I've recently taken on an interest in pursuing a multi-family complex. I'm still in phase one: the dreaming phase.

However, in order to turn the dream into a plan I need to understand more about the business and hope to pick the brains of those already in the business.

1. How would one go about getting a seven figure loan?

2. What information should be requested from the property during the initial feasibility study? (vacancy rate, expenses/income, etc?)

James,

Most lenders will want you to have experience and a track record before they will be comfortable lending on a project like this.

Do you have multi unit experience?

Many cities require an on-site manager when the building is more than a certain number of units. Do you have a manager or will you hire a management company?

How's your capacity as a borrower? Commercial lenders may want 25% down. If you don't have a track record, maybe even more. If you have massive collateral, that may improve your position.

I've been managing a small portfolio of SFH's for 15 years now. I would plan on being the property manager at the complex.

Make an appointment to speak with the commercial banker and sit down and talk to him about what the bank requires. I'd talk to the commercial department at a minimum of three different banks.

How many units are in the complex you are interested in? What condition are the units currently in? What is the neighborhood like?

Having all of your tenants under one roof can be an advantage and also a disadvantage.

Get a commercial broker. They will help you with the process, and a good commercial realtor will have off market deals. Get someone who has been in your area for a number of years and has a good network. They will have worksheets for you to use to evaluate the properties under consideration.

They are going to want a 5 year projections of income and expenses for the property as well as 3 year past performance. What needs to be done to the property to improve it, estimates on rent increases, cash flow, occupancy rates in the past and projected occupancy, future major renovation projections, etc. Your plans to increase profitability from it's current state to a better state.

You need to show them that you did your homework and that they will not lose money loaning it to you.

Should be 20 to 30 pages of photos, spreadsheets, and commentary that you can slap on their desk as your "plan".

I would get the leases and the P&L and verify all numbers. The tax numbers are easily verified by public records. I'd ask for backup on utilities. You can get a quote from your insurance company on the cost of insuring. Basically, you want to take their P & L and recast it to a verified version. Be sure to include vacancy, repairs and capex. Also, you'll want to know the capitalization rate for similar commercial properties in your area and apply that your verified net operating income to determine the offer.

Generally, I know market rents, cap rates, vacancy rates and reasonable utilities going in and can look at a P&L, add the stuff that's typically missing (vacancies, repairs) and determine what the true asking cap rate is. I also evaluate the building to determine if there's any deferred maintenance/major capex coming up. The combination of all of that forms the basis for negotiations.

I'm looking at large deals now, so while I haven't bought one yet I've dug thru several down into the weeds.

The ProForma should list all rents and expenses, but I would want to cross check these with the Seller's tax returns. Watch out for things they 'forget', like LL paid utilities, grounds-keeping, snow removal, donated maintenance & management.

If there is currently an onsite manager/superintendent, how much do they get paid and/or do they get free rent? Are they staying after the deal sells?

How many are leases vs. m2m? Would it be possible that the month after closing you see a mass exodus as leases expire and people fear the new land lord?

A few other due diligence tips from an acquaintance who is a MF investor.

* Ask to see the work orders (not in the contact).

* Specifically ask about floods, fires, sewage backups, roof leaks, surface water, asbestos, popcorn ceilings?

* Any problem units (maintenance or tenants)?

Fun stuff...good luck!

I picked up a half completed small complex. The builder and owner didn't understand that everything cost more and takes longer to complete. Here in Los Angeles it takes on average to get plans approved with permits around 320 days -- that's almost a year.

In my case I had an extermination company tent the half completed structure to make it weather proof while the red-tape and paper trail began. It only took me two years to the go ahead. Codes kept on changing and I had to do many revisions.

I picked up a half completed small complex. The builder and owner didn't understand that everything cost more and takes longer to complete. Here in Los Angeles it takes on average to get plans approved with permits around 320 days -- that's almost a year.

In my case I had an extermination company tent the half completed structure to make it weather proof while the red-tape and paper trail began. It only took me two years to the go ahead. Codes kept on changing and I had to do many revisions.

Since you have some knowledge about how to manage on more hands off platforms you will want to gain some experience doing apts.

Just an idea, but since rates are trending upward, and many baby boomers are coming of age - perhaps you should option a small complex and manage it for the future retiree. Then ask for wrap around financing based on the numbers that you have seen first hand.