Seeking Advice on moving toward large multifamily

6 Replies

Goal: My goal is to purchase a 100+ unit apartment complex that is somewhat distressed (eg, high vacancy or poorly maintained) but in a Class A area. Improve its operations and NOI, and obtain "forced appreciation" through the process.

My challenge is "how to get there". To do this, I'll need to syndicate the deal, which meals I'll need to possess a track record of success in (I'm assuming) smaller deals.

This feels like a Catch 22 to me: need success to get investors, but need investors to have successes.

Background: I currently work Finance at a Fortune 500 company. With RE, I have 2 SFRs and invest "on the side". I plan on moving to fulltime RE soon (my wife also works, and so we're not dependent on my W-2 income for groceries, gas, etc) so that I can accelerate this plan.

Question: Should my plan be to move from 4-plex to 8 units, to 16, to 32, etc? Or, do I just "go for the jugular" and try to leap from a 4plex to the 100+ unit.

@Brianna Schmidt Thanks Brianna. Those are all great podcasts. I've listened to each of them more than once --- every time I listen I pick up on another nugget of advice and am further inspired.

@Andrew Kniffin I agree with @Brianna Schmidt that you should start small but not necessarily with a 4plex. Consider that most LPs want the sponsor to have skin in the game, +/-10% is a number you see regularly, and figure that the amount of your own money that you want to risk on your own first deal is equal to about 10% of the total cost of your first property including organizational costs, acquisition costs and reserves.

As an example let's say that you're willing to put 100k in which implies a $1M deal size, could you find nine other friends and family with the same amount if the deal was good enough? Establishing how much money you could raise given the type of property you're targeting will determine what size of deal to start with.

Maybe they'd only be willing to put up 50k, then you need to find 18 f&f investors or maybe you have to start with a 550k deal. Maybe you having 20% skin makes them comfortable coming in with you.

In any case, your first deal will probably be smaller than 100 units (especially if it's in western Washington) but you will have a track record with an investor funded deal and if you preform, your first set of evangelists for your second one.

Good hunting-

Thanks @Giovanni Isaksen for the input. Two follow-up questions:

1) the numbers you were articulating ($1M or $550K) were the TOTAL purchase price -- not merely the DP on a financed property -- right?

2) you're suggesting seeking F&F for financing even now, rather than doing 4plexes (etc) on my own and then later going to F&F. Is that right?

Again, I appreciate your input.

@Andrew Kniffin

1. Yes, I was talking about total invested.

2. Yes, if you can find a deal good enough and raise F&F money to acquire it you could jump start the size of your investments towards your goal. If there's no F&F money to be had then starting with a fourplex is a great fallback.

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