new investor, ready to jump into deep water

Rehabbing, Fix and Flip, Rental Properties
1

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.

2

Don’t go into business with anybody that you can’t sue. If you had to sue these people how would the next family reunion or picnic go? Find somebody that has no interest in your project than making money doing what they do every day. I call these people investor grade professionals. You really don’t need to find out exactly how professional your friends and family are. Trust me you really don’t need to know that about them.

3

From my experience, I feel that Real Estate is best in increments for new investors. I feel most of my circle has started off at a smaller scale as far as unit size and worked their way up after understanding what it takes first hand. There are also numerous ways to creatively structure a deal that are on this website as well which would allow you to avoid mixing family with business.

However, the numbers look great. If you haven’t already , visit and see how the properties are being run and if they are indeed occupied currently and verify if tenants are paying rent. If it is a REO their maybe some turmoil in current occupancy, receivable accounts, ect.

As far as managing property, I have had bad experiences trusting a company with everything unless they have a proven track record or are willing to run the business the way I would. I would rather put together an all-star team myself for a property this size for a long run hold strategy. I have seen better results in higher occupancy rates, happier tenants, and a better bottom line that way.

4

In my opinion investment in the real estate sector is the best option as to generate more profit in less time. Although there is always ups and downs in the real estate market but once a person is having a proper knowledge about real estate market strategies then i don’t think any kind of problem occurs.For your case i think you need to contact any real estate agent who is registered with a legal real estate firm,you can also take help of your friends and family members.