In today's video, I'm going to be going over how to buy your first multi-family apartment building.
I own three small multi-family apartment buildings right now, plan on purchasing some more. And
together they make over $5,000 per month, which for a lot of people that might be enough for you
to quit your job. And I did this in just a year or two. So if that's something you're interested in,
definitely watch all the way to the end of this video, because I'm just going to be
going step by step exactly how I did it. And of course, if you have any questions
throughout the video, just drop them in the comments section below. So let's jump into it.
Okay. So step number one is to find a deal. Now there's really about three or four core
strategies to find a deal. Like we could list a hundred different wacky strategies,
but these three or four strategies are going to be the most effective bang for your buck.
This is exactly how I found my deals and how I'm finding additional deals. So you want to
use a website called saavier, and I'll put a video link below, which goes more into depth on how to
use Propstream. And don't watch that video. Now, watch it at the end of this video. But basically,
you would log in, you'd set up an account and you would search multi-family properties that have
some equity in your area. And I usually recommend starting in your own backyard, it's just going
to make things easier, but you would just use Propstream. You'd come up with a list of maybe
a hundred, a thousand, maybe even 5,000 multi-family owners in your area. And in
my Propstream video, I go more into depth on how to act, actually sort that list, so you're not
just pulling up everybody. But basically, you would just contact them through direct mail,
texting phone calls, whatever way possible. And you say, "Look, I want to purchase your
property." And a lot of them are going to say no, but if you contact a thousand people, you'll get
some responses. And you're looking for like 20 or 30 leads. And out of those 20 or 30 leads,
you're going to find a deal. I can guarantee you. There's so many inefficiencies with some of these
smaller multi-family owners from like the two units upwards to the 10 or even 20 units
where it's just mom and pop type owners. And they're not really doing a good job. They're
not maximizing the rents. Their expenses are too high. So there's a lot of opportunity
there. The second way to find is through other real estate agents, real estate brokers. So
this is actually how I found one of my deals. And once you get into the larger multi-family,
I haven't done anything over five units. I have a couple four units, a duplex and
then some single family properties, but brokers are going to be one of your best source of deals
because a lot of times these multi-family properties are not listed the same way that
a single family house might be listed. A lot of times they're going to shop around a multi-family
deal off market just to people that they know can close. So what will happen is if you actually
purchase a deal... And that's why the first deal is like really important, just to get that first
deal under your belt, the commercial brokers will actually look you up and say, "Oh, you
purchased a multi-family pro property here." And they'll contact you with additional deals in that
area because they know you can close. And then it's kind of like a snowball effect and you'll
get different people, literally just looking you up in the tax records. A little weird,
but they'll contact you with deals. That's how I've purchased a couple
different properties. And when you reach out to these multi-family owners, it's okay if you
haven't done a deal before, but just try to have some type of approval letter and just say, "Look,
I'm looking for..." Let's say you can start with a two unit that's considered multi-family. You can
start with a two unit, say I'm looking for two units, three units, four units, whatever it is
in this area. I'm approved for this amount. If you get something, I'm very interested,
give me a call. And just be responsive because a lot of these brokers get hit up all the time,
and a lot of times people just aren't responsive. The broker will send you a deal and then that
person won't respond and they'll forget about that person. But if you're pretty responsive,
you tell them what you like, you tell them what you don't like about a different deal,
they're going to send you properties. You can just look up the last hundred multifamily
sales in your area, on the MLS or different source, and just make a list of all those agents
that sold those types of deals and just reach out to them. I literally just did that. I've reached
out to like 50 or 60 different multifamily owners kind of in my backyard or multi-family
agents that have listed multi-family properties. And out of those after your 60, there was maybe
40 or so that didn't respond, but I had five or six people that were like, "Here's this deal,
here's that deal." And I spent several hours just reviewing these different deals and I'll
honestly probably purchase one or two in the very near future here. So that's a great way
just to dig up some leads, just reach out to these commercial brokers, let them know you're approved,
or if you've already closed a deal, let them know, "Hey, I purchased this one. I'm looking for
another one," and they'll start sending you deals. The third way to find multi-family deals is
Facebook groups. I know it might sound a little weird, but you should join your real estate
investing local Facebook groups because I can guarantee you, if I go into mine right now and
I just type in multi-family, four unit five unit, two unit, 10 unit, there's going to be different
people that are selling those properties. And they're not always like the most, sophisticated
with how they're selling it. So there's a lot of opportunity there for you to add value.
So I'm evaluating several deals right now just from Facebook groups. Maybe I won't purchase them
maybe I will, but it's just a free source of leads in your own area. So it's pretty a no brainer.
And then the fourth way of finding deals is through the MLS. So you can just look on the MLS
and just look at multifamily. You should also look at commercial because sometimes they just list
these types of properties incorrectly and just look for exactly what the two to four units, five
units, 10 units, whatever it is you're looking for. And there's going to be a list of probably
10 20, maybe 50 different properties in your area. Most of them are probably going to be overpriced,
but if you evaluate 10 or 20 of those deals, I'm sure you can find some value in there. And I would
also add like that first deal is very important. So with that first deal, you shouldn't be trying
to make like a million dollars on your first deal. The first deal is really to get into the game. You
don't want to obviously lose money. It should be a decent deal, but it's okay if you're not going
to make a hundred grand on it. You want to get into the game so that brokers know who you are.
They can look you up or you can tell them, "Hey, I have this deal," and it's going to just give you
so much more experience so that you can, do the next deal and on and on and on. And every single
deal you do as a multi-family investor, you just get saavier and saavier. So, just look at the MLS,
there's tons of properties on there. And a lot of investors are looking more at the fix and
flip deals rather than the multifamily. So, there's definitely some opportunity there.
There's a pretty well known multi-family investor out there, Michael Blanc.
Now just doing your first deal leads the financial freedom, the within a short period of time.
Maybe he's watching this video, but he talks about the law of the first deal.
And once you do that first deal, he basically says you're financially free within the next,
I don't know, two or three years. And for me, that was completely true. Once I did my first deal, I
had all these other opportunities come in my way. But the first deal is so important. So you want
to get that done and then people will actually bring you deals and you'll get more experience.
So let's say you find a deal. Now the next step is to actually evaluate that deal.
And if I want to just keep it the most simple, basic level possible, what I would say is just
look at the last most 10 comparable sales to this one and make sure yours is at the bottom
or near the bottom from the 10 previous sales. Now we can get into like NOI and cap rates and
all this stuff, but for your first like small multi-family, I wouldn't even get too concerned
with that. Just make sure yours is basically the lowest or one of the lowest prices that have sold
recently. And something that I like to do is to look at it from a Section 8 standpoint. So a lot
of these multi-family buildings I have on Section 8 because it's just guaranteed rent. I don't need
to chase down anybody. The government just sends me a check, actually it's just direct deposit,
which is even better. So I'd look at your local county or city website and it'll tell you exactly
what you can get for each unit, depending on the zip code, neighborhood, one bedroom,
two bedroom. And a lot of times you can just kind of build a second bedroom and may be kind of in
the gray area as if it's legally a second bedroom. But I found a lot of these Section
8s on Specher's. So long as the place is in good condition, there's some type of egress,
it's not going to be as strict as some other types of properties when it comes to like, "Is this an
actual bedroom or not?" So for me, the Section 8 allows me to see the grand potential of the
deal. So I can see a building and I can see that someone with that same square footage might have
turned it into two bedrooms. And then I'd look on Section 8 and all of a sudden it's like, "Wow,
you get like a thousand or $2,000 more per rent every single month. So definitely check that out.
And then the next thing you want to do when you're evaluating deals, not only
do you want the property be basically towards the lowest or lower end of the price range,
but you want to find out what major repairs the owner has done over the last couple years, five,
10 years, any receipts they have. You don't need to get too into receipts, but find out if any of
the tenants are delinquent or haven't been paid or need to be evicted. And look, it's fine if they
need to be evicted, that happens sometimes. Or if it's even fine, if there's some major
issue. I'm looking at a deal right now where two of the tenants need to be evicted and another deal
where there's structural issues. And so what I do is I just look at my deal analyzer and I'll have
a deal analyzer. You can go to my website, the link is below and download it. But if a tenant
needs to be evicted, it's like, okay, I'll just subtract that from my offer price. So in my area,
it actually... I'm in Washington DC. So it can take like six to 12 months to do an eviction.
But let's say I factor in 15,000 for that, which the attorney fees is really not even
going to be that much, but just to be on the safe side, okay. That's 15,000. Okay, there's
two tenants that need to be evicted. That's 30,000 that I'm going to subtract from my price.
And then this deal that I'm looking at that has a structural issue. I'm just going to say, okay,
whatever this structural engineer, and I'll probably get two estimates just to be on the
safe side. Whatever they say, it's going to cost, I'll just subtract that from my price,
get it fixed and we'll get the deal done, because a lot of these properties that have these big
problems and big issues, obviously the seller doesn't want that either. So they might be
willing to take some type of, maybe even a bigger discount just to get the problem off their hands.
What's also important is to do a walkthrough of every single unit, as well as the basement,
the exterior, everything, because you do want to get an idea because every now and then there could
be some, bigger issue that you weren't aware of. You don't necessarily need to get an inspection
if you're buying the property as is it's off market, you're paying one of the lowest amounts,
like I try to do with most of my deals. But if you can, yeah, it would obviously help to get an
inspection done. That's more for properties that are on the MLS and maybe there's not four or five
offers on them that type of thing. And one thing to keep in mind when you're evaluating these
smaller multi-family deals is from Sam Zell's book. So he talks about different deals,
where he says, "If there's a big upside and a small downside, you should do the deal. However,
if there's a small upside and a huge potential downside, you should stay away from the deal."
And I actually just had a deal like that, that I was looking at where I would've had to bring
basically very little money to the table. So it was a subject to a multi-family
property. So I could have just overtaken this guy's loan and not had to qualify
through a bank or anything like that. So it sounds really great and everything. However,
this was actually the deal where I would've had to evict to do tenants and do a bunch of other stuff.
And also this guy's loan was already pretty high, so I would basically be overpay and just taking
over someone's payments who basically overpaid for a deal. And I have to spend, let's say 30,000
or so to evict these people, and then another 10 or 20,000 to fix it up. So the upside was there,
I'd say a developing area, but, there was just too much debt and it just wasn't worth the risk.
There wasn't a ton of cash flow. So I passed on that deal, but just keep that quote in mind.
Step number three is just to make an offer. So, me, I always try to negotiate for the most part.
I mean, sometimes if it's just an amazing deal and they're just like, "This is the price, do you
want it or not?" I might do that, but always try to negotiate. Something to keep in mind is just
make it simple and easy for the seller or for the listing agent. If you make things simple and easy,
you can oftentimes get a reduction in price. I like to have it, when people do deals with me,
everything is just straightforward. It's simple and easy. And people like that. People don't
like big surprises and stuff like that. And especially these multifamily landlords, some of
these people are so burned out. I've purchased properties from like an out-of-state landlord,
half the place is vacant, needs fixing up, it's in disrepair. They just want to get rid
of the property. They just want it off their hands. So, you factored your repair costs,
make a lower offer, make it easy for them, close on time and just get the deal done.
And I would also recommend getting your license if you're not licensed because,
I'm doing a deal right now where I'm going to save like 20 or 30K from the buyer's agent
commission side. So it's well worth it to get your license. Even if you just do a few deals per year,
even if you don't really do any deals as an agent, just to get MLS access,
it makes a lot of sense to get your license. The next step is to get financing and close
the deal. And I've basically done like three or four different types of financing that you could
also use in your market. So we're going to just go quickly cover those. The first way is FHA,
house hacking strategy. So with an FHA load, you only have to put down three and a half percent
and your credit doesn't even need to be that good. I think you can have like a 600 credit score. I
would need to double check that, but you can have in the 600 range, get approved for an FHA loan.
Only have to put down three and a half percent, and you can purchase up to a four unit building.
So you can buy a four unit apartment building. You do have to live in one of the units for at
least a year, but then you can rent the other three units out. By the time that year's up,
you've probably built up some equity. You've been basically living for free. So you probably have a
lot of cash and you can purchase another multi-family building. You can purchase
a new car. You can do whatever you want with it, but that's a great strategy. That's one
strategy I use, and there's a couple more. Private money and hard money, so if you find
a great off market deal that needs work, there's a good margin in there. Private money and hard
money are a great way to do it. Now, the best way to find private money lenders, and those are
basically as people that have a lot of cash and are similar to hard money lenders, where they give
you a short term load to acquire the property for, let's say six to 12 months, and then it's
up to you to refinance it, get the value up, and then, refinance it into a conventional rental type
of property load within those six to 12 months. All you have to do is ask local mortgage lenders,
"Hey, do any private money lending. Do you know anyone in your company that does that?"
Because a lot of times, if they're a successful, just standard mortgage broker, they're probably
bored. They probably have a lot of money and they probably want to invest in projects like that.
And they could probably invest maybe not the full amount, but probably pretty close. My
private lenders, they pretty much invest in the full amount. So I don't have to bring basically
any money to the table. And then after you do one deal with them, they'll refer you
to other people they'll want to obviously do more deals with you, but the floodgate's kind
of open and you can get really creative and basically have access to all this capital.
I feel so alive. So private money hard. Money's great as well.
You can just look on Google, look in Facebook groups, just type in hard money for your area.
You're going to find quite a few. If you can, do private money because it's more flexible and it's
cheaper, but hard money is great as well. The next type of financing is just getting a conventional
rental property type of loan. Typically, the bank is going to require a lot more equity in
the deal. So you're going to need like 75% or 25% equity because the bank is going to lend on 75%
loan to value. So you want to make sure there's a good spread in there. That's why using Propstream
to find off market deals, oftentimes you can find those pretty good spreads. And obviously,
a conventional loan can take a little bit longer to close, but you can still probably
get it done in about 30 days, maybe up to 60 days. And sometimes with these multi-family properties,
the deals take a little bit longer. It's not like you're just buying some little condo. So a lot of
times the seller's not even really expecting you to close in like 14 days or anything like that
like some of these residential type of deals. And with the conventional loan,
if the property is off market, I would actually recommend reaching out to credit unions or just
local other smaller banks. Because sometimes with these like two to four unit types of properties,
they can be a little bit more flexible and have better terms than a standard just
bank. So this is the one time where I would recommend reaching out to a credit union.
They could be notorious for being a little bit slow. So if the property's listed on the MLS,
you might just want to go with your standard local lender, but it is something to look into\.
And then there's subject-to financing. So I actually haven't done one of these deals before,
but I was just recently presented with one. So I had to get caught up to speed, but it's basically
where you take over the seller's existing loan. The loan is actually still in the seller's name,
but you take title to the property. So if you were to miss payments, it's actually, it looks bad for
the seller. So that's when a seller's just really motivated to get rid of the property. There's not
a ton of equity in the deal, but if they have a really good payment and maybe it's a developing
area, it could make sense as a deal. With subject-to financing, you don't have to go through
the application process for a loan. There's no appraisals or anything like that. And it's kind
of a gray area in the real estate industry. I'm not an attorney, but as far as I know,
it's legal, there's plenty of people that do it. There's investors that have done hundreds,
if not thousands of subject-to deals, but it's a great way to just get properties without having
to get a mortgage in your own name. So that's how you buy your first multi-family deal. Be sure to
watch this video right here. And overall, the most important thing is just to get your first
deal done. Once you do your first deal, everything will open up. People will start contacting you.
You'll become savvier. You'll be able to analyze deals faster. You'll be able to see potential
where others don't and there's less competition too in this space. The competition, you can make
the argument is a little bit more sophisticated, but trust me, there's plenty of deals out there.
Once you do your first multi-family, even if it's just a two unit deal, you will start to
see tons of opportunities out there. Thanks for watching. See you on the next video.