How I Bought an 18-Unit Apartment With No Money Out of Pocket

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I am sure you have heard people talk about “no money down” deals here on BP. The skeptics would say, “That can’t be done in today’s market!” Well, it can be done! Here is my story of how I purchased an 18-unit apartment building with no money out of my own pocket in 2014. It is the biggest deal I have done (so far, of course).

Related: The Book on Investing in Real Estate with No (and Low) Money Down

In this case study, I tell the story of how we found the deal, how much we raised, and how we were able to achieve this goal. I made sure to provide specifics, which I hope you find helpful. I also share a few tips for all those that are interested in making this happen for yourself. It is not rocket science, but you need to have a great team, strategy, and plan in place.

What do you think: Is this a strategy you would use to acquire real estate? 

Leave a comment, and let’s talk!

About Author

Matt Faircloth

In 2005, Matt founded The DeRosa Group along with his wife, Elizabeth. At the time, the two person company owned and managed two assets – a single family home and a duplex. Over the last nine years, they have grown the company to a 12 person team owning and managing over five million dollars in residential and commercial assets throughout the central NJ and Philadelphia area. One of DeRosa’s mantras is “to make money while making a difference.”

109 Comments

  1. Jim Iorio

    Hey Matt!

    Great video. This is actually where I want my business to head over the next several years. Currently, I’ve got 2 wholesale deals under my belt, with the 3rd one pending. I’m still living with family, and I want my first “buy and hold” move to be a house-hacking situation. Do you think it’s easier to come across an owner-financed deal where rents cover the mortgage, or to come across an equity partnering deal like the one you mentioned? I’ve thought of doing it either way: living in one of the units of a small multi that I own, and renting the rest, or living in one of the units of a BIG multi I own with partners. If you were in my position, how would you go about building up that “track record” or that network of investors to lend on projects like this? Thanks in advance for your response, and thanks for the video!

  2. Matt Faircloth

    Hi Jim,
    It sounds like you are on a good path. My first deal was a house hack actually! I would try and do a house hack on a small multi. You can buy up to 4 units with FHA money (3% down I think) if it’s owner occupied, so I would go that route. you will need to find the 3 to 5% required to close but that should be that hard to come up with. You also need to have decent credit and a job showing w-2 income. If you don’t have any of these, you should work on getting that first, before going any further. You will need it for a larger apartment building also as you will be asked to guarantee the mortgage. Once you build up a large enough portfolio you can use the income from your rentals to show income to the bank to the degree that you don’t need a w-2 anymore.

    Don’t do an equity deal yet, it sounds like you need to develop more of a track record. You are on the way though. Be sure to document the two wholesale deals you did so you can reference them as deals you successfully completed also.

    I hope that helps! Best of luck.
    Matt

    • marty johnson

      Matt,
      I have been searching for a duplex to live in (owner occupied) within my area for months. Listings are few and far between so my agent began sending me listings for triplexes and quads. NO lender would mortgage a triplex or quad for less than 20% down!! I have excellent credit, a stable income, and qualify for over $350K with 5% down for a SFR or Duplex ONLY! I recently missed out on a great triplex for this reason… Can you comment on how exactly to purchase a quad with 5% down, as this has NOT been my experience.
      Thanks!!
      Marty J

      • Matt Faircloth

        Hey Marty,

        Unless the lending guidelines have changed, you used to be able to get FHA financing for up to 4 units owner occupied. Do some searching online for it or on BP. Your local agent may not have this in his bag of tricks but I think it’s still out there. Good luck!
        Matt

  3. Douglas Campbell

    Matt,
    Thanks for the video. I am new to real estate and agree with your philosophy and strategy. I am learning more each day and hope to either align myself with experienced investor/manager or develop my own track record. As I learn more, my focus will be on developing a group – or groups – of investors. Look forward to checking out more of your posts.
    Doug

    • Matt Faircloth

      Hey Doug,
      Glad you enjoyed! Good luck developing that track record. It’s so important to have. No body wants to be your first deal! Having a track record will show that you have the experience needed to do the right thing with their money. Testimonials from other partners / investors help too.
      I hope to hear from you on the other posts!

      Take care!

      Matt

  4. Cameron Berens

    Thanks for sharing Matt. Currently building my track record (2 SFR under my belt) and have added two people to my network that are 50+ unit apartment community owners to learn from. Hopefully in the not so far future I’ll be able to post about my large multi unit purchase as well.

  5. Rico O.

    Hi Matt,

    Congrats on your goal execution, I am a very new investor in the learning curve with one SFR and my personal home, so far all done traditionally. My ultimate goal is to get in to large Apartment Complexes, Thankful for people like you that are willing to talk about it for us baby’s on dippers, allowing us to learn and get to our goals quicker.

    God Bless
    Rico

  6. I’m sure a bunch of people have written and done video that I would have found very useful.
    You just happen to be the one that I watched today when my mind was saying sure it’s simple but I don’t get it. I can’t thank you enough for taking the time to step by step the first few things a person must do.
    I would like to hear what you think the first few things involved in wholesaling are.
    I have invested in single family housing a bit but that was because those houses just wouldn’t get out of my way. I need to learn because people want to do business and must think I’m stupid for not tying up the deal.
    Thanks for posting and the video Matt,
    Gary O

    • Matt Faircloth

      Hi Gary,
      I always say that there are no coincidences. Glad you watched our video and glad it helped. I’m not much of a wholesaler so I may not be the best authority on that. There are a ton of wholesaling experts on BP though. The successful ones I know do a ton of marketing! Either way, you should create a 2015 plan for your self and stick to it. With a few years of time you can develop the track record and pool the assets to do a multi-family deal!
      Take care,
      Matt

  7. Great video Matt, congrats! How do you structure your equity partnerships? What percent of equity do you keep and share with your investors? What kind of a return do you and your investors get? I love the video and would love to hear the more specific details. Hopefully you are willing to share them. Thanks again!

    • Matt Faircloth

      Hi Graham,
      Thanks for reading! For that deal we did 35% for the GP (us) and 65% for the LP (investors). We base our equity split based on the target we wanted to achieve to our investors. It goes deal by deal really. I can get into more details if you like, shoot me a private message and we can talk further.
      Thanks,
      Matt

  8. Brian Karlow

    Great video and congrats on the deal! Would you mind breaking down those numbers a bit further? (i.e. partner percentages, cap rate, amount in repairs, expenses, etc.) If the details are too extensive for the post, could you PM me, I would really appreciate your sharing.
    I always enjoy your posts and thank you in advance for your help!

    Brian

    • Matt Faircloth

      Hey Brian,
      Thanks for reading! As I said the previous comment the split was 65/35. At first the CAP rate was not very favorable because we were buying an 18 unit building that was 50% occupied. Once we got it fully leased we are north of a 10 CAP. I would be happy to go into more detail on this or other deals, shoot me a message and we can speak further!
      Take care,
      Matt

  9. Jay C.

    Interesting video. Although it states the deal as “no money out of pocket” I think you made it clear that unit was not purchased that way. Just to be clear none of your money out of pocket and honestly when you borrowed or brought in investors you as a group you do have money out of pocket as a collective. I think that’s really deceptive. At the end of the day are you not on the hook to a large degree for the cash you took from those investors? As well if you have a lot of properties all doing well and one doing poorly the others can bail each other out. Not the case if you lever up and have one or two properties like this. Its clear to see your passion in the video and that’s great to watch. My concern is that I I see on bigger pockets………….’go for it”. How many properties have you bought on the backs of the go for it group that went and failed. My comments are not directed at you personally. Its obvious you know what your doing. Just my two cents.

  10. Matt Faircloth

    Hey Jay,

    Thanks for the comment. It sounds like there was some confusion on my message. I know the title of the article didn’t say it, but in the 3rd sentence of the article I said ” …I purchased an 18-unit apartment building with no money out of my own pocket…” I also went into plenty of detail in the video on how the deal was structured, including who put up the cash. Not sure how you found the message deceptive, I thought I was pretty strait forward and clear.

    You are correct – my investors put up the cash for the deal. In exchange for that, I personally guarantee the mortgage on the property and run the day to day operations of the project. That’s how I earn my side of it. Although I don’t put in cash I put up plenty of other things as my side of the deal, and my investors are grateful that I am willing to do this so that we both can make money.

    I am also proud to say that I’ve never done a deal with my investors that failed. I am very selective on what I get into. And there is no using one deal to prop up another deal, no “bail outs” as you elude to. There are a few bad guys out there but for the most part, the people I know that work with investors are not out there to dupe anyone or rob Peter to pay Paul.

    So let me make one more observation. It seems like a lot of the language you used in your comment is about how things “can’t work”, “too good to be true”, etc… you can spend lots of time in life doing that. What you are really doing is talking yourself out of taking action. It’s easy to do, and it’s much easier than actually taking action and stretching yourself. I do tell people to “go for it”, regularly. That’s because I hold a strong belief that action creates success. Problems, what ifs, logistics, can all be worked around. What can’t be resolved or worked around is in-action. There is an unlimited amount of resources in the world – deals, money, partners, etc… The one limited resource in the world, is Time. It can be wasted talking about why you can’t do a deal or saying that what someone else is doing is too good to be true, or it can be used to make a plan and then put it into action.

    Best of luck!

    Matt

    • Daniel Mohnkern

      Wow. Great answer. That’s somewhere I used to be. I used to think that all those successful people were born with a silver spoon in their mouths and it wasn’t fair. I thought it was too good to be true and I didn’t trust anyone to tell me the truth. I figured that, if they were successful, they got it at the expense of someone else. After I started studying sincerely, wanting to figure it out for myself, and left my skepticism and distrust of people outside, everything started changing around me. You are very right; inaction is our biggest enemy. Taking action changes everything.

      • Matt Faircloth

        Hey Daniel,
        Thanks – I’m glad you agree. I actually used to be one of those people also, the ones that envied what others created and said they must have cheated or gotten lucky to get there. I guess it takes one to know one right? Well I grew out of that, like you did by taking action in my life. Change doesn’t happen overnight, but it does happen.
        Matt

    • John C.

      Great reply, Matt. Thanks for the video and inspiration. And, congrats on the sweet deal!

      I’m in the process of getting close friends as investors because I’m short on funds currently. Your plan is exactly what I’ve been thinking about recently.

      So, each deal is structured differently depending on the particular numbers of the deal? I suppose a deal would be structured that makes everybody money and entice them to invest with you in the future?

    • Matt Faircloth

      Hi Daniel,
      You are welcome, and thank you for reading and for leaving a comment. I’m really glad you found value! What we did just took a solid plan and sticking to it. I hope that you are “inspired” to do the same! Best of Luck,
      Matt

  11. Margaret J.

    I thought it was a great video and just gave me a little more vision of what my future could hold. I have always thought that multi family is something that I would eventually get into. I’m still working on building experience right now. One of my mentors told me to write a “deal book” and keep track of everything. When I wrote them all down, I was surprised how many I had under my belt. I also makes notes and the issues I had with that deal or problems I had to overcome so hopefully I can laugh about it later. Right now my deal book is at 13 and I’m looking for the next one….

    • Matt Faircloth

      Hi Margaret,
      Thanks for reading and for leaving a comment. Your mentor is correct – keep that deal book going!! When you are ready to bring investors on board it will be in-valuable. Best of luck and here’s to deal number 14, 15, 16…

      Matt

        • Matt Faircloth

          Hey Bill,
          You are so correct about luck. Diligent people that stick to their goals seem like the luckiest people in the world, LOL.
          You probably don’t need 18 units in California to get the rent roll we get in New Jersey. I have heard that it’s hard to find a deal with a decent CAP rate out there though.
          Best of Luck!
          Matt

  12. Charles Goosby

    Matt,

    The video was awesome and some of the points you’ve made in the comments are inspiring. The “go for it” attitude I believe is necessary in obtaining this deal you’ve just achieved. Great move! I am wondering when you have a multifamily with good rental history; Can you claim as income to purchase the property if 80% occupied? Thanks again for the video. Awesome job!!
    Charles

    • Matt Faircloth

      Hey Charles!
      I’m glad you back me up on the “go for it” attitude!
      With regards to claiming the income – I assume you are talking about claiming the income of the rental as part of your personal income? I have not seen banks look at it that way. What they do look at is called the Debt Service Coverage Ration (DSCR). Do a search on BP for deeper discussions of it, but in a nutshell it’s now many times the propert y can make the mortgage payment with it’s current income and expenses.

      For larger deals like this one, they really didn’t look at my tax return for income too hard, they just wanted to make sure I had a good track record of paying my bills and had SOME extra income if needed. Their main asset in the loan was the property, so the loan was primarily based on the deal, not me.

      This whole conversation kicks in above 4 units. For deals below that, most banks treat it the same as they would a smaller transaction like a SFH. Make sense? Shoot me a message on BP if you want to go deeper.
      Take care,
      Matt

  13. Jay C.

    Matt,

    I appreciate your comments but its good to complete the picture. Your article has the big catchy grab of a huge investment with no money down. That to me implies you have little to no skin in the game but that could not be farther from the truth as you clear up you personally guarantee the loans to get in the door. To be clear I dont think you are deceptive I just think it lacked some of the details that’s were cleared up. Hope thats clear. I think you are tearing it up and that’s great,

    On another topic the “go for it” mentality I agree to some degree but only so far. Yes things can and do work but just as many fail……..yes just as many. You and I and many an investor has built some of our portfolio on the backs of these go for it and fail groups. Its not for everyone and some folks have no business borrowing hard money and getting all levered over a dream. Its not good for them its not good for you and I. As I read BP it reminds me of full speed ahead with very little “be careful” warnings within.

    Anyway kudos to you. You understand the system and will continue to do so. My hopes are to see some more balance on the site. Thats all.

    • Daniel Mohnkern

      @Jay C

      I think I understand where you are coming from on this. I have been taken advantage of in the past. I have been, as I call it, “financially raped” by a couple unscrupulous people in past years. It made me sick to think that a person would take advantage of a person who didn’t know any better.

      I came from a family that didn’t know much of anything about finances. I was left the same was when I grew up.

      The first time I bought a car from a dealership, the dealer quickly figured out that I didn’t even know I should read before I sign. Because of the person he was, he, in turn, charged me over 23% for a $20,000 car loan so he could make the best commission off me.

      I was also duped into getting a time share when I was younger even though I told the salesman that I could not afford it. At the time, I had been trained to be a “yes man” and to be agreeable. That mentality bled over to my financial life and encouraged some to take advantage. I told the time share salesman “no” as many times and in as many ways as I could stand. Eventually he teamed up with a “manager” and used excessive peer pressure to talk me into it based on a ( false) sense of prestige it would afford me. I buckled and it cost me thousands.

      I sense that you have probably had experiences in your past that may be somewhat similar. I can tell you what I did to overcome those experiences. I got ticked off enough to change myself. I knew that everyone was not as immoral and ruthless as those men that took advantage of me, but I was never going to be taken advantage of like that again. That is when I chose to educate myself. Not by going to college, but by doing everything in my power to change my financial family tree. I have read books, gone to free (and paid) seminars, read more books, studied courses on various financial aspects, networked with successful people I studied and found to be honest, and became a “financial minister” of my church so I could help others in the church become educated as well.

      I’d like to encourage you to see the better side in people. Should you be careful who it is with whom you network? Absolutely. But don’t assume that the majority of people are successful off the backs of someone else. There are a few of those people out there, but not most. Everyone makes decisions on their various deals with different reasons. One person wants to get a great deal by paying little while the other wants to rid himself of what he sees as a money pit. One person is willing to pay a premium for someone else to give sweat equity in a deal. They both win. One investor gets to spend his time elsewhere while the other investor gets to use his money in exchange for manual labor or know-how.

      It is up to each of us to know what we know. It is the individual’s responsibility to do his or her due diligence in the deal to figure out if it is something they want to do. It is not our job to worry about the other person’s reason for wanting to do a deal. It is our jobs to make sure that the deal makes sense to us. And, at the same time, the majority of us will not force someone to do what they don’t want to do or encourage someone to do something that we know is not in their best interest.

      Only when we decide to educate ourselves and take calculated risks along side positive action do we become the successful ones. And then we wonder why our past selves were so angry at the people we are today.

      God bless.

    • Matt Faircloth

      Hey Jay,
      I see where you are coming from. Too often, the sexy side of real estate is all that’s talked about. You don’t see the hard work, blood sweat and tears that it takes to be successful in this business. Most of that is glam and glitz, with no intent to dupe anyone it’s just a more interesting conversation, unfortunately. I wouldn’t blame BP for this, or the writers though. Most of the articles I read go into plenty of detail on how to really succeed in this business.

      Failure only occurs when you quit. I would put my chips on most investors to be successful if they take on one agreement – never giving up. I’ve had many deals not go the way I was expecting, and could have quit the business out of frustration. Many people in this business get in and quit. It’s a tough business sometimes, and it can smack you really hard! But things turn around with diligence, mentor-ship, and action. I’ve seen that over and over in my business and with others. I’ve had many things you would call a failure in my business, but I stuck with it and was able to turn it around.

      I’ve really enjoyed this so thanks for the great conversation!

      Matt

  14. Josh Sterling

    Great video Matt! It is nice to see the more advanced approach to acquisitions being laid out step by step. I’ve realized that it is not all that difficult to buy a few deals a year using my own money and bank loans based on my income/credit. The next level is putting together deals using other people’s money, then the sky is the limit.

    -Josh

    • Matt Faircloth

      Hey Josh,
      Glad you enjoyed! You are right, build up that track record and get yourself some battle scars on smaller deals with your own money. Then raise the bar and get into larger deals and bring along investors that will be happy to go along with a seasoned investor like yourself. Good luck!
      Matt

    • Matt Faircloth

      Hey Jeff,
      The current rents in the building (on the 9 units that were occupied when we bought it) were low – studio ($450), 1 BR ($525), 2 BR ( $650). We were only allowed to raise those rents by 3% per year due to Philadelphia Rent Control laws. We took the other units, and occupied units that vacated after we purchased it to – Studio ($625), 1 BR ( $725), and 2 BR ($850). Currently we have 6 tenants left over from the previous landlord, and 12 new ones. We’ve owned the building for 1 year so far.
      I hope that helps!
      Matt

  15. mark masiel

    Thanks for the Video Matt!

    I wonder if you could elaborate on “You cant just go out and buy a 18 unit apartment if you don’t have real estate experience”
    If you have the money and you do your research, why not? It’s not exactly rocket science. I am not talking about getting investors like you did but rather putting in your own money. If you have good management In place I don’t see why you need experience cutting you teeth on little properties before dreaming big. I look forward to your advice!

    • Matt Faircloth

      Hey Mark,
      Good point. You could do that if you have the cash. I love that you are thinking big!!

      You would have a hard time doing it my way – bringing in investors that trust you with their money and doing a deal north of a million on your first go round!

      That being said, you bring up a good point. You could get into a deal like this as your first, and you said the big factor – management. We manage all our deals with our in house team, but if you are looking to use an out side property manager and have the cash – you could do this deal. All you need to do is find the right one by networking with agents and owners, and running numbers on deals until one makes sense.

      If you plan on going about it that way, best of luck! I hope to hear back on how you do!
      Matt

  16. jEFF d.

    Excellent video Matt. First question, is that photo above the actual building? If so, nice! What part of country? Way nicer than what could 1.5 mil could buy in my region. Second question……I’m actually closing in about a month on my first 12 unit. Savings from flips will be the down payment. So it’s too late for any investor structure on this one, but I already know I will want to (and will have to) use this strategy on the next one down the road. Can you go into more detail on the split of the deal. Your investors get 65% of the profit when you sell, and you get 35% – right? Was there an exit timeline as part of it? And what about the along the way? What’s the cash flow like? And so does each month’s cash flow also get split the same way – 65% to the investors, 35% to you? Are you self managing and getting additional compensation for that as well?

    • Matt Faircloth

      Hey Jeff,
      This deal was in Philadelphia. We are located in Trenton NJ so our deals are around that area or in Philly. What part of the world are you from?
      Congrats on your upcoming closing! that will be a great one for your “track record” as I said in the video.
      We tell investors that it’s a 5 year investment minimum, and they are ok with holding their investment in the deal for as long as it takes for an exit (refinance or sale) to make sense.
      We pay dividends once per quarter, based on the performance of the property from that time frame. And yes their cash flow dividend is equal to their percent of ownership in the deal. We manage each of our properties ourselves with our in house team, and take a 10% management fee for that. That fee pretty much goes towards the salaries of our staff, our profit is in our equity share in the deal.
      I hope that helps!
      Matt

      • jEFF d.

        Love it. Thanks for spelling it out. So a person doing a deal like this is essentially getting a loan for the down payment on the building. A 5 year loan, with payoff at some point that makes sense thereafter. And a loan with minimal fees, no arduous qualification process, and no payments along the way – just a split of the winnings when it sells. That is awesome. Good luck finding that with any bank.

        The downside that should be pointed out is that you have to give up 65% of your cash flow each month. Maybe not a biggie. You ARE getting the 10% monthly for managing. Plus your 35% of the cash flow. But depending on how cheap you buy it, your cash flow in those first 2-3 years typically isn’t going to be much. So that 10% management fee could in fact be most of what you make each month off the property. If the building brings in 10k in rents a month (probably not far off for an 18 unit) you’re getting $1000 a month to manage all the vacancies and headaches that occur. Depending on it’s condition and the quality of tenants, you could be working pretty hard for that 10%. Care to share any of those numbers?

      • Harold Looney

        Matt,

        Thanks you for this information. This is exactly what I was looking for! I am only half way through this thread, so forgive me if you already answered my following questions in later posts:

        1. You mentioned that the exit strategy for your investors is for you to sell or refinance the property. Could you also allow other investors to buy-out a LCC membership after the 5 year period expires?

        2. Did you have to have all of your investors lined up when you established the LCC, or could you add investors over an extended period of time?

        Thanks again for the great video and for being so responsive and transparent with your posts.

        Blessings

  17. R. Walker

    Super Matt ! Always encouraging to see folk on BP making it happen.

    I’m wondering how you managed and paid for development of all legal artifacts (operating agreement, subscription and PPM). In other words, did you pay for preparation ahead of the deal or were those costs paid out of 500K you raised?

    Thanks…

    • Matt Faircloth

      Hey R. Walker,
      Thanks for reading.
      Good question – yes we paid for the legal (around $5000 to setup the docs and to support the closing on this deal) out of the funds raised. We disclosed that to investors up front also.
      Take care!
      Matt

  18. Suzanne Ishak

    Great video, Matt and great responses to the comments as well. I want to raise private money and I would like to know how you structured it as well, if you can PM me also with the details. I’m keen to get private investors but still standing on the edge of the pool and haven’t yet jumped in, although I have quite a few properties with traditional financing. I love your enthusiasm, thanks.

  19. Matt Faircloth

    Hi Suzanne,
    Thanks for watching! I’m glad you enjoyed the video and the back and forth in the comments here.

    The first step in raising private money is developing a strong track record. It sounds like you are there as you have some other assets with standard financing. The next move is to develop your target list in your immediate network. For some more ideas on where to look for private money, here’s an article I wrote for BP last year:

    https://www.biggerpockets.com/renewsblog/2014/08/15/everyone-knows-people-money-invest/

    Get some conversations going with these people, and at the same time start looking for deals. We started really small – two single family homes was our first equity deal. You don’t have to do that but if you are having some reservations about getting started it might be a good strategy.

    Actual deal structure needs to be done with an attorney. We use Limited Liability Partnerships, which give an advantage to both my team and our investors.

    I hope that helps! If you have more questions shoot me a message.

    Take care,

    Matt

  20. Justin Kaye

    Hi Matt, great video post. I am new to real-estate investing and would love to implement what you did to start which is “house hacking”. I am in the education phase, learning from Ben Leybovich’s incredible cash flow freedom course, listening to podcasts, reading, etc. One great take away message that I learned from Brandon Turner’s recent webinar was to do find what you love to do in life more than anything else and have that be your career.

    I have a great interest in medicine and plan to start medical school within the next few years. Although I love medicine and the reward’s it will bring, the financial aspects are not something I find comforting. Aside from the 100k+ loan to attend school for four plus years, there are no retirement options and even after graduating, there still is residency programs for a minimum of three years with below minimum wage payments. It is my plan to start real estate investing on the side by purchasing small multi families and taking advantage of FHA, etc. I have a w-2 currently but will not be able to keep my job once I begin school. How can I get around the w-2 situation and still take advantage of FHA loans, etc. to build a track record while I am in school? I appreciate your feedback.

    best,
    Justin

    • Matt Faircloth

      Hey Justin,
      Thanks for the comment. It sounds like you have connected with your passion, which is great. Some people go through all of life without finding theirs. Congrats! Real Estate can be a good supplemental income / retirement plan source. Once you are a full fledged doctor, you may not have the time to manage your portfolio day to day and will need to be a passive investor, perhaps in other people’s deals. For now it sounds like you need to get a “sponsor”. That is someone who is willing to go on the loan with you as a guarantor. This person would need to have income to support the loan. You would need to add them to the deed and give them some ownership in exchange for putting their credit / income on the line.
      I hope that helps! Best of luck with medical school!
      Matt

  21. Faun Perdue

    From start to finish great video. Let’s me know the possibility of multi’s as well as what the
    framework is to build up to something such as this. So I’m building my track record and looking
    to purchase my 1st 4 unit before the years out. This helps tremendously.

  22. Shane Newell

    Great video, Matt. I’m encouraged to see a fellow New Jerseyan having luck in real estate investing given how uneconomic some ares of this state can be. I’m a somewhat seasoned investor (4 current SF homes), but haven’t added any new assets in 5 years now (does that make me a newbie again?). I finally feel back on track and have a few offer on multis pending now. Again, thanks for the info and motivation!

    • Matt Faircloth

      Hey Shane,
      Yes, Jersey Strong, LOL. I actually have found that NJ has a great mix of neighborhoods that work for different strategies. It’s allowed us to take on fix and flips and also buy and holds, all within a 30 minute radius of our office.
      It sounds like you have established a solid track record from your rentals, especially if you still own them now. You’ve been a landlord for this long, you must be doing something right! Good luck on your pending offers!
      Matt

    • Matt Faircloth

      Hey Dino,
      Thanks for watching, I’m glad you enjoyed it. It’s a pretty competitive market place out there so you need to do lots of searching and networking to get the right deal that makes sense. Don’t get discouraged! If you haven’t defined a “farm area” meaning a geography you are interested, do that first. Then find realtors and commercial brokers that are working that farm area by searching active listings online. The listings they have might not be great deals but If you can get them to put you on their buyers list they will let you know when new ones come out. Good deals don’t stick around for too long.
      I hope that helps!
      Matt

  23. kara haney

    appreciated your great thoughts – I agree the biggest obstacle is action – but before action the biggest obstacle is doing the research and the numbers and finding a good investment without that you are stacking the odds against you. I think you are so right – in a RE market that is no longer guaranteed to go up – you need to buy with the profit built in – by buying well.

    thanks for the explanation of your financing and investors – this kind of transparency is so rare and so helpful too. As to the track record – I would like to ask more since I can no longer get a job in my old industry and this is one reason why I am looking at RE – to supplement my retirement age that is too close to mention:)

    Thank you, Matt – and everyone here at BP who shares such valuable insights.

    • Matt Faircloth

      Hi Kara,
      Thanks for the comment on action. I would actually include doing research and networking as action also. To be clear to you (and all the others that read the previous conversation on action), making offers is only one kind of action. I don’t want people to think that they should just run out and make an offer on anything and everything and call that progress. I think its a combination of a plan and action directed and bring that plan to life.
      And you are so right about the market – I buy for cash flow. Appreciation, if it happens at all, is gravy.
      For track record – remember that you don’t have to do it yourself. You can align yourself with someone with a solid background in the business and “intern” with them or get them to hire you as an assistant so you can get exposed to pro-level deals. That way you learn the ropes and get some deals under your belt without having to do it all yourself.
      I hope that helps!
      Matt

  24. Thai Foo

    Hi Matt, congrats on your success. I do have a few questions:

    – Did you close this complex through a broker? It wasn’t an off-market deal?
    – If for some reason any one of your investors wanted to sell their shares before an exit? If so, is there a limitation of who they can sell it to? Is there a penalty applied? If they initially invested 100K 1 year ago, how is the 100K today? Based on the current valuation of the property?

    • Matt Faircloth

      Hey Thai,
      Thanks for reading and for the comment. Yes, this was through a broker, he represented both me and the seller. We were on his short list of motivated buyers and got the call from him when he got the listing. He hadn’t listed in publicly yet, he was shopping it to his inner circle as I find most agents will do.
      There is a clause in our operating agreement that allows the investors to sell but they must try and sell their shares to us or the other investors first. They can sell their shares for whatever they can negotiate and there is no fee. If they can’t sell their shares in house they can take them out to sell in their network. Once they get an offer to buy them, the other investors get the right to match the offer before it can be accepted.
      Due to the full lease out of the building and maturity of our other investments, our investors are up by 21% in equity to date.
      I hope that helps!
      Matt

  25. Thanh Nguyen

    Matt,

    Awesome post! Really enjoyed how you were brief and concise. Especially pointing out the things you want us to take away from the video. Congratulations on your deal, looking forward to more of your success stories.

    Thanks for sharing.

  26. Albert M.

    Matt, hi there. Thanks for the video post, inspiration, and lesson on the power of leverage.

    Reading posts, articles, and books, and watching webinars and live guru presentations on the subject, I’ve convinced myself in the past couple of years, that “yes”, it is indeed possible for one to acquire possession/control of real estate with no money down, no money out of pocket. I’ve seen enough folks do it so naturally, I’ve asked myself, “Why can’t I?” Answer: I know I can. And so I will add your video and post to my collection of “I know I can” literature to reference down the road.

    Thing is, I truly believe that most people can do “no money down” deals. I won’t say “all” because … well … we all have different upbringings, different financial profiles, different risk thresholds, different priorities, etc., etc. … another blog post altogether.

    Nevertheless, I believe it can be done … with the right team, with the right amount of education, mentorship/guidance, legal counsel, checklists, vigilance & diligence, and attitude (i.e., a potpouri of patience, flexibility, charm, determination), it can be done.

    As history has shown us time & again, individually, we may not know it all … but if we surround ourselves with trustworthy and wiser people that do, we can accomplish great things.

    My questions to you, Matt, relate to your use of private money partners (PMPs). These are as follows:
    > Did you use an SEC attorney to prepare a Private Placement Memorandum for this offering? This would make it a syndication, I believe. Or did you create separate Joint Ventures with your PMPs?
    > I don’t recall if you indicated that your PMPs opened self-directed IRA accounts via which they funded the 18-unit deal? Could you indicate, yes/no?
    > Did/do you purposely seek out accredited investors or does your PMP group consist of sophisticated and accredited investors?
    > Do you prefer to use the equity partner model or debt partner model? Why/why not?
    > Not certain if there are BiggerPockets rules against putting this information in these postings, but would love to obtain a reference to your SEC attorney or Self-directed IRA Custodian/Administrator if you should have used either. Perhaps, naming them and providing their contact information here could gain them more business? Just a thought.

    Any information that you can provide on my questions above would be greatly appreciated.

    Thanks, Matt … best of luck with the 18-unit and with all future acquisition ventures.

    ~ Al

  27. Matt Faircloth

    Hi Albert!
    Great comment. Let me see if I can get you answers to all your questions…

    1. We used an attorney to create all the legal documents for the setup of the fund. The SEC / Reg D paperwork can be done online, no need for an attorney to do that for you.
    2. We didn’t have any self directed IRA’s in this fund but raised one recently that did have SDIRA’s in included. There are some tax conversations that need to be had with SDIRA investors involving something called Unrelated Business Income Tax. It’s not a show stopper but needs to be brought up.
    3. We don’t seek Accredited Investors only, we allow for Sophisticated investors also. This is clearly explained in our documents with our investors.
    4. We use both equity and debt. Equity works better for longer term investments like mid sized multi family that have a longer hold period – up to 5 years. We use debt for our fix and flips and our buy fix and rent projects.
    5. Attorneys go state by state, so if you are looking to do a deal in NJ or PA I can get you my attorneys name. Send me a PM and I’ll get it to you. We use Equity Trust for our IRAs, I have an account rep that I can get you over there also.

    I hope that helps! If you have more questions feel free to shoot me a PM. Thanks!

    Matt

  28. Matt, thanks for sharing your story, successes, and inspiration. If you are ever in Kennett Square and want a cup of coffee, let me know. I would love to hear more about how you have done what you do.

    Bob

    • Matt Faircloth

      Hey Bob!
      Thanks for reading. I don’t find myself in Kennett Square much these days but used to work in that area around 10 years ago believe it or not. The same offer goes to you – if you find yourself in the Trenton area I am always game for a meetup.
      Take care,
      Matt

  29. Elizabeth J.

    Very informative video! As my husband and I are currently making an offer on our first 6 unit building (have invested in single family properties before), I really liked your comment about it being easier than some situations, with everything under one roof. The property we are bidding on needs mainly cosmetic improvements to some units, but I also find it to be a bit dingy in the common areas. There is definitely room to improve and hopefully, correspondingly increase the rents. Maybe I missed it (apologize if already asked and answered), but do you always manage your own properties? I no longer live in the city where we are hoping to purchase the property, but hoping to manage myself, with putting all of the right people in place to kick things off properly–maintenance people, cleaning people for common areas, emergency repair people, etc. Are there any particular lessons you have learned that you think would be helpful to a first time property manager of a multi-unit building? I am used to handling issues in condos and town homes, but typically have had a management company onsite with those for emergency matters. Thanks for the great video!

  30. Matt Faircloth

    Hey Elizabeth!
    Thanks for the comment and congrats on your pending purchase of your first multi! I would love to see you manage this property yourself and save the management fee, but it depends. We have enough units under our ownership that i don’t do the management myself, I have a team that I manage. It sounds like you would have to do the doing for now, which is ok. Thats how we got started also. Since you don’t live local it depends on how far away you do live and if you have a day job or if investing is your full time gig. If you and your husband do this full time and live within a 30 minute radius of the property, you should be able to swing it. If not, consider a management company.

    So assuming you are going to do it yourself, here are some tips on what to do in the first 30 days after purchase:

    Meet with every tenant. Get them to sign a new lease if you can, YOUR lease not the prior owners. Get an extension and maybe a few perentage increase in rent if possible.

    Make some very noticable improvements to the building so the tenants know you are committed to change and are not going to let the place have dingy common areas like the prior owner. We bought a 10 unit recnetly and painted the entire exterior right after closing. It was a good way to establish ourselves with the tenant.

    Spend some time at the building figuring out how things work there. Its very different than a condo. Study the common areas, exits, laundry if it exists (and if not, try and add one!), and landscapping. Ask yourself how you can create precieved value and a sense of home for your tenants at a reasonable cost.

    Once you get your head around the building, you will see that after about 6 months things tend to go on auto pilot. Best of luck!

    Matt

  31. Antwan Miller

    Hey, Matt
    Love you video very inspiring. I am a newbie to the Real Estate but Multi-Family apartment is what I want to invest in. My question for you is you talk about networking with Broker, Attorneys, etc.
    How many people do you have on your team so when you see a Multi-Family Real Estate deal you like you go for it? What are some of the thing you look at when looking for a Multi -Family deal?

    • Matt Faircloth

      Hi Antwan,
      You should try and have an attorney, banker, and insurance broker lined up before you go and look at a property. A bonus would be a roofer, boiler repair guy, and landscapper that can cut your grass and shovel your snow.
      I look for opportunities to raise rents, get utilities out of our name, add a coin op laundry, and other wise change the income of the building. I also look at unit size and layout to determine if they are desirable. Off the top of my head, that’s what I can think of! I hope that helps!
      Matt

  32. Sam Freed

    Hey Matt – awesome video. For someone new who wants to network with these commercial brokers, what avenues do you suggest to get to know them?

    I’m especially looking at a couple of cities different from where I currently live, and don’t want to just start blindly emailing listing agents on Loopnet or pinging a ton of of the national commercial firms (M&M, CBRE, etc) without a strategy. Any thoughts there?

    Thanks!
    Sam

    • Matt Faircloth

      Hi Sam!
      Thanks, I’m glad you enjoyed the video.
      I would suggest starting with places like your local chamber of commerce. You should also “cold call” the commercial agents in your area to introduce yourself as a prospective buyer.
      With regards to a strategy, you should know what size property you are looking for going in. You should also know where the money is coming from for the down payment and have already spoken to a bank about financing deals like this. Then you can be more specific when you speak to an agent. Also I wouldn’t worry too much about pinging agents on Loopnet or calling agents directly. In my experience they love to hear from prospective buyers, if you can get them to take you seriously.
      I hope that helps!
      Matt

      • Sam Freed

        Hi Matt – thanks so much for the reply! I hadn’t considered reaching out to the local chambers of commerce in my target areas. Great idea there. And thanks for the reassurance on cold-calling commercial agents.

        Given my down payment and LTVs, I am looking at a smaller (10-30 unit) multifamily as well.

        Two more questions if you’d be so kind…
        1. Buyer’s agents vs. listing agents. Having purchased SFRs before, I know it’s helpful to have a buyer’s agent to represent my interests and guide me through the process (due diligence, closing etc.), and I guess my concern about just calling up the selling agents on loopnet is that I would be dealing with a biased party who wants to sell the building. Do you work with buyer’s agents? Or is my concern unfounded?
        2. As for financing the deal, my research thus far indicates that local banks (and especially credit unions) seem to be a good source of financing for these types of smaller deals, given many larger institutions only loan amounts over $1M (whereas I’d be looking to finance $250-$1M, like yourself.) Did you work with a mortgage broker, or start contacting individual banks/credit unions in your target area to finance? Any advice?

        Thanks again,
        Sam

        • Matt Faircloth

          Hey Sam,
          Glad I could help on where to look for deals.
          On your other questions:
          1. Commercial real estate is very different. Most agents TRY not to co broker their deals meaning they all try and represent the buyer and seller, on every transaction. They tend to stay fairly un biased so don’t worry about them trying to push, and if they do take the emotion out of it and make your offer and evaluation based on the numbers.
          2. I almost exclusively work with small community banks. I rarely work with brokers as they aren’t necessary on this size deal. The small bank will want your banking relationship so if you have money elsewhere be prepared to move it. I also do a ton of work with my local credit union and have found them to be receptive to this kind of lending. Either way, expect to get a loan between 70 and 75% LTV from your local bank.
          Thanks,
          Matt

  33. scott fletcher

    Matt, thank you for sharing your experience. Real life facts are always the best. I feel like I am working a ton to create a package for my investors that knocks their socks and answers all their questions with the proper numbers run. I love using excel and but hate creating the spreadsheet. What your recommendation for a commercial package that an investor can review in a short period and make a decision from? Thanks so much.

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