SS25: Multifamily Real Estate Investing for Beginners

SS25: Multifamily Real Estate Investing for Beginners

Multifamily real estate may seem like a difficult asset class to break into but Charles shares a few ways to do just that.

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Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing a multifamily real estate investing for beginners. So the term multifamily real estate is going to encompass duplexes, triplexes, apartment complexes, any property that can house families in separate units. When I’m talking residential, multi-family, I’m talking two to 40 units. When I’m talking commercial multifamily, it’s going to be properties with five plus. So what’s, with this definition, mind, let’s turn to finding such properties, planning to buy them. And the benefits of investing in multifamily properties. Number one is goal setting self-evaluation and partnering. I want to briefly go over this. If you see me or listened to any of the other episodes, you know, that I kind of go over these in detail. I have some episodes that go over them specifically, but with goal setting, we’re really trying to figure out what you’re doing, trying to achieve in the next one, five, 10, and 15 years, and make sure that the properties that you’re buying and your investment strategy that you’re laying out now is going to fulfill and help you achieve those goals.

Charles:
So that’s part of the whole self evaluation goal setting is one. The other portion, there is the partnering. I personally never partnered initially on properties. And I did some small partnerships with my brother and stuff like this when we were buying other properties. But initially I wasn’t really, I was buying properties myself. And after I did that, when I started scaling into large multifamily and commercial properties, that’s when I started being on teams with partners, because that allowed us to grow much faster. But the start off when you’re learning the business, I would suggest buying a smaller multifamily property with yourself and maybe one other partner. Secondly, what type of team do you need to obtain your first property? And this is something where you don’t need all these people upfront, but these are people that you’re going to want to make a list of.

Charles:
And you’re going to want to start sourcing in the area. These are lenders, mortgage brokers, insurance agents, real estate brokers, residential agents, real estate, attorney, title companies, and property managers. Not they’re going to be utilizing all those people from the beat, from the get-go, but these are people that you want to have in your CRM. And you want to be able to refer back to them when you need them or when you might need them. So it’s very important to have that. And that’s kind of the whole premise of setting up your team. You can source a lot of these people through a good broker, or maybe from a good mortgage broker. I found that real estate, the brokers are a great source for finding property managers, insurance agents, inspectors, everybody that you might need, if it’s what they work in is what the pro your is, what your target property is.

Charles:
For example, if you’re buying a commercial multifamily property, you’re going to want to speak and source stuff through a commercial multifamily agent, getting a property management recommendation from a residential agent, that’s with one unit one and two unit properties. That’s going to be much different than the property manager that you’re going to need for your 10, 12, and 15 unit, even your five or six unit building completely different setup in completely different requirements for the tenants. So let’s find out how talk about how to find a property. So searching and finding multi-family work with qualified real estate brokers, specializing in multifamily properties. It’s very important. A lot of real estate agents are trained not to work with not to work with investors at all, because it seemed to be a waste of time. Some real estate agents work specifically with real estate investors. Some real estate agents or brokers work specifically on multifamily.

Charles:
Some of them work on different asset classes within commercial that don’t have anything to do with multifamily show. It just depends on if you’re looking for a specific multi-family property and that’s what the asset class we want to go into. Make sure you’re finding agents that actually specialize in that there’s often no direct cost to doing this as a broker collects his or her commission from the seller, and they have access to properties listed exclusively on local MLS, right? In detailed information where you would like to buy. Now, I always say have residential agents, even if you’re buying commercial, residential, or commercial, multi-family because I’ve, I’ve purchased commercial properties off of residential MLS. They post them there and it happens. So make sure that you have commercial brokers and make sure that you have residential brokers. I’ve also on LoopNet seen triplexes for sale.

Charles:
Not that I’ve ever purchased one TriFlex off of LoopNet, but it’s something that they do offer there. And so make sure that you have, depending on where you’re going, I would have both commercial and residential agents on your, in your CRM. You can utilize online property portals, and we’ve heard of Zillow, Trulia, LoopNet, which together list a few thousand multifamily properties for sale across the country. These sites are also freed use, obviously like some parts of LoopNet are going to be more expensive when you’re getting into it. But initially when you’re looking through it, there’s a lot of properties on there for free. Even if you’re not buying any of these properties, sourcing real estate agents from them and contacting them and building relationships. This is great. If you see one agent that’s on there all the time, and all they’re selling is 15 unit properties, and you want to buy a 15 unit property.

Charles:
Fantastic. This is what they specialize in. Reach out to them and start building a relationship. In other ways, direct solicitation. We’ve done this before. For years, this can take the form of mailings postcards letters. It is a very targeted area or even call if you are using software like Reonomy, which provides data on property owners among other services. So you can go to your city, your county, you can pull lists of the properties that you want to buy. You can then find the owner’s information. If they have a corporation, you have to go through and skip, trace the corporation. Once you actually find the owner, you can send them as a record letter to their residential address. And then if you really want to contact them, you can give them a call. You can skip, trace them personally and find phone numbers and call them.

Charles:
I personally don’t really like that when you’re getting into multi-family. I think that works better on single family type properties. I get those texts all the time and I hate responding to it. If someone sent me a letter, I would hold onto it or take a picture of it and save it, whatever it might be. But I, the text and phone, I don’t pick up any, you know, stuff like that. So I think a lot of multifamily investors are similar to myself. Obviously you could call in some will pick up, but just my, just my thoughts off market deals, you can find these on searching sites like fisbo, fsbo.com for sale by owner Craigslist, which lists properties for sale by owner in general classified sites and online sections of local newspapers. Don’t rule out newspapers. You want to be buying properties from older people and that owned it for a while.

Charles:
That probably have no debt on it. Perfect candidates for seller financing. You’re going to be finding this in newspapers, most likely. So not the have to get a subscription, but you pick it up here and there, and also local newspapers too. They might be inexpensive or free to, to advertise them. So why, why invest in multifamily real estate? Number one, I think it’s easier to finance and it gets easier as the property gets larger. Although the total cost of property and down payment may be higher. There are also more financing options developed for this type of property. As lenders generally consider it lower risk due to higher occupancy rates. These include conventional back multifamily, property loans, portfolio loans, and FHA approved loans from Fannie or Freddie Mac. So if you’re just starting out and you are able to get an FHA loan, it’s fantastic.

Charles:
You can house hack, you can buy a property, a duplex triplex, quad live in one of them rent out the others. You can utilize your FHA. Now, when you start buying more properties, they usually put you a cap of having 10 mortgages in your name. This is where portfolio loans come in, where you speak to a local bank lender, a local credit union, and they give you a loan, maybe on all those 10 properties, it’d be one loan. So you’re kind of cross collateralizing all your properties. And then you can go out and buy more properties because now there’s no loans in your name that most likely will be an LLC, which it always should be. And that’s a great way of doing it. The other thing too is when you’re getting into larger properties, 750,000, really a million dollar loan amounts and above you’re going to get into Fannie Mae and Freddie Mac.

Charles:
That’s what we focus on utilizing when we’re buying multifamily properties. And this is where we get really, really, they call it the gold standard of financing where we’re getting long-terms regular banks are going to give you traditionally. I think five and 10 years terms are probably normal. You’ll probably have some banks that will say three or seven years as well. But I think five and 10 year term mortgages debt is very traditional on commercial properties from local banks and local credit unions. When you start getting into Fannie Mae and Freddie Mac this is something where you’re able to get much longer terms 10, 12, 15 plus years fixed throughout. So you don’t have to worry about that interest rate adjusting, which is kind of a fear. Every time you are going back and refinancing with your traditional local bank or credit union.

Charles:
Another thing too is economies of scale. And this is, this is big. This is a great thing. And this is something that you should kind of strive for when you’re building out your goal setting, you know, cause you don’t want your goals to be, I want to buy 25 units and I’m going to buy five, five plexes, and then I’m going to be buying them 20 minutes, 20 minutes, 20 minutes away, all over the place. You really want to focus in on one area of what you’re working on. That’s going to give you an economy of scale, even if you’re buying smaller properties. And this is a misconception, yes, it’s harder to do this than just going out and buying a 25 unit property. I understand that, but you’re not the only person that’s thinking this way. If you want to put in a little bit more legwork, you might be able to get better pricing because larger investors are going to veer away from smaller multifamily properties because of more hassle it has to do with it.

Charles:
They don’t have any scale, but if you’re buying properties, say for instance, you own 20 units in an area. I don’t own any. And there was a five unit there. And my management, when I go into that, it’s going to be, say eight, 9%, right? And your management is already fixed because you have so many units there at five or 6% through your management company, you have an advantage over me because you already have economies of scale. Once you buy that, you can add into your portfolio and you can save money. You can pay higher for the property, which is the end thing that we’re talking about here over what I can pay because of your economies of scale. When you’re getting into larger properties, when you start scaling or portfolio, every property you add is going to be able to lower the cost of that per unit price down.

Charles:
Okay? So you’ve landscaping on a three unit property. You buy another three unit next door and another three unit, a straight, straight, straight away. When you’re doing that, your cost is just going to drop because now you go back to the landscape and go, I’ve got two pro, I’ve got two properties. You have to mow every week. I’ve got three properties. You have to move every week and you can negotiate down. And even if it’s a little bit of savings, that’s the economies of scale. So your maintenance, your insurance, your rental property management, overall all gets cheaper. When there are multiple units at the same location or nearby, of course, the more you manage to reduce your expenses, the more cashflow you can enjoy. So this is, you know, in real estate, as I always say, to have a competitive advantage, to build a moat around your business is two things.

Charles:
You need access to money and you need relationships. Okay? And those relationships are kind of broad, but that really means relationships with the brokers relationships, with property managers, relationships, lenders, you have a lender. That’s going to allow you to put down 10% on property. And that lender doesn’t know me, and they’re going to charge me 25% or the lowest I can get in that area is 25% down. You are going to be able to have an advantage, right? Because you can go into properties in areas, possibly pay a little bit more for the property because you can put less down on it and you’re going to have a higher cash on cash return. So these are all things that you have to think about when you’re starting off in multifamily investing, but get your first property. It’s great. I would really suggest doing the FHA route. I hope you enjoy the episode. Please remember to rate, review, subscribe, please submit comments and potential show topics at global investors, podcast.com. Look forward to two more episodes next week. See you then

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar LLC exclusively.

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