What Are the Mistakes
All right. So what are some common mistakes made by people investing in multifamily? Uh, yeah, the biggest thing I think, well there’s a couple of things really. So it’s people that are afraid to move, they second guess themselves constantly. That’s going to lock you up, that’s going to make you analyze over assess that. Even if you do find it in you to move forward with that property, it’s going to be tough. It’s going to be really, really hard cause you’re, you’re scared of making a mistake. You’re going to make mistakes. We all make mistakes. It’s okay. The second part though is, you know, kind of leaning back into this other thing that I just said, kind of the other side of it, right? So you go into a property and you think it’s a million dollars. My closing costs are X, my operating capital is Y.
How Much to Raise (00:45)
Right? But now I gotta figure out how much money to raise if you’re a syndicator or if you’re doing it by yourself. How much money do I have to have to fund the rehab that maybe the bank doesn’t want to lend me? All right, so you, you get all your bids together, you get the painting, you get the roof repair, the uh, the parking lot, repair all this stuff. You get all your bids in and it comes out to be a hundred thousand dollars. So you come in at a hundred thousand dollars and you think I’m good. No, you’re not good, right? The biggest mistake I think people make, especially on the front end, they don’t bring enough money in. So let’s say that million dollar property all in meeting your down payment, your closing costs, your rehab that we’re talking about now in your operating capital, let’s say all that average, it works out to be 30% so if the million dollar property, you’re going to have to come in to the deal with $300,000, right?
Just Be Careful (1:36)
But remember you got bids at a hundred thousand dollars and you only accounted for a hundred thousand dollars I promise. Once you take over these properties, you’re going to find things you didn’t see there going to be things that no matter how good you did, a due diligence inspection on this property, there are going to be things that you did not find, no matter how good you are and about how good your contractor is over fund your rehab. If you don’t, you’re going to be asking for problems. If you’re a syndicator and you under capitalize, right, you don’t raise enough money on the front end. Well guess what? You got to go back to your investors as not going to be fun and good luck getting those guys to invest with you again. So to me, that’s probably the biggest problem that I see with people that are trying to get into multifamily and do their first deal on a syndication level, especially if you don’t raise enough money for rehab. So just be careful with that guys.