So you are thinking of buying your first Multi-family or commercial property – now what? There is a ton to think about. First is do you really want to own a building, deal with tenants, property managers, maintenance and all the other drama that comes with it? Do you want to find the deal (looking at hundreds of crap deals to find a good one), analyze it, negotiate it (offer on 10+ to get 1), inspect it, get a loan on it, then manage it or the manager, deal with it while it’s operating and then figure out the best time to sell it? If not, then become a limited partner in a syndication find an experienced investor and partner with then, put your money into a crowdfund or invest in a REIT (please don’t invest in a REIT). If you still said yes, then follow along because in this blog and in many more, I will go through the entire process.
First off, start with your why. Why apartments? If it’s just about the money, then you likely will not do very well. You need to dig deep and really think about why you’re doing it and what you want to accomplish. This will also help answer the asset class and exact type that you are interested in (high end, middle or low end and turnkey or value add) and to the degree that you want to invest (all in or as a hobby/retirement plan). It will also help determine if you want to be active or passive, manage the tenants or not, raise money or do it yourself, analyze the deals or hire that out, etc. For more on vision, click here – https://www.linkedin.com/pulse/creating-your-clear-vision-todd-dexheimer/
So, how do I get started? There are many ways to go about making money with apartment buildings (I will define apartment buildings as 20+ units). With the list below you can mix and match in any order. Ways to get started:
1. Buy buildings with your own cash and track record. This is for the 1% that have both the money to buy a $1million+ building and the experience to get a loan for that building, as well as to be able to operate it.
2. Buy buildings with partners that together have the money and track record. This is a great way to do it, just make sure your goals truly align and that you will all get along. The other important thing is to be sure that all partners are all actively involved if you are not setting up a securities offering. Lastly, get an attorney to set up the LLC and get a break up agreement.
3. Syndicate – this in my mind should be done by sponsors that have experience with small multi-family at a minimum. A syndication is basically gathering a bunch of people together to passively invest in your/your partners deal. The typical deal allows you to get paid a 1-3% fee on the purchase for putting the deal together, a 1-3% fee for operating the deal and 10-40% of the equity. The investors then get the rest. Keys with this approach: handle money with the highest regard, invest some of your own money, and always use a securities attorney. We will discuss this strategy in great detail in the future. This one is especially important to talk with a securities attorney to be sure you are doing everything properly.
4. Raise money for a Syndication – This is a great beginner’s way for someone that has a network and wants to get involved in the deal. This allows you to invest in the deal and build your investor network as well as likely take part in the General Partnership. You will need to do other things in the LLC in order to get paid, as you can’t raise money without a broker’s license and get paid, so talk with the lead sponsor to work out a deal that legally allows you to be involved. Also, be sure that any investors that you bring to the table are your investors in the future. Maintain control of them and be in charge of communicating with your group. This one is also very important to talk with a securities attorney to be sure you are doing everything properly.
5. Invest your own money in a syndication. Be sure you find ways to be involved.
6. Be a bird dog and find the deals for other apartment buyers. You can get paid $50k or possibly more for finding the right deal for a buyer. Getting good at finding deals can be a fantastic asset and can really help propel you into success. The best way in my eyes to get paid by the buyer is to use your fee as an investment into the deal and a way to get a small percentage of the general partnership. Pre-negotiate this and be sure to have a contract with the potential buyer that protects your interest.
7. Volunteer or get paid to work with an investor. Be sure you can add true value by asking people you know to help them. I would try to get to know investors before just saying you will volunteer for them. The best way is to form a relationship with them and then start adding value to them as often as you can. Eventually, after you have their trust ask for a paid position if you think one exists or ask to volunteer. As you add value, you may be able to get small percentages of the General Partnership.
8. Start small. This is what I did. When I started I was buying 1-4 unit buildings for rentals and I was completing flips. Really buying any real estate that will make you money will be good experience, but buying real estate that is closest to you final goal is the best. The other thing with this strategy that I would suggest is to use private money and partnerships in order to build relationships. I know you will give up some of the deal, but you will be rewarded with potential money partners when you make the transition.
9. Become a property manager, real estate agent (commercial), appraiser, inspector, mortgage broker, etc. Becoming a professional that works with the industry is a great learning experience and a good way to build income and networks in order to do it yourself.
No matter which way you choose, get started today. Get educated by reading books, attending real estate events and listening to podcasts. Get started shortly after by implementing 1 to 3 of the above steps. Then after you are ready move to your strategy, which may change as you gain traction. The key is not to wait too long. Personally, I think in less than 5 years you should be ready to implement your own strategy and crush it in Apartments.
Check out my podcast episode: https://soundcloud.com/user-650270376/powc-31-hump-day-hustle-apartment-series-getting-started
To your success!