I’m totally new to the property investment world, other than a mild interest for about the last 25 years (reading the occasional book, talking with people who do it, etc). Now I’m considering jumping in with both feet…but wondering if I’m getting in over my head. I have a fairly large nest egg to deploy, but for this deal I would need to call upon friends/family for private lending or partnership (and I have excellent credit as well, but am finding that to be close to useless, at least as far as my bank is concerned.) I’m considering buying a 40 unit property in a very urban area, just a few minutes from the heart of a 2nd tier city (within the top 100 in the US). The property is REO, and currently run by a property management company, which I would anticipate retaining. The published numbers look amazing: ~600k purchase price, 16% cap rate – but I haven’t gotten a full break down or done any hard analysis yet. The bank almost completely rehabbed the complex last year. The major risk, as I see it, is that the tenants may tend to run it back into the ground rather quickly, and maintenance will be a much bigger expense than is currently allocated for – in effect, that much maintenance is being treated as capital improvement.
The place is far enough away from me that I won’t be able to be very hands on in its management; I probably couldn’t get out there more than once a week given my current obligations. I have experience as a business/it manager, have run small budgets (a few hundred k per year) and managed vendors, and know a bit about finance/accounting. I also have a close friend that is a very solid property manager with 20 yrs experience managing multi-million dollar complexes, who I can call upon at any time (but is likewise too far away and too busy to take a very hands on role) and a pretty good accountant.
The biggest risks come from the things that you don’t know that you don’t know. So, my question to those of you that actually have experience OWNING properties of this size, am I out of my mind to think I can do this? Risking my own money, I’m OK with, but I’m very hesitant to consider risking OPM without really knowing what I’m getting into. Any perspective from the more experienced players here would be greatly appreciated.