited to get started. I just took a look and saw your write up in my inbox, i'll take a look and respond accordingly. I appreciate you sharing your information with me!

    0Reply
  • Mike D'ArrigoPro Member
    Turn key provider 路 San Jose, CA 路 Member since 2010 路 4k+ posts 路 3k+ votes
    5y
    Originally posted by @Steven Kassler:

    @Mike D'Arrigo

    Hmm interesting, pardon my ignorance. I was under the impression that the buy and hold strategy was essentially finding deals that have the potential for cash flow and/or appreciation through renting the property out without doing any rehab or renovations vs. BRRRR which would involve renovations to increase the value or equity of the property. Looks like I need to do a little more homework.

    As I stated in one of my previous replies, we haven't nailed down a market yet and are leaning on the bigger pockets community for some guidance. Given that the markets I mentioned in my original post are vastly different just goes to show how green we are. Thankfully, I've received a ton of great information in this thread alone that is forcing us to re-think our markets and approach each one more strategically.

    Thanks for the advice, I think having clearer criteria is vital. I appreciate it!

    Steven, they are both a means of acquisition, but under either scenario, you are holding the property for cash flow. As far as markets, be sure to clearly define what your objective is (i.e. cash flow vs appreciation) and quantify your objective. It's not enough to just say your objective is cash flow. Quantify how much monthly cash flow you expect and what kind of cash on cash ROI you are looking for. Once you do that, it will lead you to the markets where you can achieve those objectives. What you'll find is that the markets that it leads you to will be pretty similar.

    2Reply
  • Lee Yoder
    Rental Property Investor 路 Lebanon, OH 路 Member since 2016 路 224 posts 路 228 votes
    5y

    @Steven Kassler, my advice would be to start with forming a relationship with a couple brokers and finding a good PM company. Attempt to do this in each market you are truly interested in. Based on which market you are able to so this most successfully, that is the market I would invest in if I were you.

    0Reply
  • Bob S.
    Real Estate Consultant 路 Cleveland 路 Member since 2020 路 6k+ posts 路 3k+ votes
    5y

    @Steven Kassler  much better overall markets that provide 10 - 15% net caps 10% hands off, Its all about knowledge, Good Luck 

    0Reply
  • Steven Kassler
    OP
    New to Real Estate 路 San Diego 路 Member since 2019 路 34 posts 路 22 votes
    5y

    @Mike D'Arrigo

    Understood, thank you for the clarification. We have our goal cash flow and our target CoC return ironed out (10 - 15%) so now we just need to settle on a market. Thank you for the advice.

    0Reply
  • Steven Kassler
    OP
    New to Real Estate 路 San Diego 路 Member since 2019 路 34 posts 路 22 votes
    5y

    @Lydia Bundy

    That makes a lot of sense. It's funny when you're starting out it feels like a lot of "hurry up and wait" but patience is definitely something to keep in mind as we search for deals. Also, your recommendations are solid in terms of having a team setup and ready to go in market so when a good deal does come up we can jump on it quickly. Sorry to hear about the deals that have passed you up! I am sure that's part of the game with how competitive it is right now. Thank you for taking the time to respond!

    0Reply
  • Steven Kassler
    OP
    New to Real Estate 路 San Diego 路 Member since 2019 路 34 posts 路 22 votes
    5y

    @Lee Yoder

    Great advice! One question I would have for you though is if we start forming relationships with several brokers and PM's in different markets and we ultimately don't end up purchasing in said market, do you think we would run the risk of burning the relationship for "wasting" their time? Just curious as to how you would or have approached this in the past.

    0Reply
  • Steven Kassler
    OP
    New to Real Estate 路 San Diego 路 Member since 2019 路 34 posts 路 22 votes
    5y

    @Bob S.

    Based on everyone's responses here, I agree. I think we can set ourselves up for success in other respective markets. I appreciate the comment!

    0Reply
  • Daniel Fitzroy
    Member since 2019 路 110 posts 路 80 votes
    5y

    @Steven Kassler

    Goodluck! Hope your first deal goes well get out there and crush it! I read David鈥檚 book on long distance real estate investing and ide recommend it if you haven鈥檛 already.

    0Reply
  • Steven Kassler
    OP
    New to Real Estate 路 San Diego 路 Member since 2019 路 34 posts 路 22 votes
    5y

    @Daniel Fitzroy

    Thanks! I appreciate the kind words. Yeah, I'm actually in the process of reading the book now. It has an incredible amount of insight to learn from. 

    0Reply
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