The next episode
April 30th, 2007 by KenricEver since my post about having a plan from about a month ago, I’ve been running scenarios through my head and chalk board on the best way to jump into multi-unit.
While I can certainly go at it by myself, a good friend of mine who owns close to 1,000 units suggested that I should get the largest I possibly can.
I am always hesitant to partner because we all here stories about how badly they end up. But my friend and others have all told me that partnering is the way to get big. You just have to deal with the headaches. It’s just a cost of doing business.
So our (me and my partners) goal is to buy a large 80-100 unit apartment complex somewhere in Texas. We hope that it will cashflow from day 1, but its more likely that it will be slightly negative. That’s not a bad thing because it usually means that there is alot of room for improvement. If you buy a cashflowing complex, you will pay top dollar for it and there’s not much you can do to add value.
Step 1 – Get the money for the downpayment.
I’ve put up my SLC townhomes for sale. I plan to 1031 exchange the proceeds into the multi-unit. My partners put up the rest.
This scenario is going to be tricky due to the 1031 timeframes and the number of partners coming in. In addition, the 1031 requires me to structure the purchase of the multi-unit using a Tenant In Common (TIC). This enables each partner to go their separate ways by selling off their share whenever they want. More importantly, it allows each partner to 1031 their share into something else.
Step 2 – Find an apartment complex.
I’ve been looking on loopnet and have a few complexes on my “saved” list. However, I won’t really know what’s good and bad until I take a trip to the targeted city and look around.
Step 3 – Close the deal
I’ve never done a commercial loan before so this step will be new to me. I’m learning alot now on how they evaluate loan candidates. I don’t think my (our) FICO score matters to much anymore. It’s all about the property’s numbers and my resume and experience.
Step 4 – Improve the NOI then sell
This is the big step. Here’s where all the money is made!
In the event that my partners back out or that we cannot find a suitable complex within the 1031 timeframe, I’ll have to make a decision as to whether I should just let the 1031 expire and pay taxes or buy a different investment property alone.
If I decide to forego the 1031, it may be worth it because my taxes would only be around $20,000 and I see that amount as a small price to pay for relieving any time pressures if we can get a better deal.
Posted in Apartments, Real Estate | 14 Comments »
Stumble it!
Are you sure LoopNet is the best route? I’ve heard by the time the listings go to LoopNet, they’ve already been picked at. However, I DID find a 21-unit for $75k, but it requried an extensive amount of work, which would have required a lot of resources. In the end it wasn’t worth it. Also, Texas has become the new California/Arizona/Florida/Nevada of the real estate market, but it’s something one should have considered 2-3 years ago and not so much now. I’m not saying this to scare you away, but rather to give you heads up that Californians, et al, have already set up shop here. Ironically, I’m an investor in Austin, TX and *I* am looking out-of-state for deals. :-P
BTW, if I find any large mult-family properties around here, I’ll pass ‘em your way.
By Steve on Apr 30, 2007
Have you looked at Kansas City? I really like that area a lot as there are bargains to be had and the market is relatively stable.
For me, stability is paramount as it makes forecasting the return of your property easier.
By RealOG on Apr 30, 2007
Hi Steve, that’s exactly what i want to hear. If Texas is the next AZ, then the apartments will be in good shape in 2-4 years.
Here is AZ during the run up, apartments had huge vacancies due to everyone buying homes. This is the best time to buy. When the crash happened, the apartments all filled up.
By Kenric on Apr 30, 2007
Very good hypothesis. I believe I heard that the apartment vacancies in the area are on their way up after dropping the last 5-6 years due to builders going wild. I figure with the loan fallout, the rental market will increase even more.
By Steve on May 1, 2007
Ah, sounds like you are investing Vollucci style! I like it! Are you a member of his group?
By AroundTheWorld on May 1, 2007
Not a member of his group, but following his methods!
By Kenric on May 1, 2007
That’s interesting, I never really thought about the relationship between single family and multi-family with changes in the market. I’m here in Atlanta and the number of homes for sale just keeps going up and up. People say the market is slipping, but I see opportunity.
By Allan on May 2, 2007
I’m kind of in the same boat. I’m trying to move up to larger multi units. I’m also considering a partnership, but for now I’m just doing research, and trying to raise my own funds instead of forming a partnership.
I would be interested in your progress in this venture. Good luck.
By Allen Young on May 4, 2007
I’ve been researching the multi-units investments too. I also like texas. However, I recently got distracted by Mobile Home Parks as a possible investment. What I like about these investments is that it’s less management intensive. Have you looked in to this? What do you think?
By Edwin on May 5, 2007
Edwin, I’m curious as to why you would think that a mobile home park is less management intensive? From my research, the turnover and evictions on a mobile home park is huge. They seem to cashflow alot but need full time management to me.
By Kenric on May 5, 2007
In Mobile Home Parks where only the land is leased, the manager/owner usually only maintains the common areas and the residents maintain their own spaces, etc. No toilets, sinks, etc. to repair. The turnover shouldn’t be that high considering the residents own their home. It’s much harder to move a mobile home, than to move personal items out of an apartment.
By Edwin on May 7, 2007
Edwin, There is a very good thread on mobile home parks here.
http://www.websitetoolbox.com/tool/post/sdcia/vpost?id=1874356
By Kenric on May 7, 2007
I mean, anybody who has planted some tomatoes on his own and then tasted them can tell the difference. ,
By Ganry20 on Oct 13, 2009
Unfortunately, there was one major catch. ,
By Gangster66 on Oct 22, 2009