NEWBIE @ REI.. Pro @ Construction.. Getting Started in Multi-Fam?

4 Replies

BIGGERPOCKETS!!!! WHAT'S UP!!

I've been on the site for a few years (since I was 20, now I'm 25.) but really feel overwhelmed with all the information flowing through the internet on Real Estate Investing, specifically with Multi-Family Investing.

Right now, I'm currently the proud owner of Revitalize, a Commercial General Construction and Facility Maintenance company in Houston, Texas 

I've been doing this for 4 years and feel that my team of 25 is moving up, but a lot of my resources are tied up in this company trying to grow..

Here's the thing.... I want to create FINANCIAL FREEDOM. But I don't have a whole ton of capital available for investing (YET).

I understand, very well, the following things:

1) Team Building

2) Marketing

3) Sales

4) Processes

But I'm having a hard time grasping Real Estate in general... I'd love to start syndicating Apartments that have deferred maintenance or need a management revamp.

I kind of understand the process....

1) Find a deal

2) Analyze the numbers

3) Make an offer

4 or 5) Walk Property and create assessment (ROOM BY ROOM) / Raise Capital?

6) Close

7) Revamp

What should be the next step for me?

I do have a budget for Marketing and would be willing to hire a VA, but I feel like I should get my feet wet first...

Any suggestions would be AMAZING!!

- Luis "MR. REVITALIZE"

it sounds like you are in a great position for the BRRRR strategy. Buy, Rehab, Rent, Refinance, Repeat. being in the construction business you'll be able to identify properties where you can force appreciation buy fixing them up, once you have completed the rehab and are renting the units you can do a cash-out refi for 75% of the appraised value of the new and improved property, which allows you to pull out your initial investment to use as a down payment for the next property. example: you purchase a 4 unit property for $100,000 with a 25% down payment. it requires $15,000 of repairs in materials, you can do the labor yourself. closing costs are $3,000. total cash needed up front: $43,000. after the renovation it appraises for $175,000. you do a cash out refi with 75% loan to value ratio for a loan amount of $131,250. closing costs for the new loan are $3,000 you pay off the old mortgage of $75,000 and you are left with $53,250 in your pocket to use on another deal, which is your initial up front investment of $43,000 plus an additional $10,250 that you get from the appreciation you forced with your renovation, so in total you ended up spending none of your own money, made $10k and now have a 4 unit property that probably cash flows around $1,000 a month. and you have $53,250 to do it all over again.

Josh,

Thanks for your speedy reply... two things...

1) I'm familiar with BRRRR.... but my credit isn't the very best!! I tanked it when I first started Revitalize... Should I consider this same strategy with Private Money? I'm just not sure how to structure deals that make sense, since of course I've never done it.

2) I don't do the construction myself, I'm just a sales/marketing guy who understands project management and I have the crews readily available... I feel like the deals where I would win the most are the larger multi-family deals, which I'm not afraid to chase... I just don't understand the mechanics behind it all 100%

you would typically use private money or hard money loans as a short term option to acquire a property but because of the high interest rates associated with private/hard money you'll want to be able to refinance into a conventional or commercial loan. the good thing about going after larger multifamilies is that the banks will focus more on the financials of the property itself rather than on your personal financials. they'll want to know that the property can pay for the loan. I think a typical debt coverage ratio they want to see is 1.25 which means if you have a yearly net operating income of 1.25 million your yearly cost of debt on the property needs to be less than 1 million. if I were you I would start by contacting a commercial lender and asking them what their guidelines are and if the have any specific minimums for credit score or income when it comes to the individual buyer. depending on how your company is doing you maybe able to take out a line of credit secured by your business to put towards a down payment on a property.

JOSH BOOOOOOOM!!!! Brother, this is gold. That's a great first step. Thanks for the advice!

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