How to get started with multifamily units
Hi,
I am in Texas, have couple of single family properties rented. But want to move into multifamily units.
But don’t see any multifamily units in Austin area and if they are available they are either very costly or need too much of work.
Also, I am not sure if I can get financing in place for bigger properties, how do I go about financing my first multifamily unit?
Any suggestion/ comment on how do I get started?
Regards
Bhushan
Hi Bhushan!
It seems like one of the first things you need to do is determine some goals and have a more set criteria in mind that would allow you to make some clearly outlined plans/steps.
1. I think it might pay to have a goal in mind that is more number based than emotional and making sure the numbers are the driving force apart from the desire to simply own multifamily alone. If you have a clear picture of COC returns, cap rates, etc- you can reverse engineer that and see how to get there easily.
2. Having specific numbers in mind will help you determine if you're in need of assistance with a more traditional loan product or if you're looking into a commercial loan product. In other words, are you speaking of acquiring a duplex or two, or are you thinking 4+ units to reach your goals faster?
3. Ideally, before you meet with a lender you'll have a clear picture of personal finances and how much you'll have to put down as well - this may take you from thinking you're not qualified for a commercial loan or (obviously depending on other factors, DTI, credit, etc.) to speaking with a lender and realizing you are able to obtain a commercial loan if that's the goal in multifamily.
4. These properties needing work in Austin should probably be looked at in a few different ways;
4 A. 'Too much work'- indicates you're not really looking at being involved with too much rehab work, which is fine but needs paired with realistic market availability so you may need to expand your search outside of Austin.
4B. If you're expanding your search outside of Austin, which areas will these include (either still in TX or outside of TX) that will keep you more in line with what seems to be the goal of more rent ready with affordable purchase price?
4C. How comfortable are you in looking at areas outside of Austin to achieve your goals or how realistic is it for you to do? Meaning are you okay with having a multifamily an hour or so away from Austin that's more affordable or are you comfortable with an out of state market that's simply more affordable?
4D. If you're even considering the possibility of an out of state deal, get familiar with things like out of state non owner occupied tax rates (for things like a duplex), commercial tax rates if that will apply to you, landlord friendly legislation, rent control caps if they apply etc.
5. "Homework";
-Define financial objectives/goals that are numbers based
- Gather realistic personal financial information and what you think you can afford and cross reference with goals as well as an expanded search of various markets both outside of Austin and out of state to research availability - pinpoint locations in state/out of state (Education phase)
- meet with lenders, either commercial or otherwise to see what you indeed qualify for once you've narrowed down property types and locations (Education phase)
- Start interviewing PM's if you're looking outside of your current investing area and will not serve as your own PM (Education phase)
- Get with an agent in your desired area and for your desired property type and start looking at deals (Shopping phase)
- submit offers/LOI armed with your information from Education phase & Shopping phase (Transaction phase)
This is the breakdown that can be helpful as an outlined plan of action/phases for some of the out of state investors clients I have, but should work for you to start with in TX as well. Overall, once you've got goals in mind and know how much you can afford it will be easier to find deals based on areas you can afford to be in or not that should match your financial goals.
Hope this helps!
@Bhushan Walde the work is where all the money is made! For the funding reach out to Hans at Old Capital for 5+ unit properties. Under 4 you can use a residential lender.
@Bhushan Walde can you look to partner with someone in your area who already has multifamily loan experience? You could partner with one or two more people and qualify to get a loan balance over the $1M requirement to get a Freddie Mac Small Loan. This will get you better terms and perhaps a better quality asset. You could conversely get something in the $800k to $900k range that would have an ARV higher than about $1.35M and seek a bank loan. Once you finished the repairs and increased the value, you could then refi into an SBL.
Attend some meetups in Austin and start networking with some potential partners, or maybe be boots on the ground for someone out of state. Out-of-state investors place a great amount of value on local boots on the ground.
@Anna Laud
Thank you for such a wonderful insight…
Lot to learn..:)
Bhushan
@Bhushan Walde For under 4 units non owner occupied you will need a 25% down payment. If you are looking to house hack there are programs out there that will help you get a lower down payment, down to 3.5% for an FHA loan.
5 units and over is commercial and will be subject to those requirements.
As was mentioned above set goals, and if Austin is too expensive look to another market and set a team up and find a property management company.
You may want to get into MFH because you've read that's the thing to do and it sounds like what the bigger investors do. You need to invest in whatever category provides YOU with the best ROI.
@Bhushan Walde check out the Bryan and College Station areas. I have had to pony up 25% down payment this year for a multi family.
Hi @Bhushan Walde congratulations on making the jump to multifamily, have you ever thought about syndication instead of going in solo with a multifamily project? It is a great way to get involved in a multifamily project on the larger scale that one may not be able to do alone without having to do all the heavy lifting. If you have any questions please let me know. Thanks
@William Costello
I really don’t know what is syndication and how it works?
Cab you suggest any online article that can explain me more about syndication?
Regards
Bhushan