apartment buildings

[PAstash]

i was reading MMM post about rental properties as i am purchasing a duplex right now and wanted to study up.

In the replys to his post i came across someone saying that being able to say purchase a 300 unit apartment building is based more on the cash flow of the building and not as much about cash the landlord has on hand or even credit rating. Does anyone do this personally? the idea to just be able to purchase a huge apartment building then vet a solid property manager seems like a great idea

[marty998]

It's because generally if you are buying a 300 unit block it means you are not going to be a typical individual doing a bit of investing on the side.

You would generally be in the business of Property ownership.

So the merits of your investment are going to depend on the "business" you have purchased... not so much your employment income that you would fall back on in the event you had a vacancy in the property and needed to cover the mortgage.

[ashfo]

Any property with 5 units or more is valued based on cap rate and the NOI, net operating income.  I don't invest in larger multi-families like this yet, but I am in the research phase, learning all I can about investing in larger multi-families.  Right now I have one duplex.  I am researching syndicating apartment building, so raising money from investors to buy an apartment building.  I have found biggerpockets.com and themichaelblank.com very useful for information about real estate investing in general, and raising money to purchase apartment buildings, respectively. 

[PAstash]

It's because generally if you are buying a 300 unit block it means you are not going to be a typical individual doing a bit of investing on the side.

You would generally be in the business of Property ownership.

So the merits of your investment are going to depend on the "business" you have purchased... not so much your employment income that you would fall back on in the event you had a vacancy in the property and needed to cover the mortgage.

so what your saying is you would have to have a business to get in this business? any other options?

[Lmoot]

Possibly, if the seller is also willing to be a lender they could probably waive the more traditional requirements.  Most likely they would require leases from a certain percentage of the units and at least several years of previous leases under your belt from other property. It might change your status in the IRS eyes, from passive investor to active business which could change what taxes you pay.

[hoping2retire35]

Possibly, if the seller is also willing to be a lender they could probably waive the more traditional requirements.  Most likely they would require leases from a certain percentage of the units and at least several years of previous leases under your belt from other property. It might change your status in the IRS eyes, from passive investor to active business which could change what taxes you pay.

This is what I cannot understand, why would the seller be willing to be the lender on a property that would supposedly be able to pay for itself? If you, the buyer, are able to use the cash flow to simply pay them off they would be much better to just keep the place and continue collecting the rent. the only scenerio seller financing might make sense is if the owner is also the manager and just does not want to hassle with it.

[Lmoot]

^ Plenty of reasons:

Lenders don't have to:
- Pay taxes or insurance
- Pay for maintenance
- Hedge against vacancies
- Pay legal fees for evictions
- Pay for property management (in fact they could GET paid for continuing to manage the property)

Plus there is a date by which they expect to be fully reimbursed and have new capital to reinvest since it will no longer be tied up in a loan.

And they can charge interest above a bank-owned lender (knowing you wouldn't qualify through them), making them even more of a profit.