All Forum Posts by: Ken P.

@Ali Hashemi, I was in a similar situation to you 4 1/2 years ago, and took down 18 units with the money from the following sources:

$50k from 401k loan

$60k from HELOC on primary residence

$25k in cash from savings.

The primary loan was owner financing, which is an option I didn't see in any of the above discussions.  With owner financing, the seller wasn't particular about where the money came from for the down payment, whereas a bank would likely be much more hesitant to have almost all the initial equity come from debt.

What being so deeply leveraged allowed us to do was hold back some cash to renovate the apartment interiors and to address deferred maintenance, and also hold back cash for reserves.  The renovations in turn allowed us to attract a better class of tenant willing to pay higher rents, which covered all the debt payments.  The short-term debt is now being paid off (just sent the check today for the last of the 401k loan!) and cash flow is several thousand per month and climbing.

I didn't see cash reserves addressed in your plans, which is an absolute necessity when taking on apartment complex ownership.  Any institution willing to lend money on the property will insist on you having cash reserves.  Reserves are the only way to assure that some misfortune that befalls your precious investment doesn't become good fortune for the next investor, who comes along and picks up the pieces when you're forced to sell.

@Aron Siva, the brokers in your target market are going to be the best resource for both on-market and off-market deals.  Start with the websites of the brokerages that serve the area of interest, where you'll quickly learn who handles listings in the range you're interested in.

A question - why are you targeting MF in the 10 - 20 unit range?  This is a size that is very commonly self-managed, but as you are so busy you don't have time to listen to podcasts you're obviously too busy to self-manage.  If you're planning to turn the management over to a 3rd party PM, then size shouldn't be a constraint.  If it's available capital for investment that is the constraint, again, number of units is not key.  A well-run 20 unit complex and a poorly managed 35 unit complex could be the same price, and the opportunity (financial upside) could be much greater with the larger complex.   In the hierarchy of selection criteria, I would put location first, property class a closely related second, followed by quality of PM available in that market, and then capital.  With the right connections, which is a function of building your knowledge and network, capital is available for any good deal in today's market.  Number of units is simply the result of searching for properties that meet your criteria and the capital that can be raised in a reasonable time frame.

Congrats Keith, sounds like a solid base hit!  Are most of your rentals in Redford?  If so, you and @George P. are buying the town up :-) 

The fact that you've started at such a relatively young age means you'll have some pretty amazing life options a few years further down the road.  Best wishes.

Brian, it has been a good ride as an investor in Hairston Woods.  I was impressed with the property when I visited early this year, and I've been impressed with your investor communications from the beginning of this syndication until now.  Returns are looking good, too.  Thank you for the opportunity to come along and be part of the success of the Hairston Woods venture.

@Warren Straley  Never is too strong a word, but what incentive would a seller have to trust you (or any buyer, for that matter) to the point of extending 100% financing?  I've never done that, the smallest % down has been 20%, and that was after I had a track record of running properties in that area successfully for several years.  With no skin in the game, a poorly performing property (the only type that is likely to need to be sold with a large portion of seller financing) could be run even further into the ground with no losses to the buyer, leaving the seller in a much worse position than when they started.

@Warren Straley, I have closed on a 18 unit with seller financing, and 4 additional units with seller financing (aka land contract).  The 18 unit was purchased with 25% down, with interest rate at 5% for 5 years, renewable for a further 5 years at 6%, with 20 year amortization.  We're currently 4 years into the loan and looking around at refinancing options, to pull some equity out (the property is probably worth twice what we paid for it) and to lock in a better rate than the 6% we'll otherwise pay.  

Our land contract / seller financing was arranged with the blessings of the community bank that holds the mortgage.  In actuality, we pay the bank and the bank applies our payment to the original loan, so it did not have to go through underwriting again.  The closing was held at the bank.

On the other 4 units, we purchased 3 units with a land contract with 20% down and the balance over 6 years at 5%, and the 4th unit has a land contract with 40% down, with the balance paid over 4 years at 5% interest.

Hope this help.  Good luck.

A small team including property management company owner, key principal, additional key person, and I are considering making an offer for one or more 100+ unit apartment complexes in our area that we believe are being operated far below potential.  As a team we have operational experience in managing complexes of this size, and in raising funds, but no one on the team has made offers to purchase anything off-market before.   

My question - would we be wise to involve a local commercial property broker when we prepare our LOI and PA, and, if the recommendation is to do so, what do you see as the benefits of involving a commercial RE broker in the purchase process?

It's clear when the broker is listing a property what value they bring to the transaction, but when we are approaching a seller who hitherto had no plans to sell, it's not clear (at least to me) what value the broker brings besides a BOV.  A BOV alone doesn't seem like enough to justify paying a broker standard fees, but if there are other benefits to having one involved then we'd be willing to pay to have them be part of the transaction.

@Tyler Brown-Lewis  our private money lenders are family and friends. They are familiar with our real estate investments from  hearing about our  struggles and successes over the past five years, and  have asked us if there is anyway that they can participate.  For some people, it is an opportunity to take some of their gains from the stock market and put it in a form that is less likely to lose value, and for older people, investing  in real estate with us is one of the few opportunities that they have a earn a decent interest rate with low risk.  Our initial investments though were with our own money, and it was only after they saw us doing well with our own investments that they asked us to take their money and invest it.

@Rick Birkenstock, I've gone both solo and as a passive investor in multifamily deals.  My solo experience as the owner of 25 apartments has been very hands-on, as I manage the property myself.  Self-management has been a tremendous learning experience, but is also a big time and energy commitment.  Initially the property didn't support property management, but now that rents have increased and rehab expenses have dwindled it's time to turn the property over to professional management.  That has been the plan all along, it just took longer than anticipated!  Unless you really like landlording, which you don't, be sure any property you buy has the finances to support property management. 

That said, even with PM there will be a big learning curve to operating a 50 unit complex.  If you are going solo, I would recommend first investing in yourself via a multifamily mentoring program, such as those offered by Michael Blank, Craig Haskell, and others.  They aren't cheap, but when you're operating 50+ units you're in the multimillion dollar arena, which can and should justify investing in education to improve your odds of success and achieving a decent return on your very large investment.

I've also been preparing for by investing in large apartment complexes as a passive investor.  As a passive investor you get to look over the shoulders of the management team as they acquire and operate large apartment complexes, asking questions (though don't be a pain by constantly asking) and looking over the financial reports.

Good luck!

Help!  Has this happened to anyone else?  I just checked my BiggerPockets profile to update the number of properties we own (just closed on #27 last Friday) and see that all my information has been blown away, there is nothing there!  I haven't touched the profile in a long time, so it has to be some sort of system glitch that erased my info.  It was there when I looked at it last week prior to the closing.

@Joshua Dorkin is there any way to recover this information?  I didn't have an offline copy, as it never occurred to me that this could happen.  Going forward I'll keep a backup of the text that I've input, but for now I'd just like to get back to what I had.