About to buy my first multifamily. Approved for $1M. Right track?
Goal:
Build portfolio of 6 units (4FAM+2FAM or 3FAMx2)
Make enough money to live off
Budget: $600-$1M
So I'm really pushing hard to get a quadplex. I'd like some insulation (1 empty unit, still have multiple rents coming in) from vacancy. Going to do 3.5% down at 3.5% interest rate.
Please take a look at my numbers below and tell me if they make sense to you. $1k profit in year 1, then $3k when I move out and it's fully rented does not sound right to me. Maybe I'm just missing that much of that money will need to go to reserve fund and also to any repairs needed. Then with 3-4 tenants, that is 4 times the problems potentially. For example, what if unit 1 & 2 have plumbing issues?
| Yonkers | $800,000 | Loan |
| Mortgage | $4,550.00 | $770,000 |
| Deposit | $30,000.00 | |
| Unit 1 | $2,100.00 | |
| Unit 2 | $1,900.00 | |
| Unit 3 | $1,900.00 | |
| Unit 4 | $1,900.00 | |
| Total Gross | $7,800.00 | |
| 1st year NET | $1,350.00 | $16,200.00 |
| 2nd year NET | $3,250.00 | $39,000.00 |
| GROSS | $93,600.00 | |
| 8.23 |
@Orlando Goodon I'd slow down and look at the bigger picture of real estate investing.
"that is 4 times the problems potentially. For example, what if unit 1 & 2 have plumbing issues?" - If you're asking this question you're either not financially stable or leveraging too much. I'd never move out of the property without reserves if this will be a house-hack turned buy/hold. The idea of buying a $800K 4-unit property (hard to find) with $30K sounds impossible. No offense. Every market is different and location, location, location, but we all know how heated multi-family is and most sell off market or very quick on market. Not trying to discourage you just be ready for that reality.
I also encourage you create more detailed spreadsheets if you're not already. The numbers you provided don't even scratch the surface of what investors use to make smart choices for buying and selling. You can find tons of threads on running numbers for investment properties in the search bar.
Originally posted by @Jaron Walling:@Orlando Goodon I'd slow down and look at the bigger picture of real estate investing.
"that is 4 times the problems potentially. For example, what if unit 1 & 2 have plumbing issues?" - If you're asking this question you're either not financially stable or leveraging too much. I'd never move out of the property without reserves if this will be a house-hack turned buy/hold.
Hi Jaron, thanks for the information. I'm not sure about your question/statement though. Why did you highlight my pointing out that with multiple units your risk factors multiply? If I have a single family there is only one set of problems. For every unit that is another toilet blockage or tenant flooding or heater going out to deal with. This applies regardless of your finances. If my networth is $2M and I make net $50k/month, that is still true. I was simply trying to wrap my head around the risk difference between single and multiple which might explain why none of my credit unions will finance these. To me it seem less risk, but I'm starting to realize there is potentially more risk.
Imagine a person gets one and they are not good at it. Maybe they don't keep enough reserve on hand, don't plan ahead for a new roof, heater and who knows what. Before you know it, expenses are pilling up and tenants are unhappy. Then you start getting vacancies. Soon you have $3000/mo mortgage to pay with empty units and you can't afford it, then you default. With a single unit, it's one tenant, one plumbing heating and whatever. Anything that can happen in one unit would increase in probabilities equal to number of units. Extrapolate to a person with 1000 units. Now probabilities are so high you need a management company as you can have dozens or even hundreds of units that need repair at once.
I'll make up my own word. You have a unit risk which is equal to unit numbers. 4 family is 4 times as risky, based on that type of risk. Especially for a sell managed setup like mine.
I need to look around for common mistakes new investors make and see. No need for me to have to learn the hard way when I can benefit from others mistakes.
@Orlando Goodon Don't buy an $800K property with $30K.
The odds of a lender approving that loan are low unless you have cash reserves upfront or other assets to leverage. I'm no expert in lending but that is my experience.
I'm already approved for over a million. Letter in hand. I'm starting to go look at properties to find something I want to make an offer on. So I'm past the money loan part and into the cap rate discussion. I need to target the right rental market relative to the mortgage and potential expenses. I'm not trying to account for expenses beyond the mortgage. I bought the BiggerPockets book so hopefully it has some good numbers to look at so I know what a good deal looks like vs a bad one.
Thanks again for feedback Jaron.