Making the jump to multi-family
May 31st, 2007 by KenricIn a past comment on The Large Multi-unit Apartment.
Another Investor Says:
You seem to want to skip the steps needed to learn the more intricate business of multi-family and commercial/industrial properties before you dive in. That’s not wise, in my view. With your lack of experience, you could be one of those people RealOG wants to “leverage.” Take your time and learn from the smaller deals and you will get where you want to go.”
My response is, what type of jump is too large of a jump? Can I go from 10 SFH to a 16 unit? To me, that’s not even a skip to commercial? Can I go from 10 SFH to a 50 unit? Why would a 100 unit be too big. I guess I don’t understand what steps I am skipping by going to a 100 unit. Maybe it’s the partnership aspect that he’s talking about and not the actual building size.
There are many reasons that this is the path my partners and I have chosen. While it’s true that we ourselves do not have large multi-unit turnaround experience. We have surrounded ourselves with a team of people who have successfully done this multiple times. The fact is that we’re looking at a mere 100 unit building while our team is purchasing well over 1000 units in the same area.
As for a progress update, we have not come across any properties that fit our criteria yet. I’m having a lunch meeting with my property management company today. Their office just happens to be less than 6 blocks away from my house! I also spoke to an attorney who recommended that we go with a limited partnership instead of a TIC.
Posted in Apartments | 
Stumble it!
It seems to me that many people are really scared about partnerships and, no matter what, they won’t like them and/or get into one.
Others see it as a way to keep growing (like many successful people have said many times).
I guess those that really can make partnerships work attain great wealth.
By Andres on May 31, 2007
What are you bringing to the table that would make a “team of people who have successfully done this multiple times” want to work with you? If these deals are so good, there would be bigger fish after the properties and/or the team with a lot more cash to throw at both.
My challenge to you is simple. Show us the numbers on one of the properties you have looked at. Purchase price, going in cap rate, financing, rehab costs, income and expenses over the holding period, anticipated selling price, anticipated selling expenses, and anticipated exit cap rate. Post the entire analysis - spreadsheet or however it was presented to you. Since you did not buy it, tell us where it is and how many units. Let your readers analyze this deal.
Then tell us what your criteria are and give us the same information on a hypothetical property that you would purchase. Finally, explain to your readers, using the numbers, why you want to be a limited partner in this investment.
My hope is that you will see that because there is too much capital chasing too few deals in the current trendy Texas market, it’s time to step back and wait.
Read up on the last era of limited partnerships in the early 1980’s and how the 1986 tax law changed the market dramatically. Remember the Resolution Trust Corporation? Astute investors like the Pollacks do. They bought shopping centers all over Phoenix for $28 to $33 a square foot in the early 1990’s. Lots of them.
The cause of the liquidity squeeze will change, but t’s not “different this time.” Human nature - greed fear and ignorance - are what make the real estate market cyclical. Use the cyclical nature of real estate, don’t get caught by it.
By Another Investor on May 31, 2007
Notice I said “team” not partners. I’m not bringing anything to their table. I am hiring them to do their job.
As far as why are deals so good out there? The answer is that they aren’t for long. Many of them go under contract before we even get a chance to see them. The bad ones are still there.
I’m not going to post the numbers on these properties on here (maybe in 6 months). As you said, there is alot of competition out there and our search criteria is very strict.
It really sounds to me that its not the partnership or the size of the property, but it’s that you don’t believe that Texas is a good buy at this time.
By Kenric on May 31, 2007
I went from a single SFR to 60 Unit apt complex parternship in one step, so it can be done. Be prepared for a huge learning curve.
I agree with # 2 that the timing is probably less than optimal right now. Maybe not too bad a time to flip apartments, but not a very good time to buy and hold apartments. My 2cents.
By HungryBear on Jun 1, 2007