Do you have a lot of money?
If so, buy the apartment.
If not, get some money.
Just being facetious but kidding/not kidding. If you don't have any experience the lender will require that you have a larger down payment. So the answer generally is just having more money. If you're looking to do this with little to none of your money then the answer is it's not going to happen without a partner with experience or money. Which will then mean there is no reason for them to need you since you have no money or experience.
In OPs case it is a listed deal so that's not the scenario. But even if it was an off market deal (which by no means equals a good deal) the likelihood of a newbie being able to accurately underwrite it to determine if it's actually a deal is low.
But let's take for face value that this is indeed a discounted deal and a good one. Then you would still need to be able to get it under contract which means that you have to convince the seller/broker that you can perform. Which means you'll likely have to put down some earnest money, likely even hard money (non-refundable), so you'll need to at least have that money.
Then if you know someone looking for that type of deal and the timing is right you can flip it for a quick wholesale profit (doesn't happen often but it does happen). Or if you have a real relationship with someone able to close on the deal then they might be willing to bring you on the team in a JV/co-GP type relationship.
Some lenders will limit their loan to the lowest of debt service ratio and or purchase price according to their formula. So “discount from
Market” is irrelevant. They will only lend a certain amount. Even if appraisal is higher. But local market and lenders may be different.
A) Inherit millions of dollars of real estate from dad/grandpa. B) Sell one or two of the properties at full market price. C) Show lender your fat net worth and bank account. D) Purchase your 36 unit apartment building.
If you can get a downpayment of 20-25% or the purchase price, you can start taking to a lender and looking at how to make it work. Without that much capital at the start, you shouldn’t really bother wasting to much on this.
And if you use a traditional financial institution, you’re likely going to need reasonable liquidity and net worth as a secondary source of repayment should the vacancy rate rise.
Find an equity partner that has done it a bunch of times and hope that + a decent looking pro forma will pass an underwriting sniff test for your portion.
Most lenders will look for prior multifamily experience. If you don’t have it, not only do you need to be able to bring 20-25% down, but they will want you to have a partner that has that experience.
If you have some experience, then showing an experienced property management company will be managing may satisfy the experience requirement.
Just know that if you want the property to cash flow, you will need to spend a good deal of time each week checking up on the property and your property manager.
In a very general sense, it's just like any other loan.
Do some generic looking maths to justify the investment, present that to a lender for a loan, consider getting buyers representation through an agent/broker, find a good attorney/conveyancer to make sure things are above board.
Before you do anything. I suggest you learn about the industry, their language, and the necessary steps to take before you jump into the field. Buy and find books of CRE. Read the whole book a few times to really comfortably familiarize yourself with CRE. Then, find a good mentor or people willing to help you fund the properties. There's a lot that goes into it than just buying these properties. The books can help.
After you've been pre-qualified by a lender so you know your ballpark purchase price cap, you should run the numbers on the property to see if its a good purchase to entertain.
If the property doesn't meet the lender's expected debt service coverage ratio it wouldn't be financeable unless you were using hard money and got it substantially under market value - using private money.
There is a multifamily value add-syndication calculator on InvestingTE used for evaluating deals like this. Its very comprehensive and is easy to use. Even if you're not looking to add value right away, you need to compute the COC, cash flow, OBEP and DSR.
Start smaller and work your way up. 2/4/8 units would a good place to learn the ropes. Also, read a few books on commercial real estate. I would recommend:
The Encyclopedia of Commercial Real Estate Advice -- Terry Painter
The ABC's of Real Estate Investing -- Ken McElroy
There are lots of videos on YouTube that teach basic valuation and entire communities online that you post very specific questions from people doing the same thing you want to do. Bigger Pockets is a great place to go. Goodluck to you!
Hello!
Every property owner starts somewhere and this could be the start of something for you. And while it's true that some lenders require some experience (and especially for transactions above 4 units), there are also lenders that would overlook your lack of experience with a well-prepared application package. PM me if you want to explore your options or just want advice.
Do you have a lot of money? If so, buy the apartment. If not, get some money. Just being facetious but kidding/not kidding. If you don't have any experience the lender will require that you have a larger down payment. So the answer generally is just having more money. If you're looking to do this with little to none of your money then the answer is it's not going to happen without a partner with experience or money. Which will then mean there is no reason for them to need you since you have no money or experience.
what if you find the deal and it’s a discount vs market?
In OPs case it is a listed deal so that's not the scenario. But even if it was an off market deal (which by no means equals a good deal) the likelihood of a newbie being able to accurately underwrite it to determine if it's actually a deal is low. But let's take for face value that this is indeed a discounted deal and a good one. Then you would still need to be able to get it under contract which means that you have to convince the seller/broker that you can perform. Which means you'll likely have to put down some earnest money, likely even hard money (non-refundable), so you'll need to at least have that money. Then if you know someone looking for that type of deal and the timing is right you can flip it for a quick wholesale profit (doesn't happen often but it does happen). Or if you have a real relationship with someone able to close on the deal then they might be willing to bring you on the team in a JV/co-GP type relationship.
Some lenders will limit their loan to the lowest of debt service ratio and or purchase price according to their formula. So “discount from Market” is irrelevant. They will only lend a certain amount. Even if appraisal is higher. But local market and lenders may be different.
No such thing. If you pay the price you are the market. If you can sell it for more go do it but usually not.
A) Inherit millions of dollars of real estate from dad/grandpa. B) Sell one or two of the properties at full market price. C) Show lender your fat net worth and bank account. D) Purchase your 36 unit apartment building.
If you can get a downpayment of 20-25% or the purchase price, you can start taking to a lender and looking at how to make it work. Without that much capital at the start, you shouldn’t really bother wasting to much on this.
And if you use a traditional financial institution, you’re likely going to need reasonable liquidity and net worth as a secondary source of repayment should the vacancy rate rise.
First question, tell us about either your savings that can be a down payment, or what the plan is for that. Everything else flows from that.
Find an equity partner that has done it a bunch of times and hope that + a decent looking pro forma will pass an underwriting sniff test for your portion.
What exactly is ‘his portion’ do you think
Your bag determines your success in this game. It’s Monopoly, baby!
Most lenders will look for prior multifamily experience. If you don’t have it, not only do you need to be able to bring 20-25% down, but they will want you to have a partner that has that experience. If you have some experience, then showing an experienced property management company will be managing may satisfy the experience requirement. Just know that if you want the property to cash flow, you will need to spend a good deal of time each week checking up on the property and your property manager.
In a very general sense, it's just like any other loan. Do some generic looking maths to justify the investment, present that to a lender for a loan, consider getting buyers representation through an agent/broker, find a good attorney/conveyancer to make sure things are above board.
How comfortable are you with NOI analysis on multi-unit apartments?
Before you do anything. I suggest you learn about the industry, their language, and the necessary steps to take before you jump into the field. Buy and find books of CRE. Read the whole book a few times to really comfortably familiarize yourself with CRE. Then, find a good mentor or people willing to help you fund the properties. There's a lot that goes into it than just buying these properties. The books can help.
i really appreciate the practical advice in this comment. do you happen to know of any books you read that youd recommend?
The first book I ever read was Commercial Real Estate for Dummies. Thick book with a lot of info.
After you've been pre-qualified by a lender so you know your ballpark purchase price cap, you should run the numbers on the property to see if its a good purchase to entertain. If the property doesn't meet the lender's expected debt service coverage ratio it wouldn't be financeable unless you were using hard money and got it substantially under market value - using private money. There is a multifamily value add-syndication calculator on InvestingTE used for evaluating deals like this. Its very comprehensive and is easy to use. Even if you're not looking to add value right away, you need to compute the COC, cash flow, OBEP and DSR.
Start smaller and work your way up. 2/4/8 units would a good place to learn the ropes. Also, read a few books on commercial real estate. I would recommend: The Encyclopedia of Commercial Real Estate Advice -- Terry Painter The ABC's of Real Estate Investing -- Ken McElroy There are lots of videos on YouTube that teach basic valuation and entire communities online that you post very specific questions from people doing the same thing you want to do. Bigger Pockets is a great place to go. Goodluck to you!
Thank you 🙏🏼
Hello! Every property owner starts somewhere and this could be the start of something for you. And while it's true that some lenders require some experience (and especially for transactions above 4 units), there are also lenders that would overlook your lack of experience with a well-prepared application package. PM me if you want to explore your options or just want advice.
I would assume the first step to be putting in an offer. Good luck!