Trying to buy a 40+ unit property and am looking for advice on where to start
Hello, Oscar here.

I am trying to buy an apartment complex for 6,000,000 How and where do I start? Are there any books I could read to acquire this property or one in the future? I'm trying to acquire wealth for me and my wife to retire and live the rest of our days giving.  

some info about us. 

Wife: is a realtor, regional manager for 4 apartment complexes around the greater Houston area., project manager for home builds and apartment complexes.  She is a well-accomplished woman. 

Me: QA inspector for the oil and gas industry and I'm also going to get my home inspection license. 

together we make about 200,000 a year. if any of you smart people of redit could lead me in the right direction this would be much appreciated.
[{"id": "i2phpc6", "text": "Unless you have a trust fund and can do this through your wealth management lender you should start with the property specifics... rent, vacancy, age, equity, deferred maintenance, reserves...\n\nI get that everything is bigger in Texas but if you have to ask *this* type of question a $6MM purchase in a frothy multi family market might not be where you want to start.", "replies": [{"id": "i2pjyzf", "text": "I have a bank that will be willing to do a loan of up to 85% and ill have to get other investors to pay the rest which I have including my own portion.  what I want to know is where do I start with something like this.  if the property is acquired my wife will know how to run it and will keep the former employees on or she has a huge following that would also be able to work the apartment if need be.\n\nis the bank the right way to go?\n\nis there a form or checklist I can use to evaluate the property ? \n\nis there a form or checklist I can use to evaluate the property?", "replies": [{"id": "i2pl926", "text": "Is that a term sheet/commitment to lend from said bank or just an off the cuff conversation with a loan officer? \n\nYou're asking questions that make me think you (and therefor the bank you say will lend you $5.1MM) haven't seen any numbers on the property.", "replies": [{"id": "i2pm3n3", "text": "it's just what I have seen on the website of said back for commercial real estate loans. I'm sure it's much lower. what I'm trying to do is make this idea a reality.", "replies": [{"id": "i2pql85", "text": "Their website is an advertisement. Assume you will need 25% down and another 5% for closing costs &amp; reserves. You might find a lender to do it for less but if work with that 30% figure you won't get screwed once you get under the hood so to speak (unless the property is straight shit).", "replies": [{"id": "i2praci", "text": "the property is good and fully leased, is it an A or B property? NO but it has a steady stream of revenue.", "replies": [{"id": "i2ptevm", "text": "So you're saying it's 30+ years old in fair to poor condition in a less desirable area? \n\nYou mention revenue but not expenses? Why is it fully leased (below market rents, poor management, great location, long term tenants who don't move) and what are you going to do to make it worth more than the $6MM you plan on paying for it?", "replies": [], "depth": 7}], "depth": 6}, {"id": "i2pxyqi", "text": "He\u2019s right.  Also the likelyhood the property cash flows at a 1.20 DSCR at an 85% LTV is small.  85% is the regulatory LTV banks require, but no chance you\u2019ll actually get it.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i2piuib", "text": "Hello Oscar. You\u2019ll be competing against dozens of other buyers or it\u2019s such a Class C garbage pile that you\u2019ll need significant work. \n\nYou start with an LOI/PSA find a lender or pay cash. I\u2019m in Dallas and close about 20 MF deals a year. \n\nDo you have $1m as down payment right now?", "replies": [{"id": "i2pnnkc", "text": "I could come up with that yes", "replies": [{"id": "i2pxi70", "text": "Only $1MM? I\u2019m a commercial lender and I would assume you would need to come up with at least 25%, maybe 20% if the cash flow works.  Typically CRE lending will require a minimum 80% LTV, lately less (although idk your market).  As far as the financing side most banks require a 1.20 DSCR, so do your own cash flow analysis on your own before you bring it to the bank.  If the numbers work, and you arent highly leveraged already, I\u2019d assume your background will help you get a loan since you are in the industry &amp; you won\u2019t need to hire a property manager.", "replies": [{"id": "i2q0jjp", "text": "Wouldnt they also need networth of several million and like 600k liquidity outside the down payment plus another 100k in closing costs", "replies": [{"id": "i2q5zeq", "text": "Good question, depends on the bank.  You will almost certainly need to personally guarantee the loan, if you have investors who would be willing to sign on who have some strength behind them- that helps.  The way the bank looks at it will be 3 fold-\nPrimary source of repayment (cash flow analysis)\nSecondary source of repayment (personal guarantees of you and investors if they agree to be a guarantor, personal net worth &amp; liquidity)\nLastly- liquidation (LTV of property &amp; condition)\n\n$100k in closing costs might be a bit high, youll need to get an appraisal+environmental done which should cost under $10k.  Fees at a regional bank should be well under a point. But i agree it would be good to budget that.", "replies": [{"id": "i2q6hdd", "text": "Thanks for the answer. Yeah probably a high estimate. My frame of reference is entirely acquisitions for properties $20m and up so pssibly inflated.", "replies": [{"id": "i2uebz8", "text": "I'm curious. What's a typical breakdown of the $100k closing costs? \n\nLegal, inspections, etc", "replies": [{"id": "i2umfrj", "text": "Looking at my model for a deal with 2.2 m in closing costs, legal fees 65k, broker fees 560k including acquisition fee, debt fees 1.3 million including the origination fee of 800k (that includes a rate cap), 240k of misc fees and 70k of due diligence costs icnluding  appraisal, environmental pca etc. granted that is for a $58 million deal.\n\nI am using that example because I have never worked on a deal of a small enough size to have only 100k closing costs.", "replies": [{"id": "i2v0icw", "text": "Isn't ~3.5% of the deal size in closing costs a high figure?", "replies": [{"id": "i2v9x4h", "text": "No. Not really especially when you add an acquisition fee and debt fee.", "replies": [], "depth": 10}], "depth": 9}], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}, {"id": "i2smvs8", "text": "This is the correct response. As a commercial lender my self I completely agree. Highly recommend you underwrite to a higher expense ratio than you think. IE. 45%. Complex\u2019s like this are always heavy expense wise. Make sure you take a look at interest rate sensitivity, since we are expecting nothing rate increases this year and the foreseeable future.", "replies": [{"id": "idfvt4k", "text": "Aged well lol", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "i2pr09g", "text": "I'm of the mindset of let's make this happen. Is there competition sure there always is but, it will be a numbers game and ill eventually have what I want. I'm just asking steps.", "replies": [{"id": "i2q406l", "text": "It\u2019s going to be a numbers game alright. Someone\u2019s going to buy this for cash and that going to be a good thing for you because you don\u2019t realize this yet but this is a terrible idea.", "replies": [{"id": "i2qltfi", "text": "I get the jist of it.  I will be starting with duplexs first as one reditor has told me already. and ill just keep buying those so build up my portfolio.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i2piwvz", "text": "D\u2019oh", "replies": [], "depth": 1}, {"id": "i2pizpe", "text": "Typically, the banks I deal with want 25% down (this includes closing costs) and a net worth equivalent to at least the loan amount. They will pull your credit and want experience owning similarly sized buildings. You will need to use historical data to demonstrate that, after expenses, the cash flow covers the debt from the bank by at least 1.25x. If you plan on adding value, you will need to create a budget and demonstrate how the value added will impact the operating financials of the building.\n\nCheck out \u201cMultifamily Millions\u201d by David Lindahl. It is a good guide to the entire process, including after you own it.\n\nYou are high income earners but the mortgage you will need is going to exceed your income significantly. That is not really the issue here. I think having close to $2m to put down and the ownership experience are going to be the difficult pieces here.", "replies": [{"id": "i2png7i", "text": "&gt;Thank you I will read the book.", "replies": [], "depth": 2}, {"id": "i2q5eit", "text": "Does this count for conventional loans or just commercial loans? For instance, what if a 20 year old is wanting to buy a house, they very likely don\u2019t have the same net worth as the price of the house. If this is true, how would a younger person with a smaller net worth buy a house? I\u2019m new to this so wasn\u2019t sure! Thanks!", "replies": [{"id": "i2q8bpu", "text": "This is only commercial. Residential lending is much more regulated and created in a way where many more people qualify. For residential it is almost exclusively income ratios and credit score threshold.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i2pk24r", "text": "I'm a commercial banker who works in both CRE and C&amp;I.  I would be happy to finance this property for you if I was in your market under the following conditions:\n\nThe property is pre-leased with a NOI that yields at least a 1.20x debt service coverage ratio and we would like to see leases of at least 5-years with decent tenants.  \n\nYou have about 1.2mm in liquidity to use as your cash in the deal in order to arrive at a loan to value of 80% (although 75% is now becoming the standard for us so do the math there).  You would also need the cash for closing costs. \n\nYou have a personal financial statement with a decent net worth and decent liquidity, something comparable to owning a property such as this and you would have to demonstrate that your liquidity and net worth wouldn't take much of a hit from losing the cash required in this transaction.  I'd say a minimum net worth of $10mm is a good starting point.  \n\nWe would probably also want to see some past experience in commercial real estate as well.  \n\nLet me know if you have any questions.", "replies": [{"id": "i2pmg6j", "text": "Now, this is the information I was looking for. Thank you very much. I'll look into it and get back to you.", "replies": [], "depth": 2}, {"id": "i2pwi1n", "text": "Can you let me know these stats similarly if I have a $200k down payment? I\u2019m of course looking for a smaller property.", "replies": [{"id": "i2pyjrb", "text": "$200k could be your 20% equity into a $1mm property (not including closing costs however).  \n\nIf you have an $800m loan amortized over 20-years with a 5% interest rate, your annual debt service would be $63,355.  You would need your property to produce a net operating income of $76,026 to yield a debt service coverage ratio of 1.20x.  That is a cap rate of around 7%.", "replies": [{"id": "i2pzieo", "text": "Ok great. Kind of a big income to fetch, can we Dm about what lenders and where to go about this money?", "replies": [{"id": "i2q2dmu", "text": "Well you could always look for something smaller and hold on to some of your cash for closing costs, reserves, etc.  Yes you can DM me, I used to connect people with financial institutions for a living before I returned to banking!", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i2pntva", "text": "Read the book Best Ever Apartment Syndication by Joe Fairless and Raising Private Capital by Matt Faircloth", "replies": [{"id": "i2po00i", "text": "I most definitely want to stay away from syndication if I could.", "replies": [{"id": "i2ptk9p", "text": "You say you could bring on investors for the down payment, that is a syndication.", "replies": [{"id": "i2qmk90", "text": "oh I see, good to know thanks", "replies": [], "depth": 4}], "depth": 3}, {"id": "i2punqc", "text": "Bringing on investors is Syndication especially if you and your wife plan to be the sole owners without any other partners. Having limited partners is the way to go based on your post and that is Syndication. You could also do owner financing if the seller agrees", "replies": [], "depth": 3}], "depth": 2}, {"id": "i2po17h", "text": "thank ill read those", "replies": [], "depth": 2}], "depth": 1}, {"id": "i2posxg", "text": "buy a reit", "replies": [], "depth": 1}, {"id": "i2ps31e", "text": "If you *could* come up with the down payment through means of raising the capital through investors, you're way behind the 8-ball. You'll be up against a dozen bidders that can write a seven figure check to their lender and not even blink. Meanwhile you're scrambling to make deals with the devils just to scrap together funds for the down payment.\n\nHonestly, if you have to ask where to even begin when wanting to buy a 40+ unit property then you aren't ready to buy one. Unless you just came into a massive windfall, 40+ units is something you work your way up to and would already know the answers to your questions.\n\nTL;DR - You're not ready to buy 40+ units. Go start with something like a duplex.", "replies": [{"id": "i2q147k", "text": "Eh we often \"come up\" with the down payment for deals and we have a $2 billion portfolio. Also there are not a lot of guys who can write a seven figure check in the $6 million space. Its just not worth the effort for lots of guys.", "replies": [], "depth": 2}], "depth": 1}, {"id": "i2ptum5", "text": "im a Mortgage Broker out of NYC.\n\ndo you have any underwriting on the deal?\n\nrent roll, income and expense or t12?\n\nthese items tell the story from a financial side. \n\nif the financials make sense for you and your business plan then you want to find out the building story, history and combing thru the specifics of vacancy rent growth deferred maintence capital expenditures needed etc\n\nstart at step one\n\nNeed property financials", "replies": [], "depth": 1}, {"id": "i2pu6ja", "text": "why 40 units?  start at 4 and then move up.  You're never going to be able to compete with a larger buyer on that income, unless your net worth is 2M+.  Even then, you're going to have a hard time competing right now.", "replies": [], "depth": 1}, {"id": "i2pu7yi", "text": "Typically you will need 25% down, 3%-5% in closing costs plus the renovation/CAPEX/value-add budget. You could find a bridge lender that will do 15%-20% down plus finance the renovation but that is very risky; especially for a first time 40-unit investor (I assume) NOT SUGGESTED. \n\nYou will usually need 1%-3% of earnest money once an offer is accepted. You will need a signer that has a net worth of the loan amount (\\`$4.5m+) and you will need another person or the same person with 10% of the loan amount liquid (\\`\\`\\`\\`\\`\\`\\`\\`$450k+) not counting the down payment (post closing liquidity). You need to speak to an SEC attorney since you are setting up a security (passive investors). I would do this first. That will cost $15k-$20k. \n\nYou need to find new management; that is part of the value-add process. Find a new property manager that is able to run the properties better. They will bring their own staff. Make sure rents can be increased by 20%+. Yes, it can be done; we do several syndications per year, but it is not easy. It does however get easier.", "replies": [], "depth": 1}, {"id": "i2pvsvg", "text": "If you and your wife are already having a strained relationship this will be a disaster. Make sure you are on the exact same page with money management, which of you will be responsible for each task ahead, and an exit strategy.", "replies": [], "depth": 1}, {"id": "i2pyrg5", "text": "I\u2019m a multi family direct lender, we can do most likely 80-85% LTV purchase price. You would only need $1M down. No broker fees we are direct.", "replies": [], "depth": 1}, {"id": "i2pzaas", "text": "Delete this thread, ignore everything that you are reading and find a real estate attorney who has worked on larger deals in your area - you will not get the answers you need here.", "replies": [], "depth": 1}, {"id": "i2q0bmo", "text": "Is it listed for sale? If so, I can give you the steps to proceed", "replies": [{"id": "i2qmeoa", "text": "it will be, it isn't right now. the company my wife works for is selling it", "replies": [], "depth": 2}], "depth": 1}, {"id": "i2q36pj", "text": "I would strongly advise you to look into Bricktrade, as they are known to take a unique approach to real estate. They have traditional real estate, but what's even more amazing is that they are also experimenting with cryptocurrency through the tokenization of real estate, allowing you to own a fraction of the property for a very small investment.", "replies": [], "depth": 1}, {"id": "i2qn5fg", "text": "thanks for every one help!\n\nI will read up more\n\nI will start with 4 unit properties and build my way up. \n\nagain thanks for all your help.", "replies": [], "depth": 1}, {"id": "i2rk0yl", "text": "It's a myth that a 40+ unit will be that much more work than a 4 family, although you will be competing against fairly sophisticated investors In that ball park (not that you are not one) \nMost real estate pros will try to tie a property up with &lt;5% deposit with 90 days to close. During those 3 months they will get commitment letters from the bank and raise as much as equity as possible. A very shrewd GP might only have 5% equity in any deal. (5% of total equity) and will structure the partnership so as to get a large promote. (Capital gains outside our business) \nAlso budget for 3% closing costs and some % for replacement reserve funds to escrow. Good luck!", "replies": [], "depth": 1}, {"id": "i2rqrlr", "text": "Do you have the $1.2 million down payment?\n\nYou need to look at the commercial real estate brokerages like Crexi and put out feelers to the big commercial brokers and tell them what you're looking for. Given your wife's job I'm surprised you're asking us.\n\nWhere are you looking?There is a really good book written by David Lindahl: Multi-Unit Millions. It shows you the analysis and let's you figure out if a deal is a good deal. You might even want to spring for one of his three day bootcamps that cost $1,500. I found it pretty good with excellent materials but many feel it's scammy. I don't believe so although they do try and talk you into a very expensive partnership program.", "replies": [{"id": "i2rrh85", "text": "Here's a typical deal in Dallas[https://www.crexi.com/properties/743983/texas-ross-matilda](https://www.crexi.com/properties/743983/texas-ross-matilda)\n\n&amp;#x200B;\n\n$5.4 million for 32 units. 100% leased. \n\nI haven't run the numbers.", "replies": [{"id": "i2sgdwf", "text": "Do they give the rents and expenses etc in that link? I\u2019m not seeing anything", "replies": [{"id": "i2sv44h", "text": "You have to open up the offering memorandum.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}]