Trying to move up to apartment complexes

[Toben B.]

Hello,

I now own 9 units via 3 duplexes and 3 houses, and I would like to make the jump to a 40+ unit apartment complex. I want something big enough to pay a property management company as I already have a full time job.

I seem to have 2 major problems:
A. I can scrape up enough to buy a small house with cash, but this does not appear to be big enough for a down payment on a midsized apartment complex.

B. Although I understand CAP rates, I can't seem to find any apartments priced well unless they have huge vacancies or are all 1 bedroom units and I know those are hard to keep rented in my market.

1. How do I move up with only $50-75K in cash

2. How do i find the good deals? I know how to do so with duplexes/houses, but I am missing something with apartments. I am targeting south or east Tulsa metro.

3. Has anyone else made the jump easily from single family and duplexes to midsized apartments?

[Joel Owens]

Hi Toben,

By your own admission you have a full time job and need a property management company.

I could be wrong but what I think you are saying is you do not have time to handle problem properties. If this is the case then you will need more of a turn key solution to a property that has been well kept and has a seasoned long term tenant base in place for years an sometimes decades.

You will not find properties (apartment buildings) like that at extreme discounts. Those sellers for years have maintained and put a lot of money into the properties and have worked to create a loyal tenant base and cash flow. They want to be compensated for it. If you want something at a low price there is usually some issues with a property and you have to decide what you want to take on.

50k to 75k just isn't going to be enough. Closing costs and due diligence alone on a property that size is in the tens of thousands of dollars. Factor in some required lender reserves and you do not even have enough for a down payment.

The 3 duplexes and 3 houses when did you buy those?? Has the market gone up and is hot for those type of properties you own?? If so why not liquidate some or all and 1031 the equity proceeds together with your cash to a larger property??

Less properties to keep up with and you create economies of scale. 40 units is minimal of full time manager and then a maintenance person. 50 units would be better or higher. It depends on the rents for the area as well.

For instance if the rent per unit is low 300 but paying a maintenance person labor is very high for that area then you might need more units to compensate above the normal average of 50 units or higher etc. It's better to have a full time maintenance person on staff then sporadically call someone when a problem occurs. generally for the small job you are at the bottom of their list and your small problem can then turn into thousands of dollars in damage waiting on them to fix. Repair guy full time on site will learn all the mechanicals models, how the units are laid out, plumbing and electrical type brands used etc., etc. Certain jobs you will need a licensed professional and permits but for basic stuff many owners have a full time guy working for them. The repair person is also able to turn the units much faster as it's down to a science.

Another option is to place your money with an experienced multifamily operator for a specified return but you have no ownership. You see how they operate and learn along the way and grow your money to eventually go on your own or partner up.

Hope it helps.