Use equity in rental houses to buy multiple apartment complexes?

Question

I have enough equity in each to buy four apartment complexes, and this doesn't even count liquid cash on hand. I've heard the financing for commercial real estate isn't that great though, balloon payments, refinancing after 5 years, etc.

I'm FI with my houses, perhaps I should stick with what I know and buy more houses?? Or go big with apartment investing?

I'm FI with my houses, perhaps I should stick with what I know and buy more houses?? Or go big with apartment investing?

Joshua Myers · Answer

@Jack B. The cost and terms of financing are part of your deal analysis. If the deal makes sense with the financing terms available, then it's a good deal. If the best available financing make the investment too risky or kills the cash flow, then it's not a good deal. The good news is that you're already FI, so you don't need to rush into any bad deals.

Kevin Dean · Answer

@Jack B. one strategy could be to leverage lines of credit on that equity, or use your liquid cash and invest passively as a limited partner in larger multifamily syndications or actively in a joint venture where you are involved as an operating partner. If you go the syndication route, you will not have to worry about personally arranging financing as that will be on the General Partners shoulders, and you will gain the exposure to Multifamily that you are looking for. You will obviously still be responsible for assuring that the investment meets all of your criteria.

You would need to analyze the spread between the cost of your line of credit, and the projected return of the proposed investment. If the spread is wide enough for your comfort, and you believe the likelihood of achieving that spread over your cost for the line of credit, then you can make a return on that equity that is currently trapped inside of your real estate.

If you are concerned about using leverage in order to buy into a leveraged investment, then it would be wise to go the cash route rather than using a line of credit.

Kiley N. · Answer

@Jack B.

Go hard or go (single-family) home.  Just joking, couldn't resist.

Since you can afford four apartments, why not try one first and see how it fits?

Bjorn Ahlblad · Answer

@Jack B.Investors make and lose money in every sector of REI you care to mention. Look at you goals and how do they line up with your investments. It is true that commercial loans have onerous details but apartment buildings provide economies of scale unavailable in small MF investing. Choose what you like and don't look back!

Andrew Hogan · Answer

Several of our investors our pulling low-yielding equity from their SFRs and transferring it into our large MF deals. It mitigates their risk and spreads its capital across hundreds of doors. It also helps them avoid capital gains without doing a 1031.

If you're looking to be active, I wouldn't say that SFR experience equates 100% efficiently to MF. You could keep doing what you're successful at while evaluating and finding the right MF sponsor.

Lot's of active MF investors start out as LPs to get some experience under their belt.

Good luck!

Jack B. · Answer

Yes, when you have money, the primary goal is to avoid losing money rather than trying risky things you're not familiar with to make more money. Single Family is working for me, maybe I should stick to that. Good to know from others who posted that you can still get 30 year financing for MF.

Tarik Turner · Answer

You can still get a 30 year fixed on a commercial property as well

Jerry Padilla · Answer

@Jack B.

Rates are low now so it is a great time to cash out refinance and purchase property. I would recommend finding a lender that offers 30 year fixed rates and avoid balloon and ARM if you are planning to hold long term. MFR investment properties for conventional require an LTV of 70%.

Use equity in rental houses to buy multiple apartment complexes?

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