Love this question. Yes, for sure. I’d encourage it. There will certainly be hurdles that you’ll face as you start your journey so take a look at a few of the challenges we overcame:
How much do you have in your piggy bank?
The capital commitments required with commercial multifamily investing (5+ units) is significant. Take a 10million dollar apartment building: you’ll need 25% down so 2.5million, plus enough for 9 months of reserves as often required by your lender, enough to cover rehab costs so that you can raise rents, enough to pay your mortgage, any capital expenditure reserves, earnest money, payment for lawyers and your tax guy. That’s just to get started.
“How good is your credit” will not be your lenders only question.
Once you start playing in the big leagues, the lenders start asking some pretty personal questions. Not only do they want to see your credit score, no bankruptcies, etc… They will also want you to prove to them that you have experience and success in the multifamily space. It takes me back to the days when I would come home with a wrist sore from filling out job applications and take my teenage frustrations out on my parents, “HOW AM I SUPPOSED TO HAVE JOB EXPERIENCE IF NO ONE WILL GIVE ME A JOB?!”
Who do you know?
Knowing folks in the multifamily space is crucial. As mentioned above, lenders want you to have experience before they loan to you; so the best way to break in is usually to JV with someone. Also, keep in mind that the brokers hold their off-market deals like a squirrel hides their nuts in the winter. A commercial real estate broker goes down his list of folks who might be interested in the deal and the order she uses is based on how likely she thinks it is that you can close the deal. You’ll be asked how you plan to qualify for debt, for proof of funds, and how many LOIs you’ve had accepted and why any failed deals didn’t go through. On our last LOI submission, the broker asked us to explain our underwriting and financial projections. Basically, brokers want to see that you know your stuff.
We are also always willing to help if you’re considering going out on your lonesome. Shoot me an email anytime at email@example.com.