Question: I’m looking at acquiring my first Multifamily property. Is is better to…

RE Investing 101Q. I’m looking at acquiring my first Multifamily property. Is is better to go solo, syndicate with a group, or partner with limited deep pocket investors?

A. Good question, we get this often but there is no cookie cutter answer. It depends on your goals and preference. Generally, from a lender’s perspective experience and the borrower’s financial muscle are the two factors on the top of the list when assessing the borrower. The condition of the property, its financials, and the location are leading factors when evaluating the property.

Going solo implies taking on full responsibility and enjoying full rewards (or suffer losses on your own.) When buying your first property one thing is known: you lack experience. To compensate for it the lender will most likely need to see a remarkable PFS (with substantial liquid reserves in addition to the funds to close), a reputable property management with proven experience in the market area, and a stabilized property, with solid financials, in a good location. A stabilized property means no deferred maintenance, good condition, and a high occupancy level. Good location means strong local economy, low unemployment, high absorption rate, low crime, etc. Depending on how large is your liquid net worth and how much you’re willing/required to contribute towards your first property it’s recommended that a first time buyer stays in the small units range, maybe 10-25 units. Don’t shoot for the starts yet.

Partnering up with others is easier said then done, but it may work for you if you’re willing to share in the profits, the losses if they arise, and give up full or partial control of the project. When partnering up with limited partners it’s important that at least one of them has experience, good financials, and willingness to sign as a guarantor for the loan. Syndicates are fairly common on larger properties and we see it all the time. The sponsors also need experience to take down a larger property. On smaller (10-25 units) it’s usually not economically feasible when the funds are syndicated, so bringing on a few investors may make sense. In such scenarios the subject property can be either a performing or an under-performing one. If the property is yet to be stabilized one or more of the partners and/or sponsors must prove past experience of stabilizing similar properties.

Contact me to discuss your scenario.

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