All Forum Posts by: Bradley Jernigan

One thing I have been lucky about is having property managers already present at the property I bought and them wanting to continue to manage the property after. This has been a huge advantage as property managers offer several advantages! Some include rent collection, property maintenance, tenant screening, and handling legal and administrative tasks. What are other ways people have been able to find good property managers ?

Which would you rather own? I currently own a 42 portfolio between two multi-family buildings in Dallas, Tx. I am looking to scale to 300+ units within the next three years. One question I have is should I concentrate more on larger multi-family deals  (75+ units) or owning multiple smaller units. Buying a bigger multi-family building can offer higher rental income potential and economies of scale. However, it might require a larger investment, more management, and possibly greater financial risk. Smaller buildings may be more manageable and affordable, but their income potential could be limited.

What are some good indicators for a growing market? Some indicators I search for are rising property prices and an increase in construction. Are there any others that can help with determining a growing market. 

Sometimes dealing with contractors can be a headache. When renovating a property, the price and quality of work are the two key factors when deciding on a contractor. Therefore I believe you should first, gather multiple quotes from different contractors to gain a clear understanding of the average cost for the desired project. Then, research each contractor’s reputation and previous work through online reviews and references. When meeting contractors, ask detailed questions about their methods, materials, and projected timelines. A written contract that outlines all expectations, costs, and project specifics is crucial. I would make sure to carefully read and understand it before signing. Regular communication throughout the project helps maintain transparency and address any concerns promptly. It’s also advisable to avoid upfront full payments, opting instead for a payment schedule tied to project milestones. Once you have gained a great relationship with the contractor and they have done great work , then I advise to continue on with the contractor for almost all other future projects. It is sometimes hard to find a good contractor within the area so always keep in contact with the ones who have done good work for you in the past. 

What do you guys think are usually the better deals? A deal that is stabilized with passive income coming from tenant’s rents or a burnt down/value add property where you would not make as much passive income but will make a considerable amount on the sale/refi? Personally I like having a stabilized property more but I feel as though value add deals are a great way to get started. 

Multi-family investing is one of the best investments you can make. It offers benefits, such as consistent rental income and potential economies of scale. However, just like any investment, there are many risks that you should be aware of:

1.  Market Fluctuations: The real estate market can experience fluctuations, affecting property values and rental demand.

2. Economic Downturns: During economic downturns, tenants may struggle to pay rent, leading to increased vacancies and decreased income.

3. Property Management: Managing multiple units can be complex and time-consuming, requiring effective tenant management and property upkeep.

4. Tenant Turnover: Frequent tenant turnover can lead to increased expenses for cleaning, repairs, and finding new tenants.

5. Financing Challenges: Multi-family properties often require larger down payments and more complex financing arrangements.

6. Maintenance Costs: Maintaining multiple units can be costly, and unexpected repairs can impact your cash flow.

7. Competition: High demand for multi-family properties can lead to increased competition among investors and potential buyers.

8. Liquidity Concerns: Multi-family properties might be less liquid compared to other investments, making it challenging to quickly sell if needed.

9. Market Saturation: In some areas, there might be an oversupply of multi-family properties, leading to decreased rental rates and increased vacancies.

There are more risks and disadvantages to multi-family real but through my experience these have been the most challenging. After seeing these risks would you still would want to do Multi-Family real estate? I believe MF real estate is still better than investing in stocks since some of these risks are things I can control. Whereas if I would to invest in a stock like Apple, then there would be nothing I could do to make the stock increase. 

Forced appreciation in multi-family properties involves increasing the property's value through strategic improvements. Examples include renovating units, enhancing common areas, adding amenities, optimizing management practices, and improving curb appeal. The advantages of forced appreciation are: 

1. Increasing a property’s value 

2. Demand higher rents which will increase your rental income 

3. Equity Growth

4. Attracting better tenants 

5. Tax Benefits: Renovation expenses and depreciation can offer tax deductions, reducing your overall tax liability.

6. Bettering your exit strategy

A 50 unit MF apartment is currently 90% occupied with rents averaging around 1000. If the cap rate of the area is around 6% and operating expenses are around 40% of the Total Gross Rental Income then what is a rough estimate of what you should purchase the property for?

1: Calculate the NOI: To calculate the NOI we will first begin with calculating the Total Gross Rental Income.

Total Gross Rental Income = 50 units * 1000 rents * .90 occupied * 12months = 540,000$

Assuming there is no other Additional Income at the property then let’s assume Operating expenses is going to be around 40% of the Total Gross Rents.

Operating Expenses = Total Rental Income * .40 = 540,000 * .40 = 216,000$
NOI = Total Rental Income - Operating Expenses = 540,000 - 216,000 = 324,000$

2. Use Cap Rate to calculate Purchase Price: Now that the NOI has been calculated, divide the NOI by the cap rate.

Purchase Price = ( NOI / Cap Rate) = ( 324,000 / .06) = 5,400,000$

Therefore, with assuming a 6% cap rate and 40% operating expenses, the seller would be looking around 5,400,000$ for the property. Understanding these metrics, can also, help better asses the potential profitability and risks associated with a property. Of course this is a rough estimate and other factors can contribute to either a higher or lower purchase price.

Financing a multi-family property typically involves several steps:

1. Down payment: Ensure you have 20-30% of the purchase price for a down payment. Most conventional loans will require you to bring around 25% of the purchase price for a down payment. This, however, does varies depending on which loan you can receive as some lenders will finance up to 90% of your deal.

2. Evaluate your credit: A good credit score will help you secure better financing options. Check your credit report and address any issues if needed.

3. Research loan options: Explore various loan programs, including conventional mortgages, hard money loans, commercial loans, and FHA loans.

4. Research and connect with mortgage brokers: You can work with mortgage brokers who will help you find the perfect lender for your situation. This is the way I went to help finance both of my multi-family properties. 

5. Pre-approval: Get pre-approved for a mortgage to determine how much you can afford and to strengthen your offer when making a purchase.

6. Consider property income: Lenders may consider potential rental income when evaluating your application, so make sure the property's income potential is appealing to lenders. Learn how to calculate what is a good deal and what is a bad deal.

7. Review property expenses: Factor in other costs, such as property taxes, insurance, maintenance, and management fees, to ensure the investment is financially viable.

8. Complete the application process: Gather the required documents and complete the loan application process with the chosen lender. This usually depends on the lender as some will require many documents while others will not require as much.

9. Get an appraisal: Lenders typically require an appraisal to determine the property's value and ensure it aligns with the loan amount.

10. Close the deal: The finish line is finally here and the lender loves the deal. If everything checks out and the lender approves your application, proceed with the closing process to finalize the purchase.

Currently looking for multi-family realtors within the DFW area. My team and I are interested in multi-family properties under 75 units! Will be looking to buy a building  where my team and I can bring a lot of value-add onto the property. Feel free to message me if you have any similar listings!