How can someone scale up in multi family from single family without syndication and partnerships? ( I’m not talking about 2-4 units)

I did the partnership thing when I first started out and I can assure you that I would prefer to own properties with just my wife and I.

Originally posted by @Joe S. :

How can someone scale up in multi family from single family without syndication and partnerships? ( I’m not talking about 2-4 units)

I did the partnership thing when I first started out and I can assure you that I would prefer to own properties with just my wife and I.

Without syndication you can have a Joint Venture Agreement between parties. Syndication is usually for properties that require many investors in order for financing to work. In a syndication you are dealing with accredited investors, one of whom has a personal networth equal to or greater than the amount borrowed from the bank. (Yeah, it gets a little tricky.) 

However, In a JV Agreement setup, each party enters as their own entity and provides either money or expertise or both and no one needs to be accredited. The money is pooled to buy the property. It's like a partnership but much safer. It also has the ability, if written into the agreement, for one entity to cash out by selling to the remaining entities and you can pretty much set things up however you want to set it up. Each entity has a buffer from the liabilities of the other entities. That's a Good thing.

A Joint Venture can be set up easily and without much expense.

 I've done many Joint Ventures. I have not nor will I do a partnership.

@Mike 

@Mike Hern

Thanks for the information:) You put a lot of time and effort into your response and that is much appreciated.

 How does an investor scale up into multi family without joint ventures or syndications. I am wanting to own multi family without other investors. I have been doing single family for years and technically I am doing OK and would not have to scale up to multi.  For the challenge I would like to scale up into multi family and keep the units long-term.

Hi Joe! I'm a newer investor in the SoCal area but looking into starting up a syndication to acquire large commercial residential but also want to continue to build my personal portfolio. I'd thought I would throw in some advice as I'm currently in the market for multifamily and looking to scale that up in the near future. I would suggest to find multifamily deals that you can either use the BRRR method or value add. With your experience in SFR I think you could find creative ways to increase the NOI increasing the value and allowing you to continue to scale by reinvesting the equity you've created and finding the next deal. I believe having a good lender is a very helpful especially if they can help you qualify and refi the property. (I currently work with a lender who is amazing send me a message if you would like his info👍) hopefully this helps and happy investing!!

Originally posted by @Joe S. :

@Mike 

@Mike Hern

Thanks for the information:) You put a lot of time and effort into your response and that is much appreciated.

 How does an investor scale up into multi family without joint ventures or syndications. I am wanting to own multi family without other investors. I have been doing single family for years and technically I am doing OK and would not have to scale up to multi.  For the challenge I would like to scale up into multi family and keep the units long-term.

There are a few of people I pay attention to on multi-family that started out doing SFRs. Then they did duplexes, then 4 plexes and then 10 unit, etc. Now each of them have thousands of doors, most in syndication as leads. In each case, some of the early properties were boot strapped, self invested. As they gained experience and units, others were interested in providing financing for them, sometimes personal money, sometimes pension funds and eventually all three started doing syndication. To do multis (30 -75 units) I think can be put together by one person with good long term planning. The 100 unit plus gets very competitive with big money and syndicators. The big deals are introduced by brokers to proven syndicators. You will never hear of the deal. Smaller deals are found the same way you find Single family. By the way, always scope the sewer line to the road before you buy.

Buy single family residences Try to buy as many as you can per year and use financing. Reinvest the rents into buying more. With appreciation and loan paydown you should be gaining good equity. Once you have enough equity sell everything and buy a big multifamily.  Speed up the process by buying underpriced properties.

For example, 2 properties I bought 5 years ago have gone up in value $30 to $40k plus I've paid down about another 5k in debt. I also have another $25k in equity from my downpayment. Altogether, I can sell these two and get about $120k. I can use leverage to buy a $500k property with this money. In my market, I can buy a small multifamily with this. 

@Joe S. I don't know how many units you are thinking about so I'll offer my limited experience. I had SFR and duplexes; wanting more I found a great 12 unit which we bought and cleaned up units at turnover times. Mostly new flooring, carpet, appliances and paint. We did some painting outside and landscaping.

We also looked at safety issues adding railings as needed and some security features; we did not spend a lot of money. We looked for more buildings in the 12-20 unit size but were unable to find any that met our goals. 

Our experience with the 12 unit has been really positive we have boosted net income from 40k to 65+ and built up more than adequate reserves. Having everything under one roof makes things so efficient. We still have the duplexes but I would not buy another one.

@Joe S.

The only way to scale up if you do not want partners is to bring a lot of your own capital to the deal.

On occasion, maybe you will find an owner who will carry some paper to reduce cash required. In my experience, these are often owners with problematic properties. The market for MF is so competitive, owners can easily cash out and move on.  Most only carry paper if they need to.

So whatever you need to do to raise that capital is step one. Sell stock. Sell or 1031 smaller properties etc.

Figure you will need to raise cash equal to 35% to 40% of the purchase price. This will include down payment, cap ex and other reserves. 

Hope this helps.

Anything is possible but it is extremely difficult to acquire large multifamily assets without partnerships. It is virtually impossible without previous experience.

Syndications, JV's, they are all partnerships. I had a similar mindset than you @Joe S. when I was first looking to get into multifamily with my wife. It wasn't until I opened my mind up to the concept that we began to make major moves and start to scale. If we kept doing it all on our own, we wouldn't be where we are today (9,000 units in our portfolio).

If you want to do it on your own you'll need ALL of the following assuming a 100 unit MF project at $100k/unit.

• ~$3M in cash
• Net worth of $5M-$10M
• $500k+ in liquid assets (cash, stocks) in addition to capital being put into the deal
• Experience in managing large apartments (quite the chicken and egg, am I right?) 
• Previous large apartment loan history (another chicken and egg)
• Asset manager (could be you or your wife)
• Accountant (can be third party)
• Attorney 
• Insurance agent
• Property management team including regional manager, property accountant, maintenance or project manager. 
   

If you have all of those things then you can do it by yourself. But as you can see, even if you have the capital, you'll still need partners unless you've already sponsored some large apartment deals. 

Many investors, even well capitalized, may have most of the above list, but still lack experience or the net worth and have to bring in a partner. Don't see it as giving something up, see it as expanding your bandwidth and working smarter. 

@Spencer Gray

today (9,000 units in our portfolio).

I look at the word ( Our ). 

When I first started a number of years back I bought quite a number of single families with a partner and then we had to liquidate most of them because a partnership just wasn’t working out.

@Joe S. sorry that partnership didn't work out. I would rather have 50% of 9,000 than 100% of a handful of properties. 

I could not have done what I have if it wasn't for being around the right people, because was when I was starting I was not at all qualified or an expert. My partners were in their respective areas.

I've also had partnership not work out. My first several did not, I ended up doing all of the work. 

It's like any relationship, whether that be a significant other or a friend, you'll have some disappointing ones, but finding the great ones is worth it in the end. 

Originally posted by @Spencer Gray :

@Joe S. sorry that partnership didn't work out. I would rather have 50% of 9,000 than 100% of a handful of properties. 

I could not have done what I have if it wasn't for being around the right people, because was when I was starting I was not at all qualified or an expert. My partners were in their respective areas.

I've also had partnership not work out. My first several did not, I ended up doing all of the work. 

It's like any relationship, whether that be a significant other or a friend, you'll have some disappointing ones, but finding the great ones is worth it in the end. 

Congratulations on being 50% owner of 9000 properties. That’s quite an accomplishment.

@Joe S. It sounds like you are asking how to scale without using JVs or partnerships? The answer is pretty simple. Use your own capital and resources, however, you will be extremely limited in your abilities. 

Multifamily is a team sport for a reason. It takes a team to be able to pool capital and resources together to take down large multifamily assets. Very few, if any, are doing this business alone. 

To me, I would rather partner with many people and scale exponentially rather than thinking how can I do everything myself. Just my opinion! 

Originally posted by @Joe S. :

Originally posted by @Spencer Gray:

@Joe S. sorry that partnership didn't work out. I would rather have 50% of 9,000 than 100% of a handful of properties. 

I could not have done what I have if it wasn't for being around the right people, because was when I was starting I was not at all qualified or an expert. My partners were in their respective areas.

I've also had partnership not work out. My first several did not, I ended up doing all of the work. 

It's like any relationship, whether that be a significant other or a friend, you'll have some disappointing ones, but finding the great ones is worth it in the end. 

Congratulations on being 50% owner of 9000 properties. That’s quite an accomplishment.

I think Spencer was using that (50% of 9,000) as an example. The point I think he is trying to make is that multifamily is a team sport and it would be extremely difficult to scale without partners.