Financing my First Apartment? How?

Question

Hey All, Maybe I'm getting a little ahead of myself but a 12 unit apartment building went on for sale ($1,375,000) right down the street from me and I'm super interested.

2015 yearly expenses of about $14,500

insurance at $8000

Sewer $2000

Water and trash: $3200ADT and Rottler $900

Currently all units are leased at an average $975 a month (I think I can get this to $1000 based on its location next to my medical school and 2 large undergrad campuses)

I'm extremely good at finding tenants as I have connections all over STL and have lived here for 22 years of my life, but I"ve just bought 2 rentals in the last 4 months and am under contract for a 3rd right now.

My cash reserves are almost depleted. Borrowing from friends and family and going into my 401k I might be able to rustle up 30-40k but that's a long shot for even HUD multifamily financing...

Would anyone have any insight on how to get partners or have creative financing strategies for me?
I've been doing a crap ton of research but it seems extremely hard....

Account Closed · Answer

Great questions @David Zheng. I have some of the same things going on in my head. There are a couple of fantastic podcasts on BP. I just listened to BP #172 last night. It is about gaining partners and financing options for larger apartments, but the same applies to $1.4M deals.

David Zheng · Answer

@Peter MacKercher

Thanks for the words of caution!
I'm actually not in med school I said that wrong. my parents work there and I've been there a lot but I'm currently a mortgage backed security consultant at wells Fargo haha. The building is in good condition which is why I like it. I'm more about properties that don't require much or any fixing if possible.

In terms of being able to manage, I have had no problems with my other 2 units so far. Obviously 12 units if totally different but I have a lot of free time and with it being down the street, I can walk over for any issues.

My parents have been renting properties for 3-4 years now so I know they can help me if really needed and I also know they will cover any extreme costs that we all fail to notice in the case I do acquire this. (at the cost of my soul)

Essentially I feel like I have a good grasp of whats at risk and whats required. Again, I'm just really stuck at looking for financing.

Peter MacKercher · Answer

@David Zheng

Keep in mind that there is a big difference between a 2-4 family and a 12 unit building. If you've been a landlord for 4 months you might be getting in over your head (unless you have a PM in place, which I suppose you might if you're in med school).

With larger buildings everything scales, so if you have pests in one unit, you'll soon have pests in 12 units. Having more units centrally located can magnify your costs and your efficiencies, basically. Also, if you'll be cash poor after closing you will need to consider that you'll need a sinking fund for potential cap ex for the building, which will run far ahead of your other properties, assuming they're 2-4 unit buildings. Rough estimate would be x3 what you'd keep for a 4 family, but actual numbers will depend on the inspection results and the expected lifespan of the major systems in the building.

Something to consider before you start hustling for funds.

Financing my First Apartment? How?

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