Biting off more than we can chew? 3 at once to start?

Question

So, we are in the middle of starting to look at some multi-family properties, and our goal is still to buy one in the coming months.  2 friends have also offered us great deals on their personal homes.  One was an inherited home, which I could buy for around 20k under property value, with owner financing the down payment (I like the idea of no money out of our pockets--wasn't sure if that was really feasible).  Seems like a no-brainer.  My buddy is transferring from St. Louis to Florida for work and offered his house to me, fully furnished for 55k.  Value I would say is around 65ish. 3br, 1 bath, all wood floors, nice little house. Also sounds like a great deal.

SO would we be crazy to try and go from zero rentals to 2 sfr's and 1 multi all at the same time?  The four of us (wife and cousin/wife) are all a bit nervous about buying 1, now we could feasibly buy three!  This is exciting and would be a great start to us investing, but I wanted to get some opinions.  Is this too much to fast?  It seems like a great opportunity, but I really don't want to be in over our heads from the beginning.

Thanks!
DJ

Rick H. · Answer

There's nothing like total immersion to become Baptized as a landlord IF you're willing to tackle the tasks at hand.

Here's what you'll need to do in short order:

Crash course on landlord/tenant laws in your state

Set up (separate) systems for marketing for target tenants, screening/vetting prospects, easy rent collection, bookkeeping, contractor/handyman management, etc.

The three best educational resources I can offer:

Fixer Jay Decima, of 'Tenants & Toilets' fame (lower-end), Mike Cantu for mid-range tenant management, and David Tilney for the higher end of the market. All are very good and are the real deal.

Leon Y. · Answer

Check whether you have enough cash reserves to take on all three. You may get a lot of headaches in the beginning trying to manage properties but its the only way to learn. On the other hand, if you have a really thin reserve, then you may not be able to handle emergencies and vacancies and that can be extremely stressful and dangerous.

Frankie Woods · Answer

Oh, and NA Cummins , I would recommend taking the 2 single family homes.  Especially, if you have the reserves set aside after making the down payments.  Finding motivated sellers is the name of the game in this business and it looks like you've had that land flat in your lap.  Take advantage of it!

Andy Collins · Answer

With your first property most of us learned a LOT, then quite a bit with the second, etc.

I am glad I finished my first, got it rented and had that experience before I jumped to the second,,I knew somethings I had done with the first I wouldn't do with the second.

I still learn, and that knowledge helps me make every purchase/rehab/renting better (hopefully anyway),,,,do what you think is best, but I know it would have been better for me to learn from the first before moving to the second

Andrew Syrios · Answer

I had a friend jump in to quickly and bought three fourplexes that looked great on paper, but the area was much worse than he originally thought. He was able to sell one at a loss but lost the other two back to the bank. I would start slow and make sure the strategy is working (or at least there is good evidence it is working).

Matt Inman · Answer

It really depends on the person(s), if this is something you have never done before then it can be a bit overwhelming.  I started with 1 at a time and am starting to Ramp up, I will have 2 rehabs going on in the next few weeks.  It helps to keep things organized, and keep track of everything.  With 4 of you it may be easier, just get a good separation of jobs and make sure you each know what you are responsible for.  My wife and I talk constantly about the projects and have a planing meeting on Sunday on what we want to do for the week.

You may also consider Wholesaling one of the properties.  If they are good deals that might give you some quick cash for one of the other projects.

Marcia Maynard · Answer

Thanks Rick H. for turning me onto those three guys. Here is a link to a bit of Mike Cantu's philosophy for those who want a quick tip!

http://www.youtube.com/watch?v=S1nIFk2GTVk

Frankie Woods · Answer

@Andrew Syrios , great advice!  I am currently in the process of "seasoning" a property I bought in STL in a "fringe" neighborhood.  It's currently being rehabbed by a property management firm that has promise, but with which this is my first experience.  Fingers crossed!

Ashton Astillero · Answer

TL;DR  Buy the 2 SFRs. See what you learn. Proceed based on what you learned.

I think we need more context to help.  A few things that I think are worth pointing out.

With the 2 SFRs being sold to you by friends, they'll be bought at a discount and requiring very little repairs. If they're well taken care of, capital expenditures are hopefully close to none. Except maybe to update the water heater just to make sure that they wont break down shortly after a tenant moves in.

Saint Louis is nearby which tells me that you can target a healthy amount of renters that work downtown. Renters that hopefully have a steady and long term job

You have 9-5 so that means you'll have your business partners to help with the leg work or you want things to be as passive as you can. If you want it passive, start looking for a property manager as soon as you can and factor it in in your cashflow equation.

If you want to handle the property management, I'd sit down with a RE attorney to educate you regarding landlord-tenant laws and help you put together your lease and screening clauses. Prepare a landlord-tenant talk to communicate expectations from either parties. I'd ask around BP for reputable investor friendly contractors for maintenance.

I don't know the St Louis market at all, but if your area is similar to mine being near Chicago, I don't see any reason why your units won't be filled with tenants almost immediately other than maybe if the rent is too high.

With the above being said, if you're going the passive route. I'd buy the 2 SFRs and have the PM do most the work. If you're happy with the PM, then proceed with the multi. If you're going to be the landlord, I'd still buy the 2 SFRs and move tenants in. Wait about 3-6 mo. or until I think I've established a relationship with my tenants to say that they're "stable." Then I'd buy the multi.

Ryan Dossey · Answer

Dj being in Stl myself I think for me it would depend on the area the properties are located in.

Biting off more than we can chew? 3 at once to start?

Most Popular Reply