I am wanting to invest in Multi Family Apt. What is a good size apartment building to start out with in Texas?

Ok, I have been doing a lot of research on multifamily apt. buildings and reading forums, books, website, talk to owners of local apartment, etc… I have even started to go back to school for my MBA. I am new to this so, I would like some opinions from the ones that have been there and done that. So, my question is, what is a good size apt. building for my very first investment purchase into apt. buildings in Texas. What cap rates should I look for in multifamily apt. building in Texas. My last question is, with the economy the way it is, is this a really good time for a new/first time commercial real estate investor (apt. buildings) to get into this type of business with the way the economy is?
In General Area - Asked by Joshua W. - Apr 22, 2010
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Answer(s)

Robert W.
Broker/Agent
Univ of Ark at Fayetteville, AR

Hello Joshua,
That is a really good question and you started off right by doing the research before just taking someones advise and jumping on the first deal. From talking to commercial property owners and investors, there are a lot of complicated answers and scenarios sure but there are a couple of SIMPLE time tested requirements that are as old as time. It doesn't matter whether it is a commercial or residential, single family or multi these principles apply especially in this economy. The biggest factor in Apartment building investing is 'OCCUPANCY'! If it is not at 80-90% occupancy, what is causing it not to be: bad management, location, property codition? If any of these are factors, what is the price that they are offering? Is it low enough to allow you to be able to have the assets or ability to remedy these negative factors that is causing it to not have full occupancy. Plus too, consider the location, are there other apts in the area and do they have high occupancy rates as well? But the most important factors are as I mentioned: LOCATION, CONDITION, AND PRICE! Start out with a minimal risk as possible and you are doing good by doing the research! Thats just an observation that I have. Are you just looking in the Texas area or Would you consider Arkansas as well?

Apr 22, 2010
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JW N.
Tujunga, CA

The answer before me was excellent so I will stick to short direct answers to the questions you asked. Keep in mind I have never owned an apt building. I just know many owners.
? As a unverified rule of thumb, the size may depend on if you want to manage the apartment yourself or get management. If you believe that multifamily commercial starts at 5 units and above then you can say that from 5 to 20 apartments can be managed by you. Above 20 then you almost are compelled to get professional management. I would think that you would want to stay smaller to start as this would be the best way to learn about management when you get a larger property later on. (so much for the short answer.
? CAP Rates will depend on many factors, but I believe they will be going up if interest rates rise which will really mess up a messed up market. CAP rates also are dependent on your plan for the property and other factors.
? Although the markets are primarily down and may have further to go. CRE is really dependent on location and the deal and terms you are able to strike so now is the best and worst time... I know... not much help.
I like Apartment Financing Today for great information (see web reference)

Apr 22, 2010
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Jacob G.
Corporate Investor
New York, NY

20 to 50 unit to start with.
9--12 cap to start with.
Not too much renovation needed.
not a crime aria.
Student aria is good.
Take over Existing mortgage make it easy. Good luck coby972@aol.com

Apr 22, 2010
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Peter A.
Owner/Investor
San Jose, CA

In some states, you may need to have an on-site manager depending on the number of units. Occupancy/Vacancy history is very important. Turnover is another. How long do the tenants stay on average. If they leave every year or less ( student housing ), it is not a good thing. A complex with 2+ bedroom units is preferred because families tend to rent them resulting in lower turnover. Of course, when buying older units, watch out for deferred maintenance.
Good luck.

Apr 22, 2010
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Christian Y.
Owner/Investor
Downey, CA

Texas great prices, but bad tenants, management. etc. Myself, my other investors lost million of dollars, big apartments. My advice to you and Save you LOT OF MONEY. buy 1 duplex or 4 units for the first 6months to a year and test it out.. TEst it out... Especially if out of state. Big advice for everybody...

Apr 22, 2010
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Hasan A.
Owner/Investor
Fort Washington, MD

The key is how much money do you have to invest? Now you must look at where the building makes you a positive return. The best buildings are the ones that you can buy that can bring you a positive return at 50 or 60% occupancy and that has competitive rental rates depending on the area. start small and grow. there are many challenges to running a successful complex. know all the rules for landlord tenant leases and make sure that especially if you are not managing the property yourself that you check behind your management company. check into all service agreements and make sure there is no bogus lock you in to something you don't want to be in especially when it comes to the daily maintenance of your property. the cleaning of common areas ,trash collection , grass cutting. new tenant painting..etc.. enjoy and make a lot of money....

Apr 23, 2010
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