Looking to Purchase Apartment Complex Advice
Hello guys. I am currently looking to purchase an apartment complex and I was wondering if you guys could give some advice. I have been in residential single family houses for a while now and have enough capital to start looking at 50+ unit apartments.

-$1.0m Cash
-720+ credit scores
-low income debt ratio

I was looking to either finance it through the FHA multi family 223f program or maybe private, any thoughts?

What are all my options for financing? I want as low a down payment as possible.

What other factors should I consider? Resources?

Anything Helps. Thanks
[{"id": "fvc224q", "text": "Well:\n\nFico has very little influence on your loan approval.\n\nThe buildings cash flow is the repayment source for the lender, not you personally.\n\nYou need to know how to model your cash flow, so you can calculate your returns. That is how you find a good buy and don\u2019t way overpay for a property.\n\nGross rental income less operating expenses less  capital expense reserves, vacancy, and bad debt get you to your net operating income. This is the cash available to service debt. Your lender will is NOI to determine if you meet the required debt service coverage ratio, usually this is around 1.25x. Meaning your monthly NOI needs to be at 25% more than your debt payment.\n\nIn Multifam, you don\u2019t want to be over leveraged. 25% down or more is a good spot to be to help counter vacancy or a downturn.\n\nAs for financing, fha can be a bear. Most any bank or credit union will lend on a solid Multifam deal with a strong down and good cash reserves from the guarantor, you. Most don\u2019t really care about personal financial situation beyond your cash position. So long as you\u2019re not actively going through bankruptcy.\n\nI have been a commercial lender and worked in Multifam for a massive developer and property manager.\n\nYou also need to decide if you\u2019re going to manage or hire a management company.", "replies": [{"id": "fvc2x88", "text": "Solid advice. As far as timeline goes, when is the best time to begin convos with lenders... before you start looking or after you identify a deal and get your offer accepted?", "replies": [{"id": "fvcd7p2", "text": "Do you know how to analyze the deal? Build a proforma by looking at the trailing 12 month actuals? If so, then start shopping banks now so you can understand their terms and conditions.\n\nYou might have some resistant is you don\u2019t have much Multifam experience, unless you\u2019re hiring a management company.", "replies": [{"id": "fvcp79b", "text": "Would you suggest some resources for me to learn more about the analysis, etc? \n\nI\u2019ve viewed multiple term offerings and contracts and it makes sense so far, any resource helps.", "replies": [{"id": "fvcz92y", "text": "With Multifam, the sellers will \u201chide\u201d expenses to inflate the NOI and thus the asking price, based on market cap rates. So you need to know what your expenses are/should be for the property to make sure you don\u2019t overpay.\n\nOffering terms and contracts are definitely part of the deal as well, but dial in your cash flow analysis so you know, roughly, what you\u2019re getting into. Especially with larger properties.\n\nHaving the analysis done will also make it much easier to get a loan from a bank as they will be confident in your abilities to understand the cash flow of the buildings.\n\nAdventuresinCRE is a good resource as they walk you through how to build your own model.\n\nSome people also just hire that out, or bring in a partner who is strong in the analysis. It isn\u2019t just the property, a good analyst is also doing market research to understand what the value add could be (raise rents, cut opex, etc), researching the lease rates, market conditions/dynamics, and finding you good quality comps.\n\nAs you get into larger properties, not doing the right due diligence can mean you overpay for a property, and the buy is where you make your money.", "replies": [{"id": "fvd4qz5", "text": "Thank you", "replies": [{"id": "fvdhbze", "text": "That\u2019ll be $3.50! :)", "replies": [{"id": "fve99ow", "text": "Where geographically is he looking to invest? Should rent control be a concern? My niche is 1031 Exchanges with older investors transitioning from multi-fam into NNN\u2019s so my knowledge is limited as it relates to investing in MF.", "replies": [{"id": "fvewh12", "text": "Rent control is a big concern. It restricts your proforma materially. \n\nNNN are good so long as the tenant credit strength is there.", "replies": [], "depth": 9}], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "fvcns67", "text": "Thank you for the advice, I appreciate it. Couple of follow up questions:\n\n1. What do you mean as FHA is a bear? Are they not recommended?\n\nI am looking at existing cash flow properties, do apartment complex owners do seller financing? Is it recommended option?\n\nI am looking to purchase another apartment complex after my first one within two years, so I want to make sure I have not over leveraged myself. Thanks", "replies": [], "depth": 2}, {"id": "fvd4ana", "text": "How does self manage vs professional affect the loan?", "replies": [{"id": "fvda4tj", "text": "The lender, if you\u2019re using a bank, will want to see experience in managing a multi-unit property. It is fairly straight forward, but it has more nuance than people realize.\n\nLandlord tenant laws, rental collection, rental rate setting, vacancy issues, capex planning, et al.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fvc2ufk", "text": "For 50+ units, you need a good financial model.  I use the multifamily models at Top Shelf Models.  Their multifamily acquisition model is [here](https://tsmfinancialmodels.com/multifamily-acquisition-model) \n\nFinancing: talk to a local bank and establish a relationship.  They are much better than the big banks and should get you a competitive loan.\n\nGood luck on your acquisition!!", "replies": [{"id": "fvcntek", "text": "Thank you", "replies": [], "depth": 2}], "depth": 1}, {"id": "fvc3kv4", "text": "How do you plan to run it? 50 units is one of those weird counts where its almost a full time job to manage it well on your own (remember, you're subject to all the \"rules\" at this level), but it doesn't make financial sense to hire a manager.", "replies": [{"id": "fvc5oyj", "text": "If he\u2019s been doing residential rentals for awhile he may already have a management team in place. \n\nInfo: how many doors do you plan on keeping from current properties and do you plan on purchasing in the same market?", "replies": [], "depth": 2}, {"id": "fvco0ke", "text": "I plan to liquidate my portfolio of SFRs and focus completely on CRE. I\u2019ve already started a company purely for this purpose and plan to add on employees for management. But in the beginning with my first one, it will primarily be me only. \n\nWhat do you mean by \u201crules\u201d?", "replies": [{"id": "fvfrole", "text": "Fair housing, potentially cares act, most state and local statutes all apply with 50 unit counts. The loopholes they provide mom and pop landlords won't apply to you. It's not insurmountable at all, mostly just annoying.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fvc48ff", "text": "PM me. Happy to hop on a call with you and help.", "replies": [], "depth": 1}, {"id": "fvca7e5", "text": "Don\u2019t go to a bank. Freddie small balance is the way to go. Speak to a local loan broker. I can give recommendations depending on location", "replies": [{"id": "fvco6mv", "text": "Thank you.", "replies": [], "depth": 2}, {"id": "fvhi1mp", "text": "What type of terms do you see in the 5m and less deal size?", "replies": [], "depth": 2}], "depth": 1}, {"id": "fvccx3b", "text": "I look here: [NerdWallet](https://www.nerdwallet.com/best/small-business/small-business-loans/compare-financing)\n Just to see what's being offered.  Then I would also contact a local bank in your area that does similar business loans. Where I'm at in California where able to get  SB loans for approximately 10% down. \n\n Conventional loan would be the way to go cause you definitely have more control of how the money is spent. FHA loans are going to have considerations on building income, condition, etc. for the type of property your buying. Then you have your small business loans.\n\nI would at least get a pre approval so that you know more or less what you qualify for. A lot of the other information posted here does sound on target as well for consideration.  Good Luck.", "replies": [{"id": "fvcoksj", "text": "Thank you for the response. When you mean conventional, are you referring to Freddie Mac, etc?", "replies": [], "depth": 2}], "depth": 1}, {"id": "fw4lsc3", "text": "FHA is difficult for an acquisition. It takes about 6 mos to close a 223f. You may consider closing in a bridge and refinancing to an FHA loan. That way you do not need to negotiate timing issues that could lose you the deal.  \n\n\nFannie/Freddie are the next tier pricing wise and fairly easy to get into but you won't see any 80% LTV deals in this environment. 70-75% LTV. Make sure you have very experienced commercial multifamily property management as there is a bit of an experience hurdle (along with net worth &amp; liquidity) on your first agency loan deal. You could also team up with experienced sponsors, bringing capital to the GP side to get operational experience on your first deal. We do this often.\n\nDepending on where you are buying and the size, 50+ units may be stretching the balance sheets of some local banks; regional and national banks will offer the most flexible LTVs behind the 223f loan, but you are subject loan committees and other BS that add to your \"cost of capital\". Also consider, most local banks will not loan to remote investors unless you have a pretty good relationship. Another reason to consider FHA and Fannie/Freddie above the banks.", "replies": [], "depth": 1}]