How to Buy Your First Apartment Complex (Step-By-Step)

what's going on guys this is chandler smith and i just purchased another apartment complex and in this video i'm going to show you the step-by-step process you can use to do the same so with all of that being said let's jump into it all right guys if you're new to the channel my name is chandler and i own 150 units of rental real estate now i started out with single family and duplexes and fourplexes but now i've moved up to bigger apartments so i currently own a 32-unit apartment complex a 24-unit apartment complex an 8-unit apartment complex another 8-unit apartment complex and 11-unit and i think a couple others so i've had the opportunity to go through this process a lot when it comes to purchasing the smaller units but even more when it comes to purchasing full-on apartment complexes and you need to know they are very similar but they're also very different and in this video i'm going to give you the step-by-step process of everything or at least almost everything that you need to know to be able to purchase one for yourself so with all of that all that i ask you to do is remember to smash the like button subscribe to the channel and hit the little bell so you can catch me in the future videos and if you love this video and you want to learn more about everything that goes into purchasing apartment complexes i've left a link below where you can pick up my real estate investing course so now that we've covered all of that let's jump into it first off you need to know how you're going to come up with the money to buy a commercial building or an apartment complex and there are a couple different ways to do this the way that i have done it is i've gotten a loan from a bank and then i've come up with 20 to 30 down to be able to get that loan to then purchase the apartment complex now you can set up a syndication which is a lot more that goes into it as far as borrowing money from other people you could also do a partnership there are lots of different ways you can get money from someone else to then put it into a complex however the majority of people have this big amount saved up and they want to be able to invest it and that's kind of where i got and so in this video i'm going to show you that process so you're going to need 20 to 30 down unless you get the seller of that property to finance a bigger portion so then maybe you only need to come up with 5 or 10 or 15 percent either way the process is going to be the same now if the seller is financing it for you you're going to work out the terms with them but you need to find a way to afford the purchase price of this property and so the first thing i'm going to focus on is what you need to do to get in cahoots with the bank so you can get a loan so you can afford an apartment complex now this is the direction i would push you could you buy it with cash if you have the money you could but it doesn't make sense because your percentage return is going to be higher if you get a loan especially with how low interest rates are right now so if you're looking into buying a one million dollar property and you've got a million dollars set aside good for you you might as well put 250 000 in this property and then you can buy four of them and get a substantially larger return now one thing you need to know is when you are getting into this space there's going to be a different lender so if you've purchased you know one two three four units four units or less they're going to give you a residential loan or personal loan under your own name and that's going to be a lot easier to get access to it's going to give you better rates and better terms unless you've built a really good relationship with your bank and so what i would tell you is for this first loan unless you've got a ton of money in the bank you're really going to have to build up some form of relationship and a lot of times on your first deal on a commercial loan you're not going to get the best rates or terms because they don't know you and you've really got to prove yourself you've got to bring a good deal to the table so before you ever go and meet with a lender you need to know what you're talking about because these guys they're on a higher level they don't want to mess around with someone that doesn't know what's going on and a lot of times even if you've got the money you could get pre-approved you can kind of blow your shot with lender if you go in and you're completely clueless now with that being said they do want your business so they're still going to be a little bit forgiving but know what you're talking about and the best way to do that is to watch the rest of this video and to watch other videos so that you can understand everything about investing in real estate another fun fact about these commercial deals when you're buying four units or less they really care about your personal credit and your personal debt to income ratio on these bigger deals it's a little bit less of a concern to them however the numbers of the actual deal matter more to them so you've got to make sure that you've got a home run deal the other thing that does matter a lot to them is where that money's coming from and so you definitely are going to want the money in the bank and reserves so that you can't afford this now if you're doing a partnership or syndication or something like that one thing that's cool is you can get approved for one of these commercial loans as long as you get the money regardless of where it's coming from as long as it's in llc or whatever you've got set up to purchase it with where if you tried to do that on four units or less in your personal name it would be a no go so that's another thing that's kind of advantageous i'm not going to dive into all of this it's extremely important for you to dive into it with your lender so it's kind of a catch-22 on this first deal because you have to know what you're talking about you have to know what you're doing you have to know your structure before you go into it but then as far as what the bank is going to require of you that's relationship that you've got to work out with them so you can ask them questions so you know exactly what they want to see before you try to push a deal through so you know what you're talking about you need to build that relationship and there's kind of this middle ground between talking to a lawyer as far as how you're going to structure it and then talking to your lender to make sure it's structured properly for me i don't have any other parties involved so i don't really need to talk to my lawyer as much i just needed to have money in the bank and know what i was talking about when it came to investing in real estate know the deal structure pretty well of what i was looking for so when i called them up to get pre-approved i could say hey here's the property i'm looking for this is what i have in reserves this is what i have for a down payment i'm ready to roll i just want to make sure you're ready to roll and so you can give me a ballpark idea of rates and terms i do want you to know i'm going to shop out a couple other banks but i've heard the best thing about you and that should set you up well so you can get pre-approved and then be ready for when you do find a deal so get pre-approved first and then we're gonna talk about finding the right deal now before you get a deal under contract or you start putting in offers or any of that you need to know what your criteria is and i would say your criteria is tied to two different things one it's the actual deal but then it's also the financing and if you're going to finance through a bank there are lots of terms that can tweak or change or depend on what market you're in or what situation you're in let me explain when i started my first loan was on a 20-year am with the rates changing every five years at like a four and a half or five percent interest rate these terms were really crappy but i didn't know what i was doing and i needed to build some form of a relationship and they didn't want to give me everything they had because i was kind of an unknown entity they didn't know how good of a borrower i was going to be and so i got kind of crappy terms now to give you some comparison i built up a good relationship with the bank so now i get a 25-year am instead of a 20-year am i have a balloon payment at 10 years and have my rate locked for the first 10 years and i've gotten down to a 3.6 interest rate and my origination is substantially less than it was when i started and so there are all these different things that go into your rates and terms but you've got to have an idea of where those are going to be for when analyzing a deal and so again that's why i would say get pre-approved and at least get an idea of where those rates and terms are going to be worst case scenario and then find a home run deal for your first deal so if you do get worst case scenario rates and terms you're still going to be able to make it work because you've got a home run deal on the other end and that way you know what criteria to set for the actual deal that you're looking for now let's transition from your financing over to the actual deal and my criteria for a deal is actually pretty simple first off i want a deal that has great appreciation upside and great cash flow now this is kind of a trick one because you're gonna have to figure out what that means for you i personally am in a market that for the last three years has been in the top five markets for appreciation which means it's gone up in value over 10 some years over 15 percent every single year as a whole when it comes to property values i love that because i know my property is going up in value and i'm getting a ton of equity with any purchase that i buy on top of that you need to have extremely strong cash flow now for me my bottom criteria i'll do 4 cash flow on a 25 year schedule so if you're looking at 25 your am with 25 down i need to be getting at least a 12 cash on cash return so that's kind of my criteria with that what you've got to take into consideration is if you can't get a 25 year amp or 25 percent down let's say you've got to put 30 percent down that might change your criteria a little bit if you've got to do it over 20 year am instead of 25 again that might change your criteria a bit so figure out what your cash on cash return criteria is and hold to that i don't care about the cap rate as much because it all depends on what financing i can lock in and that has to do with the cash on cash return where the cap rate you know it could be a good cap rate but if you're paying 10 in interest it's a terrible return because you've got a terrible interest rate so i like to look at the cash on cash return because it combines both of those together and my minimum is a 12 on 25 your am with 25 down next i want to be in a c plus property or better in a c plus area or better if you don't know what that is go check it out i've talked about it in other videos and i'm not going to go through what kind of property is but it needs to be a decent property i'm not going to go into the slumlord realm however a lot of the properties i buy are older and i like to make sure that there is strong demand in that market so that means i want to go in a market where there are no vacancies where everywhere is full because everyone is looking for that kind of property and i like to be at the bottom of the market for that square footage so if i'm looking at a two bedroom apartment i want to be at the bottom of that market for a two bedroom apartment or that square footage because a lot of times people will go and they'll buy an a property and so they're at the very top so let's say in a market you know a lower end two bedroom apartment is worth 900 and the top end is worth 1500 but the 1500 one is like brand new really nice nice finishes the reason i like to be on the bottom end of things still a nice property not slum lord bottom but on the bottom end is because if the market drops out there's always going to be a need for this where if people become extremely tight on their finances and you're at the top of the market the nicest best apartment complex that top market apartment is most likely going to have a lot more room to drop in rents to try and keep someone in there where if you're at the bottom of the market you might drop but it's not going to be as substantial it's definitely not going to be as large percentage-wise of a drop and i feel like that protects me a little bit more now everyone has their different opinion on this this is the niche i like and the reason i like it is there's usually lots of value-add opportunity there are old owners that have it mismanaged misrented and so i can go in i can buy the property i can increase rents pretty immediately there's an instant value add and i'm never overpaying for a property i can usually find something with 15 to 20 cash on cash return by the time that i've owned it for a year because i can bump rents pretty quickly i can add value to the property in some way and i've gotten even larger buffer now i've got my minimum and if i need to place money i'll go down to that but that doesn't mean that i'm not going to try and get higher than that and i feel like there's a lot more opportunity in the realm that i just talked about than if you're going to go into new construction or brand new apartment complexes all right now that you know your criteria it's time to start putting in offers now i've heard people say for every 100 offers or 100 deals you analyze one of them is going to be the one that you pull the trigger on i would say that was correct for me early on however i've come to find because i've done this a lot it's substantially less than that and the biggest reason for that is i've got lots of wholesalers i've got lots of realtors i've got lots of other investors that know my specific criteria and so they're looking through you know dozens of deals and then they're just sending me the ones that they think would meet my criteria and i've proven myself as a good buyer so i'm looking at a lot less deals to get to the point where i'm buying a deal but for you early on you've got to build those relationships i'm not going to dive into all of that but i would say get a good wholesaler or a couple goods wholesalers get a good couple of realtors and connect as much as you can with other real estate investors and let the world know that you're looking for apartment complexes and let them know your criteria so that then they are bringing the deals to you and hopefully the deals that meet your criteria so you don't have to sift through quite as many deals but it's good early on to sift through a lot of deals so that you can figure out what you're doing and you can know what you like what you don't so when the right deal presents itself you can jump on it now one little helpful hint i'll give you a lot of times people are like oh the mls i'm looking and looking and looking and i can't find the right deal a lot of times the right deal for me is the right scenario what i mean by that is if i get a call from a realtor and he says chandler they want this price for it and it's some absurd price for extremely low rents but they tell me hey it's an older owner they want to unload it this year they're wanting to get rid of it this is what they think the market says that it's worth because that's what other stuff is selling for but um their rents are clear down here that is the deal i love jumping on because i know how to negotiate with a seller like that and i know how to get them to feel like they are winning while i'm also winning through the negotiation process it's not like oh this is just a home run deal on the mls the rents are perfect i usually find a value-add opportunity and it's a specific scenario where i know i can make it a win for them and i can make it a win for me so um get your wholesalers get your realtors know your criteria help them know your criteria and happy sifting through deals if you don't know how to analyze a deal to get to the point where you know what the cash run cash return even is um go and watch this video and make sure that you go to my website and download i've got a free app and i have a free spreadsheet both of which can help you analyze deals if you want to go to the app store it's just cds rental calculator and you can download it on android or ios or if you like excel there's google not excel if you like google sheets same thing you can go and download it at my website at www.chandlerdavidsmith.com and both of those have a link attached with a video that's going to run you through how to analyze the deal and figure out the numbers and if you love both of those but you're still not to the point where you feel comfortable buying a deal because there is a little bit more that goes into it with the due diligence side of things that we're about to talk about but just kind of skim on the surface you can pick up my real estate investing course link is down in the description all right the property's under contract and now we're going to dive into due diligence now there are just a couple points here and i'm just going to skim the surface of what you need to know but i did want to give you a brief breakdown of what you should make sure to hit on in due diligence first thing you need to understand is you have to know the rents in your area i can't tell you how important this is for a couple reasons one you need to go and if you see a two-bedroom apartment that's got you know a thousand square feet you know what that should be able to rent for so if they've got it rented but it's high for that market you know hey they got lucky on this or they did something but this isn't actually worth this or so you can go in and say holy cow they've got this rented at 600 for a thousand square feet when i know this can rent for a thousand i can turn this into a home run deal the best way to do this is connect with a good property management company long before you start shopping deals make sure you've got a good connection there you've got a good relationship and so you can bring them with you and say hey what can you rent this for what are my expenses on this property going to be what are the numbers going to look like on this property because in my other video i can show you what my expenses are for my market for a property that was built in the 90s but i can't tell you your market for a property that was built in the 80s or the 70s or whatever you end up buying but the property management company can they can tell you how much money they're going to need put into it what the expenses are going to look like what the vacancy is going to look like and how much these units should rent for so you need to have that relationship or find a way to learn all those things yourself before you're ever going to be able to analyze a deal properly or before you're going to be able to do proper due diligence on the deal so that's the first thing and that can kind of fall into our financial analysis and that's just going to be a big bullet point here is just your financial due diligence you're going to go through your taxes your insurance all the financials their profit and loss their income statements everything that they've got that i'm not going to talk about in this video but that's its own little bullet point and then you've got the inspection of the property hire a good inspector with good reputation go through pick them apart and you're going to want to in your due diligence get it once you know what you're going to need to do and how good of shape this property is in and if there are any major things that would break or ruin the deals that you can walk away so always give yourself a good due diligence period but you're also going to want to know what you can nitpick and get a bunch back before closing so you do have even more money in reserves more money to spend into whatever value ad you're planning on doing for this specific property and again these were very um brief skim the surface type breakdowns but both of these are going to be important and there's so much that goes into the actual inspection of the property and the actual inspection of the financials in this due diligence process that i talked about in my course but i do not have time you know the couple hours to talk about it in this video so you can pick up the course if you want it if not go and research these things on your own before you ever lock down and finish the due diligence process and purchase your first apartment complex now you're gonna finish due diligence you're gonna push the seller some more to get money back for them you're going to push your lender some more to get better rates better terms from them you're going to shop them out and you're going to do a last minute push a lot of times they'll say this is where we're at but then you're going to push them even harder and a lot of times they've got to go to their higher ups before they finish the loan anyways and that's another opportunity for you to push them for a little bit more so once you've pushed your seller once you push your lender you're also going to have a good title company that hopefully you've pushed for and then you negotiate with them every one of them has a lot that they can give usually thousands of dollars on these bigger deals so make sure you go in and say look i'm going to do a lot of business i want to do it with you but i also know you have the ability to give me a bigger discount and i need to see it on this deal and if they say i don't know about that go shop out multiple and say hey i'm going to be in this game for a little bit i want to make sure that you give me a good deal i've gotten to the point where i actually have a good relationship with multiple title companies and they all do this for me because a lot of times the seller might be finicky or picky on which um title company they want to use and so wow i just realized i've used my hands a lot in this video so i apologize if you guys can't tell i love this process and it is so fun and it's all a massive negotiation and so with this last part just make sure that you do push your seller you do push the lender and you do push the title company even if you're going to a title company that you don't have a relationship with you can get them to bend for you so you can save even more money and this deal can become even more of a home run you've got your minimum but for me i want to knock it out of the park i want to beat my minimum by a lot and i hope that you can do the same on this first deal once you've gone through this whole process they get the paperwork all written up they've got the final disclosures ready for you hopefully the day before go through and make sure that everything that you've fought for is there that it's proper that it's ready to roll make sure that you get all the deposits the prorated rents and anything else that you've been promised and now you have hopefully gone through the entire process and got an incredible deal on an apartment complex now if you guys enjoyed this video make sure you remember to smash like button subscribe to the channel and hit little deal on the little bell and um i'm going to do some future videos tonight i was going to do a video on the 8 plex i just bought that's going to cash for over 20 000 a year have huge appreciation huge tax benefits but instead i wanted to walk you through the process i used to be able to lock up this a unit apartment and so maybe my next video will be on that specific deal but for now hopefully now you know the process and you can start doing what you need to to pick up your first apartment complex now if you guys enjoyed this video again remember to smash like button subscribe to the channel and hit the little bell and uh guys this is the first video i've ever done where i literally did this entire video in one take because i love this stuff and i promise you will too so dive in head first and when you become passionate about it you're going to start killing it and find some incredible deals thanks guys have a great night [Music]

Channel: Chandler David Smith

Views: 187,256

Keywords: meet kevin, real estate investing, biggerpockets, grant cardone, real estate for beginners, ryan pineda, buying apartment, is apartment good investment, buying apartment bad idea, questions to ask before you buy apartment, why you should not buy a condo, how to start buying apartment buidings, how to buy apartment with no money, what to know when buying apartment building, is buying apartment worth it, how buying an apartment works, how to make money buying apartment buildings

Id: kBTSs11jSaE

Length: 21min 55sec (1315 seconds)

Published: Mon Dec 20 2021