Multi-Family Investing

12 Replies

Hello everybody,

I am trying to get started in investing in multi-family but am having a hard time figuring out how to come up with 25-30% down. I have my spreadsheet ready and know my purchasing criteria but I am worried about making an offer on a property and not being able to  come up with the down payment and financing. I know getting investors is the obvious solution but the people I know I feel like don't have money or want to invest with me because it's my first deal and I am not proven yet. 

Also how do you structure the payments to investors? Let's say I need $150,000 down and I get three investors with $50,000 each how would they get paid back and what percent.

Thank you in advance for all your help.

Derek

I just wanted to voice - I am in a similar situation to @Derek Buescher  here - looking to finance multifamily soon, but struggling to find support for my endeavor due to being green about the whole industry... Any answers to this inquiry would definitely benefit me as well!

Thanks as well,

Kayla

Hi @Derek Buescher  and @Kayla Davis . If you are looking to finance up to a 4 unit building and don't have the 25% down most banks require for an investment how about going the FHA route and putting down 3.5% and living in 1 unit for a year provided you don't own other real estate. If you do own a primary already than most likely 25% is your only choice unless you can find a seller who will offer you financing for most of the down payment. Private money will be difficult to come by as most won't work with first time REI's.

That is what I thought as well.  Thank you for the information. 

Agreeing with @Marcin Ferenc  under 4 units would not be considered commercial real estate. 

Structuring payment with investors all comes down to what you can negotiate. Be careful on how this is approached as well due to SEC laws. 

Happy investing!

-Mark

Also how do you structure the payments to investors? Let's say I need $150,000 down and I get three investors with $50,000 each how would they get paid back and what percent.

You have a couple of options.  One would be to do it as a loan and just pay a fixed percentage.  Could be done as a second, third, and fourth mortgage.  With the right deal you might get takers on the second.  Third and fourth would be much tougher.  Or, the three investors could form a partnership, independent of you.  Then the partnership makes the loan.

Or, you could do it as a private placement and sell three "units" in your partnership.  That's an equity investment and would entitle the investors to returns based on their fraction of the ownership.  If each of them puts in $50K and you do two, then each of you would get 25% of the profits.  If you're not putting in any cash, then you would get, at most, a very small slice of the profits.  As the manager, though, you might get a management fee, which would come out before the profits.

Doing a private placement is paperwork intensive and expensive.  $25K or so, I've been told, though others claim it can be done for less than that.

Jon Holdman, Flying Phoenix LLC

In my opinion a multi-unit should not be your first investment, specially if you are short on cash. I would advise a condo or a small commercial property. 

I have all properties in the 3 categories but began by helping my mother with her condo rentals.

@Margarita Uricoechea  I second what @JoJo Diego  said. Multi-familiy is an awesome investment for the first timer. My philosophy is  do what your knowledge can handle.

@Derek Buescher   I suggest to study the story of @Joe Fairless  I think your questions will be answered after that.

I am in Arizona as well, maybe we can connect sometime in person and swap knowledge. I have a 3 year plan to purchase a multi-family, and I am finding answers to all the questions related to that goal at this point, while at the same time focusing heavily on building relationships.

Some quick suggestions I can give you are: purchase Commercial Property for dummies by Peter Harris. Make a friend that is an active property manager for a decent size firm that specializes in Multi-family, Make a lot of new friends, and talk about what you want to do, Soak in as much knowledge as possible before even looking at properties.

When I was getting my ice cream truck business together, I had a digital rendering made of what I wanted it to look like before I ever purchased a truck. Every day I would come to work with a folder with my notes on what I was learning that day, and these pictures. I talked to everyone about it, when I purchased the truck, it was super ugly at purchase, but I took pictures, and showed everyone when I made new progress. They would ask me questions about my business plan, and how I planned to be successful selling ice cream. I had intelligent answers for them because I was immersed in the information every day. Before my truck was even ready to sell product, I had co-workers, and friends offering me thousands of dollars in cash to purchase more ice cream trucks, but I never took any because I wanted to do things alone. 

At the time, I was not deliberately trying to get money from people. I was just excited that I was doing something different. 

The point of this story is, network heavily, be knowledgeable about multi-family, have a plan, and know it inside and out when people ask. talk about it a lot, to as many people as possible. Every person is a potential investor, and if they ask questions they are interested in you and what you are doing. Give them solid specific answers. When you finally find that distressed property, that has been managed poorly over the years, you will have a network of people that can't wait to invest with you because you have established yourself competent, and trustworthy with them. Don't let them down, put their happiness before your own, and exceed your promises.

Sorry About the long response, I get the adrenalin pumping when I think about this stuff haha :)

Medium original logos 2016 nov 5059 583b07d489ea6Brandon L., The Luke Group Inc. | 571‑510‑0027 | http://www.fairfaxrealestateinsider.com | VA Agent # 0225225026, NV Agent # 181107

@Derek Buescher   hey buddy let's try to catch up again over coffee I have some ideas for you. How is the Commercial side coming along for you?

Originally posted by @Serge S. :

@Derek Buescher  hey buddy let's try to catch up again over coffee I have some ideas for you. How is the Commercial side coming along for you?

Let's do it let me know when you have some time to meet up. 

Originally posted by @Brandon L. :

@Margarita Uricoechea  I second what @JoJo Diego  said. Multi-familiy is an awesome investment for the first timer. My philosophy is  do what your knowledge can handle.

@Derek Buescher  I suggest to study the story of @Joe Fairless  I think your questions will be answered after that.

I am in Arizona as well, maybe we can connect sometime in person and swap knowledge. I have a 3 year plan to purchase a multi-family, and I am finding answers to all the questions related to that goal at this point, while at the same time focusing heavily on building relationships.

Some quick suggestions I can give you are: purchase Commercial Property for dummies by Peter Harris. Make a friend that is an active property manager for a decent size firm that specializes in Multi-family, Make a lot of new friends, and talk about what you want to do, Soak in as much knowledge as possible before even looking at properties.

When I was getting my ice cream truck business together, I had a digital rendering made of what I wanted it to look like before I ever purchased a truck. Every day I would come to work with a folder with my notes on what I was learning that day, and these pictures. I talked to everyone about it, when I purchased the truck, it was super ugly at purchase, but I took pictures, and showed everyone when I made new progress. They would ask me questions about my business plan, and how I planned to be successful selling ice cream. I had intelligent answers for them because I was immersed in the information every day. Before my truck was even ready to sell product, I had co-workers, and friends offering me thousands of dollars in cash to purchase more ice cream trucks, but I never took any because I wanted to do things alone. 

At the time, I was not deliberately trying to get money from people. I was just excited that I was doing something different. 

The point of this story is, network heavily, be knowledgeable about multi-family, have a plan, and know it inside and out when people ask. talk about it a lot, to as many people as possible. Every person is a potential investor, and if they ask questions they are interested in you and what you are doing. Give them solid specific answers. When you finally find that distressed property, that has been managed poorly over the years, you will have a network of people that can't wait to invest with you because you have established yourself competent, and trustworthy with them. Don't let them down, put their happiness before your own, and exceed your promises.

Sorry About the long response, I get the adrenalin pumping when I think about this stuff haha :)

Brandon let me know when is a time you can meet to talk.