All Forum Posts by: Joe S.

I am just one person and I own MF. I just sold my 10 unit property and buying 20. I am financing part via fannie/freddie. What I am finding is that it is the property that qualifies for the loan.  Me, as the entity borrowing need to have some experience and of course 25% down - for me this was possible since I am doing a 1031

My suggestion for the OP is to talk to a commercial loan broker. Also talk to a good commercial RE agent who can help you understand the nuances .... what I like about MF is that the manner in which they are valued is based on the NOI, rather than comps. Also, the value can go up over time as rents increase
 
I dont feel the barrier would be too high for someone who already has assets.  It would be an easy doable switch 

@Joe S. 

Perception is reality and if you, like many of the posters on this thread, believe that larger multifamily deals are harder then your mindset is going to prevent you from executing. Focus on the solution instead of the problem. 

The truth is a 100 unit project is easier to do and has more benefits than a 10 unit deal. The financing is better, terms are better, more liquidity in the market, more economies of scale, easier to manage, value is forced at a higher velocity due to lower cap rates, and I could go on and on. This is why investors who get to the level of doing larger deals don't turn back and do smaller ones. 

@Todd Dexheimer is 100% correct. This business is a team sport (as are all real businesses or serious endeavors) and it's all about identifying the pieces of the puzzle and taking the correct amount of action to put those pieces in place. 

Identify your strengths and what you bring to the table and bring on partners to fill in where you aren't sufficient. If you are opposed to working with others and want to go solo, your success potential is severely limited.  

Can find/underwrite/win deals but can't raise all the capital? Bring on a capital partner or two.

Have the capital but no deal? Bring that capital to an experienced operator.

Don't have the net-worth required to guarantee the loan? Bring on a KP with a healthy balance sheet. 

Don't have all the systems and operations? Bring in a JV partner that does.

I would rather get 25% of the GP of a 200 unit deal than 100% of a 10 unit deal all day long. 

However, I also agree with @Annie Dickerson in that it comes down to what your goals are. If you like SFHs there is nothing wrong with that. If you believe that multifamily is a qualitatively and quantitatively superior investment vehicle, as I do, then it's a matter of making a plan and executing it. 

My 1031 target is ALWAYS to double my before-tax cash flow of the one I’m selling.  Why do it otherwise?

In all honesty, I have mostly settled for less if certain criteria are met ... 1)  units are under rented due to long term ownership not wanting to stir the pot, and 2) I need flooring and paint to bring it to market rents.  THIS is when I always see double my cash flow.

If you have 10 sfh now getting you $2500 cash flow per month, and sold all of them under a 1031 and went shopping, you should target $5000 per month as net cash flow.  Get out of the sfh market and into 20+ door B and C class complexes and you’ll realize real cash flow.

@Joe S.

Hi Joe,

I used the appreciation and some of the initial investment from my sfr investments via 1031 for down payment on MF.

I started with one of my 14 sfr to buy 2 4plex side by side. Had bought a house for 100k in 2011 and sold for 240 in 2018 . The 4plexes were 290 each so 70k down. Currently refinancing those to take out those 70k to reinvest.

Same year I sold 3 houses and used that money plus some capital to purchase a 37 unit bldg. 600k down.

I think maybe you need to speak to a local commercial lender. If the property cash flows then it shouldnt be an issue as all they care about is if your net worth justfifies the purchase and does the deal make sense 1.2 dcsr and all that.

I currently have 70 units. Closed on a 12 owner financed yesterday. 300k down 15 year fixed 6% . Was originally a 1031 pivot but couldnt close on a house sale in time. At this point im not too concerned with capital gains as all my deppreciation off sets alot of my income.

@Joe S.

I found the property by driving around border towns. I called on a fsbo sign in front of a large Victorian home. Turns out it had been converted to an 11 unit building and the building next door ( a 19th century hotel converted to 10 units) was for sale aswell. They were asking 750k. After inspecting the property I negotiated them down to 550k. The buildings needed lots of work. One needed a full electrical upgrade from knob and tube. Foundations rebuilt, electrical, plumbing replaced in pex, 3 units needed to be rebuilt, interiors refreshed etc...

The sellers were running a 20% vacancy. I self manage and live in one of the units. My vacancy is close to zero as I get units turned within a couple weeks of them becoming open. I do this by requiring a 30 days notice prior to move out and marketing/showing the unit immediately upon the tenant notifying me. That way I have someone ready to move in almost right away.

Numbers:

PP - $550k

DP - $65k

Seller financing - $485k @5% interest, 20 yr Amtz, 5 year balloon

Purchase cap rate - 13.5%

Market cap rate - 8.5%

Repairs to date - $150k ($80k funded by rents)

Electrical, 1/2 plumbing, 3 units rebuilt, foundations, refresh of 4 other units, built laundry facilities in each building, long list of misc deferred maintenance

At time of purchase,

Gross - $116000

Expenses - $42000

NI - $74000

One year later,

Gross - $156000

Expenses - $42000

NOI - $114,000

Financing - $36912

NI - $77088

Present value - $1.2m?

Not bad

Today is my 23rd birthday. I spent the last year managing various contractors, planning repairs, managing the property, doing a lot of the work myself. I am also an amazon delivery driver full time. I work 70-80 hours per week. Discipline is key. I had to cut out video games and going out with friends to make this happen. I have a few more months of the intense work phase left until the properties are to my satisfaction. Then I will be ready to quit my job and move to the next deal. I started looking for my next deal 2 months ago. I have a strong lead already on a 42 unit portfolio of various small multi/sfh and a few commercial strip malls. Hopefully it works out! If you have any other questions don’t hesitate :)

~LK

Amazing story and good for you!!

@Joe S. If the goal is that you want to be able to step away and have someone else manage it so you can be more passive, what about investing passively in multifamily syndications? 

That way you can continue doing what you know in SFHs and also diversify into different markets and large-scale multifamily, all while partnering with experienced multifamily operators. 

And, through investing passively, you will also get to learn more about the process of investing in multifamily and see if you want to go down that path yourself. 

@Joe S. I love that you’ve found success through SFHs. That in and of itself is a huge achievement and shouldn’t be discounted just because there are so many out there touting the benefits of multifamily and economies of scale.

I started out with house hacking duplexes, then moved on to investing in small out-of-state multifamily 4-8 units.

Then, because my friends and family wanted to invest alongside me, I started to explore syndications and have been able to co-sponsor dozens of large-scale multifamily deals across the country.

I think scaling up to multifamily comes back to your goals and what you’re trying to achieve. It seems that you’re seeing quite a bit of success with SFHs. Is there a certain pain point that you’re looking to solve through investing in multifamily?

I just completed the 1031 exchange from a 4 unit property I owned into an 8 unit property. Next year my intention is to do another 1031 exchange of another 4 unit property I own and use the proceeds to buy another 8+ unit property. Down the line I want to 1031 exchange the 8 unit property into an even larger property. This is part of the strategy I am using right now. The other part involves using cash out refinances and a HELOC to purchase additional rental properties.

I personally don't do syndication or partnerships but I still wanted to expand into multi-family.