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REAL ESTATE Quick Question for SteveO and others

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SteveO

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It typically takes a down payment of 20-30% for most of the decent loan programs. You can purchase a property for anywhere from 20-100K per unit depending on the location.

A fifty unit building at $45K each would be $2,250,000. 20% of this is $450K. You would need some closing cost money and liquidity as well.

Of course you could always jump into partnerships with others. There are groups that allow investement into deals of all different sizes. This way you can get into 100+ unit sized properties.
 

LamboMP

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Steve,

Thanks for the response. For someone completely starting out , what would be a smaller scenario? What should someone be looking for in a smaller scale? (given your estimates of 20-30% down). What is considered small in the apartments?
 

Edge

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Of course you could always jump into partnerships with others. There are groups that allow investement into deals of all different sizes. This way you can get into 100+ unit sized properties.

Anyone have some success stories or getting started stories pertaining to this. Seems like this is a great way for a smaller player to get in the fastlane. Also a great way for a first timer to get his/her pocket picked.

I've personally had a bad experience with this but still want to try again. I've scoured my local REI group, but can't find the interest. I am in a smaller market and it seems that the folks involved in this area have their established group and don't network outside of it. People in my area that invest in SFRs love to network, but I can't find that in the Multi/Commercial folks.

Just like SteveO's example above that would require 450k capital to get going. Ten investors each bringing 50k to the deal would be something that i'd be interested in. How does one get started down this path?
 

Yankees338

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Anyone have some success stories or getting started stories pertaining to this. Seems like this is a great way for a smaller player to get in the fastlane. Also a great way for a first timer to get his/her pocket picked.

I've personally had a bad experience with this but still want to try again. I've scoured my local REI group, but can't find the interest. I am in a smaller market and it seems that the folks involved in this area have their established group and don't network outside of it. People in my area that invest in SFRs love to network, but I can't find that in the Multi/Commercial folks.

Just like SteveO's example above that would require 450k capital to get going. Ten investors each bringing 50k to the deal would be something that i'd be interested in. How does one get started down this path?
I believe SteveO has done this before. I don't know how detailed he got in his success story, but I believe he at least mentions it in there.
 

Micklee

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I believe reipro started by buying a couple duplexes next to each other and lived in one of them. He's now into the big deals. He talked about it on the Beginner Conference call. If the recording is still around you'll hear him talk about how he started. He had great info that he shared with us. You might also check out introductions to see who's doing what. I did a quick search - here's reipro's introduction:

http://www.thefastlanetomillions.com/showthread.php?t=2231&highlight=reipro
 

GoldenEggs

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Just like SteveO's example above that would require 450k capital to get going. Ten investors each bringing 50k to the deal would be something that i'd be interested in. How does one get started down this path?

Edge,

I'm currently in this scenario but we did it on our own. We, my husband and I, partnered with 8 other entities, for a total of 15 people. The group bought 156 units for 4.175M. We are set up as all active members. We met these people through local REI groups and were recommendations from other investors that we knew.

If you wanted to get into a larger apartment,100+ units, I would recommend going through a syndicate. Or spend a lot of time vetting the other potential investors. Everyone is "happy" and on their "best" behavior when things go well. It is a completely different story when troubles loom on the horizon.

I am confident that I will have a success story later this year but the current situation is very difficult. On the other hand, my husband and I may be partnering with another 2 people on 36 units and that seems to be going well. But, we did take what learned from the other deal and discussed many potential scenarios and the 4 of us are still on the same page.
 

GoldenEggs

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Just wondering how it works when multiple people (especially as many as 15, as you have) are involved in day-to-day decision making...

Short answer... it doesn't. Atleast, not for us.

A little backstory… My husband was elected to be the CEO and according to the operating agreement, the CEO has the authority to make decisions and sign any contracts relating to daily operations. So while my husband was the CEO, there was more work than he could handle and asked for help. Another investor (A) volunteered to manage the property manager, since we needed to have occupancy at a certain level and do some minor rehab. My husband was working the financials with the broker, to be sure we were on the right path for the refi. My husband ended up needing to manage the property manager and had to pull another investor (B) to go over the financials. Investor (A) then volunteered to do investor relations, to make sure that any questions were answered and everyone was on the same page. Also, (A) and (B) felt it important that the whole group (the operating agreement requires 51% of total shares) be on board for any decisions, rather than letting the CEO make the decisions at his discretion. My husband agreed, because he wanted to avoid any future problems or accusations.

As you can imagine, it is difficult to get the whole groups’ approval. This process of whole group or even 51% approval has not worked for us, especially since problems have come up. Additionally, 2-3 people have been working behind the scenes and it is undermining our ability to move forward with stabilizing the property. The only reason I found out is because other investors have forwarded me the emails.

Going forward, unless he is voted out, the CEO is going to start enforcing his ability to make decisions for daily operations. For future deals, my husband and I have decided to operate as the general partners within a limited partnership structure with passive investors or just assign the deal. It is very difficult to get work done or consensus on decisions when you have 15 people involved.
 

Edge

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We met these people through local REI groups and were recommendations from other investors that we knew.

This is really where I am having a lot of trouble. You did this through "local" REI groups, I assume these are probably "local" projects for you. I think for this to work for me, I am going to be dealing with remote areas. I can't find much incentive to invest in my local area, i'm willing to invest outside of my area, but it is making it much more difficult to get started. I don't want to sit around and hope that my local market changes, I want to meet people that are putting together good deals and want investors.
 

GoldenEggs

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Edge,

Actually the project is in Kentucky. I'm in Silicon Valley and we could not find any deals that fit our parameters within California.

We've met a few other apartment owners that are from our area and they invest in New Mexico, Colorado, and a lot are in Texas.

Even though we are having difficulties, it hasn't turned us off to out of state investments or working with other investors. We just need to make sure we don't make the same mistakes again!
 

andviv

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Read Vollucci's book, chapter three and then chapter thirteen. That is exactly what you want to do, based on what I read here. In the book, Vollucci mentions he uses TIC (Tenants In Common) to setup the purchase and management of the property.

Be careful on how you get the partners as there are SEC rules that you will have to be aware of (you can't just go advertising a security without registering it first) so you probably need to partner with people that you already know or that come looking for you. But this is entirely another topic.
 

SteveO

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For someone completely starting out , what would be a smaller scenario? What should someone be looking for in a smaller scale? (given your estimates of 20-30% down). What is considered small in the apartments?

As you get smaller in unit size, the cost per unit goes up. This is especially true for the smaller complexes. I would break down the size as:

  • 2-19, small
  • 20-59, midsize
  • 60 and up, large

The small complexes won't typically support a manager in the financials. Many owners of these property types are the operators and managers. This presents a problem for someone trying to break into the apartment market. You can still get around this by finding the right deal or putting a larger amount of money down. It is difficult to find a good manager for this size property as well.

The biggest problem in my opinion is the challenge of being able to purchase in the up and coming areas. Catching the up-slope of a market that is blossoming is where the biggest gains come from. It is always possible that the area you live in is preparing for one of these swings. If so, it may make sense to purchase and manage by where you live.

The time and effort that it takes to go and evaluate locations is enormous. It makes more sense to do this if you are working on large scale properties. It is still important to do regardless of the property size though.


Anyone have some success stories or getting started stories pertaining to this. Seems like this is a great way for a smaller player to get in the fastlane. Also a great way for a first timer to get his/her pocket picked.

Agreed. I have put together a few of these deals and continue to do them. All investments have risk. This can be minimized by teaming up with the right people.
 

LamboMP

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Steve,

Thank you so much for your input! It is appreciated more than you know. Will you be doing any presentations in Canada any time soon? :)
 

SteveO

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If I had a business reason to go, I would be there in a flash. :banana:
 

LamboMP

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As you get smaller in unit size, the cost per unit goes up. This is especially true for the smaller complexes. I would break down the size as:
  • 2-19, small
  • 20-59, midsize
  • 60 and up, large
The small complexes won't typically support a manager in the financials. Many owners of these property types are the operators and managers. This presents a problem for someone trying to break into the apartment market. You can still get around this by finding the right deal or putting a larger amount of money down. It is difficult to find a good manager for this size property as well.

The biggest problem in my opinion is the challenge of being able to purchase in the up and coming areas. Catching the up-slope of a market that is blossoming is where the biggest gains come from. It is always possible that the area you live in is preparing for one of these swings. If so, it may make sense to purchase and manage by where you live.

The time and effort that it takes to go and evaluate locations is enormous. It makes more sense to do this if you are working on large scale properties. It is still important to do regardless of the property size though.




Agreed. I have put together a few of these deals and continue to do them. All investments have risk. This can be minimized by teaming up with the right people.

What do you mean by it presents a problem for someone trying to break into apartments when the small complexes won't support a manager in the financials?
 

DavyB

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I think what Steve means is that the financials may not work in the smaller apt complexes with professional management, thus investing in them would be difficult to do remotely. This problem can be alleviated if you are willing/able to self-manage the units, put more money down (30% instead of 20% for example), or get an exceptionally good deal on the price.

Again, issue gets back to economies of scale...generally the economies of scale will benefit you more and more as size increases...whether it be for property management, cost per unit, and so on.

My apologies to Steve if I am misinterpreting...hope this helps MP
 

SteveO

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I think what Steve means is that the financials may not work in the smaller apt complexes with professional management, thus investing in them would be difficult to do remotely. This problem can be alleviated if you are willing/able to self-manage the units, put more money down (30% instead of 20% for example), or get an exceptionally good deal on the price.

Again, issue gets back to economies of scale...generally the economies of scale will benefit you more and more as size increases...whether it be for property management, cost per unit, and so on.

My apologies to Steve if I am misinterpreting...hope this helps MP


This is exactly what I meant.

There are a lot of different dynamics at play. It is possible to buy properties in some locations that have to potential to support management costs into the smaller property. These are rare though and may limit your ability to purchase in the best locations that are poised for rent growth.
 

andviv

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If I had a business reason to go, I would be there in a flash. :banana:

So IF I get a group of 5 to 10 accredited investors that would like to invest in apartment buildings and let you do your thing, you'd travel to that place to do a presentation?

Is that a good business reason?
 

SteveO

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If there was a group that was strongly considering funding a deal I would come out. Especially if there was discussion around funding a number of deals.

It is too easy to do an online presentation for a group of potential investors. But, it would certainly depend on the level.
 

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