All Forum Posts by: Robert C.

@Storm S., I'm not a broker, but as a buyer in the Bay Area, I think the answer to your question is all about networking. You're not going to be able to change the market, so you are right - most multifamily deals are sold off market, and that's where you need to be to become successful. I agree with the poster who mentioned starting with a commercial brokerage firm. It's an "ol' boys"/ wall street-esque community that controls the MF market in California. In fact, I suspect they are responsible for a good portion of the rent/value increases we've seen over the past decade, since nothing really hits the public market. 

From what I've seen, the successful young commercial brokers partnered with seasoned realtors back in 2007/2008, and utilized their partner's existing network and knowledge to allow them to launch like a rocket ship after the crash. Since then, a large portion of their business is essentially trading and re-trading the same product between buyers, with the occasional MF that comes onto the market due to inheritance or retirement. 

Anyway, to me that's the easiest way in. If you are trying to do it all independently, you're going to hit another wall, which is convincing owners to work with you. They are also tied into this network of brokers, so they are not going to just abandon ship with people they have relationships with, unless you can prove you have the ability to move them out of their existing investment into something better. 

@Jesse Fernandez, It's a smart question, and it's the essence of the balancing act you have to decide on as an MF investor. My short answer is don't over-leverage, and don't expect to pull 100% of your equity out on every investment (which can lead to over leveraging).

In the best case scenario, you stress test your purchase based on where you think the interest rate will be after completing your renovations for refi (with some cushion). Once you stabilize, then you lock in a rate for X amount of years. In the time it takes for X years to pass, you'll have ideally 1.) Increased rents 2.) paid down principal 3.) managed reserves 4.) stabilized operations. When you get to the end of your fixed loan term, you either refi or let it float depending on how you feel about the market and how your property is doing financially. 

Typically, it's the short term that you are probably more concerned with. If you've been able to hold a property for 20+ years, then you'll probably be okay no matter what the interest rate environment is at that point, since the property will be mostly paid down and the income will likely have grown a healthy amount.

In my opinion, most everything comes down to your initial buying criteria. Did you buy at a lower than average price? Is it located in a place that can benefit from rent increases and appreciation? Do you have a value-add plan that can be executed effectively? Did you put aside reserves? Were you conservative in your assumptions? Do you have more than one exit strategy?

Almost everything after you buy is really a factor of how you react to what the market throws at you. There's still the continued execution of your plan that's important. And I would also add that you want to maintain strong relationships with financiers (banks, private lenders, etc.).

@Vinh Huynh, You know, it seems as if you have a good head on your shoulders and thought the purchase through. Actually, I'm really saying that not to you but to everyone else who's been posting... haha. I'm wondering like some other people why we're on page 10 when your question has already been answered a dozen times over. 

Correct me if I'm wrong, but you never asked anyone whether or not it was a "good investment". You just wanted advice on how you might increase the income! 

@Jay Hinrichs, That's why I try to keep my head down and just focus on my numbers and strategy. Sometimes when I talk to too many people who are all talking about bubbles, it really messes with my head! You don't want to be the sucker that stays, and you don't want to be the sucker that goes. :)

@Jay Hinrichs, And now Menlo Park apartment complexes have been selling over $800k per door. This year, there are some being listed at $1mm a door! Honestly, I'm not sure how people really make it out here unless you bought real estate (cashflow be damned) or lucked out on an IPO. If you didn't get in on one of those two things in the last 10 years, you were probably priced out of the area. 

@Jay Hinrichs, Yeah, hearing stories about what it was like around Silicon Valley in the 80's always gets me pumped up. There's still always that little voice in my head that asks "can it really keep going up". But from what I hear from the multi-decade investors is that everyone always thought it couldn't keep going up no matter when they bought.

@Anthony Wick, I agree that "negative cash flow properties on interest only" was a terrible idea for many people. However, I don't think that means that you can't buy a long term investment with some negative cashflow IF you can afford it. A lot of people who were able to hold on also made out very well around here. In fact, I sometimes think one mistake some of my friends made during the crash is that they were afraid to do anything with their property when the chips were down. Had they just sold the property they were psychologically "stuck in", and re-invested, they could have recovered with a 100%+ gain instead of a 50%+.

Anways, I don't actually think this is a good strategy for everyone. But it makes the decision making process easier for certain folks when you can tell them to just focus on the basics like location and curb appeal. There are a lot of high earners who could be putting their money to work sooner, except they are too focused on cashflow in a market where it is TOUGH to hit positive numbers. (It can be done, but they don't have the time or inclination to aggressively search, when that time could be used more productively elsewhere). Or, in the worse case, I've seen casual investors get into trouble because they think a property cashflows, but are buying a real stinker in terms of maintenance/tenants. The over-emphasis on cashflow actually distracted them from the things that come more intuitively, such as neighborhoods they already know are solid. 

@Vinh Huynh, Just an example for the nay-sayers out there who don't live in CA... My hairdresser is retiring this year with two $4mm homes in Palo Alto. She's selling one and moving closer to San Jose, and the other one she's just keeping and renting  with positive cashflow until she thinks she feels like getting the equity out. Call it speculation or whatever you want, but this is not an isolated story around where I live and invest. 

@Vinh Huynh, I get a lot of friends/family asking me real estate investment advice (as I'm sure many people here do). And when it's someone with a strong W-2 job, and not really looking to do REI full time, I tend to suggest there's nothing wrong with buying a nice property in a good location that can be rented for break even or close-to break even. That's how a lot of people save up for retirement - get renters to pay off mortgages on a handful of properties and also hopefully earn some solid appreciation over several decades. I think that message gets buried here on BP, because the community is filled with much more active investors who are looking to accelerate their retirement timeline to the n-th degree, often starting with limited financial means.

I don't know if that describes you Vinh, but I'm guessing it might. 

Now, going back to your actual question, you don't have a lot of options for getting to cashflow positive. You could try renting it as a short term rental or furnished apartment if you think the location would work, but that would take more management. There could also be the possibility of remodeling to achieve higher rents, if there's value add. Otherwise you either need to just wait for rents to increase, or refinance with more money down. 

@Spencer C., Depends on local factors, but you are probably overthinking. Your older units will probably serve a different segment of the renter market vs new construction. Construction costs are high right now, and developers will expect certain returns. Many new large developments are geared towards the luxury end of the market. 

@Mark Creason, Thanks for the clarification. Would have been nice!