Our First Multi Family Property!

I find it funny that our first multi family property comes in my 50th post.  It seems significant.  Our goal when we first started investing has always been to get here at some point.  In fact, our long term goals take us even farther than that (overseas investing as well as large building investing), but let's not get ahead of ourselves :).  The property itself is a true commercial property, but barely.  It's a 5-unit apartment complex.  I always figured our first MFR would be a "plex" of some kind (4 units or less), but we'll take this.

We've been open to and somewhat actively looking for a multifamily property in the areas we invest in.  We've been letting folks know that we're interested, checking our loopnet occasionally, and other looking.  I think it's funny that the way we found this property was using the last method I thought we would find it through.  Our bank sends us their REO list every month.  I've always sorted through it and narrowed it down to SFR's in the price range we want.  I never thought to look at the commercial section.  I had missed it entirely.  My Dad was actually the one who spotted a couple of apartments on the list.   He reached out to me and asked to do a quick analysis on the property.  I did our "5 minute check" on it and the numbers looked pretty good by themselves.  On top of that, we discovered that the rents are about 20% below market and need to be raised.  I'm a big advocate of never analyzing based on anything pro forma.  However, with rents where they are, it's still a good deal.  With rents where they are supposed to be, it's a phenomenal deal.  If it was a case where it was a bad deal with current rents and just a good deal at market rate, there is no telling what we would have done.  But long story short, it passed the quick test and was destined for further analysis.

We reached out to the bank to get all the financials (last 2 years) and did as good an inspection as we could to make sure there were no major repairs needed or deferred maintenance.  So far so good.  We put in an offer which was basically accepted (we went up 1% on our initial offer by the time it was all said and done) and we are now under contract.  Believe it or not, we purchased it for a little less than the appraisal 3 years ago.  The NOI is higher now than it was then so we know we're getting a good deal.  The bank is even doing an evaluation as opposed to an appraisal which saves us money.  Keep in mind, the bank owns it and has an appraisal from 3 years ago that is above the purchase price, so it's a win all around.  We are currently in the process of sending our property inspector out there for the full inspection.  Further negotiations may ensue after that, but we don't think anything major will result.

So there is some discussion to be had around moving from SFR's to a 5-unit apartment complex.  This is new territory for us so I'm sure there will be some lessons that come of it but hopefully they will be minor.  If there are, I'm sure they will find there way here in future posts.  So far in our investing, we've had no "huge" lessons that I would consider detrimental or extreme setbacks.  I do think that comes from educating ourselves.  When it comes to apartment complexes, I've read lots of books, articles, blog posts, forum posts, etc on the topic.  I've also had conversations in my investor's group around them as well as spoke to people who own them.  I've listened to podcasts and such along the way too.  BY NO MEANS, do I consider myself an expert.  However, I do feel that I've educated myself enough to jump in.  Enough is the key word.  I could do more, but I'm at the point where I think further education is no longer necessary and I'm ready to jump in.  Do I feel educated enough to buy a 220-unit?  Hell no.  But a 12-unit or less, yes, I believe I'm ready.

We've all heard the term analysis paralysis.  We've all heard about people buying a 20-unit as their first property ever.  We've also seen people talk for 10 years about doing something and they never do.  Their is no black and white line here.  We've gotten to the point where we think we've learned enough to jump in and experience first hand.  The other key point is we're also buying in a price range we are comfortable with.  We're only spending about the equivalent of 2 or 3 SFR's (depending on which SFR's you use).  So again, it's not a purchase that equal's our entire portfolio.  We've educated ourselves to the point where we felt ready for a purchase anywhere in the neighborhood of $150k - $350k.  Even if we learn some hard lessons, in that range we've minimized the risk of a detrimental situation to our business.

We're still in the early stages and probably ~30 days out from close but we're excited and I wanted to post about it sooner rather than later.  If anything interesting comes of it I'm sure I'll post more.

And yes, this brings our total # of units to *20* which is super exciting by itself.