BiggerPockets

Hello all!

I'm currently a senior in an engineering program, and at the end of this spring, I'll be looking for a place to stay. After I graduate, I'd like to purchase a small multifamily home, possibly a fixer-upper, and live in one side while I rent the other. Firstly, what do you think of this strategy as a way to get into the rental market? I currently have about $7k in the bank to start out with.

Secondly, I've found a multi-family home in a neighborhood close to the college that is very similar to what I'm looking for. The neighborhood looks rough, but the property is one block away from a police station. You can see the back of it from the house. I don't know the exact crime stats for this area, but from what I can tell, most of the folks that live around the campus are low-income and college students. How do you think this will impact the value of the property/the rent that I can expect from renting the other side? The property is 1,100 ft^2, 4 bed, 2 bath. Zillow has it estimated at $55k. Sign out front says for sale by owner.

Any thoughts would be great!

Drew

i would get in touch with a realtor to see if they can provide FMV of units of similar type in the area and also what rents are going for. i wouldn't trust zillow since i think they pull the value from the tax appraisals which can be far off at times.

as far as low income neighborhoods i wouldn't let that deter you from investing in those areas. some of the sfh's in the low income neighborhoods that i have are out performing the ones that are not. i would talk to neighbors, drive by at night, or pull crime reports to see what type of activity goes on in the neighborhood.

Definitely look into getting a FHA, since you plan on occupying the other side. You shouldn't have a problem renting it out due to its proximity to a college. If you do buy a fixer upper, just rehab it, bring it back up to market value, get an equity line credit of the difference and leverage that into another fixer upper, rinse and repeat, that is of course if you're trying to do this to the fullest.

Cheers.

Sounds like it could work out to be a nice deal if you get a place to live and have a renter pay your mortgage payment and possibly other expenses. The only thing I would be hesitant on is if the area is that bad/dangerous will you feel comfortable living there?

Peace of mind and safety is more important than money

Look up 50% rule here on BP and study the heck out of it, including the various opinions regarding the "rule". Start educating yourself on what the rent comps are in the area. This should be as easy as driving around the area and calling for-rent signs and asking how many beds. baths, utilities included or not (you should find our if your potential property has seperate meters or not also)and how much the rent is. If you can see the police station from the back door, I wouldn't worry about my safety right at the house. You are already aware it is a less than desireable area and are still considering the area, so your decisions should be based more on cash flow and exit strategy.

When I first looked into investing in real estate (I only have one SFH in a low income neighborhood right now) It was pointed out that one of the biggest disadvantages of multi-unit properties is that your buyer's pool is WAY limited when you want to sell. If you invest in a SFH, you have a bigger pool to sell to and can more easily sell at retail, whereas *usually* only investors are looking at muti units and most investors are going to only be buying if there is a big discount. So that means you have to get it at a big discount just to break even upon your exit. And it can take longer to unload. But if it is cheap enough and generates enough cash flow, the cons in the deal could be outweighed.

Another con is that low income properties require more attention (usually), so if you want to move, you will have to be sure you can get a PM that you can trust. And the property will need to cash flow even if you aren't around to do stuff yourself. I am an engineer as well, and, given this economy, mobility can be a huge asset to a young EIT's career. Not saying you will have to move, just a consideration.

What to look for in an owner financed deal is that the numbers work out so tha the property is profitable. Try to get no down payment and no interest payments and negotiate from there. If the terms the seller will agree on aren't conducive to good cash flow - don't do owner financing. You definitely have the skills to do this analysis. Just make sure to account for all the "details".

Drew,
You may want to check out this article: [REMOVED]

I basically feel that troubled neighborhoods are outstanding emerging market investment plays IF you're willing to care about people. Tough neighborhoods are great for double bottom line investors.

@Brian What I'd like to do (again, let me know what you guys think about it) is to purchase the property as a long play. I'll live in it for a few years, get it repaired and established with a tenant on the one side, and fully paid for. Once that happens, I'll find another rental to do the same to. Fix it up, live in it a while, find a tenant for it, and then shop around for another property once it's paid for. Rinse and repeat. I don't intend to sell for a while, if I can help it.

This way I'll be familiar with all the quirks in the property, I'll have ample time to fix it up without having to worry about finding a tenant, or about making several different mortgage payments. There's not much campus housing at the university, so there's a fairly consistent demand for rentals in the area.

@Gerv You're right; there's still a lot of information I need to find out before I can know if it's a property worth pursuing. I checked the county's website, and the last appraisal (2010) was $33k. The owner doesn't live at the address, either. I think one side was rented, and from what I could tell, the other was vacant.

@Al I hadn't realized it until I really started reading BP posts and articles, but investing in rough parts of town really is a community service. Landlords get a terrible rap when in reality they're often the ones putting the most effort into getting properties and neighborhoods looking nice again. That's what I'd like to do with this one, and hopefully others in the future.

@Gillespie Ideally I'd like to pay cash, and if I'm able to get a decent job out of school (cross fingers) I'll probably end up doing just that. I wouldn't say the area is a war zone, although there are areas about 1-1.5 miles away that are pretty bad. There's a reason a police station is in the area. I've been going to school around there taking night classes, so I'm pretty comfortable with the area.

I'm planning on calling the guy tomorrow sometime and I'd like to ask him if I can see the property. What are some things that I definitely need to ask? What are some red flags to watch for? If there is a tenant in the property, how will that affect a deal if I decide that the property is worth pursuing?

You guys are great! Thanks for the fantastic information!

Drew