Single Family VS. Multi Family
Here's a question that BIG thinkers are going to ask - Who
Owns All Those Apartment Houses, EveryWhere USA?
If all those oppressive, gasping-their-last-breath landlord horror
stories are true - why would those same landlord owners be
out there buying More apartments - everything they can get
their hands on? Apparently, they are NOT biting their
fingernails, stressed to the max, clogging hospital emergency
rooms across the country suffering from physical and mental
breakdowns. I guarantee that the apartment owners Know the
average real estate investor believes that bunk - and that's just
the way they want it to stay while they and their entire family
take in historical sites, enjoying a world cruise or relaxing under
a fancy umbrella on a postcard beach counting the massive
passive income waves rolling in just as predictable and breathtakingly awesome as the pounding surf.
Buying, selling, or holding apartment houses is no more
complex than buying, selling or holding single family homes -
they are certainly Different in very critical areas, but not more
complex. Dealing in apartment houses is seriously within reach
of any real estate investor willing to at least Begin to think
Bigger, outside the single family box, and to crack open for
themselves the opportunity of a lifetime.
It's a lot like the really big Barnum & Bailey type circus that
comes to town. Under The Roof Of A Single "Big Tent" a huge
variety of tantalizing acts take place - well-organized, beautifully
choreographed vignettes, lots of them. So many activities under
one roof, so many entertainers - it could make your head spin.
One roof to purchase, take down and set up. One roof to
maintain and repair. Lots of attractions under that one roof to
bring together a lot of paying customers. And when One of the
entertainers takes off unexpectedly for parts unknown (think
apartment vs. single family tenants) the show under the big tent
Goes On - big profits continue to collect, the other players
continue to perform, even when one act cancels. No matter
what, the profit-beating drums of the band plays on...
I agree in principal, but not in practicality.
This has been a topic discussed in the forums.
Similarities:
-They're both properties
-They both have tenants
-The can be purchased using the same creative methods, and some of the same conventional methods
-There are motivated sellers
Differences:
-Scale: If you go down, you go down hard (afterall, how many people can cover a $40,000 per month mortgage from their day job if things go south).
-Upfront Capital - Many lenders require several thousand due dilligance to start the loan process. Appraisals are many thousands instead of several hundred.
-LTV: Most commercial lenders won't go higher than 75% LTV
-CLTV: Many won't allow seller carries, and many who will require 10% come from you (and they'll season it).
Seconds: Tougher to get
Ammoratization: 15-25 years is standard, although 30 is available with a bit of looking around.
Sophistication: Many home owners don't know what you're doing or how you're doing it, they're just glad you're helping them out. You won't find much of that once you get beyond 20 units or so.
Management: Once you have a real estate empire you're managing managers and property management companies (or running your own). This is very different from painting a bedroom and collecting rent, although you should know a bit about property management so you know what to expect.
Learning Curve: There are fewer people doing this, and therefore less information is readily available. Go to your library. How many books are there involving homes VS buying 100 unit complexes?
Weeded Out: Let's face it, many people get burned out manageing apartments that they never build up enough equity and cash to purchase large multi's conventionally.
I will tell you that there are many differences between the two. I'd recommend to most people to start out in 1-4 unit buildings, get the hang of that, and move on.
I DO agree with you that many people could do much better just by raising their eyes, their dreams, and their expectations. Many people hit the "good enough" phase where they begin to coast.
The second most expensive thing I've ever bought in my life is a $3500 car. The most expensive thing was a 1.2M apartment building. (I don't even own a home yet).
Is it possible, Absolutly. Is it easy, Definitly not. Is it risky? Yes.
I forgot....
Many apartment complexes are owned by trusts, REIT's, corporations, and partnerships. It's a completly different experience negotiating with those entities than it is a homeowner.
I'd be interested in hearing some of the dramatic details of the 1.2M Apt complex. I have successfully bought a handfull of single family and duplexes with little money down and reasonable repair cost with creative financing.
I thought a multi-unit would be easier since you dealing with a fellow investor instead of a individual just cashing out. So far its been all creative financing for me.
I had two brokers I deal with pull info on super jumbo loans for muli-units over 1M and I was as surprised as them to see (no income verification/ no reserve requirment/ no down payment and 100% financing with fica's of over 680) I got the impression I just needed to be willing to sign my name.
That scared me and I'm in search of knowledge to keep from getting in over my head. What did you numbers look like and were the advertises IRR and Cap right once you got it.
hibby,
How does one go about finding apt complexes?
I live in the Orlando area and I see these huge apt complexes being built everywhere.
What kind of people (entities) are doing this?
It certainly can't be small guys.
Rob
But what kind of cash requirments are needed to buy an apartment complex as opposed to a SFH? That to me seems the biggest thing holding the majority of investors back. Or mabey we are just ignorent to the fact that not a whole lot is need to invest in apartments.
It is not exactly an apartment complex, but a 4-plex or a quadruplex as a few call it is a good way to expand. The nice part is that up to 4 units has the same loan requirements as a home. 90-10 loans 3% down etc. If you have good fortune a 1031 exchange may allow you to convert the equity created from your good fortune into apartments.
No offense intended,
but what's the point of this article
No offense intended,
but what's the point of this article. I see the title and I instantly have an idea about what I'm going to read, but you describe nothing. You talk about a great circus act but you mention nothing about the differences.
The financing
The analyzing
The Due Diligence
The systems in place
The corporate entity
You make no mention to the above. From the little bit that I have read I have been shown that they are different indeed. The thought process is different when it comes to apartment buildings.
Do you own any apartments? and if so, can you share your experiences on how they are very similar.