Trying to buy your first multifamily property may seem like applying for a CEO position when you’re just out of school, but it’s not. Don’t underestimate your abilities but also don’t underestimate the time and commitment needed.
If you don’t have the funds to straight up buy a property, you still have options. Here are three:
1. Network like crazy and find a partner who is buying a property, has the funds, and needs someone to do most of the work. That’s you. That partner can teach you what you don’t know.
Here’s why they may be reluctant to take you on:
You won’t have a lot of skin in the game and can walk away. Reassure them by relating experiences you’ve had sticking with long-term projects, and consider structuring the deal such that if your partner decides you’re not pulling your weight, they can end the partnership, maybe buy you out. You’re taking a risk, but remember, you are in this to learn and gain experience. You aren’t going to get rich off this first deal.
2. Get on the phone with brokers and owners in smaller markets. Talk to the owners, buy them coffee, all for the purpose of learning from them. You don’t want to tell them that you want to buy their property, at least not right away. Do this over 6 months to a year. You will hear of properties available for sale. Offer them seller-financing terms where you put little of your own money down. They will agree to this only if they know you and trust you.
3. Contact your friends and family about investing in your property. Actually about investing in you. If there’s enough interest, find a property that you can buy with the amount of money you can raise. Here’s why they may not want to: They don’t think you have the experience. Find an experienced person who you have a long-term relationship with and ask them to be a partner. Give them some equity and don’t ask them to do a lot of work. They are your mentor. They don’t think the real estate market is good now, or they don’t like real estate in general. Find factual information you can share with them, not salesy or promotional, but real experiences from successful people. Pick people more recently successful, not someone who is worth 100 million dollars. Create a plan for how you will grow their investment. Share your insights with them on a regular basis.
Market update
Des Moines, Iowa – we forget how vital the heartland of America has been to the extraordinary growth and vitality of our republic, how it has been one of our strongest qualities, and that our constitution was written with the needs of rural communities in mind. Originally, middle America was our food source. It still is, but with any successful industry, other businesses grow up around it. Des Moines is home to many of those “other” businesses, not just agriculture.
Not every midwestern city has grown like Des Moines has. It’s population has grown about 7% over the last 20 years to 754,000, not red hot but clearly holding its own. Unfortunately jobs growth has not kept pace. Earlier in this decade growth averaged about 3.5% a year for several years but the last two years have seen a drop-off. Last year growth was 1.2% and this year so far, a decline of about 0.7%. However, unemployment is steady at 3%.
The major industry in Des Moines is insurance and financial services. Makes sense because insurance lets farmers take the risks they need to produce the crops we need. Insurance employs about 6% of working people in Des Moines, 94,000. That’s a huge footprint, with Wells Fargo, Principal, Nationwide, and John Deere, although not insurance, accounting for 20,000 of them.
Insurance is a stable, resilient industry, not nearly as subject to economic cycles as most industries.
Agriculture is too, but even more important is that Des Moines is the state capital. Agriculture, government, and insurance create stability, and that is very attractive to people looking for jobs, wanting to create homes, and renting apartments.
Rent growth is low at 1.9% but projections are for 2.8% growth in 2025, even more in future years. Occupancy is high and is expected to stay high, in the mid-90s.
But guess who has discovered Des Moines? Big tech. Microsoft, Meta and others are building big facilities here. They need data infrastructure and in Des Moines there is space, very capable employees, affordable housing, and a hospitable business environment. Many good reasons to invest.
Des Moines is not experiencing the apartment building boom that many sun belt cities have. New construction dropped from 1,852 units started in 2023 to just 635 in 2024, a drop of 66%. That’s not likely to change soon, either, with interest rates where they are.
We don’t chase the newest hot markets. We look for poorly performing properties in recession resistant emerging markets. It might be early to tell whether Des Moines is going to pull out of its employment slump but all signs indicate that it will emerge even stronger, sooner rather than later.
Companies like Microsoft and Meta are like Starbucks and Target. They are leading indicators of strong communities. It’s smart to follow them into their markets.
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Finer Points of Multifamily Properties Investing locally – maybe your back yard is not such a bad place to invest
“I’d rather be driving to the mailbox to pick up my checks than driving to my property.”
That’s what many of us learned early in our multifamily investing. Our first thought is to buy a property not too far from where we live. We can get in the car and drive to it to see how it’s doing. Check for litter, broken windows or blinds, strangers hanging around, meet contractors. All of them great reasons to be near the property. Or, my favorite of them all (actually NOT): I can do the repairs myself quicker and cheaper.
Then we come to our senses. A professional property manager can do those things better than we can. They not only have people on staff who will drive by the property on a regular basis, they know how to kick strangers out, send someone to fix the problems, and take a prospective tenant on a tour of the unit. This is their job.
We’re taught this for one big reason. Our role in multifamily operations is building our business, not working as an employee in the business. These jobs all cost money out of our pocket but our time is better spent searching for properties, meeting potential partners, getting to know lenders, and other activities which lead to growth.
Maybe you live in a good market for apartment investing but most of us don’t. There are a lot of strong markets in the U.S. but most of them are mediocre or worse. The population and employers aren’t growing but they’re not shrinking either.
What to do? You may have more local options than you realize. Most cities with more than a couple hundred thousand people in the U.S. – there are 115 of them – have smaller cities around them. When you research demographics and trends for the major metros, the numbers are averages of the region. It the demographics are not great, your instincts say to pass on this market, and that means you’re passing on the big city plus all of the smaller cities next to it.
That could be a mistake. Nearly every big city has pockets of high crime low growth and pockets of exceptional opportunity. But how do you know where they are?
That’s when your knowledge of your local area can be very helpful. You know where new shopping and offices are going, you know which communities have favorable landlord/tenant laws, you can see how they respond to social issues such as homelessness and police funding, and you can easily visit to see firsthand if it’s a vibrant community where people want to live.
I live in one of those smaller cities outside of a big city and talk frequently with investors across the country who want to invest near me. Usually I warn them away but now I am taking a new perspective. They might be smarter and more experienced than me and I’m always trying to learn.
“If you’re going through hell, keep going.”
― Winston Churchill
Who We Are
Cardinal Oak Investments acquires, improves, and manages under-valued commercial apartments. We buy B and C class properties of around 100 units in the Southeast and Midwest.
We look for properties whose amenities, aesthetics, and appeal have fallen into obsolescence, whose care reflects tired management, and whose location is where a stable workforce wants to live.
And we partner with like-minded investors looking for stable assets that produce good cash flow and strong appreciation.
Founded and managed by John Todderud, Cardinal Oak Investments has acquired properties on both coasts and in between creating annual double-digit returns.
For more information, schedule time with me or send an email to john@cardinaloak.com.
Please note: Past performance is no indication of future performance.