REAL ESTATE: MULTI-FAMILY RENTALS

Below is our process for owning and maintaining large complexes.

FIRST: HOW TO BUY YOUR FIRST MULTI-FAMILY RENTAL APARTMENT COMPLEX My mentor suggested that I sell the smaller rental properties and buy an apartment complex. He told me to think big. He suggested that instead of buying of a 4-plex (which was my next plan), that I should think of buying 20 or 30 apartments at a time. I felt very overwhelmed. I was not sure how to do that. He talked about economies of scale and explained to me how it would actually help with reducing the purchase price per unit and streamline everything logistically. He suggested that it would be better to have one property and one management company, rather than many properties and many property managers scattered all over the place.

I asked him if he would be willing to guide me through this process. He agreed, and I met with him every week. At our weekly meetings I would bring him a list of all the multi-family properties that fit into the criteria that I was looking for and would tell him the reasons I thought these properties made financial sense. Many times he ripped up the sheet I gave him and explain why that property was actually a terrible idea.

Eventually I found a 16 unit apartment complex that was perfect. My mentor said to me "If you don't buy this property, I will". We had worked through the numbers and we knew it was a good deal. Unfortunately the apartment complex was already under offer, but we decided to put in a back up offer. Luckily, the other offer fell through we were able to go ahead with the purchase.

SECOND: BE PATIENT. THERE IS A LOT TO LEARN! I was overwhelmed many times. In the process of purchasing an apartment complex with 28 units, many of the things that I could not see were pointed out to me by my mentor. He gave me feedback like: too old, not a great location, cap rate is horrible, these are all studio's so the tenant's won't be long term, too many trees near the building creating issues, not enough parking, too much deferred maintenance, that roofing is really bad for such a rainy area, that is in a flood zone so insurance is very high, etc. The list went on and on!

My next huge learning curve was about to begin. Like the game of monopoly, I had purchased many small properties that generated income, now I was about to learn how to sell them and buy something larger. Take your time, be patient, and learn at a pace that works best for you!

THIRD: LOOK FOR WAYS TO ADD VALUE. Another apartment complex we purchased had 11 units and was very run down. With the help of my mentor, I was able to see that with some work that it could be a much nicer. For starters, the drug dealer in the end apartment would need to be evicted. There was a lot of work to be done, but I was really excited about this project. After the remodel, to be able to drive past and see kids play safely and the whole energy of this

place change was a remarkable feeling for me. Plus it was an incredible investment. The rent not only covered all the expenses and put money in our pocket, but there was also a large surplus.

FINALLY: HOLD YOUR CURRENT ASSETS WHILE EXPLORING WHAT’S NEXT We found a 33 unit apartment complex that was poorly managed. My mentor helped me to see that this was a huge opportunity. The deal was a diamond in the rough and has been an outstanding investment. Since the purchase there have been many challenges, such as a fire that destroyed four of the apartments. Luckily nobody was hurt and our insurance company paid for everything. This reinforced to us the importance and value of having everything properly insured.

Again, the goal was to ensure that the rent would cover all expenses and put money in our pocket every month. We were advised to buy, hold, and then sell the smaller properties to buy something larger. This is an ongoing learning process for us that never ends.

Many people move on from multi-family to commercial triple net properties, however we are not at that level as yet. We are holding our multi-family property for some time, and following the guidelines outlined to us as there is more to learn before moving on to the next level. Wherever you are in the process, be patient. Hold your current assets, and spend time learning and exploring how to advance to the next level of investment, whatever that looks like for you.